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 28, 1998 Commission File Number: 0-18668
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MAIN STREET AND MAIN INCORPORATED
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(Exact name of registrant as specified in its charter)
DELAWARE 11-2948370
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(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
5050 NORTH 40TH STREET
SUITE 200, PHOENIX, ARIZONA 85018
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(Address of principal executive offices) (Zip Code)
(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 [ ]
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. [ ]
At March 23, 1999, there were outstanding 10,011,052 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 closing sale price of the
Common Stock as reported on the Nasdaq National Market on March 23, 1999, was
$22,636,000. For purposes of this computation, all officers, directors, and 10%
beneficial owners of the registrant are deemed to be affiliates. Such
determination should not be deemed an admission that such officers, directors,
or 10% beneficial owners are, in fact, affiliates of the registrant.
Documents incorporated by reference: Portions of the Registrant's Proxy
Statement for the 1999 Annual Meeting of Stockholders are incorporated by
reference into Part III.
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MAIN STREET AND MAIN INCORPORATED
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 28, 1998
TABLE OF CONTENTS
Page
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PART I
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 11
ITEM 3. LEGAL PROCEEDINGS 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 18
ITEM 11. EXECUTIVE COMPENSATION 18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 18
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K 19
SIGNATURES 21
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STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
THE STATEMENTS CONTAINED IN THIS REPORT ON FORM 10-K THAT ARE NOT PURELY
HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF APPLICABLE
SECURITIES LAWS. FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS REGARDING THE
COMPANY'S "EXPECTATIONS," "ANTICIPATION," "INTENTIONS," "BELIEFS," OR
"STRATEGIES" REGARDING THE FUTURE. FORWARD-LOOKING STATEMENTS ALSO INCLUDE
STATEMENTS REGARDING REVENUE, MARGINS, EXPENSES, AND EARNINGS ANALYSIS FOR
FISCAL 1999 AND THEREAFTER; FUTURE RESTAURANT OPERATIONS AND NEW RESTAURANT
ACQUISITIONS OR DEVELOPMENT; THE RESTAURANT INDUSTRY IN GENERAL; AND LIQUIDITY
AND ANTICIPATED CASH NEEDS AND AVAILABILITY. ALL FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS REPORT ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY AS OF
THE FILING DATE OF THIS REPORT, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE
ANY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS.
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PART I
ITEM 1. BUSINESS
GENERAL
The Company is the world's largest franchisee of T.G.I. Friday's
restaurants, currently owning 40 and managing 10 T.G.I. Friday's restaurants and
owning one Redfish restaurant. 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 Kansas City, Kansas, Kansas
City, Missouri 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 Northern and Southern California territories. The
Company plans to develop additional T.G.I. Friday's restaurants in its existing
development territories, in which it is required to open 44 additional
restaurants by December 31, 2003. In addition, the Company has a 52% ownership
interest in Redfish America, LLC, a cajun-themed restaurant and bar concept,
which currently owns and operates an additional four Redfish Looziana Roadhouse
& Seafood Kitchen restaurants.
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, including Redfish, and the acquisition
of restaurants operating under other restaurant concepts; and (iii) increase
its profitability by continuing to enhance the dining experience of its guests
and improving operating efficiency.
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.
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 1, 1999, TGI Friday's Inc. had 192 franchisor-operated and 357
franchised restaurants operating worldwide. System-wide sales exceeded $1.4
billion in 1998. 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, jalapeno poppers, buffalo wings, stuffed potato skins, quesadillas,
fried onion rings, and pot stickers); a variety of soups, salads, sandwiches,
wrappers, burgers,
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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,(TM) and sparkling
fruit juice combinations known as Friday's Flings(R).
Menu prices range from $6 to $17 for beef, chicken, and seafood entrees;
$6 to $10 for pizzadillas, pasta, wrappers, and oriental and southwestern
specialty items; $4 to $9 for salads, sandwiches, and burgers; and $3 to $10
for appetizers and soups. Each restaurant offers a separate children's menu
with food entrees ranging from $2 to $3. Alcoholic beverage sales currently
account for approximately 23.3% 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.
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 5,500 and 9,000 square feet of
space and average approximately 7,500 square feet. Most of the Company's
recently developed restaurants, however, contain 5,800 to 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 $1,900,000 to $2,200,000, exclusive of annual
operating expenses and assuming that the underlying real estate is obtained
under a lease arrangement. These costs include approximately (i) $1,150,000 to
$1,450,000 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 T.G.I. Friday's restaurants open
during all of fiscal 1998 generated an average of approximately $3,079,000 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 after extensive consultation with all levels of the
operations group. 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.
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CURRENT RESTAURANTS
The following table sets forth certain information relating to each of
restaurants owned or managed by the Company as of March 23, 1999.
<TABLE>
<CAPTION>
Owned or
Square Seating In Operation Managed by the
Location Footage Capacity Since Company Since
-------- ------- -------- ----- -------------
<S> <C> <C> <C> <C>
ACQUIRED T.G.I. FRIDAY'S 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
Kansas City, Missouri ..................... 8,500 270 1983 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
Pleasanton, California ..................... 8,000 255 1995 1998
Salinas, California ........................ 6,500 240 1994 1998
Oakland, California ........................ 5,966 230 1994 1998
Sacramento, California ..................... 6,200 230 1979 1998
Citrus Heights, California ............... 8,500 270 1982 1998
Fresno, California ........................ 5,950 230 1978 1998
DEVELOPED T.G.I. FRIDAY'S RESTAURANTS (OWNED)
Scottsdale, Arizona ..................... 8,507 281 1991 1991
Glendale, Arizona ........................ 5,200 230 1993 1993
Albuquerque, New Mexico .................. 5,975 270 1993 1993
Reno, Nevada .............................. 6,500 263 1994 1994
Oxnard, California ........................ 6,500 252 1994 1994
Carmel Mountain, California ............... 6,500 252 1995 1995
Rancho Santa Margarita, California ......... 6,548 252 1995 1995
Cerritos, California ..................... 6,250 223 1996 1996
Las Vegas, Nevada ........................ 6,700 251 1997 1997
San Francisco, California .................. 6,700 251 1998 1998
El Paso, Texas #2 ........................ 5,491 206 1998 1998
Superstition Springs (Mesa), Arizona ...... 6,250 240 1998 1998
Puente Hills, California .................. 5,800 272 1999 1999
San Diego, California ..................... 6,800 277 1999 1999
</TABLE>
(Table continued on next page)
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(Table continued from previous page)
<TABLE>
<CAPTION>
Owned or
Square Seating In Operation Managed by the
Location Footage Capacity Since Company Since
-------- ------- -------- ----- -------------
<S> <C> <C> <C> <C>
MANAGED T.G.I. FRIDAY'S RESTAURANTS
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
Metairie, Louisiana ............ 9,000 290 1978 1996
New Orleans, Louisiana ......... 7,100 258 1994 1996
El Paso, Texas #1 ............... 4,800 198 1997 1997
Monterey, California ............ 6,800 250 1997 1998
REDFISH RESTAURANTS
Chicago, Illinois ............... 6,200 214 1996 1997
Wheaton, Illinois ............... 7,133 210 1997 1997
Denver, Colorado ............... 7,925 321 1997 1997
Cincinnati, Ohio ............... 7,133 239 1997 1997
San Diego, California ............ 11,994 347 1999 1999
</TABLE>
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 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;
* advertising and promotional programs;
* requirements for quality and uniformity of products and services
offered;
* requirements for 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 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). The Company believes the support as well as
the standards, specifications, and operating
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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.
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 and contracted third-party quality
assurance professionals 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 eight regional managers are responsible for between five and
eleven 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 Restaurant Operations. The Vice President of Restaurant
Operations reports to the Executive Vice President of Operations and Chief
Operating Officer, who has complete responsibility for the operations of the
Company. Restaurant managers are responsible for day-to-day restaurant
operations, including customer relations, food preparation and service, cost
control, restaurant maintenance, and personnel relations. The Company typically
staffs its restaurants with an on-site general manager, two or three 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 and performance standards,
accounting procedures, and employee selection and training necessary for
restaurant operations.
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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
restaurant office 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
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 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. TGI
Friday's Inc. and many of its other franchisees also purchase from this
supplier, which is not affiliated with the
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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,
either overnight or same day, 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 Item 1, "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.
In conjunction with TGI Friday's Inc., the Company maintains 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(R) and Friday's(R). The
Company advertises in various media utilizing these marks to attract new
customers to its restaurants.
EXPANSION OF OPERATIONS
Since 1990, the Company has acquired 36 existing T.G.I. Friday's
restaurants as well as the exclusive rights to develop restaurants in specified
territories. The acquisitions include 26 restaurants in California, three in
Arizona, and one in each of Colorado, Kansas, Missouri, Nebraska, Nevada,
Oregon, and Washington. The Company also has developed 19 new T.G.I. Friday's
restaurants. These include seven in California, three in each of Washington and
Arizona, two in each of Nevada and Texas, and one in each of Colorado and New
Mexico. See Item 1, "Business -- Current Restaurants." The Company subsequently
sold five of the restaurants it acquired in California, which it continues to
manage, and sold eight restaurants in Colorado, Nebraska, Oregon, and
Washington. In addition, the Company developed one Friday's Front Row Sports
Grill in Portland, Oregon (which it closed in June 1998) and in 1997 acquired a
52% ownership interest in Redfish America, LLC, which currently owns and
operates four Redfish Looziana Roadhouse & Seafood Kitchen restaurants. In May
1998, the Company acquired six T.G.I. Friday's restaurants in northern
California along with the related T.G.I. Friday's development agreement. As
part of this acquisition, the Company agreed to manage an additional location
in Monterey, California through April 1999.
The Company plans to expand its restaurant operations through the
development of additional restaurants in the Company's existing development
territories. The Company opened a T.G.I. Friday's restaurant in Puente Hills,
California on February 15, 1999, a T.G.I. Friday's restaurant in the Gaslamp
district of San Diego, California on March 22, 1999, and a Redfish restaurant
in the Gaslamp district of San Diego, California on March 23, 1999. The Company
plans to open 12 to 13 additional restaurants over the next year and to meet or
exceed its development requirements thereafter. The Company has signed leases
or purchased building pads for 13 additional restaurants scheduled to be
developed during 1999. The Company has identified two additional sites for
development in 1999 and currently is negotiating site acquisitions for these
restaurants. The Company currently is considering other sites for additional
restaurants, but has not entered into leases or purchase agreements for such
sites.
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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, traffic
volume, and proximity to demand generators (including shopping malls,
lodging, and office complexes) and potential competition;
* obtain financing for construction, tenant improvements, furniture,
fixtures, equipment, and other expenditures;
* negotiate acceptable leases or terms of purchase;
* secure zoning, environmental, health and similar regulatory approvals and
liquor licenses;
* recruit and train qualified personnel; and
* 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.
DEVELOPMENT AGREEMENTS
The Company is a party to four 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.
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 Kansas City, Kansas, Kansas City, Missouri 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 Northern and Southern California territories.
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.
Southern Northern
California California Southwest Midwest
Year Territory(1) Territory(1) Territory(2) Territory(3) Total
- ---- ------------ ------------ ------------ ------------ -----
1999 ................. 3 4 1 1 9
2000 ................. 4 5 1 1 11
2001 ................. 4 4 1 1 10
2002 ................. 4 4 1 1 10
2003 ................. 3 3 (TBD) (TBD) 6
--- --- ---- ---- ---
18 20 4 4 46
Existing Restaurants.. 21 7 (4) 11 (5) 2 41
- ------------
(1) TGI Friday's Inc. also will develop restaurants in these regions.
(2) Includes the states of Arizona, Nevada, and New Mexico and the El Paso,
Texas metropolitan area.
(3) Includes metropolitan Kansas City, Kansas and Kansas City, Missouri.
(4) Does not include six restaurants managed in the Northern California
Territory.
(5) Does not include one restaurant managed in the Southwest Territory.
(TBD) To be determined by negotiation between T.G.I. Friday's Inc. and the
Company during 2002.
8
<PAGE>
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.
FRANCHISE AGREEMENTS
The Company enters into or assumes a separate franchise agreement with
respect to each T.G.I. Friday's restaurant that it develops pursuant to a
development agreement or acquires. 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.
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 $4,850,000, $4,120,000, and
$3,929,000 during fiscal 1996, 1997, and 1998, 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 1998, however, TGI Friday's Inc. generally required
the Company as well as all other franchisees to contribute up to 1.9% of gross
sales to the national marketing pool. Marketing expenses totaled $1,554,000,
$1,919,000, and $1,805,000, during fiscal 1996, 1997, and 1998, 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.
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.
9
<PAGE>
COMPETITION
The restaurant business is highly competitive with respect to price,
service, 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 the Company cannot provide any
assurance that it will be successful in this regard.
EMPLOYEES
The Company employs approximately 1,863 persons on a full-time basis, of
whom 52 are corporate management and staff personnel and 1,811 are restaurant
personnel. The Company also employs approximately 3,364 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.
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
executive officers:
NAME AGE POSITION
- ---- --- --------
Bart A. Brown, Jr....... 67 President, Chief Executive Officer, and Director
William G. Shrader...... 51 Executive Vice President, Chief Operating Officer,
and Director
James Yeager............ 48 Vice President-Finance, Secretary, and Treasurer
BART A. BROWN, JR. has been the President and Chief Executive Officer of
the Company since December 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 that company's 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 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. Mr. Brown engaged in the
private practice of law from 1963 through 1990 after seven years of employment
with the Internal Revenue Service.
WILLIAM G. (BILL) SHRADER has served as Executive Vice President, Chief
Operating Officer and Director of the Company since March 1, 1999. Prior to
joining the Company, Mr. Shrader was Senior Vice President of Marketing for
Tosco Marketing Company from February 1997 to March 1999. From August 1992 to
February 1997, Mr. Shrader served in several capacities at Circle K Stores,
Inc., including President of the Arizona Region, President of the Petroleum
Products/Services Division, Vice President of Gasoline Operations and Vice
President of Gasoline Marketing. Mr. Shrader began his career in 1976 at The
Southland Corporation and departed in 1992 as National Director of Gasoline
Marketing.
10
<PAGE>
JAMES YEAGER has served as Vice President-Finance of the Company since
January 1999 and as Secretary and Treasurer of the Company since April 1998. Mr.
Yeager served as Corporate Controller of the Company from June 1997 to January
1999. Prior to joining the Company, Mr. Yeager was Chief Financial Officer of
Restaurants of America, Inc., a multiple concept restaurant company. Previously,
he was Chief Financial Officer of an engineering and high tech manufacturing
company, a multi-office law firm, a 160 unit chain of retail drug stores, a 60
unit chain of retail drug stores, and a full-service real estate investment and
management company. Mr. Yeager began his career as a manager and a partner in a
local public accounting firm in Dallas, Texas from 1972 to 1983.
ITEM 2. PROPERTIES
In December 1998, 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.
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 7
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 a material adverse effect on its business or financial condition that
is not otherwise reserved for in the Company's consolidated financial
statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
11
<PAGE>
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
---- ---
1997
First Quarter .............................. $2 9/16 $1 9/16
Second Quarter.............................. 2 25/32 1 5/8
Third Quarter .............................. 3 7/8 2 5/16
Fourth Quarter.............................. 4 3/8 2 5/8
1998
First Quarter .............................. $4 $2 9/16
Second Quarter.............................. 3 15/16 3 1/8
Third Quarter .............................. 4 5/16 3 5/16
Fourth Quarter.............................. 3 7/8 2 15/16
1999
First Quarter (through March 23, 1999)...... $3 5/8 $2 31/32
On March 23, 1999, there were 782 holders of record of the Company's
Common Stock. On March 23, 1999, the closing sale price of the Common Stock on
the Nasdaq National Market was $3.125 per share.
The Company has never declared or paid any cash dividends. The Company
intends to retain any earnings to fund the growth of its business and does not
anticipate paying any cash dividends in the foreseeable future. In addition,
the Company's existing debt obligations prohibit the Company from paying cash
dividends.
12
<PAGE>
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 28, 1998 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 Item 7,
"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. 26, Dec. 25, Dec. 30, Dec. 29 Dec. 28
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue .................................. $111,262 $119,508 $122,563 $107,997 $115,324
Restaurant operating expenses:
Cost of sales ........................... 30,516 34,005 35,089 30,995 33,242
Payroll and benefits .................... 34,849 36,769 38,858 32,469 34,353
Depreciation and amortization ........... 3,884 4,353 4,586 3,552 4,391
Other operating expenses ................ 31,621 35,250 36,944 30,589 31,083
-------- -------- -------- -------- --------
Total restaurant operating expenses .... 100,870 110,377 115,477 97,605 103,069
-------- -------- -------- -------- --------
Income from restaurant operations ........ 10,392 9,131 7,086 10,392 12,255
Depreciation and amortization ........... 1,014 1,331 1,450 953 983
General and administrative expenses ..... 4,191 4,410 4,388 4,559 4,906
Restructuring and reorganization ........ -- -- 20,208 (2,390) (17)
-------- -------- -------- -------- --------
Operating income (loss) .................. 5,187 3,390 (18,960) 7,270 6,383
Interest expense, net ................... 3,902 4,424 3,206 2,466 2,218
-------- -------- -------- -------- --------
Net income (loss) from continuing
operations before income taxes and
extraordinary item ...................... 1,285 (1,034) (22,166) 4,804 4,165
Provision for income taxes ............... -- -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) from continuing
operations before extraordinary item .... 1,285 (1,034) (22,166) 4,804 4,165
Net income (loss)(1) ..................... $ 1,285 $ (1,034) $(22,166) $ 3,166 $ 4,165
DILUTED EARNINGS PER SHARE:
Net income (loss) from continuing
operations before extraordinary item.... $ 0.35 $ (0.22) $ (2.73) $ 0.47 $ 0.39
Net income (loss)(1) .................... $ 0.35 $ (0.22) $ (2.73) $ 0.31 $ 0.39
Weighted average shares outstanding --
diluted ................................. 3,692 4,621 8,110 10,098 10,608
BALANCE SHEET DATA:
Working capital ......................... $(10,905) $ (7,848) $ (1,343) $ (1,330) $ (2,807)
Total assets ............................ 84,503 88,605 70,848 61,168 70,255
Long-term debt, net of current portion... 41,265 31,204 33,809 24,308 28,264
Stockholders' equity .................... 22,601 37,261 16,585 22,203 26,372
</TABLE>
- ------------
(1) Fiscal 1997 includes an extraordinary loss from debt extinguishment of
$1,638,000, or $0.16 per share.
13
<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 T.G.I. Friday's restaurants in Arizona and Nevada. During
the past eight years, the Company has grown through acquisitions and
development of new restaurants and currently manages 55 restaurants.
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, and to
dispose of underperforming assets.
The first step was to strengthen the Company's financial position. This
was accomplished by (i) the sale of 1,250,000 shares of Common Stock for
$2,500,000 through a private placement transaction in January 1997; (ii) the
sale of five restaurants in northern California in January 1997 for
$10,800,000, of which $8,000,000 in proceeds were used to repay debt (see Notes
3 and 5 to Notes to Consolidated Financial Statements); and (iii) new
borrowings of $21,300,000 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 5 to Notes to Consolidated Financial Statements).
The Company also has 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 7 to Notes to Consolidated
Financial Statements). In addition, the Company has recorded net restructuring
and reorganization gains of $17,000 in 1998, $2,390,000 in 1997 and a loss of
$20,208,000 in 1996 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 Company's current strategy is to reduce operating costs and expand its
restaurant operations. This will entail continuing to build T.G.I. Friday's and
Redfish restaurants and evaluating other concepts in the casual dining segment.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages
that certain items of income and expense bear to total revenue:
Fiscal Year Ended
----------------------------------------
December 30, December 29, December 28,
1996 1997 1998
----------- ------------ ------------
Revenue ................................ 100.0% 100.0% 100.0%
Restaurant operating expenses:
Cost of sales ......................... 28.6 28.7 28.8
Payroll and benefits .................. 31.7 30.1 29.8
Depreciation and amortization ......... 3.7 3.3 3.8
Other operating expenses .............. 30.2 28.3 27.0
----- ----- -----
Total restaurant operating expenses ... 94.2 90.4 89.4
----- ----- -----
Income from restaurant operations ...... 5.8 9.6 10.6
Depreciation and amortization ......... 1.2 0.9 0.9
General and administrative expenses ... 3.6 4.2 4.2
Restructuring and reorganization ...... 16.5 (2.2) --
----- ----- -----
Operating income (loss) ................ (15.5) 6.7 5.5
Interest expense, net .................. 2.6 2.3 1.9
----- ----- -----
Net income (loss) before income taxes
and extraordinary item ................ (18.1)% 4.4% 3.6%
===== ===== =====
14
<PAGE>
FISCAL 1998 COMPARED TO FISCAL 1997
Revenue for the fiscal year ended December 28, 1998 increased 6.8% to
$115,324,000 as compared with $107,997,000 for the fiscal year ended December
29, 1997. This increase was due primarily to the acquisition of six restaurants
in May 1998, the development of three new restaurants during the year, and an
increase in same store sales of 4.7% for the year. Additionally, management
fees from restaurants in Louisiana, El Paso, Texas and northern California
increased from $979,000 in 1997 to $1,083,000 in 1998. Sales of alcoholic
beverages accounted for 23.3% of revenue for the year as compared with 23.6%
for the year ended December 29, 1997.
Cost of sales increased as a percentage of revenue to 28.8% in 1998 as
compared with 28.7% in 1997. This increase was the result of the introduction of
Jack Daniels Grill menu items in mid-1997, which have higher food costs, as well
as higher food costs associated with the Redfish restaurants, which were
acquired by the Company in April 1997. Additionally, certain dairy and potato
products had higher costs in 1998 as compared with 1997.
Labor costs decreased as a percentage of revenue to 29.8% in 1998 as
compared with 30.1% in 1997. A $0.40 per hour increase in the minimum wage rate
in September 1997 and an additional $0.60 per hour increase in the minimum wage
rate in California in March 1998 was more than offset by menu price increases
and better management of labor costs in 1998.
Other operating expenses include rent, real estate taxes, advertising,
insurance, maintenance, supplies, and utilities. Also included in other
operating expenses is a 4% royalty fee paid to TGI Friday's Inc. pursuant to
the franchise agreements, as well as payments to a national marketing fund
managed by the franchisor. The franchise agreements require the Company to pay
up to 4% of revenue to this marketing fund, although the Company was required
to only pay approximately 1.9% in 1997. The Company is required to pay 2.1% of
revenue into the marketing fund in 1999. The decrease in other operating
expenses is attributable to lower insurance costs and to the Company's on-going
cost reduction efforts in supply, maintenance and advertising costs.
Depreciation and amortization increased as a percentage of revenue to 4.7%
in 1998 as compared with 4.2% in 1997 due primarily to amortization of
pre-opening costs of three new restaurants developed in 1997, as well as
additional depreciation associated with these three new restaurants and the six
northern California restaurants purchased in May 1998.
General and administrative expenses as a percentage of revenue remain
unchanged at 4.2% for both 1997 and 1998.
Interest expense decreased as a percentage of revenue to $2,218,000, or
1.9% of revenue, in 1998 as compared with $2,466,000, or 2.3% of revenue, in
1997. This decrease was primarily due to the capitalization of financing costs
associated with restaurants developed during 1998. Additionally, the percentage
decrease is attributable to the relatively fixed nature of these financing
costs as compared with increasing revenues from 1997 to 1998.
No income tax provision was recorded in 1998 or 1997 due to the
availability of net operating loss carryforwards.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenue for the fiscal year ended December 29, 1997 decreased 11.9% to
$107,997,000 compared to $122,563,000 in the fiscal year ended December 30,
1996. This decrease was due primarily to an additional week of revenue in the
53-week period ended December 30, 1996 compared to the normal 52 week period in
1997, the sale of five restaurants in northern California in January 1997, and
the sale of eight restaurants in Washington, Oregon, Colorado and Nebraska in
October 1997. The Company currently manages the five restaurants it sold in
northern California, along with four other T.G.I. Friday's restaurants in
Louisiana and El Paso, Texas, generating management fee revenue of $979,000 for
the fiscal year ended December 29, 1997. Revenue for the nine restaurants that
the Company manages totaled $23,500,000 for the year ended December 29, 1997.
The decrease in revenue was partially offset by a 2% increase in same store
sales and revenue from the Redfish restaurants of $4,693,000 for the fiscal
year ended December 29, 1997. Revenue from alcoholic beverages accounted for
23.6% of revenue for the fiscal year ended December 29, 1997 which is unchanged
from the prior year.
15
<PAGE>
Cost of sales as a percentage of revenue increased to 28.7% in 1997 from
28.6% in 1996. The increase resulted from a lower-priced lunch menu introduced
in April 1997, the introduction of Jack Daniels Grill menu items, which have
higher food costs, and the consolidation of the Redfish restaurants, which have
higher food costs than T.G.I. Friday's restaurants. This increase was partially
offset by $979,000 in management fees included in 1997 revenue which has no
corresponding cost of sales.
Labor costs decreased as a percentage of revenue to 30.1% in 1997 from the
31.7% in 1996. A $.50 per hour increase in minimum wage in October 1996 was
more than offset by a menu price increase and better controls on managing labor
costs. Minimum wage in California, which restaurants in California account for
60% of the Company's revenue, has increased to $5.75 in March 1998. The Company
increased its menu prices in 1998 to offset this increased labor cost.
Other operating expenses include rent, real estate taxes, common area
maintenance charges, advertising, insurance, maintenance, and utilities. In
addition, the franchise agreements between TGI Friday's Inc. and the Company
require a 4% royalty and a contribution to a national marketing pool of up to
4% of gross sales, although the Company was only required to pay 1.9% and 1.7%
during 1997 and 1996, respectively, and will contribute 2.2% for 1998. Other
operating expenses decreased as a percentage of revenue to 28.3% in 1997 from
30.2% in 1996. The decreases were a result of lower advertising costs,
specifically related to the Company's frequency program, and lower supplies and
insurance costs, which were partially offset by an increase in contributions to
a national marketing pool administered by TGI Friday's Inc.
In total, depreciation and amortization decreased as a percentage of
revenue to 4.2% in 1997 from 4.9% in 1996. The decrease was due primarily to
the write-offs in the fourth quarter of 1996 related to asset impairments.
General and administrative expenses as a percentage of revenue increased
to 4.2% in 1997 from 3.6% in 1996. These increases relate primarily to the
relative fixed nature of these expenses in comparison to the overall decline in
revenue.
Interest expense was approximately $2,466,000 in 1997 compared to
$3,206,000 in 1996. These decreases were a result of the retirement of $8.0
million of indebtedness with proceeds from the sale of five restaurants in
northern California in January 1997.
No income tax provision was recorded in 1997 or 1996 due to the
availability of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary use of funds over the past five 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. 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 $4,444,000 in 1996,
$1,050,000 in 1997, and $9,062,000 in 1998. These were supplemented by net cash
flows from financing of $4,092,000 and $2,051,000, for the years ended 1998 and
1996, respectively, to fund the Company's acquisitions and development of new
restaurants. In 1997, the Company used $8,287,000 of net cash flows for
financing activities which came primarily from the sale of assets.
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. At December 28, 1998 the Company
had a cash balance of $7,294,000. Monthly cash receipts have been sufficient to
pay all obligations as they become due.
At December 28, 1998, the Company had long-term debt of $28,264,000 and
current portion of long-term debt of $1,365,000.
16
<PAGE>
Approximately $19,118,000 of this debt is a Term Loan comprised of five
notes from one lender, three of the notes bear interest at 9.457% per annum and
two of the notes bear interest at the one month LIBOR rate plus 320 basis
points and are payable in equal monthly installments of principal and interest
of approximately $222,000 (combined) until the notes are paid in full on May 1,
2012.
The Company plans to develop at least 14 additional restaurants over the
next year. The Company's primary lender has committed $30,000,000 to finance the
development of these new restaurants and has given the Company different
alternatives under which this financing would be provided for each new
restaurant.
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 $5,800,000 per year.
YEAR 2000
The Company continues to assess and quantify the impact that the Year 2000
issue will have on its information systems, imbedded systems and business
processes. The systems that might be affected by the Year 2000 issue are (1)
the Company's internal corporate support systems, including a mid-range
computer system the Company relies upon to assimilate accounting information
and produce internal and external accounting reports; (2) the Company's
internal personal computer network and related software that it relies upon to
produce correspondence and daily and weekly financial data; (3) the Com-pany's
point-of-sale and restaurant back-office accounting systems that it relies upon
to process guest orders, track the status of orders, schedule and track time
and attendance information and related labor costs, and produce store-level
operating data; (4) restaurant equipment necessary to prepare the guests'
orders; and (5) third-party systems such as computer systems used by the
banking, telephone, utility, food preparation and distribution industries, all
of which are necessary to the basic operation of the Company's restaurants.
In 1998, the Company began identifying those most critical areas that
might be deficient and established a time line to complete the necessary
analysis and remediation plans. The Company has begun correcting the
deficiencies identified in all affected areas and anticipates completion of the
remediation plans by September 30, 1999. The established cost of the analysis
and remediation plans related to the Year 2000 issues is approximately
$450,000.
As part of this process, the Company has assessed the role of critical
suppliers of products and services to determine the extent that the Company
might be vulnerable in the event that these suppliers have failures due to the
Year 2000 issue. A questionnaire has been provided to, and research is being
conducted on, critical suppliers to determine their state of Year 2000
readiness.
When critical suppliers or processes might not be compliant, or compliance
is uncertain, the Company is establishing contingency plans in the event that
such suppliers or processes fail to perform after December 31, 1999. Such
contingency plans might consist of converting to manual systems or changing to
alternative processes or suppliers that will function properly after December
31, 1999. The Company anticipates that it will complete these contingency plans
by September 30, 1999. As of the filing date of this Report, the Company is
unable to reasonably estimate the effect, if any, on its consolidated financial
position, results of operations or cash flows from the failure of its
significant vendors to be Year 2000 ready.
The Company has determined that the worst case scenario related to the
Year 2000 issue would be a complete failure of the Company's systems and those
of the Company's critical suppliers of products and services. The failure of
the Company's information systems, embedded systems, or business processes or
the systems of third parties to timely achieve Year 2000 compliance could have
a material adverse effect on the Company's business, financial condition and
operating results.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable.
17
<PAGE>
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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item relating to the Company's directors
is incorporated by reference to the Company's Proxy Statement to be filed for
its 1999 Annual Meeting of Stockholders. The information required by this Item
relating to the Company's executive officers is included in Item 1, "Busniess
- -- Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed for its 1999 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed for its 1999 Annual Meeting of
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed for its 1999 Annual Meeting of
Stockholders.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
(1) Financial Statements are listed in the Index to Consolidated Financial
Statements on page F-1 of this Report.
(2) No Financial Statement Schedules are included because they are not
applicable or are not required or the information required to be set
forth therein is included in the consolidated financial statements or
notes thereto.
(b) REPORTS ON FORM 8-K.
Not applicable.
(c) EXHIBITS
Exhibit
Number Exhibit
- ------ -------
3.1 Certificate of Incorporation of the Registrant(1)
3.2 Certificate of Amendment of Restated Certificate of Incorporation(1)
3.3 Amended and Restated Bylaws of the Registrant(1)
10.1 Registrant's 1990 Stock Option Plan(2)
10.5 Form of Franchise Agreement between the Registrant and TGI Friday's
Inc.(3)
10.7 Asset Conveance Agreement among CNL California Restaurants, LTD., Main
St. California, Inc. and Registrant.(4)
10.8 Stock Purchase Agreement among CNL California Restaurants, LTD., Main
St. California, Inc. and Registrant.(4)
10.9 Form of Management Agreement between Main St. California II, Inc. and
Main St. California, Inc., a wholly owned subsidiary of Registrant.(4)
10.10 Master Incentive Agreements between Main St. California II, Inc. and
Main St. California, Inc., a wholly owned subsidiary of Registrant.(4)
10.11 Employment Agreement with Bart A. Brown, Jr.(5)
10.11A Employment Agreement dated January 1, 1999 between Main Street and Main
Incorporated and Bart A. Brown, Jr.
10.13 Promissory Note between Registrant and CNL Financial I, Inc.(5)
10.14 Promissory Note between Registrant and CNL Financial I, Inc.(5)
10.15 Promissory Note between Registrant and CNL Financial I, Inc.(5)
10.16 Registrant's 1995 Stock Option Plan(6)
10.17 Amended and Restated Development Agreement between TGI Friday's Inc. and
Cornerstone Productions, Inc., a wholly owned subsidiary of the
Registrant.(7)
10.18 Amended and Restated Development Agreement between TGI Friday's Inc. and
Main St. California, Inc., a wholly owned subsidiary of the
Registrant.(7)
10.18A First Amendment to Development Agreement dated February 10, 1999,
between TGI Friday's, Inc. and Main St. California, Inc.
10.19 Amended and Restated Development Agreement between TGI Friday's Inc. and
Main St. Midwest, Inc., a wholly owned subsidiary of the Registrant.(7)
10.20 Amended and Restated Purchase Agreement between RJR Holdings, Inc. and
Main St. California, Inc., a wholly owned Subsidiary of the
Registrant.(7)
10.21 Development Agreement dated April 22, 1998 between Main St. California,
Inc. and TGI Friday's, Inc., and First Amendment to Development
Agreement dated February 10, 1999 between TGI Friday's, Inc. and Main
St. California, Inc., a wholly owned subsidiary of the Registrant.
19
<PAGE>
Exhibit
Number Exhibit
- ------ -------
21 List of Subsidiaries(7)
23 Consent of Independent Public Accountants
27 Financial Data Schedule
- ------------
(1) 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.
(2) Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-40993) which became effective in September 1991.
(3) Incorporated by reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on or about April 15, 1994.
(4) Incorporated by reference to the Registrant's Form 8-K Report filed with the
Commission in January 1997.
(5) Incorporated by reference to the Registrant's Form 10-K for the year ended
December 30, 1996, filed with the Securities and Exchange Commission on or
about April 14, 1997.
(6) Incorporated by reference to Registrant's Proxy Statement for its 1995
Annual Meeting of Stockholders.
(7) Incorporated by reference to the Registrant's Form 10-K for the year ended
December 29, 1997, filed with the Securities and Exchange Commission on
March 27, 1998.
20
<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: March 23, 1999 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.
/s/ John F. Antioco Chairman of the Board March 23, 1999
- --------------------------
John F. Antioco
/s/ Bart A. Brown, Jr. President, Chief Executive Officer, March 23, 1999
- -------------------------- and Director (Principal Executive
Bart A. Brown, Jr. Officer)
/s/ William G. Shrader Executive Vice President, Chief March 23, 1999
- -------------------------- Operating Officer and Director
William G. Shrader
/s/ James Yeager Vice President-Finance (Principal March 23, 1999
- -------------------------- Financial and Accounting Officer),
James Yeager Secretary and Treasurer
/s/ Jane Evans Director March 23, 1999
- --------------------------
Jane Evans
/s/ John C. Metz Director March 23, 1999
- --------------------------
John C. Metz
/s/ Steven A. Sherman Director March 23, 1999
- --------------------------
Steven A. Sherman
21
<PAGE>
MAIN STREET AND MAIN INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets at December 29, 1997 and December 28, 1998..... F-3
Consolidated Statements of Operations for the fiscal years ended
December 30, 1996, December 29, 1997, and December 28, 1998............... F-4
Consolidated Statements of Changes in Stockholders' Equity for the
fiscal years ended December 30, 1996, December 29, 1997, and
December 28, 1998......................................................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended
December 30, 1996, December 29, 1997, and December 28, 1998............... F-6
Notes to Consolidated Financial Statements................................. F-7
F-1
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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 28,
1998, and December 29, 1997, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years ended
December 28, 1998, December 29, 1997, and December 30, 1996. 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 28, 1998 and December 29, 1997,
and the results of their operations and their cash flows for the years ended
December 28, 1998, December 29, 1997, and December 30, 1996, in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona
February 19, 1999
F-2
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 28, December 29,
1998 1997
-------- --------
ASSETS
Current Assets
Cash and cash equivalents ....................... $ 7,294 $ 6,850
Accounts receivable, net ........................ 2,096 3,293
Inventories ..................................... 840 1,043
Prepaid expenses ................................ 593 289
Assets held for disposal, net ................... -- 363
-------- --------
Total current assets ......................... 10,823 11,838
Property and equipment, net ........................ 39,195 30,194
Other assets, net .................................. 2,337 3,091
Franchise costs, net ............................... 17,900 15,288
Note receivable .................................... -- 757
-------- --------
$ 70,255 $ 61,168
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt ............... $ 1,365 $ 1,233
Accounts payable ................................ 4,183 3,890
Other accrued liabilities ....................... 8,082 8,045
-------- --------
Total current liabilities .................... 13,630 13,168
-------- --------
Long-term debt, net of current portion ............. 28,264 24,308
-------- --------
Other liabilities and deferred credits ............. 1,989 1,489
-------- --------
Commitments and contingencies
Stockholders' Equity
Common stock, $.001 par value, 25,000,000 shares
authorized; 9,976,416 and 9,970,691 shares issued
and outstanding in 1998 and 1997, respectively .... 10 10
Additional paid-in capital ......................... 44,149 44,145
Accumulated deficit ................................ (17,787) (21,952)
-------- --------
26,372 22,203
-------- --------
$ 70,255 $ 61,168
======== ========
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 28, December 29, December 30,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenue ...................................... $ 115,324 $ 107,997 $ 122,563
--------- --------- ---------
Restaurant Operating Expenses
Cost of sales ............................... 33,242 30,995 35,089
Payroll and benefits ........................ 34,353 32,469 38,858
Depreciation and amortization ............... 4,391 3,552 4,586
Other operating expenses .................... 31,083 30,589 36,944
--------- --------- ---------
Total restaurant operating expenses ...... 103,069 97,605 115,477
--------- --------- ---------
Income from restaurant operations ............ 12,255 10,392 7,086
Depreciation and amortization ............... 983 953 1,450
General and administrative expenses ......... 4,906 4,559 4,388
Restructuring and reorganization ............ (17) (2,390) 20,208
--------- --------- ---------
Operating income (loss) ...................... 6,383 7,270 (18,960)
Interest expense, net ........................ 2,218 2,466 3,206
--------- --------- ---------
Net income (loss) before income taxes and
extraordinary item ....................... 4,165 4,804 (22,166)
Provision for income taxes ................... -- -- --
--------- --------- ---------
Net income (loss) before extraordinary
item .................................... 4,165 4,804 (22,166)
Extraordinary loss from debt
extinguishment .......................... -- 1,638 --
--------- --------- ---------
Net income (loss) ............................ $ 4,165 $ 3,166 $ (22,166)
========= ========= =========
Basic Earnings Per Share
Income (loss) before extraordinary item ..... $ 0.42 $ 0.48 $ (2.73)
Extraordinary item .......................... -- (0.16) --
--------- --------- ---------
Net income (loss) ......................... $ 0.42 $ 0.32 $ (2.73)
========= ========= =========
Diluted Earnings Per Share
Income (loss) before extraordinary item ..... $ 0.39 $ 0.47 $ (2.73)
Extraordinary item .......................... -- (0.16) --
--------- --------- ---------
Net income (loss) ......................... $ 0.39 $ 0.31 $ (2.73)
========= ========= =========
Weighted Average Number Of Shares Outstanding
-- Basic ................................... 9,976 9,918 8,110
========= ========= =========
Weighted Average Number Of Shares Outstanding
-- Diluted ................................. 10,608 10,098 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)
Common Stock
-------------- Additional
Par Paid-In Accumulated
Shares Value Capital Deficit Total
------ ----- ------- ------- -----
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
Shares issued in connection
with private placement ....... 1,250 1 2,447 -- 2,448
Shares issued in connection
with options exercised ....... 3 -- 4 -- 4
Net income .................... -- -- -- 3,166 3,166
----- --- ------- -------- --------
BALANCE, December 29, 1997 ..... 9,971 10 44,145 (21,952) 22,203
Shares issued in connection
with options exercised ....... 5 -- 4 -- 4
Net income .................... -- -- -- 4,165 4,165
----- --- ------- -------- --------
BALANCE, December 28, 1998 ..... 9,976 $10 $44,149 $(17,787) $ 26,372
===== === ======= ======== ========
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 28, December 29, December 30,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................... $ 4,165 $ 3,166 $(22,166)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization ................... 5,374 4,505 6,036
Restructuring and reorganization ................ (17) (2,391) 20,208
Extraordinary loss from debt extinguishment ..... -- 1,638 --
Changes in assets and liabilities
Accounts receivable, net ....................... (865) 122 1,104
Inventories .................................... 203 124 57
Prepaid expenses ............................... (304) (116) 288
Other assets, net .............................. (341) (1,288) (1,380)
Accounts payable ............................... 293 57 207
Other accrued liabilities ...................... 554 (4,767) 90
-------- -------- --------
Net Cash Flows -- Operating Activities ....... 9,062 1,050 4,444
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid to acquire assets through business
combination .................................... -- (880) --
Cash received from note receivable .............. 757 -- --
Net additions to property and equipment ......... (19,002) (6,613) (8,623)
Cash paid to acquire franchise rights ........... (3,318) -- --
Sale of assets .................................. 2,062 17,326 --
Cash received from sale-leaseback transactions... 6,791 1,641 --
-------- -------- --------
Net Cash Flows -- Investing Activities ....... (12,710) 11,474 (8,623)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock .............. 4 2,504 1,490
Financing and offering costs paid ............... -- (52) --
Long term debt borrowings ....................... 5,620 21,554 4,506
Principal payments on long term debt ............ (1,532) (32,293) (3,945)
-------- -------- --------
Net Cash Flows -- Financing Activities ....... 4,092 (8,287) 2,051
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS .......... 444 4,237 (2,128)
CASH AND CASH EQUIVALENTS, BEGINNING ............. 6,850 2,613 4,741
-------- -------- --------
CASH AND CASH EQUIVALENTS, ENDING ................ $ 7,294 $ 6,850 $ 2,613
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for interest .......... $ 2,557 $ 3,404 $ 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
operates 10 T.G.I. Friday's restaurants under management agreements. The
Company has a 52% ownership interest in Redfish America, LLC which currently
owns and operates four Redfish restaurants.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries, and Redfish America, LLC. All material
intercompany transactions have been eliminated in consolidation.
FISCAL YEAR
The Company's restaurants operate on a fiscal year which 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. RESTRUCTURING AND REORGANIZATION
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 asset 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 the core business and to dispose of underperforming core
assets and non-core assets. As a result of implementing this strategy, combined
with certain events occurring during fiscal years ended 1996, 1997 and 1998,
the Company recognized a gain on sale of assets, a restructuring charge, and
impairment of certain assets as follows (in thousands):
December 28, December 29, December 30,
1998 1997 1996
----------- ----------- -----------
Gain on sale of assets ............. $ -- $(5,231) $ --
Impairment of non-core assets ...... -- 1,660 6,985
Impairment of core assets held for
disposal ......................... (648) -- 8,674
Impairment of core assets used in
operations ....................... -- 842 3,141
Other restructuring costs .......... 631 339 1,408
----- ------- -------
$ (17) $(2,390) $20,208
===== ======= =======
GAIN ON SALE OF ASSETS
In January 1997, the Company sold five restaurants in northern California
(the "Northern California Sale") for $10,800,000 in cash and entered into a
management agreement with the buyer to manage
F-7
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
the restaurants. This transaction resulted in a gain before taxes of
approximately $1,595,000. Of the total proceeds, $8,000,000 was used to reduce
the Company's Term Loan I with the balance used for working capital purposes.
In addition, the Company sold eight T.G.I. Friday's restaurants in Washington,
Oregon, Colorado and Nebraska. The sale price of these restaurants totaled
$8,877,000 and resulted in a gain before taxes of approximately $3,636,000.
IMPAIRMENT OF NON-CORE ASSETS
In December 1993, the Company sold its dairy and food distribution
business for $7,500,000, including a promissory note in the amount of
$6,000,000 due on December 31, 1996. During the second quarter of 1996, the
debtor on the $6,000,000 promissory note sold assets related to its dairy
operations, which 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. 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
during 1996. During 1997, the Company wrote off the remaining carrying value of
$1,000,000 due to further adverse developments with the dairy and food
distribution business.
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. In 1996, the Company finalized an
agreement with AsianStar to exchange its receivable for a $1,660,000 ownership
interest in AsianStar. Due to 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 was approximately $660,000 as of December 30,
1996. During 1997, the Company wrote off the remaining carrying value of this
investment due to further uncertainty of the Korean venture resulting from a
down turn in the Korean economy.
In addition, during 1996, 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 1996 impairment of non-core
assets is comprised primarily of write downs of real estate that the Company
was holding for future restaurant development or sale.
IMPAIRMENT OF CORE ASSETS HELD FOR DISPOSAL
During 1996, 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 1996 related to a 20 year old T.G.I. Friday's
restaurant in southern California which was closed in 1997. The remaining
balance of the 1996 impairment loss of $2,037,000 of core assets held for
disposal relates to assets of three T.G.I. Friday's restaurants that were
written down to fair value and disposed of during 1997. During 1998 a favorable
lease payoff was negotiated related to the Front Row Sports Grill. A $648,000
gain was recognized in connection with the lease settlement resulting in a
reversal of the remaining reserve.
F-8
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
IMPAIRMENT OF CORE ASSETS USED IN OPERATIONS
In accordance with SFAS No. 121, the Company recorded a charge of
$3,141,000 during 1996 related to three of its T.G.I. Friday's restaurants
where undiscounted cash flows over the remaining term of the lease did not
support the carrying value of the assets. During 1997, the Company recorded a
charge of $874,000 related primarily to two Redfish restaurants where
undiscounted cash flows did not support the carrying value of the assets.
OTHER RESTRUCTURING COSTS
Other restructuring costs include severance, contract termination,
professional services costs incurred in conjunction with the restructuring and
estimated costs of litigation.
RESERVES
In connection with the restructuring and reorganization charge of
approximately $20,208,000 taken in 1996, the Company recorded a reserve for
projected losses of approximately $2,318,000 in other accrued liabilities.
In 1997, the Company recorded a gain on the sale of assets of approximately
$5,231,000 and restructuring and reorganizing charges of $2,841,000. Of the
$2,841,000 in charges, $2,269,000 was recorded as a reduction against certain
impaired assets and $572,000 was recorded as an increase in the reserve for
projected losses. The balance in the reserve for projected losses at December
29, 1997 was approximately $2,115,000.
In 1998, the Company increased the reserve for projected losses by
approximately $631,000. The reserve was decreased by approximately $648,000
related to a favorable lease settlement and approximately $731,000 in other
costs associated with terminating the lease and legal fees. The reserve balance
in other accrued liabilities at December 28, 1998 was approximately $1,367,000
for the remaining severance, legal, and condemnation costs.
3. 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.
F-9
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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):
December 28, December 29,
Useful Lives 1998 1997
------------ ----------- -----------
Land.................................. -- $ 897 $ 534
Building and leasehold improvements... 5-20 24,324 20,924
Kitchen equipment..................... 5-7 10,354 7,418
Restaurant equipment.................. 5-10 4,555 3,162
Smallwares and decor.................. 5-10 4,678 4,017
Office equipment and furniture........ 5-7 1,687 1,487
Equipment under capital leases........ 7 315 315
-------- --------
46,810 37,857
Less: Accumulated depreciation and
amortization......................... (14,914) (11,340)
-------- --------
31,896 26,517
Construction in progress.............. 7,299 3,677
-------- --------
Total.............................. $ 39,195 $ 30,194
======== ========
ASSETS HELD FOR DISPOSAL
At December 29, 1997, assets held for disposal consisted of one parcel of
land. During 1998, management determined the parcel of land was suitable for
development and has made plans to construct a T.G.I. Friday's restaurant at
this location during 1999. The $363,000 carrying value of the land was
reclassified and included in land at December 28, 1998.
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 December 28, December 29,
Period 1998 1997
------------- ----------- ------------
Franchise fees and license costs.... 20-30 $ 21,093 $ 17,775
Prepaid franchise fees.............. -- 100 100
-------- --------
21,193 17,875
Less: Accumulated amortization...... (3,293) (2,587)
-------- --------
Total............................ $ 17,900 $ 15,288
======== ========
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 7).
PRE-OPENING COSTS
The Company defers certain start-up costs directly related to the opening
of new restaurants. Pre-opening costs of approximately $168,000 and $227,000 as
of December 28, 1998 and December 29, 1997, 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 (excluding amounts included in the restructuring charge), was
approximately $661,000, $287,000 and $318,000 in 1998, 1997, and 1996,
respectively.
F-10
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In April 1998, the AICPA issued Statement of Position 98-5 ("SOP 98-5"),
Reporting of the Costs of Start-up Activities effective for financial
statements issued for years beginning after December 15, 1998. SOP 98-5 is
effective for the Company's first quarter financial statements in fiscal 1999.
Under the new accounting requirement, the costs of start-up activities will be
expensed as incurred. The adoption of SOP 98-5 will result in deferred
preopening costs on the Company's consolidated balance sheet being charged to
operations as the cumulative effect of a change in accounting principle. As of
December 28, 1998, the balance of deferred preopening costs was approximately
$168,000. The ultimate impact of the adoption of SOP 98-5 on the accounting for
preopening costs is contingent upon the number of future restaurant openings,
and thus cannot be reasonably estimated at this time.
OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following ( in thousands):
December 28, December 29,
1998 1997
------------ ------------
Bank overdraft...................... $ 76 $ --
Accrued payroll..................... 2,079 2,074
Reserve for projected losses........ 1,367 2,116
Accrued sales tax................... 899 669
Accrued interest.................... -- 7
Other accrued liabilities........... 3,661 3,179
------ -------
Total............................. $8,082 $ 8,045
====== =======
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes
as set forth in SFAS No.109, Accounting for Income Taxes. Under the liability
method, deferred taxes are provided based on the temporary differences between
the financial reporting 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 during the period that includes the enactment date.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share, which supersedes Accounting Principles Board ("APB")
Opinion No. 15, the existing authoritative guidance. The statement modifies the
calculation of primary and fully diluted earnings per share ("EPS") and
replaces them both with basic and diluted EPS. SFAS No. 128 is effective for
financial statements for both interim and annual periods presented after
December 15, 1997 and as a result, all prior period EPS data have been
restated. The following table sets forth basic and diluted EPS computations for
the years ended December 28, 1998, December 29, 1997, and December 30, 1996 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ----------------------------- ----------------------------
Per Share Per Share Per Share
Net Income Shares Amount Net Income Shares Amount Net Loss Shares Amount
---------- ------ ------ ---------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS ..... $4,165 9,976 $0.42 $3,166 9,918 $0.32 $(22,166) 8,110 $(2.73)
Effect of stock
options ...... -- 632 -- -- 180 -- -- -- --
------ ------ ----- ------ ------ ----- -------- ----- ------
Diluted EPS ... $4,165 10,608 $0.39 $3,166 10,098 $0.31 $(22,166) 8,110 $(2.73)
====== ====== ===== ====== ====== ===== ======== ===== ======
</TABLE>
F-11
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Effective December 30, 1997, the Company adopted SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information, which established
revised standards for the reporting of financial and descriptive information
about operating segments in financial statements.
The Company has determined that it has one reportable operating segment.
Although the Company has two operating segments which are managed based on its
restaurant concepts, T.G.I. Friday's and Redfish, the Redfish operating segment
is immaterial to the Company as a whole and does not meet the reportable
thresholds of SFAS No. 131.
As a result of the foregoing, the Company has determined that it is
appropriate to present one reportable segment consistent with the guidance in
SFAS No. 131. Accordingly, the Company has not presented separate financial
information for each of its operating segments as the Company's consolidated
financial statements present its one reportable segment.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
current year presentation.
4. INCOME TAXES
Deferred income taxes arise due to differences in the treatment of income
and expense items for financial reporting and income tax purposes. In prior
years, the Company generated net operating losses and in 1998 and 1997, the
Company utilized net operating losses. The effect of temporary differences and
carryforwards that gave rise to deferred tax balances at December 28, 1998 and
December 29, 1997 were as follows (in thousands):
Temporary Differences
--------------------- Tax Carry Net Deferred
December 28, 1998 Deductible Taxable Forwards Tax Assets
- ----------------- ---------- ------- -------- ----------
Excess tax over book depreciation
and amortization ................. $ -- $(3,296) $ -- $(3,296)
Provision for estimated expenses .. 1,290 -- -- 1,290
Restructuring and reorganization .. 2,481 -- -- 2,481
Other ............................. -- (438) -- (438)
General business and AMT credits... -- -- 3,403 3,403
Net operating loss carryforward ... -- -- 4,849 4,849
Valuation reserve ................. -- -- (7,921) (7,921)
------ ------- ------- -------
Total ....................... $3,771 $(3,734) $ 331 $ 368
====== ======= ======= =======
F-12
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Temporary Differences
--------------------- Tax Carry Net Deferred
December 29, 1997 Deductible Taxable Forwards Tax Assets
- ----------------- ---------- ------- -------- ----------
Excess tax over book depreciation
and amortization ............... $ -- $(2,757) $ -- $(2,757)
Provision for estimated expenses.. 1,207 -- -- 1,207
Restructuring and reorganization.. 3,673 -- -- 3,673
Other ........................... -- (491) -- (491)
General business and AMT credits -- -- 2,668 2,668
Net operating loss carryforward -- -- 5,905 5,905
Valuation reserve ............... -- -- (9,837) (9,837)
------ ------- ------- -------
Total ..................... $4,880 $(3,248) $ 1,264 $ 368
====== ======= ======= =======
The amounts recorded as net deferred tax assets at December 28, 1998 and
December 29, 1997 are included as a component of other assets in the
consolidated balance sheets. The remaining net deferred tax asset as of
December 28, 1998 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 1998, the Company's tax provision was fully offset by the reversal of
prior year valuation
allowances.
At December 28, 1998, the Company had approximately $12,100,000 of net
operating and capital loss carryforwards to be used to offset future income for
income tax purposes. These carryforwards expire in the years 2002 to 2012.
Reconciliations of the federal income tax rate to the Company's effective
tax rate were as follows:
December 28, December 29,
1998 1997
----------- -----------
Statutory federal rate .................. 34.0% 34.0%
State taxes, net of federal benefit ...... 6.0 6.0
Nondeductible expenses .................. 6.3 7.5
Benefit of FICA credit .................. (15.2) (18.0)
Change in valuation allowance ............ (31.1) (29.5)
------ ------
0.0% 0.0%
====== ======
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
Maturity December 28, December 29,
Dates Interest Rates 1998 1997
----- -------------- ---- ----
<S> <C> <C> <C> <C>
Term Loan I.................. 2002 2.8% over LIBOR $ -- $ --
Term Loan II................. 2012 9.457% and the one 19,118 20,839
month LIBOR rate
plus 320 basis points
Other notes payable.......... 1999-2015 8.75 - 11% 10,511 4,639
Capital leases............... 1999 11.5% -- 63
-------- --------
29,629 25,541
Less current portion......... (1,365) (1,233)
-------- --------
Total........................ $ 28,264 $ 24,308
======== ========
</TABLE>
F-13
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In March 1997, the Term Loan I was repaid with $8,000,000 of proceeds from
the Northern California sale (Note 2) and with proceeds from new borrowings. The
new borrowings ("Term Loan II") consist of five notes from one lender. Three of
the notes bear interest at 9.457% and two of the notes bear interest at the one
month LIBOR rate plus 320 basis points. All of the notes are payable in equal
monthly installments of principal and interest of approximately $222,000
(combined) until the notes are paid in full on May 1, 2012. Proceeds from the
Term Loan II were also used to repay the TGI Friday's, Inc. note including
accrued interest of $301,000, with the remaining proceeds used for general
corporate purposes. The early extinguishment of the Term Loan I resulted in an
extraordinary loss of $1,638,000, before income taxes.
The Term Loan II is secured by the assets of 16 T.G.I. Friday's
restaurants and contains one financial covenant relative to a fixed charge
coverage ratio, which the Company currently is in compliance with. Assets at 11
T.G.I. Friday's restaurants and at one Redfish restaurant have been pledged as
collateral for other notes payable.
In May 1998 the Company acquired six T.G.I. Friday's restaurants in
northern California for approximately $6,800,000, funded in part by the
assumption of existing long-term debt and the addition of new long-term debt
for a total increase in debt of $5,737,000.
Maturities of long-term debt, giving effect to the new borrowings
discussed above, are as follows at December 28, 1998 (in thousands):
1999............... $ 1,365
2000............... 1,569
2001............... 1,723
2002............... 1,772
2003............... 1,735
Thereafter......... 21,465
-------
Total.............. $29,629
=======
6. STOCKHOLDERS' EQUITY
During 1996, the Company sold 766,666 shares of its Common Stock to two
officers of the Company for $1,500,000. In January 1997, 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 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).
F-14
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 1997, the Company canceled substantially 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 during 1996, the issuance of
425,000 non-statutory stock options to two of the Company's officers during
1997, and the issuance of 210,000 non-statutory stock options to two of the
Company's officers during 1998.
Stock option information as of December 28, 1998, December 29, 1997, and
December 30, 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 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 .................................. 2,077,500 $2.90 1,596,500 $3.40 118,413 $12.93
Granted .................................. 416,000 3.27 781,950 2.46 1,668,500 3.25
Exercised ............................... (2,500) 2.50 (2,200) 2.50 -- --
Canceled ............................... (110,000) 2.54 (298,750) 3.51 (190,413) 9.42
--------- --------- ----------
Options outstanding at end of period .... 2,381,000 2.98 2,077,500 2.90 1,596,500 3.40
========= ========= =========
Exercisable at end of period ............. 1,590,577 2.56 1,224,291 3.40 350,000 2.00
========= ========= =========
Weighted average fair value of options
granted ............................... $ 1.87 $ 1.44 $ 0.59
========= ========= =========
</TABLE>
Entities electing to remain with the accounting in APB Opinion No. 25 must
make pro forma disclosures of net income and earnings per share, as if the fair
value based method of accounting defined in SFAS No. 123 had been applied.
The Company has elected to account for its stock-based compensation plans
under APB Opinion No. 25; therefore, no compensation cost is recognized in the
accompanying financial statements for stock-based employee awards. The Company
had computed, for pro forma disclosure purposes, the value of all options
granted during 1998 and 1997, using the Black-Scholes option pricing model with
the following weighted average assumptions:
1998 1997
Options Options
------- -------
Risk free interest rate ...... 5.42% 6.2%
Expected dividend yield ...... 0.0% 0.0%
Expected lives in years ...... 4.0% 4.0
Expected volatility ......... 70.6% 71.3%
If the Company had accounted for its stock-based compensation plans using
a fair value based method of accounting, the Company's year end net income and
earnings per share would have been reported as follows (in thousands, except
per share amounts):
December 28, December 29,
1998 1997
------------ ------------
Net income (loss):
Pro Forma .................. $3,351 $2,442
Earnings per share:
Pro Forma -- Basic ......... 0.34 0.25
Pro Forma -- Diluted ...... 0.32 0.24
F-15
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The effects of applying SFAS No. 123 for providing pro forma disclosures
for 1998 and 1997 are not likely to be representative of the effects on
reported net income and earnings per common stock and common stock equivalent
for future years, because options vest over several years and additional awards
are made each year.
COMMON STOCK WARRANTS
As of December 28, 1998 and December 29, 1997 the Company had outstanding
warrants to acquire its securities as follows:
1998 1997
---- ----
Common Stock to be acquired by warrants issued to
lenders in connection with the Term Loan I;
exercisable at $9.08 through March 2004; callable.......... 231,277 231,277
======= =======
7. COMMITMENTS AND CONTINGENCIES
DEVELOPMENT AGREEMENTS
The Company is obligated under four separate development agreements to
open 46 new T.G.I. Friday's restaurants through 2003. 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's development territories include Arizona, Nevada, New Mexico,
California and the Kansas City and El Paso metropolitan areas.
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 $3,929,000, $4,120,000 and
$4,850,000 under these agreements during 1998, 1997 and 1996, respectively. In
addition, the Company could be required to spend up to 4% of gross sales on
marketing, although during 1998 it was only required to pay up to 1.9% of gross
sales. Marketing expense under these agreements was approximately $1,805,000,
$1,919,000 and $1,554,000 during 1998, 1997 and 1996, respectively.
OPERATING LEASES
The Company leases land and restaurant facilities under operating leases
having terms expiring at various dates through January 2021. 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 28, 1998 were as follows (in thousands):
1999 ............ $ 5,782
2000 ............ 5,864
2001 ............ 5,907
2002 ............ 5,783
2003 ............ 5,480
Thereafter ...... 43,289
-------
Total ............ $72,105
=======
F-16
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Rental expense during 1998, 1997 and 1996 was approximately $5,604,000,
$5,081,000, and $6,299,000, respectively. In addition, the Company paid
contingent rentals of $523,000, $499,000 and $539,000 during 1998, 1997 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.
8. 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 $100,000, $78,000 and $79,000 during 1998, 1997 and 1996,
respectively.
9. RELATED PARTY TRANSACTIONS
In October 1997, the Company sold three T.G.I. Friday's restaurants in
Colorado and Nebraska to Sherman Restaurants, LLC for $2,768,000 (Note 2).
Sherman Restaurants, LLC is controlled by Samuel Sherman, the brother of Steven
Sherman who serves as a director of the Company.
In December 1993, the Company entered into a five year lease agreement for
corporate office space with an entity controlled by a director of the Company.
During 1998 the lease was amended to extend the original term through January
31, 2004. The lease provides for annual rent of approximately $236,000 in 1999.
Approximately $177,000, $172,000 and $169,000 was paid in rent during 1998,
1997 and 1996, respectively.
F-17
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
January 1, 1999, by and between MAIN STREET AND MAIN INCORPORATED, A Delaware
corporation ("Employer"), and BART A. BROWN, JR. ("Employee").
WHEREAS, Employer desires to continue to employ Employee as its
President and Chief Executive Officer; and
WHEREAS, Employer desires to employ Employee and Employee desires to
accept such employment on all 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, 1999, 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 $300,000.00 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) 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.
(d) FRINGE BENEFITS. Employee shall be entitled to participate in any
group insurance, pension, retirement, vacation, stock option
grants, 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, 2000 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:
<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 l3d-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
2
<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,
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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,
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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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(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: /s/ John F. Antioco, Chairman
---------------------------------------
John F. Antioco, Chairman
/s/ Bart A. Brown, Jr.
---------------------------------------
Bart A. Brown, Jr.
6
FIRST AMENDMENT TO DEVELOPMENT AGREEMENT
This First Amendment to Development Agreement ("Amendment") is entered into
effective as of February 10, 1999 (the "Effective Date"), by and between TGI
Friday's Inc. ("Franchisor"), and Main St. California, Inc. ("Developer").
WITNESSETH:
WHEREAS, Franchisor and Developer are parties to a certain Amended and
Restated Development Agreement dated May 2, 1997 (the "Development Agreement"),
pursuant to which Developer was granted the right to develop T.G.I. Friday's
restaurants in portions of California; and
WHEREAS, Franchisor and Developer desire to amend and supplement the
terms of the Development Agreement as hereinafter set forth; and
WHEREAS, capitalized terms used herein shall have the meaning
attributed to them in the Development Agreement unless expressly defined
otherwise herein.
NOW, THEREFORE, in consideration of Ten Dollars and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by each of the parties hereto, Franchisor and Developer agree as
follows:
1. SECTION 1.A. of the Development Agreement is hereby deleted in its
entirety and replaced with the following:
A. Franchisor hereby grants to Developer and Developer accepts,
pursuant to the terms and conditions of this Agreement, development
rights to establish and operate the number of T.G.I. Friday's
Restaurants set forth in the Development Schedule as may be approved
by Franchisor in accordance with its then current Site Consent
Procedures, and to use the System solely in connection therewith, at
specific locations to be designated in separate T.G.I. Friday's
franchise agreements (hereinafter "Franchise Agreement") executed as
provided in Subsection 3.A. hereof and pursuant to the Development
Schedule set forth in Subsection 3.B. hereof. Each Restaurant
developed hereunder shall be located in the area described on Exhibit
D attached hereto (hereinafter "Territory"); PROVIDED, however, the
Territory shall not include any airport properties otherwise located
within the Territory, nor the area contained within a three (3) mile
radius of any T.G.I. Friday's (R) Restaurant located within the
Territory as of the date of this Agreement. Friday's retains all
rights to develop other restaurant concepts, including without
limitation Friday's Front Row (R) Sports Grill, Italianni's (SM)
restaurants and Friday's American Bar (R), within the Territory.
2. SECTION 3.B. of the Development Agreement is hereby deleted in its
entirety and replaced with the following:
B. Developer shall develop, open, commence operation of and
continuously operate pursuant to the respective Franchise Agreements
twenty-one (21) Restaurants in the Southern California Territory
during the first five (5) years of the Term, pursuant to the
Replacement Development Schedule as follows. The Restaurants
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listed on the Replacement Development Schedule are exclusive of those
Restaurants previously opened and operated by Developer under the
Original Development Agreement.
In the Southern California Territory:
(as defined in Exhibit D)
Restaurant No. Date Open & Operating
-------------- ---------------------
1, 2 & 3 12/15/98
4,5 & 6 12/15/99
7,8, 9 & 10 12/15/00
11, 12,13 & 14 12/15/01
15, 16, 17 & 18 12/15/02
19,20 & 21 12/15/03
3. As of the Effective Date of this Amendment, Exhibit A attached to
the Development Agreement is deleted in its entirety and Exhibit D attached to
this amendment is substituted therefor.
4. The provisions, representations, terms, conditions, covenants and
agreements of the Development Agreement, as modified hereby, shall remain in
full force and effect, enforceable in accordance with its terms. This Amendment
shall be binding upon the heirs, legal representatives, successors and assigns
of the parties hereto.
5. Execution and delivery of this Amendment shall not waive any rights
or remedies of the parties under the Development Agreement, at law or in equity.
IN WITNESS HEREOF, the parties have executed this Amendment as of the
day and year first above mentioned.
TGI FRIDAY'S INC.
By: /s/ Leslie Sharman
- -----------------------------
Name: Leslie Sharman
Title: V.P. & General Counsel
MAIN ST. CALIFORNIA, INC.
By: Bart A. Brown Jr.
- -----------------------------
Name: Bart A. Brown Jr.
Title: President
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EXHIBIT D
THE TERRITORY
SOUTHERN CALIFORNIA TERRITORY - that area contained in the following counties:
Imperial, Inyo, Los Angeles, Orange, Riverside, San Bernardino, San Diego and
Ventura.
T.G.I. FRIDAY'S(R) RESTAURANTS
DEVELOPMENT AGREEMENT
MAIN ST. CALIFORNIA, INC.
Date: April 22, 1998
<PAGE>
T.G.I. FRIDAYS RESTAURANTS
DEVELOPMENT AGREEMENT
TABLE OF CONTENTS
Section Page
- ------- ----
RECITALS............................................................ 1
1 DEFINITIONS......................................................... 1
2 EXCLUSIVE RIGHTS; TERM.............................................. 5
3 DEVELOPMENT SCHEDULE; SITE SELECTION; OCCUPANCY
CONTRACT; DEVELOPMENT MANUALS....................................... 6
4 FEES AND PAYMENTS................................................... 8
5 REPRESENTATIVE; OPERATOR; RESTAURANT MANAGERS;
TRAINING............................................................ 8
6 CONFIDENTIAL INFORMATION............................................ 10
7 DEVELOPER'S REPRESENTATIONS AND WARRANTIES;
AFFIRMATIVE AND NEGATIVE COVENANTS.................................. 11
8 TRANSFER............................................................ 13
9 CONSENT AND WAIVER.................................................. 15
10 DEFAULT AND REMEDIES................................................ 16
11 INSURANCE........................................................... 19
12 INDEMNIFICATION..................................................... 20
13 NOTICES............................................................. 22
14 FORCE MAJEURE....................................................... 23
15 SEVERABILITY........................................................ 23
16 INDEPENDENT CONTRACTOR.............................................. 23
17 DUE DILIGENCE AND ASSUMPTION OF RISK................................ 23
18 MISCELLANEOUS....................................................... 24
19 CHOICE OF LAW; JURISDICTION; VENUE.................................. 24
20 ENTIRE AGREEMENT.................................................... 25
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ADDENDUM A COVENANT AND AGREEMENT FOR CONFIDENTIALITY (PRINCIPAL)
ADDENDUM B GUARANTY AGREEMENT
EXHIBIT B COVENANT AND AGREEMENT FOR CONFIDENTIALITY (OTHERS)
EXHIBIT C TERRITORY
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DEVELOPMENT AGREEMENT
This Development Agreement is entered into as of the 22 day of April,
1998 by and between TGI Friday's Inc., a New York corporation, with its
principal place of business located at 7540 LBJ Freeway, Suite 100, Dallas,
Texas, 75251, and Main St. California, Inc., with its principal place of located
at business 5050 N. 40th Street, Suite 200, Phoenix, AZ 85018 and its Principals
(as defined herein below).
RECITALS
WHEREAS, Friday's has developed and owns the System;
WHEREAS Friday's intends to identify the System in the Territory with
the Proprietary Marks; and
WHEREAS, Developer wishes to obtain certain rights to develop
Restaurants under the System in the Territory
NOW, THEREFORE, the parties, in consideration of the undertakings and
commitments set forth herein, agree as follows:
1. DEFINITIONS
As used in this Agreement the following words and phrases shall have the
meanings attributed to them in this Section:
ACTION - any cause of action, suit, proceeding, claim, demand, investigation or
inquiry (whether a formal proceeding or otherwise) asserted or instituted by a
third party with respect to which the indemnity described in Section 12 applies
AFFILIATE - Carlson Restaurants Worldwide, Inc, or any subsidiary thereof or any
subsidiary of TG1 Friday's Inc.
AGREEMENT - this Development Agreement dated as of April 22, 1998
APPRAISER(S) - one or more independent third parties selected by the parties to
this Agreement in accordance with the terms and conditions hereof
BUSINESS DAYS - Each day except Saturday, Sunday and national legal holidays
COMMENCEMENT DATE - April 22, 1998
COMPETING BUSINESS - a restaurant business offering the same or similar products
and services as offered by restaurants in the System or restaurants in any other
concept or system owned, operated Or franchised by Friday's or any Affiliate,
including, without limitation, waiter/waitress service, sit-down dining and bar
services
CONFIDENTIAL INFORMATION - the System, the Development Manual, the Manuals (as
defined in the Franchise Agreement), other manuals, the Standards, written
directives and all drawings, equipment, recipes, computer and point of sale
programs (and output from such programs), and any other
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information, know-how, techniques, materials and data imparted or made available
by Friday's which IS (i) designated as confidential, (ii) known by Developer to
be considered confidential by Friday's, or (iii) by its nature inherently or
reasonably considered confidential
DEVELOPER - Main St. California, Inc.
DEVELOPER INDEMNITEES - Developer, Principals, and their respective directors,
officers, employees, agents, shareholders, affiliates, successors and assigns
and the respective directors, officers, employees, agents, shareholders,
affiliates, successors and assigns of each
DEVELOPMENT FEE - a fee equal to the sum of one hundred percent (100%) of the
Franchise Fee for the first Restaurant to be developed under the Development
Schedule, plus twenty percent (20%) of the Franchise Fee for each of the second
through fifth Restaurants to be developed pursuant to the Development Schedule,
and ten percent (10%) of the Franchise Fee for each additional Restaurant to be
developed thereafter pursuant to the Development Schedule
DEVELOPMENT MANUAL - Friday's manual, as amended from time to time, describing
(generally) the procedures and parameters for the development of T.G.I.
Friday's(R) Restaurants
DEVELOPMENT MATERIALS - a description of the Site, a feasibility study
(including, without limitation, demographic data, photographs, maps, artists'
renderings, site plans, a copy of the Occupancy Contract, and documentation
indicating Developer's prospects to acquire the Site) and such other information
related to the development of the Site as Friday's reasonably requests
DEVELOPMENT SCHEDULE - the schedule pursuant to which Developer shall develop
Restaurants in the Territory (see Section 3.A)
EVENT OF DEFAULT - as defined in Section 10.
FRANCHISE AGREEMENT - an agreement pursuant to which Developer constructs and
operates a Restaurant, which shall be substantially in the form attached as
Exhibit A during the Development Schedule
FRANCHISEE - as defined in the Franchise Agreement
FRANCHISE FEE - an initial per Restaurant fee (more filly defined in the
Franchise Agreement) paid by Developer to Friday's, which fee varies in
accordance with the number of Restaurants previously developed under each
Development Schedule
FRIDAY'S - TGI Friday's Inc., a New York corporation
FRIDAY'S INDEMNITEES - Friday's, its directors, officers, employees, agents,
shareholders, affiliates, successors and assigns and the respective directors,
officers, employees, agents, shareholders and affiliates of each
HEADQUARTERS - the location(s) designated from time to time by Friday's as its
principal place of business
INDEMNITEES - Friday's Indemnitees and Developer Indemnitees
LOSSES AND EXPENSES - all compensatory, exemplary or punitive damages, fines,
charges, costs, expenses, lost profits, reasonable fees of attorneys and other
engaged professionals, court costs, settlement amounts, judgments, costs of or
resulting from delays, financing, costs of advertising material and media
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time/space, and costs of changing, substituting or replacing the same, and any
and all expenses of recall, refunds, compensation, public notices and other such
amounts incurred in connection with the matters described in Section 12
MATERIAL EVENT OF DEFAULT - an Event of Default which constitutes a substantial
deviation from the performance required
MULTI-UNIT MANAGER(S) - the individual(s) designated as described in Section 5.E
who shall be solely dedicated to the management and supervision of the
Restaurants
NSO-TEAM - a "new store opening team' consisting of Friday's employees and
certain of Franchisee's employees to whom Friday's has consented which shall
perform the functions described in Section 5.1
OCCUPANCY CONTRACT - the proposed agreement or document (including, without
limitation, any lease, deed, contract for sale, contract for deed, land
contract, management contract, license, or other agreement purporting to grant
any right, title, or interest in or to the Site) pursuant to which Developer
shall occupy or acquire rights in any Site
OPERATOR - an individual designated as described in Section 5.B. who shall
devote his full time and best efforts to the management and supervision of (i)
Developer's duties and obligations hereunder; and (ii) the operation of the
Restaurants
OTHER CONCEPTS - Retail, wholesale, restaurant, bar, tavern, take-out or any
other type of business involving the production, distribution or sale of food
products, beverages, services, merchandise or other items in connection with the
use of one, some or all of the Proprietary Marks utilizing a system other than
the System pursuant to which a T.G.I. Friday's Restaurant is operated
OWNER - the party (if other than the Developer) owning or controlling the Site
and being a party (with o Developer) to the Occupancy Contract
PAYMENTS - all transfers of finds from Developer to Friday's including, without
limitation, the Development Fee and reimbursement of expenses
PERMANENT DISABILITY - any physical, emotional or mental injury, illness or
incapacity which would prevent the afflicted person from performing his
obligations hereunder for more then ninety (90) consecutive days as determined
by a licensed physician selected by Friday's
PRELIMINARY SITE CONSENT - written communication from Friday's to Developer
notifying Developer that a proposed site has received the consent of the
Friday's Site Review Committee
PRINCIPAL(S) - Main Street and Main Incorporated who is (and such other persons
or entities to whom Friday's shall consent from time to time) the record and
beneficial owners of, and have the right to vote their respective interests
(collectively 100%) in the Securities of Developer or the securities or
partnership interest of any person or entity designated by Friday's which owns
or controls a direct or indirect interest in the Securities of the Developer
PROJECT MANAGER - an individual designated as described in Section 5.C. who
shall devote his full time and best efforts to the coordination and completion
of Restaurant construction
PROPRIETARY MARKS - certain trademarks, trade names, trade dress, service marks,
emblems and indicia of origin designated by Friday's from time to time for use
in connection with the operation of Restaurants
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pursuant to the System in the Territory, including, without limitation, "TGI
FRIDAY'S(R)", "FRIDAY'S(R)", "THE AMERICAN BISTRO".
PUBLICLY - HELD ENTITY - a corporation or other entity whose equity securities
are (i) registered pursuant to applicable law; (ii) widely held by the public;
and (iii) traded on a public securities exchange or over the counter pursuant to
applicable law
REPRESENTATIVE - an individual, designated as described in Section 5-A- who (i)
owns an equity interest in the Developer and (ii) is authorized to act on behalf
of, and bind, Developer with respect to this Agreement
RESTAURANT(S) - T.G.I. Friday's(R) Restaurant(s) developed pursuant to this
Agreement T.G.I. Friday's Restaurants and, if specifically set forth herein, may
collectively be referred to as T.G.I. Friday's Restaurants
RESTAURANT MANAGER(S) - general manager, assistant general manager, kitchen
manager and other managers required for the management, operation, supervision
and promotion of the Restaurant pursuant to the terms hereof
SECURITY - the capital stock of, partner's interest in, or other equity or
voting interest in Developer including such interests issued or created
subsequent to the date hereof
SITE - the proposed location of any Restaurant
STANDARDS - Friday's standards and specifications, as amended from time to time
by Friday's, in its sole discretion, contained in, and being a part of, the
Confidential Information pursuant to which Developer shall develop and operate
Restaurants in the Territory
SYSTEM - a unique, proprietary system developed and owned by Friday's (which may
be modified or further developed from time to time in Friday's sole discretion)
for the establishment and operation of full-service restaurants and
restaurant/bars under the Proprietary Marks, which includes, without limitation,
a distinctive image consisting of exterior and interior design, decor, color
scheme and furnishings; special recipes, menu items and full service bar;
uniform standards, products, services and specifications; procedures with
respect to operations, inventory and management control (including accounting
procedures and policies); training and assistance; and advertising and
promotional programs
TERM - the duration of this Agreement commencing on the Commencement Date and
continuing until the date specified on the Development Schedule for the last
restaurant to be opened
TERRITORIAL EXPENSES - such costs and expenses incurred by or assessed with
respect to Friday's (or other described party's) employees, agents and/or
representatives in connection with activities in the Territory which Developer
is obligated to pay pursuant to this Agreement, including, without limitation,
hotel/lodging, transportation and meals, and other related or incidental
expenses
TERRITORY - the geographical area described in Exhibit C; provided, however, the
Territory shall not include any airport properties otherwise located within the
Territory, nor a specifically identified restricted area surrounding any
Restaurant located within the Territory as of the date of this Agreement nor
shall it be deemed to convey any exclusivity with respect to the use of the
Proprietary Marks.
TGIFM - TGI Friday's of Minnesota Inc., a Minnesota corporation and a subsidiary
of Friday's
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T.G.I. FRIDAY'S(R) RESTAURANTS - restaurants operated in accordance with the
system under the registered service marks, "FRIDAY'S(R)", "T.G.I. FRIDAY'S(R)"
TRAINING CENTER - the location(s) specified from time to time by Friday's as the
training center
TRANSFER - the sale, assignment, conveyance, license, devise, bequest, pledge,
mortgage or other encumbrance, whether direct or indirect, of (i) this
Agreement; (ii) any or all rights or obligations of Developer herein; or (iii)
any interest in any Security, including the issuance of any new Securities
TRANSFEREE OWNER(S) - the owner of any and all record or beneficial interest in
the capital stock of, partner's interest in, or other equity or voting interest
in any transferee of a Transfer occurring pursuant to the terms of Section 8
WAGE EXPENSES - such wages and/or salaries (including a reasonable allocation of
the cost of benefits) of, or with respect to, Friday's (or other described
party's) employees, agents and or representatives to be reimbursed to Friday's
or such party as described herein
2. EXCLUSIVE RIGHTS: TERM
A. Friday's grants to Developer the right, and Developer accepts the
obligation, subject to the terms and conditions herein, to develop and operate
the number of traditional TAIL Friday's(R) Restaurants set forth in the
Development Schedule (set forth in Section 3 A) as may be approved by Friday's
in accordance with its then current site consent procedures. The Restaurants
shall be developed and operated in the Territory pursuant to the System. For so
long as no Event of Default has occurred and is continuing and no event has
occurred which, with the giving of notice or lapse of time, or both, would
constitute an Event of Default, Friday's will neither develop, nor authorize any
other person to develop, traditional T.G.I. Friday's Restaurants in the
Territory during the Term.
B. Friday's expressly reserves the right, and Developer acknowledges
that Friday's has the exclusive unrestricted right, to engage, directly and
indirectly, through its employees, developers, franchisees, licensees, agents
and others within the Territory, in Other Concepts including a Front Row Sports
Grill. Such Other Concepts may compete with Developer directly or indirectly.
C. Subject to Sections 3 and 4 hereof, Developer shall exercise the
rights granted herein for each Restaurant by executing, delivering and otherwise
performing pursuant to a Franchise Agreement.
D. Unless sooner terminated as provided herein, this Agreement shall
commence on the Commencement Date and continue until the expiration of the Term.
This Agreement shall automatically expire at 11:59 p.m. on the date specified in
Section 3.A. as the opening date for the last restaurant to be opened.
E. Upon any termination or expiration of this Agreement, (i) Developer
shall not develop additional Restaurants in the Territory pursuant to this
Agreement; provided, however, that Developer may complete development of and/or
operate Restaurants under then existing Franchise Agreements subject to the
terms and conditions thereof; and (ii) Friday's may develop, or authorize others
to develop, Restaurants in the Territory.
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3. DEVELOPMENT SCHEDULE: SITE SELECTION
A. Developer shall develop, open, commence operation of and
continuously operate pursuant to the respective Franchise Agreements Fifteen
(15) Restaurants in the Territory, pursuant to the Development Schedule as
follows:
Date Franchise
Date of Preliminary Agreement Signed & Date Open &
Restaurant No. Site Consent Fees Paid Operating
-------------- ------------ --------- ---------
1&2 1999
3,4,5 & 6 2000
7,8 & 9 2001
10,11 & 12 2002
13, 14& 15 2003
(i). The Franchise Agreement for each restaurant location must be fully
executed and all franchise fees paid within the time frames set forth in the
foregoing Development Schedule.
(ii). Time is of the essence, with respect to each of the development
obligations specified in this Section 3.
B. The number of Restaurants indicated in the Development Schedule
shall be OPEN AND OPERATING by the date(s) specified therein. Friday's consent
to any Site or execution of a Franchise Agreement shall not waive, extend or
modify the Development Schedule. Unless otherwise agreed and approved by
Friday's, the Restaurants shall refer to traditional T.G.I. Friday's
Restaurants.
C. Developer assumes all cost, liability, expense, risk and
responsibility for locating, obtaining and developing Sites for Restaurants, and
for constructing and equipping Restaurants at such Sites. Prior to execution of
each Franchise Agreement, Developer shall obtain Friday's consent to each Site
(including, without limitation, the Proprietary Mark which shall be used to
identify the Restaurant at the Site to the public) pursuant to the time frames
set forth in Section IA. above in accordance with Friday's then existing Site
selection criteria and procedures including:
(1) submission of all Development Materials to Friday's; and
(2) with respect to each Restaurant to be developed hereunder,
completion of one (1) Site visit by Friday's at Friday's sole cost and expense,
if required by Friday's.
D. Within thirty (30) days following receipt of' all Development
Materials and completion of any such visit, Friday's shall consent to or reject
such Site. Friday's failure to consent shall constitute rejection of such Site.
Promptly after Friday's consent is obtained, but prior to commencing
construction at such Site, Developer shall execute a Franchise Agreement and pay
the Franchise Fee.
E. Neither Friday's (i) consent to nor (ii) assistance in the
selection of, any Site shall constitute Friday's representation or warranty that
a Restaurant operated at such Site will be profitable or meet any financial
projection.
F. Friday's shall have the right to review and consent to the Occupancy
Contract prior to the execution thereof A copy of the proposed Occupancy
Contract shall be provided to Friday's within sixty
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(60) days of the date of Preliminary Site Consent the Franchise Agreement. The
Occupancy Contract shall be executed by all necessary parties within thirty (30)
days following Friday's consent thereto. Developer shall furnish Friday's a
complete copy of the executed Occupancy Contract within ten (10) days after
execution. Unless it conveys to Developer fee simple title to the Site, the
Occupancy Contract shall include the following covenants:
(1) Owner shall deliver to Friday's, simultaneously with delivery
to Developer, any notice alleging Developer's default under the Occupancy
Contract which threatens or purports to terminate the Occupancy Contract;
(2) Friday's may enter the Restaurant premises to protect the
Proprietary Marks or the System or to cure any Event of Default or default under
the Occupancy Contract or the applicable Franchise Agreement;
(3) Developer may assign the Occupancy Contract to Friday's
without any fee or modification thereof and Friday's may assign or sublease the
Occupancy Contract or license the Restaurant premises for any part of the
remaining term of the Occupancy Contact, each without Owner's consent; and
(4) Owner and Developer shall not amend the Occupancy Contract in
any way which is inconsistent with the provisions of Sections 3.F(1) through
(4), inclusive.
G. Notwithstanding the terms of Section 3.F, Developer shall:
(1) deliver to Friday's, immediately after delivery to or by
Developer, any notice of default under the Occupancy Contract which threatens or
purports to terminate the Occupancy Contractor result in a foreclosure thereof;
(2) permit Friday's to enter the Restaurant premises to protect
the Proprietary Marks or the System or to cure any Event of Default or default
under the Occupancy Contract or the applicable Franchise Agreement, all at
Developer's expense; and
(3) not amend the Occupancy Contract in any way which is
inconsistent with the provisions of Sections 3.G.(1) through (4), inclusive.
H. Friday's shall provide Developer with one (1) Development Manual
`on loan' and two (2) sets of Friday's standard plans and specifications as of'
the date hereof for the construction of a typical Restaurant. Developer
acknowledges Friday's ownership of the Development Manual and any such plans and
specifications, together with any copyright rights in or to such materials.
Developer shall observe Friday's reasonable requests concerning copyright
notices. The Development Manual and such plans shall be returned to Friday's
immediately upon termination or expiration of this Agreement.
I. Friday's shall provide such consultation as it reasonably deems
necessary to consent to vendors and products proposed to be used in Restaurant
development and operation.
4. FEES AND PAYMENTS
A. In consideration of the development rights granted herein,
Developer shall pay to Friday's upon execution of this Agreement the Development
Fee. Under no circumstances shall Developer be entitled to any refund of any
portion of the Development Fee.
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B. The Franchise Fee to be paid by Developer for each new Restaurant
to he developed under the Development Schedule set forth in Section 3.A hereof
shall be Fifty Thousand Dollars BB ($50,000.00) for the first Restaurant to be
developed, Fifty Thousand Dollars ($50,000.00) for the second Restaurant to be
developed, and Fifty Thousand Dollars ($50,000.00) for each additional
Restaurant, payable upon execution of the Franchise Agreement for each
Restaurant in accordance with the Development Schedule. Developer shall receive
a credit against the payment of the Franchise Bee due for each Restaurant
developed pursuant to the Development Schedule as follows:
Restaurant No. Amount of Credit
-------------- ----------------
1 Fifty Thousand Dollars ($50,000.00)
2 Ten Thousand Dollars ($10,000.00)
3 Ten Thousand Dollars ($10,000.00)
4 Ten Thousand Dollars ($10,000.00)
5 Ten Thousand Dollars ($10,000.00)
6 or more Five Thousand Dollars ($5,000.00)
C. (1) All Payments shall be submitted to Friday's at the address
provided in Section 13 hereof, in care of the `Treasurer", or such other address
as Friday's shall designate in writing.
(2) Payments shall be received by Friday's (i) upon execution
hereof in the case of the Development Fee; (ii) upon execution of each Franchise
Agreement; and (iii) not more than thirty (30) days after date of invoices for
all other Payments. Delinquent Payments shall bear interest from the due date
until received by Friday's at eighteen percent (18%) per annum or the maximum
rate permitted by law, whichever is less.
D. Developer shall not withhold or off-set any portion of any Payment
due to Friday's alleged non-performance under this Agreement or any other
agreement by and between Friday's and Developer or their respective parent
corporations, subsidiaries or affiliates.
5. REPRESENTATIVE: OPERATOR; RESTAURANT MANAGERS: TRAINING
A. Developer hereby designates Gerard Bisceglia as the Representative.
Any replacement Representative shall be designated within ten (10) days of the
prior Representatives' resignation or termination. Each Representative shall
attend and successfully complete at the Training Center Friday's "Owner's
Orientation Program" (currently approximately four (4) weeks). The
Representative hereunder and under each Franchise Agreement shall be the Caine
individual.
B. Developer hereby designates Bart Brown, Jr. as the Operator. Any
replacement Operator shall be designated within ten (10) days of the prior
Operator's resignation or termination. Each Operator shall attend and
successfully complete at the Training Center within six (6) months of
appointment Friday's training program required for Restaurant Managers (see
Section 5.D.). The Operator hereunder and under each Franchise Agreement shall
be the same individual.
C. Not less than sixty (60) days prior to the commencement of
Restaurant construction, Developer shall designate the Project Manager. Any
replacement Project Manager shall be designated within ten (10) days of the
prior Project Manager's resignation/termnination.
D. The requisite number of Restaurant Managers, as determined by
Friday's, shall be employed by Franchisee for each Restaurant developed
hereunder. All Restaurant Managers shall attend and successfully complete at the
Training Center Friday's training program for Restaurant Managers of
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T.G.I. Friday's(R) Restaurants (currently, one (1) week). Additionally, the
Restaurant Managers shall attend and successfully complete additional training
(currently, approximately twenty (20) weeks) at such then existing T.G.I.
Friday's Restaurants as shall be designated by Friday's. Any previously trained
Restaurant Manager who is not a general manager, but has been selected to become
a general manager shall attend and successfully complete such additional
training as Friday's may require. Friday's may require general and kitchen
managers, at Developer's expense, to attend and successfully complete additional
training at the Training Center
E. When the Franchise Agreement for the third Restaurant is executed,
Developer shall designate a Multi-Unit Manager. Additional Multi-Unit Managers
shall be designated from time to time as reasonably required by Friday's. Prior
to assuming his duties, each Multi-Unit Manager shall have successfully
completed Restaurant Manager training and shall attend at the Training Center
and successfully complete Friday's training program for Multi-Unit Managers
(currently, two (2) days at the Training Center and approximately four (4)
weeks) at such then existing TG.I. Friday's(R) Restaurants
F. Friday's shall have the right to interview and consent to each
Operator, each Multi-Unit Manager, Project Manager and all Restaurant Managers.
Friday's shall endeavor to conduct such interviews in the Territory, but may
require that such interviews occur at Headquarters. Developer shall bear all
costs an expenses related to making the Restaurant Managers available for such
interviews.
G. Friday's shall provide instructors, facilities and materials for
training at the Training Center, and shall provide, at its option, other
training programs at non-Training Center locations as may be designated by
Friday's from time to time in the Manuals or otherwise in writing. Developer
shall reimburse Friday's for any Territorial Expenses or other direct expenses
incurred by Friday's for such other training programs.
H. Except as provided herein, Developer shall bear all costs and
expenses relating to any Representative, Operator, Multi-Unit Manager, Project
Manager and Restaurant Manager training.
I. The NSO Team shall assist in (i) training Franchisee's employees at
each Restaurant; and (ii) the opening of each Restaurant. The NSO Team for a
traditional T.G.1. Friday's Restaurant shall consist of a combined total of
approximately twelve (12) employees of Friday's and Franchisee (the actual
number of members shall be determined by Friday's, depending upon the number of
T.G.1. Friday's Restaurants already open and operating and such other criteria
as Friday's deems reasonable). The members of the NSO Team shall be subject to
Friday's consent. The number of Friday's employees selected to serve on the NSO
Team for a traditional T.G.I. Friday's Restaurant shall be determined according
to the following schedule:
Restaurant No. No. of Team Team Members
Operated No. of Friday's Employees Members Paid for Paid for by
by Developer on the NSO Team by Friday's Developer
------------ --------------- ----------- ---------
1&2 12 12 0
3&4 9 9 3
5&6 6 6 6
7 or more 2 2 10
In the event Friday's determines that more than 12 NSO team members are
necessary for an opening, Developers with five or more restaurants open
(inclusive of the new restaurant) shall be responsible for
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the costs associated with the team members in excess of 12. For Developers with
less than five restaurants open, Friday's will bear the costs of the additional
team members.
If Franchisee fails or is unable to timely provide such employees,
Friday's may, but shall not be obligated to, staff the NSO-Team with Friday's
employees. Friday's and Franchisee shall each be responsible for: (a) making all
travel, food and lodging arrangements, and (b) the wage and other expenses of
the NSO-Team members provided by each; provided, however, that Franchisee shall
reimburse Friday's for the Territorial Expenses and the Wage Expenses of
Friday's employees who are provided as a result of Franchisee's failure or
inability to provide Franchisee employees for participation on the NSO-Team.
6. CONFIDENTIAL INFORMATION
A. (1) Neither Developer nor any Principal shall communicate,
disclose or use any Confidential Information except as (i) permitted herein or
(ii) required by law, and shall use all reasonable efforts to maintain such
information as secret and confidential Neither Developer nor any Principal
shall, without Friday's prior consent, copy, duplicate, record or otherwise
reproduce any Confidential Information. Confidential Information may be provided
to employees, agents, consultants and contractors only to the extent necessary
for such parties to provide services to Developer. Prior to such disclosure of
any Confidential Information each of such employees, agents, consultants and
contractors shall (a) be advised by Developer of the confidential and
proprietary nature of the Confidential Information, and (b) agree to be bound by
the terms and conditions of Section 6 of this Agreement. Notwithstanding such
agreement, Developer shall indemnify the Friday's Indemnitees from any damages,
costs or expenses resulting from or related to any disclosure or use of
Confidential Information by its agents, employees, consultants and contractors.
(2) In the event Developer or Developer's employees, agents,
consultants, or contractors receive notice of any request, demand, or order to
transfer or disclose all or any portion of the Confidential Information,
Developer shall immediately notify Friday's thereof, and shall fully cooperate
with and assist Friday's in prohibiting or denying any such transfer or
disclosure. Should such transfer or disclosure be required by a valid, final,
non-appealable court order, Developer shall fully cooperate with and assist
Friday's in protecting the confidentiality of the Confidential Information to
the maximum extent permitted by law.
(3) Developer and each Principal acknowledge Friday's
exclusive ownership of the Confidential Information and the System, and TGIFM's
exclusive ownership of, and Friday's license with respect to, the Proprietary
Marks. Neither Developer nor any Principal shall, directly or indirectly,
contest or impair Friday's or TGIFM's exclusive ownership of, and/or license
with respect to, the Confidential Information, the System or the Proprietary
Marks.
B. If Developer develops improvements (as determined by Friday's) to
the Confidential Information, Developer and the Principals shall each, without
additional consideration, execute such agreements and other documentation as
shall be deemed necessary by Friday's, granting exclusive ownership thereof to
Friday's. All such improvements shall be Confidential Information.
C. Each Principal shall execute and deliver to Friday's a covenant in
the form attached as Addendum A. Developer shall cause each Operator,
Representative, Multi-unit Manager, Project Manager, and Restaurant Manager and
such other employees of Developer whom Friday's shall designate to execute and
(if requested) deliver to Friday's a covenant in the form attached as Addendum
B. Notwithstanding the execution of such covenant, Developer shall indemnify the
Friday's Indemnitees from any damages, costs or expenses resulting from or
related to any disclosure or use of Confidential
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<PAGE>
Information by any Principal, Operator, Representative, Multi-unit Manager,
Project Manager or Restaurant Manager
D. Immediately upon any termination or expiration hereof, Developer and
each Principal shall return the Confidential Information including, without
limitation, that portion of the Confidential Information which consists of
analyses, compilations, studies or other documents containing or referring to
any part of the Confidential Information, prepared by Developer or such
Principal, their agents, representatives or employees, and all copies thereof
7. DEVELOPER'S REPRESENTATIONS AND WARRANTIES; AFFIRMATIVE AND NEGATIVE
COVENANTS
A. In the event Developer is a corporation, limited liability company
or partnership, Developer represents and warrants to Friday's as follows:
(1) Developer is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with all
requisite power and authority to own, operate and lease its assets (real or
personal), to carry on its business, to enter into this Agreement and perform
its obligations hereunder. Developer is duly qualified to do business and is in
good standing in each jurisdiction in which its business or the ownership of its
assets requires.
(2) The execution, delivery and performance by Developer of this
Agreement, any Franchise Agreement and all other agreements contemplated herein
has been duly authorized by all requisite action and no further action is
necessary to make this Agreement, any Franchise Agreement or such other
agreements valid and binding upon it and enforceable against it in accordance
with their respective terms. Neither the execution, delivery nor performance by
Developer of this Agreement, any Franchise Agreement or any other agreements
contemplated hereby will conflict with, or result in a breach of any term or
provision of Developer's articles of incorporation, by-laws, partnership
agreement or other governing documents or under any mortgage, deed of trust or
other contract or agreement to which Developer is a party or by which it or any
of its assets are bound, or breach any order, writ, injunction or decree of any
court, administrative agency or governmental body.
(3) Developer's articles of incorporation, by-laws, partnership
agreement and other governing documents expressly limit Developer's business
activities solely to the development and operation (pursuant to this Agreement
and the Franchise Agreements) of the Restaurants.
(4) Certified copies of Developer's articles of incorporation,
by-laws, partnership agreement, other governing documents and any amendments
thereto, including board of director's or partners resolutions authorizing this
Agreement, have been delivered to Friday's
(5) A certified current list of all Principals has been delivered
to Friday's.
(6) Developer's articles of incorporation or other governing
documents, or partnership agreement limit Transfers as described in Sections
8.B.(2) and 8.C
(7) Each Security shall bear a legend (in a form to which
Friday's shall consent) indicating that any Transfer is subject to Sections 8.B
and 8.C
B. Developer affirmatively covenants with Friday's as follows:
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(1) Developer shall perform its duties and obligations hereunder
and under any Franchise Agreement and shall require each Operator, Multi-Unit
Manager, Project Manager and Restaurant Manager to dedicate their respective
full time and best efforts to the development, construction, management,
operation, supervision and promotion of the Restaurants in accordance with the
terms and conditions hereof.
(2) Developer shall promptly provide Friday's with all
information concerning any new process or improvements in the development,
construction, management, operation, supervision or promotion of the Restaurants
developed by Developer or any Principal without compensation. Developer and the
Principals shall each execute such agreements and other documentation as shall
be deemed necessary by Friday's, granting Friday's exclusive ownership thereof.
(3) Developer shall comply with all requirements of applicable
rules, regulations, statutes, laws and ordinances.
(4) Developer shall maintain a current list of all Principals and
deliver a certified copy thereof to Friday's upon (i) any Transfer; or (ii)
request
(5) Each Security issued subsequent to the date hereof shall be
in compliance with Section 7.A.(7).
C. Developer acknowledges to and/or negatively covenants with Friday's
as follows:
(1) Developer shall not amend its articles of incorporation,
by-laws, partnership agreement or other governing documents in a manner which is
inconsistent with Sections 7.A.(3), 8.B.(2) and 8.C.
(2) Developer shall not remove or permit removal from any
Security or its partnership agreement, or issue any Security that does not have
endorsed upon it, the legend described in Section 7.A.(7).
(3) Developer and each Principal shall receive valuable, unique
training, trade secrets and the Confidential Information which are beyond the
present skills, experience and knowledge of Developer, any Principal and
Developers employees. Developer and each Principal acknowledge that (i) such
training, trade secrets and the Confidential Information (a) are essential to
the development of the Restaurant and (b) provide a competitive advantage to
Developer; and (ii) access to such training, trade secrets and the Confidential
Information is a primary reason for their execution of this Agreement. In
consideration thereof, Developer and each Principal covenant that, during the
Term and for a period of one (I) year after the expiration or termination
hereof, neither Developer nor any Principal shall, directly or indirectly
(a) employ or seek to employ any person (or induce such
person to leave his or her employment) who is, or has within one (1) year been,
employed (i) by Friday's, (ii) by any developer or franchisee of Friday's, or
(iii) in any other concept or system owned, operated or franchised by an
Affiliate, as a director, officer or in any managerial capacity;
(b) own, maintain, operate or have any interest in any
Competing Business;
(c) own, maintain, operate or have any interest in any
Competing Business which business is, or is intended to be, located in the
Territory; or
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(d) own, maintain, operate or have any interest in any
Competing Business which business is, or is intended to be, located within a
three (3) mile radius of any restaurant which is a part of a concept or system
owned, operated, or franchised by Friday's or any Affiliate.
(4) Sections 7.C.(3)(b), (c) and (d) shall not apply to an
interest for investment only of five percent (5%) or less of the capital stock
of a Publicly-Held Entity if such owner is not a director, officer or manager
therefor or consultant thereto
(5) Each of the foregoing covenants is independent of each other
covenant or agreement contained in this Agreement.
E. Friday's may, in its sole discretion, reduce the area, duration or
scope of any covenant contained in Section 7.C. without Developer's or any
Principals consent, effective upon notice to Developer, Developer and each
Principal shall comply with any covenant as so modified.
F. Developers representations, warranties, covenants and agreements
herein are continuing representations, warranties, covenants and agreements each
of' which shall survive the expiration or termination hereof.
8. TRANSFER
A. Friday's may assign this Agreement, or any of its rights or
obligations herein, to any person or entity without Developer's or any
Principal's consent; provided, however, that Friday's obligations which are
assigned shall be fully assumed by the party to whom Friday's assigns such
obligations.
B (1) Developer and each Principal acknowledge that Developer's
rights and obligations herein and in each Franchise Agreement are personal to
Developer and that Friday's has entered into this Agreement and will enter into
each Franchise Agreement relying upon the business skill, experience and
aptitude, financial resources and reputation of Developer and each Principal.
Therefore, neither Developer nor any Principal, their respective successors or
permitted assigns, shall complete, or allow to be completed, any Transfer
without Friday's consent Any purported Transfer, by operation of law or
otherwise, without Friday's consent shall be null and void and constitute an
Event of Default.
(2) Friday's may require satisfaction of any of the following
conditions and such other conditions as Friday's may reasonably require prior to
consenting to any Transfer, each of which Developer acknowledges and agrees is
reasonable and necessary:
(a) no Event of Default shall have occurred and be
continuing and no event shall have occurred which, with the giving of notice or
lapse of time, or both, would constitute an Event of Default;
(b) Developer and/or any affected Principal shall deliver a
general release of any and all claims against the Friday's Indemnitees
including, without limitation, claims arising under this Agreement and any
Franchise Agreement, in a form acceptable to Friday's;
(c) Developer and/or any affected Principal shall remain
liable for the performance of its obligations, covenants and agreements herein
through the date of transfer and shall execute all instruments reasonably
requested by Friday's to evidence such liability;
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(d) the transferee and all Transferee Owners, as
applicable, shall (i) make each of Developer's and Principal's representations
and warranties; (ii) assume full, unconditional, joint and several liability
for, and agree to perform from the date of Transfer, each of Developer's and
Principal's obligations, covenants and agreements herein; and (iii) execute all
instruments (in a form acceptable to Friday's) reasonably requested by Friday's
to evidence the foregoing;
(e) the transferee and all Transferee Owners shall satisfy,
in Friday's reasonable judgment, Friday's then existing criteria for LOP
Friday's(R) developers or principals, as applicable, including, without
limitation: (i) education; (ii) business skill, experience and aptitude; (iii)
character and reputation; and (iv) financial resources;
(f) the transferee and all Transferee Owners shall execute
(without extending the Term) the standard form of development agreement then
being offered to new System developers or other form of this Agreement as
Friday's requests and such other ancillary agreements as Friday's may request
for the development of the Restaurants, which shall supersede this Agreement and
its ancillary documents and the terms of which may differ from the terms hereof;
provided, however, that the transferee shall not be required to pay the
Development Fee (transferee shall pay all Franchise Fees and other fees
described in each Franchise Agreement which have not already been paid in full
by Developer); and
(g) at the transferee's expense, the transferee's
Representative, any Multi-unit Manager(s), Operator, and Restaurant Managers
shall complete such training as then required (if not previously trained
pursuant to the tens hereof), upon such tens and conditions as Friday's may
reasonably require.
C. Developer and each Principal agree that:
(1) (i) Friday's shall have and is hereby granted a right of
first refusal with respect to any Transfer; (ii) should Developer and/or any
Principal desire to accept a bona fide offer to make a Transfer, such party
shall promptly notify Friday's thereof and shall provide such information and
documents relating thereto as Friday's may require; (iii) within thirty (30)
days after receipt of such notice, information and documents, Friday's may
notify such party that it intends to exercise its right of first refusal with
regard to such Transfer upon such terms and conditions; provided, however, that
such transaction shall be consummated within a reasonable period of time after
Friday's has given such notice; (iv) any material change in the terms of any
offer or any change in the identity of the proposed transferee shall constitute
a new offer subject to Friday's right of first refusal; and (v) Friday's failure
to exercise such right shall not constitute a waiver of any other provision of
this Agreement, including such right with respect to future offers; and
(2) in the event such offer provides for payment of consideration
other than cash, Friday's may elect to purchase the interest for the reasonable
equivalent in cash- If the parties cannot agree within thirty (30) days of the
receipt of notice of Friday's election to exercise such right of first refusal
on such reasonable equivalent in cash, an Appraiser designated by Friday's shall
determine such amount, and his determination shall be final and binding. If
Friday's elects to exercise the right of first refusal described above, the cost
of the appraisal, if any, shall be set off against any payment made by Friday's
hereunder.
D. In the event Developer requests Friday's consent to any proposed
Transfer, there shall be paid to Friday's a non-refundable fee of Five Thousand
Dollars ($5,00000), or such greater amount as is necessary to reimburse Friday's
for its costs and expenses associated with reviewing the proposed Transfer
including, without limitation, Territorial Expenses, legal and accounting fees
and Wage
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Expenses. No such fee shall be payable with respect to a transaction with
Friday's described in Section 8.C.
E. In the event Developer or any Principal is a natural person,
Developer or his administrator, executor, guardian or personal representative
shall promptly notify Friday's of the death or Permanent Disability of such
Developer or such Principal. Any Transfer upon death or Permanent Disability
shall be subject to the terms and conditions described in Sections 8.B.(2) and
8.C. and shall be completed prior to a date which is (i) one (1) year after the
date of death; or (ii) ninety (90) days after the date Developer or such
Principal becomes, or is deemed to be, Permanently Disabled Developer Or any
Principal refusing to submit to examination with respect to Permanent Disability
shall be deemed Permanently Disabled.
F. Friday's consent to any Transfer shall not constitute a waiver of
(i) any claims it may have against the transferor; or (ii) the transferee's
compliance with the terms hereof
9. CONSENT AND WAIVER
A. When required, Developer or any Principal shall make written
request for Friday's consent in advance and such consent shall be obtained in
writing. Friday's consent shall not be unreasonably withheld. The foregoing not
withstanding, where either party's consent is expressly reserved to such party's
sole discretion, the exercise of such discretion shall not be subject to
contest.
B. FRIDAY'S MAKES NO REPRESENTATIONS OR WARRANTIES UPON WHICH
DEVELOPER OR ANY PRINCIPAL MAY RELY AND ASSUMES NO LIABILITY OR OBLIGATION TO
DEVELOPER, ANY PRINCIPAL OR ANY THIRD PARTY BY PROVIDING ANY WAIVER, ADVICE,
CONSENT OR SERVICES TO DEVELOPER OR DUE TO ANY DELAY OR DENIAL THEREOF.
10. DEFAULT AND REMEDIES
10.01 A. The following shall constitute Events of Default by Developer
Or any Principal: (i) failure to comply with the Development Schedule; (ii) the
breach or falsity of any representation or warranty herein; (iii) failure to
deliver executed covenants as required in Section &C; (iv) failure to comply
with or perform its covenants, obligations and agreements herein; (v) any
Transfer that (a) occurs other than as provided in Section 8 or (b) fails to
occur within the time periods described in Section 8 (notwithstanding any lack
of, or limits upon, the enforceability of any term or provision of Sections 7 or
8); (vi) failure to make any Payment on or before the date payable; (vii)
failure to meet and/or maintain the Standards; (viii) Developer (a) is
adjudicated, or is, bankrupt or insolvent, (b) makes an assignment for the
benefit of creditors, or (c) seeks protection from creditors by petition in
bankruptcy or otherwise or there is filed against Developer a similar petition
which is not dismissed within thirty (30) days; (ix) the appointment of a
liquidator or receiver for (a) all or substantially all of Developers assets or
(b) any Restaurant is sought which is not dismissed within thirty (30) days; (x)
breach or failure to perform any other term or condition of this Agreement; (xi)
an event of default shall arise under any Franchise Agreement; (xii) Developer
or any Principal pleads guilty or no contest to or is convicted of a felony or a
crime involving moral turpitude or any other crime or offense that Friday's
reasonably believes is likely to adversely affect the Proprietary Marks, the
System or the goodwill associated therewith (whether in the Territory or
elsewhere) or Friday's interest therein; or (xiii) any (a) two (2) or more
Events of Default shall arise under any single subsection of this Section
l0.01.A or (b) three (3) or more Events of Default shall arise under this
Section 10.0l.A in any continuous twelve (12) month period notwithstanding the
previous cure of such Events of Default.
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B. The parties agree that an Event of Default arising under Section
10.0l.A(i). (iii), (iv) [with respect to Events of Default arising, without
limitation, under Section 7.C.(3)], (v), (vi), (viii), (ix), (xi), (xii) or
(xiii) shall constitute a Material Event of Default. The parties further agree
that Events of Default committed by Developer or any Principal arising under
other Sections of this Agreement may also be deemed to be Material Events of
Default.
C. Upon the occurrence of an Event of Default by Developer or any
Principal, Friday's may exercise one or more of the following remedies or such
other remedies as may be available at law or in equity:
(1) cure such Event of Default at Developer's expense and in
connection therewith Developer (i) hereby grants to Friday's all rights and
powers necessary or appropriate to accomplish such cure; (ii) shall indemnify
and hold the Friday's Indemnitees harmless from and against all costs, expenses
(including reasonable fees of attorneys and other engaged professionals),
liabilities, claims, demands and causes of action (including actions of third
parties) incurred by or alleged against any Friday's Indemnitee in connection
with Friday's cure; and (iii) shall reimburse or pay such costs or damages
within ten (10) days of receipt of Friday's invoice therefor;
(2) in the event of a Material Event of Default, upon notice to
Developer, terminate this Agreement and all rights granted hereunder without
waiving any (i) claim for damages suffered by Friday's; or (ii) other rights,
remedies or claims (no notice of termination shall be required with regard to a
Material Event of Default under Section 10-01.A. (viii) or (ix)); or
(3) with respect to an Event of Default arising from a breach of
covenant contained in Section 7.C(3)(a), the affected former employer shall be
compensated by the breaching party (and Developer shall be additionally liable
for breaches by any Principal) for the reasonable costs and expenses incurred by
such employer in connection with training such employee, Developer and each
Principal acknowledge that such expenses are impossible to accurately quantify
and agree that, as liquidated damages and not as a penalty, an amount equal to
such employees annual rate of compensation in the final twelve (12) months of
employment (or an annualized rate if employed for a shorter period) by such
former employer shall be paid by the breaching party to the former employer at
such time as such employee commences employment.
D. Friday's shall not exercise any remedies available hereunder with
respect to the following described Events of Default unless such Events of
Default remain uncured after notice from Friday's thereof and the expiration of
the following cure periods:
(1) with respect to any Event of Default arising under Section
10.01.A.(vi) - ten (10) days; or
(2) with respect to any Event of Default arising under Sections
l0.01.A.(i)-(v) inclusive, (vii) and (x) - thirty (30) days.
E. If any Events of Default arising under Sections 10.0l.A.(i) - (v)
inclusive, (vii) or (x) cannot reasonably be cured within thirty (30) days,
Developer shall provide Friday's notice thereof (together with Developer's best
estimate of the time period required to complete such cure) and immediately
undertake efforts to cure such default within the cure period, and continue such
efforts with diligence to completion. In no event, however, shall such cure
period be extended without the prior written consent of Friday's.
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F. Developer and each Principal agree that Friday's exercise of the
rights and remedies set forth herein are reasonable. Friday's may, in addition
to pursuing any other remedies, specifically enforce such obligations, covenants
and agreements or obtain injunctive or other equitable relief in connection with
the violation or anticipated violation of such obligations, covenants and
agreements-
10.02 A. The following shall constitute Events of Default by Friday's:
(i) failure to comply with or perform its obligations and agreements herein, or
(ii) Friday's (a) is adjudicated, or is, bankrupt or insolvent, (b) makes an
assignment for the benefit of creditors, or (c) seeks protection from creditors
by petition in bankruptcy or otherwise or there is filed against Friday's a
similar petition which is not dismissed within thirty (30) days.
B. Upon the occurrence of a Material Event of Default by Friday's.
Developer may, upon notice to Friday's, terminate this Agreement and all rights
granted hereunder without waiving any (i) claim for damages suffered by
Developer; or (ii) other rights, remedies or claims. Any termination of this
Agreement by Developer other than as provided in this Section 10.02 shall be
deemed a termination by Developer without cause.
C. Developer shall not exercise any remedies available hereunder with
respect to any Events of Default unless such Events of Default remain uncured
after (i) notice from Developer thereof and (ii) the expiration of thirty (30)
days following such notice
D. If any Events of Default cannot reasonably be cured within thirty
(30) days, Friday's shall provide Developer notice thereof (together with
Friday's best estimate of the time period required to complete such cure) and
immediately undertake efforts to cure such default within the cure period, and
continue such efforts with diligence to completion. In no event, however, shall
such cure period be extended without the prior written consent of Developer.
10.03 Subject to the provisions of Section 10.06, all rights and
remedies of either party shall be cumulative, and not exclusive, of any other
right or remedy described herein or available at law or in equity. The
expiration or termination of this Agreement shall not release any party from any
liability or obligation then accrued or any liability or obligation continuing
beyond, or arising from, such expiration or termination Nothing in this
Agreement shall impair either party's right to obtain injunctive or other
equitable relief.
10.04 The failure of any party to exercise any right or remedy or to
enforce any obligation, covenant or agreement herein shall not constitute a
waiver by, or estoppel of that party's right to any of the remedies described
herein including, without limitation, to enforce strict compliance with any such
obligation, covenant or agreement No custom or practice shall modify or amend
this Agreement. The waiver of, or failure or inability of any party to enforce,
any right or remedy shall not impair that party's rights or remedies with
respect to subsequent Events of Default of the same, similar or different
natures The delay, forbearance or failure of any party to exercise any right or
remedy in connection with any Event of Default or default by any other
developers shall not affect, impair or constitute a waiver of such party's
rights or remedies herein. Acceptance of any Payment shall not waive any Event
of Default.
10.05 Developer and each Principal shall, jointly and severally, pay
all costs and expenses (including reasonable fees of attorneys and other engaged
professionals) incurred by Friday's in successfully enforcing, or obtaining any
remedy arising from the breach of, this Agreement. The existence of any claims,
demands or actions which Developer or any Principal may have against Friday's,
whether arising from this Agreement or otherwise, shall not constitute a defense
to Friday's enforcement of Developer's or any Principal's representations,
warranties, covenants, obligations or agreements herein.
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10.06 IN THE EVENT OF A DISPUTE BETWEEN THEM WHICH IS NOT SUBJECT TO,
NOR ARISES UNDER, SECTION 12, FRIDAY'S, DEVELOPER &ND PRINCIPALS HEREBY WAIVE,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO OR CLAIM FOR ANY PUNITIVE,
EXEMPLARY, INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING,
WITHOUT LIMITATION, LOSS OF PROFITS, BUT SPECIFICALLY EXCLUDING, HOWEVER,
DAMAGES TO THE REPUTATION AND GOODWILL ASSOCIATED WITH AND/OR SYMBOLIZED BY THE
PROPRIETARY MARKS) AGAINST THE OTHER ARISING OUT OF ANY CAUSE WHATSOEVER
(WHETHER SUCH CAUSE BE BASED IN CONTRACT, NEGLIGENCE, STRICT LIABILITY, OTHER
TORT OR OTHERWISE) AND AGREE THAT EACH SHALL BE LIMITED TO THE RECOVERY OF ANY
ACTUAL DAMAGES SUSTAINED BY IT. IF ANY OTHER TERM OF THIS AGREEMENT IS FOUND OR
DETERMINED TO BE UNCONSCIONABLE OR UNENFORCEABLE FOR ANY REASON, THE FOREGOING
PROVISION SHALL CONTINUE IN FULL FORCE AND EFFECT.
11. INSURANCE
A. Developer shall obtain within thirty (30) from the date hereof and
maintain throughout the Term, such insurance coverage (including, without
limitation, auto liability coverage and workers compensation insurance) as may
be (i) required by law; or (ii) reasonably designed to protect Developer from
the risks inherent in the development activities to be engaged in by Developer
pursuant to this Agreement. Friday's shall have the right to reasonably consent
to the types and amounts of coverage and the issuing companies. Such insurance
shall:
(1) name the Friday's Indemnitees as additional insured parties
and provide that coverage applies separately to each insured and additional
insured party against whom a claim is brought as though a separate policy had
been issued to each Friday's Indemnitee;
(2) contain no provision which limits or reduces coverage in the
event of a claim by any one (1) or more of the insured or additional insured
parties;
(3) provide that policy limits shall not be reduced, coverage
restricted, canceled, allowed to lapse or otherwise altered or such policy(ies)
amended without Friday's consent, but in no event upon less than thirty (30)
days prior written notice to Friday's;
(4) be obtained from reputable insurance companies with an A.M.
Best Rating of "A" and an A.M. Best Class Rating of XIV (or comparable ratings
from a reputable insurance rating service, in the event such A.M. Best ratings
are discontinued or materially altered), authorized to do business in the
jurisdiction in which the Restaurant is located; and
(5) be in an amount and form satisfactory to Friday's; but in no
event in amounts less than the following:
(a) auto liability insurance, including coverage of owned,
non-owned and hired vehicles, with a combination of primary and excess limits of
not less than Five Hundred Thousand Dollars ($500,000.00) for bodily injury for
each person, One Million Dollars ($1,000,000.00) for bodily injury for each
occurrence and Two Hundred Fifty Thousand Dollars ($250,000.00) for each
occurrence of property damage;
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(b) employer's liability insurance with a limit of not less
than Five Hundred Thousand Dollars ($500,000.00); and
(c) workers compensation insurance in such amount as may be
required by applicable statute or rule.
B. Such insurance may provide for reasonable deductible amounts with
Friday's consent
C. A certificate of insurance shall be submitted for Friday's consent
within ten (10) days following commencement of such coverage, and additional
certificates of insurance shall be submitted to Friday's thereafter, evidencing
uninterrupted coverage. Developer shall deliver a complete copy of such
policy(ies) within ten (10) days of request.
D. In the event of a claim of any one or more of the Friday's
Indemnitees against Developer, Developer shall, on request of Friday's, assign
to Friday's any and all rights which Developer then has or thereafter may have
with respect to such claim against the insurer(s) providing the coverage
described in this Section.
E. Developer's obligation to obtain and maintain insurance or to
indemnify any Friday's Indemnitee shall not be limited by reason of any
insurance which may be maintained by any Friday's Indemnitee, nor shall such
insurance relieve Developer of any liability under this Agreement Developers
insurance shall be primary to any policies maintained by any Friday's
Indemnitee.
F. If Developer fails to obtain or maintain the insurance required by
this Agreement, as such requirements may be revised from time to time, Friday's
may acquire such insurance, and the cost thereof, together with a reasonable fee
for Friday's expenses in so acting and interest at eighteen percent (18%) per
annum from the date acquired, shall be payable by Developer upon notice.
12. INDEMNIFICATION
A. Developer and each of Developer's Principals will, at all times,
indemnify and hold harmless to the fullest extent permitted by law Friday's, its
corporate affiliates, successors and assigns and the respective directors,
officers, employees, agent and representatives of each (Friday's and all others
hereinafter collectively "Indemnities") from all "losses and expenses" (as
defined below) incurred in connection with any action, suit, proceeding, claim,
demand, investigation or inquiry (formal or informal), or any settlement thereof
(whether or not a formal proceeding or action has been instituted) which arises
out of or is based upon any of the following:
(1) The infringement, alleged infringement, or any other
violation or alleged violation by Franchisee or any of Developer's Principals of
any patent, mark or copyright or other proprietary right owned or controlled by
third parties.
(2) The violation, breach or asserted violation or breach by
Developer or any of Developer's Principals of any contract, federal, state or
local law, regulation ruling, standard or directive or any industry standard.
(3) Libel, slander or any other form of defamation of Franchisor
or the System, by Developer or any of Developer's Principals.
(4) The violation or breach by Developer or any of Developer's
Principals of any warranty, representation, agreement or obligation in this
Agreement.
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(5) Acts, errors or omissions of Developer or any of its agents,
servants, employees, contractors, partners, affiliates or representatives
B. Developer and each of Developer's Principals agree to give Friday's
immediate notice of any such action, suit, proceeding, claim, demand, inquiry or
investigation.
C. Friday's shall at all times have the absolute right to retain
counsel of its own choosing in connection with any action, suit, proceeding,
claim, demand, inquiry or investigation Friday's shall at all times have the
absolute right to investigate any action, suit proceeding, claim or demand
itself.
D. Developer and each of Developer's Principals shall indemnify
Friday's for its attorneys' fees, expenses, and costs incurred in connection
with the exercise of Friday's rights under Subsection 12.01. This provision
shall not be construed so as to limit or in any way affect Developer's indemnity
obligations pursuant to the other provisions of Subsection 1101~
E. In the event that Franchisor's exercise of its rights under
Subsection 12.01 .C actually results in Developer's Insurer (i.e., insurance
required to be maintained by Developer pursuant to Subsection 12.01)
(hereinafter Section 12.01 "the Insurer") refining to pay on a third party
claim, all causes of action and legal remedies which Developer might have
against the Insurer shall be automatically assigned to Franchisor without the
need for any further action on Franchisor's or Developer's part. For the
purposes of Subsection 12.01, "actually results" means that, but for
Franchisor's exercise of its rights under Subsection 12.01, the Insurer would
not have refused to pay on said third-party claim.
F. In the event that Franchisor's exercise of its rights under
Subsection 1201. actually results in the Insurer refusing to pay on a
third-party claim, Developer shall not be required to indemnify Franchisor for
the latter's attorneys' fees, expenses and costs incurred in connection with
that claim.
G. In the event that the Insurer subsequently reverses its previous
decision to not pay a claim, by in fact paying that claim, Developer shall be
required to indemnify Franchisor for the latter's attorneys' fees, expenses and
costs incurred in connection with that claim, just as if the Insurer had never
denied the claim.
H. In the event that Developer encourages, requests, or suggests that
the Insurer deny a claim, Developer shall indemnify Franchisor for its
attorneys' fees, expenses and costs in connection with that claim.
I. Subject to the provisions of Subsection 11.01.B above, in order to
protect persons or property, or its reputation or goodwill, or the reputation or
goodwill of others, Franchisor may, at any time and without notice, as it, in
its judgment deems appropriate, consent or agree to settlements or take such
other remedial or corrective action as it deems expedient with respect to the
action, suit, proceeding, claim, demand, inquiry or investigation if, in
Franchisor's sole judgment, there are reasonable grounds to believe that:
(1) any of the acts or circumstances enumerated in Subsection
12.01.A above have occurred; or
(2) any act, error, or omission of Developer or any of
Developer's Principals may result directly or indirectly in damage, injury or
harm to any person or any property.
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J. In addition to their indemnity obligations under Section 12.0l.D,
Developer and Developer's Principals shall indemnify Franchisor for any and all
losses, compensatory damages, exemplary or punitive damages, fines, charges,
costs, expenses, lost profits, settlement amounts, judgments, compensation for
damages to the Franchisor's reputation and goodwill, costs of or resulting from
delays, financing, costs of advertising material and media time/space, and costs
of changing, substituting or replacing the same, and any and all expenses of
recall, refunds, compensation, public notices and other such amounts incurred in
connection with the matters described, which result from any of the items set
forth in Section 12.01.
K. Franchisor does not assume any liability whatsoever for acts,
errors, or omissions of those with whom Developer or any of Developer's
Principals may contract, regardless of the purpose. Developer and each of
Developer's Principals shall hold harmless and indemnify Franchiser for all
losses and expenses which may arise out of any acts, errors or omissions of
these third parties
L. Under no circumstances shall Franchisor be required or obligated to
seek recovery from third parties or otherwise mitigate its losses in order to
maintain a claim against Developer or any of Developer's Principals, Developer
and each of Developer's Principals agree that the failure to pursue such
recovery or mitigate loss will in no way reduce the amounts recoverable by
Franchiser from Developer or any of Developer's Principals.
M. Notwithstanding anything to the contrary contained in this
Agreement, Developer is not required to indemnify Franchisor with regard to any
infringement, alleged infringement or other violation or alleged violation by
Developer or any of Developer's Principals of any patent, mark, or copyright or
other proprietary right owned or controlled by a third party, arising in
connection with the use of the Proprietary Marks and System franchised to
Developer when used in the manner authorized and required by Franchisor pursuant
to this Agreement In the event Developer is involved in such an action,
Franchisor agrees to indemnify Developer and Developer's Principals in
connection with the defense thereof and to indemnify and hold Developer and
Developer's Principals harmless from any and all losses, damages, claims,
liabilities, expenses, including attorney's fees (prior to litigation, during
litigation, and on appeal) and all costs (whether taxed or not taxed) in
connection with proceedings regarding the same. Developer shall give notice to
Franchisor of any such claim no later than fifteen (15) days after Developer
becomes aware of same or is given notice thereof This indemnity shall be
inoperative to the extend that failure to have timely provided such notice to
Franchisor materially impairs Franchisor's ability to defend any such claim, in
whole or in part, or to minimize the costs of this indemnity. Developer shall
not be required to defend Franchisor with regard to Developer's utilization
pursuant to this Agreement of the Proprietary Marks and System provided such
utilization is in strict compliance with that authorized and required by
Franchiser pursuant to this Agreement.
13. NOTICES
All notices required or desired to be given hereunder shall be in
writing and shall be sent by personal delivery, expedited delivery service,
facsimile or certified mail, return receipt requested to the following addresses
(or such other addresses as designated pursuant to this Section 13):
IF TO FRIDAY'S TGI Friday's Inc.
Attention: General Counsel
7540 LBJ Freeway, Suite 100
Dallas, Texas 75251
Facsimile No.: (972) 450-5636
IF TO DEVELOPER OR ANY PRINCIPAL:
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Main St. California, Inc.
Attention: Bart Brown, Jr.
5050 N. 40th Street, Suite 200
Phoenix, AZ 85018
Facsimile No: (602) 852-0001
Notices posted by personal delivery, expedited service or given by
facsimile shall be deemed given the next business day after transmission.
Notices posted by certified mail shall be deemed received three (3) Business
Days after the date of posting. Any change in the foregoing addresses shall be
effected by giving fifteen (15) days written notice of such change to the other
party.
14. FORCE MAJEURE
No party shall be liable for any inability to perform resulting from
acts of God or other causes (other than financial inability or insolvency)
beyond their reasonable control; provided, however, that nothing herein shall
excuse or permit any delay or failure (i) to remit any Payment on the date due;
or (ii) for more than one-hundred eighty (180) days. The party whose performance
is affected by an event of force majeure shall, within three (3) days of the
occurrence of such event, give notice thereof to the other party setting forth
the nature thereof and an estimate of its duration.
15. SEVERABILITY
A. Should any term, covenant or provision hereof, or the application
thereof, be determined by a valid, final, non-appealable order to be invalid or
unenforceable, the remaining terms, covenants or provisions hereof shall
continue in full force and effect without regard to the invalid or unenforceable
provision- In such event, such term, covenant or provision shall be deemed
modified to impose the maximum dory permitted by law and such term, covenant or
provision shall be valid and enforceable in such modified form as if separately
stated in and made a part of this Agreement. Notwithstanding the foregoing, if
any term hereof is so determined to be invalid or unenforceable and such
determination adversely affects, in Friday's reasonable judgment, Friday's
ability to realize the principal purpose of the Agreement or preserve its or
TGIFM's rights in, or the goodwill underlying, the Proprietary Marks, the
System, or the Confidential Information, Friday's may terminate this Agreement
upon notice to Developer.
B. Captions in this Agreement are for convenience only and shall not
affect the meaning or construction of any provision hereof.
16. INDEPENDENT CONTRACTOR
A. Developer is an independent contractor. Nothing herein shall create
the relationship of principal and agent, legal representative, joint ventures,
partners, employee and employer or master and servant between the parties. No
fiduciary duty is owed by, or exists between, the parties.
B. Nothing herein authorizes Developer or any Principal to make any
contract, agreement, warranty or representation or to incur any debt or
obligation in Friday's name
17. DUE DILIGENCE AND ASSUMPTION OF RISK
A. Developer and each Principal (i) have conducted such due diligence
and investigation as each desires; (ii) recognize that the business venture
described herein involves risks; and (iii)
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acknow1edge that the success of such business venture is dependent upon the
abilities of Developer and Principals. FRIDAY'S EXPRESSLY DISCLAIMS THE MAKING
OF, AND DEVELOPER AND EACH PRINCIPAL ACKNOWLEDGE TEAT THEY RAVE NOT RECEIVED OR
RELIED UPON, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE
POTENTIAL PERFORMANCE OR VIABILITY OF THE BUSINESS VENTURE CONTEMPLATED BY THIS
AGREEMENT.
B. Developer and each Principal have received, read and understand this
Agreement, the documents referred to herein and the Exhibits and Schedules
hereto. Developer and each Principal have had ample time and opportunity to
consult with their advisors concerning the potential benefits and risks of
entering into this Agreement.
13. MISCELLANEOUS
A. Time is of the essence to this Agreement.
B. There are no third party beneficiaries to this Agreement except for
the remedy provided for breach of Developer's or any Principal's covenant
contained in Section 7C(3)(a), the provision for liquidated damages contained in
Section 10.0l.C.(3), and the rights and remedies provided for in Exhibit B.
C. This Agreement may be executed in any number of counterparts each of
which when so executed shall be an original, but all of which together shall
constitute one (1) and the same instrument.
D. All references herein to the masculine, neuter or singular shall be
construed to include the masculine, feminine, neuter or plural, unless otherwise
suggested by the text.
E. This Agreement will become effective only upon execution hereof by
the President or a vice president of Friday's.
F. This Agreement is not a franchise agreement and does not grant
Developer or any Principal any rights in or to the (i) System (except as
expressly provided herein); or (ii) Proprietary Marks.
G. Developer shall not use the words "FRIDAY'S(R)", "T.G.I.
FRIDAY'S(R)" "TGIF(R)", "THE AMERICAN BISTRO(R)", or any part thereof as part of
its corporate or other name.
H. Developer and each Principal acknowledge that each has received a
complete copy of this Agreement, the documents referred to herein and the
Exhibits and Addenda hereto at least five (5) business days prior to the date on
which this Agreement was executed. Developer and each Principal further
acknowledge that each has received the disclosure document required by the Trade
Regulation Rule of the Federal Trade Commission entitled "Disclosure
Requirements and Prohibitions Concerning Franchising and Business Opportunity
Ventures" at least ten (10) business days prior to the date on which this
Agreement was executed.
19. CHOICE OF LAW; JURISDICTION: VENUE
A. DEVELOPER AND ITS PRINCIPALS ACKNOWLEDGE THAT FRIDAY'S MAY GRANT
DEVELOPMENT RIGHTS THROUGHOUT THE UNITED STATES ON TERMS AN]) CONDITIONS SIMILAR
IN CERTAIN MATERIAL RESPECTS TO THOSE SET FORTH IN THIS AGREEMENT, AND THAT IT
IS OF MUTUAL BENEFIT TO DEVELOPER AND
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DEVELOPER'S PRINCIPALS AND TO FRIDAY'S THAT THESE TERMS AND CONDITIONS BE
UNIFORMLY INTERPRETED. THEREFORE, THE PARTIES AGREE THAT TO THE EXTENT THE LAW
OF THE STATE OF TEXAS IS HELD ENFORCEABLE, TEXAS LAW SHALL APPLY TO THE
INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT (EXCEPT FOR TEXAS CHOICE OF
LAW RULES) AND SHALL GOVERN ALL QUESTIONS WHICH ARISE WITH REFERENCE HERETO.
B. THE PARTIES ACKNOWLEDGE THAT THIS AGREEMENT SHALL BE PERFORMED IN
SUBSTANTIAL PART IN DALLAS COUNTY, TEXAS. THE PARTIES THEREFORE AGREE THAT ANY
CLAIM, CONTROVERSY OR DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE PERFORMANCE THEREOF WHICH CANNOT BE AMICABLY SETTLED, EXCEPT AS OTHERWISE
PROVIDED HEREIN, SHALL BE RESOLVED BY A PROCEEDING IN A COURT IN DALLAS COUNTY,
TEXAS, AND DEVELOPER AND PRINCIPALS EACH IRREVOCABLY ACCEPT AND SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF TEXAS AND THE FEDERAL COURTS LOCATED
IN DALLAS COUNTY, TEXAS FOR SUCH CLAIMS, CONTROVERSIES OR DISPUTES; PROVIDED,
HOWEVER, WITH RESPECT TO ANY ACTION WHICH INCLUDES INJUNCTIVE RELIEF, OR ANY
ACTION FOR THE RECOVERY OF ANY PROPERTY, REAL OR PERSONAL, FRIDAY'S MAY BRING
SUCH ACTION IN ANY STATE WHICH HAS .JURISDICTION.
20. ENTIRE AGREEMENT
This Agreement and the Exhibits, Addenda and Schedules hereto
constitute the entire agreement between Friday's, Developer and the Principals
concerning the subject matter hereof. All prior agreements, discussions,
representations, warranties and covenants are merged herein. THERE ARE NO
WARRANTIES, REPRESENTATIONS, COVENANTS OR AGREEMENTS, EXPRESS OR IMPLIED,
BETWEEN THE PARTIES CONCERNING THE SUBJECT MATTER HEREOF, INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING, EXCEPT THOSE
EXPRESSLY SET FORTH IN THIS AGREEMENT. EXCEPT THOSE PERMITTED TO BE MADE
UNILATERALLY BY FRIDAY'S HEREUNDER, NO AMENDMENT, CHANGE OR VARIANCE FROM THIS
AGREEMENT SHALL BE BINDING ON EITHER PARTY UNLESS MUTUALLY AGREED TO BY FRIDAY'S
AND DEVELOPER AND EXECUTED IN WRITING.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written.
WITNESS: TGI FRIDAY'S INC.
/s/ Janice Sutcliff /s/
- ------------------------ ------------------------
Name: Janice Sutcliff Its: Vice President & General Counsel
Date: 4/22/98 Date: 4/22/98
------------------- ------------------
WITNESS: MAIN ST. CALIFORNIA, INC.
/s/ Patricia A. Davies /s/ Bart Brown
- ------------------------ ------------------------
Name: Patricia A. Davies Its: President
Date: 4/15/98 Date: 4/15/98
------------------- ------------------
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Each Principal acknowledges, covenants and represents as follows:
(1) each has read the terms and conditions of this Agreement;
(2) each is a `Principal" as described in this Agreement;
(3) each is the owner of and has the right to vote the percent of the
Securities of' Developer indicated next to the signature below of each
Principal;
(4) each makes all of the representations, warranties, covenants and
agreements of the Developer (including liability to make Payments) and a
Principal set forth in this Agreement (including, without limitation, the
covenants and agreements concerning Transfer, non-compete and maintenance of'
Confidential Information) and is obligated to perform thereunder;
(5) each individually, jointly and severally, irrevocably and
unconditionally guarantees that all of Developer's obligations under the terms
and conditions of this Agreement will be timely, paid and performed;
(6) each acknowledges that Friday's may, without notice to Principals,
waive, renew, extend, modify, amend or release any indebtedness or obligation of
Developer, or settle, adjust, or compromise any claims against Developer;
(7) each waives all demands and notices of every kind with respect to
this guaranty including, without limitation, notice of presentment, demand for
payment or performance by Developer, any default by Developer or any guarantor,
and any release of any guarantor or other security for this Agreement or the
obligations of Developer. Friday's may pursue its rights against Developer's
Principals without first exhausting its remedies against Developer and without
joining any other guarantor hereto and no delay on the part of Friday's in the
exercise of any right or remedy shall operate as a waiver of such right or
remedy;
(8) each has derived and expects to derive financial or other benefit,
directly or indirectly, from this Agreement and the transaction described
herein;
(9) each acknowledges that his/its execution of this Agreement, and
his/its undertakings and agreements herein, has induced Friday's to enter into
the transactions described in, and to execute, this Agreement;
(10) each consents to and shall be bound by any amendment of this
Agreement made by Friday's and Developer pursuant to the terms hereof; and
(11) each has executed, concurrent herewith, the Guaranty Agreement on
Addendum B.
PRINCIPALS Securities
Voting %
WITNESS: MAIN STREET & MAIN INC. 100%
/s/ Patricia A. Davies /s/ Bart Brown
- ------------------------ ------------------------
Name: Patricia A. Davies Its: President
Date: 4/15/98 Date: 4/15/98
------------------- ------------------
25
<PAGE>
COVENANT AND AGREEMENT FOR CONFIDENTIALITY
This agreement ("Agreement") is made by Main Street and Main
Incorporated, Inc a corporation organized under the laws of' the State of
Delaware ("Principal") and TGI Friday's Inc., a corporation organized under the
laws of the of New York ("Friday's"), in connection with that certain
Development Agreement dated April 22, 1998, (the "Development Agreement") by and
between Friday's and ("Developer").
WHEREAS, Friday's and Developer have entered into the Development
Agreement; and
WHEREAS, the Confidential Information provides economic advantages to
Friday's and is not generally known to, and not legally available to, third
parties; and
WHEREAS, Friday's has taken and intends to take all steps necessary to
maintain the confidentiality of the Confidential Information; and
WHEREAS, Principal will receive, and desires to receive, the
Confidential Information in his capacity as a Principal of Developer; and
WHEREAS, this Agreement is executed and delivered pursuant to Section
&C of the Development Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, Principal and Friday's agree as follows:
1. Capitalized terms used herein and not otherwise defined shall have
the meanings attributed to them in the Development Agreement.
2. Friday's shall disclose to Principal some or all of the
Confidential Information which may be utilized by Principal solely (a) in his
capacity as a Principal of Developer and (b) in connection with Developers
performance of its duties and obligations pursuant to the Development Agreement.
No other use or disclosure of any of the Confidential Information shall be made
by Principal. Principal acknowledges and agrees that Friday's or TGIFM is the
exclusive owner of the Confidential Information, the System and the Proprietary
Marks Principal shall not, directly or indirectly, contest or impair Friday's or
TGIFM's ownership of, or interest in, the Confidential Information, the System
or the Proprietary Marks.
3. Principal shall receive the Confidential Information in strict
confidence. The Confidential Information may be utilized by Principal only (a)
so long as Principal remains a Principal of Developer and (b) during the Term.
The Confidential Information shall not be used in any manner that is adverse or
detrimental to, or competitive with, Friday's, TGIFM or Developer. Except as
permitted pursuant to the Development Agreement or this Agreement, the
Confidential Information shall not, without the prier written consent of
Friday's, be (x) copied, (y) compiled (in total or in part) with other
information, or (z) disclosed to any third party.
4. Principal shall not communicate, disclose or use the Confidential
Information, or any part thereof, except as (a) permitted herein or (b) required
by law The Confidential Information may be disclosed to Principal's agents,
consultants, contractors and employees who need to know the Confidential
Information for the sole purpose of providing services to Principal in his
capacity as a Principal of
26
<PAGE>
Developer. Prior to such disclosure of any Confidential Information, each of
such agents, consultants, contractors and employees shall (a) he advised by
Principal of the confidential and proprietary nature of the Confidential
Information and (b) agree to be bound by the terms and conditions of this
Agreement. Notwithstanding such agreement, Principal shall indemnify the
Friday's Indemnitees from and against any damages, costs (including reasonable
fees of attorneys and other engaged professionals) and expenses resulting from
any disclosure or use of the Confidential Information, or any part thereof, by
such agents, representatives or employees contrary to the terms hereof
5. In the event Principal or Principal's agents, representatives, or
employees receive notice of any request, demand or order to transfer or disclose
all or any portion of the Confidential Information, Principal shall immediately
notify Friday's thereof, and shall fully cooperate with and assist Friday's in
prohibiting or denying any such transfer or disclosure. Should such transfer or
disclosure be required by a valid, final, non-appealable court order, Principal
shall fully cooperate with and assist Friday's in protecting the confidentiality
of the Confidential Information to the maximum extent permitted by law.
6. Immediately upon Friday's request or upon any termination or
expiration of the Term. Principal shall return the Confidential Information
including, without limitation, that portion of the Confidential Information
which consists of analyses, compilations, studies or other documents containing
or referring to any part of the Confidential Information, prepared by Principal,
its agents, representatives or employees and any copies thereof
7. Each of the representations, warranties, covenants, acknowledgments
and agreements of Principal, and the rights and remedies of Friday's in
connection therewith, contained in the Development Agreement including, without
limitation, those contained in Sections 6, 7.C.(3), 8.B, 8.C, 8.E and 10 of the
Development Agreement, are incorporated in this Agreement by reference as if
fully set forth. In connection with Friday's enforcement of such rights and
remedies (or other rights and remedies of Friday's under this Agreement), any
court of competent jurisdiction selected by Friday's shall have personal
jurisdiction over Principal, to which jurisdiction Principal irrevocably
consents. The parties agree that to the extent the law of the State of Texas is
held enforceable, Texas law shall apply to the interpretation and construction
of this Agreement (except for Texas choice of law rules) and shall govern all
questions which arise with reference hereto.
8. Friday's may, in addition to pursuing any other remedies,
specifically enforce such obligations, covenants and agreements or obtain
injunctive or other equitable relief in connection with the violation or
anticipated violation of such obligations, covenants and agreements without the
necessity of showing (i) actual or threatened harm; (ii) the inadequacy of
damages as a remedy; or (iii) likelihood of success on the merits, and without
being required to furnish bond or other security. Nothing in this Agreement
shall impair Friday's right to obtain equitable relief.
9. Should any term, covenant or provision hereof, or the application
thereof, be determined by a valid, final, non-appealable order to be invalid or
unenforceable, the remaining terms, covenants or provisions hereof shall
continue in full force and effect without regard to the invalid or unenforceable
provision. In such event such term, covenant or provision shall be deemed
modified to impose the maximum duty permitted by law and such term, covenant or
provision shall be valid and enforceable in such modified form as if separately
stated in and made a part of this Agreement.
10. Any of' Principal's agreements, obligations or covenants which
contemplate performance thereof after the termination or expiration of this
Agreement shall survive such termination Or expiration.
27
<PAGE>
11. Principal acknowledges and warrants that he has derived and
expects to derive financial or other advantage and benefit, directly or
indirectly, from the Development Agreement, this Agreement and/or the provision
of the Confidential Information to Developer and/or Principal.
IN WITNESS WHEREOF, this Agreement has been executed by the parties on
the dates indicated below.
WITNESS: TGI FRIDAY'S INC.
/s/ Janice Sutcliff /s/
- ------------------------ ------------------------
Name: Janice Sutcliff Its: Vice President & General Counsel
Date: 4/22/98 Date: 4/22/98
------------------- ------------------
WITNESS: MAIN ST. CALIFORNIA, INC.
/s/ Patricia A. Davies /s/ Bart Brown
- ------------------------ ------------------------
Name: Patricia A. Davies Its: President
Date: 4/15/98 Date: 4/15/98
------------------- ------------------
WITNESS: MAIN ST. & MAIN INC.
/s/ Patricia A. Davies /s/ Bart Brown
- ------------------------ ------------------------
Name: Patricia A. Davies Its: President
Date: 4/15/98 Date: 4/15/98
------------------- ------------------
28
<PAGE>
EXHIBIT B TO DEVELOPMENT AGREEMENT
COVENANT AND AGREEMENT FOR CONFIDENTIALITY
This agreement ("Agreement") is made by [Employee's Name]. an
individual residing in the state of __________________ ("Employee"),
"Developer's Name], [an individual residing in the state of Or a
corporation/partnership organized under the laws of the State of
________________ ("Developer"), in connection with that certain Development
Agreement dated ___________________. ______. (the `Development Agreement") by
and between TGI Friday's Inc. ("Friday's") and Developer.
WHEREAS, Friday's and Developer have entered into the Development
Agreement; and
WHEREAS, the Confidential Information provides economic advantages to
Friday's, and is not generally known to, and is not legally available to third
parties; and
WHEREAS, Friday's has taken and intends to take all steps necessary to
maintain the confidentiality of the Confidential Information; and
WHEREAS, it will be necessary for certain employees of Developer to
have access to and to use some or all of the Confidential Information in
connection with the performance of their job functions related to the
development, construction and operation of Restaurants under the System; and
WHEREAS, Employee is the [insert title] of Developer; and
WHEREAS, Employee needs to receive, and desires to receive and use,
the Confidential Information in the course of his employment by Developer in
order to effectively perform his job function; and
WHEREAS, the Agreement is executed and delivered pursuant to Section
6.C. of the Development Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein. Employee and Developer agree as follows:
1. Capitalized terms used herein and not otherwise defined shall have
the meanings attributed to them on Annex A hereto.
2. Developer or Friday's, acting on behalf of Developer, shall
disclose to Employee some or all of the Confidential Information which may be
utilized by Employee solely (a) in his capacity as the [title] of Developer and
(b) in connection with Employee's performance of his job functions. No other use
or disclosure of any of the Confidential Information shall be made by Employee.
Employee acknowledges and agrees that Friday's or TGI FM is the exclusive owner
of the Confidential Information, the System and the Proprietary Marks. Employee
shall not, directly or indirectly, contest of' impair Friday's or TGIFM's
ownership of, or interest in, the Confidential Information, the System or the
Proprietary Marks.
3. Employee shall receive the Confidential Information in strict
confidence, The Confidential Information may be utilized by Employee only (a) so
long as Employee is employed by Developer and (5) during the Term. The
Confidential Information shall not be used in any manner that is adverse or
detrimental to or competitive with, Friday's, TOTEM or Developer. Except as
permitted pursuant to this Agreement, the Confidential Information shall not,
without the prior written consent of Friday's, be (x) copied, (y) compiled (in
total or in part) with other information, or (a) disclosed to any third party.
4. Employee shall not communicate, disclose or use the Confidential
Information, or any part thereof, except as (a) permitted herein or (5) required
by law. The Confidential Information may be disclosed to fellow employees as
necessary to train or assist such other employees of Developer in the
performance of their job functions with respect to the development, construction
or operation of a Restaurant. Prior to such disclosure of any
1
<PAGE>
Confidential Information, each such employee shall (i) be advised by Employee of
the confidential and proprietary nature of the Confidential Information and (ii)
agree to be bound by the terms and conditions of this Agreement.
5. In the event Employee receives notice of any request, demand, or
order to transferor disclose all or any portion of the Confidential Information.
Employee shall immediately notify Developer thereof, and shall fully cooperate
with and assist Friday's in prohibiting or denying any such transfer or
disclosure. Should such transfer or disclosure be required by a valid, final,
non-appealable court order, Employee shall filly cooperate with and assist
Friday's in protecting the confidentiality of the Confidential Information to
the maximum extent permitted by law.
6. Immediately upon Friday's request, upon Employee's termination of
employment with Developer, or upon the conclusion of the use for which any
Confidential Information was furnished, Employee shall return the Confidential
Information including, without limitation, that portion of the Confidential
Information which consists of analyses, compilations, studies or other documents
containing or referring to any part of the Confidential Information, and any
copies thereof, to Developer or Friday's.
7. In order to protect the goodwill and unique qualities of the System
and the confidentiality and value of the Confidential Information, and in
consideration of the disclosure to Employee of the Confidential Information,
Employee covenants that, during the period of his employment by Developer and
for a period of one (1) year following termination of such employment, Employee
shall not, directly or indirectly:
A. employ or seek to employ any person (or induce such person to
leave his or her employment) who is, or has within one (1) year been, employed
(i) by Friday's or Developer, (ii) by any developer or franchisee of Friday's,
or (iii) in any other concept Or system owned, operated or franchised by an
Affiliate, as a director, officer or in any managerial capacity;
B. own, maintain, operate or have any interest in any Competing
Business;
C. own, maintain, operate or have any interest in any Competing
Business which business is, or is intended to be, located in the Territory; or
D. own, maintain, operate or have any interest in any Competing
Business which business is or is intended to be, located within a radius of
three (3) miles of any restaurant which is a part of any concept or system
owned, operated or franchised by Friday's or any Affiliate.
8. In connection with the enforcement of rights and remedies under
this Agreement, any court of competent jurisdiction selected by Developer or
Friday's shall have personal jurisdiction over Employee, to which jurisdiction
Employee irrevocably consents. THE PARTIES AGREE THAT TO THE EXTENT THE LAW OF
THE STATE OF TEXAS IS HELD ENFORCEABLE, TEXAS LAW SHALL APPLY TO THE
INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT (EXCEPT FOR TEXAS CHOICE OF
LAW RULES) AND SHALL GOVERN ALL QUESTIONS WHICH ARISE WITH REFERENCE HERETO.
9. A. Employee acknowledges and agrees that (i) Friday's is a third
party beneficiary to this Agreement and (ii) Friday's exercise of the rights and
remedies set forth herein is reasonable.
B. Developer or Friday's may, in addition to pursuing any other
remedies, specifically enforce such obligations and covenants or obtain
injunctive or other equitable relief in connection with the violation or
anticipated violation of such obligations and covenants without the necessity of
showing (i) actual or threatened harm; (ii) the inadequacy of damages as a
remedy; or (iii) likelihood of success on the merits, and without being required
to furnish bond or other security. Nothing in this Agreement shall impair
Developer's or Friday's right to obtain equitable relief
C. With respect to Employee's breach of the covenants contained
in Section 7.A hereof, the affected former employer shall be compensated by
Employee for the reasonable costs and expenses incurred by such employer in
connection with training such employee, Developer and Employee acknowledge that
such expenses are impossible to accurately quantify and agree that, as
liquidated damages and not as a penalty, an amount equal to
2
<PAGE>
such employee's annual rate of compensation in the final twelve (12) months of
employment (or an annualized rate if employed for a shorter period) by such
former employer shall be paid by Employee to the former employer at such time as
such employee commences employment.
10. Should any term, covenant or provision hereof, or the application
thereof be determined by a valid, final, non-appealable order to be invalid or
unenforceable, the remaining terms, covenants or provisions hereof shall
continue in full force and effect without regard to the invalid or unenforceable
provision. In such event, such term, covenant or provision shall be deemed
modified to impose the maximum duty permitted by law and such term, covenant or
provision shall he valid and enforceable in such modified form as if separately
stated in and made a part of this Agreement.
11. Any of Employee's agreements, obligations or covenants which
contemplate performance thereof after the termination or expiration of this
Agreement shall survive such termination or expiration.
IN WITNESS WHEREOF, this Agreement has been executed by the parties on
the dates indicated below.
[Employee]
Name:
-----------------------------
Date:
-----------------------------
WITNESS: [Developer]
By:
----------------------------
- ----------------------------- Its:
Name: ---------------------------
Date:
--------------------------
3
<PAGE>
Annex A to Covenant and Agreement for Confidentiality
AFFILIATE - Friday's Hospitality Worldwide, Inc., or any subsidiary thereof or
any subsidiary of TGI Friday's Inc.
COMMENCEMENT DATE - April ________, 1998
COMPETING BUSINESS - a restaurant or bar/restaurant business offering the Same
or similar products and services as offered by restaurants in the System or
restaurants in any other concept or system owned, operated or franchised by
Friday's or any Affiliate, including, without limitation, waiter/waitress
service, sit-down dining and bar services
CONFIDENTIAL INFORMATION - the System; the Development Manual, the Manuals,
other manuals, the Standards, written directives and all drawings, equipment,
recipes, computer and point of sale programs (and output from such programs);
and any other information, know-how, techniques, materials and data imparted or
made available by Friday's which is (i) designated as confidential, (ii) known
by Developer or Employee to be considered confidential by Friday's, or (iii) by
its nature inherently or reasonably considered confidential
DEVELOPMENT MANUAL - Friday's manual, as amended from time to time, describing
(generally) the procedures and parameters required for the development of T.G.I.
Friday's(R) Restaurants in the United States
INDEMNITEES - Friday's, its directors, officers, employees, agents,
shareholders, affiliates, successors and assigns and the respective directors,
officers, employees, agents, shareholders and affiliates of each
MANUALS - Friday's confidential operating manuals, as amended from time to time
in Friday's sole discretion, which contain the instructions, requirements,
Standards, specifications, methods and procedures for the operation of the
Restaurants including (i) those relating to the selection, purchase, service and
sale of all products being sold at the Restaurants, (ii) those relating to the
maintenance and repair of the Restaurants, buildings, grounds, equipment, signs,
interior and exterior decor items, fixtures and furnishings and (iii) those
relating to employee apparel and dress, accounting, bookkeeping, record
retention and other business systems, procedures and operations
PROPRIETARY MARKS - certain trademarks, trade names, service marks, emblems and
indicia of origin designated by Friday's from time to time in connection with
the operation of Restaurants pursuant to the System in the Territory, including,
without limitation, "TGI FRIDAY'S(R)", "FRIDAY'S(R)", " THE AMERICAN BISTRO(R)".
RESTAURANT(S) - a T.G.I. Friday's(R) Restaurant(s) pursuant to the Development
Agreement
STANDARDS - the standards and specifications, as amended from time to time by
Friday's in its sole discretion, contained in, and being a part of, the
Confidential Information pursuant to which Developer shall develop and operate
Restaurants in the Territory
SYSTEM - a unique, proprietary system developed and owned by Friday's (which
tray be modified or further developed from time to time in Friday's sole
discretion) for the establishment and operation of full-service restaurants
under the Proprietary Marks, which includes, without limitation, a distinctive
image consisting of exterior and interior design, decor, color scheme and
furnishings; special recipes, menu items and fill service bar; employee uniform
standards, products, services and specifications;
4
<PAGE>
procedures with respect to operations and inventory and management control;
training and assistance; and advertising and promotional programs;
TERM - the duration of the Development Agreement, commencing on the Commencement
Date and continuing until ___________________, 20__, unless sooner terminated
TERRITORY - the geographical area described and set forth in Exhibit C
TGIFM - TGI Friday's of Minnesota Inc., a Minnesota corporation and a subsidiary
of Friday's
T.G.I. FRIDAY'S(R) RESTAURANTS - restaurants operated in accordance with the
System under the U.S. registered service marks, "FRIDAY'S(R)", "T.G.I.
FRIDAY'S(R)".
5
<PAGE>
ADDENDUM B TO DEVELOPMENT AGREEMENT
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT (the "Guaranty") is made as of the ____ day of
April, 1998, by the undersigned (hereinafter referred to individually and
collectively as "Guarantors" whether one or more) in favor of TGI Friday's Inc.,
a New York Corporation (`Friday's").
WHEREAS, Friday's, Main St. California, Inc. and certain other
individuals and/or entities entered into that certain Development Agreement
dated April __, 1998 (the "Development Agreement") regarding the development of
T.G.I Friday's(R) restaurants locations in certain territory stated therein (the
"Restaurant");
WHEREAS, as an inducement to Friday's to enter into the Development
Agreement, the undersigned Guarantors have agreed to make and deliver this
Guaranty to Friday's.
NOW THEREFORE, FOR VALUE RECEIVED, Guarantors, jointly and severally,
if more than one, hereby acknowledge and agree as follows:
1. Each has read the terms and conditions of this Guaranty and of the
Development Agreement.
2. Each is a "Principal' as defined in the Development Agreement.
3. Each makes all of the representations, warranties, covenants and agreements
of the Developer (including liability to make Payments) and a Principal set
forth in the Development Agreement (including, without limitation, the covenants
and agreements concerning Transfer, non-compete and maintenance of Confidential
Information) and is obligated to perform thereunder.
4. Each acknowledges that Friday's may, without notice to Guarantors and without
affecting the obligations of any of the Guarantors under this Guaranty, waive,
renew, extend, modify, amend or release any indebtedness or obligation of
Developer, or settle, adjust, or compromise any claims against Developer;
5. Each waives all demands and notices of every kind with respect to this
Guaranty including, without limitation, notice of presentment, demand for
payment or performance by Developer, notice of any default by Developer or any
Guarantor, and any release of any Guarantor or other security for the
Development Agreement or the obligations of Developer. Friday's may pursue its
rights against Guarantors without first exhausting its remedies against
Developer and without joining any other Guarantor hereto, and no delay on the
part of Friday's in the exercise of any right or remedy shall operate as a
waiver of such right or remedy;
6. Each individually, jointly and severally, irrevocably and unconditionally
guarantees that all of Developer's obligations under the terms and conditions of
the Development Agreement will be timely paid and performed;
7. Each has derived and expects to derive financial or other benefit, directly
or indirectly, from the Development Agreement and the transaction described
therein;
1
<PAGE>
8. Each acknowledges that his/its execution of the Development Agreement, and
his/its undertakings and agreements herein, have induced Friday's to enter into
the transactions described in, and to execute, the Development Agreement.
9. Each consents to and shall be bound by any amendment of the Development
Agreement made by Friday's and Developer pursuant to the terms thereof.
ATTEST: MAIN STREET AND MAIN INCORPORATED
/s/ Patricia A. Davies /s/ Bart Brown
- ------------------------ ------------------------
Name: Patricia A. Davies Its: President
Date: 4/15/98 Date: 4/15/98
------------------- ------------------
2
<PAGE>
EXHIBIT C TO DEVELOPMENT AGREEMENT
THE TERRITORY
Los Angeles Territory -- that area in Los Angels County, CA which is bounded on
the north by Sunset Boulevard to U.W. Hwy. 101, on the east by Interstate 110
(the Harbor Freeway), on the south by Interstate 10 (the Santa Monica Freeway),
and on the west by the Pacific Ocean.
Northern California Territory -- that area contained in the following counties:
San Luis Obispo, Stanislaus, Santa Barbara, Tuolumne, Kern, Calaveras, San
Joaquin, Monetary, Amador, San Benito, Solano, Santa Cruz, Sacramento, Yolo,
Kings, Colusa, Tulare. Sutter, Fresno, Yuba, Madera, Nevada, Merced, Placer,
Mariposa, Sierra, Plumas, Contra Costa, Eldorado, Alameda, Humboldt, Alpine, Del
Norte; Mono, Lassen -Trinity, Modoc, Shasta, Sisklyou, Tehama, Butte and Glenn.
<PAGE>
FIRST AMENDMENT TO DEVELOPMENT AGREEMENT
This First Amendment to Development Agreement ("Amendment") is entered into
effective as of February 10, 1999 (the "Effective Date"), by and between TGI
Friday's Inc. ("Franchisor"), and Main St. California, Inc. ("Developer").
WITNESSETH:
WHEREAS, Franchisor and Developer are parties to a certain Development
Agreement dated April 22, 1998 (the "Development Agreement"), pursuant to which
Developer was granted the right to develop T.G.I. Friday's restaurants in
portions of California; and
WHEREAS, Franchisor and Developer desire to amend and supplement the
terms of the Development Agreement as hereinafter set forth; and
WHEREAS, capitalized terms used herein shall have the meaning
attributed to them in the Development Agreement unless expressly defined
otherwise herein.
NOW, THEREFORE, in consideration of Ten Dollars and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by each of the parties hereto, Franchisor and Developer agree as
follows:
1. The definition of the term "Territory" in Section 1. of the
Development Agreement is hereby deleted in its entirety and replaced with the
following:
TERRITORY - the geographical areas described in EXHIBIT D; PROVIDED,
HOWEVER, the Territory shall not include any airport properties
otherwise located within the Territory, nor the area contained within
a three (3) mile radius of any T.G.I. Friday's(R) Restaurant located
within the Territory as of the date of this Agreement. Friday's
retains all rights to develop other restaurant concepts, including
without limitation Friday's Front Row(R) Sports Grill, Italianni's(sm)
restaurants and Friday's American Bar(R), within the Territory.
2. SECTION 3.A. of the Development Agreement is hereby deleted in its
entirety and replaced with the following:
A. Developer shall develop, open, commence operation of and
continuously operate pursuant to the respective Franchise Agreements
twenty-one (21) Restaurants in the Northern California Territory
during the first five (5) years of the Term, pursuant to the
Replacement Development Schedule as follows. The Restaurants listed on
the Replacement Development Schedule are exclusive of those
Restaurants previously opened and operated by Developer under the
Original Development Agreement.
1
<PAGE>
IN THE NORTHERN CALIFORNIA TERRITORY:
(as defined in Exhibit D)
Restaurant No. Date Open & Operating
-------------- ---------------------
1 12/15/98
2,3,4 & 5 12/15/99
6, 7,8,9 & 10 12/15/00
11, 12,13 & 14 12/15/01
15, 16, 17 & 18 12/15/02
19, 20 & 21 12/15/03
3. As of the Effective Date of this Amendment Exhibit C attached to the
1998 Development Agreement is deleted in its entirety and Exhibit D attached to
this amendment is substituted therefor.
4. The provisions, representations, terms, conditions, covenants and
agreements of the Development Agreement, as modified hereby, shall remain in
full force and effect, enforceable in accordance with its terms. This Amendment
shall be binding upon the heirs, legal representatives, successors and assigns
of the parties hereto.
5. Execution and delivery of this Amendment shall not waive any rights
or remedies of the parties under the Development Agreement, at law or in equity.
IN WITNESS HEREOF, the parties have executed this Amendment as of the
day and year first above mentioned.
TGI FRIDAY'S INC.
By: /s/ Leslie Sharman
- -----------------------------
Name: Leslie Sharman
Title: V.P. & General Counsel
MAIN ST. CALIFORNIA, INC.
By: Bart A. Brown Jr.
- -----------------------------
Name: Bart A. Brown Jr.
Title: President
2
<PAGE>
EXHIBIT D
THE TERRITORY
NORTHERN CALIFORNIA TERRITORY - that area contained in the following counties:
Alameda, Alpine, Amador, Butte, Calaveras, Colusa, Contra Costa, Del Norte,
Eldorado, Fresno, Glenn, Humboldt, Kern, Kings, Lake, Lassen Trinity, Madera,
Marin, Mariposa, Mendocino, Merced, Modoc, Monterey, Mono, Napa, Nevada, Placer,
Plumas, Sacramento, San Benito, San Francisco, San Joaquin, San Luis Obispo, San
Mateo, Santa Barbara, Santa Clara, Santa Cruz, Shasta, Sierra, Sisklyou, Solano,
Sonoma, Stanislaus, Sutter, Tehama, Tulare, Tuolumne, Yolo and Yuba.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 33-43612,33-71230, and 333-28659.
/s/ Arthur Andersen LLP
Phoenix, Arizona
March 29, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED BALANCE SHEET AT DECEMBER 28, 1998 AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED DECEMBER 28, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 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-28-1998
<PERIOD-START> DEC-30-1997
<PERIOD-END> DEC-28-1998
<EXCHANGE-RATE> 1
<CASH> 7,294
<SECURITIES> 0
<RECEIVABLES> 2,096
<ALLOWANCES> 0
<INVENTORY> 840
<CURRENT-ASSETS> 10,823
<PP&E> 54,109
<DEPRECIATION> (14,914)
<TOTAL-ASSETS> 70,255
<CURRENT-LIABILITIES> 13,630
<BONDS> 28,264
0
0
<COMMON> 10
<OTHER-SE> 26,362
<TOTAL-LIABILITY-AND-EQUITY> 70,255
<SALES> 115,324
<TOTAL-REVENUES> 115,324
<CGS> 33,242
<TOTAL-COSTS> 103,069
<OTHER-EXPENSES> 5,872
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,218
<INCOME-PRETAX> 4,165
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,165
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,165
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.39
</TABLE>
