SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 30, 1996 Commission File Number: 33-27611-NY
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MAIN STREET AND MAIN INCORPORATED
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(Exact Name of registrant as specified in its charter)
DELAWARE 11-294-8370
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5050 NORTH 40TH STREET 85018
SUITE 200, PHOENIX, ARIZONA ------------------------------
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(Address of principal executive offices)
(602) 852-9000
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Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
At March 31, 1997, there were outstanding 9,968,491 shares of the registrant's
Common Stock, $.001 par value. The aggregate market value of Common Stock held
by nonaffiliates of the registrant based on the sale trade price of the common
stock as reported by the National Association of Securities Dealers, Inc. on
March 31, 1997, was $12,928,125. For purposes of this computation, all officers,
directors, and 5% beneficial owners of the registrant are deemed to be
affiliates. Such determination should not be deemed an admission that such
officers, directors, or 5% beneficial owners are, in fact, affiliates of the
registrant.
Documents incorporated by reference: None
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MAIN STREET AND MAIN INCORPORATED
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 30, 1996
TABLE OF CONTENTS
PART I Page
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 15
ITEM 3. LEGAL PROCEEDINGS 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED 16
STOCKHOLDER MATTERS
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 18
CONDITION AND RESULTS OF OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON 21
ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 22
ITEM 11. EXECUTIVE COMPENSATION 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 31
MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON 33
FORM 8-K
SIGNATURES 37
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PART I
ITEM 1. BUSINESS
Introduction
The Company is the world's largest franchisee of T.G.I. Friday's
restaurants, currently owning 38 and managing eight T.G.I. Friday's restaurants
and possessing exclusive rights to develop additional T.G.I. Friday's
restaurants in all or parts of eight western and midwestern states. T.G.I.
Friday's restaurants are full-service, casual dining establishments featuring a
wide selection of freshly prepared, popular foods and beverages served by
well-trained, friendly employees in relaxed settings. The Company's restaurants
generated an average of $2.9 million of annual revenue during fiscal 1996.
Alcoholic beverage sales currently account for approximately 23.6% of revenue.
The cost of a typical entree at the Company's restaurants currently ranges from
$5.50 to $8.00 for lunch and $8.50 to $12.00 for dinner.
The Company develops and operates its restaurants pursuant to specified
standards established by TGI Friday's Inc. The Company believes that the uniform
development and operating standards of TGI Friday's Inc. facilitate the
efficiency of the Company's restaurants and afford the Company significant
benefits, including the brand-name recognition and goodwill associated with
T.G.I. Friday's restaurants. T.G.I. Friday's restaurants have been in operation
for more than 30 years. As of March 31, 1997, TGI Friday's Inc. had 144
franchisor-operated and 263 franchised restaurants operating worldwide. System-
wide sales exceeded $1.0 billion in 1996.
Eighteen of the Company's current restaurants are located in California,
five in Arizona, four in Washington, three in Nevada, two in each of Colorado
and Oregon, and one in each of Kansas, Missouri, Nebraska, and New Mexico. The
Company also manages five T.G.I. Friday's restaurants in California and three in
Louisiana. Of the 38 currently owned restaurants, the Company acquired 24 and
developed 14. The Company owns the exclusive rights to develop additional T.G.I.
Friday's restaurants in territories encompassing most of the states of Arizona,
Nevada, and New Mexico and the San Francisco, California, Kansas City, Kansas,
Kansas City, Missouri, Omaha, Nebraska, and El Paso, Texas metropolitan areas.
The Company also has the exclusive right, together with TGI Friday's Inc., to
develop additional T.G.I. Friday's restaurants in the Los Angeles and San Diego
metropolitan areas. The Company's development agreements with TGI Friday's Inc.
require the Company to open two new T.G.I. Friday's restaurants by the end of
1997, six new restaurants in each of 1998 and 1999, seven new restaurants in
each of 2000 and 2001, and eight new restaurants in 2002. Of the 36 restaurants
to be developed, 25 are to be in California, six in Arizona, Nevada, or New
Mexico, and five in Kansas City, Kansas, Kansas City, Missouri, or Omaha,
Nebraska. The Company expects that cash flow from operations, together with
financing commitments, will be sufficient to develop the additional eight
restaurants that the development agreements require the Company to open by the
end of 1998. See "Special Considerations--Requirements of Development
Agreements."
The Company's business has increased from the ownership and operation of
four restaurants, which produced revenue of less than $7 million in fiscal 1990,
to the ownership and operation of 38 restaurants with revenue of more than $122
million in fiscal 1996. The Company's operating results, however, have been
adversely affected during the period by a shortage of capital, substantial
indebtedness and debt service requirements, and the pursuit of various
non-restaurant operations, including dairy, frozen-food distribution, and
amusement businesses. As a result, the Company decided to concentrate on its
restaurant business and disposed of or otherwise discontinued its non-restaurant
operations.
The Company's strategy is to (i) capitalize on the brand-name recognition
and goodwill associated with T.G.I. Friday's restaurants; (ii) expand the
Company's restaurant operations through the development of additional T.G.I.
Friday's restaurants in its existing development territories and through the
development of new restaurant concepts and the acquisition of restaurants
operating under other restaurant concepts; (iii) dispose of restaurants that do
not meet the Company's profit criteria or are located in specific markets that
the Company does not believe provide sufficient opportunities for continued
expansion; and (iv) increase its profitability by continuing to enhance the
dining experience of its guests and improving operational efficiency.
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The Company commenced its restaurant operations in May 1990 with the
acquisition of certain assets from TGI Friday's Inc. for approximately $2.6
million (the "1990 Acquisition"). The assets acquired included all of the
interest of TGI Friday's Inc. in the leased premises, franchise rights, and
operating assets relating to three existing T.G.I. Friday's restaurants in
Arizona and one existing T.G.I. Friday's restaurant in Nevada as well as the
exclusive right to develop additional T.G.I. Friday's restaurants in
substantially all of Arizona, Nevada, and New Mexico and in the El Paso, Texas
metropolitan area (the "Southwest Territory").
In June 1991, the Company acquired from an independent party for
approximately $1.7 million certain assets relating to the ownership and
development of T.G.I. Friday's restaurants in Oregon and Washington (the "1991
Acquisition"). The assets included all of the seller's interest in the leased
premises, franchise rights, and operating assets relating to two existing T.G.I.
Friday's restaurants in Oregon and Washington as well as the exclusive right to
develop additional T.G.I. Friday's restaurants in Oregon and Washington (the
"Northwest Territory").
In June 1993, the Company acquired from an independent party for
approximately $7.6 million (the "June 1993 Acquisition") all of the seller's
interest in the leased premises, franchise rights, and operating assets relating
to four existing T.G.I. Friday's restaurants in Colorado, Kansas, Missouri, and
Nebraska as well as the exclusive right to develop additional T.G.I. Friday's
restaurants in Colorado (the "Colorado Territory") and the Kansas City, Kansas,
Kansas City, Missouri, and Omaha, Nebraska metropolitan areas (the "Midwest
Territory").
In December 1993, the Company acquired all 20 T.G.I. Friday's restaurants
owned by TGI Friday's Inc. in the state of California as well as the exclusive
right to develop additional T.G.I. Friday's restaurants in all or part of
California, Idaho, Montana, and Wyoming (the "Western Territory"). The purchase
price for the acquisition (the "December 1993 Acquisition"), taking into account
a March 31, 1994 refinancing, was approximately $43.6 million.
In December 1993, as part of a strategic decision to concentrate on its
restaurant business, the Company sold the stock of Main St. Food Company and
Main St. Food Distribution Inc., which owned and operated Carnation Dairy
Arizona ("Carnation Dairy") and Dairy Maid Foods, Inc. ("Dairy Maid").
In December 1996, the Company entered into an agreement with CNL Growth Fund
Advisors, Inc. ("CNL") to manage three restaurants owned by CNL in Louisiana.
In January 1997, the Company sold five of its restaurants in the San
Francisco metropolitan area to CNL for $10.6 million. The Company manages these
restaurants for CNL for a management fee.
In April 1997, the Company and TGI Friday's Inc. revised the development
agreements between them. As a result of the revision, the obligations of the
Company to develop new T.G.I. Friday's restaurants through the year 2002 has
been reduced from 44 to 36; the Company released its exclusive rights to develop
T.G.I. Friday's restaurants in Colorado, Idaho, Montana, Oregon, Washington, and
Wyoming; and the Company and TGI Friday's Inc. will each develop restaurants in
the San Diego and Los Angeles, metropolitan areas.
In April 1997, the Company entered into a joint venture with Restaurant
Development Group, Inc., ("the RDG Parties") for the development and operation
of Redfish restaurants ("Redfish Restaurants"), a cajun seafood restaurant and
bar concept developed by the RDG Parties. The Company and the RDG Parties formed
Redfish America, a jointly owned limited liability company and entered into an
agreement pursuant to which the RDG Parties contributed to Redfish America their
ownership of the Chicago Redfish Restaurant, their leasehold rights to the
Wheaton, Illinois premises and the Cincinnati, Ohio premises that will be
developed into a Redfish Restaurants, and the rights to the Redfish name and
concept and the Company contributed $500,000 and its leasehold rights to the
Denver premises that will be developed into a Redfish Restaurant. In addition,
the Company agreed to lend Redfish America up to $575,000 to complete the
development of the Wheaton, Cincinnati, and Denver Redfish Restaurants. RDG will
manage the Redfish Restaurants.
The Company was incorporated in December 1988. The Company maintains its
principal executive offices at 5050 North 40th Street, Suite 200, Phoenix,
Arizona 85018, and its telephone number is (602) 852-9000. As used in this
Report, the term "Company" refers to Main Street and Main Incorporated and its
subsidiaries.
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Business
General
The Company is the world's largest franchisee of T.G.I. Friday's
restaurants, currently owning 38 and operating eight T.G.I. Friday's restaurants
and possessing exclusive rights to develop additional restaurants in all or
parts of eight western and midwestern states. The Company plans to develop
additional T.G.I. Friday's restaurants in its existing development territories,
in which it is required to open 36 additional restaurants by December 31, 2002.
TGI Friday's Inc.
TGI Friday's Inc. is a wholly owned subsidiary of the Carlson Companies
Inc., a diversified company with business interests in the restaurant and
hospitality industries. The first T.G.I. Friday's restaurant was opened in 1965
in New York City. TGI Friday's Inc. has conducted a business since 1972 that is
substantially similar to the business currently conducted by its franchisees. As
of March 31, 1997, TGI Friday's Inc. had 144 franchisor-operated and 263
franchised restaurants operating worldwide. System- wide sales exceeded $1
billion in 1996. TGI Friday's Inc. currently owns approximately 2.6% of the
Company's outstanding Common Stock. Holders of the Company's Common Stock do not
have any financial interest in TGI Friday's Inc., and TGI Friday's Inc. has no
responsibility for the contents of this Report.
Concept
T.G.I. Friday's restaurants are full-service, casual dining establishments
featuring a wide selection of high quality, freshly prepared popular foods and
beverages, including a number of innovative and distinctive menu items. The
restaurants feature quick, efficient, and friendly table service designed to
minimize customer waiting time and facilitate table turnover. Service personnel
are dressed in traditional red-and-white striped knit shirts and casual slacks
and are encouraged to individualize their outfits with decorative pins and
headwear, which enhance the T.G.I. Friday's theme and entertaining dining
atmosphere. The Company's restaurants generally are open seven days a week
between the hours of approximately 11:00 a.m. and 1:00 a.m. The Company believes
that the design and operational consistency of all T.G.I. Friday's restaurants
enable the Company to benefit significantly from the name recognition and
goodwill associated with T.G.I. Friday's restaurants.
Menu
The Company attempts to capitalize on the innovative and distinctive menu
items that have been an important attribute of T.G.I. Friday's restaurants. The
menu consists of more than 90 food items, including appetizers (such as
mushrooms, jalape|Atno poppers, buffalo wings, stuffed potato skins,
quesadillas, Thai chicken, fried onion rings, and pot stickers); a variety of
soups, salads, sandwiches, wrappers, burgers, pizzadillas, and pasta;
southwestern, oriental, and American specialty items; beef, seafood, and chicken
entrees; a kids' menu; and desserts. Beverages include a full bar featuring
wines, beers, classic and specialty cocktails and after dinner drinks, soft
drinks, milk, milk shakes, malts, hot chocolate, coffee, tea, frozen fruit
drinks known as Friday's Smoothies,(Trademark) and sparkling fruit juice
combinations known as Friday's Flings.
Menu prices range from $6 to $14 for beef, chicken, and seafood entrees; $6
to $9 for pizzasdillas, pasta, wrappers, and oriental and southwestern specialty
items; $5 to $8 for salads, sandwiches, and burgers; and $3 to $7 for appetizers
and soups. Restaurants offer a separate children's menu with food entrees
ranging from $2 to $3. Alcoholic beverage sales currently account for
approximately 23.6% of total revenue.
Restaurant Layout
Each of the Company's restaurants is similar in terms of exterior and
interior design. Each restaurant features a distinctive decor accented by
red-and-white striped awnings, brass railings, stained glass, and eclectic
memorabilia. Each restaurant has interior dining areas and bar seating.
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Most of the restaurants are located in free-standing buildings. The
restaurants contain an average of 60 dining tables, seating an average of 210
guests, and a bar area seating an average of approximately 30 additional guests.
The restaurants normally contain between 6,000 and 9,000 square feet of
space and average approximately 7,500 square feet. Most of the Company's
recently developed restaurants, however, contain 6,500 square feet of space.
Unit Economics
The Company estimates that its total cost of opening a new T.G.I. Friday's
restaurant currently ranges from $1,500,000 to $2,000,000, exclusive of annual
operating expenses and assuming that the underlying real estate is obtained
under a lease arrangement. These costs include approximately (i) $750,000 to
$1,250,000 for building, improvements, and permits, including liquor licenses,
(ii) $550,000 for furniture, fixtures, and equipment, (iii) $150,000 in
pre-opening expenses, including hiring expenses, wages for managers and hourly
employees, and supplies, and (iv) $50,000 for the initial franchise fee. Actual
costs, however, may vary significantly depending upon a variety of factors,
including the site and size of the restaurant and conditions in the local real
estate and employment markets. The Company's restaurants open for all of fiscal
1996 generated an average of approximately $2,911,000 in annual revenue.
Site Selection
When evaluating whether and where to seek expansion of the Company's
restaurant operations, the Company analyzes a restaurant's profit potential. The
Company considers the location of a restaurant to be one of the most critical
elements of the restaurant's long-term success. Accordingly, the Company expends
significant time and effort in the investigation and evaluation of potential
restaurant sites. In conducting the site selection process, the Company obtains
and examines detailed demographic information (such as population
characteristics, density, and household income levels), evaluates site
characteristics (such as visibility, accessibility, and traffic volume),
considers the restaurant's proximity to demand generators (such as shopping
malls, lodging, and office complexes), and analyzes potential competition.
Senior corporate management evaluates and approves each restaurant site prior to
its acquisition. TGI Friday's Inc. provides site selection guidelines and
criteria as well as site selection counseling and assistance. The selection of a
restaurant site by the Company requires the consent of TGI Friday's Inc.
Expansion of Operations
Since 1990, the Company has acquired 30 existing T.G.I. Friday's restaurants
as well as the exclusive rights to develop restaurants in specified territories.
The acquisitions include 20 restaurants in California, three in Arizona, and one
in each of Colorado, Kansas, Missouri, Nebraska, Nevada, Oregon, and Washington.
The Company subsequently sold five of the restaurants it acquired in California.
The Company also has developed 13 new T.G.I. Friday's restaurants. These include
four in California, three in Washington, two in each of Arizona and Nevada, and
one in each of Colorado and New Mexico. See "Business -- Current Restaurants."
In addition, the Company has developed one Friday's Front Row Sports Grill in
Portland, Oregon. See "Business -- Other Activities."
The Company plans to expand its restaurant operations through the
development of additional restaurants in the Company's existing development
territories, which consist of all or part of eight western and midwestern
states. The Company plans to open three additional restaurants by the end of
1997 and to meet or exceed its development requirements thereafter. The Company
has sites for new T.G.I. Friday's restaurants in each of Phoenix, Arizona, El
Paso, Texas, and San Francisco, California. The Company currently is considering
other sites for additional restaurants, but has not entered into leases or
purchase agreements for any such sites. These restaurants will be owned by a
third party with the Company operating the restaurants and deriving a management
fee.
As part of its long-term plan, the Company may also evaluate opportunities
for the acquisition of additional T.G.I. Friday's restaurants and development
rights to additional territories as well as the development and acquisition of
new restaurant concepts. The Company evaluates such opportunities based on
numerous factors, including location, operating history, future potential,
acquisition price, and the terms and availability of financing of such existing
restaurants or additional development rights.
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The timing and success of the Company's expansion will depend on a number of
factors. See "Business -- Special Considerations."
Current Restaurants
The following table sets forth certain information relating to each of
restaurants owned or managed by the Company as of March 31, 1997.
<TABLE>
<CAPTION>
Owned or
Square Seating In Operation Managed by the
Location Footage Capacity Since Company Since
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<S> <C> <C> <C> <C>
Acquired Restaurants (Owned)
Phoenix, Arizona ........................ 9,396 298 1985 1990
Mesa, Arizona ............................ 9,396 298 1985 1990
Tucson, Arizona .......................... 7,798 290 1982 1990
Las Vegas, Nevada ........................ 9,194 298 1982 1990
Tigard, Oregon ........................... 9,172 298 1979 1991
Kirkland, Washington ..................... 8,488 298 1983 1991
Aurora, Colorado ......................... 7,800 260 1983 1993
Kansas City, Missouri .................... 8,500 270 1983 1993
Omaha, Nebraska .......................... 6,750 220 1992 1993
Overland Park, Kansas .................... 6,000 220 1992 1993
San Diego, California .................... 8,002 234 1979 1993
Costa Mesa, California ................... 8,345 232 1980 1993
Woodland Hills, California ............... 8,358 283 1980 1993
Valencia, California ..................... 6,500 232 1993 1993
Torrance, California ..................... 8,923 237 1982 1993
La Jolla, California ..................... 9,396 225 1984 1993
Palm Desert, California .................. 9,194 235 1983 1993
West Covina, California .................. 9,396 232 1984 1993
North Orange, California ................. 9,194 213 1983 1993
Ontario, California ...................... 5,700 190 1993 1993
Laguna Niguel, California ................ 6,730 205 1990 1993
San Bernardino, California ............... 9,396 236 1986 1993
Brea, California ......................... 6,500 195 1991 1993
Riverside, California .................... 6,500 172 1991 1993
Developed Resaurants (Owned)
Scottsdale, Arizona ..................... 8,507 281 1991 1991
Glendale, Arizona ........................ 5,200 230 1993 1993
Vancouver, Washington .................... 6,000 250 1993 1993
Albuquerque, New Mexico .................. 5,975 270 1993 1993
Tacoma, Washington ....................... 5,975 260 1993 1993
Seattle, Washington ...................... 5,591 220 1994 1994
Reno, Nevada ............................. 6,500 263 1994 1994
Oxnard, California ....................... 6,500 252 1994 1994
Carmel Mountain, California .............. 6,500 252 1995 1995
Colorado Springs, Colorado ............... 6,500 263 1995 1995
Rancho Santa Margarita, California ...... 6,548 252 1995 1995
Portland, Oregon (Front Row Sports Grill) 13,080 320 1996 1996
Cerritos, California ..................... 6,250 223 1996 1996
Las Vegas, Nevada ........................ 6,700 251 1997 1997
Managed
San Bruno, California ................... 8,345 200 1980 1993
San Francisco, California ................ 4,748 161 1989 1993
San Jose, California ..................... 8,002 228 1977 1993
San Mateo, California .................... 9,396 252 1984 1993
San Ramon, California .................... 6,000 182 1990 1993
Lafayette, Louisana ...................... 6,800 277 1993 1996
Metarie, Louisiana ....................... 9,000 290 1978 1996
New Orleans, Louisiana ................... 7,100 258 1994 1996
</TABLE>
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The average size of the Company's acquired restaurants is approximately
8,000 square feet, and the average size of the Company's developed T.G.I.
Friday's restaurants is approximately 6,300 square feet.
Restaurant Operations
The T.G.I. Friday's System
T.G.I. Friday's restaurants are developed and operated pursuant to a
specified system (the "T.G.I. Friday's System" or the "System"). TGI Friday's
Inc. maintains detailed standards, specifications, procedures, and operating
policies to facilitate the success and consistency of all T.G.I. Friday's
restaurants. To ensure that the highest degree of quality and service is
maintained, each franchisee of TGI Friday's Inc. (including the Company) must
operate each T.G.I. Friday's restaurant in strict conformity with these methods,
standards, and specifications.
The Company believes the support as well as the standards, specifications,
and operating procedures of TGI Friday's Inc. are important elements in its
restaurant operations. The Company's policy is to execute these specifications,
procedures, and policies to the highest level of the standards of TGI Friday's
Inc.
The T.G.I. Friday's System includes distinctive exterior and interior
design, decor, color scheme, and furnishings; uniform specifications and
procedures for operations; standardized menus featuring special recipes and menu
items; procedures for inventory and management control; formal training and
assistance programs; and advertising and promotional programs. The T.G.I.
Friday's System also includes requirements for quality and uniformity of
products and services offered; the purchase or lease and use of equipment,
fixtures, furnishings, signs, inventory, recorded music, ingredients, and other
products and materials required for the development and operation of restaurants
conforming with the standards and specifications of TGI Friday's Inc. from
approved suppliers; and standards for the maintenance, improvement, and
modernization of restaurants, equipment, furnishings, and decor. TGI Friday's
Inc. has committed to its franchisees to continue to improve and further develop
the T.G.I. Friday's System and to provide such new information and techniques to
the franchisees by means of the Confidential Franchise Operating manuals. The
T.G.I. Friday's System is identified by means of certain trade names, service
marks, trademarks, logos, and emblems, including the marks T.G.I. Friday's(R)
and Friday's(R).
Once a restaurant is integrated into the Company's operations, the Company
provides a variety of corporate services to assure the proper execution of the
T.G.I. Friday's System and the operational success of the restaurant. The
Company's executive management continually monitors restaurant operations;
maintains management controls; inspects individual restaurants to assure the
quality of products and services and the maintenance of facilities; develops
employee programs for efficient staffing, motivation, compensation, and career
advancement; institutes procedures to enhance efficiency and reduce costs; and
provides centralized support systems.
The Company also maintains quality assurance procedures designed to assure
compliance with the high quality of products and services mandated by the
Company and TGI Friday's Inc. The Company responds to and investigates inquiries
and complaints, initiates on-site resolution of deficiencies, and consults with
each restaurant's staff to assure that proper action is taken to correct any
deficiency. Company personnel make unannounced visits to restaurants to evaluate
the facilities, products, and services. The Company believes that its quality
review program and executive oversight enhance restaurant operations, reduce
operating costs, improve customer satisfaction, and facilitate the highest level
of compliance with the T.G.I. Friday's System.
Restaurant Management
The Company's regional and restaurant management personnel are responsible
for complying with the operational standards of the Company and TGI Friday's
Inc. The Company's five regional managers are responsible for between six and
ten of the Company's restaurants within their region and report to one of the
Company's two Directors of Operations who in turn report to the Company's Vice
President of Operations. Restaurant managers are responsible for day-to-day
restaurant operations, including customer relations, food preparation and
service, cost control, restaurant maintenance, and personnel
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relations. The Company typically staffs its restaurants with an on-site general
manager, one or two assistant managers, a kitchen manager, and approximately 90
hourly employees.
Recruitment and Training
The Company attempts to hire employees who are committed to the standards
maintained by the Company and TGI Friday's Inc. The Company also believes that
its high unit sales volume, the image and atmosphere of the T.G.I. Friday's
restaurant concept, and its career advancement and employee benefit programs
enable it to attract high quality management and restaurant personnel and to
enjoy a low level of employee turnover relative to the industry.
The Company emphasizes participation in continuing training programs
maintained by TGI Friday's Inc. and supplements those programs through the
employment of personnel devoted solely to employee training. Each restaurant
general and assistant manager completes a formal training program conducted by
the Company and TGI Friday's Inc., receiving between 10 and 15 weeks of training
depending on the prior experience and ability of the trainee. The training
covers all aspects of management philosophy and overall restaurant operations,
including supervisory skills, operating standards, accounting procedures,
employee selection and training, and the performance of all positions necessary
for restaurant operations.
Management believes that the Company's incentive, motivation, and training
programs enhance employee performance, result in better customer service, and
increase restaurant efficiency. The Company has implemented incentive programs
that reward restaurant managers when the restaurant's operating results surpass
designated goals and a reward and recognition program for outstanding
achievements by employees.
Maintenance and Improvement of Restaurants
The Company maintains its restaurants and all associated fixtures,
furnishings, and equipment in conformity with the T.G.I. Friday's System. The
Company also makes necessary additions, alterations, repairs, and replacements
to its restaurants as required by TGI Friday's Inc., including periodic
repainting or replacement of obsolete signs, furnishings, equipment, and decor.
The Company may be required, subject to certain limitations, to modernize its
restaurants to the then-current standards and specifications of TGI Friday's
Inc.
Management Information Systems
The Company has devoted considerable resources to develop and implement
management information systems that complement proprietary systems developed and
maintained by TGI Friday's Inc. Inventory control and transaction processing are
effected by means of a computerized sales system, which is integrated into data
processing systems the Company utilizes for financial and management control,
centralized accounting, and management information systems.
The Company uses five to six touchscreen computer registers located
conveniently throughout each of its restaurants. Servers enter guest orders by
touching the appropriate sections of the register's computer screen, which
transfers the information electronically to the kitchen and bar for preparation.
These registers also are connected to a personal computer in the Company's
restaurant and to the Company's corporate information system via modem.
Management receives detailed comparative reports on each restaurant's sales and
expense performance daily, weekly, and monthly.
The Company believes that its management information systems enable it to
increase the speed and accuracy of order taking and pricing, to better assess
guest preferences, to efficiently schedule labor to better serve guests, to
quickly and accurately monitor food and labor costs, to promptly access
financial and operating data, and to improve the accuracy and efficiency of
store-level information and reporting.
Equipment, Food Products, and Other Supplies
The Company leases or purchases all fixtures, furnishings, equipment, signs,
recorded music, food products, supplies, inventory, and other products and
materials required for the development and operation of its T.G.I. Friday's
restaurants from suppliers approved by TGI Friday's Inc. In order to be
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approved as a supplier, a prospective supplier must demonstrate to the
reasonable satisfaction of TGI Friday's Inc. its ability to meet the
then-current standards and specifications of TGI Friday's Inc. for such items,
possess adequate quality controls, and have the capacity to provide supplies
promptly and reliably. The Company is not required to purchase supplies from any
specified suppliers, but the purchase or lease of any items from an unapproved
supplier requires the prior approval of TGI Friday's Inc.
TGI Friday's Inc. maintains a list of approved suppliers and a set of the
T.G.I. Friday's System standards and specifications. TGI Friday's Inc. receives
no commissions on direct sales to its franchisees, but may receive rebates and
promotional discounts from manufacturers and suppliers, which are generally
passed on proportionately to the Company. TGI Friday's Inc. is an approved
supplier of various kitchen equipment and store fixtures, decorative
memorabilia, and various paper goods, such as menus and in-store advertising
materials and items. However, the Company is not required to purchase such items
from TGI Friday's Inc. If the Company elects to purchase such items from TGI
Friday's Inc., TGI Friday's Inc. derives revenue as a result of such purchases.
Although not required to do so, the Company purchases from a single national
food supplier, utilized by TGI Friday's Inc. and many of its other franchisees,
most of the Company's key food products (with the exception of produce, dairy
products, and bread, which it purchases from approved local suppliers) as well
as many of its other restaurant supplies. This supplier is not affiliated with
the Company or TGI Friday's Inc. The Company does not have a supply agreement or
other contractual arrangement with the supplier and effects purchases through
purchase orders.
The Company's restaurants utilize a simple bar code system for daily
ordering of their primary food and merchandise items. Orders are sent
electronically to the supplier. The supplier guarantees 100% product delivery
overnight or same day deliveries and has comprehensive warehouse/delivery
outlets servicing each of the Company's markets.
The Company believes that its purchases from the supplier enable the Company
to maintain a high level of quality consistent with T.G.I. Friday's restaurants,
to realize convenience and dependability in the receipt of its supplies, to
avoid the costs of maintaining a large purchasing department, large inventories,
and product warehouses, and to attain cost advantages as the result of volume
purchases. The Company believes, however, that all essential products are
available from other national suppliers as well as from local suppliers in the
cities in which the Company's restaurants are located in the event the Company
determines to purchase its supplies from other suppliers.
Advertising and Marketing
The Company participates in the national marketing and advertising programs
conducted by TGI Friday's Inc. See "Business -- Franchise Agreements." The
programs primarily utilize network television and national publications and
feature new menu innovations and various promotion programs. In addition, the
Company from time to time supplements the marketing and advertising programs
conducted by TGI Friday's Inc. through local radio, newspaper, and magazine
advertising media and sponsorship of community events. During October 1995, in
conjunction with TGI Friday's Inc., the Company introduced a frequent diner
program that includes awards of food, merchandise and travel to frequent diners
based upon points accumulated through purchases.
As a franchisee of TGI Friday's Inc., the Company is able to utilize the
trade names, service marks, trademarks, emblems, and indicia of origin of TGI
Friday's Inc., including the marks T.G.I. Friday's and Friday's. The Company
advertises in various media utilizing these marks to attract new customers to
its restaurants.
Development Agreements
The Company is a party to three development agreements with TGI Friday's
Inc. Each development agreement grants the Company the exclusive right to
develop additional T.G.I. Friday's restaurants in a specified territory and
obligates the Company to develop additional T.G.I. Friday's restaurants in that
territory in accordance with a specified development schedule.
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The following table sets forth information regarding the Company's minimum
requirements to open new T.G.I. Friday's restaurants under its current
development agreements as well as the number of existing restaurants in each of
the Company's development territories.
<TABLE>
<CAPTION>
Los San San
Angles Diego Francisco Southwest Midwest
Year Territory(1)(2) Territory(1)(2) Territory(2) Territory(3) Territory(4) Total
- ---- --------------- --------------- ------------ ------------ ------------ -----
<S> <C> <C> <C> <C> <C> <C>
1997 ..................... - - 1 1 - 2
1998 ..................... 2 1 1 1 1 6
1999 ..................... 2 1 1 1 1 6
2000 ..................... 3 1 1 1 1 7
2001 ..................... 3 1 1 1 1 7
2002 ..................... 4 1 1 1 1 8
-- -- -- -- -- --
14 5 6 6 5 36
Existing Restaurants .... 15 3 -- (5) 9 3 30 (6)
</TABLE>
- --------------
(1) TGI Friday's Inc. also will develop restaurants in this region.
(2) The Los Angeles, San Diego, and San Francisco Territories are covered by one
development Agreement.
(3) Includes the states of Arizona, Nevada, and New Mexico and the El Paso,
Texas metropolitan area.
(4) Includes metropolitan Kansas City, Kansas, Kansas City, Missouri, and Omaha,
Nebraska.
(5) Does not include five restaurants managed in the San Francisco Territory.
(6) Does not include eight restaurants in the states of Colorado, Oregon, or
Washington, where the Company will no longer be developing restaurants.
Each development agreement gives TGI Friday's Inc. certain remedies in the
event that the Company fails to comply in a timely manner with its schedule for
restaurant development, if the Company otherwise defaults under the development
agreement or any franchise agreement relating to a restaurant within that
development territory as described below, or if the Company's officers or
directors breach the confidentiality or noncompete provisions of the development
agreement. The remedies available to TGI Friday's Inc. include (i) the
termination of the Company's exclusive right to develop restaurants in the
related territory; (ii) a reduction in the number of restaurants the Company may
develop in the related territory; (iii) the termination of the development
agreement; and (iv) an acceleration of the schedule for development of
restaurants in the related territory pursuant to the development agreement.
At the request of the Company, TGI Friday's Inc. from time to time has
agreed to amend the development agreements with respect to certain development
territories to extend the time by which the Company was required to develop new
restaurants in such territories. The Company requested such amendments to the
development agreements as the result of its inability to secure sites that it
believed to be attractive on favorable terms and conditions. In addition, TGI
Friday's Inc. amended the Company's development schedule in mid-1995 to coincide
with the receipt of additional capital provided by the Company's public offering
and in April 1997 to reduce the number of restaurants the Company is required to
develop from 44 to 36. There can be no assurance that TGI Friday's Inc. will
extend the development schedule in the future in the event the Company
experiences any difficulty in satisfying the schedule for any reason.
Franchise Agreements
The Company enters into a separate franchise agreement with respect to each
T.G.I. Friday's restaurant that it develops pursuant to a development agreement.
Each franchise agreement grants the Company an exclusive license to operate a
T.G.I. Friday's restaurant within a designated geographic area (generally a
three-mile limit from each restaurant) and obligates the Company to operate such
restaurant in accordance with the requirements and specifications established by
TGI Friday's Inc. relating to the preparation of food products and quality of
service as well as general operating procedures, advertising, maintenance of
records, and protection of trademarks. The franchise agreements restrict the
ability of the Company to transfer its interest in its T.G.I. Friday's
restaurants without the consent of TGI Friday's Inc.
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Each franchise agreement requires the Company to pay to TGI Friday's Inc. an
initial franchise fee, generally in the amount of $50,000. In addition, the
Company is obligated to pay TGI Friday's Inc. a royalty in the amount of 4% of
the gross revenue as defined in the franchise agreement for each restaurant.
Royalty payments under these agreements totaled $4,419,000, $4,800,000, and
$4,850,000 during fiscal 1994, 1995, and 1996, respectively. Each franchise
agreement also requires the Company to spend at least 2% of gross sales as
defined in the franchise agreement on local marketing and to contribute up to 4%
of gross sales to a national marketing pool that is administered by TGI Friday's
Inc. During fiscal 1996, however, TGI Friday's Inc. generally required the
Company as well as all other franchisees to contribute up to 1.7% of gross sales
to the national marketing pool. Marketing expenses totaled $1,788,000,
$2,360,000, and $1,554,000 during fiscal 1994, 1995, and 1996, respectively. All
funds contributed in excess of 2% of gross sales to the national advertising
fund may be credited against the local advertising requirement.
A default under any franchise agreement will not constitute a default under
any other franchise agreement. A default under the franchise agreement for a
restaurant in a development territory may constitute a default under the
development agreement for that development territory.
Other Activities
In May 1991, the Company entered into a five-year management assistance
agreement with Asian- Star Co., Ltd. ("AsianStar"), a Korean company, to provide
management services and expertise relative to the development and operation of
T.G.I. Friday's restaurants in the Republic of Korea. AsianStar is a party to an
exclusive development agreement with TGI Friday's Inc. to develop T.G.I.
Friday's restaurants in the Republic of Korea. The management assistance
agreement provided for the Company to receive a fee of 3% of the net revenue of
the first two restaurants developed in the Republic of Korea, which has been
recorded as a receivable. In 1996, the Company finalized an agreement with
AsianStar to exchange the receivable generated by the fee for an ownership
interest in AsianStar. AsianStar currently owns and operates nine T.G.I.
Friday's restaurants in Seoul, Korea. J.Y. Lee, a former director of the
Company, is the Chairman of AsianStar. See Note 2 to the Notes to Consolidated
Financial Statements.
The Front Row Sports Grill is a new concept created by TGI Friday's Inc. The
Front Row Sports Grill offers an upscale sports grill atmosphere with billiards,
video games, virtual reality games, food, and more than 100 varieties of beer.
The Company opened its first Front Row Sports Grill in February 1996. This Front
Row Sports Grill is located in the heart of Portland's new $205 million Centre
Court complex, which includes the 19,200 seat Rose Garden Arena, the 12,600 seat
Memorial Coliseum, and a 60,000 square-foot office and retail site. See Note 2
to the Notes to Consolidated Financial Statements. This concept has not
performed up to expectations, and the Company is currently reviewing various
alternatives with respect to the Front Row Sports Grill.
Government Regulation
Each of the Company's restaurants is subject to licensing and regulation by
state and local departments and bureaus of alcohol control, health, sanitation,
and fire and to periodic review by the state and municipal authorities for areas
in which the restaurants are located. In addition, the Company is subject to
local land use, zoning, building, planning, and traffic ordinances and
regulations in the selection and acquisition of suitable sites for constructing
new restaurants. Delays in obtaining, or denials of, or revocation or temporary
suspension of, necessary licenses or approvals could have a material adverse
impact upon the Company's development of restaurants. The Company also is
subject to regulation under the Fair Labor Standards Act, which governs such
matters as working conditions and minimum wages. An increase in the minimum wage
rate or changes in tip-credit provisions, employee benefit costs (including
costs associated with mandated health insurance coverage) or other costs
associated with employees could adversely affect the Company. In addition, the
Company is subject to the Americans with Disabilities Act of 1990 that among
other things, may require certain installations in new restaurants or
renovations to existing restaurants to meet federally mandated requirements. To
the Company's knowledge, the Company is in compliance in all material respects
with all applicable federal, state, and local laws affecting its business.
10
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Competition
The restaurant business is highly competitive with respect to price,
service, and food type and quality. In addition, restaurants compete for the
availability of restaurant personnel and managers. The Company's restaurants
compete with a large number of other restaurants, including national and
regional restaurant chains and franchised restaurant systems, many of which have
greater financial resources, more experience, and longer operating histories
than the Company, as well as with locally owned, independent restaurants.
The Company's casual dining business also competes with various types of
food businesses, as well as other businesses, for restaurant locations. The
Company believes that site selection is one of the most crucial decisions
required in connection with the development of restaurants. As the result of the
presence of competing restaurants in the Company's development territories,
management devotes great attention to obtaining what it believes will be premium
locations for new restaurants, although no assurances can be given that the
Company will be successful in this regard.
Employees
The Company employs approximately 1,800 persons on a full-time basis, of
whom 50 are corporate management and staff personnel and 1,750 are restaurant
personnel. The Company also employs approximately 2,360 part-time employees.
Except for corporate and management personnel, employees generally are paid on
an hourly basis. The Company employs at each of its restaurants an average of
approximately 90 full-time and part-time hourly employees. None of the Company's
employees are covered by a collective bargaining agreement with the Company. The
Company never has experienced a major work stoppage, strike, or labor dispute.
The Company considers its relations with its employees to be good.
Special Considerations
Dependence on TGI Friday's Inc.
The Company's success depends in part on the continued vitality of the
T.G.I. Friday's restaurant concept and on the ability of TGI Friday's Inc. to
identify and react to new trends in the restaurant industry (including the
development of innovative and popular menu items) and to develop and pursue
appropriate marketing strategies in order to maintain and enhance the name
recognition, reputation, and market perception of T.G.I. Friday's restaurants.
The Company believes that the experience, reputation, financial strength, and
franchisee support of TGI Friday's Inc. are positive factors in the Company's
prospects. Any business reversals that may be encountered by TGI Friday's Inc.
or its inability or failure to support its franchisees, including the Company,
could have a material adverse effect on the Company. However, the future results
of the operations of the Company's restaurants will not necessarily reflect the
results achieved by TGI Friday's Inc. or its other franchisees, but also will
depend upon such factors as the effectiveness of the Company's management, the
locations of the Company's restaurants, and the operating results of those
restaurants. See "Business -- TGI Friday's Inc."
Requirements of Franchise Agreements
The franchise agreement between TGI Friday's Inc. and the Company with
respect to each T.G.I. Friday's restaurant owned by the Company generally
requires the Company to pay an initial franchise fee of $50,000 and royalties of
4% of the restaurant's gross sales and to spend up to 4% of the restaurant's
gross sales on advertising, which may include contributions to a national
marketing pool administered by TGI Friday's Inc. During fiscal 1996, TGI
Friday's Inc. generally required the Company and its other franchisees to
contribute up to 1.7% of gross sales to the national marketing pool. Such
amounts must be paid or expended regardless of the profitability of the
Company's restaurants. In addition, the Company's franchise agreements with TGI
Friday's Inc. require the Company to operate its T.G.I. Friday's restaurants in
accordance with the requirements and specifications established by TGI Friday's
Inc. relating to the exterior and interior design, decor, and furnishings of
restaurants, menu selection, the preparation of food products, and quality of
service as well as general operating procedures, advertising, maintenance
11
<PAGE>
of records, and protection of trademarks. The failure of the Company to satisfy
such requirements could result in the loss of the Company's franchise rights for
some or all of its T.G.I. Friday's restaurants as well as its development rights
for additional restaurants. See "Business -- Development Agreements" and
"Business -- Franchise Agreements."
Requirements of Development Agreements
The Company's development agreements with TGI Friday's Inc. require the
Company to open at least 36 additional T.G.I. Friday's restaurants by December
31, 2002, including two restaurants by December 31, 1997. Of the restaurants to
be developed, 14 are to be developed in the Los Angeles Territory, six in the
San Francisco Territory, six in the Southwest Territory, five in the San Diego
Territory, and five in the Midwest Territory. The acquisition of restaurants
does not constitute the opening of new restaurants under the development
agreements. See "Business -- Development Agreements" and "Business -- Franchise
Agreements."
There can be no assurance that the Company will be able to secure sufficient
restaurant sites that it deems to be suitable or to develop restaurants on such
sites on terms and conditions it considers favorable in order to satisfy the
requirements of the development agreements. The development agreements give TGI
Friday's Inc. certain remedies in the event the Company fails to comply with the
development schedule in a timely manner or there is a breach of the
confidentiality or noncompete provisions of the development agreements. These
remedies include, under certain circumstances, the right to reduce the number of
restaurants the Company may develop in the related development territory or to
terminate the Company's exclusive right to develop restaurants in the related
development territory.
At the request of the Company, TGI Friday's Inc. from time to time has
agreed to amend the development schedules with respect to certain development
territories to extend the time by which the Company was required to develop new
T.G.I. Friday's restaurants in such development territories. The Company
requested such amendments to the development schedules as a result of its
inability to secure sites that it believed to be attractive on favorable terms
and conditions. TGI Friday's Inc. amended the Company's development schedule in
mid-1995 to coincide with the receipt of additional capital to be provided by
the Company's public offering that was completed in October 1995 and in April
1997 to reduce the number of restaurants the Company is required to develop from
44 to 36. There can be no assurance that TGI Friday's Inc. will extend the
development schedule in the future in the event that the Company experiences any
difficulty in satisfying the schedule for any reason, including a shortage of
capital. See "Business -- Development Agreements" and "Business -- Franchise
Agreements."
Expansion of Operations
The opening of new restaurants will depend on the Company's ability to
locate suitable sites in terms of favorable population characteristics, density
and household income levels, visibility, accessibility and traffic volume,
proximity to demand generators (including shopping malls, lodging, and office
complexes) and potential competition; to obtain financing for construction,
tenant improvements, furniture, fixtures, equipment, and other expenditures; to
negotiate acceptable leases or terms of purchase; to secure zoning,
environmental, health and similar regulatory approvals and liquor licenses; to
recruit and train qualified personnel; and to manage successfully the rate of
expansion and expanded operations. The opening of new restaurants also may be
affected by increased construction costs and delays resulting from governmental
regulatory approvals, strikes or work stoppages, adverse weather conditions, and
various acts of God. Newly opened restaurants may operate at a loss for a period
following their opening. The length of this period will depend upon a number of
factors, including the time of year the restaurant is opened, sales volume, and
operating costs. The acquisition of existing restaurants will depend upon the
Company's ability to identify and purchase restaurants that meet its criteria on
satisfactory terms and conditions. There can be no assurance that the Company
will be successful in achieving its expansion goals through the development or
acquisition of additional restaurants or that any additional restaurants that
are developed or acquired will be profitable. In addition, the opening of
additional restaurants in an existing market may have the effect of drawing
customers from and reducing the sales volume of existing restaurants. See
"Business -- Expansion of Operations."
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Need for Additional Capital
The development of new restaurants requires funds for construction, tenant
improvements, furniture, fixtures, equipment, training of employees, permits,
initial franchise fees, and additional expenditures. See "Business -- Unit
Economics." The Company expects that cash flow from operations together with
financing commitments, will be sufficient to develop the eight restaurants that
the development agreements require the Company to open by the end of 1998. In
addition, the Company will require funds to develop the additional restaurants
that its development agreements require it to open after 1998 and to pursue any
additional restaurant development or restaurant acquisition opportunities. In
the future, the Company may seek additional equity or debt financing to provide
funds to develop or acquire additional restaurants. There can be no assurance
that such financing will be available or will be available on satisfactory
terms. If such financing is not available on satisfactory terms, the Company may
be unable to satisfy its obligations under its development agreements with TGI
Friday's Inc. or otherwise expand its restaurant operations. See "Special
Considerations -- Requirements of Development Agreements" and "Business --
Expansion of Operations." While debt financing enables the Company to add more
restaurants than it otherwise would be able to do, expenses are increased by
such financing and such financing must be repaid by the Company regardless of
the Company's operating results. Future equity financings could result in
dilution to stockholders.
Significant Borrowings
In connection with its growth strategy, which has focused on restaurant
acquisitions and internal restaurant development, the Company has incurred
significant indebtedness with relatively short-term repayment schedules. See
"Business -- Expansion of Operations" and "Management's Discussion and Analysis
of Financial Conditions and Results of Operations." The Company had
approximately $36.3 million in indebtedness as of December 30, 1996. Subsequent
to December 30, 1996, $8.0 million of debt was repaid with proceeds from the
sale of five restaurants in northern California and an additional $20.3 million
was repaid with proceeds from new borrowings in the amount of $21.3 million,
which have a longer repayment period. After giving affect to the new borrowings
and repayments, the Company has indebtedness of $29.3 million, of which
approximately $2.5 million will be due in 1997, $1.5 million will be due in
1998, $1.5 million will be due in 1999, and $23.8 million will be due
thereafter. The Company's borrowings will result in interest expense of
approximately $2.6 million in 1997 and $2.5 million in 1998, based on currently
prevailing interest rates and assuming the outstanding indebtedness is paid in
accordance with the existing payment schedules without any prepayments or
additional borrowings. Such interest payments must be made regardless of the
Company's operating results. Currently, 26 of the Company's restaurants are
pledged to secure obligations.
Certain Factors Affecting the Restaurant Business
The ownership and operation of restaurants may be affected by adverse
changes in national, regional, or local economic or market conditions; increased
costs of labor (including those which may result from any increases in
applicable minimum wage requirements); increased costs of food products;
management problems; increases in the number and density of competitors; limited
alternative uses for properties and equipment; changing consumer tastes, habits,
and spending priorities; the cost and availability of insurance coverage;
uninsured losses; changing demographics; changes in government regulation;
changing traffic patterns; weather conditions; and other factors. The Company
may be the subject of litigation based on discrimination, personal injury, or
other claims, including claims that may be based upon legislation that imposes
liability on restaurants or their employees for injuries or damages caused by
the negligent service of alcoholic beverages to an intoxicated person or to a
minor. A multi-unit restaurant operator such as the Company can be adversely
affected by publicity resulting from food quality, illness, injury, or other
health concerns or operating issues resulting from one restaurant or a limited
number of restaurants operated under the same name, including those not owned by
the operator. None of these factors can be predicted with any degree of
certainty, and any one or more of these factors could have a material adverse
effect on the Company.
13
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Competition
The restaurant business is highly competitive with respect to price,
service, and food type and quality. In addition, restaurants compete for
attractive restaurant sites and the availability of restaurant personnel and
managers. The Company's restaurants compete with a large number of other
restaurants, including national and regional restaurant chains and franchised
restaurant systems, many of which have greater financial resources, more
experience, and longer operating histories than the Company, as well as with
locally owned, independent restaurants. See "Business -- Competition."
Dependence on Management
The Company's future development and operations will be substantially
dependent on the efforts and expertise of Bart A. Brown, Jr. and Gerald T.
Bisceglia. The Company currently has employment agreements with Mr. Brown and
Mr. Bisceglia, which expire on December 31, 1998 and October 29, 1999,
respectively. The Company does not maintain any life insurance on Mr. Brown or
Mr. Bisceglia. The loss of the services of Mr. Brown or Mr. Bisceglia could
adversely affect the Company's business and prospects. See "Management."
Government Regulation
The Company is subject to various federal, state, and local laws affecting
its business. The development and operation of restaurants depend to a
significant extent on the selection and acquisition of suitable sites, which are
subject to zoning, land use, environmental, traffic, and other regulations of
state and local governmental agencies. City ordinances or other regulations, or
the application of such ordinances or regulations, could impair the Company's
ability to construct or acquire restaurants in desired locations and could
result in costly delays. In addition, the operation of restaurants is subject to
licensing and regulation by state and local departments relating to health,
sanitation and safety standards, and fire codes; federal and state labor laws
(including applicable minimum wage requirements, tip credit provisions, overtime
regulations, workers' compensation insurance rates, unemployment and other
taxes, working and safety conditions, and citizenship requirements); zoning
restrictions; and state and local licensing of the sale of alcoholic beverages.
The delay or failure to obtain or maintain any licenses or permits necessary for
operations could have a material adverse effect on the Company. An increase in
the minimum wage rate, employee benefit costs (including costs associated with
mandated health insurance coverage), or other costs associated with employees
could adversely affect the Company. The Company also is subject to the Americans
with Disabilities Act of 1990 that, among other things, may require certain
installations in new restaurants or renovations to existing restaurants to meet
federally mandated requirements.
Sales of alcoholic beverages represent an important source of the revenue
for each of the Company's restaurants. The temporary suspension or permanent
loss or the inability to maintain a liquor license for any restaurant would have
an adverse effect on the operations of that restaurant. The Company does not
plan to open a restaurant in any location for which the Company believes it
cannot obtain or maintain a liquor license.
Shares Eligible for Future Sale
Approximately 2,776,311 shares of Common Stock currently outstanding are
"restricted securities," as that term is defined in Rule 144 promulgated under
the Securities Act of 1933, as amended (the "Securities Act"). Such shares may
be sold only in compliance with Rule 144, pursuant to registration under the
Securities Act, or pursuant to an exemption from registration. Generally, under
Rule 144, each person holding restricted securities for a period of one year may
sell, every three-month period, in ordinary brokerage transactions or to market
makers an amount of shares equal to the greater of 1% of a company's then
outstanding common stock or the average weekly trading volume for the four weeks
prior to the proposed sale of such shares. Currently, most of the restricted
shares are eligible for sale under Rule 144 or under a registration statement
filed as a result of registration rights granted with respect to such shares.
Sales of substantial amounts of Common Stock by stockholders of the Company
under Rule
14
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144, the registration statement, or otherwise, or even the potential for such
sales, are likely to have a depressive effect on the market price of the Common
Stock and could impair the Company's ability to raise capital through the sale
of its equity securities.
Rights to Acquire Shares
As of December 30, 1996, 228,500 shares of Common Stock were reserved for
issuance upon exercise of options that may be granted under the Company's 1990
and 1995 Stock Option Plans (the "Plans"). As of December 30, 1996, options to
acquire a total of 346,500 shares were outstanding under the Plans at a weighted
average exercise price of $3.63 per share. In addition, options to acquire a
total of 1,250,000 shares of Common Stock were outstanding outside the Plans at
a weighted average exercise price of $3.12 per share, and warrants to acquire
364,830 shares of Common Stock were outstanding at a weighted average exercise
price of $12.71 per share. During the terms of such options and warrants, the
holders thereof will have the opportunity to profit from an increase in the
market price of the Company's Common Stock with resulting dilution to the
interest of holders of its Common Stock. The existence of such stock options and
warrants may adversely affect the terms on which the Company can obtain
additional financing, and the holders of such options and warrants can be
expected to exercise such options and warrants at a time when the Company, in
all likelihood, would be able to obtain additional capital by offering shares of
its Common Stock on terms more favorable to the Company than those provided by
the exercise of such options and warrants.
Possible Volatility of Stock Price
Historically, the market price of the Company's Common Stock has been, and
in the future could be, subject to wide fluctuation in response to quarterly
variations in the operating results of the Company or other restaurant
companies, changes in analysts' estimates of the Company's financial
performance, changes in national and regional economic conditions, the financial
markets, or the restaurant industry, natural disasters, or other developments
affecting the Company or other restaurant companies. In addition, the stock
market has experienced extreme price and volume fluctuations in recent years.
This volatility has had a significant effect on the market prices of securities
issued by many companies for reasons not necessarily related to the operating
performance of those companies.
Cautionary Statement Regarding Forward-Looking Statements
Certain Statements contained in this Report are forward-looking statements
as defined in the Securities Act. By their nature, forward-looking statements
include risks and uncertainties. Accordingly, actual results could differ,
perhaps materially, from those expressed or implied by such forward-looking
statements. Factors that could cause actual results to differ materially include
those discussed elsewhere under this Item 1, "Special Considerations."
ITEM 2. PROPERTIES
In December 1993, the Company entered into a five-year lease for space to
serve as its corporate offices. The Company believes that the leased space is
adequate for its current and reasonably anticipated needs and that it will be
able to secure adequate space upon the expiration of the lease. See "Certain
Relationships and Related Transactions."
The Company leases space for all its restaurants. The initial lease terms
range from 10 to 20 years and contain renewal options for up to 20 years. The
leases typically provide for a fixed rental plus percentage rental. See Note 8
to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is subject to routine contract, negligence,
employment related, and other litigation in the ordinary course of business. The
Company does not believe that it is subject to any pending litigation that will
have material adverse effect on its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
15
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock has been quoted on the Nasdaq National Market
under the symbol "MAIN" since October 30, 1992. The following table sets forth
the quarterly high and low sales prices of the Company's Common Stock for the
periods indicated as reported by the Nasdaq Stock Market.
High Low
-------- -------
1994
First Quarter ............... $22 $16 1/2
Second Quarter .............. 19 14 1/2
Third Quarter ............... 16 3/4 13
Fourth Quarter .............. 14 3/4 9
1995
First Quarter ............... 13 1/4 9 1/2
Second Quarter .............. 13 7 1/2
Third Quarter ............... 11 4 1/16
Fourth Quarter .............. 4 3/4 2 7/16
1996
First Quarter ............... 3 3/8 2 3/8
Second Quarter .............. 4 3/8 2 1/4
Third Quarter ............... 3 1/8 1 3/4
Fourth Quarter .............. 2 7/8 1 3/8
1997
First Quarter ............... 2 9/16 1 9/16
On March 31, 1997, there were 771 holders of record of the Company's Common
Stock. On March 31, 1997, the closing sale price of the Common Stock on the
Nasdaq National Market was $1 27/32 .
16
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company for the periods indicated. The selected consolidated financial data for
each of the five fiscal years in the period ending December 30, 1996 has been
derived from the Company's consolidated financial statements, which have been
audited by Arthur Andersen LLP, independent accountants. This data should be
read in conjunction with, and are qualified by reference to, the Company's
consolidated financial statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Report.
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------------------
In thousands, except per share amounts)
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue ......................................... $ 21,796 $ 30,510 $ 111,262 $ 119,508 $ 122,563
Restaurant operating expenses:
Cost of sales .................................. 6,104 8,645 30,516 34,005 35,089
Payroll and benefits ........................... 6,798 9,604 34,849 36,769 38,858
Depreciation and amortization .................. 639 1,176 3,884 4,353 4,586
Other operating expenses ....................... 6,166 8,364 31,621 35,250 36,944
-------- --------- --------- --------- ---------
Total restaurant operating expenses ........... 19,707 27,789 100,870 110,377 115,477
-------- --------- --------- --------- ---------
Income from restaurant operations ............... 2,089 2,721 10,392 9,131 7,086
Depreciation and amortization .................. 50 313 1,014 1,331 1,450
General and administrative expenses ............ 1,789 3,339 4,191 4,410 4,388
Asset impairments and restructuring ............
charges....................................... -- -- -- -- 20,208
-------- --------- --------- --------- ---------
Operating income (loss) ......................... 250 (931) 5,187 3,390 (18,960)
Interest expense, net .......................... 212 413 3,902 4,424 3,206
-------- --------- --------- --------- ---------
Net income (loss) from continuing ...............
operations before income taxes.................. 38 (1,344) 1,285 (1,034) (22,166)
Provision for income taxes ...................... 16 -- -- -- --
-------- --------- --------- --------- ---------
Net income (loss) from continuing ...............
operations...................................... 22 (1,344) 1,285 (1,034) (22,166)
Net income (loss)(1) ............................ $ 516 $ (2,943) $ 1,285 $ (1,034) $ (22,166)
Net income (loss) per share:
Net income (loss) from continuing ..............
operations...................................... $ 0.01 $ (0.42) $ 0.35 $ (0.22) $ (2.73)
Net income (loss)(1) ........................... $ 0.19 $ (0.93) $ 0.35 $ (0.22) $ (2.73)
Weighted average shares outstanding ............. 2,703 3,163 3,692 4,621 8,110
Balance Sheet Data:
Working capital ................................ $ 626 $ (2,452) $ (10,905) $ (7,848) $ (1,343)
Total assets ................................... 15,851 75,491 84,503 88,605 70,848
Long-term debt, net of current portion ......... 3,485 44,814 41,265 31,204 33,809
Stockholders' equity ........................... 10,016 21,006 22,601 37,261 16,585
</TABLE>
- ---------------
(1) Fiscal 1992 includes a $328,000, or $0.12 per share, credit related to the
cumulative effect of change in accounting principle for income taxes and
$166,000, or $0.06 per share, of net income related to discontinued
operations. Fiscal 1993 includes $1,599,000, or $0.51 per share, of net loss
related to discontinued operations.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The Company commenced its restaurant operations in May 1990 with the
acquisition of four restaurants in the Southwest Territory. During the past six
years, the Company has acquired an additional 26 restaurants and development
rights in three separate transactions. In addition to its 30 acquired
restaurants, the Company has developed 14 new restaurants.
The Company's operating results have been adversely affected during this
period by a shortage of capital, substantial indebtedness and debt service
requirements, and the pursuit of various non- restaurant operations, including
dairy, frozen-food distribution, and amusement businesses.
During 1996, the Company had a change in management and implemented a
long-term business strategy to enhance its financial position, to place more
emphasis on its casual dining business in certain designated areas, to dispose
of underperforming assets, and to pursue new restaurant concepts.
The first step was to strengthen the Company's financial position. This was
accomplished by the sale of 1,566,666 shares of Common Stock for $3,000,000
through a private placement transaction, the sale of five restaurants in
northern California for $10,575,000, of which $8,000,000 in proceeds were used
to repay debt (See Notes 4 and 6 to Notes to Consolidated Financial Statements),
and new borrowings of $21.3 million with a repayment period of 15 years.
Proceeds from the new borrowings were used primarily to pay off debt with
shorter repayment periods (See Note 6 to Notes to Consolidated Financial
Statements).
The Company has also renegotiated its development agreements with T.G.I.
Friday's Inc. to reduce the number of T.G.I. Friday's restaurants it is required
to build with the intent to focus on those development territories that are most
economically favorable (See Note 8 to Notes to Consolidated Financial
Statements). The T.G.I. Friday's restaurants currently planned for development
will be owned by a third party lender with the Company operating the restaurants
and deriving a management fee. This strategy will allow the Company to continue
to grow while at the same time deleveraging its balance sheet. In addition, the
Company has taken a charge for asset impairments and restructuring to dispose of
various non-core assets and write down certain core assets to realizable values
(See Note 2 to Notes to Consolidated Financial Statements).
The next step in the Company's strategy will be to reduce operating costs
and expand its restaurant operations. This will entail continuing to build
T.G.I. Friday's restaurants and evaluating other concepts in the casual dining
segment. The Company has recently become a majority partner in a venture to
develop and operate cajun themed restaurants.
Each of the acquisitions mentioned above, as described more fully under
"Business--Introduction," was accounted for as a purchase. Allocation of the
purchase price was typically split between property and franchise fees and
license costs. Franchise fees and license costs, which totaled $16,418,000 at
December 1996, are amortized over 20 to 30 years. Amortization of these costs
appear in the Consolidated Statements of Operations as Depreciation and
Amortization below Income From Restaurant Operations.
The franchise agreements between TGI Friday's Inc. and the Company could
require a contribution to a national marketing pool of up to 4.0% of gross
sales, although during 1996 the Company was only required to pay up to 1.7% of
gross sales and will contribute 1.9% for 1997.
Cost of sales consists primarily of food and beverage costs. Food costs can
vary significantly depending upon pricing and availability of produce and
grocery items. Restaurant operating expenses include all restaurant-level
operating costs, the significant components of which are direct and indirect
labor expenses (including benefits), advertising expenses, occupancy costs, and
maintenance and utility expenses. Occupancy costs include rent, real estate
taxes, and common area maintenance charges. Certain elements of the Company's
restaurant operating expenses and, in particular, occupancy costs, are
relatively fixed.
Restaurant pre-opening costs incurred in connection with opening new
restaurant locations, including hiring, training, and other costs, average
approximately $160,000 for each restaurant opened and are
18
<PAGE>
amortized over one year commencing with the opening of the restaurant. Since new
restaurants experience higher sales levels for some time after opening,
restaurants are not included in the same store sales base until 18 months after
opening.
Results of Operations
The following table sets forth, for the periods indicated, the percentages
which certain items of income and expense bear to total revenue:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------
December 26, December 25, December 30,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenue .................................................. 100.0% 100.0% 100.0%
Restaurant operating expenses:
Cost of sales ........................................... 27.4 28.5 28.6
Payroll and benefits .................................... 31.3 30.8 31.7
Depreciation and amortization ........................... 3.5 3.6 3.7
Other operating expenses ................................ 28.4 29.5 30.2
----- ----- -----
Total restaurant operating expenses ..................... 90.6 92.4 94.2
----- ----- -----
Income from restaurant operations ........................ 9.4 7.6 5.8
Depreciation and amortization ........................... 0.9 1.1 1.2
General and administrative expenses ..................... 3.8 3.7 3.6
Asset impairments and restructuring charges ............. -- -- 16.5
----- ----- -----
Operating income (loss) .................................. 4.7 2.8 (15.5)
Interest expense, net .................................... 3.5 3.7 2.6
----- ----- -----
Net income (loss) before income taxes .................... 1.2% (0.9)% (18.1)%
===== ===== =====
</TABLE>
Fiscal 1996 Compared to Fiscal 1995
Revenue for the fiscal year ended December 30, 1996 increased by 2.6% to
$122,563,000 compared to $119,508,000 for the fiscal year ended December 25,
1995. This increase related primarily to restaurants developed during 1996 along
with an additional week of revenue in the 53 week period ended December 30, 1996
compared to the normal 52 week period of 1995. When comparing revenue for 1996
to the prior year, same store sales decreased $3,580,000 or 3.2%. Revenue from
alcoholic beverages accounted for 23.6% of revenue for the fiscal year ended
December 30, 1996 compared to 22.2% for the prior year.
Cost of sales increased as a percentage of revenue to 28.6% in 1996 from
28.5% in 1995 due to a shift in the beverage market to premium/specialty beers
and liquors, which have slightly lower margins, and higher prices for dairy
products. In addition, cost of sales increased as a result of increases in
portion sizes on several menu items; however, some of the resulting increase has
been offset by negotiated purchasing discounts.
Labor costs increased as a percentage of revenue to 31.7% in 1996 from 30.8%
in 1995. This increase is almost entirely related to the decline in same store
sales in relation to the fixed component of labor costs and an increase in
minimum wage from $4.25 to $4.75 per hour. Approximately 75% of the Company's
revenue is derived from restaurants in non-tip credit states where tipped
employees are paid at or above the Federal minimum wage as opposed to tip credit
states where tipped employees are paid at half the minimum wage. The $0.50 per
hour increase in minimum wage that became effective on October 1, 1996,
increased the Company's labor costs as a percentage of revenue by approximately
1.0%.
Other restaurant operating expenses increased as a percentage of revenue to
30.2% in 1996 from 29.5% in 1995 primarily as a result of the relatively fixed
nature of these costs and the decline in same store sales.
In total, depreciation and amortization increased as a percentage of revenue
to 4.9% in 1996 from 4.7% in 1995. This increase is due primarily to the fixed
nature of these expenses given a decline in same store sales.
19
<PAGE>
General and administrative expenses decreased as a percentage of revenue to
3.6% in 1996 from 3.7% in 1995. The decrease relates to reductions in corporate
staff coupled with the relatively fixed nature of these expenses in comparison
to the overall increase in revenue.
Interest expense was approximately $3,206,000 in 1996 compared to $4,424,000
in 1995. This decrease was a result of the retirement of $8,700,000 of
indebtedness with the proceeds from a public offering completed in September
1995.
No income tax provision was recorded in 1995 or 1996 due to the availability
of net operating loss carryforwards.
Fiscal 1995 Compared to Fiscal 1994
Revenue for the fiscal year ended December 25, 1995 increased by 7.4% to
$119,508,000 compared to $111,262,000 for the fiscal year ended December 26,
1994. Revenue from five restaurants opened subsequent to December 26, 1994
contributed to the overall revenue gain. When comparing revenue for 1995 to the
prior year, same stores sales decreased 2.6%. The same store sales declines were
a result of increased competition in the casual dining market and were further
exaggerated for fiscal 1995 by a frequent diner program offered in the Company's
Southern California restaurants for most of 1994. While the program favorably
impacted 1994 sales, particularly in the third quarter, the administration of
the frequent diner program proved costly, resulting in the discontinuance of
most aspects of the program in October 1994. The Company introduced a modified,
more cost-effective frequent diner program in the fourth quarter of 1995.
Revenue from alcoholic beverages accounted for 22.2% of revenue for the fiscal
year ended December 25, 1995, compared to 22.8% for the prior year.
Cost of sales increased as a percentage of restaurant revenues to 28.5% in
of 1995 from 27.4% for the same period in 1994. This increase relates in part to
new stores opened during 1995, which typically have higher food costs during the
initial few months after opening, and increases in produce costs as a result of
adverse weather conditions. In late 1994, the Company also began purchasing
selected items, particularly produce, that is processed by suppliers. This has
resulted in higher food costs, but resulted in a reduction in restaurant labor.
Additionally, national promotions in which a dessert or an appetizer was
included with the purchase of specific menu items contributed to the overall
increase in cost of sales.
Labor costs decreased as a percentage of revenue to 30.8% in 1995 from 31.3%
in the same period of 1994. This decrease reflects a reduction in the average
number of managers per store, labor savings related to selected items being
processed by suppliers as discussed above, and lower employee taxes and benefit
costs.
Other restaurant operating expenses increased as a percentage of revenue to
29.5% in 1995 from 28.4% in the same period of 1994. The increase related to a
0.4% increase in marketing fees paid for national advertising, a 0.2% increase
in insurance costs, a 0.2% increase in promotions related in part, to costs
associated with implementing a revised frequent diner program and occupancy
costs which increased by 0.3% primarily as a result of the relatively fixed
nature of these expenses given a decline in same store sales.
In total, depreciation and amortization increased as a percentage of revenue
to 4.7% in 1995, from 4.4% in the same period in 1994 due primarily to
depreciation and amortization related to the Company's interest in an indoor
entertainment center. This investment was accounted for on the equity method
until November 1994 when it was leased to a third-party operator. In addition,
depreciation and amortization increased as a percentage of revenue due to the
fixed nature of these expenses given a decline in same store sales.
General and administrative expenses decreased as a percentage of revenue to
3.7% in 1995 from 3.8% in the same period of 1994. This decrease relates
primarily to the relatively fixed nature of these expenses in comparison to the
overall increase in revenue.
Interest expense was approximately $4,424,000 in 1995 compared to $3,902,000
in 1994. This increase was caused primarily by higher interest rates and
additional borrowings to fund the Company's restaurant development program.
No income tax provision was recorded in 1995 or 1994 due to the availability
of net operating loss carryforwards.
20
<PAGE>
Liquidity and Capital Resources
The Company's primary use of funds over the past four years has been for the
acquisition of existing T.G.I. Friday's restaurants and exclusive development
rights. These acquisitions were financed principally through the issuance of
long-term debt and Common Stock. See "Business -- Introduction." The Company has
also expended funds for the development of new restaurants. The principal source
of these funds has been operating cash flow, supplemented by bank and lease
financing.
Net cash flows from operating activities were $10,824,000 in 1994,
$1,722,000 in 1995, and $4,444,000 in 1996. These were supplemented by net cash
flows from financing of $475,000, $4,195,000 and $2,051,000 for the years ended
1994, 1995, and 1996, respectively, to fund the Company's acquisitions and
development of new restaurants.
The Company's current liabilities exceed its current assets due in part to
cash expended on the Company's development requirements and also because the
restaurant business receives substantially immediate payment for sales, while
payables related to inventories and other current liabilities normally carry
longer payment terms, usually 15 to 30 days. The Company currently generates
average monthly cash receipts of approximately $10,900,000, which have been
sufficient to pay all obligations as they become due.
At December 30, 1996, the Company had long-term debt of $36,332,000.
Subsequent to December 30, 1996, $26,500,000 of debt was repaid with
proceeds from the Northern California Sale (See Note 4 and 6 to Notes to
Consolidated Financial Statements) and with proceeds from new borrowings. The
new borrowings, consisting of three notes from one lender, total $21,300,000,
bear interest at LIBOR plus 320 basis points (8.9% at March 31, 1997), and are
payable in equal monthly installments of principal and interest of approximately
$216,000 (combined) until the notes are paid in full on May 1, 2012. Proceeds
from the new borrowings will also used to repay the TGI Friday's Inc. note,
including accrued interest, of $2,118,000, with the remaining proceeds used for
general corporate purposes.
The Company plans to develop three additional TGI Friday's by the end of
1997. These restaurants will be owned by a third party that will fund all
development costs. The Company will operate the restaurants, receive a
management fee, and participate in excess cash flows.
The Company leases all of its restaurants with terms ranging from 10 to 20
years. Minimum payments on the Company's existing lease obligations are
approximately $6,400,000 per year through 2001.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements, the report thereon, the notes
thereto and the supplementary data commencing at page F-1 of this report, which
financial statements, report, notes and data are incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
21
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Position and Offices Presently Held With the Company
---- --- -----------------------------------------------------
<S> <C> <C>
John F. Antioco ................ 47 Chairman of the Board
Bart A. Brown, Jr. ............ 65 President, Chief Executive Officer, and Director
Gerard T. Bisceglia ........... 47 Executive Vice President, Chief Operating Officer, and
Director
Joe W. Panter .................. 41 Executive Vice President and Director
Mark C. Walker ................. 36 Vice President -- Finance, Chief Financial Officer,
Secretary, and Treasurer
Jane Evans(1) .................. 52 Director
John C. Metz(1) ................ 57 Director
Steven A. Sherman(1)............ 51 Director
</TABLE>
- ----------------
(1) Member of the Audit and Compensation Committees.
John F. Antioco has served as Chairman of the Board of Directors since
August 9, 1996 and as a director of the Company since January 8, 1996. Mr.
Antioco has served as President and Chief Executive Officer of Taco Bell Corp.
since September 1996. Mr. Antioco served as the Chairman of Circle K
Corporation, a publicly held company ("Circle K"), from August 1995 until May
1996 and as President and Chief Executive Officer of Circle K from July 1993
until May 1996. Mr. Antioco joined Circle K as Chief Operating Officer in
September 1991. Mr. Antioco was Chief Operating Officer of Pearle Vision
Centers, Inc. from June 1990 to August 1991. From 1970 to 1990, Mr. Antioco held
various positions with The Southland Corporation.
Bart A. Brown, Jr. has been the President and Chief Executive Officer of the
Company since December 16, 1996. Mr. Brown was affiliated with Investcorp
International, N.A., an international investment banking firm, from April 1996
until December 1996. Mr. Brown served as the Chairman and Chief Executive
Officer of Color Tile, Inc. at the request of Investcorp International, Inc.,
which owned all of its Common Stock, from September 1995 until March 1996,
shortly after Color Tile, Inc. filed under Chapter 11 of the United States
Bankruptcy Code. Mr. Brown served as Chairman of the Board of the Circle K
Corporation from June 1990, shortly after its filing for reorganization under
Chapter 11 of the United States Bankruptcy Code, until September 1995. From
September 1994 until September 1996, Mr. Brown served as the Chairman and Chief
Executive Officer of Spreckels Industries, Inc., a publicly held company. Mr.
Brown engaged in the private practice of law from 1963 through 1990 after seven
years of employment with the Internal Revenue Service.
Gerard T. Bisceglia has served as Executive Vice President, Chief Operating
Officer, and a director of the Company since November 4, 1996. Mr. Bisceglia
served as Vice President -- Manufacturing and Distribution of the Circle K
Corporation from August 1992 to April 1996, as Vice President -- Retail of The
Ralston Purina Co. from February 1991 to August 1992, as Senior Product Manager
for The Southland Corporation from April 1987 until February 1991, and as a
National Sales Manager with The Southland Corporation from April 1972 until
April 1987.
Joe W. Panter has served as Executive Vice President of the Company since
December 16, 1996 and as a director of the Company since July 7, 1994. Mr.
Panter served as Chief Executive Officer of the Company from January 1, 1996
until December 16, 1996 and as President of the Company from April 26, 1994
until December 16, 1996. Mr. Panter served as Chief Financial Officer of the
Company from June 5, 1990 until January 1, 1996, as Senior Vice President of the
Company from October 19, 1993 until April 26, 1994, as Secretary and Treasurer
of the Company from June 5, 1990 until May 4, 1994, and as Vice
22
<PAGE>
President of the Company from June 5, 1990 until October 19, 1993. Mr. Panter
was Chief Financial Officer of K-Lin Corporation, a Scottsdale, Arizona-based
entertainment and leisure company, from September 1987 until January 1990. Mr.
Panter was Executive Vice President of Elcor Financial Corporation, an
Arizona-based real estate investment and management company, from May 1983 until
September 1987.
Mark C. Walker has served as Chief Financial Officer of the Company since
January 1, 1996. Treasurer of the Company since May 4, 1994, Vice President --
Finance since July 7, 1994, and Secretary since June 27, 1995. Mr. Walker was
the Controller of Executone Information Systems, Inc. from November 1986 until
joining the Company in March 1993. Mr. Walker was employed by Ernst and Young,
an international public accounting firm, from August 1982 until November 1986,
most recently as an audit manager. Mr. Walker, a Certified Public Accountant and
Certified Management Accountant, is a member of the Arizona State Society of
CPAs, the American Institute of CPAs and the Institute of Management
Accountants.
Jane Evans has served as a director of the Company since March 10, 1997. Ms.
Evans has served as President and Chief Operating Officer of Smart TV since
April 1995. Ms. Evans served as Vice President and General Manager of U.S. West
Communications, Home and Personal Services from February 1991 until March 1995,
as President and Chief Executive Officer of Interpacific Retail Group from March
1989 until January 1991, as a General Partner of Montgomery Securities from
January 1987 until February 1989, as President and Chief Executive Officer of
Monet Jewelers from May 1984 until December 1987, as Executive Vice President --
Fashion Group of General Mills, Inc. from October 1979 until April 1984, as Vice
President -- Corporate Development of Fingerhut from November 1977 until
September 1979, as President of Butterick Fashions from May 1974 until October
1977, and as President of the I. Miller Division of Genesro, Inc. from May 1970
until May 1973. Ms. Evans serves on the Boards of Directors of the Philip Morris
Companies, Inc.; Georgia - Pacific Corp.; Kaufman & Broad Home Corp.; and Edison
Bros. Stores, Inc.
Steven A. Sherman has served as a director since June 5, 1990. Mr. Sherman
served as the Chairman of the Company from June 5, 1990 until August 9, 1996, as
Chief Executive Officer of the Company from June 5, 1990 until January 1, 1996,
and as the President of the Company from January 15, 1993 until April 26, 1994.
Mr. Sherman has been a principal of a merchant banking organization called the
Sherman Group since its formation in July 1988. Mr. Sherman also has served as
Chairman of the Board and President of NovAtel Wireless, Inc. since 1996. In
addition, Mr. Sherman has served as the Chairman of the Board of Vodavi
Technology, Inc., a company involved in the design, development and distribution
of telephones, telephone systems, and related products, since its founding in
April 1994. Mr. Sherman was Chairman of the Board of Executone Information
Systems, Inc. (formerly Vodavi Technology Corporation, a provider of information
systems, which was founded by Mr. Sherman) from 1983 until his resignation in
July 1988 and a director of Executone from 1983 until his resignation in January
1990. In April 1994, Vodavi Technology, Inc. purchased the business of the
Vodavi Communications Division from Executone Information Systems, Inc.
John C. Metz has served as a director of the Company since April 1, 1996.
Mr. Metz has served as Chairman and Chief Executive Officer of Metz Enterprises,
Inc., a contract food management and retail restaurant company, since 1987. Mr.
Metz also is a director of Longhorn Steaks, Inc., a chain of approximately 60
Texas-style roadhouse casual dining restaurants.
There are no family relationships among any of the Company's directors and
executive officers.
23
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary of Cash and Other Compensation
The following table sets forth, for the periods indicated, the compensation
received by the Company's Chief Executive Officer and its other executive
officers whose annual salary and bonus exceeded $100,000 for the fiscal year
ended December 30, 1996.
SUMMARY COMPENSATION TABLE
Long Term
Compensation
------------
Awards
------------
Annual Compensation Securities
------------------- Underlying
Name and Principal Position Year Salary($) Bonus($) Options(#)
- --------------------------------- ---- -------- -------- --------
Steven A. Sherman, 1996 $193,739 -- --
Chairman of the Board(1) 1995 347,454 -- --
1994 352,160 $ 50,736 --
Joe W. Panter, 1996 $205,400 -- 90,000(3)
President and 1995 197,595 -- --
Chief Executive Officer(2) 1994 198,879 $ 50,736 --
John F. Antioco 1996 -- -- 800,000(4)
Chairman of the Board
Bart A. Brown, Jr 1996 -- (5) -- 250,000(5)
President and Chief
Executive Officer
- -------------
(1) Mr. Sherman served as Chairman of the Board of the Company from June 5, 1990
until August 9, 1996, as Chief Executive Officer of the Company from June
1990 until January 1, 1996, and as President of the Company from January 15,
1993 until April 26, 1994.
(2) Mr. Panter served as Chief Executive Officer of the Company from January 1,
1996 until December 16, 1996, as President of the Company from April 26,
1994 until December 16, 1996, as Chief Financial Officer of the Company from
June 5, 1990 until January 1, 1996, as Senior Vice President of the Company
from October 19, 1993 until April 26, 1994, as Secretary and Treasurer of
the Company from June 5, 1990 until May 4, 1994, and as Vice President of
the Company from June 5, 1990 until October 19, 1993.
(3) The options granted to Messrs. Sherman and Panter in 1996 were at an
exercise price of $4.00 per share (which exceeded the fair value of the
shares on the date of grant), which are exercisable ratably over a
three-year period.
(4) The options granted to Mr. Antioco were at exercise prices of $2.00 to $5.00
per share and vest over a three-year period.
(5) Mr. Brown served as President and Chief Executive Officer of the Company
from December 16, 1996 through December 30, 1996 for no cash compensation.
The options granted to Mr. Brown were at exercise prices of $2.00 to $5.00
per share and vest over a two-year period.
Officers and key personnel of the Company are eligible to receive stock
options under the Company's 1990 and 1995 Stock Option Plans will be eligible to
receive stock options and awards pursuant to the 1995 Plan. Executive Officers
serve at the discretion of the Board of Directors. See "Employment Agreements."
24
<PAGE>
Option Grants
The following table provides information on stock options granted to the
Company's executive officers during the fiscal year ended December 30, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- -------------------------------------------------------------------------------- Potential Realizable Value
at Assumed Annual
Number of Rates of Stock Price
Securities % of Total Appreciation For Option
Underlying Options Exercise Term
Options Granted in Price Expiration --------------------------
Name Granted(#)(1) Fiscal Year ($/SH) Date 5%($) 10%($)
---- ------------- ----------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Steven A. Sherman......... 40,000 2.4% $4.00 2006 $ 0 $ 0
Joe W. Panter ............ 90,000 5.4% $4.00 2006 $ 0 $ 0
John F. Antioco........... 400,000 23.9% $2.00 2006 $40,000 $80,000
200,000 12.0% $3.00 2006 $ 0 $ 0
200,000 12.0% $5.00 2006 $ 0 $ 0
Bart A. Brown, Jr......... 100,000 6.0% $2.00 2006 $ 0 $ 547
50,000 3.0% $3.00 2006 $ 0 $ 0
50,000 3.0% $4.00 2006 $ 0 $ 0
50,000 3.0% $5.00 2006 $ 0 $ 0
Gerard T. Bisceglia....... 50,000 3.0% $2.00 2006 $ 0 $ 0
50,000 3.0% $3.00 2006 $ 0 $ 0
50,000 3.0% $4.00 2006 $ 0 $ 0
50,000 3.0% $5.00 2006 $ 0 $ 0
Mark C. Walker............ 35,000 2.1% $4.00 2006 $ 0 $ 0
</TABLE>
- -------------
(1) The options were granted at or above the fair value of the shares on the
date of grant and have a 10-year term.
Option Holdings
The following table provides information on options exercised in the last
fiscal year by the Company's executive officers and the value of their
unexercised options at December 30, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#)(1) FY-End ($)(2)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
---- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Steven A. Sherman......... -- -- 13,333/126,666 $0/$0
Joe W. Panter............. -- -- 35,937/7,813 $0/$0
John F. Antioco........... -- -- 217,500/600,000 $0/$0
Bart A. Brown, Jr. ....... -- -- 100,000/150,000 $0/$0
Gerard T. Bisceglia....... -- -- 50,000/154,000 $0/$0
Mark C. Walker............ -- -- 11,667/27,333 $0/$0
</TABLE>
- ---------------
(1) Amounts reflect options outstanding as of December 30, 1996.
(2) The exercise price of such options was in excess of the fiscal year end
value of the Company's Common Stock of $1 5/8 per share.
25
<PAGE>
1990 Stock Option Plan
On July 25, 1990, the Company's Board of Directors adopted, and on July 1,
1991 the Company's stockholders approved, the 1990 Stock Option Plan (the "1990
Plan"). The 1990 Plan provides for the granting of both incentive stock options
and nonstatutory stock options to qualified employees and non-employee
directors. The 1990 Plan also provides for various other incentive awards,
including "Stock Appreciation Rights." Options granted under the 1990 Plan
generally cannot be exercised for at least one year and typically can only be
exercised in installments of an equal number of shares over a three- to
five-year period. As of March 31, 1997, 64,325 shares of Common Stock have been
issued upon exercise of options granted pursuant to the 1990 Plan and there were
outstanding options to purchase 111,500 shares of Common Stock under the 1990
Plan. No incentive awards other than stock options have been granted under the
1990 Plan. The Company has reserved an additional 74,175 shares of Common Stock
for issuance under the 1990 Plan.
The exercise price of all incentive stock options and options granted to
directors under the 1990 Plan must be at least equal to the fair market value of
the shares on the date of the grant or, in the case of incentive stock options
granted to the holder of 10% or more of the Company's Common Stock (a "10%
Stockholder"), at least 110% of the fair market value of such shares on the date
of the grant. The maximum exercise period for which incentive stock options may
be granted is ten years (five years in the case of a 10% Stockholder).
The 1990 Plan provides for its administration in accordance with the
requirements of Rule 16b-3 under the Exchange Act. The 1990 Plan currently is
administered by a committee of directors who are "disinterested persons" chosen
by the Board of Directors to administer the 1990 Plan (the "Committee"). The
Committee has discretionary authority, subject to certain restrictions, to
determine the individuals to whom, the times at which, and, with respect to
nonstatutory stock options, the exercise price for which options will be
granted. Notwithstanding the foregoing, the 1990 Plan provides that the Company
will not grant any nonstatutory stock options to purchase shares at an exercise
price of less than 85% of the fair market value of such shares on the date of
the grant.
1995 Stock Option Plan
General
The 1995 Plan is divided into two programs: the Discretionary Grant Program
(the "Discretionary Program") and the Automatic Grant Program (the "Automatic
Program"). The Discretionary Program provides for the grant of options to
acquire Common Stock of the Company ("Options"), the direct grant of Common
Stock ("Stock Awards"), the grant of stock appreciation rights ("SARs"), and the
grant of other cash awards ("Cash Awards") (Stock Awards, SARs, and Cash Awards
are collectively referred to herein as "Awards"). The Automatic Program provides
for the automatic grant of options to acquire the Common Stock of the Company to
non-employee members of the Company's Board of Directors.
The 1995 Plan states that it is not intended to be the exclusive means by
which the Company may issue options or warrants to acquire its Common Stock,
stock awards, or any other type of award. To the extent permitted by applicable
law, the Company may issue any other options, warrants, or awards other than
pursuant to the 1995 Plan without stockholder approval.
Shares Subject to the Plan
A maximum of 325,000 shares of Common Stock of the Company may be issued
under the 1995 Plan. If any Option or SAR terminates or expires without having
been exercised in full, stock not issued under such Option or SAR will again be
available for the purposes of the 1995 Plan. If any change is made in the stock
subject to the 1995 Plan or subject to any Option or SAR granted under the 1995
Plan (through merger, consolidation, reorganization, recapitalization, stock
dividend, split-up, combination of shares, exchange of shares, change in
corporate structure, or otherwise), the 1995 Plan provides that appropriate
adjustments will be made as to the maximum number of shares subject to the 1995
Plan and the number of shares and exercise price per share of stock subject to
outstanding Options or Awards. There were
26
<PAGE>
outstanding Options to acquire 235,000 shares of the Company's Common Stock
under the 1995 Plan as of March 31, 1997. See "Executive Compensation -- Option
Grants."
Eligibility and Administration
Options and Awards may be granted pursuant to the Discretionary Program only
to persons ("Eligible Persons") who at the time of grant are either (i) key
personnel (including officers and directors) of the Company, or (ii) consultants
and independent contractors who provide valuable services to the Company.
Options granted pursuant to the Discretionary Program may be incentive stock
options or non-qualified stock options. Options that are incentive stock options
may be granted only to key personnel of the Company who are also employees of
the Company. To the extent that granted Options are incentive stock options, the
terms and conditions of those Options must be consistent with the qualification
requirements set forth in the Internal Revenue Code of 1986, as amended.
The Eligible Persons under the Discretionary Grant Program are divided into
two groups, and there is a separate administrator (each a "Plan Administrator")
for each group. One group consists of the executive officers and directors of
the Company and persons who own 10% or more of the Company's issued and
outstanding stock. The power to administer the 1995 Plan with respect to those
persons is vested exclusively with the Board of Directors or a committee (the
"Senior Committee") comprised of two or more non-employee directors who are
appointed by the Board of Directors. The power to administer the 1995 Plan with
respect to the remaining Eligible Persons is vested with the Board of Directors
of the Company or with a committee of two or more directors appointed by the
Board of Directors. Each Plan Administrator determines (i) which of the Eligible
Persons in its group will be granted Options and Awards; (ii) the amount and
timing of the grant of such Options and Awards; and (iii) such other terms and
conditions as may be imposed by the Plan Administrator consistent with the 1995
Plan. The maximum number of shares of stock with respect to which Options or
SARs may be granted to any employee (including officers) during the term of the
1995 Plan may not exceed 50% of the shares of Common Stock covered by the 1995
Plan.
Terms and Conditions of Options; Exercise of Options
Each Plan Administrator will determine the expiration date, maximum number
of shares purchasable, and the other provisions of the Options at the time of
grant. Options may be granted for terms of up to 10 years. Options will vest and
become exercisable in whole or in one or more installments at such time as may
be determined by the Plan Administrator upon the grant of the Options. However,
a Plan Administrator has the discretion to provide for the automatic
acceleration of the vesting of any Options or Awards granted under the
Discretionary Grant Program in the event of a "Change in Control," as defined in
the 1995 Plan.
Each Plan Administrator also will determine the exercise prices of Options
at the time of grant. However, the exercise price of any Option intended to be
an incentive stock option may not be less than 100% of the fair market value of
the Common Stock at the time of the grant (110% if the Option is granted to a
person who at the time the Option is granted owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company). To
exercise an Option, the optionholder will be required to deliver to the Company
full payment of the exercise price for the shares as to which the Option is
being exercised. Generally, Options can be exercised by delivery of cash, check,
or shares of Common Stock of the Company.
Termination of Employment or Services
Except as otherwise allowed by the Plan Administrator, Options and Awards
granted under the 1995 Plan are nontransferable other than by will or by the
laws of descent and distribution upon the death of the holder and, during the
lifetime of the holder, are exercisable only by such holder. In the event of the
termination of the holder's services with the Company, other than for death or
disability, the holder may exercise any Options or SARs that are vested but
unexercised on the date his or her service is terminated until the earlier of
(i) 90 days after the date of termination of service, or (ii) the expiration
date of the Options or SARs. However, termination of employment at any time for
cause immediately terminates all Options or SARs held by the terminated
employee. If termination is by reason of disability, however, the
27
<PAGE>
holder may exercise his or her Options or SARs until the earlier of (i) 12
months after the termination of service, or (ii) the expiration of the term of
the Option or SAR. If the holder dies while in service to the Company, the
holder's estate or successor by bequest or inheritance may exercise any Options
or SARs that the holder was entitled to exercise on the date of his or her death
at any time until the earlier of (i) the period ending three months after the
holder's death, or (ii) the expiration of the term of the Option or SAR.
Awards
SARs will entitle the recipient to receive a payment equal to the
appreciation in market value of a stated number of shares of Common Stock from
the price on the date the SAR was granted or became effective to the market
value of the Common Stock on the date first exercised or surrendered. Stock
Awards will entitle the recipient to receive shares of the Company's Common
Stock directly. Cash Awards will entitle the recipient to receive direct
payments of cash depending on the market value or the appreciation of the Common
Stock or other securities of the Company. The Plan Administrators may determine
such other terms, conditions, or limitations, if any, on any Awards granted
pursuant to the 1995 Plan.
Automatic Options
The Automatic Program provides for the automatic grant of Options
("Automatic Options") to non- employee directors of the Company. Each
non-employee director serving on the Board of Directors on the date of the
adoption of the 1995 Plan received Automatic Options to acquire 7,500 shares of
Common Stock, and each subsequent newly elected non-employee member of the Board
of Directors will receive Automatic Options to acquire 15,000 shares of Common
Stock on the date of his or her first appointment or election to the Board of
Directors. In addition, Automatic Options to acquire 2,500 shares of Common
Stock will be granted to each non-employee director at the meeting of the Board
of Directors held immediately after each annual meeting of stockholders. A
non-employee member of the Board of Directors is not eligible to receive the
2,500 share Automatic Option if that grant date is within 90 days of such
non-employee member receiving the 15,000-share Automatic Option. Automatic
Options become exercisable and vest immediately upon grant, except that no
Automatic Options will vest until the approval of the 1995 Plan by the Company's
stockholders.
The exercise price per share of Automatic Options will be equal to 100% of
the fair market value of the Company's Common Stock (as defined in the 1995
Plan) on the date such Automatic Options are granted. Each Automatic Option
expires on the tenth anniversary of the date on which an Automatic Option grant
was made. In the event the non-employee director ceases to serve as a member of
the Board of Directors or dies while serving as a director, the optionholder or
the optionholder's estate or successor by bequest or inheritance may exercise
any Automatic Options vested at the time of cessation of service until the
earlier of (i) 90 days after the cessation of service, or (ii) the expiration of
the term of the Automatic Option. Non-employee members of the Company's Board of
Directors who do not serve on the Senior Committee also may be eligible to
receive Options or Awards under the Discretionary Program of the 1995 Plan or
option grants or direct stock issuances under any other plans of the Company.
The Board of Directors believes that the automatic grant of stock options to
non-employee directors is necessary to attract, retain and motivate independent
directors. The non-discretionary feature is intended to satisfy the requirements
of rules adopted under Section 16 of the Exchange Act.
Duration and Modification
The 1995 Plan will remain in effect until January 8, 2006. The Board of
Directors of the Company may at any time suspend, amend, or terminate the 1995
Plan, except that without approval of the stockholders of the Company, the Board
of Directors may not (i) increase the maximum number of shares of Common Stock
subject to the 1995 Plan (except in the case of certain organic changes to the
Company), (ii) reduce the exercise price at which Options may be granted or the
exercise price for which any outstanding Options may be exercised, (iii) extend
the term of the 1995 Plan, (iv) change the class of persons eligible to receive
Options or Awards under the 1995 Plan, or (v) materially increase the benefits
accruing to participants under the 1995 Plan. In addition, the Board may not,
without the consent of the
28
<PAGE>
optionholder, take any action that disqualifies any Option previously granted
under the Plan for treatment as an incentive stock option or which adversely
affects or impairs the rights of the optionholder of any outstanding Option.
Notwithstanding the foregoing, the Board of Directors may amend the 1995 Plan
from time to time as it deems necessary in order to meet the requirements of any
amendments to Rule 16b-3 under the Exchange Act without the consent of the
stockholders of the Company.
401(k) Profit Sharing Plan
The Company's qualified 401(k) Profit Sharing Plan (the "401(k) Plan") was
adopted by the Board of Directors on January 14, 1991, effective as of January
1, 1991, and covers corporate management and restaurant employees. The 401(k)
Plan currently provides for a Company matching contribution equal to 25% of the
first 6% of the salary deduction a participant elects to defer as a contribution
to the 401(k) Plan. The 401(k) Plan further provides for a special discretionary
contribution equal to a percentage of a participant's salary to be determined
each year by the Company. The Company also may contribute a discretionary amount
in addition to the special discretionary contribution. Contributions to the
401(k) Plan by the Company for fiscal 1996 totalled approximately $79,000.
Employment Agreements
The Company is a party to employment agreements with Bart A. Brown, Jr. and
Gerard T. Bisceglia with terms through December 31, 1998 and October 29, 1999,
respectively. Mr. Brown's employment agreement provides for him to serve as the
President and Chief Executive Officer and Mr. Bisceglia's employment agreement
provides for him to serve as Executive Vice President and Chief Operating
Officer of the Company. The employment agreements provide for Mr. Brown and Mr.
Bisceglia to receive salaries of $250,000 and $175,000, respectively. In
addition, the employment agreements provide that Mr. Brown and Mr. Bisceglia
will be eligible to receive discretionary bonuses in amounts determined by the
Compensation Committee of the Company's Board of Directors, which is composed of
non-management directors, based upon the factors deemed relevant by the
Compensation Committee including the performance of the Company. Mr. Brown's
employment agreement permits him to engage in other business activities apart
from the Company so long as such business activities do not compete with the
business of the Company.
The employment agreements provide for Mr. Brown and Mr. Bisceglia to receive
their fixed and bonus compensation to the date of the termination of their
employment by reason of resignation and for them to receive fixed compensation
to the date of termination of employment for cause as defined in the agreements.
In the event of the termination of employment by reason of death or disability,
the employment agreements provide for the payment of fixed compensation to Mr.
Brown and Mr. Bisceglia for a period of one year from the date of death or
disability. In the event of any termination of employment following any "change
in control" of the Company as defined in the agreement, the employment
agreements also provide for Mr. Brown and Mr. Bisceglia to receive their fixed
compensation as if their employment had not been terminated. Section 280G of the
Internal Revenue Code may limit the deductibility of such payments for federal
income tax purposes. If these payments are not deductible and if the Company has
income at least equal to such payments, an amount of income equal to the amount
of such payments could not be offset. As a result, the income that was not
offset would be "phantom income" (i.e. income without cash) to the Company. A
change in control would include a merger or consolidation of the Company, a sale
of all or substantially all of the assets of the Company, changes in the
identity of a majority of the members of the Board of Directors of the Company,
or acquisitions of more than 20% of the Company's Common Stock, subject to
certain limitations.
The Company is a party to employment agreements with Steven A. Sherman and
Joe W. Panter with terms through December 31, 1998. The employment agreements
provide for Mr. Sherman and Mr. Panter to receive salaries of $200,000,
$225,000, and $225,000, respectively, for the three years commencing January 1,
1996. In addition, the employment agreements provide that Mr. Sherman and Mr.
Panter will be eligible to receive discretionary bonuses in amounts determined
by the Compensation Committee of the Company's Board of Directors, which is
composed of non-management directors, based upon the factors deemed relevant by
the Compensation Committee including the performance of the Company. Mr.
29
<PAGE>
Sherman's employment agreement permits him to engage in other business
activities apart from the Company so long as such business activities do not
compete with the business of the Company.
The employment agreements provide for Mr. Sherman and Mr. Panter to receive
their fixed and bonus compensation to the date of the termination of their
employment by reason of resignation and for them to receive fixed compensation
to the date of termination of employment for cause as defined in the agreements.
In the event of the termination of employment by reason of death or disability,
the employment agreements provide for the payment of fixed and bonus
compensation to Mr. Panter to the date of death or disability and to Mr. Sherman
or his personal representative for one year after death or disability. In the
event of any termination of employment following any "change in control" of the
Company as defined in the agreement, the employment agreements also provide for
Mr. Sherman and Mr. Panter to receive their fixed compensation in a lump sum and
bonus payments that would have been payable through the term of the agreement
(subject to a minimum bonus of $100,000 per annum) as if their employment had
not been terminated. Section 280G of the Internal Revenue Code may limit the
deductibility of such payments for federal income tax purposes. If these
payments are not deductible and if the Company has income at least equal to such
payments, an amount of income equal to the amount of such payments could not be
offset. As a result, the income that was not offset would be "phantom income"
(i.e. income without cash) to the Company. A change in control would include a
merger or consolidation of the Company, a sale of all or substantially all of
the assets of the Company, changes in the identity of a majority of the members
of the Board of Directors of the Company, or acquisitions of more than 20% of
the Company's Common Stock, subject to certain limitations.
Limitation of Liability and Indemnification Matters
The Certificate of Incorporation and Bylaws of the Company provide that the
Company will indemnify and advance expenses, to the fullest extent permitted by
the Delaware General Corporation Law, to each person who is or was a director,
officer, or agent of the Company or who serves or served any other enterprise or
organization at the request of the Company (an "Indemnitee"). Under Delaware
law, to the extent that an Indemnitee is successful on the merits of a suit or
proceeding brought against him or her by reason of the fact that he or she was a
director, officer, or agent of the Company, or serves or served any other
enterprise or organization at the request of the Company, the Company will
indemnify him or her against expenses (including attorneys' fees) actually and
reasonably incurred in connection with such action. If unsuccessful in defense
of a third-party civil suit or a criminal suit, or if such suit is settled, an
Indemnitee may be indemnified under Delaware law against both (i) expenses,
including attorneys' fees, and (ii) judgments, fines, and amounts paid in
settlement if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the Company, and,
with respect to any criminal action, had no reasonable cause to believe his or
her conduct was unlawful. If unsuccessful in defense of a suit brought by or in
the right of the Company, where the suit is settled, an Indemnitee may be
indemnified under Delaware law only against expenses (including attorneys' fees)
actually and reasonably incurred in the defense or settlement of the suit if he
or she acted in good faith and in a manner he or she reasonably believed to be
in, or not opposed to, the best interests of the Company, except that if the
Indemnitee is adjudged to be liable for negligence or misconduct in the
performance of his or her duty to the Company, he or she cannot be made whole
even for expenses unless a court determines that he or she is fully and
reasonably entitled to indemnification for such expenses. Also under Delaware
law, expenses incurred by an officer or director in defending a civil or
criminal action, suit, or proceeding may be paid by the Company in advance of
the final disposition of the suit, action, or proceeding upon receipt of an
undertaking by or on behalf of the officer or director to repay such amount if
it is ultimately determined that he or she is not entitled to be indemnified by
the Company. The Company also may advance expenses incurred by other employees
and agents of the Company upon such terms and conditions, if any, that the Board
of Directors of the Company deems appropriate. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers, or persons controlling the Company pursuant to the
foregoing provisions, the Company has been informed that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressedin the Securities Act of 1933 and is therefore unenforceable.
30
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1997 by (i) each person
who is known to the Company to own beneficially more than 5% of the Company's
Common Stock, (ii) each director, (iii) each of the named executive officers,
and (iv) all directors and executive officers as a group.
Shares
Name and Address of Beneficially Approximate Percentage
Benificial Owner(1) Owned of Outstanding Shares(2)
- ------------------- ----- ------------------------
John F. Antioco ....................... 1,175,000(3) 11.5%
Bart A. Brown, Jr. .................... 430,000(4) 4.3%
Gerard T. Bisceglia ................... 327,566(5) 3.3%
Joe W. Panter ......................... 158,750(6) 1.6%
Mark C. Walker ........................ 14,167(7) *
Jane Evans ............................ 15,000(8) *
John C. Metz .......................... 25,500(9) *
Steven A. Sherman ..................... 432,639(10) 4.3%
All directors and officers as a group
(eight persons) ...................... 2,578,622 24.7%
- --------------------
* Less than 1.0%.
(1) Each of such persons may be reached through the Company at 5050 North 40th
Street, Suite 200, Phoenix, Arizona 85018.
(2) The percentages shown include the shares of Common Stock actually owned as
of March 31, 1997 and the shares of Common Stock that the person or group
had the right to acquire within 60 days of such date. In calculating the
percentage of ownership, all shares of Common Stock that the identified
person or group had the right to acquire within 60 days of March 31, 1997
upon the exercise of options and warrants are deemed to be outstanding for
the purpose of computing the percentage of the shares of Common Stock owned
by such person or group, but are not deemed to be outstanding for the
purpose of computing the percentage of the shares of Common Stock owned by
any other person.
(3) Includes options to purchase 217,500 shares of Common Stock held by Mr.
Antioco.
(4) Includes options to purchase 100,000 shares held by Mr. Brown.
(5) Includes options to purchase 50,000 shares held by Mr. Bisceglia.
(6) Includes options to purchase 30,000 shares held by Mr. Panter. Also includes
a total of 110,000 shares of Common Stock owned by a limited liability
company in which he is a member.
(7) Includes options to purchase 11,667 shares held by Mr. Walker.
(8) Consists of options to purchase 15,000 shares held by Ms. Evans.
(9) Includes options to purchase 17,500 shares held by Mr. Metz.
(10)Includes 7,812 shares of Common Stock held by Mr. Sherman's wife, as to
which shares Mr. Sherman disclaims any beneficial interest, and options to
purchase 13,333 shares held by Mr. Sherman. Also includes a total of 110,000
shares of Common Stock owned by a limited liability company in which he is a
member.
31
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has adopted a policy that it will not enter into any
transactions with directors, officers, or holders of more than 5% of its Common
Stock on terms which are less favorable to the Company than could be obtained
from independent third parties and that any loans to directors, officers, or 5%
stockholders will be approved by a majority of the disinterested directors.
In December 1993, the Company entered into a five-year lease for space to
serve as the corporate offices of the Company. Steven A. Sherman and Joe W.
Panter own a majority interest in the building housing the space. The lease was
approved by the disinterested directors of the Company. The lease provides for
annual rent of approximately $172,000 in 1997 and $175,000 in 1998. Rental
payments under this agreement were approximately $166,000 and $169,000 during
1995 and 1996, respectively.
In May 1991, the Company became a party to a five-year management assistance
agreement with AsianStar, Inc. ("AsianStar"). J. Y. Lee, the Chairman and
principal stockholder of AsianStar, was a director of the Company from September
27, 1991 to February 13, 1996. The Company recorded approximately $426,000 and
$441,000 of income relating to the management assistance agreement during fiscal
1994 and 1995, respectively. In 1996, the Company finalized an agreement with
AsianStar to exchange the receivable generated by this agreement, approximately
$1,497,000, and cash of approximately $162,000 for an ownership interest in
AsianStar. See Note 2 to the Notes to Consolidated Financial Statements.
During 1996, the Company sold 766,666 shares of its Common Stock at fair
market value at the time of purchase to John F. Antioco and Gerard T. Bisceglia
for $1,500,000.
In January 1997, the Company sold a total of 1,250,000 shares of its Common
Stock for $2,500,000, which exceeded the fair market value of the stock on the
date of purchase. Of these shares, John F. Antioco and Bart A. Brown, Jr.
purchased a total of 500,000 shares and unrelated accredited investors purchased
the balance.
The Company believes that the foregoing transactions were no less favorable
to the Company than could be obtained from non-affiliated parties.
32
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
3.1 Certificate of Incorporation of the Registrant(4)
3.2 Certificate of Amendment of Restated Certificate of Incorporation(10)
3.3 Amended and Restated Bylaws of the Registrant(4)
4.1 Form of Warrant Agreement(3)
4.2 Form of Deposit Agreement(4)
4.3 Form of Underwriters' Warrant Agreement(4)
10.1 Registrant's 1990 Stock Option Plan(3)
10.2 Purchase Agreement between the Registrant and TGI Friday's Inc.(1)
10.3 Development Agreement between the Registrant and TGI Friday's Inc.(1)
10.4 Purchase Agreement between the Registrant and WRI U.S., Inc.(3)
10.5 Development Agreement between the Registrant and TGI Friday's Inc.(2)
10.6 Form of Franchise Agreement between the Registrant and TGI Friday's Inc.(1)
10.7 Lease Agreement between the Registrant and Grove Realty Associates(1)
10.8 Lease Agreement between the Registrant and Three Fountains Plaza Limited
Partnership(1)
10.9 Lease Agreement between the Registrant and Weksler-Casselman Investments(1)
10.10 Lease Agreement between the Registrant and Mark Borough Nevada, Inc.(1)
10.11 Lease Agreement between the Registrant and Fringe Land Ore. Ltd.(2)
10.12 Lease Agreement between the Registrant and Kirkland Parkplace Associates(2)
10.13 $900,000 Promissory Note dated June 20, 1991 in favor of WRI U.S., Inc.(2)
10.14 $75,000 Promissory Note dated June 20, 1991 in favor of WRI U.S., Inc.(2)
10.15 Management Assistance Agreement between the Registrant and AsianStar Co., Ltd.(3)
10.16 Partnership Agreement between the Registrant and Suncor(3)
10.17 Lease Agreement between the Registrant and Galleria Limited Partnership and
Amendment thereto(3)
10.18 Construction Loan Agreement between the Registrant and Caliber Bank(3)
10.19 Employment Agreement between the Registrant and Steven A. Sherman(3)
10.20 Asset Purchase Agreement between the Registrant and Kansas City Cafe Company(5)
10.21 Development Agreement between the Registrant and TGI Friday's Inc.(10)
10.22 Development Agreement between the Registrant and TGI Friday's Inc.(10)
10.23 Stock Purchase Agreement between the Registrant and Sun Street Limited
Partnership(7)
10.24 Lease agreement between the Registrant and 5050 North 40th St. LLC(9)
10.25 Lease agreement between the Registrant and East Iliff Associates(9)
10.26 Lease agreement between the Registrant and The Prudential Insurance Company of
America(9)
10.27 Lease agreement between the Registrant and Oak Park Investment(9)
10.28 Lease agreement between the Registrant and Ward Parkway Shops Incorporated(9)
10.29 Lease agreement between the Registrant and The Cafaro Northwest Partnership(9)
10.30 Lease agreement between the Registrant and FFCA Co. Investment Limited
Parnership(9)
10.31 Lease agreement between the Registrant and The Prudential Insurance Company of
America(9)
10.32 Lease agreement between the Registrant and FFCA Co. Investment Limited
Partnership(9)
10.33 Lease agreement between the Registrant and Ocean Alexander Investments, Inc.(9)
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
10.34 Lease agreement between the Registrant and McGrath-RHD Partners(8)
10.35 Lease agreement between the Registrant and Koll Santa Margarita Retail Venture II(8)
10.36 Lease agreement between the Registrant and Bohannon Development Company(8)
10.37 Lease agreement between the Registrant and May Centers, Inc.(8)
10.38 Lease agreement between the Registrant and Courtyard of San Ramon, Inc.(8)
10.39 Lease agreement between the Registrant and Robert A. Allison(8)
10.40 Lease agreement between the Registrant and F.A.B. Industries(8)
10.41 Lease agreement between the Registrant and Valencia Town Center Associates(8)
10.42 Lease agreement between the Registrant and Oak Grove Investors(8)
10.43 Lease agreement between the Registrant and Rancho Consultants Realty Fund IV(8)
10.44 Lease agreement between the Registrant and Tyler Mall Associates(8)
10.45 Lease agreement between the Registrant and Palm Desert Ltd.(8)
10.46 Lease agreement between the Registrant and Centrelake Partners, L.P.(8)
10.47 Lease agreement between the Registrant and The City(8)
10.48 Lease agreement between the Registrant and Villa Marina Center(8)
10.49 Lease agreement between the Registrant and La Jolla Village Center(8)
10.50 Lease agreement between the Registrant and Crossroads Associates(8)
10.51 Lease agreement between the Registrant and Brea Marketplace Building Site Joint
Venture(8)
10.52 Lease agreement between the Registrant and Vallco Fashion Park Venture(8)
10.53 Lease agreement between the Registrant and Aetna Life Insurance Company(8)
10.54 Lease agreement between the Registrant and Two Town Center Associates(8)
10.55 Lease agreement between the Registrant and Buie-Area M. Ltd.(8)
10.56 agreement between the Registrant and Homart Development Co.(8)
10.57 Agreement between the Registrant and TGI Friday's Inc.(8)
10.58 Form of Franchise Agreement between the Registrant and TGI Friday's Inc.(8)
10.59 Stock Purchase Agreement, as amended, between the Registrant and TGI Friday's
Inc.(8)
10.60 Term Loan and Security Agreement between the Registrant and Sanwa Business
Credit Corporation(8)
10.61 Junior Secured Note from the Registrant to TGIF Holdings, Inc.(8)
10.62 Note from Registrant to TGI Friday's Inc.(8)
10.63 Agreement between the Registrant and Michael R. Stewart(9)
10.64 Modification of Stock Purchase Agreement between the Registrant and Sun Street
Limited Partnership(10)
10.65 Amendment No. 1 and Waiver No. 1 to term Loan and Security Agreement between
Registrant and Sanwa Business Credit Corporation(11)
10.66 Amended and Restated Development Agreement between Registrant and TGI Friday's
Inc.(11)
10.67 Amended and Restated Development Agreement (Washington/Oregon) between the
Registrant and TGI Friday's, Inc.(11)
10.68 Amended and Restated Development Agreement (Colorado Area Territory) between
Registrant and TGI Friday's Inc.(11)
10.69 First Amendment to Development Agreement between the Registrant and TGI Friday's
Inc.(11)
10.70 Fifth Amendment to Development Agreement between the Registrant and TGI Friday's
Inc.(11)
10.71 Amended and Restated Junior Secured Note from Registrant to TGI Friday's of
Minnesota, Inc.(11)
10.72 Amended and Restated Note from Registrant to TGI Friday's Inc.(10)
10.73 Joint Venture Agreement between Registrant and AsianStar Inc.(12)
10.74 Employment Agreement with Steven A. Sherman(12)
10.75 Employment Agreement with Joe W. Panter(12)
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
10.76 Restated Credit Facility between Registrant and Sanwa Business Credit
Corporation.(13)
10.77 Second Amended and Restated Note From Registrant to TGI Friday's of Minnesota,
Inc.(13)
10.78 Asset Conveyance Agreement among CNL California Restaurants, LTD., Main St.
California, Inc. and Registrant.(14)
10.79 Stock Purchase Agreement among CNL California Restaurants, LTD., Main St.
California, Inc. and Registrant.(14)
10.80 Form of Management Agreement between Main St. California II, Inc. and Main St.
California, Inc., a wholly owned subsidiary of Registrant.(14)
10.81 Master Incentive Agreements between Main St. California II, Inc. and Main St.
California, Inc., a wholly owned subsidiary of Registrant.(14)
10.82 Employment Agreement with Bart A. Brown, Jr.
10.83 Employment Agreement with Gerard T. Bisceglia.
10.84 Promissory Note between Registrant and CNL Financial I, Inc.
10.85 Promissory Note between Registrant and CNL Financial I, Inc.
10.86 Promissory Note between Registrant and CNL Financial I, Inc.
10.87 Registrant's 1995 Stock Option Plan(15)
21 List of Subsidiaries(11)
</TABLE>
- ---------------
(1) Incorporated by reference to the Registrant's Form 10-K for the year ended
December 31, 1990, filed with the Securities and Exchange Commission on or
about April 1, 1991.
(2) Incorporated by reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on July 12, 1991.
(3) Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-40993) which became effective in September 1991.
(4) Incorporated by reference to the Registrant's Form 10-K for the year ended
December 30, 1991, filed with the Securities and Exchange Commission on or
about March 31, 1992.
(5) Incorporated by reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission in May 1992.
(6) Incorporated by reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission in October 1992.
(7) Incorporated by reference to the Registrant's Registration Statement on Form
8-K filed with the Securities and Exchange Commission in January 1994.
(8) Incorporated by reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on or about April 15, 1994.
(9) Incorporated by reference to the Registrant's Form 10-K for the year ended
December 31, 1993, filed with the Securities and Exchange Commission on or
about April 15, 1994.
(10)Incorporated by reference to the Registrant's Registration Statement on Form
S-3 (Registration No. 33-71230) which became effective in July 1994.
(11)Incorporated by reference to the Registrant's Form 10-K Report for the year
ended December 26, 1994 as filed with the Securities and Exchange Commission
on or about April 28, 1995.
(12)Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-94164) which became effective in September 1995.
(13)Incorporated by reference to the Registrant's Form 10-K for the year ended
December 25, 1995 filed with the Securities and Exchange Commission on or
about April 15, 1996.
(14)Incorporated by reference to the Registrant's Form 8-K Report filed with the
Commission in January 1997.
(15)Incorporated by reference to Registrant's Proxy Statement for its 1995
Annual Meeting of Stockholders.
35
<PAGE>
(b) The following report of Independent Public Accountants and financial
statements are filed as a part of this report.
1. Consolidated Financial Statements (included as Page F-1 through F-16 of this
report)
Report of Independent Public Accountants
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 25, 1995 and December 30 1996.
Consolidated Statements of Operations for the years ended December 26,
1994, December 25, 1995 and December 30, 1996.
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 26, 1994, December 25, 1995 and December 30, 1996.
Consolidated Statements of Cash Flows for the years ended December 26,
1994, December 25, 1995 and December 30, 1996.
Notes to Consolidated Financial Statements
2. Consolidated Schedules
These schedules are omitted because they are not applicable, not required or
because required information is included in the consolidated financial
statements or notes hereto.
(c) Report on Form 8-K
The Registrant filed a Report on Form 8-K on January 16, 1997.
36
<PAGE>
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.
MAIN STREET AND MAIN INCORPORATED
Date: April 14, 1997 By: /s/ BART A. BROWN, JR.
-------------------------------------
Bart A. Brown, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ JOHN F. ANTIOCO Chairman of the Board April 14, 1997
- -------------------------------
John F. Antioco
/s/ BART A. BROWN, JR. President and Chief Executive Officer April 14, 1997
- ------------------------------- (Principal Executive Officer)
Bart A. Brown, Jr.
/s/ GERARD T. BISCEGLIA Executive Vice President and Director April 14, 1997
- -------------------------------
Gerard T. Bisceglia
/s/ JOE W. PANTER Executive Vice President and Director April 14, 1997
- -------------------------------
Joe W. Panter
/s/ MARK C. WALKER Chief Financial Officer (Principal April 14, 1997
- ------------------------------- Financial and Accounting Officer),
Mark C. Walker Secretary and Treasurer
/s/ JANE EVANS Director April 14, 1997
- -------------------------------
Jane Evans
/s/ JOHN C. METZ Director April 14, 1997
- -------------------------------
John C. Metz
/s/ STEVEN A. SHERMAN Director April 14, 1997
- -------------------------------
Steven A. Sherman
</TABLE>
37
<PAGE>
MAIN STREET AND MAIN INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants ................................................ F-2
Consolidated Balance Sheets at December 25, 1995 and December 30, 1996 ................. F-3
Consolidated Statements of Operations for the fiscal years ended December 26, 1994,
December 25, 1995, and December 30, 1996 ............................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the fiscal years ended
December 26, 1994, December 25, 1995, and December 30, 1996.................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended December 26, 1994,
December 25, 1995, and December 30, 1996 ............................................... F-6
Notes to Consolidated Financial Statements .............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Main Street and Main Incorporated:
We have audited the accompanying consolidated balance sheets of MAIN STREET
AND MAIN INCORPORATED (a Delaware corporation) and subsidiaries as of December
30, 1996, and December 25, 1995, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years ended
December 30, 1996, December 25, 1995, and December 26, 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 Main Street and Main
Incorporated and subsidiaries as of December 30, 1996 and December 25, 1995, and
the results of their operations and their cash flows for the years ended
December 30, 1996, December 25, 1995 and December 26, 1994, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona
March 31, 1997
F-2
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 25, December 30,
1995 1996
---- ----
ASSETS
Current Assets
Cash and cash equivalents ..........................$ 4,741 $ 2,613
Accounts receivable, net ........................... 2,484 1,248
Inventories ........................................ 1,517 1,275
Prepaid expenses ................................... 461 173
Assets held for disposal,net ....................... -- 10,929
------- -------
Total current assets ............................ 9,203 16,238
Property and equipment, net .......................... 44,104 32,162
Other assets, net .................................... 6,287 4,780
Franchise costs, net ................................. 22,761 16,418
Note receivable ...................................... 6,250 1,250
------- -------
$88,605 $70,848
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt ..................$ 4,567 $ 2,523
Accounts payable ..................................... 3,543 3,750
Other accrued liabilities ............................ 8,941 11,308
------- -------
Total current liabilities ....................... 17,051 17,581
------- -------
Long-term debt, net of current portion ............... 31,204 33,809
------- -------
Other liabilities and deferred credits ............... 3,089 2,873
------- -------
Commitments and contingencies ........................ -- --
Stockholders' Equity
Common stock, $.001 par value, 40,000,000 shares ..... 8 9
authorized; 7,951,825 and 8,718,491 shares issued and
outstanding in 1995 and 1996, respectively
Additional paid-in capital ........................... 40,205 41,694
Accumulated deficit .................................. (2,952) (25,118)
------- -------
37,261 16,585
------- -------
$88,605 $70,848
======= =======
The accompanying notes are an integral part
of these consolidated balance sheets.
F-3
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------
December 26, December 25, December 30,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenue ..................................... $ 111,262 $ 119,508 $ 122,563
--------- --------- ---------
Restaurant Operating Expenses
Cost of sales .............................. 30,516 34,005 35,089
Payroll and benefits ....................... 34,849 36,769 38,858
Depreciation and amortization .............. 3,884 4,353 4,586
Other operating expenses ................... 31,621 35,250 36,944
--------- --------- ---------
Total restaurant operating expenses ..... 100,870 110,377 115,477
--------- --------- ---------
Income from restaurant operations ............ 10,392 9,131 7,086
Depreciation and amortization .............. 1,014 1,331 1,450
General and administrative expenses ........ 4,191 4,410 4,388
Asset impairments and restructuring charges .. -- -- 20,208
--------- --------- ---------
Operating income(loss) ....................... 5,187 3,390 (18,960)
Interest expense, net ...................... 3,902 4,424 3,206
--------- --------- ---------
Net income (loss) before income taxes ...... 1,285 (1,034) (22,166)
Provision for income taxes ................... -- -- --
--------- --------- ---------
Net income (loss) ............................ $ 1,285 $ (1,034) $ (22,166)
========= ========= =========
Net Income (Loss) Per Share .................. $ 0.35 $ (0.22) $ (2.73)
========= ========= =========
Weighted average shares outstanding ......... $ 3,692 $ 4,621 $ 8,110
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Preferred Stock
-------------------------------
Class A Class B Common Stock
------- ------- ------------ Additional
Par Par Par Paid-In Accumulated
Shares Value Shares Value Shares Value Capital Deficit Total
------ ----- ------ ----- ------ ----- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 1 $ -- 1,030 $ 1 3,256 $ 3 $24,205 $ (3,203) $21,006
Shares issued in connection
with options exercised ..... -- -- -- -- 42 -- 424 -- 424
Conversion of preferred stock. (1) -- (1,030) (1) 339 1 (114) -- (114)
Net income .................... -- -- -- -- -- -- -- 1,285 1,285
---- ----- ------ ----- ----- ----- ------- -------- -------
BALANCE, December 26, 1994 -- -- -- -- 3,637 4 24,515 (1,918) 22,601
Shares issued in connection
with public offering, net .. -- -- -- -- 4,313 4 15,674 -- 15,678
Shares issued in connection
with options exercised ..... -- -- -- -- 2 -- 16 -- 16
Net loss ..................... -- -- -- -- -- -- -- (1,034) (1,034)
---- ----- ------ ----- ----- ----- ------- -------- -------
BALANCE, December 25, 1995 -- -- -- -- 7,952 8 40,205 (2,952) 37,261
Shares issued in connection
with private placement ..... -- -- -- -- 766 1 1,489 -- 1,490
Net loss ..................... -- -- -- -- -- -- -- (22,166) (22,166)
---- ----- ------ ----- ----- ----- ------- -------- -------
BALANCE, December 30, 1996 -- $ -- -- $ -- 8,718 $ 9 $41,694 $(25,118) $16,585
==== ===== ====== ===== ===== ===== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-5
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended
------------------------------------------
December 26, December 25, December 30,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ..................................... $ 1,285 $ (1,034) $(22,166)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ......................... 4,898 5,684 6,036
Asset impairments and restructuring charges ........... -- -- 20,208
Changes in assets and liabilities
Accounts receivable, net ........................... (1,047) (378) 1,104
Inventories ........................................ (63) (130) 57
Prepaid expenses ................................... (316) (134) 288
Other assets, net .................................. (2,719) (2,187) (1,380)
Accounts payable ................................... 2,845 (1,464) 207
Other accrued liabilities .......................... 5,941 1,365 90
-------- -------- --------
Net Cash Flows -- Operating Activities ........ 10,824 1,722 4,444
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received on note receivable ...................... 1,500 -- --
Payment of accrued acquisition costs .................. (1,538) (242) --
Net additions to property and equipment ............... (9,181) (7,196) (8,623)
Cash received from sale-leaseback transaction ......... -- 3,213 --
-------- -------- --------
Net Cash Flows -- Investing Activities ........ (9,219) (4,225) (8,623)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock .................... 424 16,186 1,490
Financing and offering costs paid ..................... (115) (1,774) --
Long term debt borrowings ............................. 36,850 3,028 4,506
Principal payments on long term debt .................. (36,684) (13,245) (3,945)
-------- -------- --------
Net Cash Flows -- Financing Activities ........ 475 4,195 2,051
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS ................. 2,080 1,692 (2,128)
CASH AND CASH EQUIVALENTS, BEGINNING .................... 969 3,049 4,741
-------- -------- --------
CASH AND CASH EQUIVALENTS, ENDING ....................... $ 3,049 $ 4,741 $ 2,613
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for interest ................ $ 2,831 $ 5,041 $ 2,987
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-6
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Main Street and Main Incorporated (the "Company") is a Delaware corporation
engaged in the business of acquiring, developing, and operating restaurants. The
Company currently owns 38 T.G.I. Friday's restaurants and one Front Row Sports
Grill, and operates eight T.G.I. Friday restaurants under management agreements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany transactions have
been eliminated in consolidation. Certain 1994 and 1995 balances have been
reclassified to conform to the 1996 presentation.
Fiscal Year
The Company's restaurants operate on a fiscal year that ends on the Monday
closest to December 31.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
2. ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards -- ("SFAS") No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived assets to be Disposed Of", which the
Company adopted in 1996. SFAS No. 121 requires that long-lived assets be
reviewed for impairment whenever events or circumstances indicate that the
carrying amount of the assets may not be recoverable. If the sum of the expected
future cash flows (undiscounted and without interest charges) from an asset to
be held and used in operations is less than the carrying value of the asset, an
impairment loss must be recognized in the amount of the difference between the
carrying value and the fair value. Assets to be disposed of must be valued at
the lower of carrying value or fair value less costs to sell.
During 1996, the Company implemented a long-term business strategy to place
more emphasis on its core business and to dispose of underperforming core assets
and non-core assets. As a result of implementing this strategy, together with
certain events occuring during the year, the Company recognized a restructuring
charge and impairments of certain assets as follows (in thousands):
Impairment of non-core assets ................. $ 6,985
Impairment of core assets held for disposal ... 8,674
Impairment of core assets used in operations .. 3,141
Other restructuring costs ..................... 1,408
-------
$20,208
=======
Impairment of non-core assets
In December 1993, the Company sold its dairy and food distribution business
for $7,500,000, consisting of a promissory note in the amount of $1,500,000,
which was paid by January 31, 1994, and a promissory note in the amount of
$6,000,000 due on December 31, 1996. The purchase price exceeded the Company's
cost basis by approximately $864,000 resulting in a net deferred gain on the
disposal, which is included in other liabilities and deferred credits at
December 25, 1995. During the second quarter of 1996, the debtor on the
$6,000,000 promissory note sold assets related to its dairy operations, which
F-7
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
represented a significant portion of the collateral securing the note. The
debtor used cash from the sale to pay down senior debt and to provide working
capital for its ice cream novelty production facility. The Company converted its
promissory note to an equity position in the debtor's business. Due to
uncertainty of the business, the Company's promissory note, net of the deferred
gain booked at the time of the initial sale, was written down by $4,136,000.
In May 1991, the Company entered into a five-year management assistance
agreement with AsianStar Co., Ltd. ("AsianStar"), a Korean company affiliated
with a former director of the Company, to provide management services and
expertise relative to the development and operation of T.G.I. Friday's
restaurants in the Republic of Korea. The management assistance agreement
provided for the Company to receive a fee of 3% of the net revenue of the first
two restaurants developed in Seoul, Korea. The Company recorded approximately
$426,000 and $441,000 of royalty income during 1994 and 1995, respectively. In
1996, the Company finalized an agreement with AsianStar to exchange its
receivable, from the recognition of royalty income, for an ownership interest in
AsianStar. As a result of the uncertainty of the Korean venture and the
estimated length of time before the Company will receive any return on its
investment, a $1,000,000 impairment loss was taken during 1996. The Company's
investment in the Korean venture is approximately $1,497,000 and $659,000 as of
December 25, 1995 and December 30, 1996 respectively, and is included in other
assets.
In addition, the Company determined that property and equipment related to
its indoor entertainment center being leased to a third party exceeded its
realizable value based on the level of lease payments to be received over the
remaining life of the lease, which resulted in an impairment loss of $582,000.
The remaining balance of the impairment of non-core assets consists primarily of
write downs of real estate that the Company was holding for future restaurant
development and now has plans to dispose of within the next 12 months.
Impairment of core assets held for disposal:
The Company recorded a $5,541,000 charge to write off property and equipment
and pre-opening costs associated with two of the Company's recently developed
restaurants. One of the restaurants was a Front Row Sports Grill in Portland,
Oregon, and the other was a T.G.I. Friday's restaurant in Denver, Colorado. In
addition, the Company took a $1,096,000 impairment loss charge in anticipation
of closing a 20 year old T.G.I. Friday's restaurant in southern California. The
remaining balance of the impairment loss of $2,037,000 of core assets held for
disposal relates to assets of three T.G.I. Friday's that were written down to
fair value in anticipation of their disposition.
Impairment of core assets used in operations:
In accordance with SFAS No. 121, the Company recorded a charge $3,141,000
related to three of its restaurants where undiscounted cash flows over the
remaining term of the lease did not support the carrying value of the assets.
Other restructuring costs:
Other restructuring costs include severance, contract termination and
professional service costs incurred in conjunction with the restructuring.
3. MANAGEMENT PLANS
During 1996, the Company had a change in management and implemented a
long-term business strategy to enhance its financial position, to place more
emphasis on its casual dining business in certain designated areas, to dispose
of underperforming assets, and to pursue new restaurant concepts.
The first step was to strengthen the Company's financial position. This was
accomplished by the sale of 1,566,666 shares of Common Stock for $3,000,000
through a private placement transaction, the sale of five restaurants in
northern California for $10,575,000, of which $8,000,000 in proceeds were used
to
F-8
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
repay debt (Notes 4 and 6), and new borrowings of $21.3 million with a repayment
period of 15 years. Proceeds from the new borrowings were used primarily to pay
off debt with shorter repayment periods (Note 6).
The Company has also renegotiated its development agreements with TGI
Friday's Inc. to reduce the number of T.G.I. Friday's restaurants it is required
to build with the intent to focus on those development territories that are most
economically favorable (Note 8). The T.G.I. Friday's restaurants currently
planned for development will be owned by a third party lender with the Company
operating the restaurants and deriving a management fee. This strategy will
allow the Company to continue to grow while at the same time deleveraging its
balance sheet. In addition, the Company has taken a charge for asset impairments
and restructuring to dispose of various non-core assets and write down certain
core assets to realizable values (Note 2).
The next step in the Company's strategy will be to reduce operating costs
and expand its restaurant operations. This will entail continuing to build
T.G.I. Friday's restaurants and evaluating other concepts in the casual dining
segment. The Company has recently become a majority partner in a venture to
develop and operate cajun themed restaurants.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements reflect the application of the
following accounting policies:
Cash and Cash Equivalents
Cash and cash equivalents include funds on hand, short-term money market
investments, and certificate of deposit accounts with original maturities within
91 days of purchase.
Inventories
Inventories consist primarily of food, beverages and supplies and are stated
at cost using the first-in, first-out ("FIFO") method.
Property and Equipment
Property and equipment are stated at cost, depreciated on a straight-line
basis over the estimated useful lives, and consist of the following (in
thousands):
Useful Lives 1995 1996
------------ ---- ----
Land ..................................... -- $ 2,371 $ 1,234
Building and leasehold improvements ...... 5-20 27,178 21,950
Kitchen equipment ........................ 5-7 9,684 7,858
Restaurant equipment ..................... 5-10 4,145 3,539
Smallwares and decor ..................... 5-10 5,414 4,410
Office equipment and furniture ........... 5-7 1,557 1,498
Equipment under capital leases ........... 7 397 357
-------- --------
50,746 40,846
Less: Accumulated depreciation and
amortization ............................ (8,636) (10,520)
-------- --------
42,110 30,326
Construction in progress ................. 1,994 1,836
-------- --------
Total .................................. $44,104 $32,162
======== ========
Assets Held for Disposal
On January 16, 1997, the Company sold five restaurants in northern
California for $10,575,000 in cash and entered into a Management Agreement and
Master Incentive Management Agreement with the
F-9
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
buyer to manage the restaurants (the "Northern California Sale"). This
transaction resulted in a gain before taxes of approximately $1,800,000, which
will be recognized in the first quarter of 1997. Of the total proceeds,
$8,000,000 was used to reduce the Company's Term Loan with the balance used for
working capital purposes (Note 6). The net carrying value of the five
restaurants sold was approximately $8,669,000 at December 30, 1996 and is
included in assets held for disposal. The remaining balance of assets held for
disposal consists of the net assets of three T.G.I. Friday's restaurants that
will be disposed of within the next 12 months.
Franchise Costs
The Company has paid certain franchise costs for the exclusive right to
operate restaurants in its franchise territories. These costs are being
amortized on a straight-line basis and consist of the following (in thousands):
Amortization
Period 1995 1996
------ ---- ----
Franchise fees and license costs ............... 20-30 $ 24,382 $ 18,430
Prepaid franchise fees ......................... -- 198 30
-------- --------
24,580 18,460
Less: Accumulated amortization ................. (1,819) (2,042)
-------- --------
Total ........................................ $ 22,761 $ 16,418
======== ========
Franchise fees and license costs represent the value assigned to the
franchise agreements in the regions acquired and to the licenses to operate the
restaurants. These agreements provide for an initial term of 20 years with two
renewal terms of 10 years each. Prepaid franchise fees relate to the restaurants
the Company is committed to develop under the terms of the development
agreements (Note 8).
Pre-opening Costs
The Company defers certain start-up costs directly related to the opening of
new restaurants. Pre-opening costs of approximately $403,000 and $148,000 as of
December 25, 1995 and December 30, 1996, respectively, are included in other
assets in the consolidated balance sheets.
The Company's policy is to amortize pre-opening costs over 12 months
commencing with the opening of each new restaurant. Amortization of pre-opening
costs was approximately $760,000, $640,000 and $318,000 (excluding amounts
included in the restructuring charge) in 1994, 1995, and 1996, respectively.
Other Accrued Liabilities
Other accrued liabilities consist of the following (in thousands):
1995 1996
---- ----
Bank overdraft ............................. $ 1,658 $ 2,432
Accrued payroll ............................ 1,773 2,429
Accrued losses on assets held for disposal . -- 1,572
Accrued sales tax .......................... 1,295 861
Accrued interest ........................... 727 946
Other accrued liabilities .................. 3,488 3,068
------- -------
Total .................................... $ 8,941 $11,308
======= =======
Income Taxes
The Company utilizes the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards 109, Accounting for
Income Taxes. Under the liability method, deferred taxes are provided based on
the temporary differences between the financial reporting
F-10
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
basis and the tax basis of the Company's assets and liabilities, using enacted
tax rates in the years in which the differences are expected to reverse. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
Net Income (Loss) Per Share
The calculation of net loss per share for 1995 and 1996 is based on the
weighted average shares outstanding. The calculation of net income per share for
1994 includes dilutive common stock equivalents.
5. INCOME TAXES
Deferred income taxes arise because of differences in the treatment of
income and expense items for financial reporting and income tax purposes. In
1995 and 1996, the Company generated net operating losses and in 1994, the
Company utilized net operating losses. The effect of temporary differences and
carryforwards that gave rise to deferred tax balances at December 25, 1995 and
December 30, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
Tax Carry
Temporary Differences Forwards and Net Deferred
December 25, 1995 Deductible Taxable Carrybacks Tax Assets
- ----------------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Excess tax over book depreciation and $ -- $(3,157) $ -- $ (3,157)
amortization
Provision for estimated expenses .... 894 -- -- 894
Other ............................... 352 (502) -- (150)
Net operating loss carryforward ..... -- -- 2,842 2,842
General business and AMT credits .... -- -- 1,377 1,377
Valuation reserve ................... -- -- (1,492) (1,492)
-------- ------- --------- ---------
Total .......................... $ 1,246 $(3,659) $ 2,727 $ 314
======== ======= ========= =========
Tax Carry
Temporary Differences Forwards and Net Deferred
December 30, 1996 Deductible Taxable Carrybacks Tax Assets
- ----------------- ---------- ------- ---------- ----------
Excess tax over book depreciation ......... $ -- $(3,301) $ -- $ (3,301)
Provision for estimated expenses .......... 1,363 -- -- 1,363
Asset impairments and restructuring charges 6,955 -- -- 6,955
Other ..................................... -- (491) -- (491)
General business and AMT credits .......... -- -- 2,117 2,117
Net operating loss carryforward ........... -- -- 4,461 4,461
Valuation reserve ......................... -- -- (10,790) (10,790)
-------- ------- --------- --------
Total ................................ $ 8,318 $(3,792) $ (4,212) $ 314
======== ======= ========= ========
</TABLE>
The amounts recorded as net deferred tax assets at December 25, 1995 and
December 30, 1996 are included as a component of other assets in the
consolidated balance sheets. The remaining net deferred tax asset as of December
30, 1996 consists primarily of the benefits to be obtained from the use of net
operating loss carryforwards and credits expected to be realized in the future.
In 1994, the Company's tax provision was fully offset by the reversal of
prior year valuation allowances. The Company did not recognize for financial
reporting purposes any benefits related to net operating losses generated during
1995 and 1996.
At December 30, 1996, the Company had approximately $11,150,000 of net
operating loss carryforwards to be used to offset future income for income tax
purposes. These carryforwards expire in the years 2005 to 2011.
F-11
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Reconciliations of the federal income tax rate to the Company's effective
tax rate were as follows:
1995 1996
------ ------
Statutory federal rate ..................... (34.0)% (34.0)%
State taxes, net of federal benefit ........ (6.0) (6.0)
Nondeductible expenses ..................... 29.0 1.4
Benefit of FICA credit ..................... (69.6) (3.3)
Change in valuation allowance .............. 80.6 41.9
------ ------
0.0% 0.0%
====== ======
6. LONG-TERM DEBT
Long-term debt, shown on a historical and proforma basis to reflect a
refinancing subsequent to December 30, 1996, consists of the following (in
thousands):
<TABLE>
<CAPTION>
1996
--------------------
Maturity
Dates Interest Rates 1995 Historical Proforma
--------- ---------------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Term Loan .......................... 2002 2.8% over LIBOR $ 30,000 $ 26,500 $ --
Term Loan .......................... 2012 3.2% over LIBOR -- -- 21,300
TGI Friday's note payable .......... 1997 12% 1,817 1,817 --
Other notes payable ................ 1999-2015 9.96 - 11% 3,698 7,839 7,839
Capital Leases ..................... 1999 11.5% 256 176 176
-------- -------- --------
35,771 36,332 29,315
Less current portion ............... (4,567) (2,523) (2,523)
-------- -------- --------
Total .............................. $ 31,204 $ 33,809 $ 26,792
======== ======== ========
</TABLE>
The note evidencing the Term Loan bore interest at the London Interbank
Offered Rate ("LIBOR") plus 280 basis points (8.6% as of March 31, 1997) and was
payable in quarterly installments of $750,000 with a final payment due upon
maturity on September 30, 2002. The Term Loan contained certain financial
covenants relative to debt service coverage, capital expenditures and other
ratios. In addition, the Company was required to maintain a minimum cash balance
and limit the incurrence of certain liens or encumbrances. The Company was not
in compliance with certain covenants and provisions of the Term Loan at December
30, 1996.
Subsequent to December 30, 1996, the Term Loan was repaid with $8,000,000 of
proceeds from the Northern California Sale (Note 4) and with proceeds from new
borrowings. The new borrowings, consist of three notes from one lender, total
$21,300,000, bear interest at LIBOR plus 320 basis points (8.9% at March 31,
1997), and are payable in equal monthly installments of principal and interest
of approximately $216,000 (combined) until the notes are paid in full on May 1,
2012. Proceeds from the new borrowings were also used to repay the TGI Friday's
note, including accrued interest of $301,000, with the remaining proceeds used
for general corporate purposes. The early extinguishment of the Term Loan
resulted in an extraordinary loss of approximately $1,600,000 before income
taxes, which will be recognized in the first quarter of fiscal 1997. The Company
currently finances equipment and leasehold improvements at restaurants it
develops. These notes range from $400,000 to $950,000, have interest rates
ranging from 10% to 11%, and require monthly principal and interest payments.
The new borrowings are secured by 16 T.G.I. Friday's restaurants and contain
a financial covenant relative to a fixed charge coverage ratio with which the
Company currently is in compliance. In addition, nine T.G.I. Friday's
restaurants and the Front Row Sports Grill have been pledged as collateral for
other debt.
F-12
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Maturities of long-term debt, giving effect to the new borrowings discussed
above, are as follows (in thousands):
1997 ....................... $ 2,523
1998 ....................... 1,497
1999 ....................... 1,502
2000 ....................... 1,564
2001 ....................... 2,054
Thereafter.................. 20,175
-------
Total..................... $29,315
=======
7. STOCKHOLDERS' EQUITY
On September 29, 1995, the Company sold 3,750,000 shares of its Common Stock
in connection with a public offering and an additional 562,500 shares of its
Common Stock on October 30, 1995 pursuant to the exercise of the Underwriter's
over-allotment option. The net proceeds to the Company from this offering were
approximately $15,678,000, after deducting estimated offering expenses and
underwriting discounts and commissions. The Company used a portion of the net
proceeds to retire indebtedness and the remaining proceeds to develop new
restaurants and to provide funds for general corporate purposes.
During 1996, the Company sold 766,666 shares of its Common Stock to two
officers of the Company for $1,500,000. Subsequent to December 30, 1996, the
Company sold 1,250,000 shares of its Common Stock to various investors,
including 500,000 shares purchased by two officers of the Company, for total
proceeds of $2,500,000.
Stock Options
In July 1990, the Company's Board of Directors approved a stock option plan
("the 1990 Plan"). The 1990 Plan provides for issuance of up to 250,000 options
to acquire shares of the Company's Common Stock. The options are intended to
qualify as incentive stock options within the meaning of Section 422A of the
Internal Revenue Code of 1986 or as options which are not intended to meet the
requirements of such section (non-statutory stock options) and may include stock
appreciation rights, restricted stock awards, phantom stock, performance shares
or non-employee director's options.
The exercise price of all incentive stock options granted under the 1990
Plan must be at least equal to the fair market value of such shares as of the
date of grant or, in the case of incentive stock options granted to the holder
of 10% or more of the Company's Common Stock, at least 110% of the fair market
value of such shares on the date of grant. The exercise price of all
non-statutory stock options granted under the 1990 Plan shall be determined by
the Board of Directors of the Company at the time of grant. The maximum exercise
period for which the options may be granted is 10 years from the date of grant
(five years in the case of incentive stock options granted to an individual
owning more than 10% of the Company's Common Stock).
In January 1996, the Company adopted a new stock option plan ("the 1995
Plan"), with terms comparable to the 1990 Plan, covering 325,000 shares of
Common Stock.
During 1996, the Company canceled all outstanding options and granted new
options under the 1990 and 1995 Plans. In addition, the Company's Board of
Directors approved the issuance of 1,250,000 non-statutory stock options to
three of the Company's officers.
F-13
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Stock option information as of December 26, 1994, December 25, 1995 and
December 1994 is as follows
<TABLE>
<CAPTION>
1994 1995 1996
-------------- ---------------- ----------------
Wtd. Wtd. Wtd.
Avg. Avg. Avg.
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of period 248,225 $12.75 173,037 $12.74 118,413 $12.93
Granted .................................. 31,863 12.00 -- -- 1,668,500 3.25
Exercised ................................ 42,500 8.56 2,500 6.52 -- --
Canceled ................................. 64,551 15.14 52,124 12.60 190,413 9.42
------- ------- ---------
Options outstanding at end of period ..... 173,037 12.74 118,413 12.93 1,596,500 3.40
======= ======= =========
Exercisable at end of period ............. 86,847 11.88 86,469 12.85 350,000 2.00
======= ======= =========
Weighted average fair value of options
granted ................................ N/A N/A $ 0.59
======= ======= =========
</TABLE>
The Company accounts for stock options granted to employees, officers, and
directors in accordance with APB Opinion No. 25, under which no compensation
cost has been recognized. Had compensation cost been determined consistent with
SFAS No. 123, the Company's 1996 proforma net loss and pro forma loss per share
would have been $22,451,000 and $2.77 per share, respectively. There were no
options granted in 1995.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996: risk-free interest rates of 5.8%; expected
dividend yields of zero; expected lives at 3.5 years; expected volatility of
40.7%.
Common Stock Warrants
As of December 25, 1995 and December 30, 1996 the Company had outstanding
warrants to acquire its securities as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Common Stock to be acquired by warrants; exercisable at $9.60
through September 1996; non-callable ..................................... 27,500 --
Common Stock to be acquired by warrants; exercisable at $20.00
through September 1996; non-callable ..................................... 28,899 --
Common Stock to be acquired by warrants issued to a former
Director; exercisable at $20.00 through June 1997; non-callable ......... 68,182 68,182
Common Stock to be acquired by warrants issued to various Company
employees; exercisable at $12.50 through July 1997; non-callable ........ 93,750 93,750
Common Stock to be acquired by warrants issued to lenders in
connection with the Term Loan; exercisable at $10.35 through March
2004; callable ............................................................ 193,192 202,898
------- -------
Total .................................................................... 411,523 364,830
======= =======
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
Development Agreements
The Company was obligated under five separate development agreements to open
42 new T.G.I. Friday's restaurants through 2002. The development agreements give
TGI Friday's Inc. certain remedies in the event the Company fails to timely
comply with the development agreements, including the right under certain
circumstances, to reduce the number of restaurants the Company may develop in
the related franchised territory, or terminate the Company's exclusive rights to
develop restaurants in the related franchised territory. The Company and TGI
Friday's Inc. have agreed to reduce the number of new T.G.I. Friday's
restaurants the Company is required to open through 2002 to 36. The Company will
F-14
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
retain its exclusive development territories of Arizona, Nevada, New Mexico,
northern California and the Kansas City metropolitan area, but will no longer
develop new T.G.I. Friday's in Colorado, Washington and Oregon. The Company and
TGI Friday's Inc. will each develop restaurants in the San Diego and Los
Angeles, California area.
Franchise, License and Marketing Agreements
In accordance with the terms of the T.G.I. Friday's restaurant franchise
agreements, the Company is required to pay franchise fees of $50,000 for each
restaurant opened. The Company is also required to pay a royalty of up to 4% of
gross sales. Royalty expense was approximately $4,419,000, $4,800,000, and
$4,850,000 under these agreements during 1994, 1995 and 1996, respectively. In
addition, the Company could be required to spend up to 4% of gross sales on
marketing, although during 1996 it was only required to pay up to 1.7% of gross
sales. Marketing expense under these agreements was approximately $1,788,000,
$2,360,000 and $1,554,000 during 1994, 1995 and 1996, respectively.
Operating Leases
The Company leases land and restaurant facilities, under operating leases
having terms expiring at various dates through March 2015. The restaurant leases
have from two to three renewal clauses of five years each at the option of the
Company and have provisions for contingent rentals based upon percentage of
gross sales as defined. The Company's minimum future lease payments as of
December 30, 1996 were as follows (in thousands):
1997 ....................... $ 6,434
1998 ....................... 6,472
1999 ....................... 6,316
2000 ....................... 6,463
2001 ....................... 6,538
Thereafter.................. 63,536
-------
Total..................... $95,759
=======
Rental expense during 1994, 1995 and 1996 was approximately $5,160,000,
$5,872,000, and $6,299,000, respectively. In addition, the Company paid
contingent rentals of $463,000, $433,000 and $539,000 during 1994, 1995 and
1996, respectively.
Contingencies
In the normal course of business, the Company is named as a defendant in
various litigation matters. In management's opinion, the ultimate resolution of
these matters will not have a material impact on the Company's financial
statements.
The Company is also subject, from time to time, to audit by various taxing
authorities reviewing the Company's income, property, sales, use and payroll
taxes. Management believes that any findings from such audits will not have a
material impact on its financial statements.
9. BENEFIT PLANS
The Company maintains a 401(k) Savings Plan for all of its employees. The
Company currently matches 25% of the participants' contributions for the first
6% of the participants' compensation. Contributions by the Company were
approximately $165,000, $71,000 and $79,000 during 1994, 1995 and 1996,
respectively.
F-15
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. RELATED PARTY TRANSACTIONS
In December 1993, the Company entered into a five-year lease agreement for
corporate office space with an entity controlled by two officers of the Company.
The lease provides for annual rent of approximately $172,000 in 1997 and
$175,000 in 1998. Approximately $161,000, $166,000 and $169,000 was paid in rent
during 1994, 1995 and 1996, respectively.
F-16
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of December 16, 1996, by and between MAIN STREET AND MAIN INCORPORATED,
a Delaware corporation ("Employer"), and BART A. BROWN, JR. ("Employee").
WHEREAS, Employer desires to employ Employee as its President and Chief
Executive Officer; and
WHEREAS, Employee requires, as a condition to accepting such
employment, the opportunity to acquire a meaningful interest in Employer's
common stock (the "Common Stock") and the added incentive to advance the
interests of Employer by possessing an option to purchase additional shares of
Common Stock; and
WHEREAS, in order to encourage Employee to accept employment with
Employer, Employer desires to sell shares of its Common Stock to Employee and to
issue to Employee options to acquire additional shares of its Common Stock; and
WHEREAS, Employer desires to employ Employee and Employee desires to
accept such employment, all on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants set forth in this Agreement, the parties hereto agree as follows:
1. Employment; Duties. Employer hereby employs Employee, and Employee
hereby accepts such employment, as President and Chief Executive Officer of
Employer and in such other executive capacities and for such other executive
duties and services as shall from time to time be mutually agreed upon by
Employer and Employee.
2. Extent of Services. Employee shall devote such of Employee's
business time, attention, and efforts to the performance of Employee's duties
under this Agreement as may be reasonably necessary for the performance of such
duties, shall serve Employer faithfully and diligently, and shall not engage in
any other employment while employed by Employer that would prevent Employee from
carrying out Employee's duties to Employer.
3. Compensation and Other Benefits.
(a) Salary. Commencing January 1, 1997, Employer shall pay to
Employee, as compensation for the services rendered by Employee during
Employee's employment under this Agreement, a salary at a rate of $250,000.00
per annum, to be paid in equal bi-weekly installments or in such other periodic
installments upon which Employer and Employee shall mutually agree.
(b) Bonus. Employee shall be eligible to receive an annual
bonus in an amount to be determined in accordance with a salary and bonus plan
to be approved by Employer's Board of Directors.
(c) Stock Option Grants.
(i) As an essential element of Employee's agreement
to enter into this Agreement, Employer shall grant to Employee, as of the date
of this Agreement, an option to purchase an aggregate of 250,000 shares of
Employer's Common Stock at $2.00 per share exercisable at any time or from time
to time within 30 days of the commencement of Employee's employment. As a
condition to the grant of the options pursuant to this
<PAGE>
Section 3(c)(i), Employee will execute and deliver to Employer a stock option
agreement in the form attached as Exhibit A hereto.
(ii) As an essential element of Employee's agreement
to enter into this Agreement, Employer also shall grant to Employee, as of the
date of this Agreement, options to purchase an aggregate of 250,000 shares of
Employer's Common Stock (the "Vesting Options"). The Vesting Options shall have
the following exercise prices and shall vest and become exercisable in the
following amounts on the following dates:
Per Share
Vesting Number of Exercise
Date Vesting Options Price
----------- --------------- ---------
December 16, 1996 100,000 $2.00
December 31, 1997 50,000 $3.00
June 30, 1998 50,000 $4.00
December 31, 1998 50,000 $5.00
Except as otherwise provided herein, the Vesting Options will vest and become
exercisable on the foregoing dates only if Employee's employment with Employer
has not terminated prior to such dates. Any Vesting Options granted pursuant to
this Section 3(c) that have not vested prior to the termination of Employee's
employment with Employer will be forfeited immediately upon the termination of
employment for any reason other than a termination as a result of the
circumstances specified in Sections 4(b)(i), (ii), (iii) or (vi). In the event
of a termination of employment under the circumstances specified in Sections
4(b)(i), (ii), (iii), or (vi), any unvested Vesting Options will become fully
vested and exercisable immediately upon such a termination of employment. As a
condition to the grant of the Vesting Options pursuant to this Section 3(c)(ii),
Employee shall be required to enter into a stock option agreement in the form as
set forth as Exhibit B hereto.
(d) Reimbursement. Without limiting the foregoing,
Employer shall reimburse Employee for all travel and entertainment expenses and
other ordinary and necessary business expenses incurred by Employee in
connection with the business of Employer and Employee's duties under this
Agreement. The term "business expenses" shall not include any item not at least
partially deductible by Employer for federal income tax purposes. To obtain
reimbursement, Employee shall submit to Employer receipts, bills, or sales slips
for the expenses incurred. Reimbursements shall be made by Employer monthly
within 10 business days of presentation by Employee of evidence of the expenses
incurred.
(e) Fringe Benefits. Employee shall be entitled to
participate in any group insurance, pension, retirement, vacation, expense
reimbursement, and other plans, programs, and benefits approved by the Board of
Directors and made available from time to time to executive employees of
Employer generally during the term of Employee's employment hereunder. The
foregoing shall not obligate Employer to adopt or maintain any particular plan,
program, or benefit.
4. Term of Employment.
(a) Employment Term. The term of Employee's
employment (the "Employment Term") hereunder shall commence on the date of this
Agreement and shall continue until December 31, 1998 and from year to year
thereafter, unless and until terminated by either party giving written notice to
the other not less than 60 days prior to the end of the then current term.
(b) Termination Under Certain Circumstances.
Notwithstanding anything to the contrary herein contained:
2
<PAGE>
(i) Death. Employee's employment shall be
automatically terminated, without notice, effective upon the date of Employee's
death;
(ii) Disability. If Employee shall fail, for
a period of more than 90 consecutive days, or for 90 days within any 180 day
period, to perform any of Employee's duties under this Agreement as the result
of illness or other incapacity, Employer may, at its option, upon notice to
Employee, terminate Employee's employment effective on the date of that notice;
(iii) Unilateral Decision of Employer.
Employer may, at its option, upon notice to Employee, terminate Employee's
employment effective on the date of that notice;
(iv) Unilateral Decision by Employee.
Employee may, at his option, upon notice to Employer, terminate Employee's
employment effective on the date of that notice;
(v) Termination "For Cause". Employer may,
at its option, upon notice to Employee, terminate Employee's employment "for
cause" effective on the date of such notice if Employee engages in an act or
acts involving a crime, moral turpitude, fraud, or dishonesty; or
(vi) Change in Control. Employee may, at his
option, upon notice to Employer, terminate Employee's employment effective on
the date of the notice in the event of a Change of Control of Employer.
(c) Result of Termination. In the event of the
termination of Employee's employment pursuant to Section 5(b)(iv) or (v) above,
Employee shall receive no further compensation under this Agreement. In the
event of the termination of Employee's employment pursuant to Section 5(b)(i) or
(ii) above, Employee shall continue to receive Employee's fixed cash
compensation for a period of one year following the date of such termination. In
the event of termination of Employee's employment pursuant to Section 5(b)(iii)
or (vi), Employer shall pay Employee his fixed salary for the balance of the
then current term of Employee's employment under this Agreement as if such
employment had not terminated.
(d) Change in Control. The term "Change in Control"
of Employer shall mean a change in control of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934 as in effect on the date
of this Agreement or, if Item 6(e) is no longer in effect, any regulations
issued by the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934 that serve similar purposes; provided that, without
limitation, such a Change in Control shall be deemed to have occurred if and
when (i) any person (as such term is used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) other than a current director or officer of
Employer becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) directly or indirectly of securities of
Employer representing 15% or more of the combined voting power of Employer's
then-outstanding securities, except that this provision shall not apply to any
public or private offering of Employer's common stock nor shall this provision
apply to an acquisition that has been approved by at least two-thirds of the
members of the Board of Directors who are not affiliates or associates of such
person or by at least 80% of the issued and outstanding shares of Employer's
common stock beneficially owned by non-affiliates of such person; (ii) during
the period of this Agreement, individuals who, at the beginning of such period,
constituted the Board of Directors of Employer (the "Original Directors") cease
for any reason to constitute at least a majority thereof, unless the election or
nomination for election of each new director was approved (an "Approved
Director") by the unanimous vote of a Board of Directors constituted entirely of
Original Directors and Approved Directors; (iii) a tender offer or exchange
offer is made whereby the effect of such offer is to take over and control
Employer and such offer is consummated for the ownership of securities of
Employer representing 20% or more of the combined voting power of Employer's
then-outstanding voting securities; (iv) Employer is merged, consolidated, or
enters into a reorganization transaction with another person and as the result
of such merger, consolidation, or reorganization 3
<PAGE>
less than 75% of the outstanding equity securities of the surviving or resulting
person shall then be owned in the aggregate by the former stockholders of
Employer; or (v) Employer transfers substantially all of its assets to another
person or entity that is not a wholly owned subsidiary of Employer; provided,
however, that notwithstanding the foregoing no Change of Control shall be deemed
to have occurred if such a Change of Control is a "Consented Change of Control."
A "Consented Change of Control" is any transaction described in clauses (i),
(iii), (iv) or (v) of this Section 4(d) if such transaction has been unanimously
approved by Employer's Board of Directors. Sales of Employer's Common Stock
beneficially owned or controlled by Employee shall not be considered in
determining whether a Change in Control has occurred.
5. Competition and Confidential Information.
(a) Interests to be Protected. The parties
acknowledge that Employee will perform essential services for Employer during
the term of Employee's employment with Employer. Employee will be exposed to,
have access to, and be required to work with, a considerable amount of
Confidential Information (as defined below). The parties also expressly
recognize and acknowledge that the personnel of Employer have been trained by
and are valuable to Employer and that it will incur substantial expense in
recruiting and training personnel, if Employer must hire new personnel or
retrain existing personnel to fill vacancies. The parties expressly recognize
that it could seriously impair the goodwill and diminish the value of Employer's
business should Employee compete with Employer in any manner whatsoever. The
parties acknowledge that this covenant has an extended duration; however, they
agree that this covenant is reasonable, and it is necessary for the protection
of Employer, its stockholders, and employees. For these and other reasons, and
the fact that there are many other employment opportunities available to
Employee if he should terminate his employment, the parties are in full and
complete agreement that the following restrictive covenants are fair and
reasonable and are entered into freely, voluntarily, and knowingly. Furthermore,
each party was given the opportunity to consult with independent legal counsel
before entering into this Agreement.
(b) Non-Competition. During the term of Employee's
employment with Employer and for the period ending 12 months after the
termination of Employee's employment with Employer, regardless of the reason
therefor, Employee shall not (whether directly or indirectly, as owner,
principal, agent, stockholder, director, officer, manager, employee, partner,
participant, or in any other capacity) engage or become financially interested
in any competitive business conducted within the Restricted Territory (as
defined below). As used herein, the term "competitive business" shall mean any
business that owns, operates, or franchises full-service casual dining
establishments; and the term "Restricted Territory" shall mean any area in which
Employer conducts its restaurant business during Employee's employment
hereunder.
(c) Non-Solicitation of Employees. During the term of
Employee's employment and for a period of 12 months after the termination of
Employee's employment with Employee, regardless of the reason therefor, Employee
shall not directly or indirectly, for himself, or on behalf of, or in
conjunction with, any other person, company, partnership, corporation, or other
entity, seek to hire or hire any of Employer's personnel or employees for the
purpose of having such employee engage in services that are the same, similar,
or related to the services that such employee provided for Employer.
(d) Confidential Information. Employee shall maintain
in strict secrecy all confidential or trade secret information, whether
patentable or not, relating to the business of Employer (the "Confidential
Information") obtained by Employee in the course of Employee's employment, and
Employee shall not, unless first authorized in writing by Employer, disclose to,
or use for Employee's benefit or for the benefit of any person, firm, or entity
at any time either during or subsequent to the term of Employee's employment,
any Confidential Information, except as required in the performance of
Employee's duties on behalf of Employer. For purposes hereof, Confidential
Information shall include without limitation any construction plans and drawings
or other reproductions or materials of any kind; any trade secrets, knowledge,
or information with respect to products and services provided, menu selection,
site selection, the purchase or lease and use of equipment, fixtures,
furnishings,
4
<PAGE>
signs, inventory, ingredients, and other products and materials required for or
related to the development, operation, or franchising of its restaurants; any
operating procedures, techniques, or know-how; any business methods or forms;
any names, addresses, and data on suppliers; and any business policies or other
information relating to or dealing with the purchasing, sales, advertising, or
promotional, or distribution policies or practices of Employer and its
Franchisor.
(e) Return of Books and Papers. Upon the termination
of Employee's employment with Employer for any reason, Employee shall deliver
promptly to Employer all samples or demonstration models, catalogues, manuals,
memoranda, drawings, formulae, specifications, and operating procedures; all
cost, pricing, and other financial data; all supplier information; all other
written or printed materials that are the property of Employer (and any copies
of them); and all other materials which may contain Confidential Information
relating to the business of Employer, which Employee may then have in his
possession whether prepared by Employee or not.
(f) Disclosure of Information. Employee shall
disclose promptly to Employer, or its nominee, any and all ideas, designs,
processes and improvements of any kind relating to the business of Employer,
whether patentable or not, conceived or made by Employee, either alone or
jointly with others, during working hours or otherwise, during the entire period
of Employee's employment with Employer, or within six months thereafter.
(g) Assignment. Employee hereby assigns to Employer
or its nominee, the entire right, title, and interest in and to all inventions,
discoveries, and improvements, whether patentable or not, that Employee may
conceive or make during Employee's employment with Employer, or within six
months thereafter, and which relate to the business of Employer. Whenever
requested to do so by Employer, whether during the period of Employee's
employment or thereafter, Employee shall execute any and all applications,
assignments, and other instruments that Employer shall deem necessary or
appropriate to apply for, obtain, or maintain Letters Patent of the United
States or of any foreign country, or to protect otherwise the interest of
Employer therein.
(h) Equitable Relief. In the event a violation of any
of the restrictions contained in this Section is established, Employer shall be
entitled to preliminary and permanent injunctive relief as well as damages and
an equitable accounting of all earnings, profits, and other benefits arising
from such violation, which right shall be cumulative and in addition to any
other rights or remedies to which Employer may be entitled. In the event of a
violation of any provision of Sections (b), (c), (f), or (g) of this Agreement,
the period for which those provisions would remain in effect shall be extended
for a period of time equal to that period beginning when such violation
commenced and ending when the activities constituting such violation shall have
been finally terminated in good faith.
(i) Restrictions Separable. If the scope of any
provision of this Section is found by a Court to be too broad to permit
enforcement to its full extent, then such provision shall be enforced to the
maximum extent permitted by law. The parties agree that the scope of any
provision of this Section may be modified by a judge in any proceeding to
enforce this Agreement, so that such provision can be enforced to the maximum
extent permitted by law. Each and every restriction set forth in this Section is
independent and severable from the others, and no such restriction shall be
rendered unenforceable by virtue of the fact that, for any reason, any other or
others of them may be unenforceable in whole or in part.
6. Miscellaneous.
(a) Notices. All notices, requests, demands, and
other communications required or permitted under this Agreement shall be in
writing and shall be deemed to have been duly given, made and received (i) if
personally delivered, on the date of delivery, (ii) if by facsimile
transmission, 24 hours after transmitter's confirmation of the receipt of such
transmission, (iii) if mailed, three days after deposit in the United States
mail,
5
<PAGE>
registered or certified, return receipt requested, postage prepaid and addressed
as provided below, or (iv) if by a courier delivery service providing overnight
or "next-day" delivery, on the next business day after deposit with such service
addressed as follows:
(i) If to Employer:
Main Street and Main Incorporated
5050 North 40th Street, Suite 200
Phoenix, Arizona 85018
Attention: Chairman
(ii) If to Employee:
Bart A. Brown, Jr.
5050 North 40th Street, Suite 200
Phoenix, Arizona 85018
Either party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this paragraph for the giving of notice.
(b) Indulgences; Waivers. Neither any failure nor any
delay on the part of either party to exercise any right, remedy, power, or
privilege under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, power, or privilege preclude
any other or further exercise of the same or of any other right, remedy, power,
or privilege, nor shall any waiver of any right, remedy, power, or privilege
with respect to any occurrence be construed as a waiver of such right, remedy,
power, or privilege with respect to any other occurrence. No waiver shall be
binding unless executed in writing by the party making the waiver.
(c) Controlling Law. This Agreement, and all
questions relating to its validity, interpretation, performance and enforcement,
shall be governed by and construed in accordance with the laws of the state of
Arizona, notwithstanding any Arizona or other conflict-of-interest provisions to
the contrary.
(d) Binding Nature of Agreement, Successors and
Assigns. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, personal representatives, successors,
and assigns; provided that because the obligations of Employee hereunder involve
the performance of personal services, such obligations shall not be delegated by
Employee. For purposes of this Agreement, successors and assigns shall include,
but not be limited to, any individual, corporation, trust, partnership, or other
entity that acquires a majority of the stock or assets of Employer by sale,
merger, consolidation, liquidation, or other form of transfer. Employer will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of Employer to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that Employer would be required to
perform it if no such succession had taken place.
(e) Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original as against any party whose signature appears thereon, and all of which
shall together constitute one and the same instrument. This Agreement shall
become binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of the parties reflected hereon as the
signatories.
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<PAGE>
(f) Provisions Separable. The provisions of this
Agreement are independent of and separable from each other, and no provision
shall be affected or rendered invalid or unenforceable by virtue of the fact
that for any reason any other or others of them may be invalid or unenforceable
in whole or in part.
(g) Entire Agreement. This Agreement contains the
entire agreement and understanding between the parties hereto with respect to
the subject matter hereof and supersedes all prior and contemporaneous
agreements and understandings, inducements and conditions, express or implied,
oral or written, except as herein contained. The express terms hereof control
and supersede any course of performance and/or usage of the trade inconsistent
with any of the terms hereof. This Agreement may not be modified or amended
other than by an agreement in writing.
(h) Paragraph Headings. The paragraph headings in
this Agreement are for convenience only; they form no part of this Agreement and
shall not affect its interpretation.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
MAIN STREET AND MAIN
INCORPORATED
By
--------------------------------------
John Antioco, Chairman
----------------------------------------
Bart A. Brown, Jr.
7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of November 4, 1996, by and between MAIN STREET AND MAIN INCORPORATED, a
Delaware corporation ("Employer"), and GERARD T. BISCEGLIA ("Employee").
WHEREAS, Employer desires to employ Employee as its Executive Vice
President and Chief Operating Officer; and
WHEREAS, Employee requires, as a condition to accepting such
employment, the opportunity to acquire a meaningful interest in Employer's
common stock (the "Common Stock") and the added incentive to advance the
interests of Employer by possessing an option to purchase additional shares of
Common Stock; and
WHEREAS, in order to encourage Employee to accept employment with
Employer, Employer desires to sell shares of its Common Stock to Employee and to
issue to Employee options to acquire additional shares of its Common Stock; and
WHEREAS, Employer desires to employ Employee and Employee desires to
accept such employment, all on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants set forth in this Agreement, the parties hereto agree as follows:
1. Employment; Duties. Employer hereby employs Employee, and Employee
hereby accepts such employment, as Executive Vice President and Chief Operating
Officer of Employer and in such other executive capacities and for such other
executive duties and services as shall from time to time be mutually agreed upon
by Employer and Employee.
2. Full Time Occupation. Employee shall devote such of Employee's
business time, attention, and efforts to the performance of Employee's duties
under this Agreement as shall be reasonably necessary for the performance of
such duties, shall serve Employer faithfully and diligently, and shall not
engage in any other employment while employed by Employer.
3. Compensation and Other Benefits.
(a) Salary. Employer shall pay to Employee, as compensation
for the services rendered by Employee during Employee's employment under this
Agreement, a salary at a rate of $175,000.00 per annum, to be paid in equal
bi-weekly installments or in such other periodic installments upon which
Employer and Employee shall mutually agree.
(b) Bonus. Employee shall be eligible to receive an annual
bonus in an amount to be determined in accordance with a salary and bonus plan
to be approved by Employer's Board of Directors.
(c) Stock Option Grants.
(i) As an essential element of Employee's agreement
to enter into this Agreement, Employer shall grant to Employee, as of the date
of this Agreement, an option to purchase an aggregate of 266,666 shares of
Employer's Common Stock at $1.875 per share, exercisable at any time or from
time to time within 60 days of the commencement of Employee's employment. As a
condition to the grant of the options pursuant to this Section 3(c)(i), Employee
will execute and deliver to Employer a stock option agreement in the form
attached as Exhibit A hereto.
<PAGE>
(ii) As an essential element of Employee's agreement
to enter into this Agreement, Employer also shall grant to Employee, as of the
date of this Agreement, options to purchase an aggregate of 200,000 shares of
Employer's Common Stock (the "Vesting Options"). The Vesting Options shall have
the following exercise prices and shall vest and become exercisable in the
following amounts on the following dates:
Per Share
Vesting Number of Exercise
Date Vesting Options Price
------------- --------------- --------
November 4, 1996 50,000 $2.00
December 31, 1997 50,000 $3.00
December 31, 1998 50,000 $4.00
December 31, 1999 50,000 $5.00
The Vesting Options will vest and become exercisable on the foregoing dates only
if Employee's employment with Employer has not terminated prior to such dates.
Any Vesting Options granted pursuant to this Section 3(c) that have not vested
prior to the termination of Employee's employment with Employer will be
forfeited immediately upon the termination of employment for any reason,
including death or disability. In the event of a "Change of Control" of Employer
(as defined below), any unvested Vesting Options will become fully vested and
exercisable immediately upon such Change of Control. As a condition to the grant
of the Vesting Options pursuant to this Section 3(c)(ii), Employee shall be
required to enter into a stock option agreement in the form as set forth as
Exhibit B hereto.
(d) Reimbursement. Without limiting the foregoing,
Employer shall reimburse Employee for all travel and entertainment expenses and
other ordinary and necessary business expenses incurred by Employee in
connection with the business of Employer and Employee's duties under this
Agreement. The term "business expenses" shall not include any item not at least
partially deductible by Employer for federal income tax purposes. To obtain
reimbursement, Employee shall submit to Employer receipts, bills,or sales slips
for the expenses incurred. Reimbursements shall be made by Employer monthly
within 10 business days of presentation by Employee of evidence of the expenses
incurred.
(e) Fringe Benefits. Employee shall be entitled to
participate in any group insurance, pension, retirement, vacation, expense
reimbursement, and other plans, programs, and benefits approved by the Board of
Directors and made available from time to time to executive employees of
Employer generally during the term of Employee's employment hereunder. The
foregoing shall not obligate Employer to adopt or maintain any particular plan,
program, or benefit.
4. Term of Employment.
(a) Employment Term. The term of Employee's
employment (the "Employment Term") hereunder shall commence on the date of this
Agreement and shall continue until October 29, 1999 and from year to year
thereafter, unless and until terminated by either party giving written notice to
the other not less than 60 days prior to the end of the then current term.
(b) Termination Under Certain Circumstances.
Notwithstanding anything to the contrary herein contained:
(i) Death. Employee's employment shall be
automatically terminated, without notice, effective upon the date of Employee's
death;
(ii) Disability. If Employee shall fail, for
a period of more than 90 consecutive days, or for 90 days within any 180 day
period, to perform any of Employee's duties under this Agreement as the
2
<PAGE>
result of illness or other incapacity, Employer may, at its option, upon notice
to Employee, terminate Employee's employment effective on the date of that
notice;
(iii) Unilateral Decision of Employer.
Employer may, at its option, upon notice to Employee, terminate Employee's
employment effective on the date of that notice;
(iv) Unilateral Decision by Employee.
Employee may, at his option, upon notice to Employer, terminate Employee's
employment effective on the date of that notice;
(v) Termination "For Cause". Employer may,
at its option, upon notice to Employee, terminate Employee's employment "for
cause" effective on the date of such notice if Employee engages in an act or
acts involving a crime, moral turpitude, fraud, or dishonesty; or
(vi) Change in Control. Employee may, at his
option, upon notice to Employer, terminate Employee's employment effective on
the date of the notice in the event of a Change of Control of Employer.
(c) Result of Termination. In the event of the
termination of Employee's employment pursuant to Section 5(b)(i), (ii), (iv) or
(v) above, Employee shall receive no further compensation under this Agreement.
In the event of the termination of Employee's employment pursuant to Section
5(b)(iii) above, Employee shall continue to receive Employee's fixed cash
compensation for a period of six months following the date of such termination.
In the event of termination of Employee's employment pursuant to Section
5(b)(vi) , Employer shall pay Employee his fixed salary for the balance of the
then current term of Employee's employment under this Agreement as if such
employment had not terminated.
(d) Change in Control. The term "Change in Control"
of Employer shall mean a change in control of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934 as in effect on the date
of this Agreement or, if Item 6(e) is no longer in effect, any regulations
issued by the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934 that serve similar purposes; provided that, without
limitation, such a Change in Control shall be deemed to have occurred if and
when (i) any person (as such term is used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) other than a current director or officer of
Employer becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) directly or indirectly of securities of
Employer representing 15% or more of the combined voting power of Employer's
then-outstanding securities, except that this provision shall not apply to any
public or private offering of Employer's common stock nor shall this provision
apply to an acquisition that has been approved by at least two-thirds of the
members of the Board of Directors who are not affiliates or associates of such
person or by at least 80% of the issued and outstanding shares of Employer's
common stock beneficially owned by non-affiliates of such person; (ii) during
the period of this Agreement, individuals who, at the beginning of such period,
constituted the Board of Directors of Employer (the "Original Directors") cease
for any reason to constitute at least a majority thereof, unless the election or
nomination for election of each new director was approved (an "Approved
Director") by the unanimous vote of a Board of Directors constituted entirely of
Original Directors and Approved Directors; (iii) a tender offer or exchange
offer is made whereby the effect of such offer is to take over and control
Employer and such offer is consummated for the ownership of securities of
Employer representing 20% or more of the combined voting power of Employer's
then-outstanding voting securities; (iv) Employer is merged, consolidated, or
enters into a reorganization transaction with another person and as the result
of such merger, consolidation, or reorganization less than 75% of the
outstanding equity securities of the surviving or resulting person shall then be
owned in the aggregate by the former stockholders of Employer; or (v) Employer
transfers substantially all of its assets to another person or entity that is
not a wholly owned subsidiary of Employer; provided, however, that
notwithstanding the foregoing no Change of Control shall be deemed to have
occurred if such a Change of Control is a "Consented Change of Control." A
"Consented Change of Control" is any transaction described in clauses (i),
(iii), (iv) or (v) of this Section 4(d) if such transaction has been unanimously
approved by Employer's Board of Directors. Sales
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<PAGE>
of Employer's Common Stock beneficially owned or controlled by Employee shall
not be considered in determining whether a Change in Control has occurred.
5. Competition and Confidential Information.
(a) Interests to be Protected. The parties
acknowledge that Employee will perform essential services for Employer during
the term of Employee's employment with Employer. Employee will be exposed to,
have access to, and be required to work with, a considerable amount of
Confidential Information (as defined below). The parties also expressly
recognize and acknowledge that the personnel of Employer have been trained by
and are valuable to Employer and that it will incur substantial expense in
recruiting and training personnel if Employer must hire new personnel or retrain
existing personnel to fill vacancies. The parties also expressly recognize that
it could seriously impair the goodwill and diminish the value of Employer's
business should Employee compete with Employer in any manner whatsoever. The
parties acknowledge that this covenant has an extended duration; however, they
agree that this covenant is reasonable, and it is necessary for the protection
of Employer, its stockholders, and employees. For these and other reasons, and
the fact that there are many other employment opportunities available to
Employee if he should terminate his employment, the parties are in full and
complete agreement that the following restrictive covenants are fair and
reasonable and are entered into freely, voluntarily, and knowingly. Furthermore,
each party was given the opportunity to consult with independent legal counsel
before entering into this Agreement.
(b) Non-Competition. During the term of Employee's
employment with Employer and for the period ending 12 months after the
termination of Employee's employment with Employer, regardless of the reason
therefor, Employee shall not (whether directly or indirectly, as owner,
principal, agent, stockholder, director, officer, manager, employee, partner,
participant, or in any other capacity) engage or become financially interested
in any competitive business conducted within the Restricted Territory (as
defined below). As used herein, the term "competitive business" shall mean any
business that owns, operates, or franchises full-service casual dining
establishments; and the term "Restricted Territory" shall mean any area in which
Employer conducts its restaurant business during Employee's employment
hereunder.
(c) Non-Solicitation of Employees. During the term of
Employee's employment and for a period of 12 months after the termination of
Employee's employment with Employee, regardless of the reason therefor, Employee
shall not directly or indirectly, for himself, or on behalf of, or in
conjunction with, any other person, company, partnership, corporation, or other
entity, seek to hire or hire any of Employer's personnel or employees for the
purpose of having such employee engage in services that are the same, similar,
or related to the services that such employee provided for Employer.
(d) Confidential Information. Employee shall maintain
in strict secrecy all confidential or trade secret information, whether
patentable or not, relating to the business of Employer (the "Confidential
Information") obtained by Employee in the course of Employee's employment, and
Employee shall not, unless first authorized in writing by Employer, disclose to,
or use for Employee's benefit or for the benefit of any person, firm or entity
at any time either during or subsequent to the term of Employee's employment,
any Confidential Information, except as required in the performance of
Employee's duties on behalf of Employer. For purposes hereof, Confidential
Information shall include without limitation any construction plans and drawings
or other reproductions or materials of any kind; any trade secrets, knowledge,
or information with respect to products and services provided, menu selection,
site selection, the purchase or lease and use of equipment, fixtures,
furnishings, signs, inventory, ingredients, and other products and materials
required for or related to the development, operation, or franchising of its
restaurants; any operating procedures, techniques, or know-how; any business
methods or forms; any names, addresses, or data on suppliers; and any business
policies or other information relating to or dealing with the purchasing, sales,
advertising, promotional, or distribution policies or practices of Employer.
(e) Return of Books and Papers. Upon the termination
of Employee's employment with Employer for any reason, Employee shall deliver
promptly to Employer all samples or demonstration models, catalogues, manuals,
memoranda, drawings, formulae and specifications, and operating procedures; all
cost, pricing,
4
<PAGE>
and other financial data; all supplier information; all other written or printed
materials that are the property of Employer (and any copies of them); and all
other materials which may contain Confidential Information relating to the
business of Employer, which Employee may then have in his possession whether
prepared by Employee or not.
(f) Disclosure of Information. Employee shall
disclose promptly to Employer, or its nominee, any and all ideas, designs,
processes and improvements of any kind relating to the business of Employer,
whether patentable or not, conceived or made by Employee, either alone or
jointly with others, during working hours or otherwise, during the entire period
of Employee's employment with Employer, or within six months thereafter.
(g) Assignment. Employee hereby assigns to Employer
or its nominee, the entire right, title, and interest in and to all inventions,
discoveries, and improvements, whether patentable or not, that Employee may
conceive or make during Employee's employment with Employer, or within six
months thereafter, and which relate to the business of Employer. Whenever
requested to do so by Employer, whether during the period of Employee's
employment or thereafter, Employee shall execute any and all applications,
assignments, and other instruments that Employer shall deem necessary or
appropriate to apply for, obtain, or maintain Letters Patent of the United
States or of any foreign country, or to protect otherwise the interest of
Employer therein.
(h) Equitable Relief. In the event a violation of any
of the restrictions contained in this Section is established, Employer shall be
entitled to preliminary and permanent injunctive relief as well as damages and
an equitable accounting of all earnings, profits, and other benefits arising
from such violation, which right shall be cumulative and in addition to any
other rights or remedies to which Employer may be entitled. In the event of a
violation of any provision of Sections (b), (c), (f), or (g) of this Agreement,
the period for which those provisions would remain in effect shall be extended
for a period of time equal to that period beginning when such violation
commenced and ending when the activities constituting such violation shall have
been finally terminated in good faith.
(i) Restrictions Separable. If the scope of any
provision of this Section is found by a Court to be too broad to permit
enforcement to its full extent, then such provision shall be enforced to the
maximum extent permitted by law. The parties agree that the scope of any
provision of this Section may be modified by a judge in any proceeding to
enforce this Agreement, so that such provision can be enforced to the maximum
extent permitted by law. Each and every restriction set forth in this Section is
independent and severable from the others, and no such restriction shall be
rendered unenforceable by virtue of the fact that, for any reason, any other or
others of them may be unenforceable in whole or in part.
6. Miscellaneous.
(a) Notices. All notices, requests, demands, and
other communications required or permitted under this Agreement shall be in
writing and shall be deemed to have been duly given, made and received (i) if
personally delivered, on the date of delivery, (ii) if by facsimile
transmission, 24 hours after transmitter's confirmation of the receipt of such
transmission, (iii) if mailed, three days after deposit in the United States
mail, registered or certified, return receipt requested, postage prepaid and
addressed as provided below, or (iv) if by a courier delivery service providing
overnight or "next-day" delivery, on the next business day after deposit with
such service addressed as follows:
(i) If to Employer:
Main Street and Main Incorporated
5050 North 40th Street, Suite 200
Phoenix, Arizona 85018
Attention: President
5
<PAGE>
(ii) If to Employee:
Gerard T. Bisceglia
5050 North 40th Street, Suite 200
Phoenix, Arizona 85018
Either party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this paragraph for the giving of notice.
(b) Indulgences; Waivers. Neither any failure nor any
delay on the part of either party to exercise any right, remedy, power, or
privilege under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, power, or privilege preclude
any other or further exercise of the same or of any other right, remedy, power,
or privilege, nor shall any waiver of any right, remedy, power, or privilege
with respect to any occurrence be construed as a waiver of such right, remedy,
power, or privilege with respect to any other occurrence. No waiver shall be
binding unless executed in writing by the party making the waiver.
(c) Controlling Law. This Agreement and all questions
relating to its validity, interpretation, performance and enforcement, shall be
governed by and construed in accordance with the laws of the state of Arizona,
notwithstanding any Arizona or other conflict-of-interest provisions to the
contrary.
(d) Binding Nature of Agreement, Successors and
Assigns. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, personal representatives, successors,
and assigns; provided that because the obligations of Employee hereunder involve
the performance of personal services, such obligations shall not be delegated by
Employee. For purposes of this Agreement, successors and assigns shall include,
but not be limited to, any individual, corporation, trust, partnership, or other
entity that acquires a majority of the stock or assets of Employer by sale,
merger, consolidation, liquidation, or other form of transfer. Employer will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of Employer to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that Employer would be required to
perform it if no such succession had taken place.
(e) Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original as against any party whose signature appears thereon, and all of which
shall together constitute one and the same instrument. This Agreement shall
become binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of the parties reflected hereon as the
signatories.
(f) Provisions Separable. The provisions of this
Agreement are independent of and separable from each other, and no provision
shall be affected or rendered invalid or unenforceable by virtue of the fact
that for any reason any other or others of them may be invalid or unenforceable
in whole or in part.
(g) Entire Agreement. This Agreement contains the
entire agreement and understanding between the parties hereto with respect to
the subject matter hereof and supersedes all prior and contemporaneous
agreements and understandings, inducements and conditions, express or implied,
oral or written, except as herein contained. The express terms hereof control
and supersede any course of performance and/or usage of the trade inconsistent
with any of the terms hereof. This Agreement may not be modified or amended
other than by an agreement in writing.
(h) Paragraph Headings. The paragraph headings in
this Agreement are for convenience only; they form no part of this Agreement and
shall not affect its interpretation.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
MAIN STREET AND MAIN
INCORPORATED
By
--------------------------------------
John Antico
----------------------------------------
Gerard T. Bisceglia
7
PROMISSORY NOTE
US $9,800,000.00 Dated as of April 4, 1997
FOR VALUE RECEIVED, the undersigned, jointly and severally if more than one,
promises to pay to the order of CNL FINANCIAL I, INC., a Florida corporation, at
400 East South Street, Suite 500, Orlando, Florida 32801, or such other place as
the holder hereof may designate in writing, or order, the principal sum of NINE
MILLION EIGHT HUNDRED THOUSAND AND NO/100 DOLLARS (US $9,800,000.00) with
interest as set forth herein. All computation of interest shall be made by the
holder on the basis of a year of 360 days and shall be allocated in twelve (12)
equal monthly installments.
INTEREST RATE: Interest shall accrue on the unpaid principal balance from
the date of this Note, until paid, at the rate of 320 basis points above the
"LIBOR Base Rate" as hereinafter defined. The interest rate shall initially be
calculated with reference to the LIBOR Base Rate which is in effect on the date
hereof and shall be adjusted on the first (1st) day of each month thereafter
(the "Change Date"). The interest rate shall be fixed until the next Change Date
as such LIBOR Base Rate changes. Interest shall be calculated on the basis of a
three hundred sixty (360) day year, and charged for the actual number of days
elapsed in an interest payment period. The term "LIBOR Base Rate" shall mean
that rate per annum for United States dollar deposits with a one month maturity
for an amount equal or comparable to the outstanding principal balance of this
Note as reported on Telerate page 3750 (or if not so reported, then as
determined by Lender from another recognized source of interbank quotations of
Lender's choice), as of 11:00 a.m. London time, two (2)London business days
prior to each Change Date for settlement in immediately available funds by major
top credit quality banks in the London Interbank Market. The LIBOR Base Rate
shall be rounded to the next higher 1/32nd of 1%. The LIBOR Base Rate is one of
several interest rate bases used by Lender, and is not necessarily the lowest or
most favorable rate of interest offered by Lender.
PAYMENTS OF PRINCIPAL AND INTEREST: Beginning on the first (1st) day
following the first full calendar month after the date hereof, and continuing on
the first (1st) day of each month thereafter, the undersigned shall make
consecutive monthly payments of principal and interest in the amount necessary
to fully amortize the principal balance of this Note in equal monthly payments
over the remaining term of this Note until the entire indebtedness evidenced
hereby is fully paid, except that any remaining indebtedness, if not sooner
paid, shall be due and payable on May 1, 2012 (the "Maturity Date").
If any installment under this Note is not received by the holder hereof
within ten (10) calendar days after holder's written demand for such amount, the
entire principal amount outstanding hereunder and accrued interest thereon shall
at once become due and payable, at the option of the holder hereof. The holder
hereof may exercise this option to accelerate during any Default (as hereinafter
defined) by the undersigned regardless of any prior forbearance. In the event of
Borrower's Initials:__________
<PAGE>
any Default under this Note or any Instrument or any other Loan Document (as
such terms are hereinafter defined), and if the same is referred to an attorney
at law for collection or any action at law or in equity is brought with respect
hereto, the undersigned shall pay the holder hereof all of its expenses and
costs, including, but not limited to, reasonable attorneys' fees and expenses,
including reasonable attorneys' fees and expenses on any appeal. Any forbearance
by the holder in exercising any right or remedy under this Note or any
Instrument or any other Loan Document, or otherwise afforded by applicable law,
shall not be a waiver of or preclude the exercise of any right or remedy. The
acceptance by the holder of payment of any sum due hereunder after the due date
of such payment or after holder has declared an event of Default shall not be a
waiver of holder's right to either require prompt payment when due of all other
sums so secured or to declare a default for failure to make prompt payment.
If any installment under this Note is not received by the holder hereof
within ten (10) calendar days after the installment is due, the undersigned
shall pay to the holder hereof a late charge of five percent (5%) of such
installment, such late charge to be immediately due and payable without demand
by the holder hereof. If any installment under this Note or any other monetary
payment due under this Note, any Instrument or any other Loan Document remains
past due for ten (10) calendar days or more after holder's written demand for
such amount, or if there shall exist any other Default under this Note, any
Instrument or any other Loan Document (after any applicable notice or cure
period provided therein or herein), the outstanding balance of this Note shall
bear interest during the period in which the undersigned is in Default at the
lesser of (i) four percent (4%) above the interest rate referenced in the first
paragraph above or (ii) the highest rate allowed by applicable law.
From time to time, without affecting the obligation of the undersigned or
the successors or assigns of the undersigned to pay the outstanding principal
balance of this Note and observe the covenants of the undersigned contained
herein (after any applicable notice or cure period, if any, provided therein or
herein) and without affecting the guaranty of any person, corporation,
partnership or other entity for payment of the outstanding principal balance of
this Note, without giving notice to or obtaining the consent of the undersigned,
the successors or assigns of the undersigned or guarantors, and without
liability on the part of the holder hereof, the holder hereof may, at the option
of the holder hereof, extend the time for payment of said outstanding principal
balance or any part thereof, reduce the payments thereon, release anyone liable
on any of said outstanding principal balance, accept a renewal of this Note,
modify the terms and time of payment of said outstanding principal balance, join
in any extension or subordination agreement, release any security given herefor,
take or release other or additional security, and agree in writing with the
undersigned to modify the rate of interest or period of amortization of this
Note or change the amount of the monthly installments payable hereunder or
otherwise modify, amend or waive any term or provision of this Note, any
Instrument or any other Loan Document.
Presentment, notice of dishonor, right to set off and counterclaim, and
protest are hereby waived by all makers, sureties, guarantors and endorsers
hereof. This Note shall be the joint
Borrower's Initials:__________
<PAGE>
and several obligation of all makers, sureties, guarantors and endorsers, and
shall be binding upon them and their successors and assigns.
The indebtedness evidenced by this Note is secured by that certain
Commercial Deed of Trust, Assignment of Rents and Security Agreement and Fixture
Filing (herein the "Instrument"), executed by the undersigned or its affiliates,
and encumbering certain real property more particularly described therein
(herein referred to as the "Property"), and reference is made thereto for rights
as to acceleration of the indebtedness evidenced by this Note.
A Default as defined in any Instrument or any and all other notes,
instruments, guaranties, documents and agreements evidencing or securing or
relating to the same or the indebtedness represented or secured thereby (herein
a "Loan Document") under any Instrument or any Loan Document shall constitute a
Default under this Note.
Unless funds are advanced hereunder on the first day of the month, the
undersigned shall pay the holder hereof interest only, in advance, on the
outstanding principal balance of this Note at the rate set forth above from the
date that funds are advanced to and including the last day of the month on which
funds are so advanced.
Unless applicable law provides otherwise, so long as the undersigned is not
in Default hereunder, all payments received by the holder under this Note or any
Instrument shall be applied by holder in the following order of priority: (i)
amounts due and payable to holder by the undersigned for any advances made by
the holder under the Instrument or under any of the other Instruments or Loan
Documents for the purposes of paying taxes, insurance and other charges incurred
with respect to the Property; (ii) interest due and payable on the Note; (iii)
principal of the Note; (iv) interest due and payable on advances made by the
holder under the Instrument or under any of the other Instruments or Loan
Documents in order to protect the holder's security interest in any of the
collateral securing the Note; (v) principal of advances made on advances made by
the holder under the Instrument or under any of the other Instruments or Loan
Documents in order to protect the holder's security interest in any of the
collateral securing the Note; (vi) interest due and payable on any Future
Advance (as such term is defined in the Instrument), provided that if more than
one Future Advance is outstanding, the holder may apply payments received among
the amounts of interest payable on the Future Advances in such order as the
holder, in the holder's sole discretion, may determine; (vii) principal of any
Future Advance, provided that if more than one Future Advance is outstanding,
the holder may apply payments received among the principal balances of the
Future Advances in such order as the holder, in the holder's sole discretion,
may determine; and (viii) any other sums due and payable secured by this
Instrument or under any of the other Instruments in such order as the holder, at
the holder's option, may determine; provided, however, that the holder may, at
the holder's option, apply any sums payable on advances made by the holder under
the Instrument or under any of the other Instruments or Loan Documents in order
to protect the holder's security interest in any of the collateral securing the
Note prior to interest on and principal of the Note, but such application shall
not otherwise affect the order of priority of application herein. Upon the
Borrower's Initials:__________
<PAGE>
undersigned's Default under this Note, the Instrument, any of the other
Instruments or in any of the other Loan Documents, the holder may apply any
payments received by the holder in any amount and in any order as the holder
shall determine in the holder's sole discretion.
ADDITIONAL COVENANTS. In addition to the covenants and agreements made in
this Note, the undersigned further covenants and agrees with and in favor of
holder as follows:
A. Prepayment Premium
1. Partial or Full Prepayment. At any time after the first one (1) year of
the Note term and upon giving holder sixty (60) days prior written notice, the
undersigned may prepay the all or a portion of the unpaid principal balance of
the Note on the last Business Day before a scheduled monthly payment date by
paying, in addition to the amount being prepaid, accrued interest, and any other
sums due holder at the time of prepayment, a Prepayment Premium equal to one
percent (1%) of the amount of principal being prepaid.
Except as provided in the next sentence, any partial prepayment of the
outstanding indebtedness shall not extend the due date of any subsequent monthly
installments or change the amount of such installments, unless the holder shall
otherwise agree in writing. Upon any partial prepayment, the holder shall have
the option, in its sole and absolute discretion, to recast the monthly
installments due under the Note so that the maturity date of the Note shall
remain the same.
2. Prepayment Premium Due Whether Voluntary or Involuntary Prepayment;
Insurance and Condemnation Proceeds
The undersigned shall pay the Prepayment Premium due under this Note whether
the prepayment is voluntary or involuntary (in connection with the holder's
acceleration of the unpaid principal balance of the Note) or the Instrument is
satisfied or released by foreclosure (whether by power of sale or judicial
proceeding), deed in lieu of foreclosure or by any other means. Notwithstanding
any other provision herein to the contrary, the undersigned shall not be
required to pay any Prepayment Premium in connection with any prepayment
occurring as a result of the application of insurance proceeds or condemnation
awards under the Instrument. For a prepayment occurring prior to the time that a
voluntary prepayment is permitted hereunder whether as a result of acceleration
of this Note or otherwise, then a Prepayment Premium shall be due and payable in
the amount set forth above plus an additional five percent (5%) of the principal
amount prepaid.
If the undersigned shall give notice of a prepayment but shall fail, for any
reason, to make such prepayment, the undersigned shall immediately pay the
holder hereof any and all reasonable costs, fees and expenses (including
reasonable in house and outside attorneys' fees and expenses) associated with
the holder hereof's administrative preparation for such prepayment.
Borrower's Initials:__________
<PAGE>
The Prepayment Premium is the negotiated charge between the undersigned and
the holder hereof for the privilege of the undersigned to prepay this Note at
the times provided above and to reimburse holder for administrative and other
costs related thereto and is not a penalty. Borrower further agrees to indemnify
the holder hereof and hold it harmless from any costs, fees, expenses (including
reasonable attorneys' fees and expenses) resulting from any action, litigation
or judicial action alleging or claiming that the Prepayment Premium is a
penalty.
3. Notice; Business Day
Any notice to the holder provided for in this Note shall be given in the
manner provided in the Instrument. The term "Business Day" means any day other
than a Saturday, a Sunday, or any other day on which the holder is not open for
business. Notices to the holder shall be by certified mail, return receipt
requested, or by national receipted overnight delivery service, to the address
of the holder as set forth above or as otherwise specified in writing by the
holder, and shall be effective only upon delivery or attempted delivery.
B. Assignment
This Note is freely assignable in whole or in part, from time to time, by
the holder and the holder may grant participation interest(s) herein. Without
limiting the foregoing, the undersigned understands and agrees that the holder
intends to and may sell, pledge, grant a security interest in, collaterally
assign, transfer, deliver or otherwise dispose of this Note and the
undersigned's other Loan Documents (or any interest therein, or its rights and
powers thereunder), from time to time, in connection with the Securitization (as
defined in the Instrument). This Note shall be binding upon the undersigned, its
heirs, devises, administrators, executives, personal representatives,
successors, receivers, trustees, permitted assignees, including all successors
in interest of the undersigned, and shall inure to the benefit of the holder
hereof, and the successors and assignees of the holder hereof.
C. Governing Law; Miscellaneous
This Note shall be governed by and construed in accordance with the laws of
the State of Arizona and applicable federal law, except for enforcement rights
as to any such Property which must be governed by the law of any other
jurisdiction in which any such Property may be located. The undersigned and
holder agree that any dispute arising out of this Note shall be subject to the
jurisdiction of both the state and federal courts in Arizona. For that purpose,
the undersigned hereby submits to the jurisdiction of the state and federal
courts of Arizona. The undersigned further agrees to accept service of process
out of any of the aforesaid courts in any such dispute by registered or
certified mail addressed to the undersigned. Nothing herein contained, however,
shall prevent holder from bringing any action or exercising any rights against
(i) the undersigned, (ii) any security, (ii) a guarantor personally, or (iv) the
assets of the undersigned or any guarantor, within any other state or
jurisdiction. The parties hereto intend to conform strictly to the applicable
usury laws. In no event, whether by reason of demand for payment, prepayment,
acceleration of the maturity hereof or otherwise, shall the interest contracted
for, charged or received by the holder hereof hereunder or otherwise exceed the
Borrower's Initials:__________
<PAGE>
maximum amount permissible under applicable law. If from any circumstance
whatsoever interest would otherwise be payable to the holder in excess of the
maximum lawful amount, the interest payable to the holder hereof shall be
reduced automatically to the maximum amount permitted by applicable law. If the
holder hereof shall ever receive anything of value deemed interest under
applicable law which would apart from this provision be in excess of the maximum
lawful amount, an amount equal to any amount which would have been excessive
interest shall be applied to the reduction of the principal amount owing
hereunder in the inverse order of its maturity and not to the payment of
interest, or if such amount which would have been excessive interest exceeds the
unpaid balance of principal hereof, such excess shall be refunded to the
undersigned. All interest paid or agreed to be paid to the holder hereof shall,
to the extent permitted by applicable law, be amortized, prorated, allocated,
and spread throughout the full stated term (including any renewal or extension)
of such indebtedness so that the amount of interest on account of such
indebtedness does not exceed the maximum permitted by applicable law. The
provisions of this paragraph shall control all existing and future agreements
between the undersigned and the holder hereof.
Whenever possible this Note and each provision hereof shall be interpreted
in such manner as to be effective, valid and enforceable under applicable law.
Any provisions of this Note which are prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. In addition, any determination that the application of any
provision hereof to any person or under any circumstance is illegal and
unenforceable shall not affect the legality, validity and enforceability of such
provision as it may be applied to any other person or in any other circumstance.
WAIVER OF JURY TRIAL. THE UNDERSIGNED AND HOLDER BY ITS ACCEPTANCE HEREOF, FOR
ITSELF AND FOR EACH HOLDER HEREOF, HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY AGREE, THAT:
(A) NEITHER THE UNDERSIGNED NOR HOLDER, NOR ANY ASSIGNEE, SUCCESSOR, HEIR OR
LEGAL REPRESENTATIVE OF ANY OF THE SAME SHALL SEEK A JURY TRIAL IN ANY LAWSUIT,
PROCEEDING, COUNTERCLAIM, OR ANY OTHER LITIGATION PROCEDURE ARISING FROM OR
BASED UPON THIS NOTE, ANY INSTRUMENT OR ANY LOAN DOCUMENT EVIDENCING, SECURING
OR RELATING TO THE OBLIGATIONS OR TO THE DEALINGS OR RELATIONSHIP BETWEEN OR
AMONG THE PARTIES THERETO;
(B) NEITHER THE UNDERSIGNED NOR HOLDER SHALL SEEK TO CONSOLIDATE ANY SUCH
ACTION, IN WHICH A JURY TRIAL HAS BEEN WAIVED, WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL HAS NOT BEEN OR CANNOT BE WAIVED;
(C) THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY
Borrower's Initials:__________
<PAGE>
NEGOTIATED BY THE UNDERSIGNED AND HOLDER, AND THESE PROVISIONS SHALL BE SUBJECT
TO NO EXCEPTIONS;
(D) NEITHER THE UNDERSIGNED NOR HOLDER HAS IN ANY WAY AGREED WITH OR
REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE
FULLY ENFORCED IN ALL INSTANCES;
(E) IN NO EVENT SHALL HOLDER BE RESPONSIBLE OR LIABLE FOR CONSEQUENTIAL OR
PUNITIVE DAMAGES; AND
(F) THIS PROVISION IS A MATERIAL INDUCEMENT FOR HOLDER TO ENTER INTO THIS
TRANSACTION AND IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT
OF COMPETENT LEGAL COUNSEL.
NOTICE TO THE BORROWER
Do not sign this Note before you read it. This Note provides for the payment
of a premium if you wish to repay the Loan prior to the date provided for
repayment in this Note. In addition, this Note authorizes the holder to refuse
to accept repayment of the Loan prior to the date provided for repayment in this
Note unless certain conditions stated in this Note are met.
Signed, sealed and delivered in the
presence of: MAIN ST. CALIFORNIA, INC.,
an Arizona corporation
By:
- ----------------------------------- -------------------------------------
Name: Name:
------------------------------ -----------------------------------
Title:
----------------------------------
(CORPORATE SEAL)
- ------------------------------
Name:
-------------------------
Borrower's Address:
5050 North 40th Street, Suite 200
Phoenix, AZ 85018
<PAGE>
STATE OF _______________
COUNTY OF _____________
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared ___________________, known to me to be
the ________________ of MAIN ST. CALIFORNIA, INC., an Arizona corporation, that
executed the foregoing instrument, and known to me to be the person who executed
the foregoing instrument on behalf of said corporation, for the purposes and
consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL this _______ day of ______________, 1997.
----------------------------------------
Notary Public - State of
----------------
Print Name:
-----------------------------
Commission Number:
----------------------
Commission Expires:
---------------------
This instrument was prepared by: Daniel F. McIntosh, Esquire
Lowndes, Drosdick, Doster, Kantor & Reed, P.A.
215 North Eola Drive
Orlando, Florida 32801
<PAGE>
REQUEST FOR FULL RECONVEYANCE
TO TRUSTEE:
The undersigned is the holder of the note or notes secured by this
Instrument. Said note or notes, together with all other indebtedness secured by
this Instrument have been paid in full. You are hereby directed to cancel said
note or notes and this Instrument, which are delivered hereby, and to reconvey,
without warranty, all the estate now held by you under this Instrument to the
person or persons legally entitled thereto.
Date:
------------------------------ ----------------------------------------
PROMISSORY NOTE
US $8,200,000.00 Dated as of April 4, 1997
FOR VALUE RECEIVED, the undersigned, jointly and severally if more than one,
promises to pay to the order of CNL FINANCIAL I, INC., a Florida corporation, at
400 East South Street, Suite 500, Orlando, Florida 32801, or such other place as
the holder hereof may designate in writing, or order, the principal sum of EIGHT
MILLION TWO HUNDRED THOUSAND AND NO/100 DOLLARS (US $8,200,000.00) with interest
as set forth herein. All computation of interest shall be made by the holder on
the basis of a year of 360 days and shall be allocated in twelve (12) equal
monthly installments.
CONTRACT RATE OF INTEREST: Interest shall accrue on the unpaid principal
balance from the date of this Note, until paid, at the rate of 320 basis points
above the "LIBOR Base Rate" as hereinafter defined. The interest rate shall
initially be calculated with reference to the LIBOR Base Rate which is in effect
on the date hereof and shall be adjusted on the first (1st) day of each month
thereafter (the "Change Date"). The interest rate shall be fixed until the next
Change Date as such LIBOR Base Rate changes. Interest shall be calculated on the
basis of a three hundred sixty (360) day year, and charged for the actual number
of days elapsed in an interest payment period. The term "LIBOR Base Rate" shall
mean that rate per annum for United States dollar deposits with a one month
maturity for an amount equal or comparable to the outstanding principal balance
of this Note as reported on Telerate page 3750 (or if not so reported, then as
determined by Lender from another recognized source of interbank quotations of
Lender's choice), as of 11:00 a.m. London time, two (2)London business days
prior to each Change Date for settlement in immediately available funds by major
top credit quality banks in the London Interbank Market. The LIBOR Base Rate
shall be rounded to the next higher 1/32nd of 1%. The LIBOR Base Rate is one of
several interest rate bases used by Lender, and is not necessarily the lowest or
most favorable rate of interest offered by Lender.
PAYMENTS OF PRINCIPAL AND INTEREST: Beginning on the first (1st) day
following the first full calendar month after the date hereof, and continuing on
the first (1st) day of each month thereafter, the undersigned shall make
consecutive monthly payments of (i) principal in the respective amounts set
forth on the attached Exhibit "A", plus (ii) interest at the Contract Rate of
Interest set forth above, until the entire indebtedness evidenced hereby is
fully paid, except that any remaining indebtedness, if not sooner paid, shall be
due and payable on May 1, 2012 (the "Maturity Date").
If any installment under this Note is not received by the holder hereof
within ten (10) calendar days after holder's written demand for such amount, the
entire principal amount outstanding hereunder and accrued interest thereon shall
at once become due and payable, at the option of the
Borrower's Initials:__________
<PAGE>
holder hereof. The holder hereof may exercise this option to accelerate during
any Default (as hereinafter defined) by the undersigned regardless of any prior
forbearance. In the event of any Default under this Note or any Instrument or
any other Loan Document (as such terms are hereinafter defined), and if the same
is referred to an attorney at law for collection or any action at law or in
equity is brought with respect hereto, the undersigned shall pay the holder
hereof all of its expenses and costs, including, but not limited to, reasonable
attorneys' fees and expenses, including reasonable attorneys' fees and expenses
on any appeal. Any forbearance by the holder in exercising any right or remedy
under this Note or any Instrument or any other Loan Document, or otherwise
afforded by applicable law, shall not be a waiver of or preclude the exercise of
any right or remedy. The acceptance by the holder of payment of any sum due
hereunder after the due date of such payment or after holder has declared an
event of Default shall not be a waiver of holder's right to either require
prompt payment when due of all other sums so secured or to declare a default for
failure to make prompt payment.
If any installment under this Note is not received by the holder hereof
within ten (10) calendar days after the installment is due, the undersigned
shall pay to the holder hereof a late charge of five percent (5%) of such
installment, such late charge to be immediately due and payable without demand
by the holder hereof. If any installment under this Note or any other monetary
payment due under this Note, any Instrument or any other Loan Document remains
past due for ten (10) calendar days or more after holder's written demand for
such amount, or if there shall exist any other Default under this Note, any
Instrument or any other Loan Document (after any applicable notice or cure
period provided therein or herein), the outstanding balance of this Note shall
bear interest during the period in which the undersigned is in Default at the
lesser of (i) four percent (4%) above the interest rate referenced in the first
paragraph above or (ii) the highest rate allowed by applicable law.
From time to time, without affecting the obligation of the undersigned or
the successors or assigns of the undersigned to pay the outstanding principal
balance of this Note and observe the covenants of the undersigned contained
herein (after any applicable notice or cure period, if any, provided therein or
herein) and without affecting the guaranty of any person, corporation,
partnership or other entity for payment of the outstanding principal balance of
this Note, without giving notice to or obtaining the consent of the undersigned,
the successors or assigns of the undersigned or guarantors, and without
liability on the part of the holder hereof, the holder hereof may, at the option
of the holder hereof, extend the time for payment of said outstanding principal
balance or any part thereof, reduce the payments thereon, release anyone liable
on any of said outstanding principal balance, accept a renewal of this Note,
modify the terms and time of payment of said outstanding principal balance, join
in any extension or subordination agreement, release any security given herefor,
take or release other or additional security, and agree in writing with the
undersigned to modify the rate of interest or period of amortization of this
Note or change the amount of the monthly installments payable hereunder or
otherwise modify, amend or waive any term or provision of this Note, any
Instrument or any other Loan Document.
Borrower's Initials:__________
<PAGE>
Presentment, notice of dishonor, right to set off and counterclaim, and
protest are hereby waived by all makers, sureties, guarantors and endorsers
hereof. This Note shall be the joint and several obligation of all makers,
sureties, guarantors and endorsers, and shall be binding upon them and their
successors and assigns.
The indebtedness evidenced by this Note is secured by that certain
Commercial Deed of Trust, Assignment of Rents and Security Agreement and Fixture
Filing and those certain Commercial Mortgage, Assignment of Rents and Security
Agreements (herein together the "Instrument"), each executed by the undersigned
or its affiliates, and encumbering certain real property more particularly
described therein (herein referred to as the "Property"), and reference is made
thereto for rights as to acceleration of the indebtedness evidenced by this
Note.
A Default as defined in any Instrument or any and all other notes,
instruments, guaranties, documents and agreements evidencing or securing or
relating to the same or the indebtedness represented or secured thereby (herein
a "Loan Document") under any Instrument or any Loan Document shall constitute a
Default under this Note.
Unless funds are advanced hereunder on the first day of the month, the
undersigned shall pay the holder hereof interest only, in advance, on the
outstanding principal balance of this Note at the rate set forth above from the
date that funds are advanced to and including the last day of the month on which
funds are so advanced.
Unless applicable law provides otherwise, so long as the undersigned is not
in Default hereunder, all payments received by the holder under this Note or any
Instrument shall be applied by holder in the following order of priority: (i)
amounts due and payable to holder by the undersigned for any advances made by
the holder under the Instrument or under any of the other Instruments or Loan
Documents for the purposes of paying taxes, insurance and other charges incurred
with respect to the Property; (ii) interest due and payable on the Note; (iii)
principal of the Note; (iv) interest due and payable on advances made by the
holder under the Instrument or under any of the other Instruments or Loan
Documents in order to protect the holder's security interest in any of the
collateral securing the Note; (v) principal of advances made on advances made by
the holder under the Instrument or under any of the other Instruments or Loan
Documents in order to protect the holder's security interest in any of the
collateral securing the Note; (vi) interest due and payable on any Future
Advance (as such term is defined in the Instrument), provided that if more than
one Future Advance is outstanding, the holder may apply payments received among
the amounts of interest payable on the Future Advances in such order as the
holder, in the holder's sole discretion, may determine; (vii) principal of any
Future Advance, provided that if more than one Future Advance is outstanding,
the holder may apply payments received among the principal balances of the
Future Advances in such order as the holder, in the holder's sole discretion,
may determine; and (viii) any other sums due and payable secured by this
Instrument or under any of the other Instruments in such order as the holder, at
the holder's option, may determine; provided, however, that the holder may, at
the holder's
Borrower's Initials:__________
<PAGE>
option, apply any sums payable on advances made by the holder under the
Instrument or under any of the other Instruments or Loan Documents in order to
protect the holder's security interest in any of the collateral securing the
Note prior to interest on and principal of the Note, but such application shall
not otherwise affect the order of priority of application herein. Upon the
undersigned's Default under this Note, the Instrument, any of the other
Instruments or in any of the other Loan Documents, the holder may apply any
payments received by the holder in any amount and in any order as the holder
shall determine in the holder's sole discretion.
ADDITIONAL COVENANTS. In addition to the covenants and agreements made in
this Note, the undersigned further covenants and agrees with and in favor of
holder as follows:
A. Prepayment Premium
1. Partial or Full Prepayment. At any time after the first one (1) year of
the Note term and upon giving holder sixty (60) days prior written notice, the
undersigned may prepay the all or a portion of the unpaid principal balance of
the Note on the last Business Day before a scheduled monthly payment date by
paying, in addition to the amount being prepaid, accrued interest, and any other
sums due holder at the time of prepayment, a Prepayment Premium equal to one
percent (1%) of the amount of principal being prepaid.
Except as provided in the next sentence, any partial prepayment of the
outstanding indebtedness shall not extend the due date of any subsequent monthly
installments or change the amount of such installments, unless the holder shall
otherwise agree in writing. Upon any partial prepayment, the holder shall have
the option, in its sole and absolute discretion, to recast the monthly
installments due under the Note so that the maturity date of the Note shall
remain the same.
2. Prepayment Premium Due Whether Voluntary or Involuntary Prepayment;
Insurance and Condemnation Proceeds
The undersigned shall pay the Prepayment Premium due under this Note whether
the prepayment is voluntary or involuntary (in connection with the holder's
acceleration of the unpaid principal balance of the Note) or the Instrument is
satisfied or released by foreclosure (whether by power of sale or judicial
proceeding), deed in lieu of foreclosure or by any other means. Notwithstanding
any other provision herein to the contrary, the undersigned shall not be
required to pay any Prepayment Premium in connection with any prepayment
occurring as a result of the application of insurance proceeds or condemnation
awards under the Instrument. For a prepayment occurring prior to the time that a
voluntary prepayment is permitted hereunder whether as a result of acceleration
of this Note or otherwise, then a Prepayment Premium shall be due and payable in
the amount set forth above plus an additional five percent (5%) of the principal
amount prepaid.
Borrower's Initials:__________
<PAGE>
If the undersigned shall give notice of a prepayment but shall fail, for any
reason, to make such prepayment, the undersigned shall immediately pay the
holder hereof any and all reasonable costs, fees and expenses (including
reasonable in house and outside attorneys' fees and expenses) associated with
the holder hereof's administrative preparation for such prepayment.
The Prepayment Premium is the negotiated charge between the undersigned and
the holder hereof for the privilege of the undersigned to prepay this Note at
the times provided above and to reimburse holder for administrative and other
costs related thereto and is not a penalty. Borrower further agrees to indemnify
the holder hereof and hold it harmless from any costs, fees, expenses (including
reasonable attorneys' fees and expenses) resulting from any action, litigation
or judicial action alleging or claiming that the Prepayment Premium is a
penalty.
3. Notice; Business Day
Any notice to the holder provided for in this Note shall be given in the
manner provided in the Instrument. The term "Business Day" means any day other
than a Saturday, a Sunday, or any other day on which the holder is not open for
business. Notices to the holder shall be by certified mail, return receipt
requested, or by national receipted overnight delivery service, to the address
of the holder as set forth above or as otherwise specified in writing by the
holder, and shall be effective only upon delivery or attempted delivery.
B. Assignment
This Note is freely assignable in whole or in part, from time to time, by
the holder and the holder may grant participation interest(s) herein. Without
limiting the foregoing, the undersigned understands and agrees that the holder
intends to and may sell, pledge, grant a security interest in, collaterally
assign, transfer, deliver or otherwise dispose of this Note and the
undersigned's other Loan Documents (or any interest therein, or its rights and
powers thereunder), from time to time, in connection with the Securitization (as
defined in the Instrument). This Note shall be binding upon the undersigned, its
heirs, devises, administrators, executives, personal representatives,
successors, receivers, trustees, permitted assignees, including all successors
in interest of the undersigned, and shall inure to the benefit of the holder
hereof, and the successors and assignees of the holder hereof.
C. Governing Law; Miscellaneous
This Note shall be governed by and construed in accordance with the laws of
the State of Arizona and applicable federal law, except for enforcement rights
as to any such Property which must be governed by the law of any other
jurisdiction in which any such Property may be located. The undersigned and
holder agree that any dispute arising out of this Note shall be subject to the
jurisdiction of both the state and federal courts in Arizona. For that purpose,
the undersigned hereby submits to the jurisdiction of the state and federal
courts of Arizona. The undersigned further agrees to accept service of process
out of any of the aforesaid courts in any such dispute by registered or
certified mail addressed to the undersigned. Nothing herein contained, however,
Borrower's Initials:__________
<PAGE>
shall prevent holder from bringing any action or exercising any rights against
(i) the undersigned, (ii) any security, (ii) a guarantor personally, or (iv) the
assets of the undersigned or any guarantor, within any other state or
jurisdiction. The parties hereto intend to conform strictly to the applicable
usury laws. In no event, whether by reason of demand for payment, prepayment,
acceleration of the maturity hereof or otherwise, shall the interest contracted
for, charged or received by the holder hereof hereunder or otherwise exceed the
maximum amount permissible under applicable law. If from any circumstance
whatsoever interest would otherwise be payable to the holder in excess of the
maximum lawful amount, the interest payable to the holder hereof shall be
reduced automatically to the maximum amount permitted by applicable law. If the
holder hereof shall ever receive anything of value deemed interest under
applicable law which would apart from this provision be in excess of the maximum
lawful amount, an amount equal to any amount which would have been excessive
interest shall be applied to the reduction of the principal amount owing
hereunder in the inverse order of its maturity and not to the payment of
interest, or if such amount which would have been excessive interest exceeds the
unpaid balance of principal hereof, such excess shall be refunded to the
undersigned. All interest paid or agreed to be paid to the holder hereof shall,
to the extent permitted by applicable law, be amortized, prorated, allocated,
and spread throughout the full stated term (including any renewal or extension)
of such indebtedness so that the amount of interest on account of such
indebtedness does not exceed the maximum permitted by applicable law. The
provisions of this paragraph shall control all existing and future agreements
between the undersigned and the holder hereof.
Whenever possible this Note and each provision hereof shall be interpreted
in such manner as to be effective, valid and enforceable under applicable law.
Any provisions of this Note which are prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. In addition, any determination that the application of any
provision hereof to any person or under any circumstance is illegal and
unenforceable shall not affect the legality, validity and enforceability of such
provision as it may be applied to any other person or in any other circumstance.
WAIVER OF JURY TRIAL. THE UNDERSIGNED AND HOLDER BY ITS ACCEPTANCE HEREOF, FOR
ITSELF AND FOR EACH HOLDER HEREOF, HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY AGREE, THAT:
(A) NEITHER THE UNDERSIGNED NOR HOLDER, NOR ANY ASSIGNEE, SUCCESSOR, HEIR OR
LEGAL REPRESENTATIVE OF ANY OF THE SAME SHALL SEEK A JURY TRIAL IN ANY LAWSUIT,
PROCEEDING, COUNTERCLAIM, OR ANY OTHER LITIGATION PROCEDURE ARISING FROM OR
BASED UPON THIS NOTE, ANY INSTRUMENT OR ANY LOAN DOCUMENT EVIDENCING, SECURING
OR RELATING TO THE OBLIGATIONS OR TO THE DEALINGS OR RELATIONSHIP BETWEEN OR
AMONG THE PARTIES THERETO;
Borrower's Initials:__________
<PAGE>
(B) NEITHER THE UNDERSIGNED NOR HOLDER SHALL SEEK TO CONSOLIDATE ANY SUCH
ACTION, IN WHICH A JURY TRIAL HAS BEEN WAIVED, WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL HAS NOT BEEN OR CANNOT BE WAIVED;
(C) THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY NEGOTIATED BY THE
UNDERSIGNED AND HOLDER, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS;
(D) NEITHER THE UNDERSIGNED NOR HOLDER HAS IN ANY WAY AGREED WITH OR
REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE
FULLY ENFORCED IN ALL INSTANCES;
(E) IN NO EVENT SHALL HOLDER BE RESPONSIBLE OR LIABLE FOR CONSEQUENTIAL OR
PUNITIVE DAMAGES; AND
(F) THIS PROVISION IS A MATERIAL INDUCEMENT FOR HOLDER TO ENTER INTO THIS
TRANSACTION AND IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT
OF COMPETENT LEGAL COUNSEL.
NOTICE TO THE BORROWER
Do not sign this Note before you read it. This Note provides for the payment
of a premium if you wish to repay the Loan prior to the date provided for
repayment in this Note. In addition, this Note authorizes the holder to refuse
to accept repayment of the Loan prior to the date provided for repayment in this
Note unless certain conditions stated in this Note are met.
Signed, sealed and delivered in the
presence of: MAIN ST. CALIFORNIA, INC.,
an Arizona corporation
__________________________ By:______________________________
Name:_____________________ Name:____________________________
Title:___________________________
__________________________ (CORPORATE SEAL)
Name:_____________________
Co-Borrower's Address:
5050 North 40th Street, Suite 200
Phoenix, AZ 85018
<PAGE>
MAIN ST. MIDWEST, INC., a
Kansas corporation
__________________________ By:______________________________
Name:_____________________ Name:____________________________
Title:___________________________
__________________________ (CORPORATE SEAL)
Name:_____________________
Co-Borrower's Address:
5050 North 40th Street, Suite 200
Phoenix, AZ 85018
STATE OF _______________
COUNTY OF ______________
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared ___________________, known to me to be
the ________________ of MAIN ST. CALIFORNIA, INC., an Arizona corporation, that
executed the foregoing instrument, and known to me to be the person who executed
the foregoing instrument on behalf of said corporation, for the purposes and
consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL this _______ day of ______________, 1997.
_________________________________________
Notary Public - State of
Print Name:______________________________
Commission Number:_______________________
Commission Expires:______________________
<PAGE>
STATE OF _______________
COUNTY OF _____________
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared ___________________, known to me to be
the ________________ of MAIN ST. MIDWEST, INC., a Kansas corporation, that
executed the foregoing instrument, and known to me to be the person who executed
the foregoing instrument on behalf of said corporation, for the purposes and
consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL this _______ day of ______________, 1997.
_________________________________________
Notary Public - State of_________________
Print Name:______________________________
Commission Number:_______________________
Commission Expires:______________________
This instrument was prepared by: Daniel F. McIntosh, Esquire
Lowndes, Drosdick, Doster, Kantor & Reed, P.A.
215 North Eola Drive
Orlando, Florida 32801
<PAGE>
REQUEST FOR FULL RECONVEYANCE
TO TRUSTEE:
The undersigned is the holder of the note or notes secured by this
Instrument. Said note or notes, together with all other indebtedness secured by
this Instrument have been paid in full. You are hereby directed to cancel said
note or notes and this Instrument, which are delivered hereby, and to reconvey,
without warranty, all the estate now held by you under this Instrument to the
person or persons legally entitled thereto.
Date:_____________________________ _______________________________
<PAGE>
EXHIBIT "A"
PROMISSORY NOTE
US $3,300,000.00 Dated as of April 15, 1997
FOR VALUE RECEIVED, the undersigned, jointly and severally if more than one,
promises to pay to the order of CNL FINANCIAL I, INC., a Florida corporation, at
400 East South Street, Suite 500, Orlando, Florida 32801, or such other place as
the holder hereof may designate in writing, or order, the principal sum of THREE
MILLION THREE HUNDRED THOUSAND AND NO/100 DOLLARS (US $3,300,000.00) with
interest as set forth herein. All computation of interest shall be made by the
holder on the basis of a year of 360 days and shall be allocated in twelve (12)
equal monthly installments.
CONTRACT RATE OF INTEREST: Interest shall accrue on the unpaid principal
balance from the date of this Note, until paid, at the rate of 320 basis points
above the "LIBOR Base Rate" as hereinafter defined. The interest rate shall
initially be calculated with reference to the LIBOR Base Rate which is in effect
on the date hereof and shall be adjusted on the first (1st) day of each month
thereafter (the "Change Date"). The interest rate shall be fixed until the next
Change Date as such LIBOR Base Rate changes. Interest shall be calculated on the
basis of a three hundred sixty (360) day year, and charged for the actual number
of days elapsed in an interest payment period. The term "LIBOR Base Rate" shall
mean that rate per annum for United States dollar deposits with a one month
maturity for an amount equal or comparable to the outstanding principal balance
of this Note as reported on Telerate page 3750 (or if not so reported, then as
determined by Lender from another recognized source of interbank quotations of
Lender's choice), as of 11:00 a.m. London time, two (2)London business days
prior to each Change Date for settlement in immediately available funds by major
top credit quality banks in the London Interbank Market. The LIBOR Base Rate
shall be rounded to the next higher 1/32nd of 1%. The LIBOR Base Rate is one of
several interest rate bases used by Lender, and is not necessarily the lowest or
most favorable rate of interest offered by Lender.
PAYMENTS OF PRINCIPAL AND INTEREST: Beginning on the first (1st) day
following the first full calendar month after the date hereof, and continuing on
the first (1st) day of each month thereafter, the undersigned shall make
consecutive monthly payments of (i) principal in the respective amounts set
forth on the attached Exhibit "A", plus (ii) interest at the Contract Rate of
Interest set forth above, until the entire indebtedness evidenced hereby is
fully paid, except that any remaining indebtedness, if not sooner paid, shall be
due and payable on May 1, 2012 (the "Maturity Date").
If any installment under this Note is not received by the holder hereof
within ten (10) calendar days after holder's written demand for such amount, the
entire principal amount outstanding hereunder and accrued interest thereon shall
at once become due and payable, at the option of the
Borrower's Initials:__________
1
<PAGE>
holder hereof. The holder hereof may exercise this option to accelerate during
any Default (as hereinafter defined) by the undersigned regardless of any prior
forbearance. In the event of any Default under this Note or any Instrument or
any other Loan Document (as such terms are hereinafter defined), and if the same
is referred to an attorney at law for collection or any action at law or in
equity is brought with respect hereto, the undersigned shall pay the holder
hereof all of its expenses and costs, including, but not limited to, reasonable
attorneys' fees and expenses, including reasonable attorneys' fees and expenses
on any appeal. Any forbearance by the holder in exercising any right or remedy
under this Note or any Instrument or any other Loan Document, or otherwise
afforded by applicable law, shall not be a waiver of or preclude the exercise of
any right or remedy. The acceptance by the holder of payment of any sum due
hereunder after the due date of such payment or after holder has declared an
event of Default shall not be a waiver of holder's right to either require
prompt payment when due of all other sums so secured or to declare a default for
failure to make prompt payment.
If any installment under this Note is not received by the holder hereof
within ten (10) calendar days after the installment is due, the undersigned
shall pay to the holder hereof a late charge of five percent (5%) of such
installment, such late charge to be immediately due and payable without demand
by the holder hereof. If any installment under this Note or any other monetary
payment due under this Note, any Instrument or any other Loan Document remains
past due for ten (10) calendar days or more after holder's written demand for
such amount, or if there shall exist any other Default under this Note, any
Instrument or any other Loan Document (after any applicable notice or cure
period provided therein or herein), the outstanding balance of this Note shall
bear interest during the period in which the undersigned is in Default at the
lesser of (i) four percent (4%) above the interest rate referenced in the first
paragraph above or (ii) the highest rate allowed by applicable law.
From time to time, without affecting the obligation of the undersigned or
the successors or assigns of the undersigned to pay the outstanding principal
balance of this Note and observe the covenants of the undersigned contained
herein (after any applicable notice or cure period, if any, provided therein or
herein) and without affecting the guaranty of any person, corporation,
partnership or other entity for payment of the outstanding principal balance of
this Note, without giving notice to or obtaining the consent of the undersigned,
the successors or assigns of the undersigned or guarantors, and without
liability on the part of the holder hereof, the holder hereof may, at the option
of the holder hereof, extend the time for payment of said outstanding principal
balance or any part thereof, reduce the payments thereon, release anyone liable
on any of said outstanding principal balance, accept a renewal of this Note,
modify the terms and time of payment of said outstanding principal balance, join
in any extension or subordination agreement, release any security given herefor,
take or release other or additional security, and agree in writing with the
undersigned to modify the rate of interest or period of amortization of this
Note or change the amount of the monthly installments payable hereunder or
otherwise modify, amend or waive any term or provision of this Note, any
Instrument or any other Loan Document.
Borrower's Initials:__________
2
<PAGE>
Presentment, notice of dishonor, right to set off and counterclaim, and
protest are hereby waived by all makers, sureties, guarantors and endorsers
hereof. This Note shall be the joint and several obligation of all makers,
sureties, guarantors and endorsers, and shall be binding upon them and their
successors and assigns.
The indebtedness evidenced by this Note is secured by that certain
Commercial Deed of Trust, Assignment of Rents and Security Agreement and Fixture
Filing (herein the "Instrument"), executed by the undersigned or its affiliates,
and encumbering certain real property more particularly described therein
(herein referred to as the "Property"), and reference is made thereto for rights
as to acceleration of the indebtedness evidenced by this Note.
A Default as defined in any Instrument or any and all other notes,
instruments, guaranties, documents and agreements evidencing or securing or
relating to the same or the indebtedness represented or secured thereby (herein
a "Loan Document") under any Instrument or any Loan Document shall constitute a
Default under this Note.
Unless funds are advanced hereunder on the first day of the month, the
undersigned shall pay the holder hereof interest only, in advance, on the
outstanding principal balance of this Note at the rate set forth above from the
date that funds are advanced to and including the last day of the month on which
funds are so advanced.
Unless applicable law provides otherwise, so long as the undersigned is not
in Default hereunder, all payments received by the holder under this Note or any
Instrument shall be applied by holder in the following order of priority: (i)
amounts due and payable to holder by the undersigned for any advances made by
the holder under the Instrument or under any of the other Instruments or Loan
Documents for the purposes of paying taxes, insurance and other charges incurred
with respect to the Property; (ii) interest due and payable on the Note; (iii)
principal of the Note; (iv) interest due and payable on advances made by the
holder under the Instrument or under any of the other Instruments or Loan
Documents in order to protect the holder's security interest in any of the
collateral securing the Note; (v) principal of advances made on advances made by
the holder under the Instrument or under any of the other Instruments or Loan
Documents in order to protect the holder's security interest in any of the
collateral securing the Note; (vi) interest due and payable on any Future
Advance (as such term is defined in the Instrument), provided that if more than
one Future Advance is outstanding, the holder may apply payments received among
the amounts of interest payable on the Future Advances in such order as the
holder, in the holder's sole discretion, may determine; (vii) principal of any
Future Advance, provided that if more than one Future Advance is outstanding,
the holder may apply payments received among the principal balances of the
Future Advances in such order as the holder, in the holder's sole discretion,
may determine; and (viii) any other sums due and payable secured by this
Instrument or under any of the other Instruments in such order as the holder, at
the holder's option, may determine; provided, however, that the holder may, at
the holder's option, apply any sums payable on advances made by the holder under
the Instrument or under
Borrower's Initials:__________
3
<PAGE>
any of the other Instruments or Loan Documents in order to protect the holder's
security interest in any of the collateral securing the Note prior to interest
on and principal of the Note, but such application shall not otherwise affect
the order of priority of application herein. Upon the undersigned's Default
under this Note, the Instrument, any of the other Instruments or in any of the
other Loan Documents, the holder may apply any payments received by the holder
in any amount and in any order as the holder shall determine in the holder's
sole discretion.
ADDITIONAL COVENANTS. In addition to the covenants and agreements made in
this Note, the undersigned further covenants and agrees with and in favor of
holder as follows:
A. Prepayment Premium
1. Partial or Full Prepayment. At any time after the first one (1) year of
the Note term and upon giving holder sixty (60) days prior written notice, the
undersigned may prepay the all or a portion of the unpaid principal balance of
the Note on the last Business Day before a scheduled monthly payment date by
paying, in addition to the amount being prepaid, accrued interest, and any other
sums due holder at the time of prepayment, a Prepayment Premium equal to one
percent (1%) of the amount of principal being prepaid.
Except as provided in the next sentence, any partial prepayment of the
outstanding indebtedness shall not extend the due date of any subsequent monthly
installments or change the amount of such installments, unless the holder shall
otherwise agree in writing. Upon any partial prepayment, the holder shall have
the option, in its sole and absolute discretion, to recast the monthly
installments due under the Note so that the maturity date of the Note shall
remain the same.
2. Prepayment Premium Due Whether Voluntary or Involuntary Prepayment;
Insurance and Condemnation Proceeds
The undersigned shall pay the Prepayment Premium due under this Note whether
the prepayment is voluntary or involuntary (in connection with the holder's
acceleration of the unpaid principal balance of the Note) or the Instrument is
satisfied or released by foreclosure (whether by power of sale or judicial
proceeding), deed in lieu of foreclosure or by any other means. Notwithstanding
any other provision herein to the contrary, the undersigned shall not be
required to pay any Prepayment Premium in connection with any prepayment
occurring as a result of the application of insurance proceeds or condemnation
awards under the Instrument. For a prepayment occurring prior to the time that a
voluntary prepayment is permitted hereunder whether as a result of acceleration
of this Note or otherwise, then a Prepayment Premium shall be due and payable in
the amount set forth above plus an additional five percent (5%) of the principal
amount prepaid.
If the undersigned shall give notice of a prepayment but shall fail, for any
reason, to make such
Borrower's Initials:__________
4
<PAGE>
prepayment, the undersigned shall immediately pay the holder hereof any and all
reasonable costs, fees and expenses (including reasonable in house and outside
attorneys' fees and expenses) associated with the holder hereof's administrative
preparation for such prepayment.
The Prepayment Premium is the negotiated charge between the undersigned and
the holder hereof for the privilege of the undersigned to prepay this Note at
the times provided above and to reimburse holder for administrative and other
costs related thereto and is not a penalty. Borrower further agrees to indemnify
the holder hereof and hold it harmless from any costs, fees, expenses (including
reasonable attorneys' fees and expenses) resulting from any action, litigation
or judicial action alleging or claiming that the Prepayment Premium is a
penalty.
3. Notice; Business Day
Any notice to the holder provided for in this Note shall be given in the
manner provided in the Instrument. The term "Business Day" means any day other
than a Saturday, a Sunday, or any other day on which the holder is not open for
business. Notices to the holder shall be by certified mail, return receipt
requested, or by national receipted overnight delivery service, to the address
of the holder as set forth above or as otherwise specified in writing by the
holder, and shall be effective only upon delivery or attempted delivery.
B. Assignment
This Note is freely assignable in whole or in part, from time to time, by
the holder and the holder may grant participation interest(s) herein. Without
limiting the foregoing, the undersigned understands and agrees that the holder
intends to and may sell, pledge, grant a security interest in, collaterally
assign, transfer, deliver or otherwise dispose of this Note and the
undersigned's other Loan Documents (or any interest therein, or its rights and
powers thereunder), from time to time, in connection with the Securitization (as
defined in the Instrument). This Note shall be binding upon the undersigned, its
heirs, devises, administrators, executives, personal representatives,
successors, receivers, trustees, permitted assignees, including all successors
in interest of the undersigned, and shall inure to the benefit of the holder
hereof, and the successors and assignees of the holder hereof.
C. Governing Law; Miscellaneous
This Note shall be governed by and construed in accordance with the laws of
the State of Arizona and applicable federal law, except for enforcement rights
as to any such Property which must be governed by the law of any other
jurisdiction in which any such Property may be located. The undersigned and
holder agree that any dispute arising out of this Note shall be subject to the
jurisdiction of both the state and federal courts in Arizona. For that purpose,
the undersigned hereby submits to the jurisdiction of the state and federal
courts of Arizona. The undersigned further agrees to accept service of process
out of any of the aforesaid courts in any such dispute by registered or
certified mail addressed to the undersigned. Nothing herein contained, however,
shall prevent holder from bringing any action or exercising any rights against
(i) the undersigned,
Borrower's Initials:__________
5
<PAGE>
(ii) any security, (ii) a guarantor personally, or (iv) the assets of the
undersigned or any guarantor, within any other state or jurisdiction. The
parties hereto intend to conform strictly to the applicable usury laws. In no
event, whether by reason of demand for payment, prepayment, acceleration of the
maturity hereof or otherwise, shall the interest contracted for, charged or
received by the holder hereof hereunder or otherwise exceed the maximum amount
permissible under applicable law. If from any circumstance whatsoever interest
would otherwise be payable to the holder in excess of the maximum lawful amount,
the interest payable to the holder hereof shall be reduced automatically to the
maximum amount permitted by applicable law. If the holder hereof shall ever
receive anything of value deemed interest under applicable law which would apart
from this provision be in excess of the maximum lawful amount, an amount equal
to any amount which would have been excessive interest shall be applied to the
reduction of the principal amount owing hereunder in the inverse order of its
maturity and not to the payment of interest, or if such amount which would have
been excessive interest exceeds the unpaid balance of principal hereof, such
excess shall be refunded to the undersigned. All interest paid or agreed to be
paid to the holder hereof shall, to the extent permitted by applicable law, be
amortized, prorated, allocated, and spread throughout the full stated term
(including any renewal or extension) of such indebtedness so that the amount of
interest on account of such indebtedness does not exceed the maximum permitted
by applicable law. The provisions of this paragraph shall control all existing
and future agreements between the undersigned and the holder hereof.
Whenever possible this Note and each provision hereof shall be interpreted
in such manner as to be effective, valid and enforceable under applicable law.
Any provisions of this Note which are prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. In addition, any determination that the application of any
provision hereof to any person or under any circumstance is illegal and
unenforceable shall not affect the legality, validity and enforceability of such
provision as it may be applied to any other person or in any other circumstance.
WAIVER OF JURY TRIAL. THE UNDERSIGNED AND HOLDER BY ITS ACCEPTANCE HEREOF, FOR
ITSELF AND FOR EACH HOLDER HEREOF, HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY AGREE, THAT:
(A) NEITHER THE UNDERSIGNED NOR HOLDER, NOR ANY ASSIGNEE, SUCCESSOR, HEIR OR
LEGAL REPRESENTATIVE OF ANY OF THE SAME SHALL SEEK A JURY TRIAL IN ANY LAWSUIT,
PROCEEDING, COUNTERCLAIM, OR ANY OTHER LITIGATION PROCEDURE ARISING FROM OR
BASED UPON THIS NOTE, ANY INSTRUMENT OR ANY LOAN DOCUMENT EVIDENCING, SECURING
OR RELATING TO THE OBLIGATIONS OR TO THE DEALINGS OR RELATIONSHIP BETWEEN OR
AMONG THE PARTIES THERETO;
(B) NEITHER THE UNDERSIGNED NOR HOLDER SHALL SEEK TO
Borrower's Initials:__________
6
<PAGE>
CONSOLIDATE ANY SUCH ACTION, IN WHICH A JURY TRIAL HAS BEEN WAIVED, WITH ANY
OTHER ACTION IN WHICH A JURY TRIAL HAS NOT BEEN OR CANNOT BE WAIVED;
(C) THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY NEGOTIATED BY THE
UNDERSIGNED AND HOLDER, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS;
(D) NEITHER THE UNDERSIGNED NOR HOLDER HAS IN ANY WAY AGREED WITH OR
REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE
FULLY ENFORCED IN ALL INSTANCES;
(E) IN NO EVENT SHALL HOLDER BE RESPONSIBLE OR LIABLE FOR CONSEQUENTIAL OR
PUNITIVE DAMAGES; AND
(F) THIS PROVISION IS A MATERIAL INDUCEMENT FOR HOLDER TO ENTER INTO THIS
TRANSACTION AND IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT
OF COMPETENT LEGAL COUNSEL.
NOTICE TO THE BORROWER
Do not sign this Note before you read it. This Note provides for the payment
of a premium if you wish to repay the Loan prior to the date provided for
repayment in this Note. In addition, this Note authorizes the holder to refuse
to accept repayment of the Loan prior to the date provided for repayment in this
Note unless certain conditions stated in this Note are met.
Signed, sealed and delivered in the
presence of: CORNERSTONE
PRODUCTIONS, INC., a Delaware
corporation
___________________________ By:__________________________
Name:______________________ Name:________________________
Title:_______________________
___________________________ (CORPORATE SEAL)
Name:______________________
Borrower's Address:
5050 North 40th Street, Suite 200
Phoenix, AZ 85018
7
<PAGE>
STATE OF _______________
COUNTY OF _____________
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared Bart A. Brown, Jr., known to me to be the
President of CORNERSTONE PRODUCTIONS, INC., a Delaware corporation, that
executed the foregoing instrument, and known to me to be the person who executed
the foregoing instrument on behalf of said corporation, for the purposes and
consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL this _______ day of April, 1997.
_____________________________
Notary Public - State of_____
Print Name:__________________
Commission Number:___________
Commission Expires:__________
This instrument was prepared by: Daniel F. McIntosh, Esquire
Lowndes, Drosdick, Doster, Kantor & Reed, P.A.
215 North Eola Drive
Orlando, Florida 32801
8
<PAGE>
Exhibit "A"
(amortization schedule)
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This exhibit shall not be deemed filed for purpose of Section 11 of the
Securities Act of 1933 and Section 18 of the Securities Exchange Act of
1934, or otherwise subject to the liability of such sections, nor shall
it be deemed a part of any other filing which incorporates this report
by reference, unless such other filing expressly incorporates this
Exhibit by reference
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-30-1996
<PERIOD-START> DEC-26-1995
<PERIOD-END> DEC-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,613
<SECURITIES> 0
<RECEIVABLES> 1,248
<ALLOWANCES> 0
<INVENTORY> 1,275
<CURRENT-ASSETS> 16,238
<PP&E> 42,682
<DEPRECIATION> (10,520)
<TOTAL-ASSETS> 70,848
<CURRENT-LIABILITIES> 17,581
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 16,576
<TOTAL-LIABILITY-AND-EQUITY> 70,848
<SALES> 122,563
<TOTAL-REVENUES> 122,563
<CGS> 35,089
<TOTAL-COSTS> 35,089
<OTHER-EXPENSES> 80,388
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,206
<INCOME-PRETAX> (22,166)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,166)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,166)
<EPS-PRIMARY> (2.73)
<EPS-DILUTED> (2.73)
</TABLE>
