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United States
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 of 1934
For the fiscal year ended December 31, 1997
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________to ___________
Commission File Number 000-16791
STACEY'S BUFFET, INC.
(Exact Name of Registrant as specified in its Charter)
Florida 59-2736736
(State or other jurisdiction of (IRS Employer Identification no.)
incorporation or organization)
12812 60th Street North, Suite 200,
Clearwater, FL 33760
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 507-0335
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each Exchange
Title of each class on which Registered
-------------------------------------- ---------------------
Common Stock, par value $.01 per share None
Warrants, Expiring 11/12/98
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this From 10-K [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant based upon the closing sale price of the registrant's common
stock, as of March 25, 1998 was approximately $747,943.
The number of shares outstanding of registrant's common stock as of March
25, 1998 was 2,493,144 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for Annual Meeting of
stockholders to be held on June 26, 1998 are incorporated by reference into
Part III of this Annual Report.
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STACEY'S BUFFET, INC.
1997 Form 10-K Annual Report
----------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Item 1. BUSINESS 3
Item 2. PROPERTIES 7
Item 3. LEGAL PROCEEDINGS 8
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS 10
Item 6. SELECTED FINANCIAL DATA 11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION 13
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 20
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
DISCLOSURE 40
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 41
Item 11. EXECUTIVE COMPENSATION 41
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 41
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 41
Item 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON FORM 8-K 42
</TABLE>
PART I
INTRODUCTION
- ------------
Stacey's Buffet, Inc. (the "Company") has experienced substantial losses and
declining sales for the past several years. These trends intensified in the
year ended December 31, 1997 and, with the February 1998 termination of the
Star Buffet, Inc. alliance discussed below, the Company's financial condition
has become very critical. In addition to reporting a large loss for 1997, the
Company's cash flow from operations is negative and the Company is operating
with the forbearance of several vendors whose payables are considerably out of
term as well as with the forbearance of many landlords whose leases with the
Company are in default. Also, in the past year, three of the Company's five
directors have resigned without replacement, and all of the Company's officers
have resigned or been terminated.
Under these circumstances, a member of the Board of Directors has recently
assumed the titles of interim President, CEO, and Chairman of the Board of
Directors. The Company is continuing to operate with negative working capital
and very limited financial and managerial resources. If the Company is unable
to generate a positive cash flow in the very near future, the Company's
financial resources will be insufficient to finance the Company's working
capital needs or to permit the Company to continue as a going concern. See
Management's Discussion and Analysis of Financial Conditions and Results of
Operations.
Certain statements in this Form 10-K may constitute "forward-looking
statements" within the meaning of the Securities Act of 1933 and the Securities
Exchange Act of 1934. Forward-looking statements by their nature involve known
and unknown risks, uncertainties, and other factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: General business conditions; the impact of competitive products and
pricing; success of operating initiatives; development and operating costs,
advertising and promotional efforts; access to credit or sale of individual
restaurants; adverse publicity; acceptance of new product offerings; consumer
trial and frequency; availability, locations and terms of sites for restaurant
development; changes in business strategy or development plans; quality of
management availability; terms and deployment of capital; the results of
financing efforts; business abilities and judgment of personnel; availability
of qualified personnel; food, labor and employee benefit costs; changes in or
the failure to comply with, government regulations; weather conditions,
construction schedules; and other factors referenced in this Form 10-K.
Item 1.
BUSINESS
- --------
General
The Company consists of a chain of buffet-style restaurants primarily in the
southeastern United States. The Company's restaurants, operating under the name
Stacey's Buffet, offer a broad selection of American and ethnic menu items as
complete meals in a self-service, fixed price buffet format. At December 31,
1997, there were seventeen company owned Stacey's Buffets located in Florida
and two Stacey's Buffets located in the Northeast; one each in Pennsylvania and
New Jersey. Additionally, there was one licensed Stacey's Buffet located in
Florida. Since that date, the Company has sold four restaurants in Florida. See
Subsequent Events and Strategic Alliance with Star Buffet; Management Changes.
The Company was originally incorporated under Florida law in August 1986 to
develop and operate a chain of buffet restaurants under the name Homestyle
Buffet, Inc. In December 1993, the Company merged with a rival private buffet
chain called "Stacey's Buffet," which was owned by the Stacey Lynn Group ("S-L
Group"). S-L Group operated eleven buffet restaurants and licensed eight buffet
restaurants, all under the name "Stacey's Buffet". S-L Group merged into
Homestyle Buffet, Inc., which changed its name to "Stacey's Buffet, Inc."
Stacey's Buffet Restaurant Concept
The Company's restaurants feature a wide variety of menu items presented in the
buffet format, providing complete meals for lunch and dinner. During fiscal
1997, lunches were priced at $5.29 and dinners from $5.90 to $7.25 depending
upon the restaurant's market area and day of the week. In addition, the Company
has special pricing for children ages 10 and under. Children ages 3 and under
eat free. Older customers ("Seniors") may join the Company's 55 Plus Club,
which gives them a discount on meals throughout the year. Barring special
circumstances, the Company's restaurants are open every day of the year, except
Christmas Day. The style and decor of the restaurants is designed to provide a
casual atmosphere. The Company intends its restaurants to be particularly
attractive to families and seniors. The Company has actively pursued a strategy
of keeping prices as low as possible while relying on volume to keep costs per
customer low.
Stacey's Buffet restaurants generally offer more than 100 menu items including
a garden fresh 40-item salad bar, home style soups, pizza, hand-carved roast
beef, turkey or ham, a variety of hot vegetables, numerous casseroles, baked
dishes, warm fresh baked breads and an extensive selection of desserts and
beverages. Management believes that greater menu selection attracts more
customers and provides higher sales volumes for the Company.
Most Stacey's Buffet restaurants present their menu items in a "scatter bar"
format. Guests proceed to the food bars of their choice. These bars include a
fresh salad bar with many choices and toppings. Other bars also offer hearty
vegetables, cream soups, and pizza.
Hot food bars serve baked and fried chicken and fish, along with other entrees.
Casseroles, baked dishes and special offerings change daily. Hot, fresh baked
breads are distributed on the bars. They include banana nut bread, dinner
rolls, corn muffins and cinnamon rolls. Guests can choose from a number of hot
meat entrees, plus two carved items at dinner. A beverage bar offers milk,
coffee, tea and popular soft drinks. No alcoholic beverages are served.
Additionally, a separate dessert bar is offered. This bar features bread
pudding, homemade cobblers, cakes, pies, and hand-dipped or soft serve ice
cream.
In general, management believes that the "scatter bar" format is a preferable
buffet format because the approach offers customers the choice of which food
bar to go to first and greater menu item selection. The scatter bar format also
allows customers to sit down before selecting their menu items. Furthermore, by
allowing customers to select a specific item or items to be eaten next rather
than going through the "line" before eating anything and selecting numerous
items, customers are less likely to take more food than they can eat.
Management also believes that customers prefer the less institutional feel and
choices offered by the "scatter bar" food presentation.
Restaurant Operations and Controls
The Company ensures food freshness by continuous food preparation. The Company
employs a quality assurance system designed to maintain the Company's high
standards of quality, service and cleanliness. The Company utilizes established
standards and controls to focus on the principal aspects of restaurant
operations and customer satisfaction, including standards for ingredients and
recipes, prepared food quality and presentation, the appearance and maintenance
of premises, and employee appearance and conduct. Restaurant managers are
responsible for adherence to these standards.
Ingredient specifications, recipes and preparation procedures for the Company
restaurants are developed and monitored by headquarters personnel. New items
will be added to the menu from time to time as either specials or regular menu
items, after in-store evaluation by customers.
A typical restaurant is approximately 10,000 square feet in size, accommodating
approximately 300 customers, including a banquet room for groups. Decor tends
to be traditional with carpeted dining rooms and upholstered chairs and booths.
Most seating is at loose tables and chairs, which allow greater flexibility in
seating large parties.
With the exception of Christmas Day, all Stacey's Buffet restaurants are
currently open seven days a week, serving lunch from 11:00 a.m. to 4:00
p.m. and dinner from 4:00 p.m. to 8:00 or 9:00 p.m., Monday through
Saturday. Dinner is served all day on Sunday from 11:00 a.m. to 8:00 p.m.
The operation of the Company's restaurants requires a general manager, two
assistant managers and approximately 50 other employees, including part-time
employees. Each general manager reports directly to the corporate office. In
addition to maintaining quality and service standards, general managers are
responsible for employee relations, labor scheduling, determining the quantity
of food and supplies needed and ordering those items from approved vendors,
adherence to cost controls, and restaurant profitability. General managers and
assistant managers are eligible for cash bonus awards if they meet or exceed
certain performance standards.
A number of the Company's managers had prior buffet or other restaurant
experience. The Company operates in-restaurant training programs to instruct
all managers in its policies and procedures and to prepare managers for new
restaurant openings. The Company's headquarters personnel personally oversee
each opening of a new restaurant, including training, food preparation and
service operation.
The Company's food and beverage ingredients and restaurant supplies are
purchased from independent suppliers approved by headquarters personnel who
negotiate quality specifications, delivery commitments, pricing and payment
terms directly with the suppliers. The Company attempts to obtain the most
favorable prices through volume discounts. Management anticipates that because
of the varied menu offering at a Stacey's Buffet, it will be able to maintain
flexibility in setting menus and determining daily specials based upon market
opportunities. To date, Stacey's Buffet has not experienced significant
difficulty in obtaining adequate supplies of food products meeting its quality
standards at acceptable prices, but no assurances can be made that if
operations do not improve that availability of products may be curtailed.
Management of the Company spends considerable time and effort maintaining its
purchasing relationships and has been operating with standstill or other
forbearance arrangements regarding past due amounts as it attempts to improve
operations to increase cash flows.
Market Penetration
The Company's primary objective is to conserve its limited resources and
maintain its operations in the face of very difficult financial and operational
obstacles as the Company continues to seek out one or more relationships with
other companies to replace the Star alliance which was terminated in February,
1998.
Management believes that the Company's restaurants are typically frequented
by regular customers who have made a predetermined decision to dine at a
particular Stacey's restaurant rather than customers who make an impulsive
decision after first deciding to dine out. Stacey's has generally been able to
take advantage of this fact by locating its restaurants in sites that are
convenient and visible, but not the most expensive available sites.
As part of its plan to improve operations and cash flow, Management is
reviewing all restaurant operations and is in the process of considering
additional sales or restaurant closings to improve liquidity and earnings
performance. Management has no plans to open any restaurants in 1998.
Competition
The restaurant business is highly competitive with respect to location, food
types, quality, prices, service and decor. The business is affected by changes
in eating habits of the public and by changes in local, regional or national
economic conditions, demographic trends and by factors affecting consumers'
disposable income. The Company competes not only with other buffet restaurants
but also with a variety of other types of restaurants. A significant number of
competitors are larger restaurant chains with longer operating histories,
greater name recognition and greater financial resources.
Advertising and Promotion
During 1997, the Company spent approximately 1/2% of sales for advertising and
promotion. Advertising for a particular restaurant is concentrated within a 5
to 10 mile radius of the restaurant, with emphasis on billboards in strategic
areas and print media. The Company targets families as well as the senior
market. The Company also relies upon word-of-mouth exposure to generate
customer traffic.
Each general manager of a Company restaurant is given a nominal advertising
budget, which will be used to promote local community advertising. Headquarters
personnel must approve all advertising.
Regulation
The restaurant industry generally, and each Company-operated and licensed
restaurants specifically, are subject to numerous federal, state and local
government regulations, including those relating to building, zoning, health,
accommodations for disabled members of the public, sanitation, safety, fire,
environmental and land use requirements. The Company must operate its
restaurants in accordance with local, state and federal regulations concerning
food preparation such as minimum wage requirements, overtime, working
conditions and citizenship requirements. The failure to obtain or retain food
licenses or another increase in the minimum wage rate or other costs associated
with employees could adversely affect the Company.
Employees
Currently, the Company employs 707 people, of which 7 are corporate supervisory
and administrative personnel, 59 are restaurant managers or management
trainees, and 641 are non-management restaurant employees. Approximately 50% of
non-management restaurant employees work part-time. None of the Company's
employees are covered by a collective bargaining agreement. The Company has not
experienced difficulty in hiring qualified employees at competitive wages.
Relations with employees have been satisfactory and the Company believes its
working conditions and compensation package compare favorably with its
competition.
Licensed Restaurant
The Company has entered into a license agreement covering a restaurant that
operates under the name "Stacey's Buffet." The licensee operates its restaurant
in South Daytona, Florida. The licensee pays a royalty equal to 2% of licensee
gross sales, subject to certain maximum amounts, with payments made on a
monthly basis.
Pursuant to the license agreement, the Company has control over quality and
other aspects of the licensed services as well as the use of the mark,
advertising and any and all matters related to the licensed services and the
mark. The Company has the right to inspect the licensed location and has
absolute discretion over the assignment or other transfer of the license to a
third party.
Except with respect to monitoring and overseeing the operations of the licensed
restaurant pursuant to the terms of the license agreement, management of the
Company has no substantive role in the day-to-day operations and management of
the licensed restaurant.
Strategic Alliance with Star Buffet; Management Changes
As previously disclosed, on October, 31, 1997, Star Buffet, Inc. ("Star"),
entered into a Business Services Agreement pursuant to which Star agreed to
provide certain management, administrative and purchasing services for the
Company's restaurants for a period of five years for a fee equal to 4.5% of
sales. Additionally, Star agreed, subject to certain conditions, to make loans
to the Company of up to a maximum principal amount of $4.5 million, pursuant to
a Credit Agreement dated October 31, 1997 (the "Credit Agreement"). In
connection with the Credit Agreement, the Company granted to Star a warrant to
purchase 1,342,422 shares of the Company's common stock at a price of $1.00 per
share, and simultaneously entered into a Security Agreement, a Promissory Note,
and an option granting Star the right to purchase up to six of the Company's
Florida restaurants located in Florida. Star also received registration rights
with respect to shares of the Company's common stock issuable upon exercise of
the warrant. This strategic alliance was facilitated by Harrison Hurley & Co.
which acted as an advisor to the Company. (See Related Parties)
In connection with the transactions contemplated by the Credit Agreement, it
was agreed that Robert E. Wheaton, the President and Chief Executive of Star,
would be elected CEO and Chairman of the Board of Directors of the Company, and
that Theodore Abajian, the Chief Financial Officer of Star, would be elected to
the Board of Directors of the Company. In addition, Daniel J. Sullivan and
Maureen A. Jack resigned from the Board of Directors of the Company and Stephen
J. Marrier resigned as President, Chief Executive Officer and Chairman of the
Board of Directors pursuant to a Severance and Noncompetiton Agreement with the
Company.
Over the next several months, the Board of Directors noticed that the
performance of Star under the Business Services Agreement was not meeting
expectations, and in certain respects appeared to be contrary to the interests
of the Company. In addition, it became apparent that Star was not going to
fulfill its obligation under the Credit Agreement to provide further financing.
As a result, the value of the strategic alliance to the Company was greatly
diminished.
On February 17, 1998, the Company announced the termination of the above
agreements with Star and the sale of three restaurants to Star pursuant to the
option noted above. See Liquidity and Capital Resources. In addition, the
Company announced the resignations of Robert Wheaton and Theodore Abajian from
the Company's Board of Directors, and Mr. Wheaton's resignation as Chief
Executive Officer. Subsequent to February 17, 1998, Peter J. Hurley, a member
of the Company's Board of Directors, agreed to become the interim President,
Chief Executive Officer, and Chairman of the Board of the Company while the
Company undertook a search for additional management. Mr. Hurley has served
on the Board of Directors since 1996 and is the owner of Harrison Hurley &
Co., consultants to the Company.
Also, on March 6, 1998, the Company sold one Florida location to the Company's
manager of that location.
Item 2.
PROPERTIES
- ----------
The Company's executive office is located in approximately 1358 square
feet of leased space at 12812 60th Street North. Suite 200, Clearwater,
Florida 37760,
All of the Company's restaurants are located in leased premises in shopping
centers. The restaurants range in size from approximately 7,200 to 20,000
square feet. Buffet operations typically require approximately 10,000 square
feet in order to provide adequate kitchen facilities, and ample room to
comfortably accommodate 300 guest at a sitting. At this size, the Company's
restaurants normally experience peak periods on weekends and at special events.
During slower parts of the week, banquet rooms can be closed to create a
smaller, more efficient dining area. Accordingly, the Company believes that the
existing facilities are appropriate and adequate to the needs of a buffet
operation.
Minimum annual rents for the Company's existing restaurants range from
approximately $60,000 to $180,000. In addition, most of the Company's leases
contain clauses requiring the Company to pay rent calculated as a percentage of
restaurant sales (generally 3% to 5%) above certain annual sales levels,
typically $1,800,000 or more. The Company also pays operating expenses for the
leased space and a portion of common area maintenance costs. The initial terms
of such leases range from five to ten years and usually contain renewal options
of from five to ten years.
Leasehold improvements made by the Company usually become the property of the
landlord upon expiration or termination of the lease. To date, nearly all of
the Company's landlords have agreed to bear a portion of the cost of leasehold
improvements. The Company owns substantially all of the equipment, furniture
and fixtures in its restaurants.
On October 31, 1997, the Company entered into standstill agreements with twenty
two of its landlords from which the Company leased property to stay defaults
pertaining to the underlying leases. In the standstill agreements, the
landlords agreed not to take any collection action on past due amounts owed by
the Company until either December 1, 1997 or January 1, 1998 provided the
Company made current lease payments for the months of November, 1997 for the
December 1 standstill or current payments for November and December 1997 for
the January 1, 1998 standstill. Although the standstill agreements have
expired, the landlords have not taken adverse action.
At December 31, 1997, the Company owed approximately $650,000 in past due rent
payments to landlords, representing approximately three months rent in arrears.
As of March 16, 1998, the amount had increased to approximately $850,000.
Item 3.
LEGAL PROCEEDINGS
- -----------------
The Company's business exposes it to a variety of claims arising in the
normal course, including employee claims, "slip and fall" claims, and other
claims. Management believes that it would not be useful to describe each of
these claims. However given the fact that the Company's financial
resources are severly limited, any single adverse judgement could have a
material impact on the Company's financial resources.
Although management has endeavored to describe, below, those matters that
it perceives to constitute the greatest threats to the Company, it is
possible that any single claim could force the Company to take extraordinary
action. Moreover, management believes that an adverse outcome to any of the
matters described below could force the Company to file for protection under
applicable bankruptcy or receivership laws, or to take other action which
could have serious and negative implications.
With regard to the workers compensation and general liability for which
the Company is self funded, it is important to recognize that the risk of
loss is borne by the Company. The Company is required to provide a letter of
credit to secure these self funded programs. The insurance Company requested
in February 1998 an increase in the letter of credit of $300,000 from $250,000
to $550,000 which will required a commensurate increase in the investment
collateral which the Company has been unable to provide. See Note 11 to the
financial statements. The inability of the Company to increase its required
letter of credit could have a material impact on the Company.
The Company was subject to a lawsuit by four employees claiming sexual
harassment by a manager of one of the Company's restaurants. The settlement
agreement provides for the payment of $235,000 to the plaintiffs on September
7, 1998. If the payment is not made the plaintiffs are entitled to proceed
against the Company pursuant to a final order which is not subject to the
defenses that the Company might have had in the original claims. Any default
in payment of the foregoing amount could result in an expedited judgement
against the Company, upon which court-authorized collection action could be
commenced.
The Company has been threatened with a lawsuit by Shoney's, Inc. ("Shoney's")
claiming that the Company is in violation of a prior agreement regarding the
claims by Shoney's that the Company's trade dress is similar to that of
Shoney's. Management believes that it will be able to resolve the
threatened lawsuit without material impact to the Company's operations or
financial condition. There can be no assurance, however, that such
expectations will prove true. An adverse result could expose the Company to
substantial costs and expenses, particularly, if the Company were required
to change its store signage and other materials using the Company's stylized
brand name (such as menus, paper goods, etc.). In addition, under such
circumstances, the Company could expect to lose some level of good will in
the market associated with its longtime usage of the Stacey's name and
logotype, which could result in lost sales and profits.
In recent months, the Company has been the subject of an increasing number of
collection actions by various vendors, landlords and others. See Note 2 to the
financial statements. Moreover, and as described above, because the Company
does not have forbearance agreements with its vendors, vendors are entitled,
at any time, to bring suit or otherwise take action to collect upon accounts
owed by the Company. As described in Management's Discussion and Analysis of
Financial Condition and Results of Operations, the Company's current
liabilities exceeded current assets at December 31, 1997 by almost $10
million, which is the result of the Company's increasing reliance on the
forbearance of vendors to support the Company's on-going operations.
The Company recently terminated payments under its Severance and
Noncompetition Agreement with the Marrier Group, Inc. of which Mr. Marrier, a
current director and the former chief executive offer of the Company, is and
employee. That agreement, which was based on the Star alliance, had provided
for payment to the Marrier Group, Inc. of $1,000,000 in the form of biweekly
installments of $10,417. On March 31, 1998, the Company received a letter
from the Marrier Group's attorney threatening a collection action.
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------
No matters were submitted to a vote of security holders of the Company during
the fourth fiscal quarter of the Company's fiscal year ended December 31, 1997.
PART II
Item 5.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ---------------------------------------------------------------------
During 1997 the Company's common stock was quoted on the National Association
of Securities Dealers Automated Quotations (NASDAQ) SmallCap System under the
symbol "SBUF". The table below represents the quarterly high and low closing
prices for the Company's common stock as reported through December 31, 1997.
All previously reported amounts have been restated to reflect the five-for-one
reverse common stock split that became effective on July 17, 1996. The prices
listed in this table reflect quotations without adjustment for retail mark-ups,
markdowns or commissions. The Company has not paid any cash dividends since
inception, and intends to retain earnings, if any, in the foreseeable future
for use in Company operations. The approximate number of registered holders of
record of the Company's common stock at March 11, 1998 was 625. On February 26
and 27, 1998, the Company was notified by NASDAQ that it was not in compliance
with the new net tangible assets/market capitalization/net income requirements
and minimum net bid price requirement, respectively, which had become effective
on February 23, 1998. As a result, the Company's common securities were
delisted from the NASDAQ SmallCap System, effective the close of business on
March 16, 1998. The Company securities now trade on the OTC bulletin board and
the stock symbol remains SBUF.
<TABLE>
<CAPTION>
Calendar 1997 High Low Calendar 1996 High Low
- -------------- ------- ------- -------------- --------- -------
<S> <C> <C> <C> <C> <C>
First Quarter $1 3/32 $ 11/32 First Quarter $ 4 1/16 2 3/16
Second Quarter 1 1/2 7/16 Second Quarter 3 29/32 2 11/32
Third Quarter 3 3/16 15/16 Third Quarter 2 1/2 1 3/4
Fourth Quarter 2 5/8 11/16 Fourth Quarter 1 1/16 9/16
</TABLE>
The prices provided above reflect the Company's five for one reverse stock
split effective June 21, 1996.
Item 6
SELECTED FINANCIAL DATA
- -----------------------
The following table sets forth selected financial data regarding the Company's
Statement of Operations and Balance Sheets for each of the five fiscal year
periods ended December 31, 1997. The Statement of Operations data for the year
ended December 28, 1994 and the year ended December 29, 1993 and Balance Sheet
data as of January 3, 1996, December 28, 1994, and December 29,1993 were
derived from audited financial statements not included herein:
<TABLE>
<CAPTION>
Fiscal Year Ended*
----------------------------------------------------------------------------
December 31, January 1, January 3, December 28, December 29,
1997 1997 1996 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Restaurant sales $ 33,232,395 $ 38,781,373 $ 48,826,319 $ 54,259,025 $ 35,261,577
Restaurant costs 33,521,572 37,740,612 47,887,806 54,229,714 35,239,036
----------------------------------------------------------------------------
Restaurant profit (loss) (289,177) 1,040,761 938,513 29,311 22,541
General and administrative expenses 4,769,850 2,270,372 2,720,391 3,324,020 2,539,506
Amortization of goodwill 474,500 474,500 531,653 580,642 23,992
Provision for restaurant closings 3,151,000 225,000 1,750,000 2,191,881 6,025,169
Impairment of long-lived asset 8,024,350 -- 4,475,000 -- --
Other income (expense) 130,827 363,856 429,352 256,292 308,784
----------------------------------------------------------------------------
Loss before income taxes (16,578,050) (1,565,255) (8,109,179) (5,810,940) (8,257,342)
Income tax benefit -- -- -- -- --
----------------------------------------------------------------------------
Net loss $(16,578,050) $ (1,565,255) $ (8,109,179) $ (5,810,940) $ (8,257,342)
============================================================================
Net loss per share-basic and diluted $ (6.65) $ (.63) $ (3.00) $ (2.02) $ (6.43)
============================================================================
Net loss per share
Weighted average common outstanding 2,493,144 2,493,144 2,704,539 2,880,128 1,283,736
============================================================================
<FN>
<F*> Certain amounts as of January 1, 1997, January 3, 1996, December 28, 1994,
and December 29, 1993 have been reclassified to conform to the December 31,
1997 presentation. See Note 1 to the financial statements.
</FN>
</TABLE>
SELECTED FINANCIAL DATA (Continued)
<TABLE>
<CAPTION>
Fiscal Year Ended*
----------------------------------------------------------------------------
December 31, January 1, January 3, December 28, December 29,
1997 1997 1996 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ (9,874,279) $ (6,263,136) $ (6,060,035) $(13,574,721) $ (8,234,702)
Total assets 5,922,937 16,778,655 18,461,622 36,897,757 43,561,902
Long-term debt 13,619 8,840 11,694 156,984 518,571
Stockholders' equity (6,270,468) 8,940,136 10,505,627 21,114,806 26,904,947
Restaurant Data:
Number of Company-owned restaurants
open at the end of the fiscal year 19 24 28 43 41
<FN>
<F*> Certain amounts as of January 1, 1997, January 3, 1996, December 28, 1994,
and December 29, 1993 have been reclassified to conform to the December 31,
1997 presentation. See Note 1 to the Financial Statements.
</FN>
</TABLE>
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------
Results of Operations
- ---------------------
At the end of fiscal 1997, the Company owned and operated nineteen restaurants.
Additionally, there was one licensed restaurant operating a "Stacey's Buffet",
which is not owned by the Company and not included in this analysis, except for
the royalty income fees included in other income. There were four restaurants
closed during fiscal 1997 and the Company's interest in one restaurant in the
Northeast was sold. Subsequent to year end, three restaurants were sold to
Star Buffet and one restaurant was sold to an employee. See Subsequent Events.
At the end of fiscal 1996, the Company owned and operated twenty-four
restaurants. Additionally, there were four licensed restaurants operating as
"Stacey's Buffet", which are not owned by the Company and not included in this
analysis, except for the royalty income fees included in other income. There
were four restaurants in the Northeast closed during fiscal 1996; one new
restaurant was opened in Florida and the Company's interest in one restaurant
in Florida was sold.
At the end of fiscal 1995, the Company owned and operated twenty-eight
restaurants. Additionally, there were nine licensed restaurants operating as
"Stacey's Buffet", which were not owned by the Company and not included in this
analysis, except for the royalty income fees included in other income. There
were thirteen restaurants in the Northeast closed during fiscal 1995; one new
restaurant was opened in Florida and three restaurants in Florida were
spun-off.
The Company does not plan on reopening any of its closed restaurant locations.
A summary of financial information on the operating results of the Company's
restaurants is presented in the following table.
<TABLE>
<CAPTION>
December 31, January 1, January 3,
1997 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
Restaurant sales 100.0% 100.0% 100.0%
Cost of restaurant sales:
Food cost 39.0% 38.9% 39.2%
Labor cost 33.0% 30.7% 30.1%
Operating cost 16.9% 16.4% 17.1%
Occupancy cost 8.8% 8.7% 8.3%
Depreciation and amortization 3.1% 2.6% 3.4%
-----------------------------------
Total restaurant costs 100.8% 97.3% 98.1%
-----------------------------------
Restaurant profit (.8%) 2.7% 1.9%
General and administrative expenses 14.4% 5.9% 5.5%
Amortization of goodwill 1.4% 1.2% 1.1%
Provisions for restaurant closings 9.5% 0.6% 3.6%
Impairment of long-lived assets 24.1% 0.0% 9.2%
-----------------------------------
Operating loss (50.2%) (5.0%) (17.5%)
Other income .4% 0.9% 0.9%
-----------------------------------
Loss before income taxes (49.8%) (4.1%) (16.6%)
Income tax 0.0% 0.0% 0.0%
-----------------------------------
Net loss (49.8%) (4.1%) (16.6%)
===================================
Number of Company-owned restaurants
open at end of fiscal year 19 24 28
</TABLE>
Restaurant Sales
- ----------------
Restaurant sales for fiscal 1997 were $33,232,395, which was a decrease of
14.3% compared to fiscal 1996 sales of $38,781,373. This decrease was due
primarily to an 8.8% decline in same store sales (stores open at the end of
1997 that were also open for all of 1997 and 1996) and the Company operating
fewer stores in 1997 than in 1996. The Company closed four stores (three in
Florida and one in the Northeast) and sold its interest in one store in the
Northeast during the fourth quarter of fiscal 1997.
Restaurant sales for fiscal 1996 were $38,781,373, which was a decrease of 20.6%
compared to fiscal 1995 sales of $48,826,319. This decrease was due primarily
to the closure of four restaurants located in the Northeast during the year and
the sale of the Company's interest is one restaurant in Florida. Two of the
four stores were closed during the first quarter of 1996. In addition, same
store sales posted a 3.6% decrease for the year. One new location was opened
in Florida at the end of the first quarter of 1996.
Management has determined that certain of its restaurants need to be remodeled
to reduce the decline in same store sales. With the termination of the alliance
with Star Buffet, Inc. there can be no assurance that the Company will have
the financial or operational capacity to carry out these plans.
Restaurant Costs
- ----------------
Restaurant costs include food, labor, operating, occupancy, depreciation and
amortization expenses.
Food costs as a percentage of sales increased from 38.9% in 1996, to 39.0% in
1997. Food costs as a percentage of sales were 39.2% in 1995. This relative
stability is a result of continuing efficient execution of the Stacey's Buffet
food program concept. Overall, wholesale food costs have remained relatively
stable during the period discussed.
Total labor costs as a percentage of sales increased from 30.7% in 1996 to
33.0% in 1997. This increase was related to the minimum wage increase put into
effect during 1997 and the decline in average store sales relative to the
semi-variable nature of these costs. Total labor costs as a percentage of sales
increased from 30.1% in 1995 to 30.7% in 1996. This increase was primarily
related to the 1996 increase in the minimum wage and overall pressure to
increase wages to retain employees.
Operating expenses and occupancy costs consist primarily of supplies,
utilities, advertising, maintenance, rent, real estate taxes, personal property
taxes, property insurance and liability insurance expenses. Operating expenses
as a percentage of sales increased in 1997 to 16.9% from 16.4% in 1996. This
increase as a percentage of sales is a result of these costs being relatively
fixed despite the lower sales levels per store. The primary reason operating
expenses decreased as a percentage of sales to 16.4% in 1996 from 17.1% in
fiscal 1995 was a decrease in general liability insurance expense.
Total occupancy costs as a percentage of sales was almost identical at 8.7% in
1996 and 8.8% in 1997, respectively, as the company was able to close stores
and reduce rents generally in line with falling sales volumes. Total occupancy
costs as a percentage of sales increased from 8.3% in 1995 to 8.7% in 1996 as a
result of falling sales volumes.
In fiscal 1995, which ended January 3, 1996, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
121 ("Statement 121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-lived Assets to be disposed of". See Impairment of Long-Lived Assets.
Depreciation and amortization expense as a percentage of sales increased from
2.6% in 1996 to 3.1% in 1997 primarily as a result of falling sales volumes.
Depreciation and amortization expense as a percentage of sales decreased from
3.4% in 1995 to 2.6% in 1996 as a result of the impairment of long-lived assets
in accordance with Statement 121 taken in fiscal 1995. It is expected that
depreciation and amortization will decrease in future years in absolute dollars
as a result of the four stores closed and the sale of the Company's interst in
one store in 1997 and the impairment charges taken in 1997.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses increased from $2,270,372 in 1996 to
$4,769,850 in 1997 primarily as a result of costs associated with developing a
strategic alliance to enhance the Company's operations. These costs included
providing $1,096,208 as severance for five executive employees who left
the Company and $249,219 of fees associated with the Business Services
Agreement with Star. In addition, the Company's expenses for legal fees and
professional services (excluding the Star fees) increased by $599,260 to
$965,922 in 1997 from $366,662 in 1996. Workers compensation expense also
increased by $377,303 to $875,998 in 1997 from $498,695 in 1996. In addition,
the Company incurred $215,000 in expenses to terminate a purchasing commitment
with a supplier. Net of these expense increases, general and administrative
expenses were $2,232,860 as the Company continued to control corporate general
and administrative expenses.
General and administrative expenses decreased from $2,720,391 in 1995 to
$2,270,372 in 1996 or a reduction of $450,019, primarily related to continuing
cost reductions in salaries and wages, travel, legal fees and payroll taxes net
of increases in professional services fees and store management incentive
awards.
Amortization of Goodwill
- ------------------------
The Company amortizes goodwill over 20 years. The amortization of goodwill was
$474,500 in 1997 and 1996 and $531,653 in 1995. This amount will decline in
future years as a result of the sale of three restaurants to Star in 1998 and
the additional impairment charge taken in 1997. See Impairment of Long-Lived
Assets. In 1995, three restaurants were spun-off in exchange for the return to
the Company of 400,000 shares of its common stock. The fair market value of the
Company's common stock received in the spin-off approximated the net book value
of the restaurant assets and $1,966,000 of related goodwill.
Provision for Restaurant Closings
- ---------------------------------
Because of losses and negative cash flow of certain restaurants, it was
necessary to establish a reserve for the costs associated with closing these
restaurants. These costs consist of the write-off of the net book value of
assets that will not be retained, the estimated costs of terminating long term
leases and other costs associated with closing a restaurant.
For fiscal 1997, $3,151,000 was added to the existing reserve for restaurant
closings. The increase was attributable to the closing of four stores
in 1997, a provision for possible additional store closings in 1998 and revised
cost estimates to settle lease obligations.
For fiscal 1996, $225,000 was added to the existing reserve for restaurant
closings. This increase is attributable to additional lease termination
agreements and revised cost estimates to settle lease obligations.
For fiscal 1995, $1,750,000 was added to the existing reserve for restaurant
closings. That amount was attributable to lease termination agreements and
revised cost estimates to settle lease obligations.
Impairment of Long-Lived Assets
- -------------------------------
During fiscal 1995, ended January 3, 1996, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," (" Statement 121"). Statement 121 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Statement 121 also requires that impairment losses be recorded on long-lived
assets to be disposed of when the carrying value of the asset exceeds the fair
value less the estimated selling costs.
As part of the implementation of Statement 121, all assets related to each
restaurant location, including goodwill, were tested for possible impairment.
Accordingly, an impairment reserve totaling $4,475,000 was charged against
operations during the quarter ended January 3, 1996 primarily related to
northern store operations.
The Company undertook a further review of its assets during 1997 and
determined that it would need to remodel many of its locations in order to
avoid further impairment. The Company entered into a strategic alliance
with Star in order to address numerous concerns, including the decline in
sales in the Florida market and the need to remodel. Star was to provide
both professional management and incremental funding to improve operations.
Subsequent to year-end, this arrangement was mutually terminated. With the
inability to expeditiously replace the incremental funding to both remodel
locations and develop markets to build store volume, the Company reviewed
each restaurant location and charged $8,024,350 against operations as a
result of applying Statement 121.
Fair value for the long-lived assets was determined based on estimated market
values for similar assets and on the expected discounted cash flows from the
assets.
Other Income
- ------------
In 1997, other income consisted primarily of a gain on the sale of a restaurant
of approximately $71,000, royalty fees from licensees and other miscellaneous
items. Royalty fees declined to $56,114 in 1997 from approximately $250,000 in
1996 as the Company had only one store operating under license at the end of
1997. Other expense consisted primarily of bad debt expense of $51,724 and net
interest expense of $26,757.
In 1996, other income consisted primarily of interest income, net of interest
expense, gain on sale of assets and royalty fees from licensees. Income from
royalty fees for 1996 was approximately $250,000. There was also a gain on the
sale of assets of $75,000 included in other income in 1996. Interest income was
approximately $38,000, which was partially offset by interest expense of
$35,000.
In 1995, other income and expense consisted primarily of interest income, net
of interest expense, and expense and royalty fees from licensees. Income from
royalty fees for 1995 was approximately $289,000. Interest income was
approximately $66,000, which was partially offset by interest expense of
$47,000.
Income Taxes
- ------------
There was no income tax expense or benefit for 1997, 1996, and 1995 due to net
operating losses for which no tax benefit is provided.
Net Loss
- --------
In 1997, the Company's net loss increased from $1,565,255 or $(.63) per share
in 1996 to $16,578,050 or $(6.65) per share. This increased loss was caused not
only by the decline in net sales without a commensurate decrease in operating
costs, but also by various non-recurring costs which included $8,024,350 for
Statement 121 impairments, $3,151,000 as a provision for restaurant closings,
and approximately $1,100,000 for severance.
Fourth Quarter Adjustments and Provisions
- -----------------------------------------
During the fourth quarter of 1997, the company recorded $8,024,350 of
impairment charges related to Statement 121, $3,151,000 as a provision for
restaurant closings, and approximately $1,100,000 for severance costs for
employees who left the Company. The Company also increased its accrual for
insurance expenses by $650,000 and set up an accrual for legal settlements of
$235,000. Also during the fourth quarter, the Company entered into a strategic
alliance with Star Buffet which was to provide professional management and
incremental funding to improve operations. The Company expensed approximately
$250,000 in management fees owed to Star in the fourth quarter. Subsequent to
year end, the alliance was mutually terminated and the Company is attempting to
address its financial and operating problems with its own resources. See
Liquidity and Capital Resources.
Liquidity and Capital Resources
- -------------------------------
The operating losses incurred in recent years have exhausted the Company's
cash reserves. At December 31, 1997, the Company's current liabilities exceeded
current assets by approximately $9.9 million and the Company's stockholders'
equity fell to a negative $6.3 million. The ability of the Company to generate
a positive cash flow from operations in the near term is made particularly
unlikely by the fact that most of its restaurants are located in Florida,
which have traditionally suffered a negative cash flow from April to October
of each year. If the Company's operations are unable to generate positive cash
flow, the Company's financial resources may be insufficient to finance the
Company's working capital requirements. Under such circumstances, the Company
anticipates the need to raise additional capital, reduce operations or take
other steps to achieve positive cash flow, which could include filing for
protection from creditors while the Company reorganizes its operations, a
merger, or sale of all or substantially all of the Company's assets. There can
be no assurance that such steps would be successful or that such steps, if
taken, would be on terms that are advantageous to the Company's stockholders.
Historically, the Company's liquidity has been obtained through cash from
operations, credit from trade suppliers, and the sale of common stock related
to the merger in December 1993 with the Stacey Lynn Group. The Company's cash
flow used in operating activities was $369,374 for fiscal 1997 compared with
net cash used in operating activities of $19,020 in 1996 and net cash provided
by operating activities of $837,429 in 1995. The continued detorioration over
the periods discussed was a result of the decline in sales and the fixed or
semi-fixed nature of many of the Company's operating costs and increased
expenses associated with the search for a strategic partner. With the
retrenchment of the Company primarily to the Florida market, the seasonality
of the Company's operations has increased. Such increase in seasonality will
further impair cash flows during the approaching summer and fall.
The Company's cash flows from investing activities are related to capital
expenditures for store openings or the sale of stores and/or restaurant
equipment. The capital proceeds of $180,000 recorded in 1997 were the result
of the sale of a restaurant in New York State. The capital expenditures in
fiscal 1996 related to the costs of opening a new store in Florida and the
costs of purchasing restaurant equipment. Capital expenditures for fiscal
1995 related to the costs of converting one new store in Florida that was
previously operated as a Stacey's Buffet under a license agreement and the
costs of restaurant equipment.
The Company's cash flows from financial activities was approximately $369,437
for fiscal 1997 compared to $18,610 in 1996. In 1997, the Company was advanced
$710,000 by Star under the Credit Agreement while in previous years cash flows
used in financial activities was primarily related to capital lease obligations
and a line of credit. The advance was repaid to Star in February 1998. See
Subsequent Events.
At December 31, 1997, the Company had $262,395 in short term investments, which
were being used to secure a $250,000 letter of credit supporting self-funded
worker's compensation and general liability programs. In February 1998, the
Company's workers' compensation insurance carrier notified the Company that
its letter of credit must be increased by $300,000 to $550,000 immediately
which will require a commensurate increase in the investment collateral. The
Company has notified the carrier that it is not in a position to respond to
this requirement at the present time and can give no assurance that it will be
able to fulfill this request in the near future. The carrier may, if a
satisfactory resolution is not reached, cancel the Company's coverage at any
time, in which event the Company would be force to discontinue operations,
declare bankruptcy, or like other extraordinary action to remain in business.
As part of the strategic alliance with Star Buffet (see Business, above), Star
Buffet agreed, subject to certain conditions, to make loans from time to time
up to a maximum principal amount of $4.5 million. At December 31, 1997, Star
had advanced $710,000 pursuant to the Credit Agreement. In connection with
entering into the Credit Agreement with Star, the Company entered into
agreements with certain of its creditors to forgo collection efforts for a
period up to 60 days provided that the Company make payments representing
current purchases or rent payments on a weekly or monthly basis. Although
these stand-still agreements have since expired, the Company is continuing to
honor them with the forbearance of its creditors. If at any time, the Company's
creditors were to discontinue their forbearance, the Company would be forced to
discontinue operations, declare bankruptcy or take other extraordinary action
to remain in business.
In addition, the withdrawal of the financial and management support by Star has
required that the Company immediately seek professional management and new
sources of capital, and to more aggressively pursue the sale of stores to raise
capital for operating purposes in order to continue to operate. There can be no
assurance that the Company will be successful, that the sale of stores can be
consummated on terms that will enable the Company to continue its business, or
that professional management can be recruited and put in place expeditiously.
The Company has engaged the firm of Harrison Hurley & Co., who have been
consulting with and advising the Company since 1996, to seek buyers for the
Company as a whole or its assets in part. See Note 10 of the financial
statements, Related Parties. There can be no assurance that such buyers can
be found on a timely basis or that such buyers will be willing to purchase the
Company or its assets on terms favorable to the Company's stockholders.
Subsequent Events
- -----------------
On February 17, 1998, the Company announced the termination of the strategic
alliance with Star and the sale to Star of three the Company's restaurants for
$1,100,000. Proceeds from the transaction were used to repay $710,000 of loans
that Stacey's had previously received from Star under the Credit Agreement and
$390,000 of fees and expenses charged to the Company by Star pursuant to the
Business Services Agreement to the date of termination. As part of the
termination of the Star strategic alliance, the Credit Agreement, the Option
Agreement, the Business Service Agreement and all other agreements, documents
and related instruments were terminated. In addition, the warrant to purchase
common stock of the Company was canceled.
On March 6, 1998, a restaurant in Florida was sold to an employee in exchange
for the employee assuming the Company's obligations under the restaurant's
lease and the payment of $50,000. Currently, the Company is operating 15
buffet restaurants: 13 in Florida and two in the Northeast.
Inflation
- ---------
During the three-year period covered by this report, there were no significant
commodity price increases that had a major impact on our food programs. There
was a $.50 per hour increase in the minimum wage to $4.75 per hour, that was
effective September 1, 1996. There was another increase in the minimum wage
effective on September 1, 1997 for an additional $.40 per hour. There were no
increases in the minimum wage during 1995.
The overall impact of inflation during the past three years has largely been
offset by greater volume-purchase discounts and cost reduction programs.
Seasonality
- -----------
Currently, the Company is operating fifteen stores, thirteen of which are
located in Florida. The Company's business in Florida is seasonal and with the
return of many winter visitors to northern climates, the Company's sales
have traditionally declined in its Florida Restaurants. This seasonal factor
will further strain the Company's cash position as the Company moves into the
summer months.
Year 2000 Issue
- ---------------
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than year 2000. Because the Company is not highly
dependent on information technology for the conduct of its business, it
believes that with modifications and/or updating or its existing third party
software, the Year 2000 problem will not pose significant operational problems
for its computer systems. However, if such modifications and/or updates are not
completed timely, the Year 2000 issue could have a material impact on the
operations of the Company.
Recent Accounting Pronouncements
- --------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) "Earnings Per Share" (Statement 128),
which requires public companies to present basic earnings per share, and if
applicable, diluted earnings per share, instead of primary and fully diluted
earnings per share. Statement 128 is effective for financial statements issued
for periods ending after December 15, 1997. The adoption of Statement 128 did
not have a material effect on the net loss per share as previously disclosed.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of Information about Capital Structure" (Statement 129), which
requires companies to disclose descriptive information about securities that is
not necessarily related to the computation of earnings per share. It also
requires disclosure of information about the liquidation preference of
preferred stock and redeemable stock. Statement 129 is effective for financial
statements for periods ending after December 15, 1997. The implementation of
Statement 129 did not require revision of prior year disclosures.
In June 1997, SFAS No. 130, "Comprehensive Income" (Statement 130), was issued
which becomes effective for the Company's 1998 fiscal year. Statement 130
requires reclassification of earlier financial statements for comparative
purposes. Statement 130 requires that changes in the amounts of certain items,
including foreign currency translation adjustments and gains and losses on
certain securities, be shown in the financial statements. Statement 130 does
not require a specific format for the financial statement in which
comprehensive income is reported, but does require that an amount representing
total comprehensive income be reported in that statement. The Company does not
expect that the implementation of Statement 130 will have a material effect
upon the Company's financial statements.
In June 1997, SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information" (Statement 131), was issued. This statement will change
the way public companies report information about segments of their business in
their annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. It also requires
entity-wide disclosures about the products, services an entity provides, the
material countries in which it holds assets and reports revenues, and its major
customers. Statement 131 is effective for fiscal years beginning after December
15, 1997. The Company does not expect that Statement 131 will have a material
effect upon the Company's financial statements.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -------------------------------------------
(a) (1) Financial Statements. The Company's Financial Statements included in
Item 8 hereof, as required, consist of the following:
Independent Auditors' Report
Balance Sheets at December 31, 1997 and January 1, 1997
Statements of Operations for the years ended December 31, 1997,
January 1, 1997, and January 3, 1996
Statements of Stockholders' Equity for the years ended December 31,
1997, January 1, 1997, and January 3, 1996
Statements of Cash Flows for the years ended December 31, 1997,
January 1, 1997, and January 3, 1996
Notes to Financial Statements
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
Stacey's Buffet, Inc.:
We have audited the accompanying balance sheets of Stacey's Buffet, Inc. as of
December 31, 1997 and January 1, 1997, and the related statements of
operations, stockholders' equity (deficit), and cash flows for each of the
years in the three-year period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stacey's Buffet, Inc. as of
December 31, 1997 and January 1, 1997, and the results of its operations and
its cash flows for each of the years in the three-year period ended December
31, 1997 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a working capital and a net capital deficiency that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ KPMG PEAT MARWICK LLP
Tampa, Florida
March 16, 1998
STACEY'S BUFFET, INC.
Balance Sheets
December 31, 1997 and January 1, 1997
<TABLE>
<CAPTION>
December 31, January 1,
1997 1997
------------ -----------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 351,998 252,991
Short-term investments 262,395 806,194
Receivables 20,833 162,993
Inventory 264,333 309,013
Deferred loan costs 1,367,446 --
Prepaid expenses and other current assets 38,502 35,352
---------------------------
Total current assets 2,305,507 1,566,543
Property and equipment, net 2,013,522 6,939,536
Deposits and other assets 128,385 162,588
Goodwill, net 1,475,523 8,109,988
---------------------------
$ 5,922,937 16,778,655
===========================
Liabilities and Stockholders' Equity (Deficit)
----------------------------------------------
Current liabilities:
Accounts payable $ 3,430,166 2,638,948
Line of credit -- 340,000
Current portion of obligations under Capital Leases 10,826 16,168
Current portion of obligations due Star Buffet, Inc. 710,000 --
Accrued severance 1,025,874 --
Accrued workers compensation 558,810 463,365
Accrued expenses 2,160,574 1,588,757
Accrued rent 862,512 607,818
Reserve for restaurant closings 3,421,024 2,174,623
---------------------------
Total current liabilities 12,179,786 7,829,679
Obligations under capital leases, excluding current portion 13,619 8,840
---------------------------
Total liabilities 12,193,405 7,838,519
Stockholders' equity (deficit)
Common stock, $.01 par value. Authorized 25,000,000 shares;
issued and outstanding 2,493,144 shares at December 31, 1997
and January 1, 1997 24,931 24,931
Additional paid in capital 44,155,048 42,787,602
Accumulated deficit (50,450,447) (33,872,397)
---------------------------
Net stockholders' equity (deficit) (6,270,468) 8,940,136
Commitments and contingencies -- --
$ 5,922,937 16,778,655
===========================
</TABLE>
See accompanying notes to financial statements
STACEY'S BUFFET, INC.
Statements of Operations
Years ended December 31, 1997, January 1, 1997
and January 3, 1996
<TABLE>
<CAPTION>
December 31, January 1, January 3,
1997 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
Restaurant sales $ 33,232,395 38,781,373 48,826,319
Cost of restaurant sales:
Food cost 12,963,214 15,085,912 19,151,959
Labor cost 10,974,333 11,909,174 14,690,105
Operating cost 5,632,437 6,374,458 8,343,591
Occupancy cost 2,927,950 3,376,938 4,034,199
Depreciation and amortization 1,023,638 994,130 1,667,952
----------------------------------------
Total restaurant costs 33,521,572 37,740,612 47,887,806
----------------------------------------
Restaurant profit (loss) (289,177) 1,040,761 938,513
General and administrative expenses 4,769,850 2,270,372 2,720,391
Amortization of goodwill 474,500 474,500 531,653
Provision for restaurant closings 3,151,000 225,000 1,750,000
Impairment of long-lived assets 8,024,350 -- 4,475,000
----------------------------------------
Operating loss (16,708,877) (1,929,111) (8,538,531)
Other income, net 130,827 363,856 429,352
----------------------------------------
Loss before income taxes (16,578,050) (1,565,255) (8,109,179)
Income taxes -- -- --
----------------------------------------
Net loss $(16,578,050) (1,565,255) (8,109,179)
========================================
Net loss per share of common stock
Basic and diluted $ (6.65) (0.63) (3.00)
========================================
Weighted average number of basic and
diluted common shares outstanding 2,493,144 2,493,144 2,704,539
========================================
</TABLE>
See accompanying notes to financial statements
STACEY'S BUFFET, INC.
Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1997, January 1, 1997
and January 3, 1996
<TABLE>
<CAPTION>
Common stock Additional Net
-------------------- paid-in Treasury Accumulated stockholders'
Shares Amount capital stock deficit equity (deficit)
--------- -------- ---------- ----------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 28, 1994 2,893,144 $ 28,931 45,283,602 -- (24,197,963) 21,114,570
Purchase of shares -- -- -- (2,500,000) -- (2,500,000)
Retirement of treasury stock (400,000) (4,000) (2,496,000) 2,500,000 -- --
Net loss -- -- -- -- (8,109,179) (8,109,179)
-------------------------------------------------------------------------------
Balances at January 3, 1996 2,493,144 24,931 42,787,602 -- (32,307,142) 10,505,391
Net loss -- -- -- -- (1,565,255) (1,565,255)
Balances at January 1, 1997 2,493,144 24,931 42,787,602 -- (33,872,397) 8,940,136
-------------------------------------------------------------------------------
Net loss -- -- -- -- (16,578,050) (16,578,050)
Warrant issued in connection with
Credit Agreement with Star -- -- 1,367,446 -- -- 1,367,446
-------------------------------------------------------------------------------
Balances at December 31, 1997 2,493,144 24,931 44,155,048 -- (50,450,447) (6,270,468)
===============================================================================
</TABLE>
See accompanying notes to financial statements
STACEY'S BUFFET, INC.
Statements of Cash Flows
Years ended December 31, 1997, January 1, 1997
and January 3, 1996
<TABLE>
<CAPTION>
December 31, January 1, January 3,
1997 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
Cash flow from operating activities:
Net (loss) $(16,578,050) (1,565,255) (8,109,179)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for impairment of long-lived assets 8,024,350 -- 4,475,000
Depreciation and amortization 1,666,871 1,677,019 2,384,139
Gain on sale of asset (71,622) -- --
Provision for restaurant closings 3,151,000 225,000 1,750,000
Change in assets and liabilities:
(Increase) decrease in assets:
Short-term investments 543,799 (36,526) 69,702
Receivables 142,160 (61,785) (33,457)
Inventory 44,680 47,654 162,322
Prepaid expenses and other current assets (3,150) 45,002 300,828
Deposits and other assets 34,203 10,957 (10,402)
Increase (decrease) in liabilities:
Accounts payable 791,218 (349,623) 422,827
Accrued severance 1,025,874 -- --
Accrued workers compensation 95,445 154,472 (72,813)
Accrued expenses 571,817 77,599 5,290
Accrued rent 254,694 (101,173) (1,259,476)
Other liabilities -- (27,578) (19,993)
Reserve for restaurant closings (62,663) (114,783) 772,641
----------------------------------------
Net cash (used in) provided by operating
activities (369,374) (19,020) 837,429
Cash flows from investing activities:
Capital expenditures (81,056) (310,893) (310,961)
Proceeds from sale of assets 180,000 15,503 135,256
Other (7,460)
----------------------------------------
Net cash (used in) provided by investing
activities 98,944 (295,390) (183,165)
Cash flows from financing activities:
Proceeds of advances from Star Buffet 710,000 -- --
(Decrease) increase in line of credit (340,000) 165,000 (13,000)
Proceeds from issuance of capital lease obligations 16,102 -- --
Payments on capital lease obligations (16,665) (146,390) (122,680)
----------------------------------------
Net cash (used in) provided by financing
activities 369,437 18,610 (135,680)
----------------------------------------
Net (decrease) increase in cash 99,007 (295,800) 518,584
Cash and cash equivalents at beginning of period 252,991 548,791 30,207
----------------------------------------
Cash and cash equivalents at end of period $ 351,998 252,991 548,791
========================================
</TABLE>
STACEY'S BUFFET, INC.
Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
December 31, January 1, January 3,
1997 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash payments during the period for:
Interest $ 39,308 35,587 46,849
============ ========== ==========
Supplemental schedule of noncash investing and
financing activities:
Write-off of leasehold improvements and equipment
(net of accumulated depreciation) against the
reserve for restaurant closings $ 1,841,760 $ -- $9,319,127
============ ========== ==========
Property and equipment acquired in restaurant
acquisition in exchange for royalty receivable
forgiveness $ -- $ -- $ 125,000
============ ========== ==========
Obligations under capital leases assumed in
restaurant acquisition $ -- $ -- $ 29,375
============ ========== ==========
</TABLE>
See accompanying notes to financial statements.
STACEY'S BUFFET, INC.
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies and Practices
Description of Business
-----------------------
Stacey's Buffet, Inc. (the "Company") operates a chain of buffet-style
restaurants. The Company operated nineteen stores at December 31, 1997,
twenty-four stores at January 1, 1997, and twenty-eight stores at January
3, 1996. Of the stores open at December 31, 1997, seventeen are located
in the state of Florida and two are located in the Northeast. The
following table summarizes store count for the past three fiscal years.
<TABLE>
<CAPTION>
Fiscal Years Ending
--------------------------------------
December 31, January 1, January 3,
1997 1997 1996
--------------------------------------
<S> <C> <C> <C>
Beginning Restaurants Open 24 28 43
Restaurants Opened 0 1 0
Restaurants Acquired 0 0 1
Restaurants Sold 1 1 3
Restaurants Closed 4 4 13
--------------------------------------
Ending Restaurants Open 19 24 28
</TABLE>
Fiscal Year
-----------
The Company's fiscal year ends on the Wednesday nearest December 31.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents (There were no cash equivalents at December 31,
1997 or January 1, 1997) includes cash and investments with original and
purchased maturities less than 90 days.
Short-Term Investments
----------------------
Short-term investments consist of U.S. Treasury and corporate bonds and
are carried at market. Substantially all short-term investments have been
pledged as security for the Company's letter of credit used to support
its workers compensation obligations. The carrying amount of short-term
investments approximates fair value because of the short maturity,
generally less than one year, of these instruments.
Deferred Loan Costs
-------------------
Deferred loan costs of $1,367,446 were incurred in connection with the
issuance of a Warrant by the Company in connection with the October 31,
1997 Credit Agreement with Star Buffet, Inc. See Notes 9 & 10.
Inventory
---------
Inventory, which consists principally of food and supplies, is stated at
the lower of cost (first-in, first-out method) or market.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation on property and
equipment is calculated on the straight-line method over the estimated
useful lives of the assets.
Goodwill
--------
Goodwill relates to the merger with Stacey-Lynn Group, Inc. and is being
amortized over 20 years. See Note 5. Accumulated amortization of goodwill
was $2,061,294 and $1,586,794 at December 31, 1997 and January 1, 1997,
respectively.
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of the Company's financial instruments at December
31, 1997 and January 1, 1997, reflect the fair value amounts which have
been determined using available market information. See Note 2.
Accounting for Long-lived Assets
--------------------------------
The Company adopted the provisions of the Financial Accounting Standard
Board's Statement of Financial Accounting Standards No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of", on January 3, 1996. This Statement requires that certain
long-lived assets and certain identified intangibles be reviewed for
impairment whenever events or changes indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed
the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less cost to sell.
Income Taxes
------------
The Company accounts for income taxes in accordance with the Financial
Accounting Standards Board's Statement of Financial Accounting Standards
No. 109 ("Statement 109"), "Accounting for Income Taxes." Under the asset
and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109,
the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that included the enactment
date.
Earnings (Loss) Per Share
-------------------------
The Company accounts for its net earnings (loss) per share in accordance
with Financial Accounting Standards Board Statement No 128 "Earnings per
Share." Basic earnings per share is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. The
Company's basic and fully diluted earnings per share is identical because
any shares to be issued by the exercise of options or warrants would be
anti-dilutive because the Company has experienced losses for all periods
covered by this report. Basic and diluted earnings (loss) per share
information is computed based on the weighted average number of common
shares outstanding of 2,493,144 for the year ended December 31, 1997,
2,493,144 for the year ended January 1, 1997 and 2,704,539 for the year
ended January 3, 1996.
Use of Estimates
----------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial satements in
conformity with generally acepted accounting principles. Actual results
could differ from these estimates.
Reclassifications
-----------------
Certain amounts in the January 1, 1997 and January 3, 1996 financial
statements have been reclassified to conform to the December 31, 1997
presentation.
Accounting Standards
--------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) "Earnings Per Share"
(Statement 128), which requires public companies to present basic
earnings per share, and if applicable, diluted earnings per share,
instead of primary and fully diluted earnings per share. Statement 128 is
effective for financial statements issued for periods ending after
December 15, 1997. The adoption of Statement 128 did not have a material
effect on the net loss per share as previously disclosed.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 129, "Disclosure of Information about Capital Structure" (Statement
129), which requires companies to disclose descriptive information about
securities that are not necessarily related to the computation of
earnings per share. It also requires disclosure of information about the
liquidation preference of preferred stock and redeemable stock. Statement
129 is effective for financial statements for periods ending after
December 15, 1997. The implementation of Statement 129 did not require
revision of prior year disclosures.
In June 1997, SFAS No. 130, "Comprehensive Income" (Statement 130), was
issued which becomes effective for the Company's 1998 fiscal year.
Statement 130 requires reclassification of earlier financial statements
for comparative purposes. Statement 130 requires that changes in the
amounts of certain items, including foreign currency translation
adjustments and gains and losses on certain securities, be shown in the
financial statements. Statement 130 does not require specific format for
the financial statement in which comprehensive income is reported, but
does require that an amount representing total comprehensive income be
reported in that statement. The Company does not expect that the
implementation of Statement 130 will have a material effect upon the
Company's financial statements.
In June 1997, SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" (Statement 131), was issued. This statement will
change the way public companies report information about segments of
their business in their annual financial statements and requires them to
report selected segment information in their quarterly reports issued to
shareholders. It also requires entity-wide disclosures about the
products, services an entity provides, the material countries in which it
holds assets and reports revenues, and its major customers. Statement 131
is effective for fiscal years beginning after December 15, 1997. The
Company does not expect that Statement 131 will have a material effect
upon the Company's financial statements.
Year 2000 Issues
----------------
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any
of the Company's programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than year 2000.
Because the Company is not highly dependent on information technology
for the conduct of its business, it believes that the modifications
and/or updating or its existing third party software, the Year 2000
problem will not pose significant operational problems for its
computer systems. However, if such modifications and/or updates are
not completed timely, the Year 2000 issue could have a material
impact on the operations of the Company.
(2) Going Concern
As shown in the financial statements, the Company has incurred net losses
of $16,578,050, $1,565,255, and $8,109,179 for the years ended December
31, 1997, January 1, 1997, and January 3, 1996. These losses have caused
a considerable strain on the Company's cash flow. At December 31, 1997,
the Company had a working capital deficit of $9,874,279 and a net
stockholders' deficit of $6,220,468. In order to alleviate some of this
strain, the Company entered into agreements with certain of its creditors
to allow the Company to delay payment of a substantial portion of its
then due accounts payable. Although these agreements have expired, most
of these creditiors have continued to permit the Company to delay
payments. There can be no assurance that these creditiors will continue
to extend these extraordinary payment terms to the Company. If one or
more of these creditors were to demand that the Company revert to regular
payment terms, it is highly probable that the Company would need to take
measures, as described in the following paragraph, to maintain its
business.
Exacerbating the Company's financial position is the fact that it is
currently entering the slow season for its Florida operations and it is
expected that the Company's cash flow will be negatively impacted over
the next six to eight months. If the Company is unable to generate a
positive cash flow in the near future, the Company's financial resources
will be insufficient to finance the Company's working capital needs which
raises substantial doubt about the ability of the Company to continue as
a going concern. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets or
the amount and classification of liabilities that might be necessary in
the event the Company cannot continue in existance. The Company has
embarked on a plan to sell certain of its assets, reduce operations and
take other measures to achieve positive cash flow, which could include
filing for protection from creditors while the Company reorganizes its
operations, a merger with another company, or the sale of all or
substantially all of the Company's assets. There can be no assurance that
such steps would be successful or that such steps, if taken, would be on
terms that are advantageous to the Company. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
(3) Property and Equipment
Property and equipment, consists of the following:
<TABLE>
<CAPTION>
December 31, January 1, Useful lives
1997 1997 (in years)
------------ ---------- ------------
<S> <C> <C> <C>
Restaurant equipment $ 5,563,448 9,610,938 5 - 12
Leasehold improvements 2,323,513 4,741,255 15 - 20
Other equipment 527,020 570,203 5
------------------------- ===========
8,413,981 14,922,296
Less accumulated depreciation 6,400,459 7,982,860
-------------------------
$ 2,013,522 6,939,536
=========================
</TABLE>
(4) Leases
The Company leases its restaurants under noncancellable operating leases.
These leases have initial terms from five to ten years with options to
renew for generally ten years. Future minimum lease payments under
noncancelable operating leases as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Fiscal year
-----------
<S> <C>
1998 $ 1,825,128
1999 1,183,993
2000 814,387
2001 647,434
2002 222,295
Thereafter 274,600
===========
</TABLE>
Total lease expense was approximately $2,400,000 for the year ended
December 31, 1997, $2,700,000 for the year ended January 1, 1997 and
$3,480,000 for the year ended January 3, 1996. Certain lease agreements
had initial rental free periods and annual fixed escalators which are
expensed on a straight-line basis over the lease term.
(5) Impairment of Long-Lived Assets
In applying Statement 121 during fiscal 1995, the Company reviewed all
assets related to each restaurant location, including goodwill, for
possible impairment. Accordingly, $4,475,000 was charged against
operations during the quarter ended January 3, 1996 for asset impairments
primarily related to Northern store operations.
The Company undertook a further review of its assets and determined that
it would need to remodel many of its locations in order to avoid further
impairment. The Company entered into a strategic partnership to address a
sales decline experienced in the Florida market. Star Buffet, Inc.
("Star") was to provide both professional management and incremental
funding to improve operations. Susequent to year end 1997, the alliance
was mutually terminated. With the inability to expeditiously replace the
incremental funding to both remodel locations and develop markets to
build store volume, the Company reviewed each restaurant location and
charged $8,024,350 ($2,093,449 of fixed assets and $5,930,901 of
goodwill) against operations as a result of applying Statement 121.
(6) Long Term Debt
On October 31, 1997, the Company executed a Credit Agreement with Star
Buffet that provided for advances up to $4.5 million to the Company.
Interest is payable monthly at prime plus four per cent up to $4,000,000
and prime plus 5 per cent on amounts above $4,000,000. All advances are
due on October 31, 2002. The Agreement is secured by substantially all
the Company's assets. As of December 31, 1997, Star had advanced
$710,000 to the Company under this Agreement.
As a result of the termination of the alliance with Star and the sale of
three restaurants to Star, the advances were repaid subsequent to
year-end. See Note 10.
(7) Reserve for Restaurant Closings
The Company increased the reserve for restaurant closings in the year
ended January 3, 1996 by $1,750,000. The increase is attributable to the
settlement of various lease termination agreements, revised cost
estimates to settle lease obligations and two additional stores which
have closed subsequent to January 3, 1996. The Company charged $8,546,486
(net of accrued rent and expenses related to closed stores) against the
reserve for restaurant closings for the year ended January 3, 1996.
Additionally, during the year ended January 3, 1996, the Company entered
into several lease termination agreements with various landlords to
facilitate the closing of unprofitable stores. These agreements are all
non-interest bearing and require varying payments over five years.
The Company increased the reserve for restaurant closings in the year
ended January 1, 1997 by a $225,000 charge to the provision for store
closings and $377,876 reclassed from accrued liabilities. The increase
was attributable to revised cost estimates to settle lease obligations
and the addition of five stores that were closed in 1996. The Company
charged $426,338 in cash payments for settlement agreements and $66,321
in cash payments for legal fees and to move retained equipment against
the reserve for store closings for the year ended January 1, 1997.
The Company increased the reserve for restaurant closings in the year
ended December 31, 1997 by a $3,151,000 charge to the provision for store
closings. The increase was attributable to revised cost estimates to
settle lease obligations, the addition of four stores closed in 1997, and
a provision for possible additonal store closings in 1998. The Company
charged $1,904,423 (net of accrued rent and expenses related to closed
stores) against the reserve for restaurant closings for the year ended
December 31, 1997.
The balance of the reserve for restaurant closings as of December 31,
1997 is comprised of the following:
<TABLE>
<CAPTION>
Restaurant
closings
-----------
<S> <C>
Lease termination agreements and remaining
lease expense $ 2,253,773
Estimates of future leasehold termination costs
and other 1,167,251
-----------
$ 3,421,024
===========
</TABLE>
(8) Income Taxes
Income taxes (benefit) attributable to loss before income taxes differ
from the amounts computed by applying the U.S. federal income tax rate of
35 percent to loss before income taxes for December 31, 1997 and January
1, 1997, and January 3, 1996 as a result of the following:
<TABLE>
<CAPTION>
December 31, January 1, January 3,
1997 1997 1996
------------ ---------- -----------
<S> <C> <C> <C>
Computed "expected" tax benefit $(5,802,000) (548,000) (2,838,000)
Increase (reduction) in income taxes resulting from:
State tax benefit, net (656,000) (112,000) (316,000)
Goodwill 2,241,000
Other, net (1,034,000) (265,000)
Change in valuation allowance 5,251,000 660,000 3,419,000
----------------------------------------
$ -- -- --
========================================
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below.
<TABLE>
<CAPTION>
December 31, January 1,
1997 1997
------------ ----------
<S> <C> <C>
Deferred tax assets:
Impairment of long-lived assets $ 2,055,000 1,621,000
Provision for store closings 1,943,000 870,000
Net operating loss carryforward 14,401,000 12,619,000
Miscellaneous tax credits 121,000 121000
Goodwill 212,000 427,000
Accrued severance 410,000 --
Bad debt allowance 14,000 --
Other 295,000 117,000
---------------------------
Total gross deferred tax assets 19,451,000 15,775,000
Less valuation allowance (18,312,000) (13,061,000)
---------------------------
Net deferred tax assets 1,139,000 2,714,000
---------------------------
Deferred tax liabilities:
Property and equipment, due to differences
in depreciation methods and useful lives (1,139,000) (2,435,000)
Training -- (279,000)
---------------------------
Total gross deferred tax liabilities (1,139,000) (2,714,000)
---------------------------
Net deferred tax asset $ -- --
===========================
</TABLE>
The net change in the total valuation allowance was an increase of
$5,251,000 and $660,000 for the years ended December 31, 1997 and January
1, 1997, respectively. The realization of deferred tax assets is
dependent upon sufficient future taxable income. Based on prior operating
results, the Company has a valuation allowance of its potential deferred
net tax assets due to the uncertainty of the realization of the net
deferred tax assets.
At December 31, 1997, the Company has net operating loss carryforwards
for Federal income tax purposes of approximately $36,000,000 which is
available to offset future taxable income, if any, through 2011.
(9) Stockholders' Equity
Shareholder Rights Plan
On June 21, 1996, the Company adopted a Shareholder Rights Plan (the
"Plan") which is designed to prevent an acquirer from gaining control of
the Company without offering a fair price to all shareholders. Under the
Plan, each of the Company's outstanding shares is now accompanied by a
Right that would become exercisable at the close of business on the tenth
day following the earlier to occur of:
1. A public announcement that a person or group had acquired
beneficial ownership of 15% or more of the Company's common
stock or
2. the commencement of, or the first public announcement or
announcement of an intention of any person or group to
commence, a tender offer or exchange offer which would result
in that person or group acquiring beneficial ownership of 15%
or more of the Company's common stock.
Once the Rights become exercisable, each Right entitles the holder to
purchase nine shares of the Company's common stock at a purchase price of
$.01 per share. The Rights may be redeemed by the Company at a redemption
price of $0.001 per right at anytime prior to the Rights becoming
exercisable.
Reverse Stock Split
On July 17, 1996, the Company effected a five-to-one reverse stock split
that had been previously approved by the Board of Directors and was
approved by the shareholders at the annual shareholders meeting on June
21, 1996. All references to the number of shares and per share amounts
have been restated to reflect the effect of the reverse split in the
financial statements for all periods presented.
Stock Option Plans and Warrants
Effective February 19, 1987, an employee stock option plan (the "1987
Plan") was adopted for which 104,593 shares of the Company's common stock
were reserved. Effective May 9, 1990, the Company adopted a second
employee stock option plan (the "1990 Plan") for which 42,000 shares of
the Company's common stock were reserved. Effective May 26, 1994, the
Company adopted a stock option plan for directors and key employees for
which 100,000 shares were reserved. The Company has also adopted, subject
to shareholder approval by August 11, 1998, the 1997 Combination Stock
Option Plan for which 120,000 shares of the Company's common stock was
reserved. The option prices for all plans are to be no less than the fair
market value of stock at the date of grant. In 1997, the Company granted
warrants to purchase 320,000 shares of the Company's common stock at
$.375 per share to a former executive officer. These warrants are
included in the tables below.
Changes in stock options and warrants outstanding are as follows:
<TABLE>
<CAPTION>
Number of Weighted-average
Shares Price Fair Value
--------- ------------- ----------------
<S> <C> <C> <C>
Outstanding, December 28, 1994 201,763 $5.20-$39.375
Granted 101,800 3.125-7.50 $2.69
Exercised -- --
Canceled 35,864 3.75-16.25
Outstanding, January 3, 1996 267,699 3.125-39.75
Granted 168,200 2.35-3.60 $1.95
Exercised -- --
Canceled 10,550 3.125-15.00
Outstanding. January 1, 1997 425,349 2.35-39.375
Granted 358,800 .375-1.375 $0.25
Exercised --
Canceled 204,099 2.35-39.375
Outstanding, December 31, 1997
Range of Prices
$0.375-$5.00 412,550
$5.01-$39.75 167,500
-------
Total 580,050 $0.375-$39.75
=======
Available for Future Grants 141,556
=======
</TABLE>
Under the 1987 and 1990 employee stock option plans, options vest 25% per
year for four years. Vesting provisions under the other plans vary.
Options and warrants to purchase 546,763 shares were exercisable at
December 31, 1997. The vesting schedule by fiscal year for all shares
covered by the options is as follows:
<TABLE>
<CAPTION>
Fiscal year
-----------
<S> <C>
1998 11,150
1999 10,137
2000 9,000
2001 3,000
------
33,287
======
</TABLE>
The Company has public warrants outstanding for the purchase of 422,500
shares at $22.50 per share exercisable through November 1998. In
connection with a Business Services Agreement with Star, the Company
issued a warrant for the purchase of 1,342,422 shares at $1.00 per share
on October 31, 1997 (See Note 10).
Stock Based Compensation
During the year ended January 1, 1997, the Company adopted the
disclosure-only provisions of Financial Accounting Standards Board's
Statement of Financial Accounting No. 123, "Accounting for Stock-Based
Compensation," ("Statement 123") which recommends stock based
compensation be measured at fair value rather than intrinsic value and
requires additional pro forma disclosure for companies that do not
measure stock based compensation using the fair value method.
The Company applies APB Opinion No. 25 in accounting for its stock
options and warrants, accordingly, no compensation cost has been
recognized for its stock options and warrants in its financial
statements. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under Statement 123,
the Company's net loss would have increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
December 31, January 1, January 3,
1997 1997 1996
------------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss As reported ($16,578,050) ($1,565,255) ($8,109,179)
Pro Forma ($16,679,447) ($1,599,927) ($8,119,229)
Loss per share-Basic
and diluted As reported ($6.65) ($0.63) ($3.00)
Pro forma ($6.69) ($0.64) ($3.00)
</TABLE>
The fair value of each option and warrant grant subject to Statement 123
is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for grants in
1997, 1996 and 1995 respectively: dividend yield of zero per cent for
all years: expected volatility of 82.38% for all years; risk-free
interest rates of 6.4%, 6.5%, and 5.7%; and expected lives of 3, 6, and
4 years. This pro forma net loss and loss per share applies only to
options and warrants granted in 1997, 1996 and 1995. Therefore, the
full impact of calculating compensation cost for stock options and
warrants under Statement No. 123 is not considered in the pro forma net
loss and loss per share amounts referred to because compensation costs
are reflected over the options and warrants vesting periods and
compensation cost for options and warrants granted prior to December
29, 1994 is not considered.
Star Warrant
On October 31, 1997, the Company issued a warrant to purchase 1,342,422
shares of the Company's common stock at $1.00 per share to Star. The
warrant was valued at $1,367,446 using the Black-Scholes method. The
warrant is exercisable at any time until October 31, 2002. Stacey's
Buffet is obligated to register the common stock issuable under the
warrant. The warrant contain customary anti-dilution provisions. The
warrant was canceled on February 17, 1998 and the deferred loan costs
will be reversed to paid in capital in the first quarter. See Note 10.
(10) Related Parties
During 1995, the Company and a former Chairman and Chief Executive
Officer ("former Officer"), agreed to spin-off three restaurants in
exchange for the return to the Company of 400,000 shares of the Company's
common stock. The fair market value of the Company's common stock
received in the spin-off approximated the net book value of the
restaurant assets and $1,966,000 of related goodwill. The former Officer
entered into a license agreement to operate the stores under the Stacey's
name using the buffet concept which required the payment of a two percent
royalty after six months of operations. During 1996, the former Officer
terminated the license agreement and no longer operates these stores as
Stacey's Buffet restaurants. As part of the transaction, the former
Officer granted the Board of Directors the right to direct the voting of
his remaining 400,000 shares through 1998.
As part of the strategic alliance with Star, the Company's President,
CEO, and Chairman of the Board of Directors resigned on October 31,
1997, pursuant to a Severance and Noncompetition Agreement which
entails payments totaling $1,000,000 over four years to The Marrier
Group, Inc., of which Mr. Marrier is an employee. In 1997, the Company
paid $247,393 to The Marrier Group, Inc.
The Company paid a company owned by the current President, CEO, and
Chairman of the Board fees totaling approximately $143,000 in 1997.
On October 31, 1997, Star entered into a Business Services Agreement
pursuant to which Star agreed to provide on a fee basis certain
management, administrative and purchasing services for the Company's
restaurants for a period of five years. Additionally, on October 31,
1997 Star agreed, subject to certain conditions, to make loans from
time to time up to a maximum amount of $4.5 million to the Company,
pursuant to a Credit Agreement dated October 31, 1997 (the
"Credit Agreement"). In connection with the Credit Agreement, the
Company granted to Star a warrant to purchase 1,342,422 shares of the
Company's common stock at a price of $1.00 per share, and
entered into a security agreement, a promissory note, and an option
granting Star the right to purchase up to six of the Company's
restaurants located in Florida. Star also receeived registration rights
with respect to shares of the Company's common stock issuable upon
exercise of the warrant. See Note 13.
(11) Contingencies
Purchase Commitments
The Company relies on Sysco Food Services ("Sysco") for a significant
portion of its purchases of food used in its restaurant operations. For
the year ended December 31, 1997, the Company purchases approximately
$4,600,000 from Susco, which was 43% of its purchases of food. The
Company is not current in its payments to Sysco and continues to
receive deliveries from Sysco under an informal agreement.
The Company maintains purchase commitments with R.C. Cola and Coca Cola
for the supply of soft drinks to its restaurants. At December 31, 1997,
the Company owed approsimately $331,000 to R.C. Cola and $215,000 to
Coca Cola under current and previous commitments. Management believes
that it is in its best interest to continue with a single supplier.
Management is negotiating to resolve this matter, but no assurance can
be given that it will be resolved with a favorable outcome for the
Company.
Workers Compensation
At December 31, 1997, the Company had $262,395 in short term investments,
which is being used to secure a $250,000 letter of credit supporting self
funded workers compensation and general liability programs. In February
1998, the Company's workers compensation carrier notified the Company
that this letter of credit must be increased by $300,000 from $250,000
to $550,000, immediately which will require a commensurate increase in
the investment collateral. The Company has notified the carrier that it
is not in a position to respond to this requirement at the present time
and can give no assurance that it will be able to fulfill this request
in the near future. The carrier may, if a satisfactory resolution is
not reached, cancel the Company's coverage at any time, in which event
the Company could be forced to discontinue operations, declare
bankruptcy, or take other extraordinary action to remain in business.
Leases
On October 31, 1997, the Company entered into standstill agreements with
twenty two landlords from whioch the Company leased property in order to
stay defaults pertaining to the underlying leases. In the standstill
agreements, the Landlords agreed not to take any collection action on
past due amounts owed by the Company until either December 1, 1997 or
January 1, 1998 provided the Company made current lease payments for the
months November 1997, for the December 1 standstill or current payments
for November or December 1997 for the January 1, 1998. Although the
standstill agreements have expired the landlords have not taken adverse
action.
At December 31, 1997, the Copmpany owed approximately $650,000 in past
due rent payments to landlords, representing approximately three months
rent in arrears. At March 16, 1998, the amount had increased to
approximately $850,000.
Legal Matters
The Company's business exposes it to a variety of claims arising in the
normal course, including employee claims, "slip and fall" claims, and
other claims. Management believes that it would not be useful to
describe each of these claims. However, given the fact that the
Company's financial resources are severely limited, any single adverse
judgement could have a material impact on the Company's financial
resources.
Although management has endeavored to describe, below, those matters that
it perceives to constitute the greatest threats to the Company, it is
possible that any single claim could force the Company to take
extraordinary action. Moreover, management believes that an adverse
outcome to any of the matters described below could force the Company
to file for protection under applicable bankruptcy or receivership laws,
or to take other action which could have serious and negative
implications.
With regard to the workers compensation and general liability claims
for which the Company is self funded, it is important to recognize that
the risk of loss is borne by the Company. The Company is required to
provide a letter of credit to secure these self funded programs. The
insurance Company requested in February 1998 an increase in the letter
of credit of $300,000 from $250,000 to $550,000 which will require a
commensurate increase in the investment collateral which the Company
has been unable to provide. See Note 11. The inability of the Company
to increase its required letter of credit could have a material impact
on the Company.
The Company was subject to a lawsuit by four employees claiming
sexual harassment by a manager of one of the Company's restaurants. The
settlement agreement provides for the payment of $235,000 to the
plaintiffs on September 7, 1998. If the payment is not made the
plaintiffs are entitled to proceed against the Company pursuant to
a final order which is not subject to the defenses that the Company
might have had in the original claims. Any default in payment of the
foregoing amount could result in an expedited judgement against the
Company, upon which court-authorized collection action could be
commenced.
The Company has been threatened with a lawsuit by Shoney's, Inc.
("Shoney's") claiming that the Company is in violation of a prior
agreement regarding the claims by Shoney's that the Company's trade
dress is similar to that of Shoney's. Management believes
that it will be able to resolve this issue.
In recent months, the Company has been the subject of an increasing
number of collection actions by various vendors, landlords and others
See Note 2.
The Company recently terminated payments under its Severance and
Noncompetition Agreement with the Marrier Group, Inc. of which Mr.
Marrier, a current director and the former chief executive offer of
the Company, is and employee. That agreement, which was based on the
Star alliance, had provided for payment to the Marrier Group, Inc. of
$1,000,000 in the form of biweekly installments of $10,417. On March
31, 1998, the Company received a letter from the Marrier Group's
attorney threatening a collection action.
(12) Unaudited Quarterly Financial Data
The following table presents selected quarterly financial data for the
periods indicated :
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
1997
Restaurant sales $10,187,511 $ 7,827,438 $ 8,786,653 $ 6,430,793
Restaurant costs 8,880,989 7,934,765 9,644,243 7,061,575
---------------------------------------------------------
Restaurant Profit (loss) 1,306,522 (107,327) (857,590) (630,782)
General and Administrative expenses 533,204 535,916 659,612 3,041,118
Amortization of goodwill 109,500 109,500 146,000 109,500
Provision for restaurant closings -- -- -- 3,151,000
Impairment of long-lived assets -- -- -- 8,024,350
Other Income (expense) 36,228 53,231 6,582 34,786
---------------------------------------------------------
Profit (loss) before income taxes 700,049 (699,512) (1,656,620) (14,921,964)
Income tax benefit 0 0 0 0
---------------------------------------------------------
Net earnings (loss) $ 700,049 $ (699,512) $(1,656,620) $(14,921,964)
=========================================================
Net earnings (loss) per basic and diluted
share $ 0.28 $ (0.28) $ (0.66) $ (5.99)
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
1996
Restaurant sales $11,195,694 $ 9,320,006 $10,240,110 $ 8,025,563
Restaurant costs 9,792,521 8,950,329 10,882,261 8,115,501
---------------------------------------------------------
Restaurant Profit (loss) 1,403,173 369,677 (642,151) (89,938)
General and Administrative expenses 602,830 461,731 668,847 536,964
Amortization of goodwill 109,500 109,500 146,000 109,500
Provision for restaurant closings -- -- -- 225,000
Impairment of long-lived assets -- -- -- --
Other Income (expense) 98,172 75,137 74,712 115,835
---------------------------------------------------------
Profit (loss) before income taxes 789,015 (126,417) (1,382,286) (845,567)
Income tax benefit 0 0 0 0
---------------------------------------------------------
Net earnings (loss) $ 789,015 $ (126,417) $(1,382,286) $ (845,567)
=========================================================
Net earnings (loss) per basic and diluted
share $ 0.32 $ (0.05) $ (0.55) $ (0.35)
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
1995
Restaurant sales $15,314,992 $11,342,992 $12,276,450 $ 9,891,885
Restaurant costs 14,155,233 10,911,941 12,561,882 $ 10,258,750
---------------------------------------------------------
Restaurant Profit (loss) 1,159,759 431,051 (285,432) (366,865)
General and Administrative expenses 617,111 635,140 756,652 711,488
Amortization of goodwill 133,994 133,994 154,165 109,500
Provision for restaurant closings -- -- -- 1,750,000
Impairment of long-lived assets -- -- -- 4,475,000
Other Income (expense) 151,310 81,275 128,271 68,496
---------------------------------------------------------
Profit (loss) before income taxes 559,964 (256,808) (1,067,978) (7,344,357)
Income tax benefit 0 0 0 0
---------------------------------------------------------
Net earnings (loss) $ 559,964 $ (256,808) $(1,067,978) (7,344,357)
=========================================================
Net earnings (loss) per basic and diluted
share $ 0.19 $ (0.09) $ (0.39) $ (2.72)
</TABLE>
(13) Subsequent Event
On February 17, 1998, the Company announced the termination of the
strategic alliance with Star. and the sale to Star of restaurants for
$1,100,000, approximately $300,000 in excess of net book value. Proceeds
from the transaction were used to repay $710,000 of loans that Stacey's
had previously received from Star under the Credit Agreement and $390,000
of fees and expenses charged to Stacey's by Star pursuant to the Business
Services Agreement to the date of termination. As part of the termination
of the Star strategic alliance, the Credit Agreement, the Option
Agreement, the Business Service Agreement and all other agreements,
documents and related instruments were terminated. In addition, the
warrant to purchase common stock of Stacey's was canceled. The Company
incurred approximately $250,000 in fees to Star in 1997.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
- -------------------------------------------------------------------------
None
PART III
Items 10,11, 12, and 13
Directors and Executive Officers of the Registrant; Executive Compensation;
Security Ownership of Certain Beneficial Owners and Management; and Certain
Relationships and Related Transactions.
The information required by these items is omitted because the Company is
filing a definitive proxy statement pursuant to Regulation 14A not later than
120 days after the end of the fiscal year covered by this Report which includes
the required information. The required information contained in the Company's
proxy statement is incorporated herein by reference.
PART IV
Item 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- ----------------------------------------------------------------
(a) (1) Financial Statements and Supplementary Data
The following financial statements of Stacey's Buffet, Inc. are
included in Part II, Item 8:
Independent Auditors' Report
Balance Sheets at December 31, 1997 and January 1, 1997
Statements of Operations for the years ended December 31, 1997,
January 1, 1997 and January 3, 1996
Statements of Stockholders' Equity for the years ended
December 31, 1997, January 1, 1997 and January 3, 1996
Statements of Cash Flows for the years ended December 31, 1997,
January 1,1997, and January 3, 1996
Notes to Financial Statements
(2) Other schedules
All other schedules are omitted since the required information is not
present or is not present in an amount sufficient to require submission
of the schedules, or because the information required is included in the
financial statements and notes thereto.
(3) Exhibits
The following exhibit is filed as part of this report or incorporated
herein by reference.
Exhibit 10.1 Termination Agreement
Exhibit 10.2 Asset Purchase Agreement
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
Reports on Form 8-K filed during the fourth quarter of 1997:
None
(c) Exhibits
Exhibits to this form 10-K are attached or incorporated by reference as
stated above.
(d) Not Applicable
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
STACEY'S BUFFET, INC.
Date: March 31, 1998
By: Peter J. Hurley
-----------------------------------------------
President, Chief Executive Officer and
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report to be signed below by the following persons on behalf of the registrant
and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------- ---------------------------------- ------------------
<S> <C> <C>
/s/ Peter J. Hurley President, Chief Executive March 31, 1998
- ----------------------- Officer and Chairman of the
Board of Directors
Stephen J, Marrier Director March 31, 1998
- -----------------------
/s/ Mike Kehoe Chief Financial Officer (Principal March 31, 1998
- ----------------------- Financial and Accounting Officer)
</TABLE>
<PAGE> 1
EXHIBIT 10.1
TERMINATION AGREEMENT
This TERMINATION AGREEMENT (the "Agreement") is made and entered into as
of this _____ day of February 1998, by and between STAR BUFFET, INC., a Delaware
corporation ("Star"), and STACEY'S BUFFET, INC., a Florida corporation
("Stacey's"), with reference to the following facts and circumstances:
R E C I T A L S
A. On October 31, 1997, Star and Stacey's entered into (i) a Credit
Agreement (the "Credit Agreement"), (ii) a promissory note (the "Note")
evidencing a loan made or to be made pursuant to the Credit Agreement, (iii) a
Warrant to Purchase Common Stock of Stacey's (the "Warrant"), (iv) a
Registration Rights Agreement (the "Registration Rights Agreement"), (v) a
Security Agreement (the "Security Agreement"), (vi) an Option Agreement (the
"Option Agreement"), (vii) a Business Services Agreement (the "BSA"), and (viii)
any and all other agreements, documents or instruments relating to the Credit
Agreement or any of the documents set forth in this paragraph A (collectively,
the "Transaction Documents").
B. As of the date hereof and pursuant to the Credit Agreement, Star made
loans (the "Loans") to Stacey's in the aggregate principal amount of $710,000,
which Loans are evidenced by the Note. The Note is secured by Stacey's
Collateral (as defined in the Security Agreement), and Star has perfected a
security interest in the Collateral by the filing of UCC Financing Statements in
the States of Florida, New York, New Jersey and Pennsylvania (the "Financing
Statements").
C. For services rendered by Star pursuant to the BSA, Stacey's has
incurred fees and expenses payable to Star in an aggregate amount of $390,000
(the "BSA Fees and Expenses").
D. The parties hereto have agreed that it is in the best interests of
such parties to enter into this Agreement for the purpose of terminating all of
the Transaction Documents and the Financing Statements in accordance with the
terms and provisions of this Agreement. Stacey's understands and acknowledges
that (1) it is not obligated to enter into this Agreement, but is doing so of
its own free will without interference, influence or coercion by Star; (2) it
has had the opportunity to consult with attorneys, appraisers and accountants of
its choice for advice concerning the terms of this Agreement, the fair value of
the Purchased Restaurants (as defined below) and the tax implications of the
transactions contemplated herein; (3) Star has pursued a course of fair dealing
and that the transactions contemplated herein are fair and equitable; and (4) it
is entering into this Agreement to enjoy the benefits of Star's promises and
covenants contained herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises of the parties contained herein, the parties agree to terminate
all of the Transaction Documents and the Financing Statements in accordance with
the terms and provisions of this Agreement, which shall include provisions
satisfying all of Stacey's financial obligations to Star through the sale to
Star of all of Stacey's right, title and interest in and to assets that are
related to, or used in the operation of, the Stacey's Buffet restaurants located
in Holiday, Florida, North Fort Meyers, Florida; and Port Charlotte, Florida;
all as more fully described in the Asset Purchase Agreement executed
concurrently herewith (the "Purchase Agreement"); and to otherwise agree as
follows:
<PAGE> 2
ARTICLE 1
THE TRANSACTIONS
1.1 Closing Date. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place concurrently with the execution and
delivery of this Agreement and all exhibits, schedules and instruments
contemplated hereby (the "Closing Date").
1.2 Purchase and Sale of Stacey's Buffet Restaurants. On the Closing
Date, Star and Stacey's hereby agree to execute and deliver the Purchase
Agreement pursuant to which Star shall purchase from Stacey's, and Stacey's
shall sell, transfer and assign to Star all of Stacey's right, title and
interest in and to the assets that are related to or used in the operation of
the three (3) Stacey's Buffet Restaurants (the "Purchased Restaurants")
identified on Schedule 1 to the Purchase Agreement, all in accordance with the
terms and conditions of the Purchase Agreement (the "Purchase and Sale
Transaction"). In exchange therefor, Star hereby grants to Stacey's a full and
complete release and satisfaction of any and all financial obligations of
Stacey's to Star existing or accruing through the date hereof.
1.3 Transition Services. For a period of thirty (30) days following the
Closing, Star shall provide store level management services (the "Transition
Services") for nineteen (19) Stacey's Buffet restaurants at a cost to Stacey's
of Ten Thousand and no/100 dollars ($10,000), payable in four equal weekly
installments of Two Thousand and Five Hundred and no/100 dollars ($2,500), plus
reasonable and necessary out of pocket expenses, which amounts shall be paid
weekly in arrears. Either party may terminate the Transition Services to be
provided hereunder by Star effective upon the giving of written notice to the
other party pursuant to Section 4.7 below; provided, however, that other than
pro-rating the fees due and payable by Stacey's for the Transition Services, the
termination of the Transition Services shall have no effect on the other terms
and provisions of this Agreement. Star shall not be liable for any direct,
indirect or consequential damages suffered or incurred by Stacey's or to any
third party, including, without limitation, lost profits arising from or
relating to the performance of Transition Services by Star hereunder absent a
finding in a final judgment of a court of competent jurisdiction that such
damages proximately resulted from the bad faith, gross negligence or willful
misconduct of Star or its agents. Stacey's shall indemnify, hold harmless and
defend Star, and its officers, directors, stockholders and employees
(collectively, the "Star Indemnified Parties"), from and against any and all
liabilities, losses, judgments, damages, demands, claims, causes of action or
any other legal or government proceedings, or any settlement thereof, and any
and all costs and expenses (including reasonable attorneys' fees), whether or
not covered by insurance, caused or asserted to have been caused, directly or
indirectly, by or as a result of the performance of the Transition Services or
any intentional or willful misconduct or negligent acts or omissions by Stacey's
and/or its agents, employees and/or subcontractors (other than Star, its
affiliates and agents) during the provision of the Transition Services.
1.4 Obligations to Vendors. On the Closing Date, Stacey's shall pay
Choice Food Service Equipment Co. for all of the smallwares that were purchased
for Stacey's Buffet restaurants, whether such smallwares are currently located
at the Stacey's Buffet restaurants or are in transit to such restaurants, but in
no event shall Stacey's be obligated to pay in excess of $68,894.
1.5 Return of Equipment. Star and Stacey's acknowledge and agree that
the equipment listed on Schedule 1.5 hereto (the "Equipment") shall be invoiced
to Star (and, to the extent invoiced
-2-
<PAGE> 3
to Stacey's, shall be re-invoiced to Star) so that Star shall be obligated to
pay for the Equipment, provided that Star shall have the right to take title to
the Equipment and, to the extent installed in any of the Stacey's Buffet
restaurants, Stacey's shall, within ten (10) days from the date hereof, remove
the Equipment and provide notice to Star that Star may take possession of the
Equipment. Star shall indemnify and hold Stacey's harmless and defend Stacey's
against any and all claims, judgments, damages or liabilities asserted by any
vendor of the Equipment against Stacey's with respect to the Equipment.
1.6 Termination of Transaction Documents. Subject to the terms and
conditions set forth herein, the parties hereby agree to terminate the
Transaction Documents effective on the date hereof, and, except for the duties
and obligations of the parties under this Agreement and the Exhibits hereto,
neither party shall have any further duties and obligations under any of the
Transaction Documents.
1.7 Termination of Financing Statements. Within three (3) business days
from the Closing, Star shall release any and all liens against the Collateral
(as defined in the Security Agreement).
1.8 Waiver and Release of Star. Effective as of the Closing Date,
Stacey's and its successors and assigns hereby knowingly and voluntarily forever
releases, acquits and discharges Star, its directors, officers, employees,
agents, controlling persons and stockholders (collectively, the "Star Released
Parties") (a) from and of any and all claims arising from acts or omissions of
any of the Star Released Parties that may have occurred prior to the date hereof
that any of the Star Released Parties (i) is in any way responsible for the
past, current or future condition or deterioration of the business operations
and/or financial condition of Stacey's, or (ii) breached any agreement to
provide services, to loan money or make other financial accommodations available
to Stacey's or to fund any operations of Stacey's at any time, and (b) from and
of any and all other claims, damages, losses, actions, counterclaims, suits,
judgments, obligations, liabilities, defenses, affirmative defenses, setoffs,
and demands of any kind or nature whatsoever, in law or in equity, whether
presently known or unknown, which Stacey's may have had, now have, or which it
can, shall or may have for, upon, or by reason of any matter, course or thing
whatsoever relating to, arising out of, based upon, or in any manner connected
with, any transaction, event, circumstance, action, failure to act, or
occurrence of any sort or type, whether known or unknown, which occurred,
existed, was taken, permitted, begun, or otherwise related or connected to or
with any or all of the Loans, the Credit Agreement, any or all of the
Transaction Documents, and/or any direct or indirect action or omission of any
of the Star Released Parties arising from acts or omissions of the Star Released
Parties; provided, however, this release and waiver shall not apply to (i)
enforcement of any term of this Agreement including any rights of
indemnification or remedies against Star for its breach of this Agreement and
(ii) any intentional act of misrepresentation. by Star or Star Released Parties.
Stacey's further agrees that from and after the date hereof, it will not assert
to any person or entity, other than required under state or federal law, that
any deterioration of the business operations or financial condition of Stacey's
was caused by any breach or wrongful act of any of the released parties
occurring prior to the date hereof.
1.9 Waiver and Release of Stacey's. Effective as of the Closing Date,
Star and its successors and assigns hereby knowingly and voluntarily releases,
acquits and forever discharges Stacey's, its directors, officers, employees,
agents, controlling persons and shareholders (collectively
-3-
<PAGE> 4
the "Stacey's Released Parties") from any and all claims, rights, demands,
actions, suits, causes of actions, damages, counterclaims, defenses, losses,
costs, obligations, liabilities and expenses of every kind or nature, known or
unknown, suspected or unsuspected, fixed or contingent, foreseen or unforeseen
(collectively "Claims"), arising out of or relating directly or indirectly to
any circumstances or state of facts pertaining to the Loan, or the Transaction
Documents, or any nonperformance of any agreement or obligation related thereto,
or any statements, representations, acts or omissions, intentional, willful,
negligent or innocent, by any of the Stacey's Released Parties in any way
connected with, relating to or affecting, directly or indirectly, the Loan or
the Transaction Documents; provided, however, that the foregoing shall in no
event extend to (i) the liabilities and obligations of the Stacey's Released
Parties relating to, arising out of, or in connection with the breach of any
representation, warranty, indemnity, covenant or agreement set forth in this
Agreement or the Purchase Agreement or any documents contemplated hereby or
thereby or (ii) an intentional act of misrepresentation by Stacey's or the
Stacey's Released Parties.
1.10 Disclosures. To the best of Star's knowledge, Star has delivered to
Stacey's all agreements, contracts, arrangements, documents, or other
instruments (together, the "Instruments") purporting to bind Stacey's that were
entered into, executed by, or executed at the direction of, personnel employed
or retained by Star to provide services to Stacey's during the pendency of the
Business Services Agreement, or who otherwise executed Instruments which may be
purported to bind Stacey's.
1.11 Publicity. Star, Stacey's and their respective affiliates agree
that (i) any public disclosure of the transactions contemplated hereby shall be
by mutual agreement of the parties and in a form and manner agreed to by the
parties; provided, however, that either party shall be entitled to make any
disclosure required by applicable law, rule or regulation of any governmental
authority or securities exchange, and (ii) except as provided in clause (i)
above, each party and its respective affiliates shall maintain the
confidentiality of any and all information relating to this Agreement and the
transactions contemplated hereby and any and all confidential information of the
other party received in connection with this Agreement and the transactions
contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF STACEY'S
Stacey's represents and warrants to Star as follows:
2.1 Organization, Existence and Good Standing. Stacey's is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Florida.
2.2 Authority. Stacey's has full corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder, and to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Stacey's and constitutes the legal, valid
and binding agreement of Stacey's enforceable against Stacey's in accordance
with its terms.
2.3 Consents and Approvals; No Violation. Except as otherwise provided
in this Agreement or the Purchase Agreement, no filing or registration with, no
notice to and no governmental authorization, consent or approval of any
governmental authority or other person is
-4-
<PAGE> 5
necessary in connection with Stacey's execution and delivery of this Agreement,
the performance of its obligations hereunder or the consummation by Stacey's of
the transactions contemplated hereby.
-5-
<PAGE> 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF STAR
Star represents and warrants to Stacey's as follows:
3.1 Organization, Existence and Good Standing. Star is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.
3.2 Authority. Star has full corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder, and to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Star and constitutes the legal, valid and
binding agreement of Star enforceable against Star in accordance with its terms.
3.3 Consents and Approvals; No Violation. Except as otherwise provided
in this Agreement or the Purchase Agreement, no filing or registration with, no
notice to and no governmental authorization, consent or approval of any
governmental authority or other person is necessary in connection with Star's
execution and delivery of this Agreement, the performance of its obligations
hereunder or the consummation by Star of the transactions contemplated hereby.
ARTICLE IV
MISCELLANEOUS
4.1 Relief From Stay. As additional consideration for Star's execution
of this Agreement, Stacey's agrees that, so long as Star is not in default
hereunder: (a) in the event of a bankruptcy filing by or against Stacey's,
Stacey's shall not reject or contest any claim or assertion by Star that the
Agreement is binding between the parties and that valuable consideration has
been received by Stacey's for same; (b) Star shall receive immediate relief from
the automatic stay provisions of the United States Bankruptcy Code following any
bankruptcy petition which Stacey's may file or which may be filed against
Stacey's, and Stacey's shall in no event contest a motion to lift the automatic
stay filed by Star.
4.2 Expenses. Each party shall pay the expenses that it has incurred in
connection with the negotiation, preparation and execution of this Agreement and
the Purchase Agreement, and any other matters related thereto.
4.3 Further Assurances. From and after the date hereof, and upon the
reasonable request of any party hereto, the other parties shall execute and
deliver such further instruments or documents and take such further actions as
may be reasonably necessary or desirable to better evidence or more completely
effectuate the agreements contained herein.
4.4 Severability. Any provision of this Agreement which is illegal,
invalid or unenforceable shall be ineffective to the extent of such illegality,
invalidity or unenforceability, without affecting in any way the remaining
provisions hereof.
4.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
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4.6 Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with the internal laws of the State of Florida.
4.7 Notices. All notices, requests and other communications to any party
hereunder shall be in writing (including bank wire, telecopier or similar
writing) and shall be given to such party at the address or telecopier number
set forth below or such other address or telecopier number as such party may
hereafter specify for the purpose by notice to each other party. Each such
notice, request or other communication shall be effective (i) if given by mail,
72 hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (ii) if given by any other means,
when delivered at the address or telecopier number set forth below.
If to Stacey's Buffet Inc.: Stacey's Buffet, Inc.
12812 60th Street North, Room 200
Clearwater, Florida 33760
Attention: President
Telephone: (813) 507-0335
Telecopier: (813) 507-0345
with a copy to: Jeffrey M. Stoler, Esq.
Gadsby & Hannah LLP
225 Franklin Street
Boston, Massachusetts 02110
Telephone: (617) 345-7000
Telecopier: (617) 345-7050
If to Star Buffet, Inc. 440 Lawndale Drive
Salt Lake City, Utah 84115-1917
Attention: Charlotte L. Miller, Esq.
Telephone: (801) 463-5553
Telecopier: (801) 463-5585
with a copy to: David E. Lafitte, Esq.
Stradling, Yocca, Carlson & Rauth
A Professional Corporation
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660-6441
Telephone: (714) 725-4000
Telecopier: (714) 725-4100
4.8 Headings. The Section headings in this Agreement are for
convenience of reference only and shall be disregarded in interpreting or
construing any of the provisions of this Agreement.
4.9 Counterparts. This Agreement may be executed by any of the parties
in separate counterpart and each party must sign and deliver at least one such
counterpart, but it shall not be necessary for all of the parties to have signed
and delivered the same counterpart, for this Agreement to be effective. All of
the counterparts of this Agreement signed and delivered by any of the parties
shall constitute one and the same instrument.
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
STACEY'S BUFFET, INC
By:
--------------------------------------
Name:
Title:
STAR BUFFET, INC.,
By:
--------------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 10.2
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into this
_____ day of February __, 1998, by and between STACEY'S BUFFET, INC., a Florida
corporation (the "Seller"), and STAR BUFFET, INC., a Delaware corporation ("STAR
BUFFET" or the "Buyer").
R E C I T A L S
A. Seller is engaged in the business of owning, operating and licensing
Stacey's Buffet restaurants.
B. Concurrently with the execution hereof, Seller and Buyer are
executing that certain Termination Agreement (the "Termination Agreement"),
pursuant to which Buyer and Seller have agreed to terminate the Transaction
Documents (as defined in the Termination Agreement). In connection with the
Termination Agreement, Seller and Buyer have agreed to enter into this Agreement
pursuant to which Buyer shall purchase from Seller, and Seller shall sell and
transfer to Buyer, the assets used in the operation of the Restaurants
identified on Schedule 1 hereto (the "Purchased Restaurants"), including,
without limitation, all right, title and interest of Seller in and to
substantially all of the assets related to the ownership and operation of such
Purchased Restaurants, and, in connection therewith, Buyer is willing to assume
certain liabilities of Seller relating to such Purchased Restaurants.
NOW, THEREFORE, in consideration of the terms, covenants, and conditions
hereinafter set forth, the parties hereto agree as follows:
A G R E E M E N T
1. PURCHASED ASSETS. Subject to the terms and conditions of this Agreement,
Buyer hereby agrees to purchase from Seller, and Seller hereby agrees to sell,
transfer and assign to Buyer, free and clear of any and all Liens and
Encumbrances (as hereinafter defined), all of Seller's right, title and interest
in and to assets that are related to, used in the operation of or have been
generated by the Purchased Restaurants (collectively, the "Purchased Assets")
including, but not limited to, the following:
1.1 All of the equipment, furniture, fixtures, trade fixtures, signs,
sign poles, machinery, kitchen equipment, computers, cash registers, menus,
uniforms, small equipment, small wares and other tangible personal property used
in connection with the operation of the Purchased Restaurants, wherever located
and owned by Seller on the Closing Date, including, without limitation, those
assets identified on Schedule 1.1 attached hereto (the "Fixed Assets");
1.2 All inventory of Seller purchased for use in connection with the
Purchased Restaurants, wherever located and owned by Seller on the Closing Date
(the "Inventory"), including, without limitation, the Inventory identified on
Schedule 1.2 hereto;
<PAGE> 2
1.3 All of the agreements relating to the Purchased Restaurants under
which Seller owns or holds any leasehold interest in real property (each, a
"Real Property Lease"), including any buildings and improvements thereon, or
leases in personal property, whether tangible or intangible (each a "Personal
Property Lease") (collectively, the "Leases"), a true and complete list of which
is set forth in Schedule 1.3 hereto;
1.4 All of the agreements, contracts, licenses, instruments, commitments
and understandings, written or oral, that (in addition to the Leases) are
related solely to the Purchased Restaurants and listed (or, in the case of oral
agreements or understandings, that are described) under the caption "Assigned
Contracts" in Schedule 1.4 attached hereto (collectively, the "Assigned
Contracts");
1.5 All rights in and to any governmental and private permits, licenses,
certificates of occupancy, franchises and authorizations, to the extent
assignable, used in or relating to the Purchased Restaurants;
1.6 (intentionally omitted);
1.7 All financial books and accounting records, and all files, lists,
publications, and other records and data used in or relating to the Purchased
Restaurants, including, without limitation, lists of suppliers and distributors
and related files, environmental records, price lists, marketing plans, sales
records, labor relations and employee compensation records, and maintenance
records, regardless of the medium on which such information is stored or
maintained;
1.8 All cash on hand at the Purchased Restaurants as of the Closing Date
("Cash and Equivalents") identified on Schedule 1.8 hereto;
1.9 All prepaid fees and deposits associated with the Leases and the
utilities used in connection with the Purchased Restaurants ("Prepaid Fees and
Deposits"), which are set forth in Schedule 1.9 attached hereto;
1.10 Any cause of action, claim, suit, proceeding, judgment or demand,
of whatsoever nature, of or held by Seller against any third parties arising out
of the Purchased Assets or the Purchased Restaurants prior to the date hereof;
1.11 All goodwill associated with the Purchased Restaurants and the
Purchased Assets.
2. EXCLUDED ASSETS. Seller is not selling, and the Purchased Assets do not
include, the following assets (the "Excluded Assets"):
2.1 Any corporate and financial records of Seller;
2.2 Any rights under operating contracts, other than the Assigned
Contracts;
2.3 Any contracts or agreements pursuant to which Seller has granted any
person or entity any franchise, license or other right to operate a Restaurant;
and
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2.4 Any rights in and to any recipes, menus, formulations, trade dress,
patents, copyrights, trade names, trademarks and service marks, and all
applications therefor, owned or held by Seller and used in connection with the
operation of or relating to the Stacey's Buffet restaurants (collectively, the
"Intangible Property Rights"), which are more fully described in Schedule 2.4
and which include all goodwill associated therewith; provided, however, that
Seller shall license the Intangible Property Rights to Buyer pursuant to a
license agreement described in Section 9.7 below.
3. OBLIGATIONS BEING ASSUMED; LIABILITIES NOT BEING ASSUMED.
3.1 ASSUMED OBLIGATIONS. Buyer hereby agrees to assume only: (i) those
liabilities and obligations specifically set forth in Schedule 3.1; (ii) those
executory obligations arising after the date hereof under the Assigned
Contracts; and (iii) the obligations arising after the Closing Date under the
Leases (collectively, the "Assumed Obligations"). Except as set forth in
Schedule 3.1, Seller represents and warrants that Seller is not in default of
any Assumed Obligation, and Buyer shall not be obligated to assume any Assumed
Obligation which is in default as of the date hereof.
3.2 LIABILITIES NOT BEING ASSUMED. Except for the Assumed Obligations,
Seller agrees that Buyer shall not be obligated to assume or perform and is not
assuming or performing any, and Seller shall remain responsible for and shall
indemnify, defend (with counsel reasonably acceptable to Buyer and paid for by
Seller) and hold harmless Buyer from and against all, liabilities and
obligations of Seller, whether known or unknown, and regardless of when such
liabilities or obligations may arise or may have arisen or when they are or were
asserted (the "Retained Liabilities"), which shall include, without limitation,
any and all of the following obligations or liabilities of Seller:
(a) Any compensation or benefits payable to employees of Seller,
other than payroll expenses expressly assumed and listed on Schedule 3.1,
including without limitation, any liabilities arising under any employee pension
or profit sharing plan or other employee benefit plan or retirement plan and any
of Seller's obligations for insurance, sick pay or any non-cash employee
compensation arrangement;
(b) Subject to the proration of real and personal property taxes
at Closing relating to the Purchased Restaurants, all federal, state, local,
foreign or other taxes that have arisen out of the Restaurants or may arise
hereafter out of Seller's other operations;
(c) Any intercompany obligations between Seller and any of its
subsidiaries or affiliates;
(d) Any Liens or Encumbrances on any of the Purchased Assets and
all obligations and liabilities secured thereby that are not set forth on
Schedule 3.1 hereto;
(e) All obligations of Seller, either for borrowed money or
incurred in connection with the purchase, lease or acquisition of any assets,
that are not set forth on Schedule 3.1 hereto (collectively, the "Retained
Debt");
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<PAGE> 4
(f) Any accounts or notes payable of Seller that are not set
forth on Schedule 3.1 hereto (the "Retained Payables");
(g) Any claims, demands, actions, suits or legal proceedings that
have arisen or may arise hereafter from or in connection with Seller's operation
of the Purchased Restaurants, including, but not limited to, those arising out
of any act or omission or default of Seller under any Assigned Contracts,
regardless of when such liability was incurred or when the obligation is
asserted, those set forth in Schedule 6.15, or arising from any business or
business activities engaged in by Seller other than in connection with the
Purchased Restaurants, whether engaged in prior to or after the date hereof, and
whether such claims, demands, actions, suits or legal proceedings are presently
pending or threatened or are threatened or asserted at any time after the date
hereof;
(h) Any obligations under any employment or consulting agreement,
or any union or other organized labor obligation, whether written or oral, that
is not listed on Schedule 3.1 and any liabilities or obligations arising out of
the termination by Seller of any of its employees in anticipation or as a
consequence of, or following, consummation of the transactions contemplated
hereby; and
(i) Any obligations or liabilities arising out of or relating to
the Excluded Assets.
4. PURCHASE PRICE AND TERMS OF PAYMENT.
4.1 PURCHASE PRICE.
(a) In addition to the assumption by Buyer of the Assumed
Obligations, the aggregate purchase price for the Purchased Restaurants shall be
One Million One Hundred Thousand Dollars ($1,100,000) (the "Purchase Price").
4.2 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid by Buyer
to Seller by (i) the cancellation of any outstanding principal and accrued and
unpaid interest owed by Seller to Buyer under the Credit Agreement, dated as of
October 31, 1997 between Seller and Buyer, in the amount of $710,000 (the
"Seller Indebtedness") and (ii) the set-off of the BSA Fees and Expenses (as
defined in the Termination Agreement).
4.3 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Purchased Assets as set forth in Exhibit A attached hereto. Each of
the parties, when reporting the transactions consummated hereunder in their
respective Tax Returns (as hereinafter defined), shall allocate the Purchase
Price paid or received, as the case may be, in a manner that is consistent with
the Purchase Price allocation set forth in Exhibit A hereto. Additionally, each
of the parties will comply with, and furnish the information required by,
Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"), and
any regulations thereunder.
5. CLOSING.
(a) The closing of the transactions contemplated hereby (the
"Closing") shall occur concurrently with the execution and delivery of this
Agreement and the schedules
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and exhibits contemplated hereby (the "Closing Date") at the offices of
Stradling Yocca Carlson & Rauth, a Professional Corporation, located at 660
Newport Center Drive, Suite 1600, Newport Beach, California 92660.
6. REPRESENTATIONS AND WARRANTIES OF SELLER.
Except as set forth in disclosure schedules (the "Seller's Disclosure
Schedules") prepared by Seller and delivered to Buyer in connection with the
execution and delivery of this Agreement, Seller hereby represents and warrants
to Buyer as follows:
6.1 AUTHORITY AND BINDING EFFECT.
(a) Seller has the full power and authority to execute and
deliver this Agreement and the ancillary agreements to which it will be a party.
This Agreement and the ancillary agreements, and the consummation by Seller of
its respective obligations contained herein and therein, have been duly
authorized by all necessary actions of Seller and such Agreements have been duly
executed and delivered by Seller.
(b) This Agreement is, and the ancillary agreements, when
executed and delivered by Seller, will be, binding agreements of Seller
enforceable against it in accordance with their respective terms, except as
enforceability may be limited by (i) bankruptcy, insolvency, moratorium or other
similar laws affecting creditors' rights generally, and (ii) general principles
of equity relating to the availability of equitable remedies.
(c) Except as set forth in Schedule 6.1(c), it is not necessary
for Seller to take any action or to obtain any approval, consent or release by
or from any third persons, governmental or other, to enable Seller to enter into
or perform his obligations under this Agreement and the ancillary agreements.
6.2 ORGANIZATION AND STANDING.
(a) Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Florida. Seller is duly licensed
or qualified to transact business as a foreign corporation in each of the
jurisdictions in which a Purchased Restaurant is located, and neither the scope
of Seller's business in connection with the Purchased Restaurants, nor the
location of any of its assets, properties or employees, requires that Seller be
licensed or qualified to transact business in any other jurisdiction. Seller has
the requisite corporate power and authority to operate the Purchased Restaurants
as now conducted and to own or lease (as the case may be) the Purchased Assets,
and to use such Purchased Assets in the operation of the Purchased Restaurants;
(b) No actions or proceedings have been commenced or threatened
against Seller that, if adversely determined, and no agreements or transactions
have been entered into by any of Seller that, if consummated, would give rights
to any person, other than Buyer, in or to acquire any of the Purchased Assets or
otherwise interfere with the consummation of the transactions contemplated by
this Agreement.
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6.3 FINANCIAL STATEMENTS. Seller has delivered to Buyer true and correct
copies of financial statements of Seller consisting of balance sheets and
related statements of income and cash flows as of and for each of the years in
the three-year period ended December 31, 1996 and as of and for the fiscal
40-week period ended October 8, 1997 (the "Financial Statements"). The Financial
Statements were prepared in accordance with GAAP, consistently applied, and
fairly present the financial condition of Seller and the results of its
operations as at the relevant dates thereof and for the respective periods
covered thereby. Seller has also delivered true and correct copies of its
internal financial statements and records relating to the results of operations
of each of the Purchased Restaurants as of and for the periods covered by the
Financial Statements, which fairly present the results of operations of such
Purchased Restaurants for such periods.
6.4 UNDISCLOSED LIABILITIES. Except as set forth in Schedule 6.4, Seller
does not have any debts, obligations, liabilities or commitments of any nature
arising out of or relating to the Purchased Restaurants, whether due or to
become due, absolute, contingent or otherwise, that, in accordance with GAAP,
should be disclosed in a balance sheet or the footnotes thereto, and are not
shown on the October 8, 1997 Balance Sheet (the "Undisclosed Liabilities"),
other than liabilities incurred after October 8, 1997 in the ordinary course of
the business of the Purchased Restaurants and consistent with past practice
which, in any event, are not material in amount and have not had and are not
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Purchased Restaurants. As to each Undisclosed Liability set forth on
Schedule 6.4, Seller has provided the following information in or as an
attachment to such Schedule 6.4: (i) a summary description of such Undisclosed
Liability, together with copies of all relevant documentation relating thereto,
the amounts claimed and any other action or relief sought and, the identity of
the claimant and of any other parties involved party and, if the Undisclosed
Liability is one that may arise from a suit, action or other proceeding, the
court or agency in which such suit, action or other proceeding is being
prosecuted, and (ii) the best estimate of Seller of the maximum amount, if any,
which is likely to become payable with respect to any such contingent
Undisclosed Liability. For purposes hereof, if no written estimate is provided,
such best estimate shall be deemed to be zero.
6.5 ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule 6.5,
since December 31, 1996, there has not been:
(a) The execution of or commencement of performance by Seller
under any default or breach, or anticipated default or breach, or any amendment,
termination or revocation or, to the knowledge of Seller, any threatened
amendment, termination, or revocation of, any of the Assigned Contracts or the
Leases to which Seller now is, or at any time since December 31, 1996 was, a
party;
(b) Any actual or threatened amendment, termination or revocation
of any license, permit or franchise required for the continued operation by
Seller of any of the Purchased Restaurants;
(c) Any sale, transfer, or other disposition of, or the
incurrence or imposition of any Lien or Encumbrance of any kind on or affecting,
any of the Purchased Assets except (i) sales or utilization of inventory and
obsolete equipment in the ordinary course of
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business and consistent with past practices of the Seller and (ii) Liens for
current taxes not yet due and payable;
(d) Any disputes with, or any action of or notice from the
suppliers of the Restaurants which has led or could lead to a reduction in or
termination of the supplies to the Restaurants by any such suppliers, or to a
decrease in contracted rates of payment under any sales contract, rental
agreement or service contract under which Seller purchases goods or services;
(e) Any damage, destruction or loss, whether or not covered by
insurance, of any of the Purchased Assets in an amount that exceeds $10,000 or
which adversely affects Seller's ability to continue to conduct the Purchased
Restaurants in any material respect as the Purchased Restaurants were conducted
during the year ended December 31, 1996;
(f) Other than pursuant to the Credit Agreement, the incurrence
by Seller of any indebtedness of more than $5,000 individually or $10,000 in the
aggregate, either for borrowed money or in connection with any purchase or other
acquisition of assets, or otherwise for the operation of the Purchased
Restaurants, that is not reflected in the October 8, 1997 Balance Sheet;
(g) Any purchase or lease, or commitment for the purchase or
lease, of equipment, machinery leasehold improvements or other capital items not
disclosed in the Financial Statements which involves amounts exceeding $5,000
individually or $10,000 in the aggregate, or which is in excess of or represents
a departure from the normal, ordinary and usual requirements of the Restaurants;
(h) Any increase in salaries or wages other than in the ordinary
course of business and there has been no increase in benefits of or the awarding
or payment of any bonuses to any employees, the adoption of any new or amendment
of any existing employee benefit plan, or the execution of any new, or the
renewal, extension, or amendment of any existing, employment or consulting
agreements relating to the Restaurants;
(i) The entry or violation of any judgment, order, writ or decree
that has had or could reasonably be expected to have a Material Adverse Effect
on Seller or on the Purchased Restaurants;
(j) The threat, assertion or commencement of any legal action or
other proceeding or investigation against Seller or the Purchased Restaurants
which, if adversely determined, could reasonably be expected to have a Material
Adverse Effect on Seller or the Purchased Restaurants or the occurrence of any
event that could reasonably be expected to result in the commencement of any
such legal action or other proceeding or investigation; or
(k) The occurrence of any other event or circumstance which has
had or could reasonably be expected to have a Material Adverse Effect on Seller
or on the Purchased Restaurants.
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6.6 THE PURCHASED ASSETS.
(a) Fixed Assets. There is contained in Schedule 1.1 a list of
all of the Fixed Assets used in the Purchased Restaurants. To the best of
Seller's knowledge, the Fixed Assets are in good working order and condition,
ordinary wear and tear excepted, have been properly maintained, are suitable for
the uses for which they are being utilized in the Purchased Restaurants, do not
require more than regularly scheduled maintenance to keep them in good operating
condition and comply with all requirements under applicable laws, regulations
and licenses which govern the use and operation thereof.
(b) The Leases.
(i) Schedule 1.3 contains a complete and accurate list,
and Seller has furnished to Buyer accurate and complete copies, of all of the
Real Property Leases and Personal Property Leases related to the Purchased
Restaurants, as amended to date, together with a brief description of (A) each
of the real properties that are leased by Seller under the Real Property Leases
(the "Leased Properties"), including the respective addresses and the names and
addresses of the landlords thereof, and (B) any improvements made by Seller to
any of the Leased Properties that will not revert to any of the landlords upon
termination of the Real Property Leases. Seller has delivered to Buyer accurate
and complete copies of all environmental studies and reports with respect to any
of the Leased Properties that are in the possession of or are readily available
to Seller. The zoning of each of the Leased Properties permits the presently
existing improvements thereon and continuation of the business presently
conducted thereon and, to Seller's knowledge, no changes therein are pending or
are threatened. No condemnation or similar proceedings are pending or, to the
best knowledge of Seller, threatened against any of the Leased Properties.
Seller does not own any fee interest in any real property.
(ii) Seller is not in default, and no facts or
circumstances have occurred which, with the passage of time or the giving of
notice, or both, would constitute a default, under any of the Leases and the
assignment by Seller to Buyer of the Leases included in the list of Assigned
Contracts on Schedule 1.4 will not adversely affect Buyer's quiet enjoyment and
use, without disturbance, of the Leased Properties or of the personal properties
or assets that are the subject of the Personal Property Leases (the "Leased
Personal Property"). None of the Leases contains any provisions which, after the
date hereof, would (A) hinder or prevent Buyer from continuing to use any of the
Leased Properties or Leased Personal Property in the manner in which they are
currently used, or (B) impose any additional costs (other than scheduled rental
increases) or burdensome requirements as a condition to their continued use
which are not currently in effect. Except as otherwise set forth in Schedule 1.3
hereto, none of the Purchased Assets are held under, or used by Seller pursuant
to, any lease or conditional sales contract.
(c) Title to and Adequacy of Purchased Assets. Except as
disclosed on Schedule 6.6(c) hereto, Seller has, and on the Closing Date will
convey and transfer to Buyer, good, complete and marketable title to all of the
Purchased Assets, free and clear of all mortgages, security interests, liens,
options, pledges, equities, claims, charges, restrictions, conditions,
conditional sale contracts and any other encumbrances or adverse interests of
any kind or nature whatsoever (collectively "Liens or Encumbrances"). Except as
set forth on
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Schedule 6.6(c), all of the Purchased Assets are in the exclusive possession and
control of Seller and Seller has the unencumbered right to use, and to sell to
Buyer in accordance with the terms and provisions of this Agreement, all of the
Purchased Assets without interference from and free of the rights and claims of
others. The Purchased Assets constitute all the assets, properties, rights,
privileges and interests necessary for Buyer to own and operate the Purchased
Restaurants.
6.7 LABOR AND EMPLOYMENT AGREEMENTS.
(a) Schedule 6.7 sets forth the name of each employee of the
Purchased Restaurants, together with a description of all compensation and
benefits that are payable to such individuals as a result of their employment by
or association with Seller. Seller also has furnished to Buyer a true and
complete copy of its employee handbook. Buyer shall not have any obligation to
continue, nor shall Buyer have or incur any liability or obligation whatsoever
arising out of, any personnel policies or practices, either written or oral,
promulgated or followed by Seller.
(b) Seller is not a party or subject to any collective bargaining
or other labor, employment, deferred compensation, bonus, retainer, consulting,
or incentive agreement, plan or contract related to the Purchased Restaurants.
Except to the extent set forth in Schedule 6.7, (i) there has been no strike or
other work stoppage by, nor has there been any union organizing activity among,
any of the employees of Seller during the past five (5) years; (ii) to the best
of Seller's knowledge, Seller is in compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and is not engaged in any unfair labor practice;
and (iii) there is no unfair labor practice complaint pending or, to the best
knowledge of Seller, threatened against Seller, nor, to the best knowledge of
Seller, is there any factual basis for any such complaint.
6.8 THE ASSIGNED CONTRACTS AND OTHER AGREEMENTS. Schedule 1.4 contains
accurate and complete list of the Assigned Contracts and Schedule 6.8 hereto
contains accurate and complete list of, each contract, agreement, indenture,
note, lease, or other instrument or commitment, written or oral, to which Seller
is a party or is bound or which relates to or affects or could affect any of the
Purchased Assets, the Assumed Obligations or the Purchased Restaurants or the
consummation of the transactions contemplated by this Agreement and is not
already listed on Schedule 1.3, Schedule 1.4 or Schedule 6.7 (collectively the
"Other Contracts"). Accurate and complete copies of all of Assigned Contracts
and the Other Contracts (collectively, the "Material Contracts") have been
furnished by Seller to Buyer. The Material Contracts include, without
limitation, each contract, agreement, license, instrument commitment or
understanding, written or oral (other than the Leases), which:
(a) Provides for the sale, lease or rental of any products goods,
or equipment or other assets or properties to or by Seller related to the
Purchased Restaurants (other than purchase orders issued or received by Seller
in the ordinary course of business and consistent with past practices);
(b) Provides for the payment of monies to or by Seller which
arise out of or relate to the Purchased Restaurants;
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(c) Provides for the licensing by or to Seller, or the use or
possession by Seller, of any software, trademarks, trade names, service marks,
copyrights, know-how, patents or other intellectual property rights used in
connection with the operation of the Purchased Restaurants;
(d) Grants a security interest or permit or provide for the
imposition of any other Lien or Encumbrance on, or provide for the disposition
of, any of the Purchased Assets;
(e) Requires the consent of any third party to or would terminate
as a result of the consummation by Seller of the transactions contemplated by
this Agreement;
(f) Restricts or would restrict the conduct of any aspects of the
Purchased Restaurants or the use or disposition by Buyer after the date hereof
of any of the Purchased Assets;
(g) Governs or relates to any of the Assumed Obligations or which
evidences any other liability or obligation, whether for borrowed money or
otherwise, that would be accelerated by reason of the consummation of the
transactions contemplated hereby; or
(h) If terminated or breached would have a Material Adverse
Effect on the Purchased Restaurants.
Except for the Assigned Contracts, the Leases, the Agreements listed on
Schedule 6.7 and the Other Contracts, there is no contract, lease, license or
other agreement, commitment or understanding that is material to the Purchased
Restaurants or the breach, termination or loss of which would have a Material
Adverse Effect on Seller or the Purchased Restaurants. Each of the Material
Contracts is a valid and binding obligation of Seller enforceable in accordance
with its terms, except as may be affected by bankruptcy, insolvency, moratorium
or similar laws affecting creditors' rights generally and general principles of
equity relating to the availability of equitable remedies. Except as otherwise
set forth in Schedule 6.8 hereto, there have not been any defaults by Seller or
defaults or any claims of default or claims of nonenforceability by the other
party or parties under or with respect or any of Material Contracts which,
individually or in the aggregate, would have a Material Adverse Effect on the
Purchased Restaurants, and, to the best of Seller's knowledge, there are no
facts or conditions that have occurred or that are anticipated to occur which,
with the passage of time or the giving of notice, or both, would constitute a
default by Seller or by the other party or parties under any of the Material
Contracts or would cause a creation or imposition of any Lien or Encumbrance
upon any of the Purchased Assets or otherwise would have a Material Adverse
Effect on Seller or on the Purchased Restaurants.
6.9 CONFLICTS. Except as described on Schedule 6.9 hereto, neither the
execution and delivery of, nor the consummation of the transactions contemplated
by, this Agreement will or could result in any of the following:
(a) A default or an event that, with notice or lapse of time, or
both, would be a default, breach or violation of the respective charter, bylaws
or other governing instruments of Seller, or any Material Contract;
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(b) The termination of any Material Contract, or the acceleration
of the maturity of any indebtedness or other obligation of Seller which would
have a Material Adverse Effect on the Purchased Restaurants, Seller or Buyer;
(c) The creation or imposition of any Lien or Encumbrance on any
of the Purchased Assets;
(d) The creation or imposition of any new, or a violation or
breach of any existing, writ, injunction or decree that would become or is now
applicable to or binding on Seller or any of the Purchased Assets or the
Purchased Restaurants;
(e) A loss or adverse modification of any license, franchise,
permit or other authorization or right (contractual or other) to operate the
Purchased Restaurants, granted to or otherwise held by Seller or used in the
operation of the Purchased Restaurants, which would have a Material Adverse
Effect on the Purchased Restaurants, Seller or Buyer;
(f) The cessation or termination of any other business
relationship or arrangement between Seller and any third party that would have a
Material Adverse Effect on the Purchased Restaurants, Seller or Buyer; or
(g) Any other consequence that would have or reasonably could be
expected to have a Material Adverse Effect on the Purchased Restaurants, Seller
or Buyer.
6.10 VENDORS AND SUPPLIERS. Schedule 6.10 attached hereto contains
correct and current list of the five (5) largest vendors and suppliers of the
Purchased Restaurants in terms of purchases or sales made by Seller during the
fiscal year ended December 31, 1996, showing the approximate aggregate dollar
amounts of purchases by Seller from each such vendor and supplier during that
fiscal period. Except as set forth on Schedule 6.10, since December 31, 1996
there has been no change in the business relationship of Seller with any vendor
or supplier named in Schedule 6.10 and Seller is not aware of any intention of
any of the vendors or suppliers listed in Schedule 6.10 to cease, or of any
event or circumstance that has occurred during the past twelve (12) months which
might reasonably be expected to cause any such vendor or supplier to cease,
doing business with Seller, or alter materially the amount of the business that
any of them is presently doing with Seller, or will require, as a condition to
the continuation of its business relationship with Seller, a change in the
prices or rents at or any other material terms under which any of such vendors
and suppliers have been doing business with Seller.
6.11 LIABILITIES. Except as otherwise set forth in Schedule 6.11, Seller
does not have any knowledge of any fact or of the occurrence of any event
forming the basis of any present or future claim against Seller, whether or not
fully covered by insurance, for liability on account of negligence which would
have, individually or in the aggregate, a Material Adverse Effect on Seller or
the Purchased Restaurants.
6.12 INSURANCE. Schedule 6.12 contains an accurate description
(including liability limits, deductibles and coverage exclusions) of all
policies of fire, general liability, worker's compensation, errors and
omissions, malpractice and other forms of insurance maintained by or on behalf
of Seller in connection with the Purchased Restaurants as protection for the
Purchased
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Assets and the Purchased Restaurants. Except as set forth in Schedule 6.12
hereto, all of such policies are now in full force and effect and policies
covering the same risks and in substantially the same amounts have been in full
force and effect continuously for the past five (5) years. Seller has not
received any notice of cancellation or material amendment of any such policies;
no coverage thereunder is being disputed; and all material claims thereunder
have been filed in a timely fashion. Seller has furnished to Buyer a schedule of
all insurance claims filed by Seller within the past three (3) years that were
related to the Purchased Restaurants and the disposition thereof. No such claims
have been denied by any of Seller's insurers and Seller has not failed to comply
with the requirements of any insurance policies which would provide any insurers
the right to deny any claim related to the Purchased Restaurants.
6.13 COMPLIANCE WITH LAW/PERMITS.
(a) Except as set forth in Schedule 6.13(a) hereto, Seller is in
compliance with all, and is not in violation of any, law, ordinance, order,
decree, rule or regulation of any governmental agency or authority. Except as
disclosed in Schedule 6.13(a) hereto, no unresolved (i) charges of violations of
laws or regulations have been made or threatened, (ii) proceedings or
investigations are pending or, to the best knowledge of Seller, have been
threatened, and (iii) citations or notices of deficiency have been issued or
have been threatened, against Seller or the Restaurants by any governmental
agencies or authorities; and, to the best knowledge of Seller, there are no
facts or circumstances upon which any such charges, proceedings, investigations,
or citations or deficiency notices, may be instituted, issued or brought
hereafter.
(b) Schedule 6.13(b) contains a true, correct and complete list
of all governmental licenses, permits, authorizations, franchises, or
certificates or rights (contractual or other) to operate the Purchased
Restaurants that are held by Seller (collectively, "Licenses and Permits"). Such
Licenses and Permits are the only licenses, permits, authorizations, franchises,
certificates and rights to operate required for operation of the Purchased
Restaurants and all of such Licenses and Permits are in full force and effect at
the date hereof. Seller has provided Buyer with true, correct and complete
copies of each License and Permit listed in Schedule 6.13(b). Except as
otherwise set forth in Schedule 6.13(b), the Purchased Restaurants are in
compliance with the conditions and requirements imposed by or in connection with
such Licenses and Permits. Seller has not received any notice, nor does Seller
have any knowledge or reason to believe, that any governmental agency or
authority intends to cancel, terminate or modify any of such Licenses or Permits
or that there are valid grounds for any such cancellation, termination or
modification. Seller has delivered or made available to Buyer a true, correct
and complete copy of the most recent safety inspection and quality assurance
reports, prepared by any employees or consultants of Seller or by any
governmental agencies or authorities relating to the Purchased Restaurants.
6.14 TAXES AND TAX RETURNS. Seller has duly filed all Tax Returns (as
hereinafter defined) which are required by law to be filed by it and has duly
and properly paid, or withheld for payment and paid, when due, all foreign,
federal, state and local Taxes (as hereinafter defined) due or claimed to be due
from it, and there are no assessments or claims for payment of Taxes (as
hereinafter defined) now pending or, to the best knowledge of Seller,
threatened, nor any audit of Seller's records presently being made by any taxing
authority. For purposes of this
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Agreement, (i) the term "Tax" or "Taxes" means any federal, state, local or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental (including taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security, unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not; and (ii) the term "Tax
Return" means any return, declaration, report, claim for refund, or information
return or statement (including, but not limited to, information returns or
reports related to back-up withholding and any payments to third parties)
relating to any Taxes, including any schedule or attachment thereto, and
including any amendment thereof. Buyer shall have no liability or obligation
whatsoever, and shall not incur any loss, expense or cost, and none of the
Purchased Assets, or any assets of Buyer, shall be subjected to any Lien or
Encumbrance, by reason of any Taxes arising out of any operations or activities
of Seller whether conducted prior to the date hereof or hereafter.
6.15 LITIGATION AND PROCEEDINGS. Except as set forth in Schedule 6.15
hereto, there is no action, suit, proceeding or investigation, or any counter or
cross-claim in an action brought by or on behalf of any of Seller, whether at
law or in equity, or before or by any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, or before any
arbitrator of any kind, that is pending or, to the best knowledge of Seller,
threatened, against Seller, which (i) could reasonably be expected to affect
adversely Seller's ability to perform his obligations under this Agreement or
complete any of the transactions contemplated hereby or thereby, or (ii)
involves the possibility of any judgment or liability, or which may become a
claim, against Buyer, the Purchased Restaurants or the Purchased Assets. Except
as set forth in Schedule 6.15, Seller is not subject to any judgment, order,
writ, injunction, decree or award of any court, arbitrator or governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over Seller or any of the Purchased Assets or the Purchased
Restaurants. All of the legal actions or other proceedings that are pending or
threatened against Seller, the Purchased Restaurants or the Purchased Assets
involve only routine claims for monetary damages that are incidental to and have
arisen out of the ordinary course of the business of the Purchased Restaurants
and any liability, damage, cost or expense that may be incurred in any of such
actions or proceedings will be fully covered by insurance, except as expressly
stated to the contrary on Schedule 6.15.
6.16 CERTAIN TRANSACTIONS. Except as set forth in Schedule 6.16, there
are no existing or pending transactions, nor are there any agreements or
understandings, with any employees of Seller, or any person that is related to,
or any person or entity that is affiliated with, any of them (collectively,
"Affiliates"), relating to, arising from or affecting the Purchased Restaurants,
or any of the Purchased Assets, including, without limitation, any transactions,
arrangements or understandings relating to the purchase of services, the lending
of monies, or the sale, lease or use of any of the Purchased Assets, with or
without adequate compensation, in any amount whatsoever. No existing or former
employee of Seller has any claims against or, to the best of Seller's knowledge,
disputes with Seller which could result in the imposition of any liability,
judgment, lien or encumbrance against the Purchased Restaurants or any of the
Purchased Assets.
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6.17 ENVIRONMENTAL AND SAFETY MATTERS. Except as set forth in Schedule
6.17, Seller has complied with, and the operation of the Purchased Restaurants
and the use of the Purchased Assets are in compliance with, in all material
respects, all federal, state, regional and local statutes, laws, ordinances,
rules, regulations and orders relating to the protection of human health and
safety, natural resources or the environment, including, but not limited to, air
pollution, water pollution, noise control, on-site or off-site hazardous
substance discharge, disposal or recovery, toxic or hazardous substances,
training, information and warning provisions relating to toxic or hazardous
substances, and employee safety relating to the Purchased Restaurants or the
Purchased Assets (collectively the "Environmental Laws"); and no notice of
violation of any Environmental Laws or of any permit, license or other
authorization relating thereto has been received or threatened against Seller,
and to the best knowledge of Seller, there is no factual basis for the giving of
any such notice. Except as set forth in Schedule 6.17, no underground or
above-ground storage tanks or surface impoundments are located on any of the
real properties that are or have been used, operated, leased or owned by Seller
in connection with or for the Purchased Restaurants and (i) except in compliance
with applicable Environmental Laws and any licenses or permits relating thereto,
there has been no generation, use, treatment, storage, transfer, disposal,
release or threatened release in, at, under, from, to or into, or on such
properties of toxic or hazardous substances during the ownership or occupancy
thereof by Seller or, to the best knowledge of Seller, prior to such ownership
or occupancy, and (ii) in no event has there been any generation, use,
treatment, storage, transfer, disposal, release or threatened release in, at,
under, from, to or into, or on such properties of toxic or hazardous substances
that has resulted in or is reasonably likely to result in a Material Adverse
Effect on the Purchased Restaurants or on Seller. Seller has not received any
notice or claim to the effect that Seller or the Purchased Restaurants is or may
be liable to any governmental authority or private party as a result of the
release or threatened release of any toxic or hazardous substances in connection
with the conduct or operation of the Purchased Restaurants, and none of the
operations of the Purchased Restaurants and none of the Purchased Assets is the
subject of any federal, state or local investigation evaluating whether any
remedial action is needed to respond to a release or a threatened release of any
toxic or hazardous substances at any of the Leased Properties or any other real
properties leased, used, operated or owned by Seller in connection with the
Purchased Restaurants. Seller has not disposed, or had disposed of on its
behalf, toxic or hazardous substances at any site other than a federal and state
licensed hazardous waste treatment, storage and disposal facility and, to the
best knowledge of Seller, each such facility is not currently listed, or
threatened to be listed, on any state or federal "superfund" list. For the
purposes of this Section 6.17, "toxic or hazardous substances" shall include any
material, substance or waste that, because of its quantity, concentration or
physical or chemical characteristics, is deemed under any federal, state, local
or regional statute, law, ordinance, regulation or order, or by any governmental
agency pursuant thereto, to pose a present or potential hazard to human health
or safety or the environment, including, but not limited to, (i) any material,
waste or substance which is defined as a "hazardous substance" pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(42 U.S.C. Section 9601, et seq.), as amended, and its related state and local
counterparts, (ii) asbestos and asbestos containing materials and
polychlorinated biphenyls, and (iii) any petroleum hydrocarbon including oil,
gasoline (refined and unrefined) and their respective constituents and any
wastes associated with the exploration, development or production of crude oil,
natural gas or geothermal energy.
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6.18 BROKERS. Seller has not retained or used the services of an agent,
finder or broker in connection with the transactions contemplated by this
Agreement. Seller shall pay, and shall indemnify, hold harmless and defend Buyer
from and against, all commissions, finder's and other fees and expenses charged
or asserted by any agent, finder or broker, by reason of any such retention or
use of the services of any such agent, finder or broker by Seller.
6.19 REPRESENTATIONS AND WARRANTIES OF SELLER. The representations and
warranties of Seller contained herein, and the disclosures contained in Seller's
Disclosure Schedules, do not contain any statement of a material fact that was
untrue when made or omits any information necessary to make any such statement
contained therein, in light of the circumstances under which such statement was
made, not misleading.
7. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer makes the following representations and warranties to Seller as of
the date of this Agreement:
7.1 ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
7.2 CORPORATE POWER. Buyer possesses the requisite corporate power and
authority to enter into and perform its obligations under this Agreement and the
ancillary agreements.
7.3 NECESSARY ACTIONS; BINDING EFFECT. Buyer has taken all corporate
action necessary to authorize the execution and delivery of, and the performance
of its obligations under, this Agreement and the ancillary agreements. This
Agreement constitutes, and upon its execution and delivery the ancillary
agreements will constitute, valid obligations of Buyer that are legally binding
on and enforceable against Buyer in accordance with their respective terms,
except (in each case) as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium or other similar laws affecting creditors' rights, and
(ii) general principles of equity relating to the availability of equitable
remedies (regardless of whether such agreements are sought to be enforced in a
proceeding at law or in equity).
7.4 BROKER. Buyer has not retained or used the services of an agent,
finder or broker in connection with the transactions contemplated by this
Agreement. Buyer shall pay, and shall indemnify, hold harmless and defend Seller
from and against all commissions, finder's and other fees and expenses charged
or asserted by any agent, finder or broker, by reason of any such retention or
use of the services of any agent, finder or broker by Buyer.
7.5 CONSENTS AND APPROVALS; NO VIOLATION. No filing or registration
with, no notice to and no governmental authorization, consent or approval of any
governmental authority or other person is necessary in connection with Buyer's
execution and delivery of this Agreement, the performance of its obligations
hereunder or the consummation by Buyer of the transactions contemplated hereby.
8. INTENTIONALLY OMITTED.
9. ADDITIONAL COVENANTS.
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9.1 RETAINED EMPLOYEES. Buyer and Seller shall jointly notify all
Retained Employees (as hereinafter defined) that their employment by Seller will
be terminated as of the Closing Date by reason of the transactions contemplated
by this Agreement and that Buyer will hire only those employees of Seller
engaged in the operation of the Purchased Restaurants designated on Schedule 9.1
hereto (the "Retained Employees"). On the Closing Date, Seller shall (i)
terminate all Retained Employees, and (ii) waive any rights it may have to
prohibit the Retained Employees from being employed by the Buyer.
9.2 ADVERSE CHANGES. Seller shall promptly notify Buyer in writing of
any material adverse facts or developments affecting or which may affect the
Purchased Restaurants including, without limitation, (i) any damage, destruction
or loss (whether or not covered by insurance) affecting any of the Purchased
Assets or the Purchased Restaurants, or (ii) anything which, if not corrected
prior to Closing, could prevent Seller from fulfilling any condition precedent
described in Section 12 below.
9.3 PUBLICITY. Buyer, Seller and their respective affiliates agree that
(i) any public disclosure of the transactions contemplated hereby shall be by
mutual agreement of the parties and in a form and manner agreed to by the
parties; provided, however, that either party shall, after reasonable notice, be
entitled to make any disclosure required by applicable law, rule or regulation
of any governmental authority or securities exchange, and (ii) except as
provided in clause (i) above, each party and its respective affiliates shall
maintain the confidentiality of any and all information relating to this
Agreement and the transactions contemplated hereby and any and all confidential
information of the other party received in connection with this Agreement and
the transactions contemplated hereby.
9.4 BULK TRANSFERS. Buyer hereby waives compliance with any applicable
bulk sale or bulk transfer laws of any jurisdiction in connection with the sale
of the Purchased Assets to the Buyer.
9.5 LICENSE AGREEMENT. Seller and Buyer shall enter into a license
agreement (the "License Agreement") pursuant to which Seller shall grant to
Buyer a perpetual, non-exclusive, royalty-free license to use the Intangible
Property Rights to the extent necessary to operate the Purchased Restaurants in
the form of Exhibit B hereto.
10. SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties set forth in this Agreement
shall remain in full force and effect regardless of any investigation,
verification or approval by any party hereto or by anyone on behalf of any party
hereto, and shall survive for a period of two years following the Closing,
regardless of any investigation, verification or approval by any party hereto.
The covenants and agreements of the parties contained in this Agreement shall
survive the Closing.
11. CLOSING DELIVERIES.
11.1 SELLER'S DELIVERIES. In connection with and at the time of the
Closing, Seller shall deliver to Buyer the following:
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(a) Bill of Sale. A bill of sale in the form attached hereto as
Exhibit C and all other instruments and documents of transfer necessary to
transfer and vest in Buyer good title to the Purchased Assets, free and clear of
any liabilities, liens, encumbrances or restrictions whatsoever except as set
forth herein, in the form and substance satisfactory to Buyer's counsel.
(b) License Agreement. A duly executed counterpart of the License
Agreement.
(c) Opinion of Seller's Counsel. An opinion of Seller's counsel
substantially in the form of Exhibit D hereto.
11.2 BUYER'S DELIVERIES. In connection with and at the time of the
Closing, Buyer shall deliver to Seller the following:
(a) Purchase Price. The Purchase Price, in the manner set forth
in Section 4 above, and in connection therewith, shall deliver the Note to the
Seller, which Note shall be marked cancelled and paid.
(b) License Agreement. A duly executed counterpart of the License
Agreement.
12. OBLIGATIONS SURVIVING THE DATE OF THIS AGREEMENT AND THE CLOSING.
12.1 TERMINATION OF LIENS AND ENCUMBRANCES. Seller hereby covenants that
it shall have arranged for and shall have caused all Liens and Encumbrances on
any of the Purchased Assets to be terminated, released or otherwise removed as
of the Closing Date in exchange for the payment to the holders of such Liens or
Encumbrances of the indebtedness or other obligations secured thereby, a list of
which is attached hereto as Schedule 12.1 (the "Secured Obligations"). If it is
determined at any time hereafter that Seller failed to remove or cause to be
removed, without liability or cost or expense to Buyer and without the
disposition of any of the Purchased Assets, any Lien or Encumbrance on any of
the Purchased Assets that was in existence on or prior to the date hereof, or if
any Lien or Encumbrance is imposed or placed on any of the Purchased Assets (or
any replacements thereof) after the date hereof as a result of any act or
omission of Seller, occurring on, prior to or after the date hereof, then,
without limiting any other right or remedy that Buyer may have, Seller shall
cause such Lien or Encumbrance to be removed at no expense or liability to
Buyer, and without any reduction or disposition of any of the Purchased Assets.
12.2 FURTHER ASSURANCES. Each party hereto shall execute and deliver
after the date hereof such instruments and take such other actions as the other
party may reasonably request in order to carry out the intent of this Agreement
or to better evidence or effectuate the transactions contemplated herein.
12.3 COSTS AND EXPENSES. Each party shall pay all costs and expenses
incurred or to be incurred by it in negotiating and preparing this Agreement and
Related Agreements and in carrying out and closing the transactions contemplated
by this Agreement.
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12.4 TAXES. Seller shall pay all Taxes of any kind or nature arising
from (i) the conduct or operation of the Purchased Restaurants up to the Closing
Date and the conduct or operation by Seller, prior to or after the date hereof,
of any other business or business activities operations; and (ii) consummation
of the transactions contemplated hereby, including, without limitation, all
sales, use or similar Taxes, if any, that may arise from or be assessed by
reason of the sale of the Purchased Assets by Seller to Buyer. If any taxes
required under this Section 12.4 to be borne by are assessed against Buyer or
any of the Purchased Assets, Buyer shall notify Seller in writing promptly
thereafter and Seller shall be entitled to contest, in good faith, such
assessment or charge so long as such assessment does not adversely affect Buyer
or the Purchased Assets or the Purchased Restaurants. Notwithstanding the
foregoing, Buyer may (but shall not be obligated to) pay any such Taxes assessed
against it, the Purchased Restaurants or any of the Purchased Assets, but which
are payable by Seller pursuant hereto, if Buyer's failure to do so, in the
judgment of Buyer, could result in the imposition of a Lien or Encumbrance on
any of the Purchased Assets or any other assets of Buyer or would constitute a
violation of any agreement to which Buyer is subject, or if Seller fails to
contest such assessment or charge diligently and in good faith. If Buyer pays
any Taxes which pursuant hereto are required to be borne by Seller, Buyer shall
be entitled to reimbursement thereof from Seller on demand.
12.5 FINANCIAL BOOKS AND RECORDS. For a period of five (5) years
hereafter, Buyer shall provide Seller with access during normal business hours
to any books or records relating to the Purchased Restaurants or the Purchased
Assets, which Seller may need solely to file tax returns or other filings or to
defend litigation, filed prior or subsequent to the date hereof, which relate to
periods prior to the date hereof.
13. INDEMNIFICATION PROVISIONS.
13.1 OBLIGATIONS OF SELLER. Seller hereby agrees that it will indemnify,
hold harmless and defend Buyer and each of its directors, officers,
stockholders, employees and agents and their respective successors and assigns,
from and against any and all demands, claims, actions, suits, judgments
liabilities, damages, losses, Taxes, costs and expenses, including, without
limitation, reasonable attorneys' fees, and whether or not they have arisen from
or were incurred in or as a result of any demand, claim, action, suit,
assessment or other proceeding or any settlement or judgment (collectively, the
"Liabilities") that arise from or are in connection with:
(a) Any facts, circumstances or events, the existence or
happening of which constitutes a breach of or material inaccuracy in any of the
representations or warranties of Seller contained in this Agreement or in
Seller's Disclosure Schedules;
(b) Any breach or default by Seller of any of his respective
covenants or agreements contained in this Agreement, including, without
limitation, any of the covenants of Seller set forth in Section 3.2 with respect
to the Retained Liabilities;
(c) Any claim, lawsuit, action or other proceeding that (i) is
pending against Seller or to which the Purchased Restaurants or any of the
Purchased Assets is subject on the date hereof, or (ii) is brought against Buyer
or to which any of the Purchased Restaurants or any of the Purchased Assets may
become subject hereafter as a result of or arising from any acts or omissions of
Seller that have occurred on or before the date hereof or any acts or
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omissions of Seller that may occur after the date hereof, and whether or not the
bringing or assertion of any such claim, lawsuit, action or other proceeding
constitutes a breach of Seller representations or warranties contained in the
Agreement;
(d) Any breach of or inaccuracy in any of the representations or
warranties contained in Section 6.13 hereof or any violation of or
non-compliance with any applicable laws or regulations applicable to Seller or
the Purchased Restaurants prior to the Closing, whether or not such violation or
non-compliance constitutes a breach of the representations or warranties
contained in Section 6.13 hereof;
(e) The presence on or in or the discharge from any real
properties owned or leased now or in the past by Seller of any toxic or
hazardous substances (as defined in Section 6.17 above) that originated or took
place prior to the date hereof, whether or not disclosed in this Agreement or
Seller's Disclosure Schedules hereto; and
(f) The failure to have paid or to pay, when due, any Taxes that
arose out of the operations of the Seller or the consummation of the
transactions contemplated by this Agreement or the failure to have filed, when
due, any Tax Returns related to any such Taxes or any period up to the Closing
Date.
13.2 OBLIGATIONS OF BUYER. Buyer agrees that it will indemnify, hold
harmless and defend Seller and each of its directors, officers, stockholders,
employees and agents from and against any and all Liabilities that arise from or
are in connection with:
(a) a breach or default by Buyer of any of his respective
covenants or agreements contained in this Agreement;
(b) the operation of the Purchased Restaurants from and after the
Closing, other than any act or omission of Seller; and
(c) the Assumed Obligations.
13.3 CLAIMS. If any party (the "Indemnitee) receives notice of
circumstances that would give rise to a claim by such party or notice of any
claim or the commencement of any action or proceeding with respect to which any
other party (or parties) is obligated to provide indemnification (the
"Indemnifying Party") pursuant to Sections 13.1 or 13.2 (a "Claim"), the
Indemnitee shall promptly give the Indemnifying party notice thereof; provided,
however, that failure to so notify shall not affect the right of indemnification
hereunder unless such failure has prejudiced the rights of the Indemnifying
Party. Within 30 days after such notice, the Indemnifying Party will notify the
Indemnitee whether it irrevocably elects to make payment of the amount claimed
or, with respect to third party claims, to contest such claim by appropriate
legal proceedings. The failure of the Indemnifying Party to notify the
Indemnitee of its intention within such 30 days shall constitute an irrevocable
election by them that it will pay the amount claimed. Any defense of a claim
shall be conducted by counsel of good standing chosen by Indemnitee and
satisfactory to Indemnifying Party. Such defense shall be conducted at the
expense of Indemnifying Party, except that if any proceeding involves both
claims against which indemnity is granted hereunder and other claims for which
indemnification is not granted
19
<PAGE> 20
hereunder, the expenses of defending against such claims shall be borne by the
Indemnifying Party and the Indemnitee in respective proportions to the dollar
amount of the claims for which they may be liable based on he aggregate dollar
amount of the claims.
14. MISCELLANEOUS.
14.1 NOTICES. All notices, requests, demands or other communications
hereunder shall be in writing and shall be deemed to have been duly given, (i)
on the date of delivery if delivered in person; (ii) on the second business day
after being sent by fax, provided that the successful transmission of the fax
has been confirmed through a confirmation function sheet provided by the fax
machine used for such transmission and a true and correct copy thereof is sent
by first class mail to the party to which the fax was sent within one (1)
business day thereafter; or (iii) on the third business day following the
deposit thereof in the United States Mails, provided it is mailed by certified
mail, return-receipt requested and postage prepaid and properly addressed as
follows:
If to Seller: Stacey's Buffet, Inc.
12812 60th Street North, Room 200
Clearwater, Florida 33760
Fax No.: (813) 507-0345
Attn: President
With a copy to: Gadsby & Hannah LLP
225 Franklin Street
Boston, MA 02110-2811
Fax No.: (617) 345-7050
Attn: Jeffrey M. Stoler
If to Buyer, addressed to: Star Buffet, Inc.
440 Lawndale Drive
Salt Lake City, Utah 84115
Fax No.: (801) 463-5585
Attn: Charlotte Miller
With a copy to: Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660-6441
Fax No. (714) 725-4100
Attn: C. Craig Carlson, Esq.
Any party hereto may from time to time, by written notice to the other
parties, designate a different address, which shall be substituted for the one
specified above.
14.2 MATERIAL ADVERSE EFFECT. When used in this Agreement, the phrase
"Material Adverse Effect" shall mean a circumstance, state of facts, event,
consequence or result that, individually or in the aggregate, materially and
adversely affects, or could reasonably be expected to materially and adversely
affect the Purchased Assets or the Purchased Restaurants or the condition
(financial or other), operating results or future prospects of Buyer or Seller,
as
20
<PAGE> 21
the case may be, or the ability of Buyer or Seller to consummate the
transactions which it is required to consummate hereunder.
14.3 ASSIGNMENT. Seller may not assign this Agreement, or assign its
rights or delegate its duties hereunder, without the prior written consent of
Buyer. Buyer shall have the right, without Seller's consent, to assign its
rights and delegate its duties hereunder to any corporation which is controlled
by Buyer.
14.4 SEVERABILITY. Any provision of this Agreement which is illegal,
invalid or unenforceable shall be ineffective to the extent of such illegality,
invalidity or unenforceability, without affecting in any way the remaining
provisions hereof.
14.5 GOVERNING LAW. This Agreement is deemed to have been entered into
and is to be performed in the State of Florida and its interpretation, its
construction and the remedies for its enforcement or breach are to be applied
pursuant to, and in accordance with, the laws of the State of Florida for
contracts made and to be performed in that state.
14.6 ENTIRE AGREEMENT; AMENDMENT. This Agreement, and the Exhibits and
Schedules hereto, and each additional agreement and document to be executed and
delivered pursuant hereto, constitute all of the agreements of the parties with
respect to, and supersede all prior agreements and understandings relating to
the subject matter of, this Agreement or the transactions contemplated by this
Agreement. This Agreement may not be modified or amended except by a written
instrument specifically referring to this Agreement signed by the parties
hereto.
14.7 WAIVER. No waiver by one party of the other party's obligations, or
of any breach or default hereunder by any other party, shall be valid or
effective, unless such waiver is set forth in writing and is signed by the party
giving such waiver; and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or similar nature or any other breach
or default by such other party.
14.8 INTERPRETATION; HEADINGS. This Agreement is the result of
arms'-length negotiations between the parties hereto and no provision hereof,
because of any ambiguity found to be contained therein or otherwise, shall be
construed against a party by reason of the fact that such party or its legal
counsel was the draftsman of that provision. The section, subsection and any
paragraph headings contained herein are for the purpose of convenience only and
are not intended to define or limit or affect, and shall not be considered in
connection with, the interpretation of any of the terms or provisions of this
Agreement.
14.9 COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.10 ARBITRATION. All claims, controversies, differences or disputes
between or among any of the parties hereto arising from or relating to this
Agreement, or any of the agreements entered into pursuant to any of the express
provisions hereof, shall be determined solely and exclusively by arbitration in
accordance with the rules of commercial arbitration then in effect of the
American Arbitration Association, or any successors thereto. Each of the parties
21
<PAGE> 22
consent to venue for such arbitrations in Salt Lake City, Utah and to service of
process by certified or registered mail to their respective addresses where
notices may be sent pursuant to Subsection 14.1. Either party may initiate any
such arbitration and, if initiated, the parties shall jointly select a mutually
acceptable arbitrator therefor. In the event the parties fail to agree upon such
an arbitrator within twenty (20) days after written notification of the
initiation of the arbitration has been given to all of the parties, then each
party shall select an arbitrator and such arbitrators shall then select a third
arbitrator to serve as the sole arbitrator, provided that if, in such event,
either party fails to select such an arbitrator within seven (7) days, such
party's arbitrator shall be selected by the American Arbitration Association, or
any successor thereto, upon application of either party. Judgment upon the award
of the agreed upon arbitrator or the so chosen third arbitrator, as the case may
be, shall be binding and may be entered in any court of competent jurisdiction.
The parties agree to abide by any decision rendered in any such arbitration as
final and binding and waive the right to submit the dispute to a public tribunal
for jury or non-jury trial. Notwithstanding the foregoing, any party may bring
an action in any court of competent jurisdiction when the remedy sought is
limited to injunctive relief of a breach or threatened breach of this Agreement
by another party hereto or specific performance of any of the obligations of any
of the other parties thereto. The prevailing party in any such arbitration or
other proceeding brought in accordance with this Subsection 14.10, shall be
reimbursed for its reasonable attorneys' fees and disbursements and costs
incurred in connection therewith by the non-prevailing party as determined by
the arbitrator.
IN WITNESS WHEREOF, the undersigned have caused this Asset Purchase
Agreement to be executed by officers thereunto duly authorized as of the date
first above stated.
BUYER
STAR BUFFET, INC.
By:
---------------------------------------------
Its:
--------------------------------------------
SELLER
STACEY'S BUFFET, INC.
------------------------------------------------
22
<PAGE> 23
EXHIBITS
Exhibit A Allocation of Purchase Price
Exhibit B License Agreement
Exhibit C Bill of Sale
Exhibit D Form of Opinion of Seller's Counsel
SCHEDULES
Schedule 1 List of Purchased Restaurants
Schedule 1.1 Tangible Personal Property and Fixtures
Schedule 1.2 Inventory
Schedule 1.3 Real Property and Personal Property Leases
Schedule 1.4 Assigned Contracts
Schedule 1.8 Cash and Equivalents
Schedule 1.9 Prepaid Fees and Deposits
Schedule 3.1 Assumed Obligations
Schedule 6.1(c) Consents, Approvals, etc.
Schedule 6.4 Undisclosed Liabilities
Schedule 6.5 Certain Changes
Schedule 6.6(c) Exceptions to Title
Schedule 6.7 Labor and Employment Matters
Schedule 6.8 Material Contracts
Schedule 6.9 Conflicts
Schedule 6.10 Vendors and Suppliers
Schedule 6.11 Liabilities
Schedule 6.12 Insurance
Schedule 6.13(a) Compliance With Laws
Schedule 6.13(b) Licenses and Permits
Schedule 6.15 Litigation
Schedule 6.16 Certain Transactions
Schedule 6.17 Environmental and Safety Matters
Schedule 6.18 Operational Restrictions
Schedule 9.1 Retained Employees
Schedule 12.1 The Secured Obligations
<PAGE> 24
Schedule 1
1. Holiday, Florida
2. Fort Myers, Florida
3. Port Charlotte, Florida
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF STACEY'S BUFFET, INC. FOR THE FIFTY-TWO WEEKS ENDED
DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 351,998
<SECURITIES> 262,395
<RECEIVABLES> 56,619
<ALLOWANCES> 35,786
<INVENTORY> 264,333
<CURRENT-ASSETS> 2,305,507
<PP&E> 8,413,981
<DEPRECIATION> 6,400,459
<TOTAL-ASSETS> 5,922,937
<CURRENT-LIABILITIES> 12,179,786
<BONDS> 0
0
0
<COMMON> 24,931
<OTHER-SE> (6,305,399)
<TOTAL-LIABILITY-AND-EQUITY> 5,922,937
<SALES> 33,232,395
<TOTAL-REVENUES> 33,363,222
<CGS> 33,521,572
<TOTAL-COSTS> 33,521,572
<OTHER-EXPENSES> 13,268,700
<LOSS-PROVISION> 3,151,000
<INTEREST-EXPENSE> 39,308
<INCOME-PRETAX> (16,578,050)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,578,050)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,578,050)
<EPS-PRIMARY> (6.65)
<EPS-DILUTED> (6.65)
</TABLE>
