<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
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OF 1934 $250.00 FEE REQUIRED
For the fiscal year ended December 31, 1995
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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ACT OF 1934 NO FEE REQUIRED
Commission file number 33-14051
FAMILY RESTAURANTS, INC.
INCORPORATED IN DELAWARE I.R.S. Employer Identification
No. 33-0197361
18831 Von Karman Avenue, Irvine, CA 92715
Telephone: (714) 757-7900
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None.
Indicate by a 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 the filing
requirements for at least the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 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
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Index to exhibits appears on page 37.
The common stock of the registrant is not publicly traded. Therefore, the
aggregate market value of voting stock held by non-affiliates is not readily
determinable.
Number of shares of outstanding common stock as of March 29, 1996 is 988,285.
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FAMILY RESTAURANTS, INC.
PART I
Item 1. BUSINESS
BACKGROUND
Family Restaurants, Inc. (formerly known as The Restaurant Enterprises
Group, Inc.) was incorporated in Delaware in 1986 and through its subsidiaries
is primarily engaged in the operation of full-service restaurants throughout the
United States. At December 31, 1995, the Company operated 670 restaurants in 33
states, with approximately 53% of its restaurants located in California.
Additionally, as of December 31, 1995, the Company was the licensor of 255
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 18 Mexican restaurants outside the United States. See
"--Franchised and Licensed Restaurants."
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
December 31, 1995, the Family Restaurant Division included 349 moderately-priced
family-oriented restaurants operated primarily under the Coco's and Carrows
names, and the Mexican Restaurant Division operated 300 full-service restaurants
primarily under the Chi-Chi's, El Torito and Casa Gallardo names. The Company
also operated 21 additional restaurants under other formats.
On January 27, 1994 (the "Closing Date"), Apollo FRI Partners, L.P.
("Apollo"), Green Equity Investors, L.P. ("GEI") and Foodmaker, Inc.
("Foodmaker") acquired approximately 98% of the then outstanding common stock,
par value $.01 per share (the "Common Stock") of the Company (the
"Acquisition"). Concurrently, Chi-Chi's, Inc. ("Chi-Chi's") was merged with a
subsidiary of the Company (the "Chi-Chi's Merger"). See "--The Acquisition." On
November 20, 1995, Apollo entered into an Exchange Agreement with Foodmaker and
GEI, pursuant to which, among other things, (i) on December 20, 1995 Foodmaker
transferred all of the shares of the Company's Common Stock, par value $.01 per
share (the "Common Stock") and the Warrant (as defined below) owned by it to
Apollo and (ii) on November 20, 1995, GEI transferred 19,609 shares of the
Common Stock held by it to Apollo. See "--Change in Control."
On March 1, 1996, the Company entered into a definitive agreement to
sell its Family Restaurant Division to an indirect wholly-owned subsidiary of
Flagstar Companies, Inc. ("Flagstar") in a transaction with an enterprise value
of approximately $306.5 million, subject to certain post-closing adjustments
based on a closing balance sheet, with consideration consisting of cash and
notes and the assumption of certain capitalized lease obligations (the "FRD
Sale"). Consummation of the FRD Sale is subject to
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customary terms and conditions. See "--Sale of Family Restaurant Division."
Unless the context otherwise requires, reference to the "Company"
refers to The Restaurant Enterprises Group, Inc. and its consolidated
subsidiaries (not including Chi-Chi's) when used with respect to historical
information relating to periods prior to January 27, 1994 included herein, and
refers to Family Restaurants, Inc. and its consolidated subsidiaries, giving
effect to the Acquisition, the Chi-Chi's Merger and related transactions and the
Strategic Divestment Program described below, when used with respect to
information relating to periods after January 27, 1994.
FAMILY RESTAURANT DIVISION
The Family Restaurant Division included 349 restaurants as of December
31, 1995 operating principally under the Coco's and Carrows concepts,
approximately 74% of which are located in California. The restaurants are
typically open either 18 or 24 hours a day and offer a menu of moderately priced
breakfast, lunch and dinner items with an average food check per person
(excluding alcoholic beverage sales) of approximately $6.73 for Coco's and $6.08
for Carrows. Coco's and Carrows restaurants generally contain from 5,000 to
6,000 square feet of floor space and accommodate approximately 95 to 180 guests
in the restaurant. See "--Sale of Family Restaurant Division."
MEXICAN RESTAURANT DIVISION
The Company operated 300 Mexican restaurants primarily under the
Chi-Chi's, El Torito and Casa Gallardo names as of December 31, 1995. The
Company is the largest operator of full-service Mexican restaurants in the
United States, based upon both number of restaurants and annual revenues.
The Chi-Chi's, El Torito and Casa Gallardo restaurants serve moderately
priced, high-quality Mexican food and a wide selection of alcoholic beverages.
The average food check per person (excluding alcoholic beverage sales) is
approximately $7.78 for Chi-Chi's, $8.91 for El Torito and $8.00 for Casa
Gallardo restaurants. Chi-Chi's restaurants generally contain from 5,000 to
10,600 square feet of floor space and accommodate approximately 200 to 400
guests in the restaurant and lounge. El Torito restaurants generally contain
from 8,000 to 10,000 square feet of floor space and accommodate approximately
300 to 400 guests in the restaurant and lounge. The Company's Mexican
restaurants are generally located in freestanding buildings in densely populated
suburban areas, and the Company believes their festive atmosphere and moderate
prices are especially appealing to family clientele.
OTHER RESTAURANTS
The Company operated 21 traditional dinnerhouses in California as of
December 31, 1995, primarily under the Charley Brown's and Reuben's names. The
traditional dinnerhouses are no longer a part
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of the Company's core operating strategy and are being marketed for sale as both
a combined group and individually. The restaurants currently being operated
generally have excellent locations and positive cash flow before certain
unallocated corporate overhead.
SITE SELECTION
The selection of sites for new restaurants is the responsibility of the
senior management of each of the Company's operating divisions. Typically,
potential sites are brought to the attention of the Company by real estate
brokers and developers familiar with its needs. Sites are evaluated on the basis
of a variety of factors, including demographic data, land use and environmental
restrictions, competition in the area, ease of access, visibility, availability
of parking and proximity to a major traffic generator such as a shopping mall,
office complex, stadium or university.
EMPLOYEES
At December 31, 1995, the Company had approximately 42,500 employees,
of whom 39,400 were restaurant employees, 2,600 were field management and 500
were corporate personnel. Upon the completion of the FRD Sale, the Company
estimates it will have approximately 25,400 employees. Employees are paid on an
hourly basis, except restaurant managers, corporate and field management and
administrative personnel. Restaurant employees include a mix of full-time and
part-time, mostly hourly personnel, enabling the Company to provide services
necessary during hours of restaurant operations. The Company has not experienced
any significant work stoppages and believes its labor relations are good.
COMPETITION AND MARKETS
The restaurant business is highly competitive and is affected by
changes in the public's eating habits and preferences, population trends and
traffic patterns, and local and national economic conditions affecting consumer
spending habits. Key competitive factors in the industry are the quality and
value of the food products offered, quality and speed of service, advertising,
name identification, attractiveness of facilities and restaurant location. The
Company's restaurants compete with a wide variety of restaurants ranging from
national and regional restaurant chains to locally owned restaurants.
GOVERNMENT REGULATION
Each of the Company's restaurants is subject to Federal, state and
local laws and regulations governing health, sanitation, environmental matters,
safety, the sale of alcoholic beverages and regulations regarding hiring and
employment practices. The Company believes it has all licenses and approvals
material to the operation of its business, and that its operations are in
material compliance with applicable laws and regulations.
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The Company is subject to Federal and state laws governing matters such
as minimum wages, overtime and other working conditions. At December 31, 1995,
approximately 47% of the Company's employees were paid at rates related to the
minimum wage. Therefore, increases in the minimum wage or decreases in the
allowable tip credit (which reduces the minimum wage that must be paid to tipped
employees in certain states) increase the Company's labor costs. This is
especially true in California, where there is no tip credit.
The Company is also subject to both Federal and state regulations
governing disabled persons' access to its restaurant facilities, including the
Americans with Disabilities Act ("ADA"), which became effective in January 1992.
If the ADA were interpreted to require a higher degree of accessibility for
disabled persons than presently established, it could have a significant
economic impact on the Company, inasmuch as such interpretation could require
the Company, and the restaurant industry as a whole, to make substantial
modifications to its restaurant facilities.
Currently, the Company franchises only nine restaurants in the United
States. However, the Company is currently evaluating opportunities to franchise
its El Torito concept. See "--Franchised and Licensed Restaurants." The Company
believes its nine franchises are operating in substantial compliance with
applicable laws and regulations governing such operations.
TRADEMARKS AND SERVICE MARKS
The Company regards its trademarks and service marks as important to
the identification of its restaurants and believes that they have significant
value in the conduct of its business. The Company has registered various
trademarks and service marks with the United States Patent and Trademark Office.
In addition to its Federal registrations, certain trademarks and service marks
have been registered in various states in which the Company operates
restaurants. Also, many of the Company's menus, training manuals and other
printed manuals utilized in conjunction with its business are copyrighted.
Certain trademarks and service marks will be transferred to Flagstar in
connection with the FRD Sale.
FRANCHISED AND LICENSED RESTAURANTS
Pursuant to a Technical Assistance and License Agreement dated as of
December 13, 1979 (the "1979 License Agreement"), Coco's Japan Co., Ltd.
("CJCL") was granted the exclusive right to use the Company's Coco's family
restaurant concept in Japan, and in connection therewith, CJCL and certain of
its sublicensees opened 194 Coco's restaurants in Japan. In April 1995, Coco's
Restaurants, Inc., an indirect subsidiary of the Company, entered into a
Technical Assistance and License Agreement (the "Licensing Agreement"), which
(i) extends, until February 2010, CJCL's exclusive right to use the Company's
Coco's family restaurant concept in Japan and (ii) grants CJCL the right to
develop the
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Company's El Torito Mexican restaurant concept in Japan. At December 31, 1995,
CJCL operated 220 Coco's and four El Torito restaurants in Japan.
Pursuant to the 1979 License Agreement, CJCL granted a sublicense to
Midopa Co., Ltd. ("Midopa") to develop, until mid-1997, the Coco's concept in
South Korea. The Licensing Agreement extends CJCL's right to sublicense the
development by Midopa of the Coco's concept in South Korea; provided, that if
CJCL and Midopa do not enter into a new sublicense agreement on or before
December 31, 1996, CJCL's right to sublicense development of the Coco's concept
in South Korea is terminated. At December 31, 1995, Midopa was operating 31
restaurants under the Coco's name in South Korea.
In 1990, the Company established CFC Franchising Company to market
domestically Coco's family restaurant concept franchises. Six such Coco's
franchised restaurants have been opened. At December 31, 1995, Chi-Chi's had
entered into franchise agreements with three individuals or entities covering
limited portions of one state, the Province of Quebec and all other
international markets, excluding Canada, and El Torito Restaurants, Inc. ("El
Torito") had entered into a franchise agreement with one entity covering New
York City. Under these franchise agreements, three restaurants are operated in
the United States and 18 restaurants are operated in other markets. The Company
is not currently offering additional franchises or additional territories in the
United States. However, the Company is currently evaluating additional domestic
and international opportunities to franchise its El Torito concept.
Franchise and license fees were $4,824,000 for the year ended December
31, 1995, $6,041,000 for the eleven months ended December 25, 1994 (including
Chi-Chi's fees subsequent to the Acquisition), $546,000 for the one month ended
January 26, 1994 and $4,942,000 for the year ended December 26, 1993, of which
84%, 87%, 82% and 94%, respectively, were from CJCL and its sublicensees.
Related costs were not significant. The Company owns no assets located overseas.
THE ACQUISITION
The Acquisition involved the following components and related
transactions, all of which (unless otherwise noted) were consummated on the
Closing Date:
New Equity Investment. Apollo, GEI, Foodmaker and certain officers of
the Company made a $154.7 million new equity investment (the "New Equity
Investment") in the Company pursuant to the Acquisition Agreement, dated as of
October 15, 1993, among the Company, Apollo, GEI, Foodmaker and Chi-Chi's (as
amended, the "Acquisition Agreement") and the Employee Stock Purchase (as
defined below). Apollo purchased 40.0% of the Common Stock outstanding
immediately following the Closing Date for $62.3 million in cash, and GEI
purchased 18.4% of the Common Stock outstanding immediately following the
Closing Date for $28.8 million in cash. Foodmaker acquired 40.0% of the Common
Stock
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outstanding immediately following the Closing Date, with a value of $62.3
million, in the Chi-Chi's Merger.
Chi-Chi's Merger. The Company acquired Chi-Chi's, a wholly-owned
subsidiary of Foodmaker and the operator, directly or indirectly through its
subsidiaries, or franchisor of 235 full-service Mexican restaurants, through a
merger of a newly-formed subsidiary of the Company with Chi-Chi's. Foodmaker
received (i) $205.0 million in cash, less the principal amount of capital leases
and the face amount of certain indebtedness of Chi-Chi's existing or assumed by
the Company in connection with the Chi-Chi's Merger, (ii) 389,634 shares of
Common Stock and (iii) a warrant to purchase, at an aggregate exercise price of
$26.7 million, 10% of the Common Stock outstanding assuming the full exercise
thereof (the "Warrant").
Credit Facility. The Company, FRI-M Corporation (formerly known as
REG-M Corp.), a wholly-owned subsidiary of the Company ("FRI-M"), and certain
subsidiaries of FRI-M (the "Subsidiary Guarantors") entered into a $150.0
million five-year fully revolving credit facility (the "Credit Facility") with a
$100.0 million sub-limit for standby letters of credit to be used for general
corporate purposes, including working capital and capital expenditures.
Borrowings under the Credit Facility are made by FRI-M. Such borrowings are
guaranteed by the Company and the Subsidiary Guarantors and are secured by
substantially all of the assets of such subsidiaries and by a pledge of the
stock of FRI-M and the Subsidiary Guarantors. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital
Resources" for a discussion of certain limitations to the total commitment
available under the Credit Facility.
Prepackaged Plan. The Company and REG-M Corp. commenced Chapter 11
cases on November 23, 1993, and a prepackaged joint plan of reorganization (the
"Plan") was confirmed by the United States Bankruptcy Court for the District of
Delaware on January 7, 1994. On the Closing Date, substantially all of the
Company's old debt and equity securities were cancelled and extinguished through
consummation of the Plan and holders thereof received cash distributions as
follows. For each $1,000 principal amount of 12 1/4% Senior Subordinated Notes
due 1996 (the "Old Senior Subordinated Notes"), holders received $939.26 in cash
plus an additional cash amount equal to interest accrued on $939.26 from May 19,
1993 to the Closing Date at a rate equal to 10.05% per annum (the "Accrual
Rate"). For each $1,000 principal amount of 12 3/4% Subordinated Notes due 1998
(the "Old Subordinated Notes" and, together with the Old Senior Subordinated
Notes, the "Old Notes"), holders received $646.18 in cash plus an additional
cash amount equal to interest accrued on $646.18 from May 19, 1993 to the
Closing Date at the Accrual Rate. For each share of 12% Cumulative Exchangeable
Preferred Stock (the "Preferred Stock"), holders received $17.88 in cash and for
each share of Class D Common Stock (the "Old Common Stock"), holders received
$.50 in cash.
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Employee Stock Purchase and Management Incentive Plan. In connection
with the Acquisition, the Company adopted a new management incentive plan,
pursuant to which certain officers and employees of the Company were granted the
right to purchase up to 40,900 shares of Common Stock (constituting up to 4.1%
of the Common Stock outstanding immediately following such purchases) at $160
per share (the "Employee Stock Purchase"), the same per share price paid by
Apollo and GEI in the New Equity Investment. The Employee Stock Purchase was
consummated on the Closing Date with respect to certain officers (15,625 shares
of Common Stock) and on May 19, 1994 and July 31, 1994 with respect to the other
participants (22,552 shares of Common Stock). No more than fifty percent of the
purchase price was authorized to be financed through interest-bearing recourse
notes payable to the Company. The Company has repurchased 8,992 shares of Common
Stock due to employee terminations, leaving 29,185 shares currently owned by
management stockholders and terminated employees. The individuals who purchased
Common Stock were also granted options to purchase 20,822 shares of Common Stock
in the future at an exercise price initially set at $160 per share. The Company
also granted options to purchase approximately 30,000 shares of Common Stock to
approximately 800 other employees.
Strategic Divestment Program. In the first quarter of 1993 the Company
announced a program (the "Strategic Divestment Program") to strategically divest
itself of 169 restaurants in order to (i) eliminate restaurants with negative
cash flow, (ii) exit all but the best traditional dinnerhouse locations and
(iii) focus on the Company's family and Mexican restaurants in the six Western
states of California, Arizona, Washington, Oregon, Nevada and New Mexico.
In connection with the Acquisition, the Company reduced by 60
restaurants (from 169 to 109) the number of restaurants to be divested under the
Strategic Divestment Program. Two additional restaurants were added to the
program in late 1993. Also, in connection with the Chi-Chi's Merger, 11 poor
performing restaurants were designated for divestment. As of December 25, 1994,
77 properties had been divested, leaving 45 properties remaining to be divested
(including eight properties that were closed). Because the Strategic Divestment
Program was scheduled for completion at the end of fiscal 1994, all remaining
restaurants identified for divestment that were operating at the end of fiscal
1994 were included in operations in 1995, although several of the restaurants
continue to be marketed and sold.
CHANGE IN CONTROL
On November 20, 1995, Apollo entered into an Exchange Agreement with
each of Foodmaker and GEI (the "Exchange Agreements") pursuant to which, among
other things, (i) on December 20, 1995 Foodmaker transferred all of the shares
of the Common Stock and the Warrant held by it to Apollo, (ii) on November 20,
1995 GEI transferred 19,609 shares of the Common Stock held by it to Apollo and
(iii) the Shareholders' Agreement, dated as of
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January 27, 1994, by and among Apollo, GEI and Foodmaker (the "Shareholders'
Agreement") was terminated as between themselves and the Company. In connection
with the foregoing, Jackson W. Goodall, Jr., Charles W. Duddles and Edward
Gibbons, the three members of the Company's Board of Directors (the "Board")
nominated by Foodmaker pursuant to the Shareholders' Agreement, and Leonard I.
Green and Jonathan D. Sokoloff, the two members of the Board nominated by GEI,
resigned from the Board and from each other position, if any, held with the
Company or its subsidiaries. The foregoing transactions were consummated after
the lenders under the Company's Credit Facility, in connection with their
consent to an amendment thereto, required certain of the Company's shareholders
to purchase a participation in certain loans under such agreement. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources." Apollo agreed to purchase such
participation and, in consideration therefor, Foodmaker and GEI agreed to
transfer the shares of Common Stock and the Warrant as set forth above.
Prior to the consummation of the foregoing transactions, Apollo, GEI
and Foodmaker, the Company's three largest shareholders, held approximately 39%,
18% and 39%, respectively, of the Company's Common Stock, and pursuant to the
terms of the Shareholders' Agreement, controlled the Company. Upon consummation
of the foregoing transactions, Apollo, GEI and Foodmaker held approximately 81%,
16% and 0% of the Common Stock, respectively. Consequently, Apollo, through its
ownership of the Common Stock, controls the Company.
SALE OF FAMILY RESTAURANT DIVISION
On March 1, 1996, the Company entered into a definitive agreement (the
"Sale Agreement") to sell the Family Restaurant Division to an indirect
wholly-owned subsidiary of Flagstar in a transaction with an enterprise value of
approximately $306.5 million. Consummation of the FRD Sale is subject to
customary terms and conditions.
Under the terms of the Sale Agreement, the Company will receive,
subject to certain post-closing adjustments based on a closing balance sheet,
cash of $125 million and $150 million principal amount of 12-1/2% Senior Notes
due in 2004 (the "Flagstar Notes"), and Flagstar will assume $31.5 million of
long-term debt, primarily capitalized lease obligations. In addition, Flagstar
is required to (i) file a registration statement with the Securities and
Exchange Commission with respect to the resale of the Flagstar Notes within 45
days after the date of original issuance of the Flagstar Notes and (ii) use its
best efforts to cause such registration statement to become effective within
105 days after such issue date. In connection with the sale, the Company
(including one of its subsidiaries) has agreed, subject to certain
limitations, to indemnify Flagstar against certain losses if they occur,
primarily relating to events prior to the closing. Flagstar has agreed to
indemnify the Company, with certain exceptions, for certain events occurring
after the closing. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital Resources."
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Item 2. PROPERTIES
Of the 670 restaurants operated by the Company as of December 31, 1995,
the Company owned the land and building for 58, owned the building and leased
the land for 101 and leased both land and building for the remaining 511
restaurants. Most of the restaurants are free-standing units ranging from
approximately 5,000-6,000 square feet for a family restaurant to approximately
5,000-10,000 square feet for a Mexican restaurant. Most of the leases provide
for the payment of a base rental or approximately 5% to 6% of gross sales,
whichever is greater, plus real estate taxes, insurance and other expenses.
The leases (assuming exercise of all options) have terms expiring as
follows:
<TABLE>
<CAPTION>
Number of
Lease Expiration Restaurants
---------------- -----------
<S> <C>
1996-2000 39
2001-2005 158
2006 and later 415
---
Total 612
===
</TABLE>
In addition, the Company owns (i) a 110,000 square-foot building in
Irvine, California which houses El Torito operations staff, certain support
personnel for the Company, a central commissary and a warehouse and (ii) a
43,120 square-foot building in Irvine, California which houses support personnel
for the Company. The Company also leases (i) a 53,000 square-foot building in
Irvine, California which houses the Family Restaurant Division, the Company's
headquarters personnel and certain support functions of the Company, (ii) a
62,000 square-foot building in Louisville, Kentucky which houses the Chi-Chi's
operations and support functions and (iii) various other smaller offices and
warehouses. The 110,000 square-foot owned building and the 53,000 square-foot
leased building, along with various other smaller offices and warehouses, will
be transferred to Flagstar in connection with the FRD Sale.
Substantially all of the Company's assets have been pledged under the
Credit Facility. However, of the 159 owned restaurants at December 31, 1995
(building or land and building), 18 were subject to security interests in favor
of other third parties.
The following table details the Company-operated restaurants by
division and state of operation as of December 31, 1995.
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<TABLE>
<CAPTION>
Total
Traditional Number of
State Family* Mexican Dinnerhouse Restaurants
- ----- ------- ------- ----------- -----------
<S> <C> <C> <C> <C>
California 259 78 21 358
Ohio 0 32 0 32
Arizona 26 2 0 28
Pennsylvania 0 25 0 25
Texas 25 0 0 25
Indiana 3 18 0 21
Illinois 0 20 0 20
Michigan 0 17 0 17
Missouri 2 10 0 12
Oregon 9 3 0 12
Wisconsin 0 12 0 12
Maryland 0 11 0 11
Virginia 0 11 0 11
Minnesota 0 9 0 9
Nevada 8 0 0 8
Washington 7 1 0 8
Colorado 6 1 0 7
Kentucky 0 7 0 7
New Jersey 0 7 0 7
Iowa 0 6 0 6
New York 0 6 0 6
Florida 0 5 0 5
New Mexico 4 0 0 4
Kansas 0 3 0 3
Massachusetts 0 3 0 3
West Virginia 0 3 0 3
Delaware 0 2 0 2
North Carolina 0 2 0 2
North Dakota 0 2 0 2
Connecticut 0 1 0 1
Nebraska 0 1 0 1
South Carolina 0 1 0 1
South Dakota 0 1 0 1
--- --- -- ---
Total 349 300 21 670
=== === == ===
</TABLE>
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* To be sold to Flagstar - See "BUSINESS--Sale of Family Restaurant Division."
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Item 3. LEGAL PROCEEDINGS
The Company is involved in various litigation matters incidental to its
business. The Company does not believe that any of the claims or actions filed
against it will have a material adverse effect upon the consolidated financial
position and results of operations of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for the Common Stock.
At March 29, 1996, there were 92 stockholders of record of Common
Stock. No other class of stock was outstanding as of that date. No dividends
have been paid by the Company to its common stockholders.
Each of the indentures (collectively, the "Indentures") governing the
Company's outstanding $300.0 million principal amount of 9-3/4% Senior Notes due
2002 (the "Senior Notes") and the Company's 10-7/8% Senior Subordinated Discount
Notes due 2004 (the "Discount Notes" and together with the Senior Notes, the
"Notes") and the Credit Facility imposes certain restrictions on the Company's
ability to pay dividends.
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Item 6. SELECTED FINANCIAL DATA
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Successor Company
----------------------------- Predecessor Company
As of and for --------------------------------------------------------------
As of and for the Eleven For the One As of and for the Years Ended
the Year Ended Months Ended Month Ended ----------------------------------------------
Dec. 31, Dec. 25, Jan. 26, Dec. 26, Dec. 28, Dec. 30,
1995 1994 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales $1,134,359 $1,048,674 $ 64,741 $ 884,910 $ 930,069 $ 869,862
Cost of Sales:
Product cost 322,194 293,413 19,184 259,512 276,020 250,623
Payroll and related costs 419,185 377,569 24,780 331,747 352,841 313,974
Occupancy and other
operating expenses 275,164 243,147 13,712 197,797 211,332 198,240
Depreciation and amortization 57,836 48,646 2,800 32,224 50,538 47,872
General and administrative
expenses 56,245 49,059 4,071 44,164 48,376 45,684
Gain (loss) on disposition
of properties (12,067) (5,685) 12 (4,916) (7,786) 1,097
Provision for divestitures and
write-down of long-lived assets 44,500 144,780 0 10,400 135,046 0
Restructuring costs 4,392 0 0 0 0 0
Debt restructuring costs 0 0 0 4,239 1,072 0
Reorganization items 0 0 479,427 (1,091) 0 0
Interest expense, net 65,277 51,419 4,097 50,276 45,582 42,321
Income tax provision 1,208 1,773 55 658 721 522
---------- ---------- --------- --------- --------- ---------
Income (loss) before extra-
ordinary item and cumula-
tive effect of a change in
accounting principle (123,709) (166,817) 475,481 (52,114) (199,245) (28,277)
Extraordinary gain on extin-
guishment of debt 0 2,941 72,561 0 0 0
Effect of adopting SFAS 109 0 0 0 0 (667) 0
---------- ---------- --------- --------- --------- ---------
Net income (loss) (123,709) (163,876) 548,042 (52,114) (199,912) (28,277)
Preferred dividends 0 0 1,698 20,232 17,737 13,499
---------- ---------- --------- --------- --------- ---------
Net income (loss) attribut-
able to common shares $ (123,709) $ (163,876) $ 546,344 $ (72,346) $(217,649) $ (41,776)
========== ========== ========= ========= ========= =========
Loss per common share before
extraordinary item (3) $ (124.75) $ (168.55)
Net loss attributable to
common shares (3) $ (124.75) $ (165.58)
BALANCE SHEET DATA:
Working capital (deficiency) $ 45,114 (4) $ (155,481) $ (95,209) (109,692) $ (59,024)
Current assets 267,077 43,015 77,109 64,948 77,769
Total assets 551,270 734,598 366,577 383,298 486,449
Current liabilities 221,963 198,496 172,318 174,640 136,793
Liabilities subject to settle-
ment under reorganization
proceedings 0 0 320,194 (5) 277,010 (5) 0
Non-current portion of long-
term debt, including
capitalized lease
obligations 455,203 (6) 536,495 78,658 84,133 329,606
Redeemable cumulative
exchangeable preferred stock 0 0 183,921 163,689 122,712
Common stockholders' deficit (131,576) (7,259) (391,638) (319,470) (102,662)
SELECTED CONSOLIDATED FINANCIAL
RATIOS AND OTHER DATA:
EBITDA (7) $ 61,571 $ 85,486 $ 2,994 $ 51,690 $ 41,500 $ 61,341
Net income (loss) (123,709) (163,876) 548,042 (52,114) (199,912) (28,277)
Net cash provided by (used in)
operating activities 6,083 18,346 (18,252) 25,352 31,252 11,338
Capital expenditures 38,022 65,618 779 20,064 38,255 (8) 16,730
Net cash provided by (used in)
investing activities (19,615) (64,167) (192,610) (10,717) (34,472) (15,072)
Net cash provided by (used in)
financing activities 13,663 31,858 223,754 (19,839) 3,474 (10,278)
Restaurants open at end
of period 670 702 524 528 587 501
Ratio of EBITDA to interest
expense 0.94 x 1.66 x 0.73 x(9) 1.03 x(9) 0.91 x(9) 1.45 x(9)
</TABLE>
- 14 -
<PAGE> 15
(1) The historical basis of the Company's recorded value of goodwill
represented the excess of the purchase price paid over the fair value
of the identifiable net assets acquired in the 1986 acquisition of the
Company from W. R. Grace & Co. (the "1986 Acquisition"). Goodwill was
allocated to the respective divisions based on the financial forecast
of the Company at the time of the 1986 Acquisition which was developed
using the historical experience of the Company, industry trends and
management's estimates of future performance. Subsequent to the 1986
Acquisition, the Company sustained significant losses and did not meet
the previously prepared forecasts of revenues and operating cash flow
for its Mexican and traditional dinnerhouse restaurants. Further, the
Company determined that the Mexican and traditional dinnerhouse
restaurants were experiencing these negative trends due to increasing
competitive pressure resulting from the lack of sufficient amounts of
capital to maintain and improve their facilities. The negative trends
and operating losses worsened in late 1992. These factors raised
substantial doubt about the Company's ability to achieve the results of
operations forecast for the Mexican and traditional dinnerhouse
restaurants at the time of the 1986 Acquisition and indicated that the
value of the previously recorded goodwill for such restaurants would
not be realized. Accordingly, the Company wrote off the remaining book
value of goodwill, $107,175,000, allocated to these restaurants at
December 28, 1992.
(2) During the fourth quarter of 1994, the Company wrote off the
unamortized balance of the goodwill which was recorded in connection
with the Chi-Chi's Merger of $144,780,000. See Note 7 of the Company's
audited consolidated financial statements (the "Financial Statements").
(3) Net income (loss) per common share for the Company prior to the
Acquisition is not meaningful due to debt discharge, the issuance of
Common Stock and fresh start reporting. Loss per common share for the
Company subsequent to the Acquisition is computed based on the weighted
average shares actually outstanding (989,683 shares for the eleven
months ended December 25, 1994 and 991,650 shares for the year ended
December 31, 1995). The impact of the Warrant and outstanding options
has not been included for such periods since the impact would be
antidilutive.
(4) Includes the impact of working capital loan classification discussed in
Note 9 of the Financial Statements and the classification of
$240,077,000 in property held for sale discussed in Note 5 of the
Financial Statements.
(5) Liabilities that were cancelled and extinguished as part of the Plan
are separately classified in the consolidated balance sheets as
liabilities subject to settlement under reorganization proceedings and
include the following:
- 15 -
<PAGE> 16
<TABLE>
<CAPTION>
1993 1992
-------- --------
(in thousands)
<S> <C> <C>
Old Senior Subordinated Notes $191,928 $187,048
Old Subordinated Notes 78,916 78,770
Accrued interest 52,720 15,531
Debt issuance and other costs (3,370) (4,339)
-------- --------
$320,194 $277,010
======== ========
</TABLE>
(6) Excludes amounts related to the Family Restaurant Division and the
traditional dinnerhouse restaurants which are being held for sale.
(7) EBITDA is defined as earnings (loss) before gain (loss) on disposition
of properties, provision for divestitures, write-down of goodwill,
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
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.
(8) Consolidated capital expenditures includes $12,374,000 for the net cash
used in the acquisition of Bob's Big Boy restaurants in 1992 (the
"Bob's Big Boy Acquisition").
(9) Ratio of EBITDA to interest expense is based on the Company's
historical capital structure which is not representative of the
Company's capital structure subsequent to the Acquisition.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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, with respect to information about events occurring upon completion
of or after the Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The Predecessor Company had experienced liquidity problems beginning in
mid-1992, due primarily to a sales decline in the Company's Mexican and
traditional dinnerhouse restaurants and expenditures made to convert the Bob's
Big Boy Restaurants to the Company's Coco's or Carrows concepts. The decline in
sales was
- 16 -
<PAGE> 17
attributable to several factors, including lack of sufficient capital to remodel
and modernize the Company's restaurants, continued negative trends in alcoholic
beverage sales in the Mexican and traditional dinnerhouse restaurants and the
economic recession in California (where a majority of the Predecessor Company's
restaurants were located). As a result of these liquidity problems, the
Predecessor Company was unable to meet its obligations to certain of its
creditors and was in default on most of its indebtedness during 1993.
The Company and REG-M Corp. commenced Chapter 11 cases on November 23,
1993, and the Plan was confirmed by the United States Bankruptcy Court for the
District of Delaware on January 7, 1994. On the Closing Date, substantially all
of the Company's old debt and equity securities were cancelled and extinguished
through consummation of the Plan.
The Company currently relies primarily on internally generated funds,
supplemented by working capital advances under 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.
Operating Cash Flow. During 1995, the Company reported EBITDA (defined
as earnings (loss) before gain (loss) on disposition of properties, interest,
taxes, depreciation and amortization) of $61.6 million. The Company has included
information concerning EBITDA herein because it understands that such
information is used by certain investors as one measure of a company'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. See "--Goodwill
Write-off." During 1995, a series of actions were 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; and (iv) elimination of
unprofitable or poorly performing restaurants.
The latter action resulted in the closing of seven restaurants and the
identification of additional restaurants to be sold or having impaired asset
value. Nine of these restaurants have subsequently been divested. Approximately
32 remaining marginally profitable or unprofitable Chi-Chi's restaurants are
currently being offered for sale. In conjunction with this divestment program,
the Company analyzed the carrying value of the Chi-Chi's long-lived assets using
its current policy to determine if any impairment had occurred. See Note 3 to
the Financial Statements.
- 17 -
<PAGE> 18
As a result, during the third quarter of 1995, the Company recorded a charge for
divestitures and writedowns of long-lived assets of $41.9 million. This charge
also included the writedown to estimated fair value (less estimated selling
costs) of the property and equipment associated with such restaurants held for
sale as well as the provision for estimated rent subsidies on certain
restaurants with over market value leases.
The actions initiated at Chi-Chi's have not been successful and the
continuing decline in sales has resulted in continuing short-term liquidity
problems. On December 6, 1995, Kevin S. Relyea was appointed CEO of the Company
and assumed responsibility for Chi-Chi's. Mr. Relyea initiated a project to
re-position the concept and to re-engineer the organization's processes. On
March 1, 1996, Roger K. Chamness was appointed to the position of President of
Chi-Chi's. Together they are working with industry consultants to complete their
re-engineering and re-positioning plans, with the goal of significantly
restructuring the Company's costs during 1996 in an attempt to bring Chi-Chi's
operating margins in line with the current depressed sales levels. This
restructuring is intended to reduce restaurant operating costs and includes
strong inventory and meal preparation controls as well as closely monitored
restaurant labor scheduling. Further, management is closely evaluating Chi-Chi's
general and administrative cost structure. Finally, the Company is working with
certain industry consultants to develop an appropriate marketing plan.
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 $115.1 million on December 31, 1995 (excluding the impact of
$240.1 million in property held for sale discussed in Note 5 of the Financial
Statements and the impact of $79.8 million in loans payable to banks classified
as a current liability as discussed below).
Credit Facility. On the Closing Date, The Company, FRI-M and certain
subsidiaries of FRI-M entered into the Credit Facility. Borrowings in the amount
of $91.2 million (including $14.6 million outstanding from a loan made on
February 1, 1996 to fund an interest payment made on the Senior Notes) were
outstanding under the Credit Facility as of March 29, 1996. 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 ($40.5 million of such letters of credit were outstanding as of March
29, 1996). The outstanding total commitment available under the Credit Facility,
as amended, as of March 29, 1996, was $137.9 million, leaving $6.2 million of
additional borrowings available thereunder.
- 18 -
<PAGE> 19
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 quarters ending March 1996 and June
1996, the banks under the Credit Facility (the "Banks") have agreed to waive
such noncompliance for periods ending on or prior to July 31, 1996. In
accordance with generally accepted accounting principles, and since the waivers
only extend through July 31, 1996, at this time the Company has classified the
outstanding balance of $79.8 million at December 31, 1995 as a current liability
in the accompanying consolidated balance sheet. There can be no assurances that
further waivers or amendments will be obtained after July 31, 1996. Given this
uncertainty, the amortization of the related debt issuance costs was accelerated
assuming the debt will be retired or replaced earlier.
Other. In the third quarter of 1995, the Company retained Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") as a financial advisor to
assist the Company in the process of divesting certain divisions and operations.
This process culminated in the execution of the Sale Agreement on March
1, 1996 to sell the Family Restaurant Division to Flagstar in a transaction with
an enterprise value of $306.5 million, subject to certain adjustments based on a
closing balance sheet. Cash proceeds from the sale will be used to repay
indebtedness outstanding under the Credit Facility and for general corporate
purposes, which may include future interest payments on the Senior Notes. See
"BUSINESS--Sale of Family Restaurant Division." Consummation of the FRD Sale
is subject to customary terms and conditions and there can be no assurances
that this transaction will be consummated.
Upon consummation of the FRD Sale, the Company will continue to be
highly leveraged and have significant debt service requirements. Although
management believes that the proceeds available to the Company as a result of
the sale of the Family Restaurant Division (including funds available from
potential sale of the Flagstar Notes), its cost restructuring and revised
marketing plans for Chi-Chi's described above, and other available options
(including sale of other divisions and sale/leaseback of owned properties)
should be sufficient to meet its operating and debt service requirements for the
foreseeable future, there can be no assurance that the Company will be able to
repay or refinance the Notes at their respective maturities. The Company is
currently exploring various alternatives to further reduce its debt (including
indebtedness outstanding under the Notes). Among other things, the Company may
use the Flagstar Notes to reduce such debt.
CAPITAL EXPENDITURES
As noted in the Consolidated Statements of Cash Flows, net cash used in
investing activities was $19.6 million for fiscal 1995 versus $64.2 million for
the eleven months ended December 25, 1994, $192.6 million for the one month
ended January 26, 1994 and $10.7 million for fiscal 1993. Included in investing
activities for 1994
- 19 -
<PAGE> 20
is the acquisition of Chi-Chi's, which represented $192.4 million, and the
partial conversion of certain Bob's Big Boy restaurants to the Company's
concepts which represented $8.3 million.
In 1994 the Company embarked 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 remodeled 114 family
restaurants and 81 Mexican restaurants at an aggregate cost of approximately
$37.2 million. Due to the deterioration in operating cash flow described above,
the Company has suspended its remodel program for all restaurants indefinitely.
In addition, expansion of the Family Restaurant Division has been limited to ten
new restaurants for which agreements have already been completed, eight of which
are now open and operating. 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.
GOODWILL WRITE-OFF
The Mexican Restaurant Division, particularly the Chi-Chi's
restaurants, reported significant sales declines in the second half of 1994
which continued into 1995. These sales declines resulted in operating
performance for the Chi-Chi's restaurants which was significantly lower than
anticipated at the time of the Acquisition.
CSPI Report. In July 1994, the Center for Science in the Public
Interest ("CSPI") released a report which claimed, among other things, that
Mexican meals were high in fat, saturated fat and sodium and that there are
fewer low fat or low sodium choices in Mexican restaurants than in the Italian
and Chinese restaurants that had been previously analyzed. Although restaurant
officials disagreed with the report and CSPI's methods, subsequent to the CSPI
study, Chi-Chi's restaurants began reporting significant declines in sales. The
Company introduced a new program, called "New Mex," to all restaurants in the
Mexican Restaurant Division. This new program included an extensive list of
changes including new menu items, new recipes, a new menu design and look, new
commercials, new china and new uniforms. This program proved ineffective in the
Chi-Chi's restaurants.
Comparable Sales Declines. Chi-Chi's restaurants reported declines in
sales at comparable restaurants (as defined below) of 7.4% in the third quarter
of 1994 and 15.7% in the fourth quarter of 1994. As a result of this poor sales
performance, the Chi-Chi's restaurants achieved EBITDA (pro forma for the entire
1994 fiscal year) approximately 50% below the level achieved in 1993. The
comparable restaurant sales declines for Chi-Chi's continued in 1995.
- 20 -
<PAGE> 21
Acquisition Business Strategy. At the time of the Acquisition, the
Company identified three key sales building strategies for the Mexican
Restaurant Division. The Company planned to build sales by (i) implementing a
unified marketing and food and beverage strategy as part of the goal of
integrating all of the Mexican concepts; (ii) completing a comprehensive
refurbishment program of substantially all of the Mexican restaurants in order
to enhance customers' dining experience and attract new customers; and (iii)
following the completion of the refurbishment program, which was expected to
occur during the first three years following the Acquisition, adding 12 to 20
new restaurants per year. These new restaurants would have been added in
existing markets in order to take advantage of efficiencies in advertising and
management. It was anticipated that these business strategies would result in a
substantial improvement to the sales and cash flow performance of the Mexican
Restaurant Division. The valuation of the Chi-Chi's business at the time of the
Acquisition was based on the successful completion of these business strategies
and the resulting anticipated increase in sales and cash flow.
Reevaluation of the Business Strategy. In the case of Chi-Chi's, all
facets of the post-Acquisition strategy described above were reevaluated. The
Mexican Restaurant Division reestablished a separate marketing department for
Chi-Chi's as different regional tastes proved the unified marketing and food and
beverage strategy to be unsuccessful. In addition, as a result of the lack of
improvement in the performance of the remodels completed in 1994, all remodels
of the Chi-Chi's restaurants were discontinued. As a result of these significant
setbacks, no future expansion of Chi-Chi's is currently planned.
Consistent with this strategic reevaluation, the Company revised its
forecasts for the future operations of Chi-Chi's which resulted in a significant
reduction in projected future cash flows and a lower valuation of the business.
Furthermore, management concluded that it is unlikely that the Chi-Chi's
restaurants will return to prior profitability levels in the foreseeable future.
Accordingly, in the fourth quarter of 1994, the Company completed an evaluation
of the carrying value of the Chi-Chi's goodwill and wrote off the entire
unamortized balance of $144,780,000 at December 25, 1994.
For a more detailed discussion of the methodology and assumptions
employed to assess the recoverability of the Chi-Chi's goodwill, refer to Note 7
of the Financial Statements.
RESULTS OF OPERATIONS
As used herein, "comparable restaurants" are restaurants operated by
the Company on the first day of the earlier fiscal year and which continued in
operation through the last day of the later year being compared.
- 21 -
<PAGE> 22
FISCAL YEAR 1995 AS COMPARED TO FISCAL YEAR 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 Chi-Chi's
Merger, the results of operations for fiscal 1995 are not comparable to those
for fiscal 1994 which includes eleven 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 fiscal 1995
to the operations (eleven months of the Successor Company plus one month of the
Predecessor Company) for fiscal 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 1995 increased by $20,944,000 or 1.9% as
compared to 1994. This increase was due to (i) sales from Chi-Chi's restaurants
for January 1995 for which there were no comparable sales in 1994 due to the
timing of the Chi-Chi's Merger on January 27, 1994, (ii) the impact of the Bob's
Big Boy restaurant conversions, (iii) the additional sales of the new
restaurants opened during 1994 and 1995, (iv) the impact of the 53rd week of
sales in 1995 and (v) sales for restaurants previously identified for divestment
which are included in the Company's operating results for 1995 but were not
included in the Company's operating results in 1994 (20 restaurants as of
December 31, 1995). These sales increases were offset, in part, by decreases
related to restaurants divested or closed and a decrease in sales of comparable
restaurants for 1995. The breakdown of the increase in sales for 1995 is set
forth below:
<TABLE>
<CAPTION>
1995 Sales
Increase
----------------
($ in thousands)
<S> <C>
Sales of Restaurants Previously
Identified for Divestment $ 40,576
Chi-Chi's Sales for January 1995 28,891
Increase in Sales for the 53rd Week 22,514
Increase in Sales of New Restaurants (1) 14,636
Increase in Sales of Bob's Big Boy
Restaurants (2) 4,897
Decrease in Sales of Restaurants Sold
or Closed (36,296)
Decrease in Sales of Comparable
Restaurants (54,274)
--------
Total $ 20,944
========
</TABLE>
- ----------
(1) Reflects the Company's opening of nine new restaurants in 1994 and
eight new restaurants in 1995. Sales of new Chi-Chi's restaurants are
only included for February through December 1995.
- 22 -
<PAGE> 23
(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 $54,274,000 or 5.7%
for 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 increasingly competitive operating
environment for restaurants, particularly effective promotional activities
during the first quarter of 1994, 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, which continues to
suffer from declining sales. As discussed above, the Company has initiated steps
to improve the performance of the Chi-Chi's restaurants.
Product cost increased by $9,597,000 or 3.1% in 1995 as compared to
1994. This increase primarily 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. Also contributing to the increased product
cost were higher food costs, primarily due to increased produce prices. As a
percentage of sales, product cost increased from 28.1% in 1994 to 28.4% in 1995.
Payroll and related costs increased by $16,836,000 or 4.2% in 1995 as
compared to 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 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. 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 expenses increased by $18,305,000 or 7.1% in 1995
as compared to 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 23.1% in 1994 to 24.3% in 1995 due to the same factors.
- 23 -
<PAGE> 24
General and administrative expenses increased by $3,115,000 or 5.9% in
1995 as compared to 1994, primarily due to (i) the inclusion of Chi-Chi's
general and administrative expenses for January 1995, which were not included
for 1994, (ii) severance and related costs resulting from corporate staff
reductions, (iii) a reduction in foreign license fee income and (iv) increased
training costs in the Mexican Restaurant Division. Also affecting the overall
increase were certain income items that contributed to offsetting 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. This
increase was offset, in part, by the termination of certain forward exchange
contracts resulting in a realized gain which is included as a reduction to
general and administrative expenses. As a percentage of sales, general and
administrative expenses increased from 4.8% in 1994 to 5.0% in 1995, primarily
as a result of the preceding factors.
The Company reported a loss on disposition of properties of $12.1
million in 1995 as compared to a loss of $5.7 million in fiscal 1994. The loss
in 1995 is primarily due to (i) the write-off of costs associated with cancelled
capital projects, both remodels and new restaurant expansion, (ii) net loss
associated with the closure of six Chi-Chi's restaurants, (iii) losses related
to the sale/leaseback of certain owned properties and (iv) write-off of
reorganization value related to the traditional dinnerhouse restaurants being
held for sale.
During the third quarter of 1995, the Company recorded a $41.9 million
charge related to the write-down of certain Chi-Chi's restaurants being offered
for sale and other Chi-Chi's restaurants with impaired value. Also, during the
fourth quarter of 1995, the Company recorded an additional provision for
divestitures related to the Company's traditional dinnerhouse restaurants which
are also being offered for sale.
Restructuring costs of $4.4 million were incurred in the third and
fourth quarters of 1995. These costs are primarily related to amounts paid to
consultants, professional fees, severance and related costs and other
restructuring related expenses.
FISCAL YEAR 1994 AS COMPARED TO FISCAL YEAR 1993
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 Chi-Chi's
Merger, the results of operations of 1994 are not readily comparable to those of
1993. For certain key operating elements of the statement of operations,
however, the following analysis of a comparison of 1994's operations (eleven
months of Successor Company plus one month of Predecessor Company) to 1993's
operations of the Predecessor Company is provided. Because of the lack of
comparability of results, depreciation and amortization and interest expense,
net are not discussed.
- 24 -
<PAGE> 25
The Company's total sales increased by $228,505,000 or 25.8% in 1994 as
compared to 1993. This increase was due to (i) the addition of sales for
Chi-Chi's restaurants effective with the Chi-Chi's Merger on January 27, 1994,
(ii) the impact of additional sales for the Bob's Big Boy Restaurants after
conversion to Coco's and Carrows, (iii) the additional sales of new restaurants
opened during 1993 and 1994 and (iv) an increase in sales of continuing
comparable restaurants, offset, in part, by decreases related to restaurants
divested, closed or identified for divestment. The breakdown of the increase in
sales for 1994 is set forth below:
<TABLE>
<CAPTION>
1994 Sales
Increase
--------
($ in thousands)
<S> <C>
Acquisition of Chi-Chi's $ 338,816
Increase in Sales of Bob's Big Boy
Restaurants (1) 16,608
Increase in Sales of New Restaurants (2) 5,059
Increase in Sales of Comparable Continuing
Restaurants 4,237
Decrease in Sales of Restaurants Sold, Closed
or Identified for Divestment (136,215)
---------
Total $ 228,505
=========
</TABLE>
- --------
(1) Reflects increased sales for the Bob's Big Boy Restaurants converted to
Coco's or Carrows in 1993 and 1994.
(2) Reflects the Company's opening of three new restaurants in 1993 and
four new restaurants in 1994.
Sales for continuing comparable restaurants increased by $4,237,000 or
0.7% in 1994 as compared to 1993. The comparable sales increase for 1994
reflects a 1.3% increase in the Family Restaurant Division, a basically flat
performance at the El Torito restaurants and a decrease in other restaurants.
Product cost increased by $53,085,000 or 20.5% in 1994 as compared to
1993. This increase reflects the Chi-Chi's Merger offset, in part, by the impact
of restaurants divested, closed or no longer considered continuing restaurants
in connection with the Strategic Divestment Program. As a percentage of sales,
product cost decreased from 29.3% in 1993 to 28.1% in 1994 due to the
elimination of the restaurants identified for divestment which generally have
poorer margins as a result of lower sales volumes and the impact of Chi-Chi's
which has lower product cost than the continuing restaurants of the Predecessor
Company.
Payroll and related costs increased by $70,602,000 or 21.3% in 1994 as
compared to 1993. This increase reflects the impact of the same issues affecting
product cost. As a percentage of sales, payroll and related costs decreased from
37.5% in 1993 to 36.1% in
- 25 -
<PAGE> 26
1994 also due to the elimination of the restaurants identified for divestment
which generally have poorer margins as a result of lower sales volumes and the
impact of Chi-Chi's which has lower payroll and related costs than the
continuing restaurants of the Predecessor Company.
Occupancy and other operating expenses increased by $59,062,000 or
29.9% in 1994 compared to 1993. This increase reflects the impact of the same
issues affecting product cost and payroll and related costs. As a percentage of
sales, occupancy and other operating expenses increased from 22.4% in 1993 to
23.1% in 1994. This increase is primarily due to the impact of Chi-Chi's which
for the months included for 1994 had higher occupancy and other operating
expenses as a percentage of sales than the continuing restaurants of the
Predecessor Company.
General and administrative expenses increased by $8,966,000 or 20.3% in
1994 as compared to 1993, primarily due to the Chi-Chi's Merger. As a percentage
of sales, general and administrative expenses decreased from 5.0% in 1993 to
4.8% in 1994.
During 1994, the restaurants included in the Strategic Divestment
Program had sales of $58,511,000 and losses of $7,434,000, including direct
general and administrative expenses of $1,583,000, which were charged against
the reserve for divestitures. In addition, severance costs of $617,000 were
charged against the reserve for divestitures in 1994. During the third quarter
of 1994, the net realizable value of the remaining assets held for sale was
reduced by $2,344,000 which is included in loss on disposition of properties in
the accompanying consolidated statement of operations. In addition, the Company
increased the reserve relating to potential shortfalls in future sublease income
by $2,799,000 in the third quarter of 1994. This adjustment is also included in
loss on disposition of properties.
In recording the acquisition of Chi-Chi's, eleven poor performing
restaurants were added to the Strategic Divestment Program, and reserves of
$10,758,000 were provided. These reserves included one year's estimated
operating losses and the potential shortfall in future sublease income. During
1994, operating losses of $2,404,000 and lease termination payments of
$1,439,000 were charged against these reserves.
As of December 25, 1994, 45 properties (including seven of the
Chi-Chi's restaurants) remained to be divested, of which eight were closed.
Because the Strategic Divestment Program was scheduled for completion at the end
of fiscal 1994, the operating results of the remaining 37 restaurants were
included in the Company's consolidated statement of operations in 1995, although
several of the restaurants continue to be marketed and sold.
ACCOUNTING PRONOUNCEMENTS
In 1996, the Company will be required to adopt SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
- 26 -
<PAGE> 27
Lived Assets to Be Disposed Of," which generally requires the assessment of
certain long-lived assets for possible impairment when events or circumstances
indicate the carrying value of these assets may not be recoverable. The Company
believes that the effect of the adoption of this statement will not be material
to its financial position or results of operations.
The Financial Accounting Standards Board has issued SFAS No. 123,
"Accounting for Stock-Based Compensation," effective for fiscal years beginning
after December 15, 1995. The Company has elected, as permitted by SFAS No. 123,
to adopt the disclosure requirement of that standard but continue to account for
stock-based compensation under APB Opinion No.25, "Accounting for Stock Issued
to Employees."
Statement of Position 94-6 ("SOP 94-6"), "Disclosure of Certain
Significant Risks and Uncertainties," was issued in December 1994. SOP 94-6
requires disclosure about certain risks and uncertainties that could
significantly affect the amounts reported in an entity's financial statements in
the near term and relate to: the nature of operations, the necessary use of
estimates in the preparation of financial statements and significant
concentrations in certain aspects of the entity's operations. SOP 94-6 is
applicable to financial statements of both public and non-public companies, but
does not cover governmental entities. SOP 94-6 is effective for financial
statements issued for fiscal years ending after December 15, 1995. The Company
has included SOP 94-6 related disclosures in its 1995 Consolidated Financial
Statements.
SELECTED DIVISION OPERATING DATA
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 which are included in
the 1995 information). 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.
- 27 -
<PAGE> 28
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------
December 31, December 25
1995 1994
------------ -----------
($ in thousanes, except
average check amount)
<S> <C> <C>
Family Restaurant Division
- --------------------------
Restaurants Open at End of Period:
Owned/operated 349 343
Franchised and Licensed 261 232
Sales $ 502,485 $ 501,286
Divisional EBITDA (a) 61,465 57,963
Percentage increase (decrease)
in comparable restaurant sales (3.0)% 1.3 %
Average check $ 6.48 $ 6.10
Mexican Restaurant Division
- ---------------------------
Restaurants Open at End of Period:
Owned/operated 300 311
Franchised and Licensed 21 30
Sales $ 578,609 $ 614,088
Divisional EBITDA (a) 3,053 33,420
Percentage decrease in comparable
restaurant sales (7.9)% (4.7)%
Average check $ 8.10 $ 8.07
Total Company
- -------------
Restaurants Open at End of Period:
Owned/operated 670 665
Franchised and Licensed 282 262
Sales $1,134,359 $1,143,806
EBITDA (b) 61,571 90,036
Percentage decrease in comparable
restaurant sales (5.6)% (2.3)%
</TABLE>
(a) Divisional EBITDA with respect to any operating division is defined as
earnings (loss) before gain (loss) on disposition of propeties, unallocated
corporate 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 a company'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.
- 28 -
<PAGE> 29
INFLATION
The inflationary factors which have historically affected the Company's
results of operations include increases in the cost of food, alcoholic
beverages, labor and other operating expenses. In addition, most of the
Company's real estate leases require the Company to pay taxes, maintenance,
insurance, repairs and utility costs, all of which are subject to the effects of
inflation. To date, the Company has offset the effects of inflation, at least in
part, through periodic menu price increases and various cost-cutting programs,
but no assurance can be given that the Company will continue to be able to
offset such increases in the future.
During 1995 and 1994, the effects of inflation did not have a
significant impact on the Company's results of operations.
SEASONALITY
The Company, as a whole, does not experience significant seasonal
fluctuations in sales. However, the Company's sales tend to be slightly greater
during the spring and summer months.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Financial Statements on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
- 29 -
<PAGE> 30
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
current Directors and executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position With Company
- ---------------------- --- -----------------------------------
<S> <C> <C>
Peter P. Copses 37 Director
Antony P. Ressler 35 Director
Kevin S. Relyea 41 President, Chief Executive Officer
and a Director
Roger K. Chamness 43 Executive Vice President, President
of Chi-Chi's, Inc.
Robert T. Trebing, Jr. 46 Senior Vice President and Chief
Financial Officer
Michael E. Malanga 42 Senior Vice President, Corporate
Development
Todd E. Doyle 34 Vice President, General Counsel and
Secretary
Janie M. Bereczky 40 Vice President, Taxes
Gayle A. DeBrosse 38 Division Vice President, Quality
Assurance and Product Safety
</TABLE>
Mr. Copses serves as a Director of the Company. Since 1990, Mr. Copses
has been a principal of Apollo Advisors, L.P. ("Apollo Advisors") which acts as
managing general partner of Apollo Investment Fund, L.P. ("AIF") and AIF II,
L.P. ("AIF II"), which are securities investment funds, and of Lion Advisors,
L.P. ("Lion Advisors"), which acts as financial advisor to and representative
for certain institutional investors with respect to securities investments. AIF
II is the general partner of Apollo. Mr. Copses is a director of Forum Group,
Inc. and Zale Corporation.
Mr. Ressler serves as a Director of the Company. In 1990, Mr. Ressler
was one of the founding principals of Apollo Advisors, which acts as a managing
general partner of AIF and AIF II. Mr. Ressler is a director of Gillett
Holdings, Inc., United International Holdings, Inc. and PRI Holdings, Inc.
Mr. Relyea serves as President, Chief Executive Officer and a Director
of the Company. He joined the Company in January 1994 as Executive Vice
President and President of the Family Restaurant Division. From 1988 to January
1994, Mr. Relyea had been Regional Vice President of Jack In The Box Operations
for Foodmaker. Mr. Relyea received an M.B.A. from Pepperdine University in 1988.
Mr. Chamness serves as Executive Vice President and President of
Chi-Chi's. He joined the Company at its inception and worked in the Finance and
Administration department for the Family Restaurant Division. Mr. Chamness
received a B.A. in Business Economics from
- 30 -
<PAGE> 31
UCLA in 1975 and an M.B.A. in Finance and International Business from UCLA in
1980.
Mr. Trebing serves as Senior Vice President and Chief Financial
Officer. He joined the Company at its inception and has held the positions of
Senior Vice President of Finance, Vice President of Finance, Vice President and
Controller and Manager of Financial Reporting. Mr. Trebing is a Certified Public
Accountant. Mr. Trebing received a B.A. from California State University at
Fullerton in 1972 and an M.B.A. from the University of Southern California in
1973.
Mr. Malanga serves as Senior Vice President, Corporate Development. He
joined the Company at its inception as Director of Mergers and Acquisitions. He
was promoted to his current position in 1995. Mr. Malanga received a B.S. in
Business Administration from the University of Southern California in 1976.
Mr. Doyle serves as Vice President, General Counsel and Secretary. He
joined the Company as Senior Legal Counsel in 1992. Prior to joining the
Company, Mr. Doyle spent six years as a business transactional attorney and a
business litigation attorney with Seltzer Caplan Wilkins & McMahon in San Diego,
California. Mr. Doyle received a B.A. in Political Science and a B.A. in
Sociology from the University of California, Santa Barbara in 1983, and he
received a J.D. from Loyola Law School, Los Angeles, California in 1986.
Ms. Bereczky serves as Vice President, Taxes. She joined the Company in
1987 as Director of Taxes. Ms. Bereczky has been a Certified Public Accountant
since 1981. Ms. Bereczky received a B.A. in Political Science from the
University of California at Santa Barbara in 1978 and an M.B.A. in Taxation from
Golden Gate University in 1985.
Ms. DeBrosse serves as a Divisional Vice President, Quality Assurance
and Product Safety. She joined the Company in December of 1994. Prior to joining
the Company, she was Director of Product Development and Continuous Improvement
at Taco Bell and Director, Research and Development for Flagstar. Ms. DeBrosse
received a B.S. in Nutritional Sciences from Arizona State University in 1979
and an M.S. in Agribusiness with Emphasis in Food Science, Quality Assurance and
Food Chemistry from Arizona State University in 1982.
All directors hold office for a period of one year until their
successors have been duly elected and qualified. Directors receive no
compensation for serving as directors and received no such compensation during
the last fiscal year. Officers serve at the discretion of the Board of
Directors.
In connection with the change in control of the Company, which occurred
on November 20, 1995, Jackson W. Goodall, Jr., Charles W. Duddles and Edward
Gibbons (the three members of the Board nominated by Foodmaker) and Leonard I.
Green and Jonathan D. Sokoloff (the two members of the Board nominated by GEI)
resigned
- 31 -
<PAGE> 32
from the Board and from each other position, if any, held with the Company or
its subsidiaries. In addition, John H. Kissick resigned from the Board and from
each other position, if any, held with the Company or its subsidiaries on
January 15, 1996 and Kevin S. Relyea was added as a member of the Board on
December 5, 1995.
Item 11. EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
Summarized below are the principal components of compensation of the
four individuals serving as the Company's Chief Executive Officer ("CEO") during
fiscal year 1995 and the four most highly compensated executive officers other
than the CEO plus two executive officers who would have qualified but for their
terminations in 1995 (the "Named Executive Officers") for each of the last three
completed fiscal years.
- 32 -
<PAGE> 33
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other Annual All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Compensation($)(a)
--------------------------- ---- --------- -------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Kevin S. Relyea, 1995 312,727 149,520 0 (b) 918
President and Chief Executive 1994 208,589 0 0 (b) 242
Officer
Jackson W. Goodall, Jr., 1995 129,459 (d) 0 0 0
Former Chairman and Chief 1994 511,363 (d) 0 0 0
Executive Officer (c)
Barry E. Krantz, 1995 312,226 0 0 (b) 15,554(f)
Former President and Chief 1994 375,093 0 0 (b) 1,152
Operating Officer (e) 1993 215,381 189,316 0 (b) 1,325
Lawrence J. Ramaekers 1995 385,726 (h) 0 0 0
Former Chief Executive
Officer (g)
Kenneth R. Bell, 1995 160,937 37,719 0 (b) 1,498
Divisional Executive Vice 1994 148,719 0 0 (b) 1,152
President 1993 125,593 63,251 0 (b) 1,134
Roger K. Chamness, 1995 153,086 40,357 0 (b) 493
Executive Vice President 1994 129,325 0 0 (b) 408
1993 123,443 60,000 0 (b) 382
Azam E. Malik, 1995 137,480 32,970 0 (b) 800
Divisional Executive Vice 1994 132,839 0 0 (b) 632
President 1993 122,827 4,156 0 (b) 250
Robert T. Trebing, Jr., 1995 150,459 43,973 0 (b) 858
Senior Vice President and 1994 132,520 0 0 (b) 696
Chief Financial Officer 1993 123,240 62,500 0 (b) 408
Patricia K. Johnson, 1995 192,093 0 0 (b) 61,531(j)
Former Executive Vice 1994 184,204 0 0 (b) 253
President (i) 1993 95,435 47,934 0 (b) 190
Martin M. Casey, 1995 185,398 0 0 (b) 200,000(l)
Former Executive Vice 1994 245,356 0 0 (b) 135
President (k) 1993 298,898 208,251 0 (b) 2,226
</TABLE>
- ----------
(a) Unless otherwise indicated, amounts shown represent the value of term
life insurance premiums paid by the Company.
(b) Aggregate Amount of Other Annual Compensation is the lessor of: (i)
$50,000; or (ii) 10% of the total of annual salary and bonus and therefore
not reported.
(c) Mr. Goodall left the Company on March 31, 1995.
(d) Represents amount paid to Foodmaker, Inc. for Mr. Goodall's services
pursuant to that certain Executive Services Agreement dated as of January
27, 1994 by and between the Company and Foodmaker. Mr. Goodall received no
compensation directly from the Company.
(e) Mr. Krantz left the Company on August 21, 1995.
(f) Mr. Krantz received $2,592 representing the value of term life insurance
premiums paid by the Company and $12,962 representing severance payments
associated with his termination.
(g) Mr. Ramaekers left the Company on December 6, 1995.
(h) Represents amount paid to Jay Alix & Associates for Mr. Ramaekers' services
pursuant to that certain Management Services Agreement dated as of August
8, 1995 by and between the Company and Jay Alix & Associates. Mr. Ramaekers
received no compensation directly from the Company.
(i) Ms. Johnson left the Company on August 21, 1995.
(j) Ms. Johnson received $396 representing the value of term life insurance
premiums paid by the Company and $61,135 representing severance payments
associated with her termination.
(k) Mr. Casey left the Company on July 26, 1995.
(l) Mr. Casey received $200,000 representing cancellation of his promissory
notes given for the purchase of 1,250 shares of Common Stock.
- 33 -
<PAGE> 34
COMPENSATION OF DIRECTORS
Directors receive no compensation for serving as directors and received
no such compensation in the last fiscal year.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Pursuant to the terms of the Company's Severance Plan, employees,
including the executive officers named on the summary compensation chart above,
are entitled to receive benefits of no more than 52 weeks base salary upon
certain events of termination. In addition, upon the occurrence of certain
events constituting a change of control, the holders of stock options, including
the executive officers named above, shall be entitled to receive cash equal to
the difference between the price per share paid in connection with such change
of control and the exercise price of the underlying option.
The Company's President and Chief Executive Officer, Kevin S. Relyea,
entered into an agreement with the Company on January 9, 1996, whereby Mr.
Relyea would be entitled to the Company's normal severance benefits under
certain additional circumstances. In the event a sale of the Family Restaurant
Division is consummated and: (i) Mr. Relyea is either not offered employment
with the purchaser or declines to accept employment with the purchaser; and (ii)
the terms of Mr. Relyea's continued employment are not mutually satisfactory to
the Company and Mr. Relyea, then Mr. Relyea shall be deemed terminated without
cause and shall be immediately eligible to collect all severance benefits due
him under the Company's Severance Plan.
In connection with the Company's decision to pursue the sale of either
or both of the Family Restaurant Division or El Torito, the Board adopted a
Divestiture Bonus Plan for certain members of management (the "DBP"). The
purpose of the DBP is to retain and reward key executives who will be required
to assist with any such sale(s). The DBP provides certain key executives a
monetary bonus upon the consummation of a sale of either the Family Restaurant
Division or El Torito (calculated as a percentage of the purchase price as
defined in the DBP). Kevin S. Relyea, Roger K. Chamness and Robert T. Trebing,
Jr. will receive such a bonus upon either sale. Kenneth R. Bell will receive a
bonus only upon the sale of the Family Restaurant Division and Azam Malik will
receive a bonus only upon the sale of El Torito. The DBP applies only to sales
for which a written purchase agreement is executed in 1996.
On December 5, 1995, Barry E. Krantz, the former President of the
Mexican Restaurant Division, entered into a Separation Agreement and General
Release with the Company pursuant to which the Company agreed to pay to Mr.
Krantz the sum of $287,746 in full satisfaction of all severance obligations
owed by the Company to Mr. Krantz.
- 34 -
<PAGE> 35
On September 1, 1995, Patricia K. Johnson, the former Executive Vice
President-Administration of the Company, entered into a Separation Agreement and
General Release with the Company pursuant to which the Company agreed to the
continued payment of Ms. Johnson's current annual base salary of $187,000 for a
period of twelve months following September 1, 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the 1995 fiscal year, Messrs. Ressler, Leonard I. Green and
Jonathan D. Sokoloff served on the Nominating and Human Resources Committee of
the Board which serves as the Company's compensation committee (Messrs. Green
and Sokoloff resigned as directors on November 20, 1995 and no replacements to
the compensation committee were made). None of these individuals is, or was, an
officer or employee of the Company. See "--Directors and Executive Officers" and
"--Certain Relationships and Related Transactions."
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares and percentage of
Common Stock owned by each person known to the Company to be the beneficial
owner of more than 5% of any class of the Company's voting securities, each
director and executive officer of the Company and all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
Common Stock
-----------------------------
Amount and Nature
of Beneficial Percent
Ownership(a) of Class
----------------- --------
<S> <C> <C>
Apollo FRI Partners, L.P.(b) 798,877.750 82.77%(c)
2 Manhattanville Rd.
Purchase, NY 10577
Green Equity Investors, L.P.(d) 160,222.250 16.21%
333 South Grand Avenue
Suite 5400
Los Angeles, CA 90071
Kevin S. Relyea 10,325.000 1.09%(e)
Roger K. Chamness 800.000 (f)
Robert T. Trebing, Jr. 400.000 (f)
Michael E. Malanga 62.000 (f)
Todd E. Doyle 15.000 (f)
Janie M. Bereczky 220.000 (f)
Gayle A. DeBrosse 0.000 (f)
All Officers and Directors
of the Company as a Group
(9 persons) 11,822.000 1.20%
</TABLE>
- 35 -
<PAGE> 36
- ----------
(a) All shares (other than shares held by Apollo and GEI) are subject to,
and shall be voted in accordance with, the Shareholders' Agreement.
(b) The general partner of Apollo is AIF II. The managing general partner
of AIF II is Apollo Advisors. The general partner of Apollo Advisors is
Apollo Capital Management, Inc. ("Apollo Capital"). Messrs. Copses and
Ressler are officers of Apollo Capital. The directors of Apollo Capital
are Leon Black and John Hannan, each of whom is also an officer of
Apollo Capital. Each of Messrs. Copses and Ressler and the directors
of Apollo Capital disclaim beneficial ownership of any shares
beneficially held by Apollo.
(c) Includes 111,111 shares of Common Stock issuable upon exercise of the
Warrant.
(d) The general partner of GEI is Leonard Green & Associates, L.P. ("LGP").
Messrs. Green and Sokoloff are managing general partners of LGP. Each
of Messrs. Green and Sokoloff and the general partners of LGP disclaims
beneficial ownership of any shares beneficially held by GEI.
(e) Includes 419 shares of Common Stock covered by options granted to Mr.
Relyea, which are currently exercisable.
(f) Represents less than 1% ownership.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Apollo Advisors and LGP are each entitled to approximately $600,000
annually for providing post-Acquisition management consulting and financial
planning services. During 1995, the Company paid $175,000 to each in partial
satisfaction of this arrangement.
On the Closing Date, the Company entered into the Shareholders'
Agreement and a Registration Rights Agreement with Apollo, GEI and Foodmaker.
The Shareholders' Agreement was terminated as between Apollo, GEI, Foodmaker and
the Company in connection with the Exchange Agreements. See "Business--Change in
Control."
Certain entities managed by or affiliated with Apollo purchased a
portion of the Notes.
The Company loaned $150,000 to Mr. Relyea (evidenced by recourse notes
which bear interest at a rate of 7% per annum and are due on May 31, 1999) in
connection with his purchase of Common Stock. See "--Directors and Executive
Officers," "--Executive Compensation" and "BUSINESS--The Acquisition."
- 36 -
<PAGE> 37
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page
----
<S> <C>
(a) (1) Financial Statements. See the Index to
Financial Statements on page F-1. --
(2) Financial Statement Schedule
Schedule VIII - Valuation and qualifying
accounts S-1
</TABLE>
(3) Exhibits
3 (a) Fourth Restated Certificate of Incorporation of the
Company. (Filed as Exhibit 4.1 to the Company's Form S-8
filed with the SEC on March 23, 1994.)
3 (b) Bylaws of the Company. (Filed as Exhibit 4.2 to the
Company's Form S-8 filed with the SEC on March 23, 1994.)
4 (a) Indenture Dated as of January 27, 1994 Re: $300,000,000
9-3/4% Senior Notes Due 2002. (Filed as Exhibit 4(a) to
the Company's Form 10-K filed with the SEC on March 28,
1994.)
4 (b) Indenture Dated as of January 27, 1994 Re: $150,000,000
10-7/8% Senior Subordinated Discount Notes Due 2004.
(Filed as Exhibit 4(b) to the Company's Form 10-K filed
with the SEC on March 28, 1994.)
9 Shareholders' Agreement, dated as of January 27, 1994,
among the Company and certain of its Shareholders. (Filed
as Exhibit 4.3 to the Company's Form S-8 filed with the
SEC on March 23, 1994.)
10 (a) Revolving Credit Agreement Dated as of January 27, 1994
Re: $150,000,000 Line of Credit from Credit Lyonnais New
York Branch ("Revolving Credit Agreement"). (Filed as
Exhibit 10(e) to the Company's Form 10-K filed with the
SEC on March 28, 1994.)
- 37 -
<PAGE> 38
10 (b) First Amendment to Revolving Credit Agreement dated as of
April 15, 1994 by and among the parties thereto. (Filed
as Exhibit 10(f) to the Company's Form 10-K filed with
the SEC on March 27, 1995.)
10 (c) Second Amendment to Revolving Credit Agreement dated as
of August 15, 1994 by and among the parties thereto.
(Filed as Exhibit 10(g) to the Company's Form 10-K filed
with the SEC on March 27, 1995.)
10 (d) Third Amendment to the Revolving Credit Agreement dated
as of March 24, 1995 by and among the parties thereto.
(Filed as Exhibit 10(h) to the Company's Form 10-K filed
with the SEC on March 27, 1995.)
10 (e) Fourth Amendment to the Revolving Credit Agreement dated
as of August 1, 1995 by and among the parties thereto.
(Filed as Exhibit 10.1 to the Company's Form 10-Q filed
with the SEC on November 8, 1995.)
10 (f) Fifth Amendment to the Revolving Credit Agreement dated
as of October 31, 1995 by and among the parties thereto.
(Filed as Exhibit 10.1 to the Company's Form 8-K filed
with the SEC on December 29, 1995.)
10 (g) Pledge and Security Agreement dated as of January 27,
1994 by and among FRI-M Corporation, the Company, the
Subsidiary Guarantors named therein and Credit Lyonnais
New York Branch. (Filed as Exhibit 10(f) to the Company's
Form 10-K filed with the SEC on March 28, 1994.)
10 (h) The Company's 1994 Incentive Stock Option Plan. (Filed as
Exhibit 10(g) to the Company's Form 10-K filed with the
SEC on March 28, 1994.)
10 (i) The Company's Deferred Compensation Plan. (Filed as
Exhibit 10(k) to the Company's Form 10-K filed with the
SEC on March 27, 1995.)
10 (j) The Company's 1995 Management Incentive Compensation Plan
Description. (Filed as Exhibit 10(l) to the Company's
Form 10-K filed with the SEC on March 27, 1995.)
- 38 -
<PAGE> 39
10 (k) The Company's Severance Plan. (Filed as Exhibit 10(m) to
the Company's Form 10-K filed with the SEC on March 27,
1995.)
10 (l) Restated and Expanded Distribution Agreement, dated as of
May 4, 1993 by and between Marriott Corporation and the
Company. (Filed as Exhibit 10(d) to the Company's Form
10-Q filed with the SEC for the Quarter ended March 29,
1993.)
10 (m) Amendment No. 1, dated October 15, 1993, to Restated and
Expanded Distribution Agreement between the Company and
Marriott Corporation. (Filed as Exhibit 10(l) to the
Company's Form S-1 filed with the SEC on November 1,
1993.)
10 (n) Form of Management Stock Subscription Agreement of the
Company. (Filed as Exhibit 10(bb) to the Company's Form
10-K filed with the SEC on March 28, 1994.)
10 (o) Form of Management Pledge Agreement of the Company.
(Filed as Exhibit 10(cc) to the Company's Form 10-K filed
with the SEC on March 28, 1994.)
10 (p) Form of Secured Promissory Note relating to Management
Stock Subscription and Pledge. (Filed as Exhibit 10(dd)
to the Company's Form 10-K filed with the SEC on March
28, 1994.)
10 (q) Management Services Agreement, dated as of January 27,
1994, by and between the Company and Apollo Advisors,
L.P. (Filed as Exhibit 10(ff) to the Company's Form 10-K
filed with the SEC on March 28, 1994.)
10 (r) Management Services Agreement, dated as of January 27,
1994, by and between the Company and Leonard Green &
Partners, L.P. (Filed as Exhibit 10(gg) to the Company's
Form 10-K filed with the SEC on March 28, 1994.)
10 (s) Lease Indemnification Agreement, dated as of January 27,
1994, by and between the Company and W. R. Grace &
Co.-Conn. (Filed as Exhibit 10(ii) to the Company's Form
10-K filed with the SEC on March 28, 1994.)
10 (t) Distribution Agreement, dated as of October 4, 1993, by
and between Foodmaker, Inc. and
- 39 -
<PAGE> 40
Chi-Chi's, Inc. (Filed as Exhibit 10(jj) to the Company's
Form 10-K filed with the SEC on March 28, 1994.)
10 (u) Tax Sharing Agreement, dated as of January 27, 1994, by
and among the Company, Foodmaker, Inc. and Chi-Chi's,
Inc. (Filed as Exhibit 10(ll) to the Company's Form 10-K
filed with the SEC on March 28, 1994.)
10 (v) Registration Rights Agreement, dated as of January 27,
1994, by and among the Company and certain of its
shareholders. (Filed as Exhibit 10(mm) to the Company's
Form 10-K filed with the SEC on March 28, 1994.)
*10 (w) Agreement, dated as of January 5, 1996, by and between
Kevin S. Relyea and the Company.
*10 (x) Separation Agreement and General Release, dated as of
December 5, 1995, by and between Barry E. Krantz and the
Company.
*10 (y) Separation Agreement and General Release, dated as of
September 1, 1995, by and between Patricia K. Johnson and
the Company.
*21 (a) List of Subsidiaries.
*21 (b) Names Under Which Subsidiaries Do Business.
*23 (a) Consent of Deloitte & Touche LLP.
*23 (b) Consent of KPMG Peat Marwick LLP.
*27 Financial Data Schedule.
(b) Reports on Form 8-K
On December 29, 1995, a report on Form 8-K was filed with the
Securities and Exchange Commission reporting a Change in Control of
Registrant pursuant to Item 1 of such report.
- ----------
* Filed herewith.
- 40 -
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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.
By /S/ Robert T. Trebing Jr. April 1, 1996
------------------------- -----------------
Robert T. Trebing, Jr. Date
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Director, President and
Chief Executive Officer
(Principal Executive
/S/ Kevin S. Relyea Officer) April 1, 1996
- --------------------------
Kevin S. Relyea
/S/ Peter P. Copses Director April 1, 1996
- --------------------------
Peter P. Copses
/S/ Antony P. Ressler Director April 1, 1996
- --------------------------
Antony P. Ressler
Senior Vice President and
Chief Financial Officer
(Principal Financial and
/S/ Robert T. Trebing, Jr. Accounting Officer) April 1, 1996
- --------------------------
Robert T. Trebing, Jr.
</TABLE>
- 41 -
<PAGE> 42
Supplemental Information to be Furnished with Reports Filed Pursuant to Section
15(d) of the Act by Registrants which have not Registered Securities Pursuant to
Section 12 of the Act
- --------------------------------------------------------------------------------
No annual report covering the registrant's last fiscal year has been or
will be sent to security holders, other than a copy of this Annual Report on
Form 10-K.
No proxy statement, form of proxy or other proxy solicitation materials
with respect to any annual or other meeting of security holders were sent in
1995, and none will be sent with respect to 1995, to security holders.
- 42 -
<PAGE> 43
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Family Restaurants, Inc.
Independent Auditors' Reports F-2
Consolidated Balance Sheets as of December 31, 1995
and December 25, 1994 F-4
Consolidated Statements of Operations for the Year
Ended December 31, 1995, the Eleven Months Ended
December 25, 1994, the One Month Ended
January 26, 1994 and the Year Ended
December 26, 1993 F-5
Consolidated Statements of Common Stockholders'
Deficit for the Year Ended December 31, 1995,
the Eleven Months Ended December 25, 1994,
the One Month Ended January 26, 1994 and
the Year Ended December 26, 1993 F-6
Consolidated Statements of Cash Flows for the
Year Ended December 31, 1995, the Eleven
Months Ended December 25, 1994, the One Month
Ended January 26, 1994 and the Year Ended
December 26, 1993 F-7
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE> 44
INDEPENDENT AUDITORS' REPORT
Board of Directors
Family Restaurants, Inc.:
We have audited the accompanying consolidated balance sheets of Family
Restaurants, Inc. and its subsidiaries as of December 31, 1995 and December 25,
1994, and the related consolidated statements of operations, common
stockholders' deficit and cash flows for the year ended December 31, 1995, the
eleven months ended December 25, 1994 (Successor Company) and the one month
ended January 26, 1994 (Predecessor Company). In connection with our audits of
the consolidated financial statements, we also audited the financial statement
schedule as listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
consolidated financial statements and financial statement schedule 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 financial position of Family
Restaurants, Inc. and its subsidiaries at December 31, 1995 and December 25,
1994, and the results of their operations and their cash flows for the year
ended December 31, 1995, the eleven months ended December 25, 1994 (Successor
Company) and the one month ended January 26, 1994 (Predecessor Company) in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information shown therein.
As discussed in Notes 1 and 2 to the consolidated financial statements,
the Company commenced a Chapter 11 bankruptcy case on November 23, 1993, which
was confirmed by the United States Bankruptcy Court for the District of Delaware
on January 7, 1994. Accordingly, the accompanying consolidated financial
statements have been prepared in conformity with AICPA Statement of Position
90-7, "Financial Reporting for Entities in Reorganization Under the Bankruptcy
Code."
KPMG PEAT MARWICK LLP
Orange County, California
March 15, 1996, except as
to the second paragraph
of note 9, which is as
of March 29, 1996
F-2
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
Family Restaurants, Inc.:
We have audited the accompanying consolidated statements of operations,
common stockholders' deficit and cash flows of Family Restaurants, Inc. and its
subsidiaries for the year ended December 26, 1993. Our audit also included the
financial statement schedule listed in the Index at Item 14. The consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
consolidated financial statements and the financial statement schedule based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the results of operations and cash flows of Family
Restaurants, Inc. and its subsidiaries for the year ended December 26, 1993 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information shown therein.
As discussed in Notes 1 and 2, the Company commenced a Chapter 11
bankruptcy case on November 23, 1993, which was confirmed by the United States
Bankruptcy Court for the District of Delaware on January 7, 1994. Accordingly,
the accompanying consolidated financial statements have been prepared in
conformity with AICPA Statement of Position 90-7, "Financial Reporting for
Entities in Reorganization Under the Bankruptcy Code."
DELOITTE & TOUCHE LLP
Costa Mesa, California
March 22, 1994
F-3
<PAGE> 46
FAMILY RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
<TABLE>
<CAPTION>
Successor Company
---------------------------
December 31, December 25,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 8,370 $ 8,239
Restricted cash 0 1,850
Receivables 8,172 11,831
Inventories 5,645 12,916
Other current assets 4,813 8,179
Property held for sale 240,077 0
--------- ---------
Total current assets 267,077 43,015
Property and equipment, net 207,223 445,354
Reorganization value in excess of amounts
allocable to identifiable assets, net 39,332 197,581
Other assets 37,638 48,648
--------- ---------
$ 551,270 $ 734,598
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Loan payable to banks $ 79,815 $ 0
Current portion of long-term debt, including
capitalized lease obligations 3,046 6,754
Accounts payable 22,400 41,999
Self-insurance reserves 35,488 50,692
Other accrued liabilities 78,319 96,426
Income taxes payable 2,895 2,625
--------- ---------
Total current liabilities 221,963 198,496
Other long-term liabilities 5,680 6,866
Long-term debt, including capitalized lease
obligations, less current portion 455,203 536,495
Stockholders' deficit:
Common stock - authorized 1,500,000 shares,
par value $.01, 997,277 shares issued 10 10
Additional paid-in capital 158,251 159,554
Notes receivable from stockholders (869) (2,947)
Accumulated deficit (287,585) (163,876)
Less treasury stock, at cost (8,950 shares) (1,383) 0
--------- ---------
Total stockholders' deficit (131,576) (7,259)
--------- ---------
$ 551,270 $ 734,598
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 47
FAMILY RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share
and shares outstanding)
<TABLE>
<CAPTION>
Successor Company Predecessor Company
-------------------------- -------------------------
For the Year Eleven Months One Month For the Year
Ended Ended Ended Ended
December 31, December 25, January 26, December 26,
1995 1994 1994 1993
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sales $1,134,359 $1,048,674 $ 64,741 $884,910
---------- ---------- -------- --------
Product cost 322,194 293,413 19,184 259,512
Payroll and related costs 419,185 377,569 24,780 331,747
Occupancy and other operating expenses 275,164 243,147 13,712 197,797
Depreciation and amortization 57,836 48,646 2,800 32,224
General and administrative expenses 56,245 49,059 4,071 44,164
Interest expense, net 65,277 51,419 4,097 50,276
Loss (gain) on disposition of
properties, net 12,067 5,685 (12) 4,916
Provision for divestitures and write-down
of long-lived assets 44,500 144,780 0 10,400
Restructuring costs 4,392 0 0 0
Debt restructuring costs 0 0 0 4,239
---------- ---------- -------- --------
Total costs and expenses 1,256,860 1,213,718 68,632 935,275
---------- ---------- -------- --------
Loss before reorganization items,
income tax provision and
extraordinary item (122,501) (165,044) (3,891) (50,365)
---------- ---------- -------- --------
Reorganization items:
Professional fees 0 0 (4,250) 0
Payment to Grace 0 0 (15,000) 0
Other 0 0 (3,029) (1,091)
Fresh start adjustment 0 0 501,706 0
---------- ---------- -------- --------
Total reorganization items 0 0 479,427 (1,091)
---------- ---------- -------- --------
Income (loss) before income tax provision
and extraordinary item (122,501) (165,044) 475,536 (51,456)
Income tax provision 1,208 1,773 55 658
---------- ---------- -------- --------
Income (loss) before extraordinary item (123,709) (166,817) 475,481 (52,114)
Extraordinary gain on extinguishment
of debt 0 2,941 72,561 0
---------- ---------- -------- --------
Net income (loss) (123,709) (163,876) 548,042 (52,114)
Preferred dividends 0 0 (1,698) (20,232)
---------- ---------- -------- --------
Net income (loss) attributable to
common shares $ (123,709) $ (163,876) $546,344 $(72,346)
========== ========== ======== ========
Net loss per common share:
Loss before extraordinary item $ (124.75) $ (168.55)
Extraordinary item 0.00 2.97
---------- ----------
Net loss attributable to common shares $ (124.75) $ (165.58)
========== ==========
Weighted average common shares outstanding 991,650 989,683
========== ==========
</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 consolidated financial statements.
F-5
<PAGE> 48
FAMILY RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' DEFICIT
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
Notes
Class A Class D Additional Receivable Treasury
Common Common Common Paid-in from Stock- Accumulated Stock,
Stock Stock Stock Capital holders Deficit at Cost Total
----- ----- ----- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 28, 1992 $ 2 $ 2 $ 0 $ 23,303 $ 0 $(342,720) $ (57) $(319,470)
Net loss 0 0 0 0 0 (52,114) 0 (52,114)
Stock dividends on preferred
stock 0 0 0 0 0 (20,232) 0 (20,232)
Conversion of Class A Common
Stock to Class D Common Stock (2) 2 0 0 0 0 0 0
Exercise of warrants 0 0 0 102 0 0 0 102
Exercise of stock options 0 0 0 76 0 0 0 76
--- --- --- -------- ------- --------- ------- ---------
Balance at December 26, 1993 0 4 0 23,481 0 (415,066) (57) (391,638)
Net income - one month ended
January 26, 1994 0 0 0 0 0 548,042 0 548,042
Fresh start adjustments:
Cancellation of former
equity 0 (4) 0 (23,481) 0 (132,976) 57 (156,404)
Issuance of new equity 0 0 10 159,554 (2,947) 0 0 156,617
Net loss - eleven months ended
December 25, 1994 0 0 0 0 0 (163,876) 0 (163,876)
--- --- --- -------- ------- --------- ------- ---------
Balance at December 25, 1994 0 0 10 159,554 (2,947) (163,876) 0 (7,259)
Net loss 0 0 0 0 0 (123,709) 0 (123,709)
Payments and cancellation
of notes receivable from
stockholders 0 0 0 (1,303) 2,078 0 0 775
Purchase of treasury stock 0 0 0 0 0 0 (1,383) (1,383)
--- --- --- -------- ------- --------- ------- ---------
Balance at December 31, 1995 $ 0 $ 0 $10 $158,251 $ (869) $(287,585) $(1,383) $(131,576)
=== === === ======== ======= ========= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 49
FAMILY RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Successor Company Predecessor Company
--------------------------- -------------------------
For the Eleven Months One Month For the
Year Ended Ended Ended Year Ended
December 31, December 25, January 26, December 26,
1995 1994 1994 1993
------------ ------------- ----------- ------------
Increase (Decrease) in Cash and Cash Equivalents
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 1,133,206 $ 1,049,483 $ 65,257 $ 885,248
Cash received from franchisees and licensees 7,897 7,308 84 847
Cash paid to suppliers and employees (1,084,758) (1,000,332) (59,729) (846,290)
Interest received 266 400 136 1,437
Interest paid (45,198) (28,153) (877) (10,088)
Restructuring costs (4,392) 0 0 0
Debt restructuring costs 0 0 0 (2,900)
Income taxes received (paid) (938) (926) 157 (925)
Charges to reserve for divestitures 0 (9,434) (1,001) (886)
----------- ----------- --------- ---------
Net cash provided by operating activities
before reorganization items 6,083 18,346 4,027 26,443
Reorganization items:
Professional fees 0 0 (4,250) 0
Payment to Grace 0 0 (15,000) 0
Other 0 0 (3,029) (1,091)
----------- ----------- --------- ---------
Total reorganization items 0 0 (22,279) (1,091)
----------- ----------- --------- ---------
Net cash provided by (used in) operating
activities 6,083 18,346 (18,252) 25,352
----------- ----------- --------- ---------
Cash flows from investing activities:
Proceeds from disposal of property and equipment 20,425 6,524 1,588 18,135
Acquisition of Chi-Chi's 0 2,478 (194,889) 0
Capital expenditures (38,022) (65,618) (779) (20,064)
Capitalized opening and conversion costs (2,155) (2,166) (21) (5,052)
Other 137 (5,385) 1,491 (3,736)
----------- ----------- --------- ---------
Net cash used in investing activities (19,615) (64,167) (192,610) (10,717)
----------- ----------- --------- ---------
Cash flows from financing activities:
Proceeds from sale of treasury bonds 0 0 0 3,412
Proceeds from issuance of Notes 0 0 409,046 0
Proceeds from working capital borrowings, net 20,215 59,600 0 0
Payment of notes payable to Marriott, net 0 (21,828) (10,969) 0
Proceeds (payment) of loan payable to Grace 0 0 (2,900) 2,900
Payment of debt issuance costs 0 0 (22,973) 0
Reductions of long-term debt, including
capitalized lease obligations (7,794) (7,842) (447) (9,843)
Cash settlement of liabilities subject to
settlement under reorganization proceedings 0 0 (279,055) 0
Decrease (increase) in restricted cash and
collateral deposit 1,850 17 38,688 (16,486)
Proceeds from issuance of common stock, net 0 1,911 92,364 0
Proceeds from exercise of warrants 0 0 0 102
Proceeds from exercise of stock options 0 0 0 76
Purchase of treasury stock (1,383) 0 0 0
Payments of notes receivable from stockholders 775 0 0 0
----------- ----------- --------- ---------
Net cash provided by (used in) financing
activities 13,663 31,858 223,754 (19,839)
----------- ----------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 131 (13,963) 12,892 (5,204)
Cash and cash equivalents at beginning of period 8,239 22,202 9,310 14,514
----------- ----------- --------- ---------
Cash and cash equivalents at end of period $ 8,370 $ 8,239 $ 22,202 $ 9,310
=========== =========== ========= =========
</TABLE>
F-7
<PAGE> 50
FAMILY RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
<TABLE>
<CAPTION>
Successor Company Predecessor Company
---------------------------- --------------------------
For the Eleven Months One Month For the
Year Ended Ended Ended Year Ended
December 31, December 25, January 26, December 26,
1995 1994 1994 1993
------------ ------------- ----------- ------------
Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities
<S> <C> <C> <C> <C>
Net income (loss) $(123,709) $(163,876) $ 548,042 $(52,114)
--------- --------- --------- --------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities net
of effects of Chi-Chi's acquisition in 1994:
Depreciation and amortization 57,836 48,646 2,800 32,224
Amortization of debt issuance costs 6,726 3,006 215 2,531
Loss (gain) on disposition of properties 12,067 5,685 (12) 4,916
Charges to reserve for divestitures 0 (9,434) (1,001) (886)
Provision for divestitures and write-down
of long-lived assets 44,500 144,780 0 10,400
Fresh start adjustment 0 0 (501,706) 0
Extraordinary gain on extinguishment of debt 0 (2,941) (72,561) 0
Accretion of interest on Discount Notes 13,454 11,362 0 0
Accrued interest on liabilities settled under
bankruptcy proceedings 0 0 3,113 0
(Increase) decrease in receivables 708 697 54 (3,757)
(Increase) decrease in inventories 1,976 (552) 394 5,209
(Increase) decrease in other current assets (3,382) (566) 358 (2,331)
Increase (decrease) in accounts payable 1,403 (14,611) 1,096 (3,925)
Increase (decrease) in self-insurance reserves 1,664 1,526 (386) (5,235)
Increase (decrease) in other accrued liabilities (7,430) (6,223) 1,130 38,587
Increase (decrease) in income taxes payable 270 847 212 (267)
--------- --------- --------- --------
Total adjustments 129,792 182,222 (566,294) 77,466
--------- --------- --------- --------
Net cash provided by (used in) operating
activities $ 6,083 $ 18,346 $ (18,252) $ 25,352
========= ========= ========= ========
Supplemental schedule of investing activities:
The components of acquisition of Chi-Chi's in 1994 are as follows:
Current assets $ (7,730)
Property and equipment (153,731)
Goodwill (149,376)
Other assets (13,908)
Current liabilities 59,324
Other long-term liabilities 5,975
Long-term debt assumed 4,694
Issuance of common stock 62,341
---------
$(192,411)
=========
</TABLE>
Supplemental schedule of noncash investing and financing activities:
Common stockholders' deficit was increased by $20,232,000 in 1993 for stock
dividends on preferred stock.
Disclosure of accounting policy:
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 51
FAMILY RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Family Restaurants, Inc. (formerly known as The Restaurant Enterprises
Group, Inc.), incorporated in Delaware in 1986, is primarily engaged in the
operation of full-service restaurants throughout the United States through its
subsidiaries. At December 31, 1995, the Company operated 670 restaurants located
in 33 states, with 53% of its restaurants located in California. Additionally,
as of December 31, 1995, the Company was the licensor of 255 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 18
Mexican restaurants outside the United States. As used in these consolidated
financial statements, the term "Company" refers to Family Restaurants, Inc.
together with its subsidiaries.
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), with respect to information about events
occurring upon completion of or after the Acquisition.
The consolidated financial statements of the Predecessor Company were
prepared on a going concern basis, which contemplated continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. While the Chapter 11 cases described below were in process, the
Company continued in possession of its properties and operated and managed its
business as a debtor-in-possession pursuant to the United States Bankruptcy
Code. The 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" ("SOP 90-7"), in the December 26,
1993 consolidated financial statements. On January 7, 1994, the Plan (as defined
below) was confirmed by the bankruptcy court (see Note 2).
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 forgiveness of
debt resulting from confirmation of the Plan and the effects of adjustments to
restate assets and liabilities to reflect the reorganization value of the
Successor Company. As such, the consolidated balance sheets of the Company as of
December 31, 1995 and December 25, 1994 and the
F-9
<PAGE> 52
accompanying consolidated statements of operations for the year ended December
31, 1995 and the eleven months ended December 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 accompanying consolidated statements of operations for the one month ended
January 26, 1994 and the year ended December 26, 1993 represent that of the
Predecessor Company.
NOTE 2 - THE ACQUISITION:
On January 27, 1994 (the "Closing Date"), Apollo FRI Partners, L.P.
("Apollo"), Green Equity Investors, L.P. ("GEI") and Foodmaker, Inc.
("Foodmaker") acquired approximately 98% of the outstanding common stock, par
value $.01 per share (the "Common Stock") of the Company (the "Acquisition").
The Acquisition involved the following components and related transactions, all
of which (unless otherwise noted) were consummated on the Closing Date:
New Equity Investment. Apollo, GEI, Foodmaker and certain officers of
the Company made a $154.7 million new equity investment (the "New Equity
Investment") in the Company pursuant to the acquisition agreement, dated as of
October 15, 1993, among the Company, Apollo, GEI, Foodmaker and Chi-Chi's (as
amended, the "Acquisition Agreement") and the Employee Stock Purchase (as
defined below). Apollo purchased 40.0% of the Common Stock outstanding
immediately following the Closing Date for $62.3 million in cash, and GEI
purchased 18.4% of the Common Stock outstanding immediately following the
Closing Date for $28.8 million in cash. Foodmaker acquired 40.0% of the Common
Stock immediately following the Closing Date, with a value of $62.3 million in
the Chi-Chi's Merger (as defined below).
Chi-Chi's Merger. The Company acquired Chi-Chi's, a wholly-owned
subsidiary of Foodmaker and the operator, directly or indirectly through its
subsidiaries, or franchisor of 235 full-service Mexican restaurants, the largest
chain of such restaurants in the United States based upon both number of
restaurants and annual revenues. This acquisition was accounted for under the
purchase method. The Chi-Chi's acquisition occurred through a merger of a
newly-formed subsidiary of the Company with Chi-Chi's (the "Chi-Chi's Merger").
Pursuant to the Acquisition Agreement, Foodmaker received (i) $205.0 million in
cash, less the principal amount of capital leases and the face amount of certain
indebtedness of Chi-Chi's existing or assumed by the Company in connection with
the Chi-Chi's Merger, (ii) 389,634 shares of Common Stock and (iii) a warrant to
purchase, at an aggregate exercise price of $26.7 million, 10% of the Common
Stock outstanding assuming the full exercise thereof (the "Warrant"). The
Foodmaker Warrant expires on February 1, 1999. Pro forma financial statements
for the Chi-Chi's Merger have not been presented as such merger was a component
of the Acquisition, and pro forma financial
F-10
<PAGE> 53
statements reflecting only this component of the Acquisition would not be
meaningful.
Credit Facility. The Company, FRI-M Corporation (formerly known as
REG-M Corp.), a wholly-owned subsidiary of the Company ("FRI-M"), and certain
subsidiaries of FRI-M (the "Subsidiary Guarantors") entered into a $150.0
million five-year fully revolving credit facility (the "Credit Facility") with a
$100.0 million sub-limit for standby letters of credit to be used for general
corporate purposes, including working capital and capital expenditures.
Borrowings under the Credit Facility are made by FRI-M. Such borrowings are
guaranteed by the Company and the Subsidiary Guarantors and are secured by
substantially all of the assets of such subsidiaries and by a pledge of the
stock of FRI-M and the Subsidiary Guarantors (see Note 9 for a discussion of
certain limitations to the total commitment available under the Credit
Facility).
Prepackaged Plan. The Company and REG-M Corp. commenced Chapter 11
cases on November 23, 1993, and a prepackaged joint plan of reorganization (the
"Plan") was confirmed by the United States Bankruptcy Court for the District of
Delaware on January 7, 1994. On the Closing Date, substantially all of the
Company's old debt and equity securities were cancelled and extinguished through
consummation of the Plan and holders thereof received cash distributions as
follows. For each $1,000 principal amount of 12 1/4% Senior Subordinated Notes
due 1996 (the "Old Senior Subordinated Notes"), holders received $939.26 in cash
plus an additional cash amount equal to interest accrued on $939.26 from May 19,
1993 to the Closing Date at a rate equal to 10.05% per annum (the weighted
average of the yields to maturity of the Notes at the time they were issued)
(the "Accrual Rate"). For each $1,000 principal amount of 12 3/4% Subordinated
Notes due 1998 (the "Old Subordinated Notes" and, together with the Old Senior
Subordinated Notes, the "Old Notes"), holders received $646.18 in cash plus an
additional cash amount equal to interest accrued on $646.18 from May 19, 1993 to
the Closing Date at the Accrual Rate. For each share of 12% Cumulative
Exchangeable Preferred Stock (the "Preferred Stock"), holders received $17.88 in
cash and for each share of Class D Common Stock (the "Old Common Stock"),
holders received $.50 in cash.
Employee Stock Purchase and Management Incentive Plan. In connection
with the Acquisition, the Company adopted a new management incentive plan
pursuant to which certain officers and employees of the Company were granted the
right to purchase up to 40,900 shares of Common Stock (constituting up to 4.1%
of the Common Stock outstanding immediately following such purchases) at $160
per share (the "Employee Stock Purchase"), the same per share price paid by
Apollo and GEI in the New Equity Investment. The Employee Stock Purchase was
consummated on the Closing Date with respect to certain officers (15,625 shares
of Common Stock) and on May 19, 1994 and July 31, 1994 with respect to the other
participants (22,552 shares of Common Stock). No more than fifty percent of the
purchase price was authorized to be financed through
F-11
<PAGE> 54
interest-bearing recourse notes payable to the Company. These notes are due on
May 31, 1999, if not paid earlier by deductions from incentive compensation, and
bear interest at 7%. Interest is payable every six months, in cash or additional
notes. The Company has repurchased 8,992 shares of Common Stock due to employee
terminations, leaving 29,185 shares currently owned by management stockholders
and terminated employees. The individuals who purchased Common Stock were also
granted options to purchase 20,822 shares of Common Stock in the future at an
exercise price initially set at $160 per share. The Company also granted options
to purchase approximately 30,000 shares of Common Stock to approximately 800
other employees.
Investment Agreement. W. R. Grace & Co.-Conn. ("Grace"), Western Family
Restaurants, Inc., an affiliate of Grace which owned 74.6% of the Old Common
Stock, and the Company entered into an agreement as amended (the "Investment
Agreement"), with Apollo REG, Co., GEI REG, Co. and FMI REG, Co. and Foodmaker.
Under the Investment Agreement, among other things, the Company paid Grace $15.0
million on the Closing Date in consideration of Grace's undertaking to obtain
written confirmation that although Grace would no longer hold an equity interest
in the Company, the Company would continue to receive royalties under a license
agreement through February 4, 2010. Grace also agreed to indemnify the Company
against certain tax liabilities and with respect to certain previously divested
leases.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Fiscal year
The Company reports results of operations based on 52 or 53 week
periods ending on the last Sunday in December. The fiscal year ended December
31, 1995 included 53 weeks, the fiscal year ended December 25, 1994 included 52
weeks, and the fiscal year ended December 26, 1993 included 52 weeks, less one
day.
Principles of consolidation
The consolidated financial statements include the accounts of the
Company and all its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Estimations
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-12
<PAGE> 55
Inventories
Inventories consist primarily of food and liquor and are stated at the
lower of cost or market. Costs are determined using the first-in, first-out
(FIFO) method.
Property and equipment
Property and equipment are stated at cost and are depreciated on a
straight-line basis over their estimated useful lives (buildings principally
over 25 to 35 years and furniture, fixtures and equipment over 3 to 10 years).
Leasehold improvements are amortized on a straight-line basis over the shorter
of their estimated useful lives or the terms of the related leases. Property
under capitalized leases is amortized over the terms of the leases using the
straight-line method.
Losses on disposition of properties are recognized when a commitment to
divest a restaurant property is made by the Company and include estimated
carrying costs through the expected date of disposal.
Property held for sale
Property held for sale is carried at its estimated fair value, less
estimated selling costs.
Advertising
Production costs of commercials and programming are charged to
operations when aired. The costs of other advertising, promotion and marketing
programs are charged to operations in the year incurred.
Franchise and license fees
Initial franchise and license fees are recognized when all material
services have been performed and conditions have been satisfied. Initial fees
for the periods presented are insignificant. Monthly fees are accrued as earned
based on the respective monthly sales. Such fees totalled $6,036,000 for 1995,
$6,006,000 for the eleven months ended December 25, 1994 (including Chi-Chi's
fees subsequent to the Acquisition), $546,000 for the one month ended January
26, 1994 and $4,907,000 for 1993 and are included as an offset to general and
administrative expenses.
The Company hedged its foreign currency royalties through forward
exchange contracts. These contracts reduced the exposure to currency movements
affecting the royalty receivable. Each contract's duration typically ended when
the receivable was expected to be paid. The future value of each contract and
the related currency position were subject to off-setting market risk. On
December 4, 1995, these contracts were terminated, resulting in a realized gain
of $2,405,000, which is included as a reduction to
F-13
<PAGE> 56
general and administrative expenses in the consolidated financial statements.
Reorganization value and goodwill
Reorganization value in excess of amounts allocable to identifiable
assets is amortized using the straight-line method over 30 years. Goodwill
related to the Chi-Chi's Merger was amortized using the straight-line method
over 30 years through the fourth quarter of 1994 when the Company wrote off its
remaining goodwill balance (see Note 7). Accumulated amortization of
reorganization value amounted to $13,018,000 at December 31, 1995 and $6,273,000
at December 25, 1994. During 1995, the Company determined that an impairment of
the portion of this asset related to its traditional dinnerhouse restaurants had
occurred and wrote off $2,049,000.
Impairment of long-lived assets
The Company evaluates property and equipment for impairment by
comparison of the carrying value of the assets to estimated undiscounted cash
flows expected to be generated by the asset over its estimated useful life.
Other long-lived assets (i.e., reorganization value and franchise operating
rights) are evaluated by comparison of their carrying value to the discounted
cash flows expected to be generated. In addition, the Company's evaluation
considers non-fictional data such as continuity of personnel, changes in the
operating environment, name identification, competitive information and market
trends. Finally, the evaluation considers changes in management's strategic
direction or market emphasis. When the foregoing considerations suggest that a
deterioration of the financial condition of the Company or any of its
restaurants has occurred, the Company measures the amount of an impairment, if
any, based on the estimated fair value of each of its restaurants over the
remaining amortization period.
During the third quarter of 1995, the Company closed seven Chi-Chi's
restaurants and identified additional restaurants to be sold or having impaired
asset value. Approximately 32 marginally profitable or unprofitable restaurants
are currently being offered for sale. In conjunction with this divestment
program, the Company analyzed the carrying value of the Chi-Chi's long-lived
assets to determine if any impairment had occurred. In connection with this
analysis, the Company recorded a charge for divestitures and writedowns of
long-lived assets of $41.9 million.
The Company believes that there has been no other impairment of its
long-lived assets, other than reorganization value associated with its
traditional dinnerhouse restaurants, as of December 31, 1995.
F-14
<PAGE> 57
Income taxes
The Company accounts for income taxes using the standards specified in
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (see Note 12).
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
Warrant and outstanding options have not been included since the impact would be
antidilutive.
Reclassifications
Certain amounts as previously reported have been reclassified to
conform to the 1995 presentation.
NOTE 4 - RECEIVABLES:
A summary of receivables follows:
<TABLE>
<CAPTION>
1995 1994
------ -------
(in thousands)
<S> <C> <C>
Trade, principally credit
cards $2,760 $ 3,184
License and franchise fees
and related receivables 3,184 5,113
Receivable from Marriott
Distribution Services 0 661
Insurance recovery receivables 0 323
Notes receivable 1,016 428
Other 1,212 2,122
------ -------
$8,172 $11,831
====== =======
</TABLE>
NOTE 5 - PROPERTY HELD FOR SALE:
On March 1, 1996, the Company entered into a definitive agreement (the
"Sale Agreement") to sell the Family Restaurant Division to an indirect
wholly-owned subsidiary of Flagstar Companies, Inc. ("Flagstar") in a
transaction with an enterprise value of approximately $306.5 million.
Consummation of the sale is subject to customary terms and conditions. At
December 31, 1995, the Family Restaurant Division operated 349 restaurants in
ten states and was the licensor of 251 full-service restaurants in Japan and
South Korea and the franchisor of six restaurants in the United States. Under
the terms of the Sale Agreement, the Company will receive, subject to certain
post-closing adjustments based on a closing balance sheet, cash of $125 million
and $150 million principal amount of 12-1/2% Senior Notes due in 2004 (the
"Flagstar Notes"), and Flagstar will assume $31.5 million of long-term debt,
primarily capitalized lease obligations. The Company expects the
F-15
<PAGE> 58
sale to be finalized in the second quarter of 1996 and to record a pretax gain
in 1996 as a result of this transaction. Cash proceeds from the sale will be
used to repay indebtedness outstanding under the Credit Facility and for
general corporate purposes, which may include future interest payments on the
Senior Notes (as defined below). In addition, Flagstar is required to (i) file
a registration statement with the Securities and Exchange Commission with
respect to the resale of the Flagstar Notes within 45 days after the date of
original issuance of the Flagstar Notes and (ii) use its best efforts to cause
such registration statement to become effective within 105 days after such
issue date (see Note 9).
During the fourth quarter of 1995, the Company determined that its
traditional dinnerhouse restaurants would be held for sale. The net assets of
these restaurants were written down to their estimated fair value (based in
part on a previously received offer in late 1995), less estimated selling
costs, of $12,908,000, resulting in a loss of $3,565,000 (including the
write-off of reorganization value of $2,049,000 associated with these
restaurants, which is included in loss (gain) on disposition of properties in
the accompanying consolidated statement of operations). Management is marketing
these restaurants as both a combined group and individually; however, it
believes the most likely disposition will be on an individual basis or through
lease terminations. Further, as a result of this divestment, approximately
1,350 employees will be terminated and estimated severance benefits (as well as
lease termination costs) of $1,354,000 have been accrued. Management has
identified the specific employees involved in the termination plan and has
communicated the benefit arrangements. The disposition of these restaurants is
expected to be completed by December 1996.
As a result of these transactions, the assets and liabilities of the
Family Restaurant Division and the traditional dinnerhouse restaurants have been
classified as property held for sale in the accompanying consolidated balance
sheet. The components of property held for sale are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current assets $ 9,716
Property and equipment, net 166,187
Reorganization value, net 149,315
Other assets 9,405
Current liabilities (67,842)
Long-term debt (26,704)
--------
$240,077
========
</TABLE>
The following unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1995 presents pro forma operating
results for the Company as if the sale of the Family Restaurant Division and
related transactions had occurred as of the beginning of fiscal year 1995. The
following unaudited pro forma condensed consolidated balance sheet presents the
pro forma financial condition of the Company as if the sale of the Family
Restaurant Division had occurred on December 31, 1995. The unaudited pro forma
condensed consolidated balance sheet and statement of operations were prepared
assuming the following events had occurred in connection with the sale of the
Family Restaurant Division:
(i) the consummation of the sale of the Family Restaurant Division
and related transactions and
(ii) the repayment of existing loans payable under the Credit
Facility and related transactions.
The pro forma unaudited adjustments represent the Company's preliminary
determination of the necessary adjustments and are based upon certain
assumptions the Company considers reasonable under the circumstances. Final
amounts will differ from those set forth below. The unaudited pro forma
financial information presented herein does not purport to represent what the
Company's results of operations or financial position would have been had such
events occurred at the beginning of fiscal year 1995, or at
F-16
<PAGE> 59
the date indicated or to project the Company's results of operations in any
future period.
If the sale of the Family Restaurant Division had occurred as of the
beginning of 1995, the results of operations would have been as follows for the
year ended December 31, 1995 (in thousands except per share):
<TABLE>
<CAPTION>
Family Unaudited
Restaurants, -----------------------
Inc. for the Pro forma
year ended -----------------------
Dec. 31, 1995 Adjustments Combined
------------- ----------- ---------
<S> <C> <C> <C>
Sales $1,134,359 $(502,485) $ 631,874
---------- --------- ---------
Product cost 322,194 (143,534) 178,660
Payroll and related costs 419,185 (181,403) 237,782
Occupancy and other operating
expenses 275,164 (95,882) 179,282
Depreciation and amortization 57,836 (27,906) 29,930
General and administrative
expenses 56,245 (20,201) 36,044
Interest expense, net 65,277 (29,949) 35,328
Loss (gain) on disposition on
properties, net 12,067 (44,706) (32,639)
Provision for divestitures and
write-down of long-lived assets 44,500 0 44,500
Restructuring costs 4,392 0 4,392
---------- --------- ---------
Total costs and expenses 1,256,860 (543,581) 713,279
---------- --------- ---------
Loss before income tax
provision (122,501) 41,096 (81,405)
Income tax provision 1,208 (493) 715
---------- --------- ---------
Net loss $ (123,709) $ 41,589 $ (82,120)
========== ========= =========
Net loss per common share $ (124.75) $ (82.81)
========== =========
Weighted average common shares
outstanding 991,650 991,650
======= =======
</TABLE>
These unaudited pro forma adjustments include the effect of (i) the
elimination of the operating results of the Family Restaurant Division for the
year ended December 31, 1995, including certain allocated corporate general and
administrative expenses which are allocated to each of the Company's divisions
based on sales ($11,418,000 for the Family Restaurant Division); (ii) the
elimination of interest expense related to the Credit Facility of $7,887,000
and the inclusion of interest income related to the Flagstar Notes of
$18,750,000; (iii) the gain on the sale of the Family Restaurant Division of
$42,831,000; and (iv) the decrease in state, local and foreign income tax
expense of $493,000 resulting from the sale of the Family Restaurant Division
(the Company incurs no Federal income taxes due to its operating losses).
F-17
<PAGE> 60
If the sale of the Family Restaurant Division had occurred as of
December 31, 1995, the Company's Unaudited Pro Forma Condensed Consolidated
Balance Sheet would appear as follows (in thousands):
<TABLE>
<CAPTION>
Unaudited
Family -----------------------
Restaurants, Pro forma
Inc. at -----------------------
Dec. 31, 1995 Adjustments Combined
------------- ----------- --------
<S> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 8,370 $ 39,899 $ 48,269
Property held for sale 240,077 (227,169) 12,908
Other current assets 18,630 0 18,630
--------- --------- --------
Total current assets 267,077 (187,270) 79,807
Flagstar notes 0 150,000 150,000
Other long-term assets 246,555 0 246,555
Other assets 37,638 (739) 36,899
--------- --------- --------
$ 551,270 $ (38,009) $513,261
========= ========= ========
Liabiities and stockholders' deficit:
Current liabilities:
Loan payable to banks $ 79,815 $ (79,815) $ 0
Other accrued liabilities 78,319 (286) 78,033
Other current liabilities 63,829 0 63,829
--------- --------- --------
Total current liabilities 221,963 (80,101) 141,862
Long-term liabilities 460,883 0 460,883
Stockholders' deficit (131,576) 42,092 (89,484)
--------- --------- --------
$ 551,270 $ (38,009) $513,261
========= ========= ========
</TABLE>
These unaudited pro forma adjustments include the effect of (i) the
elimination of the Family Restaurant Division property held for sale balance of
$227,169,000; (ii) receipt of cash of $125,000,000 (net of estimated transaction
costs of $5,000,000) and the Flagstar Notes of $150,000,000, with no assumption
for the impact of any post-closing adjustments based on a closing balance sheet;
and (iii) the payment of existing loans ($79,815,000) and accrued interest
($286,000) payable under the Credit Facility and the elimination of the
remaining balance of capitalized debt issuance costs of $739,000.
F-18
<PAGE> 61
NOTE 6 - PROPERTY AND EQUIPMENT:
A summary of property and equipment follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
(in thousands)
<S> <C> <C>
Land $ 24,030 $ 55,872
Buildings and improvements 151,245 293,847
Furniture, fixtures and
equipment 64,253 105,340
Projects under construction 2,666 23,296
--------- ---------
242,194 478,355
Accumulated depreciation
and amortization (34,971) (33,001)
--------- ---------
$ 207,223 $ 445,354
========= =========
</TABLE>
Property under capitalized leases in the amount of $23,800,000 at
December 31, 1995 and $64,201,000 at December 25, 1994 is included in buildings
and improvements. Accumulated amortization of property under capitalized leases
amounted to $5,227,000 at December 31, 1995 and $7,215,000 at December 25,
1994. Capitalized leases primarily relate to the buildings on certain
restaurant properties; the land portions of these leases are accounted for as
operating leases.
Depreciation and amortization relating to property and equipment was
$45,766,000 for 1995, $33,860,000 for the eleven months ended December 25,
1994, $2,359,000 for the one month ended January 26, 1994 and $28,394,000 for
1993, of which $7,578,000, $7,451,000, $412,000 and $6,213,000, respectively,
was related to amortization of property under capitalized leases.
A majority of the capitalized and operating leases have original terms
of 25 years, and substantially all of these leases expire in the year 2006 or
later. Most leases have renewal options. The leases generally provide for
payment of minimum annual rent, real estate taxes, insurance and maintenance
and, in most cases, contingent rent, calculated as a percentage of sales, in
excess of minimum rent. The total amount of contingent rent under capitalized
leases for the year ended December 31, 1995, the eleven months ended December
25, 1994, the one month ended January 26, 1994 and the year ended December 26,
1993 was $5,491,000, $4,895,000, $305,000 and $5,315,000, respectively. Total
rental expense for all operating leases comprised the following:
F-19
<PAGE> 62
<TABLE>
<CAPTION>
Eleven
Months One Month
Ended Ended
Dec. 25, Jan. 26,
1995 1994 1994 1993
-------- -------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Minimum rent $ 56,577 $ 50,373 $ 2,153 $ 26,315
Contingent rent 3,775 3,636 208 3,339
Less: Sublease rent (5,815) (5,685) (369) (5,035)
-------- -------- -------- --------
$ 54,537 $ 48,324 $ 1,992 $ 24,619
======== ======== ======== ========
</TABLE>
At December 31, 1995, the present value of capitalized lease payments
and the future minimum lease payments on noncancellable operating leases were:
<TABLE>
<CAPTION>
Capitalized Operating
Due in Leases Leases
------ ----------- ---------
(in thousands)
<S> <C> <C>
1996 $ 10,791 $ 50,984
1997 10,467 49,297
1998 10,067 48,450
1999 9,259 46,989
2000 8,207 45,010
Later years 27,609 259,769
-------- --------
Total minimum lease payments 76,400 $500,499
Interest (24,770) ========
--------
Present value of minimum
lease payments $ 51,630
========
</TABLE>
The future lease payments summarized above include commitments for
leased properties included in property held for sale and in the Company's
divestiture program.
NOTE 7 - GOODWILL WRITE-OFF:
Chi-Chi's reported significant sales declines in the second half of
1994 which continued into 1995. These sales declines resulted in operating
performance for Chi-Chi's which was significantly lower than anticipated at the
time of the Acquisition. These operating results caused the Company to
reevaluate its business strategy for the Mexican Restaurant Division,
particularly Chi-Chi's. Consistent with this strategic reevaluation, the
Company revised its forecasts for the future operations of Chi-Chi's which
resulted in a significant reduction in projected future cash flows and a lower
valuation of the business. The Company determined that its projected results
for Chi-Chi's would not support the future amortization of the remaining
Chi-Chi's goodwill balance of $144,780,000 at December 25, 1994.
F-20
<PAGE> 63
The methodology employed to assess the recoverability of the Chi-Chi's
goodwill first involved the projection of operating cash flows forward through
the year 2001 and the determination of a residual factor. These projections
were then discounted using an internal rate of return developed by a review of
certain publicly traded restaurant companies. The Company then evaluated the
recoverability of Chi-Chi's goodwill on the basis of this forecast of future
operations. Based on such forecast, the cumulative discounted future cash flow
was insufficient to recover the Chi-Chi's goodwill balance. Accordingly, the
Company wrote off the remaining unamortized Chi-Chi's goodwill balance of
$144,780,000 in the fourth quarter of 1994.
NOTE 8 - OTHER ASSETS:
A summary of other assets follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(in thousands)
<S> <C> <C>
Liquor licenses $ 6,059 $ 7,079
Debt issuance costs 13,352 20,078
Franchise operating rights 0 8,733
Notes receivable 8,569 9,882
Property held for sale 8,753 339
Other 905 2,537
------- -------
$37,638 $48,648
======= =======
</TABLE>
Debt issuance costs are amortized over the terms of the respective
loan agreements.
Franchise operating rights at December 25, 1994 are stated at their
fair market value as of the date of the Acquisition based on royalty income
streams and are amortized over the terms of the franchise agreements. The
franchise operating rights at December 31, 1995 have been reclassified as
property held for sale.
Property held for sale represents Chi-Chi's restaurants identified for
divestment during the third quarter of 1995 which management believes will be
sold over the next two years (see Note 3).
NOTE 9 - LONG-TERM DEBT, INCLUDING CAPITALIZED LEASE OBLIGATIONS:
Long-term debt, including capitalized lease obligations, is comprised
of the following (excluding amounts in 1995 related to the Family Restaurant
Division and traditional dinnerhouse restaurants):
F-21
<PAGE> 64
<TABLE>
<CAPTION>
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
9-3/4% Senior Notes $300,000 $300,000
10-7/8% Senior Subordinated
Discount Notes 133,860 120,406
Revolving credit loans 0 59,600
Capitalized lease obligations 21,159 58,798
Mortgage notes, 12-1/4% - 12-1/2%,
due 1996-1998 529 1,719
Other 2,701 2,726
-------- --------
458,249 543,249
Amounts due within one year 3,046 6,754
-------- --------
$455,203 $536,495
======== ========
</TABLE>
In connection with the Acquisition, the Company sold $300.0 million
principal amount of 9-3/4% Senior Notes due in full in 2002 (the "Senior
Notes") and $150.0 million principal amount ($109.0 million in proceeds) of
10-7/8% Senior Subordinated Discount Notes due in full in 2004 (the "Discount
Notes" and, together with the Senior Notes, the "Notes"), and the Company and
certain of its subsidiaries entered into the $150.0 million senior secured
revolving Credit Facility with a $100.0 million sub-limit for standby letters
of credit, which was to be used for general corporate purposes including
working capital, debt service and capital expenditure requirements. The Credit
Facility will terminate and the obligations thereunder will be immediately due
and payable on January 27, 1999. The outstanding total commitment available
under the Credit Facility, as amended, as of March 29, 1996, was $137.9
million, leaving $6.2 million of additional borrowings available thereunder.
Borrowings in the amount of $79,815,000 were outstanding under the
Credit Facility as of December 31, 1995, and interest on the revolving credit
loans was being charged at 10.0%. On August 1, 1995, the Company borrowed
$14,625,000 under the Credit Facility to fund an interest payment made on the
Senior Notes. This amount was paid off in December 1995. On February 1, 1996,
the Company borrowed $14,625,000 to fund an additional interest payment on the
Senior Notes. 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 ($37,600,000 of such letters of
credit were outstanding as of December 31, 1995).
The Credit Facility contains various covenants including the
maintenance of certain financial ratios. The Company is suffering from deficit
cash flows from operations and has made required debt service payments on other
obligations through borrowings on the Credit Facility. Accordingly, 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 quarters ending March
1996 and June 1996. However, the banks under the Credit Facility (the "Banks")
have agreed to waive such noncompliance
F-22
<PAGE> 65
through July 31, 1996. In accordance with generally accepted accounting
principles, and because the waivers only extend through July 31, 1996, at this
time the Company has classified the outstanding balance of $79,815,000 at
December 31, 1995 as a current liability. There can be no assurances that
further waivers or amendments will be obtained after July 31, 1996. Given this
uncertainty, the amortization of the related debt issuance costs was
accelerated assuming the debt will be retired or replaced earlier.
The Senior Notes require semiannual interest payments on February 1
and August 1 of each year and will mature on February 1, 2002. The Senior Notes
will not be redeemable at the option of the Company prior to February 1, 1999.
Thereafter, such notes may be redeemed at prices starting at 102.786% and
declining ratably to 100% at February 1, 2001. The Discount Notes will not
require cash interest payments until August 1, 1997. Thereafter, interest on
the Discount Notes will be paid on February 1 and August 1 of each year, and
such notes will mature on February 1, 2004. The Discount Notes will not be
redeemable at the option of the Company prior to February 1, 1999. Thereafter,
such notes may be redeemed at prices starting at 104.078% and declining ratably
to 100% at February 1, 2002.
In the third quarter of 1995, the Company retained Donaldson, Lufkin &
Jenrette Securities Corporation as a financial advisor to assist the Company in
the process of divesting certain divisions and operations. This process
culminated in the execution of the Sale Agreement on March 1, 1996 to sell the
Family Restaurant Division to Flagstar in a transaction with an enterprise
value of $306.5 million, subject to certain adjustments based on a closing
balance sheet. Cash proceeds from the sale will be used to repay
indebtedness outstanding under the Credit Facility and for general corporate
purposes, which may include future interest payments on the Senior Notes (see
Note 5). Consummation of the sale is subject to customary terms and conditions
and there can be no assurances that this transaction will be consummated.
Upon consummation of the sale, the Company will continue to be highly
leveraged and have significant debt service requirements. Although management
believes that the proceeds available to the Company as a result of the sale
(including funds available from potential sale of the Flagstar Notes), its cost
restructuring and revised marketing plans for Chi-Chi's, and other available
options (including sale of other divisions and sale/leaseback of owned
properties) should be sufficient to meet its operating and debt service
requirements for the foreseeable future, there can be no assurance that the
Company will be able to repay or refinance the Notes at their respective
maturities. The Company is currently exploring various alternatives to further
reduce its debt (including indebtedness outstanding under the Notes). Among
other things, the Company may use the Flagstar Notes to reduce such debt.
F-23
<PAGE> 66
The mortgage notes were issued to a group of institutional lenders and
are collateralized by mortgages covering five restaurants having a book value
of approximately $5.1 million at December 31, 1995.
Maturities of long-term debt, including capitalized lease obligations,
during the four years subsequent to December 29, 1996 are as follows:
$3,958,000 in 1997; $2,847,000 in 1998; $2,424,000 in 1999 and $2,327,000 in
2000.
NOTE 10 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The recorded amounts of the Company's cash and cash equivalents,
restricted cash, self-insurance reserves, other accrued liabilities and
revolving credit borrowings at December 31, 1995 and December 25, 1994
approximate fair value. The fair value of the Company's long-term debt,
excluding capitalized lease obligations, is estimated as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
Recorded Fair Recorded Fair
Amount Value Amount Value
-------- -------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Senior Notes $300,000 $165,000 $300,000 $233,250
Discount Notes 133,860 15,000 120,406 81,000
Mortgage notes 529 549 1,719 1,718
Other 2,701 2,368 2,726 2,460
</TABLE>
The fair values of the Notes are based on an average market price of
these instruments as of the end of fiscal 1995 and 1994. The fair value of the
mortgage notes and other debt was estimated using a discount rate which the
Company believes would be currently available to it for debt with similar terms
and average maturities.
The Company does not maintain investments or commitments for which the
application of SFAS 119, "Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments," would cause a material effect.
NOTE 11 - OTHER ACCRUED LIABILITIES:
A summary of other accrued liabilities follows (excluding amounts in
1995 related to the Family Restaurant Division and traditional dinnerhouse
restaurants):
F-24
<PAGE> 67
<TABLE>
<CAPTION>
1995 1994
------- -------
(in thousands)
<S> <C> <C>
Wages, salaries and bonuses $16,136 $27,292
Carrying costs of closed properties 12,925 17,912
Interest 13,306 13,212
Reserve for divestitures 11,858 0
Sales tax 3,771 10,011
Property taxes 3,460 4,626
Accrued rent 868 3,474
Utilities 1,381 4,028
Other 14,614 15,871
------- -------
$78,319 $96,426
======= =======
</TABLE>
Carrying costs of closed properties represent the estimated future
costs associated with the Company's closed and subleased restaurants which
consists primarily of the net present value of lease subsidies which are mainly
comprised of the excess of future lease payments for which the Company is
liable, over amounts estimated to be received from related subleases.
NOTE 12 - INCOME TAXES:
The Company reported a loss before income tax provision in 1995, 1994
and 1993. Accordingly, the income tax provisions for each year primarily
reflect certain state, local and foreign taxes. On a tax return basis, the
Federal regular operating loss carryforwards amounted to approximately $208.5
million ($143.5 million of alternative minimum tax operating loss
carryforwards) and expire in 2003 through 2011. The Company had approximately
$1.7 million of tax credit carryforwards which expire in 2003 and 2004.
Upon consummation of the Acquisition, the Company's net operating loss
carryovers and other tax attributes were reduced significantly for Federal
income tax purposes. In addition, because the consummation of the Acquisition
triggered an ownership change of the Company for Federal income tax purposes,
the Company's post-Acquisition use of its remaining net operating loss
carryovers for regular and alternative minimum Federal income tax purposes is
subject to an annual limitation in an amount equal to the product of (i) the
long-term tax-exempt rate prevailing on the Closing Date and (ii) the value of
the Company's stock, increased to reflect the cancellation of indebtedness
pursuant to the Plan (but without taking into account contributions to capital
pursuant to the Acquisition). The Company's annual limit is approximately $5.3
million.
At December 31, 1995, the Company and its subsidiaries had tax credit
carryforwards of approximately $4.1 million not utilized by Grace. In
accordance with the 1986 acquisition from Grace, the Company must reimburse
Grace for 75% of the benefit of these tax credits if they are utilized in
future Company tax returns. Further, El Torito Restaurants, Inc. (a wholly
owned subsidiary of
F-25
<PAGE> 68
the Company) has approximately $12.3 million of tax depreciation deductions not
claimed in Grace tax returns as a result of a tax sharing agreement. The
Company will also reimburse Grace for 75% of any tax savings generated by these
deductions. In addition, operating loss and tax credit carryforwards ($5.3
million and $0.7 million, respectively) generated prior to the acquisition of
certain restaurant companies by Grace were available at December 31, 1995 to
offset future taxable income or income taxes, respectively, of those companies
for various years through 1999.
Further, as a result of the Chi-Chi's Merger, the Company has net
operating loss and credit carryforwards not used by Chi-Chi's of $50.7 million
and $6.9 million, respectively. The net operating losses expire beginning in
2004 through 2009 and the credit carryovers expire in various years from 1996
through 2009. The Acquisition, as well as the 1992 acquisition of a previous
franchisee by Chi-Chi's, triggered ownership changes for Federal income tax
purposes which result in separate annual limitations on the availability of
these losses and credits.
A reconciliation of income tax expense to the amount of income tax
benefit that would result from applying the Federal statutory rate (35% for
1995, 1994 and 1993) to loss before income taxes is as follows:
<TABLE>
<CAPTION>
Fiscal Eleven One Fiscal
Year Months Month Year
Ended Ended Ended Ended
Dec. 31, Dec. 25, Jan. 26, Dec. 26,
1995 1994 1994 1993
-------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C>
Provision for income
taxes at statutory
rate $(42,875) $(56,736) $ 191,834 $(18,010)
State taxes, net of
Federal income tax
benefit 332 (2,948) (16,300) (3,113)
State minimum tax 0 1,183 55 187
Foreign taxes 270 541 49 471
Goodwill 3,312 54,679 0 1,923
Nondeductible reorgani-
zation costs 0 0 (175,597) 0
Addition to valuation
allowance 0 4,896 0 17,545
Surtax exemption 0 0 0 514
Change in deferred tax
asset which is subject
to a full valuation
reserve and other 40,169 158 14 1,141
-------- -------- --------- --------
$ 1,208 $ 1,773 $ 55 $ 658
======== ======== ========= ========
</TABLE>
F-26
<PAGE> 69
At December 31, 1995 and December 25, 1994, the Company's deferred tax
asset was $186,874,000 and $136,383,000, respectively, and deferred tax
liability was $29,514,000 and $27,570,000, respectively. The major components
of the Company's net deferred taxes of $157,360,000 at December 31, 1995 and
$108,813,000 at December 25, 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
(in thousands)
<S> <C> <C>
Depreciation $ (24,062) $ (26,004)
Net operating loss and
credit carryforwards 115,279 86,243
Capitalized leases 1,921 900
Divestment, carrying cost
and rent subsidy reserves 23,183 8,306
Self-insurance reserves 22,779 22,552
Kasumi payment to Grace 5,808 6,000
Property held for sale (5,451) 0
Straight-line rent 1,923 1,939
Reorganization costs 6,714 4,834
Other 9,266 4,043
--------- ---------
157,360 108,813
Valuation allowance (157,360) (108,813)
--------- ---------
$ 0 $ 0
========= =========
</TABLE>
The increase in the valuation allowance for 1995 resulted from an
increase in the cumulative temporary differences offset by expirations of
certain credits.
NOTE 13 - BENEFIT PLANS:
The Company maintains certain incentive compensation and related plans
for executives and key operating personnel, including restaurant and field
management. Total expenses for these plans were $7,071,000, $8,217,000,
$666,000 and $9,479,000 for 1995, the eleven months ended December 25, 1994,
the one month ended January 26, 1994 and 1993, respectively.
The Predecessor Company had two Retirement Savings Plans, and
substantially all of the Predecessor Company's salaried employees were eligible
to participate in them. Effective December 31, 1991, the Predecessor Company
suspended its match under one of the plans and terminated the other plan.
During 1994, the Company acquired two retirement plans related to the Chi-Chi's
Merger and established a new deferred compensation plan for highly compensated
employees. In 1995, the Company reinstituted its match under the Retirement
Savings Plan. The Company's contributions and expenses under these plans were
$355,000, $528,000, $2,000 and $53,000 for 1995, the eleven months ended
December 25, 1994, one month ended
F-27
<PAGE> 70
January 26, 1994 and 1993, respectively. The Company has no defined benefit
plans.
NOTE 14 - RELATED PARTY TRANSACTIONS:
Foodmaker provides distribution services to a portion of the Company's
Mexican restaurants, principally those operated under the Chi-Chi's name.
Distribution sales to those restaurants for the year ended December 31, 1995
and the eleven months ended December 25, 1994 aggregated $76,423,000 and
$81,537,000, respectively. In relation to the distribution sales, the Company
had accounts payable of $1,481,000 and $2,964,000 due to Foodmaker at December
31, 1995 and December 25, 1994, respectively.
On the Closing Date, Apollo and GEI received an aggregate of $7.0
million as a financial advisory fee for services provided in connection with
the Acquisition and related transactions. In addition, Apollo and GEI each
charge a monthly fee of $50,000 for providing certain management services to
the Company. For the year ended December 31, 1995 and the eleven months ended
December 25, 1994, the Company was charged $1.2 million and $1.1 million,
respectively, in connection with this arrangement.
NOTE 15 - COMMON STOCK:
In connection with the Acquisition, the Company adopted a new
management incentive plan, pursuant to which certain officers and employees of
the Company were granted the right to purchase up to 40,900 shares of Common
Stock (constituting up to 4.1% of the Common Stock outstanding immediately
following such purchases) at $160 per share (the "Employee Stock Purchase"),
the same per share price paid by Apollo and GEI in the New Equity Investment.
The Employee Stock Purchase was consummated on the Closing Date with respect to
certain officers (15,625 shares of Common Stock) and on May 19, 1994 and July
31, 1994 with respect to the other participants (22,552 shares of Common
Stock). No more than fifty percent of the purchase price was authorized to be
financed through interest-bearing recourse notes payable to the Company. The
Company has repurchased 8,992 shares of Common Stock due to employee
terminations, leaving 29,185 shares currently owned by management stockholders
and terminated employees. The individuals who purchased Common Stock were also
granted options to purchase 20,822 shares of Common Stock in the future at an
exercise price initially set at $160 per share. The Company also granted
options to purchase approximately 30,000 shares of Common Stock to
approximately 800 other employees. All these options expire in 2004 and 2005
and become exercisable at a rate of 25% on the grant date and 25% on each of
the next three anniversaries of the grant date. Approximately 22,000 options
have expired due to terminations.
F-28
<PAGE> 71
NOTE 16 - CONTINGENCIES:
The Company is involved in various litigation matters incidental to
its business. The Company does not believe that any of the claims or actions
filed against it will have a material adverse effect upon the consolidated
financial position and results of operations of the Company.
F-29
<PAGE> 72
SCHEDULE VIII
FAMILY RESTAURANTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Charged to Balance
beginning costs and other at end
Description of period expenses accounts Deductions of period
----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for uncollectible
receivables:
For the year 1995 $813 $0 $0 $(131)(2) $682
For the year 1994 955 21 360 (1) (523)(2) 813
For the year 1993 548 429 0 (22)(2) 955
</TABLE>
(1) Represents allowance established at the date of the Chi-Chi's Merger.
(2) Represents write-off of uncollectible receivables against allowance and
includes transfers to other accounts.
S-1
<PAGE> 1
Exhibit 10(w)
AGREEMENT
THIS AGREEMENT is made and entered into as of the 5th day of January,
1996, by and between Kevin S. Relyea (the "Employee") and Family Restaurants,
Inc., a Delaware corporation (the "Employer").
R E C I T A L S
WHEREAS, Employer is actively seeking to sell its Family Restaurant
Division which is comprised of multiple subsidiaries doing business as Carrows
and Coco's restaurants ("FRD"); and
WHEREAS, Employee is the Chief Executive Officer and President of
Employer, and President of FRD; and
WHEREAS, it is uncertain whether the purchaser of FRD will require the
services of Employee or offer employment to Employee on terms acceptable to
Employee; and
WHEREAS, it is uncertain whether Employee will remain employed by
Employer after the sale of FRD; and
WHEREAS, the parties desire to clarify Employee's right to severance
given the above set of circumstances;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
1. Severance Election. In the event a sale of FRD is consummated (as
defined below) and the purchaser of FRD (a) does not offer employment to
Employee; or (b) Employee does not accept an employment offer from the
purchaser; then Employee shall either: (x) remain an employee of Employer on
terms and conditions mutually acceptable to both Employee and Employer, or (y)
if such continued employment by Employer is not offered by Employer to Employee,
or the terms of the continued employment are not mutually acceptable to the
parties, Employee shall be deemed terminated without cause and shall be
immediately eligible to collect his severance benefits pursuant to the
Employer's Severance Plan.
2. Definition of Consummation. A sale of FRD shall be deemed to be
consummated upon the earliest of any of the following events to occur:
(a) The acquisition by a person or entity other than Employer
or any of its subsidiaries or affiliates of the stock representing a
majority of the business, as measured by revenues, of the entities
comprising FRD;
(b) A merger or consolidation of the entities comprising FRD
with another person or entity other than Employer or any of its
subsidiaries or affiliates; or
- 1 -
<PAGE> 2
(c) The acquisition by another person or entity other than
Employer or any of its subsidiaries or affiliates of assets of FRD
representing a majority of the assets of such entities, as measured by
book value.
3. Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties concerning the subject matter hereof and supersedes
all prior agreements, arrangements and understandings among the parties hereto
or any subsidiary or affiliate of Employer. This Agreement may not be amended or
modified except by a written instrument specifically referring to this Agreement
and executed by the parties hereto.
4. Successors. The terms and provisions of this Agreement shall be
binding on and inure to the benefit of the Employee, his heirs, distributees,
executors, administrators and other legal representatives, and shall be binding
on and inure to the benefit of the Employer, and its successors and assigns.
5. Governing Law. The validity, interpretation, construction,
performance and termination of this Agreement shall be governed by the laws of
the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this instrument on
the day first above written.
EMPLOYEE:
/S/ Kevin S. Relyea
Kevin S. Relyea
EMPLOYER:
FAMILY RESTAURANTS, INC.,
a Delaware corporation
By: /S/ Robert T. Trebing, Jr.
- 2 -
<PAGE> 1
Exhibit 10(x)
SEPARATION AGREEMENT
AND GENERAL RELEASE
This Separation Agreement and General Release (this
"Agreement") is entered into as of December 5, 1995, by and between Family
Restaurants, Inc., a Delaware corporation ("FRI"), and Barry E. Krantz, an
individual ("Employee").
RECITALS
A. WHEREAS, Employee's employment with FRI was terminated on
August 21, 1995, and Employee was removed from the Board of Directors of FRI
(the "Board") on or about October 25, 1995;
B. WHEREAS, Employee has asserted various contract, statutory and
tort claims arising out of the termination of his employment with FRI; and
C. WHEREAS, FRI and Employee desire to enter into this Agreement
to, among other things: (i) resolve, without litigation, any and all of their
disputes with each other relating to the termination of Employee's employment
with FRI, (ii) amend the terms of that certain Stock Subscription Agreement
dated January 27, 1994 (the "Stock Subscription Agreement") and that certain
Restricted Stock Agreement dated May 19, 1994 (the "Restricted Stock
Agreement"), and (iii) provide FRI with an option to purchase all of the common
stock of FRI owned by Employee.
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
1. TERMINATION.
1.1 Effective August 21, 1995 (the "Termination Date"), Employee
will neither be considered an employee, officer or director of FRI or any of
its subsidiaries for any purpose nor will he be entitled to receive any other
compensation, benefits or privileges of any kind or nature as an employee,
officer or director of FRI or any of its subsidiaries or affiliates, except as
herein provided.
1.2 In response to any inquiry regarding Employee or the
termination of his employment by FRI, FRI shall use its best efforts to provide
a letter of reference substantially in the form of the attached Exhibit A.
<PAGE> 2
2. PAYMENTS BY FRI.
2.1 FRI shall pay to Employee the sum of $287,746.15 in complete
satisfaction of all severance obligations FRI or any of its subsidiaries has or
may have to Employee, (including, without limitation, obligations under the FRI
Severance Plan (the "Plan")), in accordance with the following payment
schedule:
(i) an installment of $12,961.54 on or before December
22, 1995;
(ii) seventeen equal installments of $15,701.98, the first
installment of which shall be payable on January 4, 1996, and the
remaining sixteen installments of which shall be payable thereafter in
accordance with FRI's normal payroll practices; and
(iii) a final installment of $7,850.99 on or before August
22, 1996.
2.2 FRI shall pay to Employee concurrently with the execution of
this Agreement the sum of $22,107 in reimbursement for business expenses
previously incurred by Employee during his employment with FRI.
2.3 In exchange for the option to purchase the common stock in FRI
owned by Employee set forth in Section 5 below and, without admitting any
liability with respect thereto, in exchange for the release of all statutory
and tort claims (and any personal injuries claimed to have been suffered as a
result thereof) that Employee has asserted or could assert against FRI or any
of its affiliates, FRI hereby agrees to:
(i) pay to Employee, on the eighth day following the
execution of this Agreement, the sum of $304,687.50; and
(ii) release, discharge and acquit Employee of and from
any and all obligations, liabilities, indebtedness or other claims
arising out of or under those certain promissory notes dated January
27, 1994, May 19, 1994 and July 31, 1994 (collectively, the "Notes"),
made by Employee to and in favor of FRI.
3. GUARANTY BY FRI-M CORPORATION.
In exchange for (i) the release provided to it in Section 8.1 below
and (ii) other good and valuable consideration, FRI-M Corporation hereby
guarantees unconditionally the payment of all
2
<PAGE> 3
amounts due and owing from FRI to Employee under this Agreement.
Notwithstanding anything contained in this Section 3 to the contrary, the
obligations of FRI-M Corporation hereunder shall be limited (a) to a maximum
aggregate amount equal to the largest amount that would not render its
obligations hereunder subject to avoidance as a fraudulent transfer or
conveyance under Section 548 of Title 11 of the United States Code or any
applicable provisions of comparable state law (collectively, the "Fraudulent
Transfer Laws"), in each case after giving effect to all other liabilities of
FRI-M Corporation, contingent or otherwise, that are relevant under the
Fraudulent Transfer Laws (specifically excluding, however any liabilities of
FRI-M Corporation (x) in respect of intercompany indebtedness to FRI or other
affiliates of FRI to the extent that such indebtedness would be discharged in
an amount equal to the amount paid by FRI-M Corporation hereunder and (y) under
any guaranty of subordinated indebtedness which guaranty contains a limitation
as to maximum amount similar to that set forth in this Section 3, pursuant to
which the liability of FRI-M Corporation hereunder is included in the
liabilities taken into account in determining such maximum amount) and after
giving effect as assets to the value (as determined under the applicable
provisions of the Fraudulent Transfer Laws) of any rights to subrogation or
contribution of FRI-M Corporation and (b) to the extent necessary so that the
incurrence of such obligations does not violate (I) applicable law or (II) any
agreement to which FRI, FRI-M Corporation or any other affiliates of FRI are
currently parties.
4. TAX REPORTING OF SETTLEMENT.
4.1 FRI shall withhold from the payment installments described in
Section 2.1 of this Agreement all federal, state and local income, employment
and other taxes required to be withheld in connection therewith, and Employee
agrees to execute all tax forms required by FRI in connection therewith.
4.2 In accordance with applicable tax law, FRI shall not make any
tax withholding, nor shall it issue a Form 1099 or W- 2, with respect to any
portion of the payments described in Sections 2.2 and 2.3 of this Agreement.
Notwithstanding the foregoing, Employee agrees to indemnify FRI and its
affiliates, agents, employees, officers and directors, and hold each of them
harmless from and against (i) any and all tax, penalty, fine, interest or other
similar charge imposed by any tax authority resulting from, arising out of, or
related to the payments, cancellation of debt and other actions described in
Sections 2.2 and 2.3 of this Agreement, or the tax treatment or reporting
thereof and (ii) any and all costs and expenses incurred in connection with any
such tax, penalty, fine, interest or other similar charge.
3
<PAGE> 4
5. STOCK OPTIONS/EMPLOYEE OPTION.
5.1 All stock options held by Employee under the Family
Restaurants, Inc. 1994 Incentive Stock Option Plan shall be cancelled as of the
Termination Date and shall become null and void.
5.2 Employee hereby waives the right arising under the terms of
the Stock Subscription Agreement and the Restricted Stock Agreement to require
FRI to purchase the shares of FRI Common Stock owned by Employee, and FRI
hereby waives the right arising under the terms of the Stock Subscription
Agreement and the Restricted Stock Agreement to require the Employee to sell
such shares to FRI.
5.3 In exchange for the waiver by FRI described in Section 5.2 above,
Employee shall grant FRI an option to purchase 3,906.25 shares of FRI Common
Stock (the "Shares") in the form of the attached Exhibit B (the "Option").
5.4 Employee hereby represents and warrants to FRI as follows:
(i) Employee has the right and power to execute this Agreement, to grant the
Option and to sell, transfer, and assign the Shares in accordance therewith
without the concurrence or approval of any other person or entity; (ii)
Employee owns all of the Shares free and clear of any and all liens, security
interests, pledges, encumbrances and claims in favor of any other person, firm,
or corporation; (iii) no other party has any right, title, interest or claim in
or with reference to the Shares; (iv) Employee is familiar with the business of
FRI, has access to and has reviewed the financial statements of FRI and has
received all additional financial and other information with respect to FRI
which Employee has requested, all of which information has enabled Employee to
make the decision to enter into this Agreement and to grant the Option to FRI;
and (v) Employee has had an opportunity to make all inquiries necessary to
understand the terms of the transactions regarding his FRI Common Stock as
provided for herein.
6. BENEFITS.
Employee shall be entitled to the continuation of all basic medical
and dental benefits to which Employee is currently entitled through August 22,
1996 (and Employee's contributions through standard FRI deductions will
continue in connection therewith). After August 22, 1996, Employee may elect
to continue his health insurance coverage, at Employee's sole expense, under
the Consolidated Omnibus Budget Reconciliation Act
4
<PAGE> 5
(COBRA). Employee shall be entitled to the continuation of Exec-U-Care Medical
coverage through December 31, 1995 (and Employee's contributions through
standard FRI deductions will continue in connection therewith). All other
supplemental health insurance coverage will be discontinued effective as of the
Termination Date.
7. RETURN OF FRI PROPERTY.
Employee represents and warrants to FRI that he has returned all
property of FRI or any of its subsidiaries in his possession including, without
limitation, his QRC card, I.D. card, telephone credit card, keys, office
supplies and equipment, files, and records.
8. RELEASE.
8.1 Subject to Section 8.2 below, Employee hereby irrevocably and
unconditionally voluntarily releases (i) FRI, Jay Alix & Associates, the Plan,
the Plan Administrator (as defined in the Plan), (ii) each of FRI's
subsidiaries, shareholders, predecessors, successors, assigns, and affiliates,
and (iii) the agents, directors, officers, employees, representatives and
affiliates of, and all persons acting by, through, under or in concert with,
the persons referred to in clauses (i) and (ii) above, (collectively referred
to as "FRI Releasees") of and from any and all claims, complaints, liabilities,
obligations, agreements, damages, actions of any nature, known or unknown,
suspected or unsuspected ("Claims"), that Employee ever had, now has, or
hereafter may have against any of the FRI Releasees, by reason of any matter,
cause or thing whatsoever from the beginning of time up to the effective date
of this Agreement, including, without limitation, any Claims arising out of (i)
Employee's employment with FRI, (ii) his service as an officer or director of
FRI, (iii) the termination of his employment with FRI, (iv) the termination of
his service as an officer and director of FRI, (v) the Plan, (vi) the Notes, or
(vii) the Stock Subscription Agreement and Restricted Stock Agreement. Without
limiting the generality of the foregoing, Employee hereby waives any and all
Claims based on federal or state age, sex, sexual orientation, pregnancy, race,
color, national origin, marital status, religion, physical handicap, mental
condition, or mental handicap discrimination laws (including, but not limited
to, Title VII of the Civil Rights Act of 1964, as amended, the Age
Discrimination In Employment Act of 1967 and the California Fair Employment and
Housing Act) whether any such Claims be based upon an action filed by Employee
or by a governmental agency.
5
<PAGE> 6
8.2 The foregoing release shall not extend to and shall not
release any and all rights of Employee to defense, indemnity or contribution
from FRI arising out of Employee's service as an officer or director of FRI,
including, without limitation, such rights arising out of (i) the Articles of
Incorporation or the Bylaws of FRI, (ii) any policy of insurance of FRI, or
(iii) that certain Indemnification Agreement dated September 22, 1992 by and
between The Restaurants Enterprises Group, Inc. and Employee, all of which
rights are hereby ratified and confirmed.
8.3 Employee understands that there is a risk that, subsequent to
the execution of this Agreement, he may incur or suffer loss, damage or
injuries which are unknown or unanticipated at the time of execution of this
Agreement. Employee assumes this risk and the releases set forth in Section
8.1 shall apply to all such unknown or unanticipated losses, damages or
injuries. Employee acknowledges that he has been advised by his legal counsel
and is familiar with the provisions of Section 1542 of the California Civil
Code which provides as follows:
"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."
Employee, being aware of the foregoing Civil Code Section, hereby expressly
waives and relinquishes any and all rights and benefits afforded thereunder, as
well as under any other statute or common law principle of similar effect, and
does so understanding and acknowledging the significance of this waiver.
8.4 Employee hereby represents and warrants to FRI that none of
the claims released by Employee herein have been assigned or transferred, and
Employee hereby agrees to indemnify FRI and hold FRI harmless from and against
any claims arising from any such assignment or transfer.
9. AGREEMENT TO COOPERATE.
Employee shall not file, participate in, or maintain any claim, charge
or action in any local, state or federal court or administrative agency that is
based in whole or in part on any matter referred to and released in Section 8.1
of this Agreement, except for unemployment compensation claims, whether such
claim be based upon an action filed by Employee or by a government agency.
Employee shall cooperate fully with FRI regarding the
6
<PAGE> 7
prosecution or defense of any civil or administrative proceeding that may
involve events which occurred while Employee was employed by or severed as an
officer or director of FRI, and FRI shall reimburse Employee for all
reasonable, necessary, pre-approved out-of-pocket expenses he incurs as a
result of such cooperation. Without limiting the foregoing, Employee shall
cooperate with FRI and its attorneys at FRI's expense with respect to any
claim, litigation, judicial or arbitration proceeding that is now pending or
may hereinafter be brought by or against FRI or any of its affiliates.
Employee's duty of cooperation shall include, but shall not be limited to, (a)
meeting with FRI's attorneys by telephone or in person at mutually convenient
times and places in order to state truthfully Employee's recollection of
events; (b) appearing at FRI's request (and, to the extent possible, at a time
convenient to Employee and that does not conflict with the needs or
requirements of Employee's then current employer) as a witness at depositions
or trials, without necessity of a subpoena, in order to state truthfully
Employee's knowledge of matters at issue; and (c) signing at FRI's request
declarations or affidavits that truthfully state matters of which Employee has
knowledge.
10. COVENANT TO MAINTAIN INSURANCE.
FRI covenants and agrees that for so long as FRI maintains director's
and officer's liability insurance covering former officers and directors of
FRI, Employee shall be included within such coverage.
11. CONFIDENTIAL TREATMENT OF INFORMATION.
Employee acknowledges and agrees that, in connection with his
employment with FRI and its subsidiaries, Employee has been exposed to certain
confidential and proprietary information including, but not limited to, general
business information deemed and/or treated as proprietary, trade secrets,
secret formulae, customer lists and/or names, product and service prices,
customer charges, contracts, contract negotiations and employee relations
matters, including matters relating to the existence of this Agreement and the
terms and conditions hereof (collectively, "Confidential Information").
11.1 All Confidential Information disclosed to Employee shall be
treated by Employee as confidential and shall be maintained by Employee in
confidence and shall not be disclosed to anyone in any form without the prior
express written consent of FRI, except for necessary and limited disclosure to
his spouse, attorney or financial advisor.
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11.2 This obligation shall not extend to any Confidential Information
which hereafter becomes publicly known through lawful means other than as a
result of a disclosure by Employee.
11.3 In the event that Employee becomes legally compelled to disclose
any of the Confidential Information, Employee shall provide FRI with prompt
notice thereof so that FRI may seek a protective order or other appropriate
remedy and/or waiver compliance with the provisions of this Agreement. In any
event, Employee shall furnish only the portion of the Confidential Information
which is legally required and will exercise his best efforts to assure that
confidential treatment will be accorded the Confidential Information.
11.4 Employee agrees that FRI shall be entitled to equitable relief,
including the issuance of an injunction or specific performance, in the event
of any breach of the provisions of this Section 11 plus all remedies available
to FRI at law or equity.
11.5 The provisions of this Section 11 shall survive any termination
of this Agreement.
11.6 Employee hereby agrees that during the period ending at 5:00
p.m. on the first anniversary of the Termination Date he will not directly or
indirectly solicit, induce or attempt to induce any present or future employee
of FRI or any of its subsidiaries or affiliates to leave his or her employment
with FRI or such subsidiary or affiliate.
11.7 Employee hereby agrees that he shall not publish, or cause to be
published, any statement disparaging FRI or any of its subsidiaries of
stockholders, or any of the officers, director, employees, representatives or
affiliates thereof.
12. CERTAIN AMENDMENTS.
12.1 Employee and FRI hereby agree that the Stock Subscription
Agreement is hereby amended by deleting Sections 5, 6, 7 and 10 thereof in
their entirety. Except as specifically provided herein, the terms of the Stock
Subscription Agreement shall remain in full force and effect.
12.2 Employee and FRI hereby agree that the Restricted Stock
Agreement is hereby amended by deleting Sections 6, 7 and 8 thereof in their
entirety. Except as specifically provided herein, the terms of the Restricted
Stock Agreement shall remain in full force and effect.
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13. MISCELLANEOUS.
13.1 Each of the parties hereto acknowledges and agrees that it has
read this Agreement, that it fully understands its rights, privileges and duties
under the Agreement, and that it enters this Agreement freely and voluntarily.
Employee acknowledges that FRI has hereby advised him in writing to discuss this
Agreement with an attorney and tax or financial advisor of his choice before
executing it and that FRI has offered Employee (and Employee has declined) a
period of at least 21 days to consider this Agreement before signing it.
Employee further acknowledges that he has had the opportunity to consult with an
attorney to explain the terms of this Agreement and the consequences of signing
it.
13.2 Employee represents and acknowledges that in executing this
Agreement, he does not rely and has not relied upon any representation,
statement, or promise not set forth herein made by FRI or any FRI Releasees.
Employee further represents and agrees that he has entered in this Agreement
voluntarily and without coercion or duress and has been offered a reasonable
time to consider this Agreement.
13.3 In the event of a dispute arising hereunder, the prevailing
party shall recover from the losing party, in addition to damages, injunctive
or other relief, reasonable attorneys' fees, expert and nonexpert witness costs
and expenses, and other costs and expenses incurred in connection with the
legal proceedings.
13.4 This Agreement and the provisions contained in it shall not be
construed or interpreted for or against any party to this Agreement because
that party drafted or caused that party's legal representative to draft any of
its provisions.
13.5 Both FRI and Employee acknowledge and agree that Employee may
revoke this Agreement for up to seven (7) days following the execution of this
Agreement, and that it shall not become effective or enforceable until the
revocation period has expired. FRI and Employee further acknowledge and agree
that such a revocation must be in writing, addressed as set forth in Section
13.6 and received not later than 5:00 p.m. on the eighth (8th) day following
execution of this Agreement by Employee. If Employee revokes this Agreement,
it shall not be effective or enforceable and Employee will not receive the
monies and benefits described above. If Employee does not revoke this
Agreement during such period, all monies and benefits due and owing to Employee
under this Agreement (except for monies and benefits to be paid over time)
shall be immediately delivered to Employee.
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13.6 All notices under this Agreement shall be effective upon: (i)
personal delivery to the applicable party, as the case may be; or (ii)
telecopier transmission so long as the original notice is deposited in
overnight mail (Express Mail) or overnight courier service (e.g., Airborne,
Federal Express, etc.); or (iii) three (3) business days after deposit in the
United States mail, registered, certified, postage fully prepaid and addressed
to the respective parties as follows:
To FRI: Family Restaurants, Inc.
18831 Von Karman Avenue, 4th Floor
Irvine, California 92715
Attn: Law Department
Fax No.: (714) 757-7984
To Employee: Barry E. Krantz
11 Ironwood
Irvine, California 92714
or to such other address as the parties may from time to time designate in
writing.
13.7 The terms, covenants and conditions of this Agreement shall be
binding upon and shall inure to the benefit of the heirs, executors,
administrators, successors and assigns of the respective parties hereto.
13.8 FRI and Employee each agree to pay their own costs and
expenses, including fees of attorneys, accountants and consultants, for the
preparation and execution of this Agreement.
13.9 No party hereto may assign this Agreement, or any part hereof,
without the prior written consent of the other party hereto.
13.10 This Agreement shall be governed by the laws of the State of
California and any questions arising hereunder shall be construed or determined
according to such law.
13.11 Headings in this Agreement are solely for the convenience of
the parties and are not a part of this Agreement.
13.12 Should any provision of this Agreement be declared or be
determined by a court to be illegal or invalid, the validity of the remaining
parts, terms, or provisions shall not be affected thereby and said illegal or
invalid part, term, or provision shall be deemed not to be a part of this
Agreement.
13.13 FRI represents and warrants to Employee that (i) it and FRI-M
Corporation are fully authorized to enter into this Agreement, (ii) it and
FRI-M Corporation have taken all necessary corporate and internal legal actions
to duly approve the making
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and performance of this Agreement, (iii) the making and performance of this
Agreement will not violate any provision of law or the articles of
incorporation, charter or by-laws of FRI or FRI-M Corporation, and (iv) that
the person signing this Agreement on behalf of FRI and FRI-M Corporation have
been duly authorized to sign this Agreement on their behalf.
13.14 This Agreement may be signed by the parties in two or more
counterparts which, when taken together, shall constitute one and the same
instrument.
AS DESCRIBED IN SECTION 13.5, THIS AGREEMENT SHALL NOT BECOME
EFFECTIVE OR ENFORCEABLE UNTIL 5:00 P.M. ON THE EIGHTH (8TH) DAY AFTER EMPLOYEE
HAS SIGNED THIS AGREEMENT.
EMPLOYEE
December 5, 1995 /S/ Barry E. Krantz
Barry E. Krantz
FAMILY RESTAURANTS, INC.
a Delaware corporation
December 5, 1995 By: /S/ Lawrence J. Ramaekers
Its: Chief Executive Officer
FRI-M Corporation hereby executes this Agreement for the sole
purpose of confirming its guaranty obligations under Section 3 of this
Agreement and the representations of FRI as to FRI-M Corporation set forth in
Section 13.13 thereof.
FRI-M CORPORATION
December 5, 1995 By: /S/ Robert D. Gonda
Its: Treasurer
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EXHIBIT A
Barry Krantz worked at REG/FRI from December 1988 through August 1995. He was
the President of REG's Family Restaurant Division from December 1988 through
January 1994. In the final year of his tenure as FRD's President, Barry was
promoted to also serve as Chief Operating Officer of the entire company.
With the restructuring of Restaurant Enterprises Group into Family Restaurants,
Inc. in January of 1994, Barry was promoted to President and Chief Operating
Officer of FRI. Barry served in that capacity until leaving the company in
August of 1995.
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<PAGE> 1
Exhibit 10(y)
EXECUTION COPY
SEPARATION AGREEMENT
AND GENERAL RELEASE
This Separation Agreement and General Release (this
"Agreement") is entered into as of September 1, 1995, by and between Family
Restaurants, Inc., a Delaware corporation ("FRI"), and Patricia K. Johnson, an
individual ("Employee").
RECITALS
A. WHEREAS, Employee's employment with FRI was terminated on
September 1, 1995;
B. WHEREAS, Employee has asserted claims of sexual harassment and
discrimination and emotional distress in connection with her employment by FRI;
and
C. WHEREAS, FRI and Employee desire to enter into this Agreement
to, among other things: (i) resolve, without litigation, any and all issues
relating to, among other things, Employee's employment with FRI; (ii) amend the
terms of the Stock Subscription Agreement, dated as of January 27, 1994, by and
between FRI and Employee (the "Subscription Agreement"), and the Restricted
Stock Agreement, dated as of May 19, 1994, by and between FRI and Employee (the
"Restricted Stock Agreement") and (iii) resolve any and all known or unknown
claims Employee may have against the Company or its affiliates, with no party
admitting any liability or fault.
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Termination.
Effective September 1, 1995 (the "Termination Date"), Employee will
neither be considered an Employee of FRI or any of its subsidiaries for any
purpose nor will she be entitled to receive any other compensation, benefits or
privileges of any kind or nature as an employee of FRI or any of its
subsidiaries or affiliates, except as herein provided. Without limiting the
foregoing, Employee hereby resigns from any and all positions held as an
officer or a member of the Board of Directors of FRI or any of its
subsidiaries.
<PAGE> 2
EXECUTION COPY
SECTION 2. Severance.
(a) In consideration of the agreements and obligations of
Employee hereunder, and, without admitting any liability with respect thereto,
in exchange for Employee's release of any and all sexual harassment and
discrimination claims and in complete satisfaction of all other obligations FRI
or any of its subsidiaries has or may have to Employee (including, without
limitation, obligations under the FRI Severance Plan (the "Plan"), Employee
shall be entitled to the continued payment of her current annual base salary of
$187,000 for a period of twelve (12) months following the Termination Date,
which salary shall be payable bi-weekly in accordance with the current payroll
practices of FRI. Employee hereby acknowledges and agrees that she is and
shall not be entitled to any other benefits under the Plan.
(b) Without admitting any liability with respect thereto,
in exchange for Employee's release of any and all personal injury, emotional
distress and other similar tort claims Employee has asserted or could assert
against FRI or its affiliates, FRI shall pay to Employee the sum of
$202,096.11 in the following manner:
(i)The balance of $112,096.11 outstanding under the secured promissory notes
dated as of January 27, 1994 and May 19, 1994 (collectively, the "Notes"), made
by Employee to and in favor of FRI in connection with the purchase of the FRI
Common Stock owned by Employee shall be cancelled.
(ii)FRI shall pay to Employee the sum of $90,000 as follows. Thirty thousand
dollars shall be paid on the eighth day following execution of this Agreement
without revocation hereof. The remaining balance shall be paid in four equal
installments of $15,000 on each of November 1, 1995, December 1, 1995, January
2, 1996 and February 1, 1996.
In accordance with applicable tax law for tort remedies, the
Company agrees not to issue a Form 1099 or W-2 with respect to the settlement
proceeds referred to in this paragraph (b). Employee agrees to promptly
indemnify and hold harmless the Company, and its affiliates, agents, employees,
officers, and directors from and against (A) any and all taxes, penalties,
fines, interest, and similar charges imposed by any tax authority arising from
or related to (i) any payment made to, transfer of value to, and the
extinguishment of debt owed by, the Employee pursuant to this Agreement and
(ii) any filing (or failure to file) of any tax returns, information returns,
and similar filings and (B) all reasonable costs incurred in connection
therewith.
(c) The provisions of this Section 2 are in addition to,
and shall in no way limit or be limited by, the provisions of Section 6 hereof.
<PAGE> 3
EXECUTION COPY
SECTION 3. Stock Options/Employee Option.
3.1 Stock Options. All stock options held by Employee under the
Family Restaurants, Inc. 1994 Incentive Stock Option Plan shall be cancelled as
of the Termination Date and shall become null and void.
3.2 Employee Option.
3.2.1 Employee hereby waives the right arising under the
terms of the Subscription Agreement and the Restricted Stock Agreement to
require the Company to purchase the shares of FRI Common Stock owned by
Employee, and FRI hereby waives the right arising under the terms of the
Subscription Agreement and the Restricted Stock Agreement to require the
Employee to sell such shares to FRI. In exchange for such waiver by FRI, the
Employee shall grant FRI an option to purchase 687.5 shares of FRI Common Stock
(the "Shares") in the form of Exhibit A hereto (the "Option").
3.2.2. Employee hereby represents and warrants to FRI as
follows: (a) Employee has the right and power to execute this Agreement, to
grant the Option and to sell, transfer, and assign the Shares in accordance
therewith without the concurrence or approval of any other person or entity;
(b) Employee owns all of the Shares free and clear of any and all liens,
security interests, pledges, encumbrances and claims in favor of any other
person, firm, or corporation; (c) no other party has any right, title, interest
or claim in or with reference to the Shares; (d) Employee is familiar with the
business of FRI, has access to and has reviewed the financial statements of FRI
and has received all additional financial and other information with respect
FRI which Employee has requested, all of which information has enabled Employee
to make the decision to enter into this Agreement and to grant the Option to
FRI; and (f) Employee has had an opportunity to make all inquiries necessary to
understand the terms of the transactions regarding her FRI Common Stock as
provided for herein.
SECTION 4. Benefits.
Employee shall be entitled to the continuation of all basic medical
and dental benefits to which Employee is currently entitled through August 31,
1996 (and Employee's contributions through standard FRI deductions will
continue in connection therewith). After August 31, 1996, Employee may elect
to continue her health insurance coverage, at Employee's sole expense, under
the Consolidated Omnibus Budget Reconciliation Act (COBRA). Employee shall be
entitled to the continuation of Exec-U-Care Medical coverage through March 31,
1996 (and Employee's contributions through standard FRI deductions will
continue in connection therewith). All other supplemental insurance coverage
will be discontinued effective as of the Termination Date.
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EXECUTION COPY
SECTION 5. Return of FRI Property.
On or before September 5, 1995, Employee shall return all property of
FRI or any of its subsidiaries in her possession including, without limitation,
her QRC card, I.D. card, telephone credit card, keys, office supplies and
equipment, files, and records.
SECTION 6. Release.
In consideration of the payments and other benefits furnished by FRI
to Employee as set forth herein:
6.1 Grant. Employee hereby irrevocably and unconditionally
voluntarily releases forever: (i) FRI, Jay Alix & Associates, the Plan, the
Plan Administrator (as defined in the Plan); (ii) each of FRI's, subsidiaries,
stockholders, predecessors, successors, assigns, and affiliates; and (iii) the
agents, directors, officers, employees, representatives and affiliates of, and
all persons acting by, through, under or in concert with, the persons referred
to in clauses (i) and (ii) above (collectively referred to as "Releasees"),
from any and all claims, complaints, liabilities, obligations, agreements,
damages, actions of any nature, known or unknown, suspected or unsuspected,
that she ever had, now has, or hereafter may have, by reason of any matter,
cause, or thing whatsoever from the beginning of time up to the effective date
of this Agreement (including without limitation, any such actions, claims,
complaints, liabilities, obligations, agreements (including, without
limitation, the Subscription Agreement and the Restricted Stock Agreement),
damages or actions relating in any way to, or arising out of, her employment
relationship or the termination of her employment relationship with FRI or any
of its subsidiaries or affiliated companies or the Plan). Without limiting the
generality of the foregoing, Employee hereby waives any and all claims based on
federal or state age, sex, sexual orientation, pregnancy, race, color, national
origin, marital status, religion, physical handicap, mental condition, or
mental handicap discrimination laws (including, but not limited to, Title VII
of the Civil Rights Act of 1964, as amended, the Age Discrimination In
Employment Act of 1967 and the California Fair Employment and Housing Act)
whether such claim be based upon an action filed by Employee or by a
governmental agency.
6.2 Civil Code Section 1542. Employee hereby expressly
waives and relinquishes all rights and benefits afforded by Section 1542 of the
Civil Code of the State of California, and does so understanding and
acknowledging the significance of this specific waiver of Section 1542.
Section 1542 of the Civil Code of the State of California states as follows:
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EXECUTION COPY
"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."
Thus for the purpose of implementing a full and complete release and
discharge of the Releasees, Employee hereby expressly acknowledges that this
Agreement is intended to include in its effect, without limitation, all claims
that Employee does not know or suspect to exist in her favor at the time of
execution of this Agreement, and this Agreement contemplates the extinguishment
of all of these claims.
6.3 Future Claims; No Participation and Agreement to
Cooperate. Employee shall not file, participate in, or maintain any claim,
charge or action in any local, state or federal court or administrative agency
that is based in whole or in part on any matter referred to in this Section 6,
except for unemployment compensation claims, whether such claim be based upon
an action filed by Employee or by a government agency. Employee shall
cooperate fully with FRI regarding the prosecution or defense of any civil or
administrative proceeding that may involve events which occurred while Employee
was employed by FRI, and FRI shall reimburse Employee for all reasonable,
necessary, pre-approved out-of-pocket expenses she incurs at its request
pursuant to such cooperation. Without limiting the foregoing, Employee shall
cooperate with FRI and its attorneys with respect to any claim, litigation,
judicial or arbitration proceeding that is now pending or may hereinafter be
brought by or against FRI or any of its affiliates. Employee's duty of
cooperation shall include, but shall not be limited to, (a) meeting with FRI's
attorneys by telephone or in person at mutually convenient times and places in
order to state truthfully Employee's recollection of events; (b) appearing at
FRI's request (and, to the extent possible, at a time convenient to Employee
and that does not conflict with the needs or requirements of Employee's then
current employer) as a witness at depositions or trials, without necessity of a
subpoena, in order to state truthfully Employee's knowledge of matters at
issue; and (c) signing at FRI's request declarations or affidavits that
truthfully state matters of which Employee has knowledge.
SECTION 7. Default/Remedies.
Except for confidentiality obligations set forth in Section 8
below, any failure or delay by any party hereto to timely perform any term or
provision of this Agreement or to cure such failure within five (5) days after
written notice identifying such failure has been received from the other party,
shall be considered a default under this Agreement. If, however, the party
notified of such failure shall commence to cure, correct or remedy such failure
within such five (5) day period and shall diligently prosecute such cure,
correction or remedy to completion, then
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EXECUTION COPY
such party shall not be deemed in default under this Agreement. If any party
shall be in default under this Agreement, the non- defaulting party may avail
itself of the remedies set forth in Section 8 below.
SECTION 8. Confidential Treatment of Information.
Employee acknowledges and agrees that, in connection with her
employment with FRI and its subsidiaries, Employee has been exposed to certain
confidential and proprietary information including, but not limited to, general
business information deemed and/or treated as proprietary, trade secrets,
secret formulae, customer lists and/or names, product and service prices,
customer charges, contracts, contract negotiations and employee relations
matters, including matters relating to the existence of this Agreement and the
terms and conditions hereof (collectively, "Confidential Information").
8.1 Confidential Treatment. All Confidential Information
disclosed to Employee shall be treated by Employee as confidential and shall be
maintained by Employee in confidence and shall not be disclosed to anyone in
any form without the prior express written consent of FRI, except for necessary
and limited disclosure to her spouse, attorney or financial advisor.
8.2 Public Information. This obligation shall not extend to
any Confidential Information which hereafter becomes publicly known through
lawful means other than as a result of a disclosure by Employee.
8.3 Compelled Disclosure. In the event that Employee
becomes legally compelled to disclose any of the Confidential Information,
Employee shall provide FRI with prompt notice thereof so that FRI may seek a
protective order or other appropriate remedy and/or waive compliance with the
provisions of this Agreement. In any event, Employee shall furnish only the
portion of the Confidential Information which is legally required and will
exercise her best efforts to assure that confidential treatment will be
accorded the Confidential Information.
8.4 Equitable Relief. Employee agrees that FRI shall be
entitled to equitable relief, including the issuance of an injunction or
specific performance, in the event of any breach of the provisions of this
Section 8 plus all remedies available to FRI at law or equity.
8.5 Survival of Provisions. The provisions of this Section
8 shall survive any termination of this Agreement.
8.6 Nonsolicitation of Employees. Employee hereby agrees
that during the period ending at 5:00 p.m. on the second anniversary of the
Termination Date, she will not directly or indirectly
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EXECUTION COPY
solicit, induce or attempt to induce any present or future employee of FRI or
any of its subsidiaries or affiliates to leave his or her employment with FRI
or such subsidiary or affiliate.
8.7 No Disparagement. Employee hereby agrees that she
shall not publish, or cause to be published, any statement disparaging FRI or
any of its subsidiaries or stockholders, or any of the officers, directors,
employees, representatives or affiliates thereof. FRI, in turn, hereby agrees
not to publish, or cause to be published, any statement disparaging Employee.
SECTION 9. Certain Amendments.
Immediately after giving effect to the transfer of the Shares
as contemplated by Section 3.2.1 hereof:
9.1 Amendment of Subscription Agreement. Employee and FRI
hereby agree that the Subscription Agreement is hereby amended by deleting
Sections 5, 6, 7 and 10 thereof in their entirety. Except as specifically
provided herein, the terms of the Subscription Agreement shall remain in full
force and effect.
9.2 Amendment of Restricted Stock Agreement. Employee and
FRI hereby agree that the Restricted Stock Agreement is hereby amended by
deleting Sections 6, 7 and 8 thereof in their entirety. Except as specifically
provided herein, the terms of the Subscription Agreement shall remain in full
force and effect.
SECTION 10. Miscellaneous.
10.1 Opportunity for Counsel Review. Each of the parties
hereto acknowledges and agrees that it has read this Agreement, that it fully
understands its rights, privileges and duties under the Agreement, and that it
enters this Agreement freely and voluntarily. Employee acknowledges that FRI
has hereby advised her in writing to discuss this Agreement with an attorney
and tax or financial advisor of her choice before executing it and that FRI has
provided Employee at least twenty-one (21) days within which to review and
consider this Agreement before signing it. Employee further acknowledges that
she has had the opportunity to consult with an attorney to explain the terms of
this Agreement and the consequences of signing it.
10.2 No Representations. Employee represents and
acknowledges that in executing this Agreement, she does not rely and has not
relied upon any representation, statement, or promise not set forth herein made
by any of the Releasees. Employee further represents and agrees that she has
entered into this Agreement voluntarily and without coercion or duress and has
been offered a reasonable time to consider this Agreement.
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EXECUTION COPY
10.3 Attorneys' Fees. In the event of a dispute arising
hereunder, the prevailing party shall recover from the losing party, in
addition to damages, injunctive or other relief, reasonable attorneys' fees,
expert and nonexpert witness costs and expenses, and other costs and expenses
incurred in connection with the legal proceedings.
10.4 Each Party the Drafter. This Agreement and the
provisions contained in it shall not be construed or interpreted for or against
any party to this Agreement because that party drafted or caused that party's
legal representative to draft any of its provisions.
10.5 Revocation. Both FRI and Employee acknowledge and
agree that Employee may revoke this Agreement for up to seven (7) days
following the execution of this Agreement, and that it shall not become
effective or enforceable until the revocation period has expired. FRI and
Employee further acknowledge and agree that such a revocation must be in
writing, addressed as set forth in Section 10.6 and received not later than
5:00 p.m. on the eighth (8th) day following execution of this Agreement by
Employee. If Employee revokes this Agreement, it shall not be effective or
enforceable and Employee will not receive the monies and benefits described
above. If Employee does not revoke this Agreement during such period, all
monies and benefits due and owing to Employee under this Agreement (except for
monies and benefits to be paid over time) shall be immediately delivered to
Employee.
10.6 Notices. All notices under this Agreement shall be
effective upon: (i) personal delivery to the applicable party, as the case may
be; or (ii) telecopier transmission so long as the original notice is deposited
in overnight mail (Express Mail) or overnight courier service (e.g., Airborne,
Federal Express, etc.); or (iii) three (3) business days after deposit in the
United States mail, registered, certified, postage fully prepaid and addressed
to the respective parties as follows:
To FRI: Family Restaurants, Inc.
18831 Von Karman Avenue, 4th Floor
Irvine, California 92715
Attn: Law Department
Fax No.: (714) 757-7984
To Employee: Patricia K. Johnson
23876 Longspur
Laguna Niguel, California 92677
or to such other address as the parties may from time to time designate in
writing.
10.7 Successors. The terms, covenants and conditions of
this Agreement shall be binding upon and shall inure to the benefit of the
heirs, executors, administrators, successors and assigns of the respective
parties hereto.
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EXECUTION COPY
10.8 Assignment. No party hereto may assign this Agreement,
or any part hereof, without the prior written consent of the other party
hereto.
10.9 Choice of Laws. This Agreement shall be governed by
the laws of the State of California and any questions arising hereunder shall
be construed or determined according to such law.
10.10 Headings. Headings at the beginning of each numbered
Section of this Agreement are solely for the convenience of the parties and are
not a part of this Agreement.
10.11 Severability. Should any provision of this Agreement
be declared or be determined by a court to be illegal or invalid, the validity
of the remaining parts, terms, or provisions shall not be affected thereby and
said illegal or invalid part, term, or provision shall be deemed not to be a
part of this Agreement.
10.12 Counterparts. This Agreement may be signed by the
parties in two or more counterparts which, when taken together, shall
constitute one and the same instrument.
PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES A RELEASE OF
ALL KNOWN OR UNKNOWN CLAIMS.
AS DESCRIBED IN SECTION 10.5, THIS AGREEMENT SHALL NOT BECOME
EFFECTIVE OR ENFORCEABLE UNTIL 5:00 P.M. ON THE EIGHTH (8TH) DAY AFTER EMPLOYEE
HAS SIGNED THIS AGREEMENT.
Dated: November 9, 1995 /S/ Patricia K. Johnson
Patricia K. Johnson
FAMILY RESTAURANTS, INC.,
a Delaware corporation
Dated: November 9, 1995 BY: /S/ Lawrence J. Ramaekers
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EXHIBIT 21(a)
FAMILY RESTAURANTS, INC.
1995 FORM 10-K
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction of
Subsidiaries as of December 31, 1995 Incorporation
- ------------------------------------------- ---------------
<S> <C>
Carrows California Family Restaurants, Inc. Delaware
Carrows Restaurants, Inc. California
CCMR Advertising Agency, Inc. Kentucky
CCMR of Catonsville, Inc. Kentucky
CCMR of Cumberland, Inc. Kentucky
CCMR of Frederick, Inc. Kentucky
CCMR of Golden Ring, Inc. Kentucky
CCMR of Greenbelt, Inc. Kentucky
CCMR of Harford County, Inc. Kentucky
CCMR of Inner Harbor, Inc. Kentucky
CCMR of Maryland, Inc. Delaware
CCMR of Ritchie Highway, Inc. Kentucky
CCMR of Timonium, Inc. Delaware
CFC Franchising Company Delaware
Chi-Chi's, Inc. Delaware
Chi-Chi's Franchise Operations Corporation Kentucky
Chi-Chi's Management Corporation Kentucky
Chi-Chi's of Greenbelt, Inc. Kentucky
Chi-Chi's of Kansas, Inc. Kansas
Chi-Chi's of South Carolina, Inc. Kentucky
Chi-Chi's of West Virginia, Inc. Kentucky
Coco's Restaurants, Inc. California
El Torito Restaurants, Inc. Delaware
Far West Concepts, Inc. California
FRI-Admin Corporation Delaware
FRI-C Corporation Delaware
FRI-DHD Corporation Delaware
FRI-FRD Corporation Delaware
FRI-J Corporation Delaware
FRI-M Corporation Delaware
FRI-MRD Corporation Delaware
FRI-NA Corporation Delaware
jojos California Family Restaurants, Inc. Delaware
jojos Restaurants, Inc. California
Maintenance Support Group, Inc. Kentucky
</TABLE>
<PAGE> 1
EXHIBIT 21(b)
FAMILY RESTAURANTS, INC.
1995 FORM 10-K
NAMES UNDER WHICH OPERATING
SUBSIDIARIES DO BUSINESS - 12/31/95
<TABLE>
<CAPTION>
Carrows Restaurants, Inc. ("Carrows")
Coco's Restaurants, Inc. ("Coco's")
Far West Concepts, Inc. ("FWC")
jojos Restaurants, Inc. ("JRI") El Torito Restaurants, Inc.
- ------------------------------------ -----------------------------
<S> <C>
Bob's Big Boy (Carrows/JRI) Casa Gallardo
Carrows (Carrows) Casa Gallardo Grill
Charley Brown's (Coco's) Casa Maria
Coco's (Coco's) El Torito
Coco's Bakery Restaurant (Coco's) El Torito Grill
Edie's Diner (FWC) El Torito Restaurant & Cantina
H.I. Ribsters (Coco's) GuadalaHARRY's
Jeremiah's (Carrows) Hola Amigos
jojos (JRI) Keystone Grill
jojos of Texas (JRI) Las Brisas
Malibu Sea Lion U.S.A. (FWC) Original El Torito Restaurant
Reuben's (Coco's/FWC) Specialty Catering
Tibbie's Music Hall (Coco's) Tequila Willie's
Who-Song & Larry's Restaurant
and Cantina
Chi-Chi's, Inc.
-------------------------------
Chi-Chi's
Chi-Chi's El Pronto
Chi-Chi's Mexican Restaurante
HomeTown Buffet
</TABLE>
<PAGE> 1
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-52795 on Form S-8 of Family Restaurants, Inc. of our report dated March
22, 1994 (which included an explanatory paragraph regarding the confirmation of
Family Restaurants, Inc. bankruptcy plan) appearing in this Annual Report on
Form 10-K of Family Restaurants, Inc. for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
Costa Mesa, California
March 29, 1996
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Family Restaurants, Inc.
We consent to incorporation by reference in the Registration Statement
(No. 33-52795) on Form S-8 of Family Restaurants, Inc. of our report dated
March 15, 1996, except as to the second paragraph of note 9 to the consolidated
financial statements, which is as of March 29, 1996, relating to the
consolidated balance sheets of Family Restaurants, Inc. and its subsidiaries
as of December 31, 1995 and December 25, 1994 and the related statements of
operations, common stockholders' deficit and cash flows and related financial
statement schedule for year ended December 31, 1995, the eleven months ended
December 25, 1994 (Successor Company) and the one month ended January 26, 1994
(Predecessor Company), which report appears in the December 31, 1995 annual
report on Form 10-K of Family Restaurants, Inc. Our report refers to a change
in the method of financial statement reporting.
KPMG PEAT MARWICK LLP
Orange County, California
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-26-1994
<PERIOD-END> DEC-31-1995
<CASH> 8,370
<SECURITIES> 0
<RECEIVABLES> 8,172
<ALLOWANCES> 0
<INVENTORY> 5,645
<CURRENT-ASSETS> 244,890
<PP&E> 431,938
<DEPRECIATION> 71,320
<TOTAL-ASSETS> 551,270
<CURRENT-LIABILITIES> 221,963
<BONDS> 455,203
0
0
<COMMON> 10
<OTHER-SE> (131,576)
<TOTAL-LIABILITY-AND-EQUITY> 551,270
<SALES> 1,134,359
<TOTAL-REVENUES> 1,134,359
<CGS> 322,194
<TOTAL-COSTS> 1,256,860
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,277
<INCOME-PRETAX> (122,501)
<INCOME-TAX> 1,208
<INCOME-CONTINUING> (123,709)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (123,709)
<EPS-PRIMARY> (124.75)
<EPS-DILUTED> 0
</TABLE>
