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 27, 1999 Commission File Number: 0-18668
MAIN STREET AND MAIN INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-2948370
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5050 NORTH 40TH STREET
SUITE 200, PHOENIX, ARIZONA 85018
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(602) 852-9000
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 20, 2000, there were outstanding 10,029,426 shares of the registrant's
common stock, $.001 par value. The aggregate market value of common stock held
by nonaffiliates of the registrant (7,035,302 shares) based on the closing sale
price of the common stock as reported on the Nasdaq National Market on March 20,
2000, was $21,985,318. 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 2000 Annual Meeting of Stockholders are incorporated by
reference into Part III.
<PAGE>
MAIN STREET AND MAIN INCORPORATED
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 27, 1999
TABLE OF CONTENTS
PART I PAGE
ITEM 1. BUSINESS......................................................... 1
ITEM 2. PROPERTIES....................................................... 18
ITEM 3. LEGAL PROCEEDINGS................................................ 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................................ 19
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA............................. 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................... 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....... 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................ 25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 25
ITEM 11. EXECUTIVE COMPENSATION........................................... 25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..................................................... 25
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.................................................... 26
SIGNATURES.................................................................. 29
----------
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 OUR
"EXPECTATIONS," "ANTICIPATION," "INTENTIONS," "BELIEFS," OR "STRATEGIES"
REGARDING THE FUTURE. FORWARD-LOOKING STATEMENTS ALSO INCLUDE STATEMENTS
REGARDING REVENUE, MARGINS, EXPENSES, AND EARNINGS ANALYSIS FOR FISCAL 2000 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 US AS OF THE FILING DATE OF THIS
REPORT, AND WE ASSUME NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING
STATEMENTS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE FORWARD-LOOKING
STATEMENTS IN THIS REPORT. A VARIETY OF FACTORS COULD CAUSE OUR ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS, INCLUDING THE FACTORS
DISCUSSED IN ITEM 1, "BUSINESS - SPECIAL CONSIDERATIONS."
i
<PAGE>
PART I
ITEM 1. BUSINESS
We are the world's largest franchisee of T.G.I. Friday's restaurants,
currently owning 51 and managing six T.G.I. Friday's restaurants. We also own
six Redfish Seafood Grill and Bar restaurants. T.G.I. Friday's restaurants are
full-service, casual dining establishments featuring a wide selection of freshly
prepared, popular foods and beverages served by well-trained, friendly employees
in relaxed settings. Redfish Seafood Grill and Bar restaurants are full-service,
casual dining restaurants that feature a broad selection of New Orleans style
fresh seafood, Creole and Cajun cuisine, and traditional southern dishes, as
well as a "VooDoo" style lounge, all under one roof.
We own the exclusive rights to develop additional T.G.I. Friday's
restaurants in several territories in the western United States. We plan to
develop additional T.G.I. Friday's restaurants in our existing development
territories, in which we are required to open 37 additional restaurants by
December 31, 2003. Our strategy is to
* capitalize on the brand-name recognition and goodwill associated with
T.G.I. Friday's restaurants;
* expand our restaurant operations through
- the development of additional T.G.I. Friday's restaurants in our
existing development territories,
- the development of additional Redfish restaurants, and
- the acquisition or development of restaurants operating under
other restaurant concepts; and
* increase our profitability by continuing to enhance the dining
experience of our guests and improving operating efficiency.
We were incorporated in December 1988. We maintain our principal executive
offices at 5050 North 40th Street, Suite 200, Phoenix, Arizona 85018, and our
telephone number is (602) 852-9000. Our Web site, which is not a part of this
Report, is located at www.mainandmain.com. All references to our business
operations in this Report include the operations of Main Street and Main
Incorporated and our subsidiaries and operating divisions.
OUR BUSINESS
OUR T.G.I. FRIDAY'S RESTAURANTS
THE T.G.I. FRIDAY'S CONCEPT
The T.G.I. Friday's concept is franchised by Carlson Restaurants Worldwide,
Inc. (formerly TGI Friday's Inc.), a wholly owned subsidiary of Carlson
Companies Inc., which is 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. Carlson Restaurants Worldwide, Inc. and its
predecessors, or Carlson Worldwide, has conducted a business since 1972 that is
substantially similar to the business currently conducted by its franchisees. As
of December 27, 1999, Carlson Worldwide had 196 franchisor-operated and 379
franchised T.G.I. Friday's restaurants operating worldwide. Carlson Worldwide
currently owns approximately 2.6% of our outstanding common stock. Holders of
our common stock do not have any financial interest in Carlson Worldwide, and
Carlson Worldwide has no responsibility for the contents of this Report.
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
dress in traditional style 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. Our restaurants generally are open seven days a week between the
hours of approximately 11:00 a.m. and 1:00 a.m. We believe that the design and
operational consistency of all T.G.I. Friday's restaurants enable us to benefit
significantly from the name recognition and goodwill associated with T.G.I.
Friday's restaurants.
1
<PAGE>
MENU
We attempt 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 100 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,
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, 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 24.4% of total revenue.
RESTAURANT LAYOUT
Each of our T.G.I. Friday'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 our T.G.I. Friday's restaurants are located in free-standing
buildings. These restaurants normally contain between 5,500 and 9,000 square
feet of space and average approximately 7,500 square feet. Most of our recently
developed restaurants, however, contain 5,800 to 6,500 square feet of space. Our
T.G.I. Friday's 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.
UNIT ECONOMICS
We estimate that our total cost of opening a new T.G.I. Friday's restaurant
currently ranges from $2,000,000 to $2,200,000, exclusive of annual operating
expenses and assuming that we obtain the underlying real estate under a lease
arrangement. These costs include approximately (a) $1,250,000 to $1,450,000 for
building, improvements, and permits, including liquor licenses, (b) $550,000 for
furniture, fixtures, and equipment, (c) $150,000 in pre-opening expenses,
including hiring expenses, wages for managers and hourly employees, and
supplies, and (d) $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. Our T.G.I. Friday's restaurants open during all of fiscal
1999 generated an average of approximately $3,119,000 in annual revenue.
OUR REDFISH SEAFOOD GRILL AND BAR RESTAURANTS
THE REDFISH CONCEPT
Redfish Seafood Grill and Bar restaurants are full-service, casual dining
restaurants that feature a broad selection of New Orleans style fresh seafood,
Creole and Cajun cuisine, and traditional southern dishes, as well as a "VooDoo"
style lounge, all under one roof. The restaurants offer unique, freshly prepared
food that is served quickly and efficiently in a fun-filled New Orleans
atmosphere. Each Redfish restaurant's VooDoo lounge features a unique atmosphere
decorated with an eclectic collection of authentic New Orleans artifacts, signs,
and antiques.
2
<PAGE>
Local bands and, occasionally, national touring acts present live rhythm and
blues music on weekends. Redfish restaurants are open for lunch and dinner seven
days a week from 11 a.m. until 2 a.m.
MENU
We have developed a menu of more than 75 items for our Redfish restaurants.
Signature dishes include blackened redfish, Bourbon Street jambalaya,
hickory-smoked prime rib, asiago encrusted salmon, southern fried catfish,
crawfish etoufee, and marinated & grilled pork chops. The menu also features a
selection of appetizers, including Looziana egg rolls, dungeness crabcakes,
"Alligator Bites," buffalo crawfish tails, and crab & artichoke dip. Our Redfish
menu also features a variety of delicious pastas, fresh seasonal salads,
sandwiches, and tempting desserts, such as bananas foster, chocolate bread
pudding, and our signature key lime pie. The spacious Voodoo lounge offers a
wide selection of the finest beers on tap, a full wine list, and an extensive
specialty drink list.
RESTAURANT LAYOUT
We developed the Redfish restaurant layout to provide a refined southern
roadhouse atmosphere. Each of our Redfish restaurants is decorated with
nostalgic momentos of the South, together with decorative elements that are
derived from the individual restaurant's locales. The decor generally creates a
tribute to the legends of American music who created the blues, as well as to
the regions that developed the classic Creole, Cajun, and American cuisine
served in our Redfish restaurants.
Most of our Redfish restaurants are located in high-traffic urban office
environments. These restaurants contain between 6,000 and 12,000 square feet of
space and average approximately 8,500 square feet. Our Redfish restaurants
contain an average of 60 dining tables, seating an average of 250 guests, and a
bar area seating an average of approximately 25 additional guests. We have
developed a prototype for use in developing Redfish restaurants in the future.
We currently are constructing our first restaurant using this prototype in
Scottsdale, Arizona. This restaurant is scheduled to open during 2000. We plan
to use this prototype whenever possible in order to standardize the construction
process and to reduce costs.
UNIT ECONOMICS
We estimate that our total cost of opening a new Redfish restaurant
currently ranges from $1,800,000 to $2,200,000, exclusive of annual operating
expenses and assuming that we obtain the underlying real estate under a lease
arrangement. These costs include approximately (a) $930,000 to $1,330,000 for
building, improvements, and permits, including liquor licenses, (b) $700,000 for
furniture, fixtures, and equipment, (c) $170,000 in pre-opening expenses,
including hiring expenses, wages for managers and hourly employees, and
supplies. 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. Our Redfish restaurants open during
all of fiscal 1999 generated an average of approximately $2,000,000 in annual
revenue.
SITE SELECTION
When evaluating whether and where to seek expansion of our restaurant
operations, we analyze a restaurant's profit potential. We consider the location
of a restaurant to be one of the most critical elements of the restaurant's
long-term success. Accordingly, we expend significant time and effort in
investigating and evaluating potential restaurant sites. In conducting the site
selection process, we obtain and examine detailed demographic information (such
as population characteristics, density, and household income levels), evaluate
site characteristics (such as visibility, accessibility, and traffic volume),
consider the proposed restaurant's proximity to demand generators (such as
shopping malls, lodging, and office complexes), and analyze potential
competition. Our senior corporate management evaluates and approves each
restaurant site prior to acquisition after extensive consultation with all
levels of our operations group. Carlson Worldwide provides site selection
guidelines and criteria as well as site selection counseling and assistance for
our T.G.I. Friday's restaurant sites. We also must obtain Carlson Worldwide's
consent before we enter into definitive agreements for a T.G.I. Friday's
restaurant site.
3
<PAGE>
CURRENT RESTAURANTS
The following table sets forth information relating to each restaurant we
own or manage as of March 20, 2000.
<TABLE>
<CAPTION>
Owned or
In Managed by
Square Seating Operation Our Company
Location Footage Capacity Since 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
E1 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
Independence, Missouri............................ 5,800 240 1999 1999
Rancho San Diego, California...................... 5,800 240 1999 1999
Yorba Linda, California........................... 5,800 240 1999 1999
</TABLE>
(Table continued on next page)
4
<PAGE>
<TABLE>
<CAPTION>
Owned or
In Managed by
Square Seating Operation Our Company
Location Footage Capacity Since Since
- -------- ------- -------- ----- -----
<S> <C> <C> <C> <C>
Simi Valley, California........................... 5,800 240 1999 1999
Tucson, Arizona................................... 5,800 240 1999 1999
Henderson, Nevada................................. 5,800 240 1999 1999
Carlsbad, California.............................. 8,146 302 1999 1999
Temecula, California.............................. 6,400 278 1999 1999
Chandler, Arizona................................. 5,800 240 1999 1999
Goodyear, Arizona................................. 5,800 240 2000 2000
Shawnee, Kansas................................... 5,800 240 2000 2000
Thousand Oaks, California......................... 5,800 240 2000 2000
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
El Paso, Texas #1................................. 4,800 198 1997 1997
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
Cleveland, Ohio................................... 10,964 328 1999 1999
</TABLE>
The average size of our acquired T.G.I. Friday's restaurants is
approximately 8,000 square feet, and the average size of our developed T.G.I.
Friday's restaurants is approximately 6,100 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. Carlson Worldwide 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 Carlson
Worldwide, including our 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 that franchisees purchase or lease from approved
suppliers equipment, fixtures, furnishings, signs, inventory, recorded
music, ingredients, and other products and materials that conform with
the standards and specifications of Carlson Worldwide; and
5
<PAGE>
* standards for the maintenance, improvement, and modernization of
restaurants, equipment, furnishings, and decor.
Carlson Worldwide 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). We believe the support as well as the
standards, specifications, and operating procedures of Carlson Worldwide are
important elements to our restaurant operations. Our policy is to execute these
specifications, procedures, and policies to the highest level of the standards
of Carlson Worldwide.
Once a restaurant is integrated into our operations, we provide 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. Our 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.
We also maintain quality assurance procedures designed to assure compliance
with the high quality of products and services mandated by our company and
Carlson Worldwide. We respond to and investigate inquiries and complaints,
initiate on-site resolution of deficiencies, and consult with each restaurant's
staff to assure that proper action is taken to correct any deficiency. Our
personnel and contracted third-party quality assurance professionals make
unannounced visits to restaurants to evaluate the facilities, products, and
services. We believe that our 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
Our regional and restaurant management personnel are responsible for
complying with Carlson Worldwide's and our operational standards. Our seven
regional managers are responsible for between five and 11 of our restaurants
within their region. These regional managers and one Director of Operations
report to our Vice President of Restaurant Operations. The Vice President of
Restaurant Operations and one other Director of Operations report to our
Executive Vice President of Operations and Chief Operating Officer, who has
responsibility for our operations. Restaurant managers are responsible for
day-to-day restaurant operations, including customer relations, food preparation
and service, cost control, restaurant maintenance, and personnel relations. We
typically staff our restaurants with an on-site general manager, two or three
assistant managers, a kitchen manager, and approximately 90 hourly employees.
RECRUITMENT AND TRAINING
We attempt to hire employees who are committed to the standards maintained
by our company and Carlson Worldwide. We also believe that our high unit sales
volume, the image and atmosphere of the T.G.I. Friday's and Redfish restaurant
concepts, and our career advancement and employee benefit programs enable us to
attract high quality management and restaurant personnel.
Our T.G.I. Friday's restaurant personnel participate in continuing training
programs maintained by Carlson Worldwide and our company. In addition, we
supplement those programs by hiring personnel devoted solely to employee
training. Each restaurant general and assistant manager completes a formal
training program conducted by our company and Carlson Worldwide. This program
provides our T.G.I. Friday's restaurant managers between
6
<PAGE>
10 and 15 weeks of training, depending on the trainee's prior experience and
ability. 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.
Our Redfish restaurant managers and personnel participate in extensive
training programs consistent with our operating standards. Many of our Redfish
restaurant managers are experienced T.G.I. Friday's managers who have accepted
positions in our Redfish operations.
We believe that our incentive, motivation, and training programs enhance
employee performance, result in better customer service, and increase restaurant
efficiency. We have 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
We maintain our restaurants and all associated fixtures, furnishings, and
equipment in conformity with the T.G.I. Friday's System or standards we have
developed for our Redfish restaurants. We also make necessary additions,
alterations, repairs, and replacements to our restaurants as required by Carlson
Worldwide, including periodic repainting or replacement of obsolete signs,
furnishings, equipment, and decor. We may be required, subject to certain
limitations, to modernize our restaurants to the then-current standards and
specifications of Carlson Worldwide.
MANAGEMENT INFORMATION SYSTEMS
We have devoted considerable resources to develop and implement management
information systems that improve the quality and flow of information throughout
our company. These systems include systems that complement proprietary systems
developed and maintained by Carlson Worldwide as well as systems we have
developed for our Redfish restaurants. Inventory control and transaction
processing are effected by means of a computerized sales system, which is
integrated into data processing systems we utilize for financial and management
control, centralized accounting, and management information systems.
We use five to seven touch-screen computer registers located conveniently
throughout each of our 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 our corporate information system via modem. Management receives detailed
comparative reports on each restaurant's sales and expense performance daily,
weekly, and monthly.
We believe that our management information systems enable us 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
We lease or purchase all fixtures, furnishings, equipment, signs, recorded
music, food products, supplies, inventory, and other products and materials
required for the development and operation of our T.G.I. Friday's restaurants
from suppliers approved by Carlson Worldwide. In order to be approved as a
supplier, a prospective supplier must demonstrate to the reasonable satisfaction
of Carlson Worldwide its ability to meet the then-current standards and
specifications of Carlson Worldwide for such items, possess adequate quality
controls, and have the capacity to provide supplies promptly and reliably. We
are 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 Carlson Worldwide.
Carlson Worldwide maintains a list of approved suppliers and a set of the
T.G.I. Friday's system standards and specifications. Carlson Worldwide receives
no commissions on direct sales to its franchisees, but may receive
7
<PAGE>
rebates and promotional discounts from manufacturers and suppliers, some of
which are passed on proportionately to our company. Carlson Worldwide 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, we are not required to purchase such items from
Carlson Worldwide. If we elect to purchase such items from Carlson Worldwide,
Carlson Worldwide derives revenue as a result of such purchases.
Each of our restaurants purchases perishable produce, dairy products, and
breads from approved local suppliers. In prior years and until the fourth
quarter of fiscal 1999, we purchased most of our key food products, as well as
many of our other restaurant supplies, from a single national food distributor.
Carlson Worldwide and all of its other franchisees also purchased from this
distributor, which is not affiliated with our company or Carlson Worldwide. In
November 1999, this distributor announced that it was phasing out its
distribution services to the casual dining industry. This decision had an
immediate and substantial negative impact on the distributor's deliveries to our
restaurants. As the level of service began to deteriorate, we immediately
entered into temporary back-up distribution arrangements with alternate
suppliers, generally at higher prices than we had previously obtained from our
primary supplier. In January 2000, the supplier filed for protection under
Chapter 11 of the U. S. Bankruptcy Code.
In January 2000, we entered into an agreement with a different company to
provide primary distribution services to most of our restaurants. We were
already purchasing food and other supplies for our Redfish restaurants from this
distributor. We anticipate that we will complete the transition to this company
as our primary distributor by March 31, 2000. A second distributor will service
seven of our restaurants in the midwest and southwest. We anticipate that we
will complete the transition to this distributor by April 15, 2000.
Our restaurants utilize a simple bar code system for daily ordering of
their primary food and merchandise items. Orders are sent electronically to the
supplier. Our suppliers have comprehensive warehouse and delivery outlets
servicing each of our markets.
We believe that our purchases from our primary suppliers will enable us to
* maintain a high level of quality consistent with our T.G.I. Friday's
and Redfish restaurants;
* to realize convenience and dependability in the receipt of our
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.
We believe, however, that all essential products are available from other
national suppliers as well as from local suppliers in the cities in which our
restaurants are located in the event we determine to purchase our supplies from
other suppliers.
ADVERTISING AND MARKETING
T.G.I. FRIDAY'S RESTAURANTS
We participate in the national marketing and advertising programs conducted
by Carlson Worldwide. The programs use network and cable television and national
publications and feature new menu innovations and various promotion programs. In
addition, from time to time, we supplement the marketing and advertising
programs conducted by Carlson Worldwide through local radio, newspaper, and
magazine advertising media and sponsorship of community events. In conjunction
with Carlson Worldwide, we maintain 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 Carlson Worldwide, we are able to utilize the trade
names, service marks, trademarks, emblems, and indicia of origin of Carlson
Worldwide, including the marks T.G.I. Friday's(R) and Friday's(R). We advertise
in various media utilizing these marks to attract new customers to our
restaurants.
8
<PAGE>
REDFISH RESTAURANTS
Our in-house marketing department develops advertising and marketing
programs for our Redfish restaurants. We develop these programs with an emphasis
on building awareness of the "Redfish" brand in the communities in which we
operate Redfish restaurants and generating sales for those restaurants.
Advertising and marketing campaigns have included radio and print advertising,
as well as point-of-sale marketing promotions. We conduct a comprehensive
advertising and public relations campaign in advance of each Redfish restaurant
grand opening.
EXPANSION OF OPERATIONS
Since 1990, we have 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.
We also have developed 31 new T.G.I. Friday's restaurants. These include 13 in
California, six in Arizona, three in each of Washington and Nevada, two in
Texas, and one in each of Colorado, New Mexico, Kansas, and Missouri. We
subsequently sold five of the restaurants we acquired in California, which we
continue to manage, and sold eight restaurants in Colorado, Nebraska, Oregon,
and Washington. In addition, we developed one Friday's Front Row Sports Grill in
Portland, Oregon, which we closed in June 1998. In May 1998, we acquired six
T.G.I. Friday's restaurants in northern California along with the related T.G.I.
Friday's development agreement. In 1997, we acquired a 52% ownership interest
and in 1999 we acquired the remaining minority interest in Redfish America, LLC,
which currently operates our Redfish Seafood Grill and Bar restaurants. We
opened 11 T.G.I. Friday's and two Redfish restaurants during 1999.
We plan to expand our restaurant operations through the development of
additional restaurants in our existing development territories. We opened three
T.G.I. Friday's restaurants during the first quarter of fiscal 2000. We plan to
open an additional nine T.G.I. Friday's restaurants and one Redfish restaurant
during the remainder of 2000 and to meet or exceed our development requirements
thereafter. We have signed leases or purchase agreements for six additional
restaurants scheduled to be developed during 2000. We have identified 10
additional sites for development in 2001 and currently are negotiating site
acquisitions for these restaurants. We currently are considering other sites for
additional restaurants, but have not entered into leases or purchase agreements
for such sites.
The opening of new restaurants will depend on our ability to
* locate suitable sites in terms of favorable population
characteristics, density and household income levels, visibility,
accessibility, traffic volume, proximity to demand generators
(including shopping malls, lodging, and office complexes), and
proximity to 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 our ability to
identify and purchase restaurants that meet our criteria on satisfactory terms
and conditions. There can be no assurance that we will be successful in
achieving our expansion goals through the development or acquisition of
additional restaurants or that any additional
9
<PAGE>
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
We are a party to four development agreements with Carlson Worldwide. Each
development agreement grants us the exclusive right to develop additional T.G.I.
Friday's restaurants in a specified territory and obligates us to develop
additional T.G.I. Friday's restaurants in that territory in accordance with a
specified development schedule.
We own 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, Northern California, and the Kansas City, Kansas, Kansas City,
Missouri, and E1 Paso, Texas metropolitan areas. We also have the exclusive
right, together with Carlson Worldwide, to develop additional T.G.I. Friday's
restaurants in the Southern California territory.
The following table sets forth information regarding our minimum
requirements to open new T.G.I. Friday's restaurants under our current
development agreements as well as the number of existing restaurants in each of
our development territories.
<TABLE>
<CAPTION>
Southern Northern
California California Southwest Midwest
Year Territory(1) Territory Territory(2) Territory(3) Total
- ---- ------------ --------- ------------ ------------ -----
<S> <C> <C> <C> <C> <C>
2000.................... 4 4 2 1 11
2001.................... 4 6 1 1 12
2002.................... 4 4 1 1 10
2003.................... 3 3 (TBD) (TBD) 6
---- ---- ----- ----- ----
Total.............. 15 17 4 3 39
==== ==== ===== ===== ====
Existing Restaurants.... 26 6(4) 15(5) 4 51
</TABLE>
- ----------
(1) Carlson Worldwide also may develop restaurants in this region.
(2) Includes the states of Arizona, Nevada, and New Mexico and the E1 Paso,
Texas metropolitan area.
(3) Includes metropolitan Kansas City, Kansas and Kansas City, Missouri.
(4) Does not include five 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 Carlson Worldwide and the
Company during 2002.
Each development agreement gives Carlson Worldwide certain remedies in the
event that we fail to comply in a timely manner with our schedule for restaurant
development, if we otherwise default under the development agreement or any
franchise agreement relating to a restaurant within that development territory
as described below, or if our officers or directors breach the confidentiality
or noncompete provisions of the development agreement. The remedies available to
Carlson Worldwide include (a) the termination of our exclusive right to develop
restaurants in the related territory; (b) a reduction in the number of
restaurants we may develop in the related territory; (c) the termination of the
development agreement; and (d) an acceleration of the schedule for development
of restaurants in the related territory pursuant to the development agreement.
FRANCHISE AGREEMENTS
We enter into or assume a separate franchise agreement with respect to each
T.G.I. Friday's restaurant that we acquire or develop pursuant to a development
agreement. Each franchise agreement grants us an exclusive license to operate a
T.G.I. Friday's restaurant within a designated geographic area, which generally
is a three-mile limit from each restaurant, and obligates us to operate such
restaurant in accordance with the requirements and specifications established by
Carlson Worldwide relating to food preparation and quality of service as well as
general operating procedures, advertising, records maintenance, and protection
of trademarks. The franchise agreements restrict our ability to transfer our
interest in our T.G.I. Friday's restaurants without the consent of Carlson
Worldwide.
10
<PAGE>
Each franchise agreement requires us to pay Carlson Worldwide an initial
franchise fee, generally in the amount of $50,000. In addition, we are obligated
to pay Carlson Worldwide 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 $4,120,000, during fiscal 1997, $3,929,000 during
fiscal 1998, and $4,830,000 during fiscal 1999. Each franchise agreement also
requires us to spend at least 2% of gross sales on local marketing and to
contribute up to 4% of gross sales to a national marketing pool Carlson
Worldwide administers. All funds contributed in excess of 2% of gross sales to
the national advertising fund may be credited against the local advertising
requirement. Carlson Worldwide required us as well as all other franchisees to
contribute 1.9% of gross sales in fiscal 1998 and 2.1% of gross sales in fiscal
1999 to the national marketing pool. Marketing expenses totaled $1,919,000
during fiscal 1997, $1,805,000 during fiscal 1998, and $2,733,000 during fiscal
1999.
A default under one of our franchise agreements will not constitute a
default under any of our other franchise agreements. A default under the
franchise agreement for a restaurant in a development territory may, however,
constitute a default under the development agreement for that development
territory.
GOVERNMENT REGULATION
Each of our 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, we are 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 our
development of restaurants.
We also are 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 our company.
In addition, we are subject to the Americans with Disabilities Act of 1990.
That act may require us to make certain installations in new restaurants or
renovations to existing restaurants to meet federally mandated requirements. To
our knowledge, we are in compliance in all material respects with all applicable
federal, state, and local laws affecting our business.
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. Our 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 we do. We also
compete with locally owned, independent restaurants.
Our casual dining business also competes with various types of food
businesses, as well as other businesses, for restaurant locations. We believe
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 our development territories, our management devotes great
attention to obtaining what they believe will be premium locations for new
restaurants, although we cannot assure you that they will be successful in these
efforts.
EMPLOYEES
We employ approximately 2,450 persons on a full-time basis, of whom 60 are
corporate management and staff personnel and 2,390 are restaurant personnel. We
also employ approximately 4,400 part-time employees. Except for corporate and
management personnel, we generally pay our employees on an hourly basis. We
employ an average of approximately 90 full-time and part-time hourly employees
at each of our restaurants. None of our employees are covered by a collective
bargaining agreement with us. We have never experienced a major work stoppage,
strike, or labor dispute. We consider our relations with our employees to be
good.
11
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth certain information regarding our executive
officers:
Name Age Position
---- --- --------
Bart A. Brown, Jr...... 68 President, Chief Executive Officer, and Director
William G. Shrader..... 52 Executive Vice President, Chief Operating
Officer, and Director
James Yeager........... 49 Vice President - Finance, Secretary, and
Treasurer
BART A. BROWN, JR. has served as our President and Chief Executive Officer
and as a director 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, which was
shortly after Color Tile, Inc. filed under Chapter 11 of the United States
Bankruptcy Code, until March 1996. Mr. Brown served as Chairman of the Board of
The Circle K Corporation from June 1990, shortly after that company filed 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 our Executive Vice President, and
Chief Operating Officer and as a director since March 1999. Prior to joining our
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.
JAMES YEAGER has served as our Vice President-Finance since January 1999
and as our Secretary and Treasurer since April 1998. Mr. Yeager served as our
Corporate Controller from June 1997 to January 1999. Prior to joining our
company, Mr. Yeager was Chief Financial Officer of Restaurants of America, Inc.,
a multiple concept restaurant company. Prior to that, 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 where he worked from 1972 to 1983.
SPECIAL CONSIDERATIONS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, IN ADDITION TO THE
OTHER INFORMATION IN THIS REPORT, IN EVALUATING OUR COMPANY AND OUR BUSINESS.
WE DEPEND ON CARLSON WORLDWIDE.
We currently operate 51 T.G.I. Friday's restaurants as a T.G.I. Friday's
franchisee. We also manage an additional six T.G.I. Friday's restaurants for
those restaurants' franchisees. As a result of the nature of franchising and our
franchise agreements with Carlson Worldwide, our long-term success depends, to a
significant extent, on
* the continued vitality of the T.G.I. Friday's restaurant concept and
the overall success of the T.G.I. Friday's system;
* the ability of Carlson Worldwide to identify and react to new trends
in the restaurant industry, including the development of popular menu
items;
* the ability of Carlson Worldwide to develop and pursue appropriate
marketing strategies in order to maintain and enhance the name
recognition, reputation, and market perception of T.G.I. Friday's
restaurants;
* the goodwill associated with the T.G.I. Friday's trademark;
12
<PAGE>
* the quality, consistency, and management of the overall T.G.I.
Friday's system; and
* the successful operation of T.G.I. Friday's restaurants owned by
Carlson Worldwide and other T.G.I. Friday's franchisees.
We believe that the experience, reputation, financial strength, and
franchisee support of Carlson Worldwide represent positive factors for our
business. We have no control, however, over the management or operation of
Carlson Worldwide or other T.G.I. Friday's franchisees. A variety of factors
affecting Carlson Worldwide or the T.G.I. Friday's concept could have a material
adverse effect on our business. These factors include the following:
* any business reversals that Carlson Worldwide may encounter;
* a failure by Carlson Worldwide to promote the T.G.I. Friday's name or
restaurant concept;
* the inability or failure of Carlson Worldwide to support its
franchisees, including our company;
* the failure to operate successfully the T.G.I. Friday's restaurants
that Carlson Worldwide itself owns; or
* negative publicity with respect to Carlson Worldwide or the T.G.I.
Friday's name.
The future results of the operations of our restaurants will not necessarily
reflect the results achieved by Carlson Worldwide or its other franchisees, but
will depend upon such factors as the effectiveness of our management team, the
locations of our restaurants, and the operating results of those restaurants.
FRANCHISE AGREEMENTS IMPOSE RESTRICTIONS AND OBLIGATIONS ON OUR BUSINESS.
Our franchise agreement with Carlson Worldwide for each T.G.I. Friday's
restaurant that we own generally requires us to
* pay an initial franchise fee of $50,000;
* pay royalties of 4% of the restaurant's gross sales; and
* spend up to 4% of the restaurant's gross sales on advertising, which
may include contributions to a national marketing pool administered by
Carlson Worldwide.
During fiscal 1999, Carlson Worldwide required us and its other franchisees to
contribute 2.1% of gross sales to the national marketing pool. We must pay or
accrue these amounts regardless of whether or not our restaurants are
profitable. In addition, the franchise agreements require us to operate our
T.G.I. Friday's restaurants in accordance with the requirements and
specifications established by Carlson Worldwide. These requirements and
specifications relate to a variety of factors, including the following:
* the exterior and interior design, decor, and furnishings of
restaurants;
* menu selection;
* the preparation of food products;
* quality of service;
* general operating procedures;
* advertising;
* maintenance of records; and
* protection of trademarks.
If we fail to satisfy these requirements or otherwise default under the
franchise agreements, we could be subject to potential damages for breach of
contract and could lose our franchise rights for some or all of our T.G.I.
Friday's restaurants. We also could lose our rights to develop additional T.G.I.
Friday's restaurants.
13
<PAGE>
WE MAY NOT BE ABLE TO COMPLY WITH ALL OF THE REQUIREMENTS OF OUR DEVELOPMENT
AGREEMENTS.
Our development agreements with Carlson Worldwide require us to open at
least 39 additional T.G.I. Friday's restaurants by December 31, 2003. We opened
three new T.G.I. Friday's restaurants during the first quarter of fiscal 2000.
One of these restaurants fulfilled our development requirements for 1999.
Accordingly, we must develop 37 additional T.G.I. Friday's restaurants by
December 31, 2003. The acquisition of restaurants does not constitute the
opening of new restaurants under the development agreements. We may not be able
to secure sufficient restaurant sites that we believe are suitable or we may not
be able to develop restaurants on sites on terms and conditions that we consider
favorable in order to satisfy the requirements of the development agreements.
The development agreements give Carlson Worldwide certain remedies in the event
that we fail to comply with the development schedule in a timely manner or if we
breach the confidentiality or noncompete provisions of the development
agreements. These remedies include, under certain circumstances, the right to
reduce the number of restaurants we may develop in the related development
territory or to terminate our exclusive right to develop restaurants in the
related development territory.
At our request, Carlson Worldwide from time to time has agreed to amend the
development schedules to extend the time by which we were required to develop
new restaurants in certain development territories. We requested those
amendments because we were unable to secure sites that we believed to be
attractive on favorable terms and conditions. Carlson Worldwide may decline to
extend the development schedule in the future if we experience any difficulty in
satisfying the schedule for any reason, including a shortage of capital.
WE FACE RISKS ASSOCIATED WITH THE EXPANSION OF OUR OPERATIONS.
The success of our business depends on our ability to expand the number of
our restaurants, either by developing or acquiring additional restaurants. Our
success also depends on our ability to operate and manage successfully our
growing operations. Our ability to expand successfully will depend upon a number
of factors, including the following:
* the availability and cost of suitable restaurant locations for
development;
* the availability of restaurant acquisition opportunities;
* the hiring, training, and retaining of additional management and
restaurant personnel;
* the availability of adequate financing;
* the continued development and implementation of management information
systems;
* competitive factors; and
* general economic and business conditions.
The rate at which we will be able to increase the number of restaurants we
operate will vary depending upon whether we acquire existing restaurants or
develop new restaurants. The acquisition of existing restaurants depends upon
our ability to identify and acquire restaurants on satisfactory terms and
conditions. The opening of new restaurants depends upon our ability to
* locate suitable sites in terms of
- favorable population characteristics,
- density and household income levels,
- visibility, accessibility, and traffic volume,
- proximity to demand generators, including shopping malls,
lodging, and office complexes, and
- potential competition;
* obtain financing for construction, tenant improvements, furniture,
fixtures, and equipment;
* negotiate acceptable leases or terms of purchase;
* secure liquor licenses and zoning, environmental, health, and similar
regulatory approvals;
* recruit and train qualified personnel; and
14
<PAGE>
* 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
initial 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
* our ability to control costs.
We may not successfully achieve our expansion goals. Additional restaurants
that we develop or acquire may not 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 our existing restaurants in
those markets.
WE MAY NEED ADDITIONAL CAPITAL.
The development of new restaurants requires funds for construction, tenant
improvements, furniture, fixtures, equipment, training of employees, permits,
initial franchise fees, and additional expenditures. We expect that cash flow
from operations, together with financing commitments, will be sufficient to
develop the nine T.G.I. Friday's restaurants that our development agreements
require us to open by the end of 2000 and the one new Redfish restaurant that we
plan to develop during 2000. We will require funds to develop the additional
restaurants that our development agreements require us to open after 2000 and to
pursue any additional restaurant development or restaurant acquisition
opportunities. In the future, we may seek additional equity or debt financing to
provide funds so that we can develop or acquire additional restaurants. Such
financing may not be available or may not be available on satisfactory terms. If
financing is not available on satisfactory terms, we may be unable to satisfy
our obligations under our development agreements with Carlson Worldwide or
otherwise to expand our restaurant operations. See Item 1, "Business - Special
Considerations - We may not be able to comply with all of the requirements of
our development agreements." While debt financing will enable us to add more
restaurants than we otherwise would be able to do, debt financing increases
expenses and we must repay the debt regardless of our operating results. Future
equity financings could result in dilution to our stockholders.
WE HAVE SIGNIFICANT BORROWINGS.
We have incurred significant indebtedness in connection with our growth
strategy. Our growth strategy has focused on restaurant acquisitions and
internal restaurant development. As of December 27, 1999, we had long-term debt
of approximately $33.3 million and a working capital deficit of $16.6 million.
Our borrowings will result in interest expense of approximately $4.1 million in
2000 and $5.1 million in 2001, based on currently prevailing interest rates and
assuming the outstanding indebtedness is paid in accordance with the existing
payment schedules without any prepayments or additional borrowings. We must make
these interest payments regardless of our operating results. Currently, 49 of
our restaurants are pledged to secure our debt obligations. We also may seek
additional equity or debt financing in the future to provide funds to develop or
acquire additional restaurants. See "Risk Factors - We may need additional
capital."
WE FACE RISKS THAT AFFECT THE RESTAURANT INDUSTRY IN GENERAL.
The ownership and operation of restaurants may be affected by a variety of
factors over which we have no control. These factors include the following:
* adverse changes in national, regional, or local economic or market
conditions;
* increased costs of labor or food products;
* fuel shortages and price increases;
* competitive factors;
* changing consumer tastes, habits, and spending priorities;
* the cost and availability of insurance coverage;
* management problems;
* uninsured losses;
15
<PAGE>
* the number, density, and location of competitors;
* changing demographics;
* changing traffic patterns;
* limited alternative uses for properties and equipment;
* changes in government regulation; and
* weather conditions.
Third parties may file lawsuits against us based on discrimination,
personal injury, claims for injuries or damages caused by serving alcoholic
beverages to an intoxicated person or to a minor, or other claims. As a
multi-unit restaurant operator, we can be adversely affected by publicity about
food quality, illness, injury, or other health and safety concerns or operating
issues at one restaurant or a limited number of restaurants operated under the
same name, whether or not we actually own or manage the restaurants in question.
We cannot predict any of these factors with any degree of certainty. Any one or
more of these factors could have a material adverse effect on our business.
WE FACE INTENSE COMPETITION.
The restaurant business is highly competitive with respect to price,
service, and food type and quality. Restaurant operators also compete for
attractive restaurant sites and qualified restaurant personnel and managers. Our
restaurants compete with a large number of other restaurants, including national
and regional restaurant chains and franchised restaurant systems, as well as
with locally owned, independent restaurants. Many of our competitors have
greater financial resources, more experience, and longer operating histories
than we have.
WE DEPEND UPON OUR SENIOR MANAGEMENT.
Our success depends, in large part, upon the services of our senior
management. The loss of the services of any members of our senior management
team could have a material and adverse effect on our business.
WE FACE RISKS ASSOCIATED WITH GOVERNMENT REGULATION.
Various federal, state, and local laws affect our business. The development
and operation of restaurants depend to a significant extent on the selection and
acquisition of suitable sites. These sites are subject to zoning, land use,
environmental, traffic, and other regulations of state and local governmental
agencies. City ordinances or other regulations, or the application of such
ordinances or regulations, could impair our ability to construct or acquire
restaurants in desired locations and could result in costly delays. In addition,
restaurant operations are subject to
* licensing and regulation by state and local departments relating to
health, sanitation, safety standards, and fire codes;
* federal and state labor laws, including applicable minimum wage
requirements, tip credit provisions, overtime regulations, workers'
compensation insurance rates, unemployment and other taxes, working
and safety conditions, and citizenship requirements; and
* state and local licensing of the sale of alcoholic beverages.
The delay or failure to obtain or maintain any licenses or permits
necessary for operations could have a material adverse effect on our business.
In addition, an increase in the minimum wage rate, employee benefit costs, or
other costs associated with employees could adversely affect our business. We
also are subject to the Americans with Disabilities Act of 1990 that, among
other things, may require us to install certain fixtures or accommodations in
new restaurants or to renovate existing restaurants to meet federally mandated
requirements.
Sales of alcoholic beverages represent an important source of revenue for
each of our restaurants. The temporary suspension or permanent loss or the
inability to maintain a liquor license for any restaurant would have an adverse
effect on the operations of that restaurant. We do not plan to open a restaurant
in any location for which we believe we cannot obtain or maintain a liquor
license.
16
<PAGE>
THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE.
Historically, the market price of our common stock has been volatile. In
the future, the market price of our common stock will be subject to wide
fluctuations as a result of a variety of factors, including the following:
* quarterly variations in our operating results or those of other
restaurant companies;
* changes in analysts' estimates of our financial performance;
* changes in national and regional economic conditions, the financial
markets, or the restaurant industry;
* natural disasters; or
* other developments affecting our business or other restaurant
companies.
The trading volume of our common stock has been limited, which may increase
the volatility of the market price for our stock. In addition, the stock market
has experienced extreme price and volume fluctuation in recent years. This
volatility has had a significant effect on the market prices of securities
issued by many companies for reasons not necessarily related to the operating
performances of these companies.
THE EXISTENCE OF STOCK OPTIONS AND WARRANTS MAY ADVERSELY AFFECT THE TERMS OF
FUTURE FINANCINGS.
Stock options to acquire an aggregate of 2,439,000 shares of common stock
currently are outstanding. An additional 673,466 have been reserved for issuance
upon exercise of options that may be granted under our existing stock option
plans. In addition, warrants to acquire 231,277 shares of common stock currently
are outstanding. During the terms of those options and warrants, the holders of
those securities will have the opportunity to profit from an increase in the
market price of our common stock. The existence of options and warrants may
adversely affect the terms on which we can obtain additional financing in the
future, and the holders of options and warrants can be expected to exercise
those options and warrants at a time when, in all likelihood, we would be able
to obtain additional capital by offering shares of common stock on terms more
favorable to it than those provided by the exercise of such options and
warrants.
SALES OF LARGE NUMBERS OF SHARES COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON
STOCK.
Sales of substantial amounts of common stock in the public market, or even
the potential for such sales, could adversely affect prevailing market prices
for our common stock and could adversely affect our ability to raise capital. As
of March 20, 2000, there were outstanding 10,029,426 shares of our common stock.
Of these shares, 8,044,143 shares are freely transferable without restriction
under the securities laws, unless they are held by our "affiliates," as that
term is defined in the securities laws. The remaining 1,985,283 of common stock
currently outstanding are "restricted securities," as that term is defined in
Rule 144 under the securities laws, and may be sold only in compliance with Rule
144, pursuant to registration under the securities laws, or pursuant to an
exemption from registration. Affiliates also are subject to certain of the
resale limitations of Rule 144. Generally, under Rule 144, each person who
beneficially owns restricted securities with respect to which at least one year
has elapsed since the later of the date the shares were acquired from us or one
of our affiliates may, every three months, sell in ordinary brokerage
transactions or to market makers an amount of shares equal to the greater of 1%
of our then-outstanding common stock or the average weekly trading volume for
the four weeks prior to the proposed sale of such shares. Currently, most of the
restricted shares are eligible for sale under Rule 144 or under registration
statements that we have filed to permit resales of the restricted shares.
WE DO NOT ANTICIPATE THAT WE WILL PAY DIVIDENDS.
We have never paid any dividends on our common stock, and we do not
anticipate that we will pay dividends in the foreseeable future. We intend to
apply any earnings to the expansion and development of our business. In
addition, the terms of our credit facilities limit our ability to pay dividends
on our common stock.
17
<PAGE>
ITEM 2. PROPERTIES
In December 1998, we entered into a five-year lease for space to serve as
our corporate offices. We believe that the leased space is adequate for our
current and reasonably anticipated needs and that we will be able to secure
adequate space upon the expiration of the lease.
We also lease space for all of our 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.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are subject to routine contract, negligence,
employment related, and other litigation in the ordinary course of business. We
do not believe that we are subject to any pending litigation that will have a
material adverse effect on our business or financial condition that is not
otherwise reserved for in our consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
18
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our 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 our common stock for the periods
indicated as reported by the Nasdaq Stock Market.
High Low
----- -----
1998
First Quarter........................................ $4.00 $2.56
Second Quarter....................................... 3.94 3.13
Third Quarter........................................ 4.31 3.31
Fourth Quarter....................................... 3.88 2.94
1999
First Quarter........................................ $3.63 $2.97
Second Quarter....................................... 3.88 3.00
Third Quarter........................................ 4.00 3.13
Fourth Quarter....................................... 3.56 3.03
2000
First Quarter (through March 20, 2000)............... $3.47 $3.00
On March 20, 2000, there were 893 holders of record of our common stock. On
March 20, 2000, the closing sale price of our common stock on the Nasdaq
National Market was $3.13 per share.
We have never declared or paid any cash dividends. We intend to retain any
earnings to fund the growth of our business and do not anticipate paying any
cash dividends in the foreseeable future. In addition, our existing debt
obligations prohibit us from paying cash dividends.
19
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for our
company for the periods indicated. The selected consolidated financial data for
each of the five fiscal years in the period ending December 27, 1999 has been
derived from our consolidated financial statements, which have been audited by
Arthur Andersen LLP, independent accountants. These data should be read in
conjunction with, and are qualified by reference to, our 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. 25, Dec. 30, Dec. 29, Dec. 28, Dec. 27,
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ..................................... $ 119,508 $ 122,563 $ 107,018 $ 114,242 $ 140,294
Restaurant operating expenses:
Cost of sales ............................ 34,005 35,089 30,995 33,242 39,960
Payroll and benefits ..................... 36,769 38,858 31,907 33,701 42,405
Depreciation and amortization ............ 4,353 4,586 3,265 3,730 4,664
Other operating expenses ................. 35,250 36,944 30,589 31,004 38,923
--------- --------- --------- --------- ---------
Total restaurant operating expenses .... 110,377 115,477 96,756 101,677 125,952
--------- --------- --------- --------- ---------
Income from restaurant operations ........... 9,131 7,086 10,262 12,565 14,342
Amortization of intangibles .............. 1,331 1,450 953 983 990
General and administrative expenses ...... 4,410 4,388 4,559 4,906 5,955
Preopening expenses(1) ................... -- -- 287 661 2,228
New manager training expenses ............ -- -- 562 731 1,748
Non-recurring items ...................... -- 20,208 (2,390) (17) 494
Management fee income .................... -- -- (979) (1,082) (865)
--------- --------- --------- --------- ---------
Operating income (loss) ..................... 3,390 (18,960) 7,270 6,383 3,792
Interest expense and other, net........... 4,424 3,206 2,466 2,218 2,604
--------- --------- --------- --------- ---------
Income (loss) before income taxes,
cumulative effect of change in accounting
principle, and extraordinary item ........ (1,034) (22,166) 4,804 4,165 1,188
Provision for income taxes .................. -- -- -- -- 50
--------- --------- --------- --------- ---------
Net income (loss) before cumulative effect
of change in accounting principle and
extraordinary item ........................ $ (1,034) $ (22,166) $ 4,804 $ 4,165 $ 1,138
========= ========= ========= ========= =========
Net income (loss)(1)(2) ..................... $ (1,034) $ (22,166) $ 3,166 $ 4,165 $ 970
========= ========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Net income (loss) before cumulative effect
of change in accounting principle and
extraordinary item ..................... $ (0.22) $ (2.73) $ 0.47 $ 0.39 $ 0.11
Net income (loss)(1)(2) .................. $ (0.22) $ (2.73) $ 0.31 $ 0.39 $ 0.09
Weighted average shares outstanding - diluted 4,621 8,110 10,098 10,608 10,407
BALANCE SHEET DATA:
Working capital .......................... $ (7,848) $ (1,343) $ (1,330) $ (2,807) $ (16,652)
Total assets ............................. 88,605 70,848 61,168 70,255 86,525
Long-term debt, net of current portion ... 31,204 33,809 24,308 28,264 31,513
Stockholders' equity ..................... 37,261 16,585 22,203 26,372 27,383
</TABLE>
- ----------
(1) Fiscal 1999 includes a charge of $168,000, or $0.02 per share, due to the
cumulative effect of change in accounting principle related to the adoption
of SOP 98-5. See Note 3 to our consolidated financial statements.
(2) Fiscal 1997 includes an extraordinary loss from debt extinguishment of
$1,638,000, or $0.16 per share.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
We commenced our restaurant operations in May 1990 with the acquisition of
four T.G.I. Friday's restaurants in Arizona and Nevada. During the past nine
years, we have grown through acquisitions and development of new restaurants. We
currently own 57 restaurants and manage an additional six restaurants.
During 1996, we had a change in management and implemented a long-term
business strategy to enhance our financial position, to place more emphasis on
our casual dining business in certain designated areas, and to dispose of
underperforming assets.
The first step was to strengthen our 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 2 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).
We also renegotiated our development agreements with Carlson Worldwide to
reduce the number of T.G.I. Friday's restaurants we are 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, we recorded net restructuring and reorganization gains of $17,000 in
1998 and $2,390,000 in 1997 related to the disposition of various non-core
assets and the write-down of certain core assets to realizable values (see Note
2 to Notes to Consolidated Financial Statements).
Our strategy is to reduce operating costs and expand our 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 29, December 28, December 27,
1997 1998 1999
------------ ------------ ------------
Revenue ............................... 100.0% 100.0% 100.0%
Restaurant operating expenses:
Cost of sales ...................... 29.0 29.1 28.5
Payroll and benefits ............... 29.8 29.5 30.2
Depreciation and amortization ...... 3.1 3.3 3.3
Other operating expenses ........... 28.5 27.1 27.8
----- ----- -----
Total restaurant operating expenses 90.4 89.0 89.8
----- ----- -----
Income from restaurant operations ..... 9.6 11.0 10.2
Amortization of intangibles ........ 0.9 0.9 0.7
General and administrative expenses 4.3 4.3 4.2
Preopening expenses ................ 0.3 0.6 1.6
New manager training expenses ...... 0.5 0.6 1.2
Non-recurring items ................ (2.2) -- 0.4
Management fee income .............. (0.9) (0.9) (0.6)
----- ----- -----
Operating income ...................... 6.7 5.5 2.7
Interest expense and other, net ....... 2.3 1.9 1.9
----- ----- -----
Income before income taxes,
cumulative effect of change in
accounting principle, and
extraordinary item ................. 4.4% 3.6% 0.8%
===== ===== =====
21
<PAGE>
FISCAL 1999 COMPARED WITH FISCAL 1998
Revenue for the fiscal year ended December 27, 1999 increased 22.8% to
$140,294,000 compared with $114,242,000 in the year ended December 28, 1998.
This increase was due primarily as a result of the acquisition of six
restaurants in May 1998 and the development of three new restaurants in 1998 and
13 new restaurants in 1999. Additionally, same-store sales increased 4.9% in
fiscal 1999 as compared with an increase in same-store sales of 4.7% for the
prior year. Revenue from alcoholic beverages accounted for 24.4% of revenue for
the fiscal year ended December 27, 1999 as compared with 23.3% for the year
ended December 28, 1998.
Cost of sales as a percentage of revenue decreased to 28.5% in 1999 from
29.1% in 1998. This decrease was due to management's on-going efforts to reduce
food costs by implementing more efficient and cost-effective practices in food
preparation, as well as reducing costs through more efficient purchasing of food
items.
Labor costs increased as a percentage of revenue to 30.2% in 1999 from
29.5% in 1998. This increase was primarily due to increased staffing needs
during the initial months of operation for newly opened restaurants. Once a
restaurant has reached operating maturity, labor costs as a percentage of
revenue will be normalized. Additionally, during 1999 we implemented a program
to increase our restaurant management staff in many of our restaurants from four
to five managers. This increase in management staff is intended to reduce
turnover by improving the quality of life of our managers, which we believe will
ultimately lead to lower labor costs.
Other operating expenses include rent, real estate taxes, common area
maintenance charges, advertising, insurance, maintenance, and utilities. In
addition, the franchise agreements between Carlson Worldwide and our company
require a 4% royalty and a contribution to a national marketing pool of up to 4%
of gross sales, although we were only required to contribute 2.1% for 1999.
Other operating expenses increased as a percentage of revenue to 27.8% in 1999
from 27.1% in 1998. The increases were due primarily to additional marketing and
promotional costs.
In total, depreciation and amortization decreased as a percentage of
revenue to 4.0% in 1999 from 4.2% in 1998. The decrease was due primarily to the
relatively fixed nature of these expenses as compared with our increased
revenue.
General and administrative expenses as a percentage of revenue decreased to
4.2% in 1999 from 4.3% in 1998. This decrease was in spite of costs incurred in
training our restaurant management staff on new software and hardware installed
to ensure that our restaurant computer systems were Year 2000 compliant, as well
as additional recruiting costs associated with the hiring of managers for the
restaurants we opened in 1999.
On December 29, 1998, we adopted Statement of Position 98-5 ("SOP 98-5")
"REPORTING ON THE COSTS OF START-UP ACTIVITIES," as promulgated by the American
Institute of Certified Public Accountants, which requires us to expense
preopening expenses as they are incurred. Prior to 1999, we capitalized such
expenses and amortized them over a period of one year. Pursuant to SOP 98-5,
pre-opening expenses of $2,228,000, or 1.6% of revenue, were charged to
operations during the year ended December 27, 1999 as compared with amortization
of pre-opening expenses of $661,000, or 0.6% of revenue, for fiscal 1998.
New manager training expenses are those costs incurred in training newly
hired or promoted managers, as well as those costs incurred to relocate those
managers to permanent management positions. Due to our aggressive growth, these
expenses increased to $1,748,000, or 1.2% of revenue, for the year ended
December 27, 1999 as compared with $731,000, or 0.6% of revenue, for fiscal
1998.
In 1999, we increased the provision for non-recurring items and the reserve
for projected losses by approximately $494,000. This represents (a) a decrease
in the reserve of approximately $341,000 related to an adjustment of legal and
settlement costs, and (b) an increase in the reserve of approximately $835,000
in connection with the settlement of a lawsuit in February 2000.
Interest expense was approximately $2,604,000 in 1999 compared with
$2,218,000 in 1998. This increase was due to debt incurred in the development of
new restaurants and to the acquisition of six new restaurants in May 1998.
22
<PAGE>
No income tax provision was recorded in 1998 due to the availability of net
operating loss carryforwards. In 1999, we recorded a $50,000 expense related to
state income taxes due in certain states where net operating losses are no
longer available to us. At December 27, 1999, we had approximately $10,400,000
of net operating and capital loss carryforwards to be used to offset future
income for income tax purposes. We have determined that a 100% valuation
allowance is appropriate on the net operating loss as a result of our current
restaurant expansion plans. We will re-evaluate the need for a valuation
allowance at each quarter.
FISCAL 1998 COMPARED WITH FISCAL 1997
Revenue for the fiscal year ended December 28, 1998 increased 6.8% to
$114,242,000 as compared with $107,018,000 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. 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 29.1% in 1998 as
compared with 29.0% 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 that we acquired 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 29.5% in 1998 as
compared with 29.8% 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 Carlson Worldwide pursuant to the
franchise agreements, as well as payments to a national marketing fund managed
by the franchisor. The franchise agreements require us to pay up to 4% of
revenue to this marketing fund, although we were required to only pay
approximately 1.9% in 1998. The decrease in other operating expenses is
attributable to lower insurance costs and to our on-going cost reduction efforts
in supply, maintenance, and advertising costs.
Depreciation and amortization increased as a percentage of revenue to 4.2%
in 1998 as compared with 4.0% in 1997 due primarily to amortization of
pre-opening costs of three new restaurants developed in 1998, 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 4.3% 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.
LIQUIDITY AND CAPITAL RESOURCES
Our 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. We have also expended funds for the development
of new restaurants. During 1999, we also purchased the minority interest in
Redfish America, LLC for $500,000 in cash. The principal source of these funds
has been operating cash flow, supplemented by bank and lease financing.
23
<PAGE>
Net cash flows from operating activities were $1,050,000 in 1997,
$9,062,000 in 1998, and $16,219,000 in 1999. These were supplemented by net cash
flows from financing of $3,755,000 in 1999 and $4,092,000 in 1998, which we used
to fund our acquisitions and development of new restaurants. In 1997, we used
$8,287,000 of net cash flows from financing activities, which came primarily
from the sale of assets.
Our current liabilities exceed our current assets due in part to cash
expended on our development requirements and 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 27, 1999, we had a deficit in working capital
of approximately $16,652,000 due primarily to an increase in accounts payable
related to restaurant development costs for projects in progress, as well as
recently completed restaurants. Subsequent to December 27, 1999, we reduced a
significant portion of our working capital deficit through long-term borrowings
under the financing commitments described below.
At December 27, 1999 we had a cash balance of $3,055,000. Monthly cash
receipts have been sufficient to pay all obligations as they become due.
At December 27, 1999, we had long-term debt of $31,513,000 and current
portion of long-term debt of $1,830,000.
Approximately $19,329,000 of this debt is a term loan comprised of five
notes payable to 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. The notes are payable in equal monthly installments of principal
and interest that total approximately $223,000 per month. The notes mature on
May 1, 2012.
During April 1999, we obtained a $5.0 million revolving line of credit with
another lender. The line of credit is available to finance construction and
other costs associated with developing new restaurants. Borrowings under the
line of credit bear interest at prime plus 112.5 basis points. The line of
credit includes covenants related to our net worth, fixed charge coverage ratio,
profitability, and access to capital. We were in compliance with these covenants
at December 27, 1999. The line of credit matures on July 17, 2000. At December
27, 1999, we had no borrowings outstanding under this line of credit.
During November 1999, we entered into two working capital reducing revolver
loan agreements with another lender. One agreement provides for a maximum of
$8,050,000 to finance 80% of the costs to develop seven T.G.I. Friday's
restaurants. Borrowings under this agreement will mature in 10 years. These
borrowings are secured by the assets financed with the borrowings and are
guaranteed by certain of our subsidiaries. The other agreement provides for a
maximum of $3,150,000 to finance 80% of the costs to furnish and equip seven
T.G.I. Friday's restaurants. Borrowings under this agreement are secured by the
assets financed with the borrowings and will mature in seven years. Borrowings
under both agreements bear interest at 2.65% over the "30-Day Dealer Commercial
Paper Rate," as defined in the agreements, or a combined rate of 9.1% at
December 27, 1999. At December 27, 1999, we had outstanding borrowings of
$1,600,000 under these agreements. These agreements include covenants related to
our fixed charge coverage ratio and debt to adjusted cash flow ratio. We were in
compliance with these covenants at December 27, 1999.
The remainder of our long-term debt consists of notes payable to various
lending institutions. These notes bear interest at rates ranging from 7.75% to
11.0% and mature at various times over the next 15 years.
We plan to develop at least 10 additional restaurants over the next year.
Subsequent to December 27, 1999, we borrowed a total of $10,781,000 under the
credit arrangements described above or new credit arrangements that we entered
into after December 27, 1999. We used the proceeds of these borrowings to fund
unpaid development costs recorded as accounts payable at December 27, 1999. As
of March 20, 2000, we have permanent debt and sale/leaseback financing
agreements or commitments totaling approximately $28,700,000 that we will use to
fund restaurant development activity and working capital requirements through
the remainder of 2000.
We lease all of our restaurants with terms ranging from 10 to 20 years.
Minimum payments on our existing lease obligations are approximately $8.0
million per year through 2002.
We believe that our current resources, our lines of credit, and expected
cash flows from operations will be sufficient to fund our capital needs during
the next 12 months at our current level of operations, apart from capital needs
resulting from additional developed restaurants or acquisitions. We may be
required to obtain additional capital to fund our planned growth during the next
12 to 18 months and beyond. Potential sources of any such capital may include
bank financing, strategic alliances, and additional offerings of our equity or
debt securities. We cannot provide assurance that such capital will be available
from these or other potential sources, and the lack of capital could have a
material adverse effect on our business.
24
<PAGE>
YEAR 2000 COMPLIANCE
In 1998, we began identifying those most critical areas that might not be
Year 2000 compliant and established a time line to complete the necessary
analysis and remediation plans. We have completed the remediation plans and
believe we have corrected any deficiencies identified in all affected areas. As
of the filing date of this Report, we have not experienced any material
disruption to our operations as a result of any failure of any of our systems to
function properly as of January 1, 2000. We also have not experienced any Year
2000 failures related to any of our significant vendors or suppliers.
Year 2000 compliance has many elements and potential consequences, some of
which may not be foreseeable or may be realized in future periods. In addition,
unforeseen circumstances may arise, and we may not in the future identify
equipment or systems that are not Year 2000 compliant.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 27, 1999, we did not participate in any derivative financial
instruments or other financial and commodity instruments for which fair value
disclosure would be required under Statement of Financial Accounting Standards
No. 107. We do not hold investment securities that would require disclosure of
market risk.
Our market risk exposure is limited to interest rate risk associated with
our credit instruments. We incur interest on loans made under revolving lines of
credit at variable interest rates of 1.125% over prime and 2.65% over "30-Day
Dealer Commercial Paper Rates." At December 27, 1999, we had outstanding
borrowings on these lines of credit of approximately $1,600,000.
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 our directors is
incorporated by reference to our Proxy Statement to be filed for our 2000 Annual
Meeting of Stockholders. The information required by this Item relating to our
executive officers is included in Item 1, "Business - Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to our
Proxy Statement to be filed for our 2000 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 our
Proxy Statement to be filed for our 2000 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to our
Proxy Statement to be filed for our 2000 Annual Meeting of Stockholders.
25
<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(l)
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)
10.9 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. (6)
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(7)
10.17 Amended and Restated Development Agreement between TGI Friday's,
Inc. and Cornerstone Productions, Inc., a wholly owned subsidiary
of the Registrant.(8)
10.18 Amended and Restated Development Agreement between TGI Friday's,
Inc. and Main St. California, Inc., a wholly owned subsidiary of
the Registrant.(8)
10.18A First Amendment to Development Agreement dated February 10, 1999,
between TGI Friday's, Inc. and Main St. California, Inc.(6)
10.19 Amended and Restated Development Agreement between TGI Friday's,
Inc. and Main St. Midwest, Inc., a wholly owned subsidiary of the
Registrant.(8)
10.20 Amended and Restated Purchase Agreement between RJR Holdings,
Inc. and Main St. California, Inc., a wholly owned Subsidiary of
the Registrant.(8)
10.21 Development Agreement dated April 22, 1998 between Main St.
California, Inc. and TGI Fridays, 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.(6)
10.22 Stock Option Agreement dated August 5, 1996, between the
Registrant and John F. Antioco for 800,000 shares of Common
Stock.(9)
10.22A Stock Option Agreement dated June 15, 1998, between the
Registrant and John F. Antioco amending the Stock Option
Agreement dated August 5, 1996.(9)
10.23 Stock Option Agreement dated December 16, 1996, between the
Registrant and Bart A. Brown,
26
<PAGE>
Exhibit
Number Exhibit
- ------ -------
Jr. for 250,000 shares of Common Stock. (The Registrant issued
three additional Stock Option Agreements which are substantially
identical in all material respects, except as to number of
shares. The four Stock Option Agreements give rights to purchase
a total of 625,000 shares of Common Stock.)(9)
10.23A Schedule of Stock Option Agreements substantially identical to
Exhibit 10.23.(9)
10.24 Stock Option Agreement dated July 14, 1997, between the
Registrant and Bart A. Brown, Jr. for 75,000 shares of Common
Stock. (The Registrant issued one additional Stock Option
Agreement which is substantially identical in all material
respects, except as to number of shares. The two Stock Option
Agreements give rights to purchase a total of 175,000 shares of
Common Stock.)(9)
10.24A Schedule of Stock Option Agreements substantially identical to
Exhibit 10.24.(9)
10.25 Stock Option Agreement dated June 15, 1998, between the
Registrant and James Yeager for 15,000 shares of Common Stock.
(The Registrant issued two additional Stock Option Agreements
which are substantially identical in all material respects,
except as to option holder and number of shares. The three Stock
Option Agreements give rights to purchase a total of 50,000
shares of Common Stock.)(9)
10.25A Schedule of Stock Option Agreements substantially identical to
Exhibit 10.25.(9)
10.26 Stock Option Agreement dated December 31, 1998, between the
Registrant and Tim Rose for 10,000 shares of Common Stock. (The
Registrant issued one additional Stock Option Agreement which is
substantially identical in all material respects, except as to
option holder and number of shares. The two Stock Option
Agreements give rights to purchase a total of 160,000 shares of
Common Stock.)(9)
10.26A Schedule of Stock Option Agreements substantially identical to
Exhibit 10.26.(9)
10.27 Registration Rights Agreement dated August 5, 1996, between the
Registrant and John F. Antioco.(10)
10.28 1999 Incentive Stock Plan.(11)
10.29 Working Capital Management Agreement Reducing Revolver Loan
Agreement dated November 2, 1999, between Main Street and Main
Incorporated and Merrill Lynch Business Financial Services, Inc.
10.30 Working Capital Management Agreement Reducing Revolver Loan
Agreement dated November 22, 1999, between Main Street and Main
Incorporated and Merrill Lynch Business Financial Services, Inc.
10.31 Form of Unconditional Guaranty executed in connection with WCMA
Reducing Revolver Loan Agreement dated November 22, 1999 (Such
guarantees were executed by Main St. California, Inc.,
Cornerstone Productions, Inc., and Redfish America, LLC)
10.32 Form of Security Agreement executed in connection with WCMA
Reducing Revolver Loan Agreement dated November 22, 1999 (Such
security agreements were executed by Main St. California, Inc.
and Cornerstone Productions, Inc.)
21 List of Subsidiaries
23 Consent of Arthur Andersen LLP
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 the Registrant's Form 10-K for the year ended
December 28, 1998, filed with the Securities and Exchange Commission on
March 29, 1999.
27
<PAGE>
(7) Incorporated by reference to Registrant's Proxy Statement for its 1995
Annual Meeting of Stockholders.
(8) 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.
(9) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (Registration No. 333-78155), filed with the Securities and
Exchange Commission on May 10, 1999.
(10) Incorporated by reference to the Registrant's Registration Statement on
Form S-3 (Registration No. 333-78161) as declared effective on May 14,
1999.
(11) Incorporated by reference to Registrant's Registration Statement on Form
S-8 (Registration No. 333-89931), filed with the Securities and Exchange
Commission on October 29, 1999.
28
<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
By: /s/ Bart A. Brown, Jr.
-------------------------------------
Bart A. Brown, Jr.
Date: March 24, 2000 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 24, 2000
- -----------------------
John F. Antioco
/s/ Bart A. Brown, Jr. President, Chief Executive March 24, 2000
- ----------------------- Officer, and Director
Bart A. Brown, Jr. (Principal Executive Officer)
/s/ William G. Shrader Executive Vice President, Chief March 24, 2000
- ----------------------- Operating Officer and Director
William G. Shrader
/s/ James Yeager Vice President-Finance (Principal March 24, 2000
- ----------------------- Financial and Accounting Officer),
James Yeager Secretary and Treasurer
/s/ Jane Evans Director March 24, 2000
- -----------------------
Jane Evans
/s/ John C. Metz Director March 24, 2000
- -----------------------
John C. Metz
29
<PAGE>
MAIN STREET AND MAIN INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets at December 27, 1999 and December 28, 1998..... F-3
Consolidated Statements of Operations for the fiscal years ended
December 27, 1999, December 28, 1998, and December 29, 1997.............. F-4
Consolidated Statements of Changes in Stockholders' Equity for
the fiscal years ended December 27, 1999, December 28, 1998,
and December 29, 1997.................................................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended
December 27, 1999, December 28, 1998, and December 29, 1997.............. 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, (the Company)
as of December 27, 1999 and December 28, 1998, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years ended December 27, 1999, December 28, 1998, and December 29, 1997. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits 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 the Company as of December
27, 1999 and December 28, 1998, and the results of its operations and its cash
flows for the years ended December 27, 1999, December 28, 1998, and December 29,
1997, in conformity with accounting principles generally accepted in the United
States.
As explained in Note 3 to the financial statements, effective December 29,
1998, the Company changed its method of accounting for start-up costs.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona,
February 23, 2000.
F-2
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Par Value and Share Data)
December 27, December 28,
1999 1998
-------- --------
ASSETS
Current assets
Cash and cash equivalents .......................... $ 3,055 $ 7,294
Accounts receivable, net ........................... 3,434 2,096
Inventories ........................................ 1,453 840
Prepaid expenses ................................... 621 593
-------- --------
Total current assets ........................... 8,563 10,823
Property and equipment, net .......................... 58,006 39,195
Other assets, net .................................... 2,072 2,337
Franchise costs, net ................................. 17,884 17,900
-------- --------
$ 86,525 $ 70,255
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt .................. $ 1,830 $ 1,365
Accounts payable ................................... 14,033 4,183
Other accrued liabilities .......................... 9,352 8,082
-------- --------
Total current liabilities ...................... 25,215 13,630
-------- --------
Long-term debt, net of current portion ............... 31,513 28,264
-------- --------
Other liabilities and deferred credits ............... 2,414 1,989
-------- --------
Commitments and contingencies
Stockholders' equity
Preferred stock, $.001 par value, 2,000,000 shares
authorized; no shares issued and outstanding in
1999 and 1998 ...................................... -- --
Common stock, $.001 par value, 25,000,000 shares
authorized; 10,025,776 and 9,976,416 shares issued
and outstanding in 1999 and 1998, respectively ..... 10 10
Additional paid-in capital ........................... 44,190 44,149
Accumulated deficit .................................. (16,817) (17,787)
-------- --------
27,383 26,372
-------- --------
$ 86,525 $ 70,255
======== ========
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 27, December 28, December 29,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenue ..................................................... $ 140,294 $ 114,242 $ 107,018
--------- --------- ---------
Restaurant operating expenses
Cost of sales ............................................. 39,960 33,242 30,995
Payroll and benefits ...................................... 42,405 33,701 31,907
Depreciation and amortization ............................. 4,664 3,730 3,265
Other operating expenses .................................. 38,923 31,004 30,589
--------- --------- ---------
Total restaurant operating expenses .................. 125,952 101,677 96,756
--------- --------- ---------
Income from restaurant operations ........................... 14,342 12,565 10,262
Amortization of intangible assets ......................... 990 983 953
General and administrative expenses ....................... 5,955 4,906 4,559
Preopening expenses ....................................... 2,228 661 287
New manager training expenses ............................. 1,748 731 562
Non-recurring items ....................................... 494 (17) (2,390)
Management fee income ..................................... (865) (1,082) (979)
--------- --------- ---------
Operating income ............................................ 3,792 6,383 7,270
Interest expense and other, net ........................... 2,604 2,218 2,466
--------- --------- ---------
Income before income taxes, cumulative effect of change in
accounting principle, and extraordinary item ............ 1,188 4,165 4,804
Provision for income taxes ................................ 50 -- --
--------- --------- ---------
Net income before cumulative effect of change in accounting
principle and extraordinary item ........................ 1,138 4,165 4,804
Extraordinary loss from debt extinguishment ............... -- -- (1,638)
Cumulative effect of change in accounting principle ....... (168) -- --
--------- --------- ---------
Net income .................................................. $ 970 $ 4,165 $ 3,166
========= ========= =========
Basic earnings per share
Net income before cumulative effect of change in accounting
principle and extraordinary item ........................ $ 0.11 $ 0.42 $ 0.48
Extraordinary loss from debt extinguishment ............... -- -- (0.16)
Cumulative effect of change in accounting principle ....... (0.02) -- --
--------- --------- ---------
Net income ........................................... $ 0.09 $ 0.42 $ 0.32
========= ========= =========
Diluted earnings per share
Net income before cumulative effect of change in accounting
principle and extraordinary item ........................ $ 0.11 $ 0.39 $ 0.47
Extraordinary loss from debt extinguishment .............. -- -- (0.16)
Cumulative effect of change in accounting principle ....... (0.02) -- --
--------- --------- ---------
Net income ........................................... $ 0.09 $ 0.39 $ 0.31
========= ========= =========
Weighted average number of shares outstanding
-- Basic ................................................ 10,008 9,976 9,918
========= ========= =========
Weighted average number of shares outstanding
-- Diluted .............................................. 10,407 10,608 10,098
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Common Stock
--------------------- Additional
Par Paid-in Accumulated
Shares Value Capital Deficit Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 30, 1996 .............. 8,718 $ 9 $ 41,694 $(25,118) $ 16,585
Shares issued in connection with
private placement (net) ............. 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
Shares issued in connection with
options exercised ................... 50 -- 41 -- 41
Net income ............................ -- -- -- 970 970
-------- -------- -------- -------- --------
BALANCE, December 27, 1999 .............. 10,026 $ 10 $ 44,190 $(16,817) $ 27,383
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------
December 27, December 28, December 29,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................... $ 970 $ 4,165 $ 3,166
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................... 5,654 5,374 4,505
Non-recurring items .............................. 494 (17) (2,391)
Extraordinary loss from debt extinguishment ...... -- -- 1,638
Changes in assets and liabilities
Accounts receivable, net ....................... (1,338) (865) 122
Inventories .................................... (613) 203 124
Prepaid expenses ............................... (28) (304) (116)
Other assets, net .............................. 29 (341) (1,288)
Accounts payable ............................... 9,850 293 57
Other accrued liabilities ...................... 1,201 554 (4,767)
-------- -------- --------
Net Cash Flows -- Operating Activities...... 16,219 9,062 1,050
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid to acquire assets through business
combination .................................... -- -- (880)
Cash received from note receivable ............... -- 757 --
Cash paid to acquire additional interest in
subsidiary ...................................... (500) -- --
Net additions to property and equipment .......... (31,401) (19,002) (6,613)
Cash paid to acquire franchise rights ............ (238) (3,318) --
Sale of assets ................................... -- 2,062 17,326
Cash received from sale-leaseback transactions.... 7,926 6,791 1,641
-------- -------- --------
Net Cash Flows -- Investing Activities...... (24,213) (12,710) 11,474
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock ............... 41 4 2,504
Financing and offering costs paid ................ -- -- (52)
Long-term debt borrowings ........................ 5,296 5,620 21,554
Principal payments on long-term debt ............. (1,582) (1,532) (32,293)
-------- -------- --------
Net Cash Flows -- Financing Activities...... 3,755 4,092 (8,287)
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS ............ (4,239) 444 4,237
CASH AND CASH EQUIVALENTS, BEGINNING ............... 7,294 6,850 2,613
-------- -------- --------
CASH AND CASH EQUIVALENTS, ENDING .................. $ 3,055 $ 7,294 $ 6,850
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for interest ........... $ 3,218 $ 2,557 $ 3,404
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial 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. At
December 27, 1999, the Company owned 48 T.G.I. Friday's restaurants and operated
nine T.G.I. Friday's restaurants under management agreements. The Company also
owned and operated six Redfish restaurants.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
and its wholly owned subsidiaries. All material intercompany transactions have
been eliminated in consolidation. All references to the Company herein refer to
the Company and its subsidiaries.
FISCAL YEAR
The Company operates 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, REORGANIZATION AND NON-RECURRING ITEMS
The Financial Accounting Standards Board has issued Statements 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 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 1997, 1998, and 1999, the
Company recognized a gain on sale of assets, certain non-recurring charges, and
impairment of certain assets as follows (in thousands):
F-7
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIAIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
December 27, December 28, December 29,
1999 1998 1997
------- ------- -------
Gain on sale of assets ............... $ -- $ -- $(5,231)
Impairment of non-core assets ........ -- -- 1,660
Impairment of core assets held for
disposal .......................... -- (648) --
Impairment of core assets used in
operations ........................ -- -- 842
Other non-recurring items ............ 494 631 339
------- ------- -------
$ 494 $ (17) $(2,390)
======= ======= =======
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 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 existing debt, with the
balance used for working capital purposes. Also in 1997, 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 its 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 carry value of
$1,000,000 due to further adverse developments with the dairy and food
distribution business. As of December 27, 1999 none of the promissory note has
been paid.
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 the uncertainty of the Korean venture and the
estimated length of time before the Company will receive any return on its
investment, a $1,000,000 impairment loss was taken during 1996. The Company's
investment in the Korean venture 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. As of December 27, 1999, the Company has not
realized cash from this venture.
F-8
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
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. 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.
IMPAIRMENT OF CORE ASSETS USED IN OPERATIONS
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 assets.
NON-RECURRING ITEMS
Non-recurring items include severance, contract termination, professional
services costs, and other non-recurring charges.
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 and legal fees associated with terminating the lease. The reserve balance
in other accrued liabilities at December 28, 1998 was approximately $1,367,000
for the remaining severance, legal, and condemnation costs.
In 1999, the Company increased the provision for non-recurring items and
the reserve for projected losses by approximately $494,000. This represents (a)
a decrease in the reserve of approximately $341,000 related to an adjustment of
legal and settlement costs and (b) an increase in the reserve of approximately
$835,000 in connection with the settlement of a lawsuit in February 2000. The
reserve balance in other accrued liabilities at December 27, 1999 was
approximately $1,153,000 for the remaining estimated legal and settlement costs.
F-9
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Valuation and qualifying accounts and reserves for the years ended December
27,1999, December 28,1998, and December 29, 1997 consist of the following:
<TABLE>
<CAPTION>
Balance At Balance At
Beginning Expense End
of Period Recorded Other of Period
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
RESERVE FOR PROJECTED LOSSES:
Year ended December 27, 1999 $ 1,367,000 $ 494,000 $ (708,000)(1) $ 1,153,000
Year ended December 28, 1998 2,115,000 631,000 (1,379,000)(2) 1,367,000
Year ended December 29, 1997 1,572,000 572,000 (29,000)(1) 2,115,000
INSURANCE AND CLAIMS RESERVES:
Year ended December 27, 1999 1,282,400 3,909,000 (3,597,600)(3) 1,593,800
Year ended December 28, 1998 1,536,500 3,234,000 (3,488,100)(3) 1,282,400
Year ended December 29, 1997 613,400 3,181,000 (2,257,900)(3) 1,536,500
</TABLE>
- ----------
(1) Cash paid for projected losses.
(2) Represents cash paid in the amount of approximately $731,000 and recovery
of a prior period charge in the amount of approximately $648,000.
(3) Claims paid
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements reflect the application of the
following accounting policies:
CASH EQUIVALENTS
Cash equivalents include short-term money market investments and
certificate of deposit accounts with original maturities of 90 days or less from
purchase.
REVENUE RECOGNITION
Revenue from restaurant sales is recognized when food and beverage items
are sold.
INVENTORIES
Inventories consist primarily of food, beverages and supplies and are
stated at the lower of cost (first-in, first-out (FIFO)) or net realizable
value.
FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash equivalents, accounts receivable, accounts
payable, accrued liabilities, and other liabilities approximate fair value due
to the short-term maturities of these instruments. The revolving lines of credit
approximate fair value as they bear interest at indexed rates. In management's
opinion, fixed rate long-term debt is currently at rates that could be obtained
if the Company were to acquire similar debt.
F-10
<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 27, December 28,
Useful Lives 1999 1998
------------ ---- ----
Land ................................. -- $ 534 $ 897
Building and leasehold improvements... 5-20 44,937 24,324
Kitchen equipment .................... 5-7 15,431 10,354
Restaurant equipment ................. 5-10 6,472 4,870
Smallwares and decor ................. 5-10 5,849 4,678
Office equipment and furniture ....... 5-7 3,009 1,687
-------- --------
76,232 46,810
Less: Accumulated depreciation and
amortization ................... (19,457) (14,914)
-------- --------
56,775 31,896
Construction in progress ............. 1,231 7,299
-------- --------
Total .......................... $ 58,006 $ 39,195
======== ========
Depreciation expense was $4,734,000 for 1999, $3,786,000 for 1998, and
$3,920,000 for 1997.
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 27, December 28,
Period 1999 1998
------ ---- ----
Franchise fees and license costs...... 20-30 $21,930 $21,093
Prepaid franchise fees ............... -- -- 100
------- -------
21,930 21,193
Less: Accumulated amortization........ (4,046) (3,293)
------- -------
Total .......................... $17,884 $17,900
======= =======
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 to 30 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).
F-11
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
PREOPENING COSTS
On December 29, 1998, the Company adopted Statement of Position 98-5 ("SOP
98-5") "REPORTING ON THE COSTS OF START-UP ACTIVITIES", as promulgated by the
American Institute of Certified Public Accountants, which requires that the
Company expense preopening expenses as they are incurred. Prior to January 1,
1999, such expenses were capitalized and amortized over a period of one year.
The cumulative effect of this change in accounting principle resulted in a
charge of $168,000 on January 1, 1999.
OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following (in thousands):
December 27, December 28,
1999 1998
------ ------
Accrued payroll ........................ $2,888 $2,079
Reserve for projected losses ........... 1,153 1,367
Accrued sales tax ...................... 1,174 899
Other accrued liabilities .............. 4,137 3,737
------ ------
Total .......................... $9,352 $8,082
====== ======
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.
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, "EARNINGS PER SHARE", 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.
The following table sets forth basic and diluted EPS computations for the years
ended December 27, 1999, December 28, 1998, and December 29, 1997 (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Per Share Per Share Per Share
Net Income Shares Amount Net Income Shares Amount Net Income Shares Amount
---------- ------ ------ ---------- ------ ------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS ............... $970 10,008 $0.09 $4,165 9,976 $0.42 $3,166 9,918 $0.32
Effect of stock options
and warrants ........... -- 399 -- -- 632 -- -- 180 --
---- ------ ----- ------ ------ ----- ------ ------ -----
Diluted EPS ............. $970 10,407 $0.09 $4,165 10,608 $0.39 $3,166 10,098 $0.31
==== ====== ===== ====== ====== ===== ====== ====== =====
</TABLE>
F-12
<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 that 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 amounts in 1997 and 1998 have been reclassified to conform with the
1999 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 1999, 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 27, 1999
and December 28, 1998 were as follows (in thousands):
Temporary Differences
--------------------- Tax Carry Net Deferred
December 27, 1999 Deductible Taxable Forwards Tax Assets
- ----------------- ---------- ------- -------- ----------
Excess tax over book depreciation
and amortization ............... $ -- $(3,185) $ -- $(3,185)
Provision for estimated expenses 1,353 -- -- 1,353
Non-recurring items and other ... 2,386 300 -- 2,086
FICA and other credits .......... -- -- 4,335 4,335
Net operating loss carryforward . -- -- 4,223 4,223
Valuation reserve ............... -- -- (8,390) (8,390)
------ ------- ------- -------
Total ..................... $3,739 $(3,485) $ 168 $ 422
====== ======= ======= =======
F-13
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
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
Non-recurring items and other ... 2,481 438 -- 2,043
FICA and other 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
====== ======= ======= =======
The amounts recorded as net deferred tax assets at December 27, 1999 and
December 28, 1998 are included as a component of other assets in the
consolidated balance sheets. The remaining net deferred tax asset as of December
27, 1999 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.
The Company has determined that a 100% valuation allowance is appropriate on the
net operating loss as a result of the Company's current restaurant expansion
plans. The Company will re-evaluate the need for a valuation allowance at each
quarter.
At December 27, 1999, the Company had approximately $10,400,000 of federal
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 27, December 28, December 29,
1999 1998 1997
---- ---- ----
Statutory federal rate ............... 34.0% 34.0% 34.0%
State taxes, net of federal benefit... 6.0 6.0 6.0
Nondeductible expenses ............... 1.4 6.3 7.5
Benefit of FICA credit ............... (58.7) (15.2) (18.0)
Change in valuation allowance ........ 21.5 (31.1) (29.5)
----- ----- -----
4.2% 0.0% 0.0%
===== ===== =====
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
Maturity December 27, December 28,
Dates Interest Rates 1999 1998
----- -------------- ---- ----
<S> <C> <C> <C> <C>
Term Loan II.................... 2012 9.457% and the one $19,329 $20,116
month LIBOR rate
plus 320 basis points
Other notes payable and
line of credit ............... 1999-2015 7.75 - 11% 14,014 9,513
------- -------
33,343 29,629
Less current portion............ (1,830) (1,365)
------- -------
Total........................... $31,513 $28,264
======= =======
</TABLE>
F-14
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In March 1997, the Company repaid existing debt 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
$223,000 (combined) until the notes are paid in full on May 1, 2012. Proceeds
from the Term Loan II were also used to repay a note payable to Carlson
Restaurants Worldwide including accrued interest of $301,000, with the remaining
proceeds used for general corporate purposes. The early extinguishment of the
existing debt 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 33 T.G.I. Friday's
restaurants and assets at three Redfish restaurants have been pledged as
collateral for other notes payable.
During April 1999, the Company obtained a $5.0 million revolving line of
credit with another lender. The line of credit is available to finance
construction and other costs associated with developing new restaurants.
Borrowings under the line of credit bear interest at prime plus 112.5 basis
points. The line of credit includes covenants related to the Company's net
worth, fixed charge coverage ratio, profitability, and access to capital. The
Company was in compliance with these covenants at December 27, 1999. The line of
credit matures on July 17, 2000. At December 27, 1999, the Company had no
borrowings outstanding under this line of credit.
During November 1999, the Company entered into two working capital reducing
revolver loan agreements with another lender. One agreement provides for a
maximum of $8,050,000 to finance 80% of the costs to develop seven T.G.I.
Friday's restaurants. Borrowings under this agreement will mature in 10 years.
These borrowings are secured by the assets financed with the borrowings and are
guaranteed by certain of the Company's subsidiaries. The other agreement
provides for a maximum of $3,150,000 to finance 80% of the costs to furnish and
equip seven T.G.I. Friday's restaurants. Borrowings under this agreement are
secured by the assets financed with the borrowings and will mature in seven
years. Borrowings under both agreements bear interest at 2.65% over the "30-Day
Dealer Commercial Paper Rate," as defined in the agreements, or a combined rate
of 9.1% at December 27, 1999. At December 27, 1999, the Company had outstanding
borrowings of $1,600,000 under these agreements. These agreements include
covenants related to the Company's fixed charge coverage ratio and debt to
adjusted cash flow ratio. The Company was in compliance with these covenants at
December 27, 1999.
Maturities of long-term debt, giving effect to the new borrowings discussed
above, are as follows at December 27, 1999 (in thousands):
2000............................... $ 1,830
2001............................... 2,012
2002............................... 2,356
2003............................... 1,965
2004............................... 2,135
Thereafter......................... 23,045
-------
Total...................... $33,343
=======
6. STOCKHOLDERS' EQUITY
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 the 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"). Awards
granted under the 1990 Plan also may include stock appreciation rights,
restricted stock awards, phantom stock, performance shares or non-employee
director options.
F-15
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The exercise price of all incentive stock options granted under the 1990
Plan must be at least equal to the fair market value of such shares as of the
date of grant or, in the case of incentive stock options granted to the holder
of 10% or more of the Company's Common Stock, at least 110% of the fair market
value of such shares on the date of grant. The exercise price of all
non-statutory stock options granted under the 1990 Plan shall be determined by
the Board of Directors of the Company at the time of grant. The maximum exercise
period for which the options may be granted is 10 years from the date of grant
(five years in the case of incentive stock options granted to an individual
owning more than 10% of the Company's Common Stock).
In 1996, the Company adopted the 1995 Stock Option Plan ("the 1995 Plan"),
with terms comparable to the 1990 Plan, covering 325,000 shares of Common Stock.
In 1999, the Company adopted the 1999 Incentive Stock Plan ("the 1999 Plan"),
with terms comparable to the 1990 Plan, covering 1,000,000 shares of Common
Stock.
During 1997, the Company canceled certain outstanding options and granted
new options under the 1990 and 1995 Plans.
In addition to the 1990, 1995, and 1999 Stock Option Plans, the Company's
Board of Directors approved the issuance of 425,000 non-statutory stock options
to two of the Company's officers during 1997, the issuance of 210,000
non-statutory stock options to two of the Company's officers during 1998, and
460,000 non-statutory stock options to two of the Company's officers in 1999.
Stock options as of December 27, 1999, December 28, 1998, and December 29,
1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ------------------
Weighted Average Weighted Average Weighted Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of
period ................................ 2,381,000 $2.98 2,077,500 $2.90 1,596,500 $3.40
Granted .................................. 737,000 3.30 416,000 3.27 781,950 2.46
Exercised ................................ (234,459) 2.42 (2,500) 2.50 (2,200) 2.50
Canceled ................................. (444,541) 3.77 (110,000) 2.54 (298,750) 3.51
---------- ---------- ----------
Options outstanding at end of period...... 2,439,000 3.22 2,381,000 2.98 2,077,500 2.90
========== ========== ==========
Exercisable at end of period ............. 1,642,544 2.79 1,590,577 2.56 1,224,291 3.40
========== ========== ==========
Weighted average fair value of options
granted ............................... $ 1.82 $ 1.87 $ 1.44
========== ========== ==========
</TABLE>
Entities electing to retain the accounting under 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.
F-16
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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
has computed, for pro forma disclosure purposes, the value of all options
granted since January 1, 1995, using the Black-Scholes option pricing model with
the following weighted average assumptions:
1999 1998 1997
Options Options Options
------- ------- -------
Risk free interest rate.................. 5.95% 5.42% 6.2%
Expected dividend yield.................. 0.0% 0.0% 0.0%
Expected lives in years.................. 4.0 4.0 4.0
Expected volatility...................... 65.8% 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 net income and earnings per
share would have been reported as follows (in thousands, except per share
amounts):
December 27, December 28, December 29,
1999 1998 1997
---- ---- ----
Net income:
Pro Forma ................. $ 169 $3,351 $2,442
Earnings per share:
Pro Forma-Basic............ 0.02 0.34 0.25
Pro Forma-Diluted.......... 0.02 0.32 0.24
The effects of applying SFAS No. 123 for providing pro forma disclosures
are not likely to be representative of the effects on reported net income and
earnings per share (basic and diluted) for future years, because options vest
over several years and additional awards are made each year.
COMMON STOCK WARRANTS
As of December 27, 1999 and December 28, 1998, the Company had outstanding
warrants to acquire its securities as follows:
1999 1998
---- ----
Common Stock to be acquired by warrants issued to
lenders in connection with the issuance of
debt; exercisable at $9.08 through March 2004............ 231,277 231,277
======= =======
7. COMMITMENTS AND CONTINGENCIES
DEVELOPMENT AGREEMENTS
The Company is obligated under four separate development agreements to open
39 new T.G.I. Friday's restaurants through 2003. The development agreements give
Carlson Restaurants Worldwide Inc. (formerly 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 related franchised territory or
to 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.
F-17
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 also is required to pay a royalty of up to 4% of
gross sales. Royalty expense was approximately $4,830,000, $3,929,000, and
$4,120,000 under these agreements during 1999, 1998, and 1997, respectively. In
addition, the Company could be required to spend up to 4% of gross sales on
marketing. Marketing expense under these agreements was approximately
$2,733,000, $1,805,000, and $1,919,000 during 1999, 1998, and 1997,
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 27, 1999 were as follows (in thousands):
2000.................................................. $ 7,512
2001.................................................. 8,199
2002.................................................. 8,251
2003.................................................. 8,130
2004.................................................. 7,829
Thereafter............................................ 90,211
--------
Total......................................... $130,132
========
Rental expense during 1999, 1998, and 1997 was approximately $6,948,000,
$5,604,000, and $5,081,000, respectively. In addition, the Company paid
contingent rentals of $678,000, $523,000, and $499,000 during 1999, 1998, and
1997, respectively. The difference between rent expense and rent paid is
included in other liabilities and deferred credits in the accompanying
consolidated balance sheets.
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
position or results of operations.
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 finding from such audits will not have a
material impact on its financial position or results of operations.
8. BENEFIT PLANS
The Company maintains a 401(k) Savings Plan for all of its employees. The
Company currently matches 50% of the participants' contributions for the first
4% of the participants' compensation. Contributions by the Company were
approximately $122,000, $100,000, and $78,000 during 1999, 1998, and 1997,
respectively.
F-18
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
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 served as a director of the Company until February 2000.
In December 1993, the Company entered into a five-year lease agreement for
corporate office space with an entity controlled by Steven Sherman. During 1998
the lease was amended to extend the original term through January 31, 2004.
Approximately $244,000, $177,000, and $172,000 was paid in rent for this leased
space during 1999, 1998, and 1997, respectively.
F-19
MERRILL LYNCH WCMA(R)REDUCING REVOLVER(SM) LOAN AGREEMENT
================================================================================
WCMA REDUCING REVOLVER(SM) LOAN AGREEMENT NO. 78M-07B84 ("Loan Agreement") dated
as of November 2, 1999, between MAIN STREET AND MAIN INCORPORATED D/B/A TGI
FRIDAY'S, a corporation organized and existing under the laws of the State of
Delaware having its principal office at 5050 North 40th Street, Suite 200,
Phoenix, AZ 85018 ("Customer"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC., a corporation organized and existing under the laws of the State of
Delaware having its principal office at 222 North LaSalle Street, Chicago, IL
60601 ("MLBFS").
In accordance with that certain WORKING CAPITAL MANAGEMENT(R) ACCOUNT AGREEMENT
NO. 78M-07B84 ("WCMA Agreement") betweeN Customer and MLBFS' affiliate, MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S"), Customer has subscribed
to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by
this reference incorporated as a part hereof. In conjunction therewith, Customer
has requested that MLBFS make a WCMA Reducing Revolver Loan (a "Reducing
Revolver") to Customer in the amount and upon the terms hereafter specified,
and, subject to the terms and conditions hereafter set forth, MLBFS has agreed
to provide a Reducing Revolver for Customer.
A Reducing Revolver is a term credit facility, similar to a conventional term
loan, but funded out of a line of credit under the WCMA Program ("WCMA Line of
Credit") in the amount of the initial loan. With a Reducing Revolver: (i)
interest will generally be charged each month to Customer's WCMA account, and,
so long as the WCMA Line of Credit is in effect, paid with an additional loan
under the WCMA Line of Credit (i.e., added to the loan balance), (ii) after an
initial interest only period, the maximum WCMA Line of Credit will be reduced
each month by the amount that would be payable on account of principal if the
Reducing Revolver were a conventional term loan amortized over the same term and
in the same manner as the Reducing Revolver, and (iii) Customer will be required
to make sufficient payments on account of the Reducing Revolver to assure that
the outstanding balance of the Reducing Revolver does not at any time exceed the
Maximum WCMA Line of Credit, as reduced each month.
Absent a prepayment by Customer, this structure results in required monthly
payments for the Reducing Revolver that are substantially the same as the
required monthly payments for a conventional term loan with the same term and
amortization. However, unlike most conventional term loans, because it is funded
out of a line of credit, the Reducing Revolver permits both a prepayment in
whole or in part at any time, and, subject to certain conditions, the
re-borrowing on a revolving basis of any such prepaid amounts up to the Maximum
WCMA Line of Credit, as reduced each month. The structure therefore will enable
Customer at its option to use any excess or temporary cash balances that it may
have from time to time to prepay the Reducing Revolver and thereby effectively
reduce interest expense on the Reducing Revolver without impairing its working
capital.
Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:
ARTICLE I. DEFINITIONS
1.1 SPECIFIC TERMS. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(a) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement, whether with or from Customer or
any other party, which are contemplated hereby or otherwise reasonably required
by MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the Obligations or the granting or perfection of
liens or security interests upon any collateral for the Obligations.
(b) "Bankruptcy Event" shall mean any of the following: (i) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to by Customer or any
Guarantor; or (ii) any such proceeding shall be filed against Customer or any
Guarantor and shall not be dismissed or withdrawn within sixty (60) days after
filing; or (iii) Customer or any Guarantor shall make a general assignment for
the benefit of creditors; or (iv) Customer or any Guarantor shall generally fail
to pay or admit in writing its inability to pay its debts as they become due; or
(v) Customer or any Guarantor shall be adjudicated a bankrupt or insolvent.
(c) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(d) "Closing Date" shall mean the date upon which all conditions precedent to
MLBFS' obligation to make the first advance on account of the Loan shall have
been met to the satisfaction of MLBFS.
(e) "Commitment Fee" shall mean a fee of $15,750.00 due to MLBFS in connection
with this Loan Agreement.
(f) "Conversion Date" shall mean the first to occur of the date of funding the
final advance on account of the Loan permitted under the terms hereof, or
September 30, 2000.
(g) "Default" shall mean either an "Event of Default" as defined in Section 4.4
hereof, or an event which with the giving of notice, passage of time, or both,
would constitute such an Event of Default.
(h) "Default Interest Rate" shall mean a rate equal to the sum of the "Interest
Rate", as determined below, plus two percent (2%) per annum.
<PAGE>
(i) "General Funding Conditions" shall mean each of the following conditions
precedent to the obligation of MLBFS to make the Loan or any Subsequent WCMA
Loan hereunder: (i) Customer shall have validly subscribed to and continued to
maintain the WCMA Account with MLPF&S, and the WCMA Account shall then be
reflected as an active "Commercial" WCMA Account (i.e., one with line of credit
capabilities) on MLPF&S' WCMA computer system; (ii) no Default shall have
occurred and be continuing or would result from the making of the Loan or such
Subsequent WCMA Loan by MLBFS; (iii) there shall not have occurred and be
continuing any material adverse change in the business or financial condition of
Customer and any Guarantor collectively; (iv) all representations and warranties
of Customer or any Guarantor herein or in any Additional Agreements shall then
be true and correct in all material respects; (v) MLBFS shall have received this
Loan Agreement and all Additional Agreements, duly executed and filed or
recorded where applicable, all of which shall be in form and substance
reasonably satisfactory to MLBFS; (vi) the Commitment Fee shall have been paid
in full; (vii) MLBFS shall have received, as and to the extent applicable,
copies of invoices, bills of sale, loan payoff letters and/or other evidence
reasonably satisfactory to it that the proceeds of the Loan will satisfy the
Loan Purpose; (viii) MLBFS shall have received evidence reasonably satisfactory
to it as to the ownership of and the perfection and priority of MLBFS' liens and
security interests on any collateral for the Obligations furnished pursuant to
any of the Additional Agreements; and (ix) any additional conditions specified
in the "WCMA Reducing Revolver Loan Approval" letter executed by MLBFS with
respect to the transactions contemplated hereby shall have been met to the
reasonable satisfaction of MLBFS.
(j) "Guarantor" shall mean a person or entity who has either guaranteed or
provided collateral for any or all of the Obligations; and "Business Guarantor"
shall mean any such Guarantor that is a corporation, partnership,
proprietorship, limited liability company or other entity regularly engaged in a
business activity.
(k) "Interest Due Date" shall mean the last Business Day of each calendar month
during the term hereof (or, if Customer makes special arrangements with MLPF&S,
on the last Friday of each calendar month during the term hereof).
(l) "Interest Rate" shall mean a variable per annum rate equal to the sum of (i)
2.65% per annum, and (ii) the interest rate from time to time published in the
"Money Rates" section of THE WALL STREET JOURNAL as the "Dealer Commercial
Paper" rate for 30-day high-grade unsecured notes sold through dealers by major
corporations (the "30-day Dealer Commercial Paper Rate"). The Interest Rate will
change as of the date of publication in THE WALL STREET JOURNAL of a 30-day
Dealer Commercial Paper Rate that is different from that published on the
preceding Business Day. In the event that THE WALL STREET JOURNAL shall, for any
reason, fail or cease to publish the 30-day Dealer Commercial Paper Rate, MLBFS
will choose a reasonably comparable index or source to use as the basis for the
Interest Rate. Upon the occurrence and during the continuance of a Default, the
Interest Rate with respect the WCMA Line of Credit may be increased to the
"Default Interest Rate", as herein provided.
(m) "Loan" shall mean the specific multiple advance Reducing Revolver by MLBFS
to Customer pursuant to this Agreement for the Loan Purpose and in an aggregate
amount equal to the Loan Amount.
(n) "Loan Amount" shall mean an amount equal to the lesser of: (i) the aggregate
amount which Customer shall request be advanced by MLBFS on account of the Loan
Purpose on or prior to the Conversion Date, or (ii) $3,150,000.00.
(o) "Loan Purpose" shall mean the purpose for which the proceeds of the Loan
will be used; to wit: To finance 80% of the cost of the furniture, fixtures and
equipment associated with the opening of seven (7) T.G.I. Friday's restaurants.
(p) "Maximum WCMA Line of Credit" shall mean the maximum aggregate line of
credit which MLBFS will extend to Customer subject to the terms and conditions
hereof, as the same shall be increased by advances prior to the Conversion Date
and reduced each month thereafter in accordance with the terms hereof. On the
Conversion Date, the Maximum WCMA Line of Credit will equal the Loan Amount.
(q) "Obligations" shall mean all liabilities, indebtedness and other obligations
of Customer to MLBFS, howsoever created, arising or evidenced, whether now
existing or hereafter arising, whether direct or indirect, absolute or
contingent, due or to become due, primary or secondary or joint or several, and,
without limiting the foregoing, shall include interest accruing after the filing
of any petition in bankruptcy, and all present and future liabilities,
indebtedness and obligations of Customer under this Loan Agreement and under
that certain WCMA Reducing Revolver Loan Agreement No. 78M-07B82.
(r) "Subsequent WCMA Loan" shall mean each WCMA Loan other than the Loan,
including, without limitation, each WCMA Loan to pay accrued interest.
(s) "Termination Date" shall mean the first to occur of: (i) the last Business
Day of the eighty-fourth (84th) full calendar month following the Conversion
Date, or (ii) if earlier, the date of termination of the WCMA Line of Credit
pursuant to the terms hereof.
(t) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as WCMA Account No. 78M-07B84 and any
successor Working Capital Management Account of Customer with MLPF&S.
(u) "WCMA Loan" shall mean each advance made by MLBFS pursuant to the WCMA Line
of Credit, including the Loan and each Subsequent WCMA Loan.
(v) "WCMA Loan Balance" shall mean an amount equal to the aggregate unpaid
principal balance of all WCMA Loans.
1.2 OTHER TERMS. Except as otherwise defined herein: (i) all terms used in this
Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement (including, without
limitation, "Money Accounts", "Minimum Money Accounts Balance", "WCMA Directed
Reserve Program" and "WCMA Program") shall have the meanings set forth in the
WCMA Agreement.
<PAGE>
ARTICLE II. THE LOAN
2.1 COMMITMENT. Subject to the terms and conditions hereof, MLBFS hereby agrees
to make the Loan to Customer, and Customer hereby agrees to borrow the Loan from
MLBFS. The Loan will be funded in up to seven separate advances as requested by
Customer prior to the Conversion Date; provided, however, that Customer shall
not request funding of, and MLBFS shall not be obligated to fund, any advances
on account of the Loan in an amount less than $450,000.00. Except as otherwise
provided in Section 3.1 hereof, each such advance will be disbursed by MLBFS out
of the WCMA Line of Credit either directly to the applicable third party or
parties on account of the Loan Purpose or to reimburse Customer for amounts
directly expended by it for the Loan Purpose; all as directed by Customer in an
Advance Certificate to be executed and delivered to MLBFS prior to the date of
each funding.
2.2 CONDITIONS OF MLBFS' OBLIGATION. The Closing Date and MLBFS' obligations to
activate the WCMA Line of Credit, as hereafter set forth, and make each advance
on account of the Loan prior to the Conversion Date are subject to the prior
fulfillment of each of the following conditions: (a) not less than two Business
Days prior to any requested funding date, MLBFS shall have received an Advance
Certificate, duly executed by Customer, setting forth, among other things, the
amount of such advance and the method of payment and payee(s) of the proceeds
thereof; (b) after giving effect to such advance, the WCMA Loan Balance will not
exceed either the Maximum WCMA Line of Credit or the Loan Amount; (c) the
Conversion Date shall not then have occurred; and (d) each of the General
Funding Conditions shall then have been met or satisfied to the reasonable
satisfaction of MLBFS.
2.3 COMMITMENT FEE. In consideration of the agreement by MLBFS to extend the
Loan and any Subsequent WCMA Loans to Customer in accordance with and subject to
the terms hereof, Customer has paid or shall, on or before the Closing Date pay,
the Commitment Fee to MLBFS. Customer acknowledges and agrees that the
Commitment Fee has been fully earned by MLBFS, and that it will not under any
circumstances be refundable.
2.4 USE OF LOAN PROCEEDS. Unless otherwise agreed by MLBFS in writing, the
proceeds of the Loan shall be used solely for the Loan Purpose. The Proceeds of
each Subsequent WCMA Loan initiated by Customer shall be used by Customer solely
for working capital in the ordinary course of its business, or, with the prior
written consent of MLBFS, for other lawful business purposes of Customer not
prohibited hereby. Customer agrees that under no circumstances will the proceeds
of the loan or any subsequent WCMA loan be used: (i) for personal, family or
household purposes of any person whatsoever, or (ii) to purchase, carry or trade
in securities, or repay debt incurred to purchase, carry or trade in securities,
whether in or in connection with the WCMA account, another account of customer
with MLPF&S or an account of customer at any other broker or dealer in
securities, or (iii) unless otherwise consented to in writing by MLBFS, to repay
any debt to Merrill Lynch and Co., Inc. or any of its subsidiaries.
ARTICLE III. THE WCMA LINE OF CREDIT
3.1 ACTIVATION OF THE WCMA LINE OF CREDIT. Subject to the terms and conditions
hereof, on the Closing Date MLBFS will activate a WCMA Line of Credit for
Customer in the amount of the advance on account of the Loan made on such date.
Concurrently with each subsequent advance on account of the Loan prior to the
Conversion Date, the Maximum WCMA Line of Credit will be increased by the amount
of such advance. All such advances will be funded out of the WCMA Line of Credit
immediately after such activation or increase (or, if and to the extent
otherwise expressly contemplated in the definition of Loan Purpose or otherwise
directed in the Advance Certificate and hereafter expressly agreed by MLBFS, all
or part of the Loan may be made available as a WCMA Line of Credit and funded by
Customer.)
3.2 SUBSEQUENT WCMA LOANS. Subject to the terms and conditions hereof, during
the period from and after the Closing Date to the Termination Date: (a) Customer
may repay the WCMA Loan Balance in whole or in part at any time without premium
or penalty (except, as hereafter set forth, upon a refinancing by another
lender), and request a re-borrowing of amounts repaid on a revolving basis, and
(b) in addition to Subsequent WCMA Loans made automatically to pay accrued
interest, as hereafter provided, MLBFS will make such Subsequent WCMA Loans as
Customer may from time to time request or be deemed to have requested in
accordance with the terms hereof. Customer may request Subsequent WCMA Loans by
use of WCMA Checks, FTS, Visa(R) charges, wire transfers, or such other means of
access to the WCMA Line of Credit as may be permitted by MLBFS froM time to
time; it being understood that so long as the WCMA Line of Credit shall be in
effect, any charge or debit to the WCMA Account which but for the WCMA Line of
Credit would under the terms of the WCMA Agreement result in an overdraft, shall
be deemed a request by Customer for a Subsequent WCMA Loan.
3.3 CONDITIONS OF SUBSEQUENT WCMA LOANS. Notwithstanding the foregoing, MLBFS
shall not be obligated to make any Subsequent WCMA Loan, and may without notice
refuse to honor any such request by Customer, if at the time of receipt by MLBFS
of Customer's request: (a) the making of such Subsequent WCMA Loan would cause
the Maximum WCMA Line of Credit, as reduced pursuant to the provisions of
Section 3.6 hereof, to be exceeded; or (b) the Termination Date shall have
occurred; or (c) an event shall have occurred and be continuing which shall have
caused any of the General Funding Conditions to not then be met or satisfied to
the reasonable satisfaction of MLBFS. The making by MLBFS of any Subsequent WCMA
Loan (including, without limitation, the making of a Subsequent WCMA Loan to pay
accrued interest, as hereafter provided) at a time when any one or more of said
conditions shall not have been met shall not in any event be construed as a
waiver of said condition or conditions or of any Default, and shall not prevent
MLBFS at any time thereafter while any condition shall not have been met from
refusing to honor any request by Customer for a Subsequent WCMA Loan.
3.4 WCMA NOTE. Customer hereby promises to pay to the order of MLBFS, at the
times and in the manner set forth in this Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing: (a) the
WCMA Loan Balance; (b) interest at the Interest Rate (or, if applicable, at the
Default Interest Rate) on the outstanding WCMA Loan Balance (computed for the
actual number of days elapsed on the basis of a year consisting of 360 days),
from and including the date on which the first advance on account of the Loan is
made until the date of payment of all WCMA Loans in full; and (c) on demand, all
other sums payable pursuant to this Loan Agreement, including, but not limited
to, any collection fees. Except as otherwise expressly set forth herein,
Customer hereby waives presentment, demand for payment, protest and notice of
protest, notice of dishonor, notice of acceleration, notice of intent to
accelerate and all other notices and formalities in connection with this WCMA
Note and this Loan Agreement.
<PAGE>
3.5 INTEREST. (a) An amount equal to accrued interest on the WCMA Loan Balance
shall be payable by Customer monthly on each Interest Due Date, commencing with
the Interest Due Date occurring in the calendar month in which the Closing Date
shall occur. Unless otherwise hereafter directed in writing by MLBFS on or after
the Termination Date, such interest will be automatically charged to the WCMA
Account on the applicable Interest Due Date, and, to the extent not paid with
free credit balances or the proceeds of sales of any Money Accounts then in the
WCMA Account, as hereafter provided, such interest will be paid by a Subsequent
WCMA Loan and added to the WCMA Loan Balance. All interest shall be computed for
the actual number of days elapsed on the basis of a year consisting of 360 days.
(b) Upon the occurrence and during the continuance of any Default, but without
limiting the rights and remedies otherwise available to MLBFS hereunder or
waiving such Default, the interest payable by Customer hereunder shall at the
option of MLBFS accrue and be payable at the Default Interest Rate. The Default
Interest Rate, once implemented, shall continue to apply to the Obligations
under this Loan Agreement and be payable by Customer until the date such Default
is either cured or waived in writing by MLBFS.
(c) Notwithstanding any provision to the contrary in this Agreement or any of
the Additional Agreements, no provision of this Agreement or any of the
Additional Agreements shall require the payment or permit the collection of any
amount in excess of the maximum amount of interest permitted to be charged by
law ("Excess Interest"). If any Excess Interest is provided for, or is
adjudicated as being provided for, in this Agreement or any of the Additional
Agreements, then: (i) Customer shall not be obligated to pay any Excess
Interest; and (ii) any Excess Interest that MLBFS may have received hereunder or
under any of the Additional Agreements shall, at the option of MLBFS, be either
applied as a credit against the then WCMA Loan Balance, or refunded to the payer
thereof.
3.6 PERIODIC REDUCTION OF MAXIMUM WCMA LINE OF CREDIT. Commencing on the
Conversion Date, and continuing on the last Business Day of each calendar month
thereafter to and including the last Business Day of the eighty-third (83rd)
such calendar month, the Maximum WCMA Line of Credit shall be reduced by an
amount equal to one-seventy-sixth (1/84th) of the Loan Amount per month. Unless
the WCMA Line of Credit shall have been earlier terminated pursuant to the terms
hereof, on the last Business Day of the eighty-fourth (84th) calendar month
following the Conversion Date, the WCMA Line of Credit shall, without further
action of either of the parties hereto, be terminated, Customer shall pay to
MLBFS the entire WCMA Loan Balance, if any, and all other Obligations, and the
WCMA Account, at the option of Customer, will either be converted to a WCMA Cash
Account (subject to any requirements of MLPF&S) or terminated. No failure or
delay on the part of MLBFS in entering into the WCMA computer system any
scheduled reduction in the Maximum WCMA Line of Credit pursuant to this Section
shall have the effect of preventing or delaying such reduction.
3.7 MANDATORY PAYMENTS. CUSTOMER AGREES THAT IT WILL, WITHOUT DEMAND, INVOICING
OR THE REQUEST OF MLBFS, FROM TIME TO TIME MAKE SUFFICIENT PAYMENTS ON ACCOUNT
OF THE WCMA LOAN BALANCE TO ASSURE THAT THE WCMA LOAN BALANCE WILL NOT AT ANY
TIME EXCEED THE MAXIMUM WCMA LINE OF CREDIT, AS REDUCED EACH MONTH PURSUANT TO
SECTION 3.6 HEREOF.
3.8 METHOD OF MAKING PAYMENTS. All payments required or permitted to be made
pursuant to this Loan Agreement shall be made in lawful money of the United
States. Unless otherwise hereafter directed by MLBFS, such payments may be made
by the delivery of checks (other than WCMA Checks), or by means of FTS or wire
transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S for
credit to the WCMA Account. Payments to MLBFS from funds in the WCMA Account
shall be deemed to be made by Customer upon the same basis and schedule as funds
are made available for investment in the Money Accounts in accordance with the
terms of the WCMA Agreement. The acceptance by or on behalf of MLBFS of a check
or other payment for a lesser amount than shall be due from Customer, regardless
of any endorsement or statement thereon or transmitted therewith, shall not be
deemed an accord and satisfaction or anything other than a payment on account,
and MLBFS or anyone acting on behalf of MLBFS may accept such check or other
payment without prejudice to the rights of MLBFS to recover the balance actually
due or to pursue any other remedy under this Loan Agreement or applicable law
for such balance. All checks accepted by or on behalf of MLBFS in connection
with this Loan Agreement are subject to final collection.
3.9 IRREVOCABLE INSTRUCTIONS TO MLPF&S. In order to minimize the WCMA Loan
Balance, Customer hereby irrevocably authorizes and directs MLPF&S, effective on
the Closing Date and continuing thereafter so long as this Agreement shall be in
effect: (a) to immediately and prior to application for any other purpose pay to
MLBFS to the extent of any WCMA Loan Balance or other amounts payable by
Customer hereunder all available free credit balances from time to time in the
WCMA Account; and (b) if such available free credit balances are insufficient to
pay the WCMA Loan Balance and such other amounts, and there are in the WCMA
Account at any time any investments in Money Accounts (other than any
investments constituting any Minimum Money Accounts Balance under the WCMA
Directed Reserve Program), to immediately liquidate such investments and pay to
MLBFS to the extent of any WCMA Loan Balance and such other amounts the
available proceeds from the liquidation of any such Money Accounts.
3.10 PREPAYMENT. Customer may prepay the Loan and any Subsequent WCMA Loan at
any time in whole or in part without premium or penalty; provided, however, that
any refinancing of the WCMA Loan Balance by another financial institution shall:
(a) if such refinancing shall occur prior to the first anniversary of the
Conversion Date, be accompanied by a premium in an amount equal to 3% of the
amount prepaid by such refinancing; (b) if such refinancing shall occur
thereafter, but prior to the second anniversary of the Conversion Date, be
accompanied by a premium in an amount equal to 2% of the amount prepaid by such
refinancing; and (c) if such refinancing shall occur on or at any time after the
second anniversary of the Conversion Date, be accompanied by a premium in an
amount equal to 1% of the amount prepaid by such refinancing.
3.11 OPTION OF CUSTOMER TO TERMINATE. Customer will have the option to terminate
the WCMA Line of Credit at any time upon written notice to MLBFS. Concurrently
with any such termination, Customer shall pay to MLBFS the entire WCMA Loan
Balance and all other Obligations.
3.12 LIMITATION OF LIABILITY. MLBFS shall not be responsible, and shall have no
liability to Customer or any other party, for any delay or failure of MLBFS to
honor any request of Customer for a WCMA Loan or any other act or omission of
MLBFS, MLPF&S or any of their affiliates due to or resulting from any system
failure, error or delay in posting or other clerical error, loss of power, fire,
Act of God or other cause beyond the reasonable control of MLBFS, MLPF&S or any
of their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising from any
act or omission by MLBFS, MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.
<PAGE>
3.13 STATEMENTS. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
or the Loan should be directed to MLBFS; and any questions with respect to any
other matter in such statements or about or affecting the WCMA Program should be
directed to MLPF&S.
ARTICLE IV. GENERAL PROVISIONS
4.1 REPRESENTATIONS AND WARRANTIES.
Customer represents and warrants to MLBFS that:
(a) ORGANIZATION AND EXISTENCE. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Delaware and is
qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary; and, where applicable, each Business Guarantor is duly organized,
validly existing and in good standing under the laws of the state of its
formation and is qualified to do business and in good standing in each other
state where the nature of its business or the property owned by it make such
qualification necessary.
(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and performance
by Customer of this Loan Agreement and by Customer and each Guarantor of such of
the Additional Agreements to which it is a party: (i) have been duly authorized
by all requisite action, (ii) do not and will not violate or conflict with any
law or other governmental requirement, or any of the agreements, instruments or
documents which formed or govern Customer or any such Guarantor, and (iii) do
not and will not breach or violate any of the provisions of, and will not result
in a default by Customer or any such Guarantor under, any other agreement,
instrument or document to which it is a party or by which it or its properties
are bound.
(c) NOTICES AND APPROVALS. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Customer or any
Guarantor of such of this Loan Agreement and the Additional Agreements to which
it is a party.
(d) ENFORCEABILITY. This Loan Agreement and such of the Additional Agreements to
which Customer or any Guarantor is a party are the respective legal, valid and
binding obligations of Customer and such Guarantor, enforceable against it or
them, as the case may be, in accordance with their respective terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting the
rights of creditors generally or by general principles of equity.
(e) FINANCIAL STATEMENTS. Except as expressly set forth in Customer's or any
Business Guarantor's financial statements, all financial statements of Customer
and each Business Guarantor furnished to MLBFS have been prepared in conformity
with generally accepted accounting principles, consistently applied, are true
and correct in all material respects, and fairly present the financial condition
of it as at such dates and the results of its operations for the periods then
ended (subject, in the case of interim unaudited financial statements, to normal
year-end adjustments); and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation. All financial statements furnished to MLBFS of any
Guarantor other than a Business Guarantor are true and correct in all material
respects and fairly represent such Guarantor's financial condition as of the
date of such financial statements, and since the most recent date of such
financial statements, there has been no material adverse change in such
financial condition.
(f) LITIGATION. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer or any Guarantor, which would, if adversely determined, materially and
adversely affect the liens and security interests of MLBFS hereunder or under
any of the Additional Agreements, the financial condition of Customer or any
such Guarantor or the continued operations of Customer or any Business
Guarantor.
(g) TAX RETURNS. All federal, state and local tax returns, reports and
statements required to be filed by Customer and each Guarantor have been filed
with the appropriate governmental agencies and all taxes due and payable by
Customer and each Guarantor have been timely paid (except to the extent that any
such failure to file or pay will not materially and adversely affect either the
liens and security interests of MLBFS hereunder or under any of the Additional
Agreements, the financial condition of Customer or any Guarantor, or the
continued operations of Customer or any Business Guarantor).
(h) NO OUTSIDE BROKER. Except for employees of MLBFS, MLPF&S or one of their
affiliates, Customer has not in connection with the transactions contemplated
hereby directly or indirectly engaged or dealt with, and was not introduced or
referred to MLBFS by, any broker or other loan arranger.
Each of the foregoing representations and warranties: (i) has been and will be
relied upon as an inducement to MLBFS to make the Loan and each Subsequent WCMA
Loan, and (ii) is continuing and shall be deemed remade by Customer on the
Closing Date, on the date of funding of each additional advance on account of
the Loan, on the Conversion Date, and concurrently with each request by Customer
for a Subsequent WCMA Loan.
4.2 FINANCIAL AND OTHER INFORMATION.
(a) Customer shall furnish or cause to be furnished to MLBFS during the term of
this Loan Agreement all of the following:
(i) ANNUAL FINANCIAL STATEMENTS. Within 120 days after the close of each fiscal
year of Customer, a copy of the annual audited consolidated financial statements
of Customer and each Business Guarantor, including, in each case, in reasonable
detail, a balance sheet and statement of retained earnings as at the close of
such fiscal year and statements of profit and loss and cash flow for such fiscal
year with a breakdown of the profit and loss and cash flow of Customer and each
Business Guarantor on a store-by-store basis;
<PAGE>
(ii) INTERIM FINANCIAL STATEMENTS. Within 45 days after the close of each fiscal
quarter of Customer, a copy of the interim financial statements of Customer and
each Business Guarantor for such fiscal quarter (including in reasonable detail
both a balance sheet as of the close of such fiscal period, and statement of
profit and loss for the applicable fiscal period with a breakdown of the profit
and loss of Customer and each Business Guarantor on a store-by-store basis);
(iii) SEC REPORTS. Customer shall furnish or cause to be furnished to MLBFS not
later than 10 days after the date of filing with the Securities and Exchange
Commission ("SEC"), a copy of each 10-K, 10-Q and other report required to be
filed with the SEC during the term hereof by Customer; and
(iv) OTHER INFORMATION. Such other information as MLBFS may from time to time
reasonably request relating to Customer or any Guarantor.
(b) GENERAL AGREEMENTS WITH RESPECT TO FINANCIAL INFORMATION. Customer agrees
that except as otherwise specified herein or otherwise agreed to in writing by
MLBFS: (i) all annual financial statements required to be furnished by Customer
to MLBFS hereunder will be prepared by either the current independent
accountants for Customer or other independent accountants reasonably acceptable
to MLBFS, and (ii) all other financial information required to be furnished by
Customer to MLBFS hereunder will be certified as correct by the party who has
prepared such information, and, in the case of internally prepared information
with respect to Customer or any Business Guarantor, certified as correct by
their respective chief financial officer.
4.3 OTHER COVENANTS. Customer further covenants and agrees during the term of
this Loan Agreement that:
(a) FINANCIAL RECORDS; INSPECTION. Customer and each Business Guarantor will:
(i) maintain at its principal place of business complete and accurate books and
records, and maintain all of its financial records in a manner consistent with
the financial statements heretofore furnished to MLBFS, or prepared on such
other basis as may be approved in writing by MLBFS; and (ii) permit MLBFS or its
duly authorized representatives, upon reasonable notice and at reasonable times,
to inspect its properties (both real and personal), operations, books and
records.
(b) TAXES. Customer and each Guarantor will pay when due all taxes, assessments
and other governmental charges, howsoever designated, and all other liabilities
and obligations, except to the extent that any such failure to pay will not
materially and adversely affect either any liens and security interests of MLBFS
under any Additional Agreements, the financial condition of Customer or any
Guarantor or the continued operations of Customer or any Business Guarantor.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Neither Customer nor any Guarantor will
violate any law, regulation or other governmental requirement, any judgment or
order of any court or governmental agency or authority, or any agreement,
instrument or document to which it is a party or by which it is bound, if any
such violation will materially and adversely affect either any liens and
security interests of MLBFS under any Additional Agreements, the financial
condition of Customer or any Guarantor, or the continued operations of Customer
or any Business Guarantor.
(d) NO USE OF MERRILL LYNCH NAME. Except upon the prior written consent of
MLBFS, neither Customer nor any Guarantor will directly or indirectly publish,
disclose or otherwise use in any advertising or promotional material, or press
release or interview, the name, logo or any trademark of MLBFS, MLPF&S, Merrill
Lynch and Co., Incorporated or any of their affiliates.
(e) NOTIFICATION BY CUSTOMER. Customer shall provide MLBFS with prompt written
notification of: (i) any Default; (ii) any materially adverse change in the
business, financial condition or operations of Customer or any Business
Guarantor; (iii) any information which indicates that any financial statements
of Customer or any Guarantor fail in any material respect to present fairly the
financial condition and results of operations purported to be presented in such
statements; and (iv) any change in Customer's outside accountants. Each
notification by Customer pursuant hereto shall specify the event or information
causing such notification, and, to the extent applicable, shall specify the
steps being taken to rectify or remedy such event or information.
(f) NOTICE OF CHANGE. Customer shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business or residence of Customer or any Guarantor.
(g) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) neither Customer nor any Business
Guarantor shall be a party to any merger or consolidation with, or purchase or
otherwise acquire all or substantially all of the assets of, or any material
stock, partnership, joint venture or other equity interest in, any person or
entity, or sell, transfer or lease all or any substantial part of its assets, if
any such action would result in either: (A) a material change in the principal
business, ownership or control of Customer or such Business Guarantor, or (B) a
material adverse change in the financial condition or operations of Customer or
such Business Guarantor; (ii) Customer and each Business Guarantor shall
preserve their respective existence and good standing in the jurisdiction(s) of
establishment and operation; (iii) neither Customer nor any Business Guarantor
shall engage in any material business substantially different from their
respective business in effect as of the date of application by Customer for
credit from MLBFS, or cease operating any such material business; (iv) neither
Customer nor any Business Guarantor shall cause or permit any other person or
entity to assume or succeed to any material business or operations of Customer
or such Business Guarantor; and (v) neither Customer nor any Business Guarantor
shall cause or permit any material change in its controlling ownership.
(h) FIXED CHARGE COVERAGE RATIO. Customer shall at all times during the term
hereof maintain a Fixed Charge Coverage Ratio of not less than 1.3 to 1. The
term "Fixed Charge Coverage Ratio" shall mean the ratio of: (a) income before
interest (including payments in the nature of interest under capital leases),
state and federal income taxes, depreciation and amortization, less internally
financed capital expenditures, to (b) the sum the aggregate principal and
interest paid or accrued, the aggregate rental under capital leases paid or
accrued, any dividends and other distributions paid or payable to shareholders
and state and federal income taxes paid in cash; all as determined on a trailing
12-month basis from the regular consolidated financial statements of Customer
prepared in a manner consistent with the terms hereof.
(i) FUNDED DEBT TO CASH FLOW. Customer's Funded Debt shall not exceed a multiple
of 3.5 times Customer's Cash Flow. The term "Funded Debt" shall be defined as
all indebtedness that has a final maturity date more than one year after the
date of creation thereof (or which is renewable or extendable at the
<PAGE>
option of the debtor(s) to a date more than one year from the date of creation),
including all final and serial maturities, prepayments and sinking fund payments
required to be made in one year or less after the date of determination thereof
(notwithstanding the fact that any amount thereof is at the time also included
in current liabilities as defined by GAAP). The term "Cash Flow" shall mean
Customer's Earnings Before Preopening Expenses (as identified by Customer's
accountant, but not to exceed $2,000,000.00 in any fiscal year), Interest,
Taxes, Depreciation and Amortization, as set forth on Customer's regular
consolidated financial statements prepared in a manner consistent with the terms
hereof.
4.4 EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) FAILURE TO PAY. (i) Customer shall fail to deposit into the WCMA Account an
amount sufficient to assure that the WCMA Loan Balance does not exceed the
Maximum WCMA Line of Credit, as reduced in accordance with the provisions
hereof, or (ii) Customer shall fail to pay to MLBFS or deposit into the WCMA
Account when due any other amount owing or required to be paid or deposited by
Customer under this Loan Agreement, or (iii) Customer shall fail to pay when due
any other Obligations; and any such failure shall continue for more than five
(5) Business Days after written notice thereof shall have been given by MLBFS to
Customer.
(b) FAILURE TO PERFORM. Customer or any Guarantor shall default in the
performance or observance of any covenant or agreement on its part to be
performed or observed under this Loan Agreement or any of the Additional
Agreements (not constituting an Event of Default under any other clause of this
Section), and such default shall continue unremedied for ten (10) Business Days
after written notice thereof shall have been given by MLBFS to Customer.
(c) BREACH OF WARRANTY. Any representation or warranty made by Customer or any
Guarantor contained in this Loan Agreement or any of the other Additional
Agreements shall at any time prove to have been incorrect in any material
respect when made.
(d) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Customer or
any Guarantor shall occur under the terms of any other agreement, instrument or
document with or intended for the benefit of MLBFS, MLPF&S or any of their
affiliates, and any required notice shall have been given and required passage
of time shall have elapsed.
(e) BANKRUPTCY EVENT. Any Bankruptcy Event shall occur.
(f) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of full payment or performance
by Customer or any Guarantor of any of their respective liabilities or
obligations under this Loan Agreement or any of the Additional Agreements to
which Customer or such Guarantor is a party has been materially impaired. The
existence of such a material impairment shall be determined in a manner
consistent with the intent of Section 1-208 of the UCC.
(g) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Customer or any Guarantor to another creditor under any indenture, agreement,
undertaking, or otherwise.
4.5 REMEDIES.
(a) REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:
(i) TERMINATION. MLBFS may without notice terminate its obligation to make any
further advances on account of the Loan (if any portion of the Loan has not then
been funded), terminate the WCMA Line of Credit, and terminate any obligation to
make any Subsequent WCMA Loan (including, without limitation, any Subsequent
WCMA Loan to pay accrued interest) or otherwise extend any credit to or for the
benefit of Customer (it being understood that upon the occurrence of any
Bankruptcy Event the WCMA Line of Credit and all such obligations shall
automatically terminate without any action on the part of MLBFS); and upon any
such termination MLBFS shall be relieved of all such obligations.
(ii) ACCELERATION. MLBFS may declare the WCMA Loan Balance and all other
Obligations to be forthwith due and payable, whereupon all such amounts shall be
immediately due and payable, without presentment, demand for payment, protest
and notice of protest, notice of dishonor, notice of acceleration, notice of
intent to accelerate or other notice or formality of any kind, all of which are
hereby expressly waived; provided, however, that upon the occurrence of any
Bankruptcy Event the WCMA Loan Balance and other Obligations shall automatically
become due and payable without any action on the part of MLBFS.
(b) COLLECTION FEE. If following any acceleration of the WCMA Loan Balance and
all other Obligations pursuant to Section 4.5 (a) (ii) hereof Customer shall
fail to pay the entire WCMA Loan Balance and all such other Obligations in full
within ten (10) Business Days after Customer is notified of such acceleration,
then Customer shall pay to MLBFS, in addition to all other sums payable
hereunder, a collection fee in an amount equal to the lesser of: (i) five
percent (5%) of the sum of the then outstanding WCMA Loan Balance and the then
outstanding other Obligations, or (ii) the maximum collection fee permitted by
law. Such collection fee, which is intended to compensate MLBFS for its
administrative costs incident to the collection of the WCMA Loan Balance and
such other Obligations following an Event of Default and acceleration, shall be
payable on demand.
(c) SET-OFF. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credit, deposits, accounts,
financial assets, investment property, securities and any other property of
Customer which is in transit to or in the possession, custody or control of
MLBFS, MLPF&S or any agent, bailee, or affiliate of MLBFS or MLPF&S. Customer
hereby collaterally assigns and grants to MLBFS a continuing security
<PAGE>
interest in all such property as additional security for the Obligations. Upon
the occurrence and during the continuance of an Event of Default, MLBFS shall
have all rights in such property available to collateral assignees and secured
parties under all applicable laws, including, without limitation, the UCC.
(d) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Additional Agreements, at law or in equity, and any
one or more of such rights and remedies may be exercised simultaneously or
successively.
4.6 MISCELLANEOUS.
(a) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement or any of the Additional
Agreements shall operate as a waiver thereof, and no single or partial exercise
of any such right, power or remedy shall preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. Neither any waiver
of any provision of this Loan Agreement or any of the Additional Agreements, nor
any consent to any departure by Customer therefrom, shall be effective unless
the same shall be in writing and signed by MLBFS. Any waiver of any provision of
this Loan Agreement or any of the Additional Agreements and any consent to any
departure by Customer from the terms thereof shall be effective only in the
specific instance and for the specific purpose for which given. Except as
otherwise expressly provided herein, no notice to or demand on Customer shall in
any case entitle Customer to any other or further notice or demand in similar or
other circumstances.
(b) DISCLOSURE. Customer hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer.
(c) COMMUNICATIONS. All notices and other communications required or permitted
hereunder or in connection with any of the Additional Agreements shall be in
writing, and shall be either delivered personally, mailed by postage prepaid
certified mail or sent by express overnight courier or by facsimile. Such
notices and communications shall be deemed to be given on the date of personal
delivery, facsimile transmission or actual delivery of certified mail, or one
Business Day after delivery to an express overnight courier. Unless otherwise
specified in a notice sent or delivered in accordance with the terms hereof,
notices and other communications in writing shall be given to the parties hereto
at their respective addresses set forth at the beginning of this Loan Agreement,
or, in the case of facsimile transmission, to the parties at their respective
regular facsimile telephone number.
(d) FEES, EXPENSES AND TAXES. Customer shall pay or reimburse MLBFS for: (i) all
Uniform Commercial Code filing and search fees and expenses incurred by MLBFS in
connection with the verification, perfection or preservation of MLBFS' rights
hereunder or in any collateral for the Obligations; (ii) any and all stamp,
transfer and other taxes and fees payable or determined to be payable in
connection with the execution, delivery and/or recording of this Loan Agreement
or any of the Additional Agreements; and (iii) all reasonable fees and
out-of-pocket expenses (including, but not limited to, reasonable fees and
expenses of outside counsel) incurred by MLBFS in connection with the collection
of any sum payable hereunder or under any of the Additional Agreements not paid
when due, the enforcement of this Loan Agreement or any of the Additional
Agreements and the protection of MLBFS' rights hereunder or thereunder,
excluding, however, salaries and normal overhead attributable to MLBFS'
employees. Customer hereby authorizes MLBFS, at its option, to either cause any
and all such fees, expenses and taxes to be paid with a WCMA Loan, or invoice
Customer therefor (in which event Customer shall pay all such fees, expenses and
taxes within 5 Business Days after receipt of such invoice). The obligations of
Customer under this paragraph shall survive the expiration or termination of
this Loan Agreement and the discharge of the other Obligations.
(e) RIGHT TO PERFORM OBLIGATIONS. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 Business Days written
notice is sent to Customer (or such lesser notice, including no notice, as is
reasonable under the circumstances), do the same or cause it to be done or
remedy any such breach, and may expend its funds for such purpose. Any and all
reasonable amounts so expended by MLBFS shall be repayable to MLBFS by Customer
upon demand, with interest at the Interest Rate during the period from and
including the date funds are so expended by MLBFS to the date of repayment, and
all such amounts shall be additional Obligations. The payment or performance by
MLBFS of any of Customer's obligations hereunder shall not relieve Customer of
said obligations or of the consequences of having failed to pay or perform the
same, and shall not waive or be deemed a cure of any Default.
(f) FURTHER ASSURANCES. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement or any of the Additional Agreements.
(g) BINDING EFFECT. This Loan Agreement and the Additional Agreements shall be
binding upon, and shall inure to the benefit of MLBFS, Customer and their
respective successors and assigns. Customer shall not assign any of its rights
or delegate any of its obligations under this Loan Agreement or any of the
Additional Agreements without the prior written consent of MLBFS. Unless
otherwise expressly agreed to in a writing signed by MLBFS, no such consent
shall in any event relieve Customer of any of its obligations under this Loan
Agreement or any of the Additional Agreements.
(h) HEADINGS. Captions and section and paragraph headings in this Loan Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(i) GOVERNING LAW. This Loan Agreement and, unless otherwise expressly provided
therein, each of the Additional Agreements, shall be governed in all respects by
the laws of the State of Illinois.
(j) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this Loan
Agreement and the Additional Agreements shall be interpreted in such manner as
to be effective and valid under applicable law. Any provision of this Loan
Agreement or any of the Additional Agreements which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the
<PAGE>
remaining provisions of this Loan Agreement and the Additional Agreements or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(k) TERM. This Loan Agreement shall become effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as: (i) MLBFS shall be obligated to
make the Loan, (ii) the WCMA Line of Credit shall be in effect, (iii) there
shall be any moneys outstanding under this Loan Agreement, or (iv) there shall
be any other Obligations outstanding.
(l) COUNTERPARTS. This Loan Agreement may be executed in one or more
counterparts which, when taken together, constitute one and the same agreement.
(m) JURISDICTION; WAIVER. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT AND THE ADDITIONAL
AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE
CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER CONSENTS
TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR FEDERAL COURT
IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES ANY AND ALL RIGHTS
TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER FURTHER WAIVES ANY RIGHTS TO
COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN THE COUNTY OF
COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY
AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY
MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE LOAN, THIS
LOAN AGREEMENT, ANY ADDITIONAL AGREEMENTS AND/OR ANY OF THE TRANSACTIONS WHICH
ARE THE SUBJECT MATTER OF THIS LOAN AGREEMENT.
(n) INTEGRATION. THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL AGREEMENTS,
CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES. WITHOUT LIMITING THE FOREGOING, CUSTOMER ACKNOWLEDGES
THAT: (I) NO PROMISE OR COMMITMENT HAS BEEN MADE TO IT BY MLBFS, MLPF&S OR ANY
OF THEIR RESPECTIVE EMPLOYEES, AGENTS OR REPRESENTATIVES TO MAKE THE LOAN OR ANY
SUBSEQUENT WCMA LOAN ON ANY TERMS OTHER THAN AS EXPRESSLY SET FORTH HEREIN, OR
TO MAKE ANY OTHER LOAN OR OTHERWISE EXTEND ANY OTHER CREDIT TO CUSTOMER OR ANY
OTHER PARTY; AND (II) EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, THIS LOAN
AGREEMENT SUPERSEDES AND REPLACES ANY AND ALL PROPOSALS, LETTERS OF INTENT AND
APPROVAL AND COMMITMENT LETTERS FROM MLBFS TO CUSTOMER, NONE OF WHICH SHALL BE
CONSIDERED AN ADDITIONAL AGREEMENT. NO AMENDMENT OR MODIFICATION OF THIS
AGREEMENT OR ANY OF THE ADDITIONAL AGREEMENTS TO WHICH CUSTOMER IS A PARTY SHALL
BE EFFECTIVE UNLESS IN A WRITING SIGNED BY BOTH MLBFS AND CUSTOMER.
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.
MAIN STREET AND MAIN INCORPORATED D/B/A TGI FRIDAY'S
By:
----------------------------------------------------------------------------
Signature (1) Signature (2)
- --------------------------------------------------------------------------------
Printed Name Printed Name
- --------------------------------------------------------------------------------
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By:
-------------------------------
MERRILL LYNCH WCMA(R)REDUCING REVOLVER(SM) LOAN AGREEMENT
================================================================================
WCMA REDUCING REVOLVER(SM) LOAN AGREEMENT NO. 78M-07B82 ("Loan Agreement") dated
as of November 22, 1999, between MAIN STREET AND MAIN INCORPORATED D/B/A TGI
FRIDAY'S, a corporation organized and existing under the laws of the State of
Delaware having its principal office at 5050 North 40th Street, Suite 200,
Phoenix, AZ 85018 ("Customer"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC., a corporation organized and existing under the laws of the State of
Delaware having its principal office at 222 North LaSalle Street, Chicago, IL
60601 ("MLBFS").
In accordance with that certain WORKING CAPITAL MANAGEMENT(R) ACCOUNT AGREEMENT
NO. 78M-07B82 ("WCMA Agreement") between Customer and MLBFS' affiliate, MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S"), Customer has subscribed
to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by
this reference incorporated as a part hereof. In conjunction therewith, Customer
has requested that MLBFS make a WCMA Reducing Revolver Loan (a "Reducing
Revolver") to Customer in the amount and upon the terms hereafter specified,
and, subject to the terms and conditions hereafter set forth, MLBFS has agreed
to provide a Reducing Revolver for Customer.
A Reducing Revolver is a term credit facility, similar to a conventional term
loan, but funded out of a line of credit under the WCMA Program ("WCMA Line of
Credit") in the amount of the initial loan. With a Reducing Revolver: (i)
interest will generally be charged each month to Customer's WCMA account, and,
so long as the WCMA Line of Credit is in effect, paid with an additional loan
under the WCMA Line of Credit (i.e., added to the loan balance), (ii) after an
initial interest only period, the maximum WCMA Line of Credit will be reduced
each month by the amount that would be payable on account of principal if the
Reducing Revolver were a conventional term loan amortized over the same term and
in the same manner as the Reducing Revolver, and (iii) Customer will be required
to make sufficient payments on account of the Reducing Revolver to assure that
the outstanding balance of the Reducing Revolver does not at any time exceed the
Maximum WCMA Line of Credit, as reduced each month.
Absent a prepayment by Customer, this structure results in required monthly
payments for the Reducing Revolver that are substantially the same as the
required monthly payments for a conventional term loan with the same term and
amortization. However, unlike most conventional term loans, because it is funded
out of a line of credit, the Reducing Revolver permits both a prepayment in
whole or in part at any time, and, subject to certain conditions, the
re-borrowing on a revolving basis of any such prepaid amounts up to the Maximum
WCMA Line of Credit, as reduced each month. The structure therefore will enable
Customer at its option to use any excess or temporary cash balances that it may
have from time to time to prepay the Reducing Revolver and thereby effectively
reduce interest expense on the Reducing Revolver without impairing its working
capital.
Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:
ARTICLE I. DEFINITIONS
1.1 SPECIFIC TERMS. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(a) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement, whether with or from Customer or
any other party, which are contemplated hereby or otherwise reasonably required
by MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the Obligations or the granting or perfection of
liens or security interests upon any collateral for the Obligations.
(b) "Bankruptcy Event" shall mean any of the following: (i) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to by Customer or any
Guarantor; or (ii) any such proceeding shall be filed against Customer or any
Guarantor and shall not be dismissed or withdrawn within sixty (60) days after
filing; or (iii) Customer or any Guarantor shall make a general assignment for
the benefit of creditors; or (iv) Customer or any Guarantor shall generally fail
to pay or admit in writing its inability to pay its debts as they become due; or
(v) Customer or any Guarantor shall be adjudicated a bankrupt or insolvent.
(c) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(d) "Closing Date" shall mean the date upon which all conditions precedent to
MLBFS' obligation to make the first advance on account of the Loan shall have
been met to the satisfaction of MLBFS.
(e) "Commitment Fee" shall mean a fee of $80,500.00 due to MLBFS in connection
with this Loan Agreement.
(f) "Conversion Date" shall mean the first to occur of the date of funding the
final advance on account of the Loan permitted under the terms hereof, or
September 30, 2000.
(g) "Default" shall mean either an "Event of Default" as defined in Section 4.4
hereof, or an event which with the giving of notice, passage of time, or both,
would constitute such an Event of Default.
(h) "Default Interest Rate" shall mean a rate equal to the sum of the "Interest
Rate", as determined below, plus two percent (2%) per annum.
<PAGE>
(i) "General Funding Conditions" shall mean each of the following conditions
precedent to the obligation of MLBFS to make the Loan or any Subsequent WCMA
Loan hereunder: (i) Customer shall have validly subscribed to and continued to
maintain the WCMA Account with MLPF&S, and the WCMA Account shall then be
reflected as an active "Commercial" WCMA Account (i.e., one with line of credit
capabilities) on MLPF&S' WCMA computer system; (ii) no Default shall have
occurred and be continuing or would result from the making of the Loan or such
Subsequent WCMA Loan by MLBFS; (iii) there shall not have occurred and be
continuing any material adverse change in the business or financial condition of
Customer and Guarantors collectively; (iv) all representations and warranties of
Customer or any Guarantor herein or in any Additional Agreements shall then be
true and correct in all material respects; (v) MLBFS shall have received this
Loan Agreement and all Additional Agreements (including, without limitation,
each of the Additional Agreements described in the definition of "Real Property
Funding Condition"), duly executed and filed or recorded where applicable, all
of which shall be in form and substance reasonably satisfactory to MLBFS; (vi)
the Commitment Fee shall have been paid in full; (vii) MLBFS shall have
received, as and to the extent applicable, copies of invoices, bills of sale,
loan payoff letters and/or other evidence reasonably satisfactory to it that the
proceeds of the Loan will satisfy the Loan Purpose; (viii) MLBFS shall have
received evidence reasonably satisfactory to it as to the ownership of and the
perfection and priority of MLBFS' liens and security interests on any collateral
for the Obligations furnished pursuant to any of the Additional Agreements; and
(ix) any additional conditions specified in the "WCMA Reducing Revolver Loan
Approval" letter executed by MLBFS with respect to the transactions contemplated
hereby shall have been met to the reasonable satisfaction of MLBFS.
(j) "Guarantor" shall mean a person or entity who has either guaranteed or
provided collateral for any or all of the Obligations; and "Business Guarantor"
shall mean any such Guarantor that is a corporation, partnership,
proprietorship, limited liability company or other entity regularly engaged in a
business activity.
(k) "Interest Due Date" shall mean the last Business Day of each calendar month
during the term hereof (or, if Customer makes special arrangements with MLPF&S,
on the last Friday of each calendar month during the term hereof).
(l) "Interest Rate" shall mean a variable per annum rate equal to the sum of (i)
2.65% per annum, and (ii) the interest rate from time to time published in the
"Money Rates" section of THE WALL STREET JOURNAL as the "Dealer Commercial
Paper" rate for 30-day high-grade unsecured notes sold through dealers by major
corporations (the "30-day Dealer Commercial Paper Rate"). The Interest Rate will
change as of the date of publication in THE WALL STREET JOURNAL of a 30-day
Dealer Commercial Paper Rate that is different from that published on the
preceding Business Day. In the event that THE WALL STREET JOURNAL shall, for any
reason, fail or cease to publish the 30-day Dealer Commercial Paper Rate, MLBFS
will choose a reasonably comparable index or source to use as the basis for the
Interest Rate. Upon the occurrence and during the continuance of a Default, the
Interest Rate with respect the WCMA Line of Credit may be increased to the
"Default Interest Rate", as herein provided.
(m) "Loan" shall mean the specific multiple advance Reducing Revolver by MLBFS
to Customer pursuant to this Agreement for the Loan Purpose and in an aggregate
amount equal to the Loan Amount.
(n) "Loan Amount" shall mean an amount equal to the lesser of: (i) the aggregate
amount which Customer shall request be advanced by MLBFS on account of the Loan
Purpose on or prior to the Conversion Date, or (ii) $8,050,000.00.
(o) "Loan Purpose" shall mean the purpose for which the proceeds of the Loan
will be used; to wit: To finance 80% of the costs (including soft costs)
associated with completed site improvements for seven TGI Friday's restaurant
locations.
(p) "Maximum WCMA Line of Credit" shall mean the maximum aggregate line of
credit which MLBFS will extend to Customer subject to the terms and conditions
hereof, as the same shall be increased by advances prior to the Conversion Date
and reduced each month thereafter in accordance with the terms hereof. On the
Conversion Date, the Maximum WCMA Line of Credit will equal the Loan Amount.
(q) "Obligations" shall mean all liabilities, indebtedness and other obligations
of Customer to MLBFS, howsoever created, arising or evidenced, whether now
existing or hereafter arising, whether direct or indirect, absolute or
contingent, due or to become due, primary or secondary or joint or several, and,
without limiting the foregoing, shall include interest accruing after the filing
of any petition in bankruptcy, and all present and future liabilities,
indebtedness and obligations of Customer under this Loan Agreement and under
that certain WCMA Reducing Revolver Loan Agreement No. 78M-07B84.
(r) "Real Properties" shall mean the parcels of real property and improvements
thereon commonly known as 2795 Tapo Canyon Road, Simi Valley, CA 93063; 5055 N.
Oracle Road, N. Tucson, AZ 85704; 23040 Eastpark Drive, Yorba Linda, CA 92887;
980 N. 54th Street, Chandler, AZ; 195 N. Moorpark Road, Thousand Oaks, CA 91360;
Long Beach, CA and N. Scottsdale, AZ (or another location reasonably
satisfactory to MLBFS).
(s) "Real Property Funding Condition" shall mean that Customer, at Customer's
expense, shall have furnished or caused to be furnished to MLBFS all of the
following, in form and substance reasonably satisfactory to MLBFS: (i) a first
leasehold mortgage or deed of trust upon each of the Real Properties in favor of
MLBFS (including an assignment of rents and a security agreement granting to
MLBFS a first security interest upon all fixtures now or hereafter located upon
each of the Real Properties); (ii) a policy or commitment for a policy of ALTA
mortgagee's title insurance insuring MLBFS' lien upon each of the Real
Properties for the pro-rata amount of the Loan, issued by Chicago Title
Insurance Company, Lawyers Title Insurance Company or one of their agents, or
another title company selected by MLBFS, with such special endorsements as may
reasonably be required by MLBFS and subject only to exceptions reasonably
acceptable to MLBFS; (iii) a Phase 1 Environmental Audit Report on each of the
Real Properties, prepared by an environmental specialist selected by MLBFS,
disclosing no conditions that are reasonably unacceptable to MLBFS; (iv) an
appraisal of each of the Real Properties prepared by an M.A.I. appraiser
selected by MLBFS demonstrating a reasonable fair market value of each; (v) a
current as-built ALTA survey of each of the Real Properties certified in favor
of MLBFS and the title insurance company; and (vi) such other agreements,
documents and instruments in connection with the Real Property or MLBFS' lien
thereon as MLBFS or the title insurance company may reasonably require.
(t) "Subsequent WCMA Loan" shall mean each WCMA Loan other than the Loan,
including, without limitation, each WCMA Loan to pay accrued interest.
<PAGE>
(u) "Termination Date" shall mean the first to occur of: (i) the last Business
Day of the one hundred twentieth (120th) full calendar month following the
Conversion Date, or (ii) if earlier, the date of termination of the WCMA Line of
Credit pursuant to the terms hereof.
(v) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as WCMA Account No. 78M-07B82 and any
successor Working Capital Management Account of Customer with MLPF&S.
(w) "WCMA Loan" shall mean each advance made by MLBFS pursuant to the WCMA Line
of Credit, including the Loan and each Subsequent WCMA Loan.
(x) "WCMA Loan Balance" shall mean an amount equal to the aggregate unpaid
principal balance of all WCMA Loans.
1.2 OTHER TERMS. Except as otherwise defined herein: (i) all terms used in this
Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement (including, without
limitation, "Money Accounts", "Minimum Money Accounts Balance", "WCMA Directed
Reserve Program" and "WCMA Program") shall have the meanings set forth in the
WCMA Agreement.
ARTICLE II. THE LOAN
2.1 COMMITMENT. Subject to the terms and conditions hereof, MLBFS hereby agrees
to make the Loan to Customer, and Customer hereby agrees to borrow the Loan from
MLBFS. The Loan will be funded in up to seven separate advances as requested by
Customer prior to the Conversion Date; provided, however, that Customer shall
not request funding of, and MLBFS shall not be obligated to fund, any advances
on account of the Loan in an amount less than $600,000.00. Except as otherwise
provided in Section 3.1 hereof, each such advance will be disbursed by MLBFS out
of the WCMA Line of Credit either directly to the applicable third party or
parties on account of the Loan Purpose or to reimburse Customer for amounts
directly expended by it for the Loan Purpose; all as directed by Customer in an
Advance Certificate to be executed and delivered to MLBFS prior to the date of
each funding.
2.2 CONDITIONS OF MLBFS' OBLIGATION. The Closing Date and MLBFS' obligations to
activate the WCMA Line of Credit, as hereafter set forth, and make each advance
on account of the Loan prior to the Conversion Date are subject to the prior
fulfillment of each of the following conditions: (a) not less than two Business
Days prior to any requested funding date, MLBFS shall have received an Advance
Certificate, duly executed by Customer, setting forth, among other things, the
amount of such advance and the method of payment and payee(s) of the proceeds
thereof; (b) after giving effect to such advance, the WCMA Loan Balance will not
exceed either the Maximum WCMA Line of Credit or the Loan Amount; (c) the
Conversion Date shall not then have occurred; and (d) each of the General
Funding Conditions and the Real Property Funding Condition shall then have been
met or satisfied to the reasonable satisfaction of MLBFS.
2.3 COMMITMENT FEE. In consideration of the agreement by MLBFS to extend the
Loan and any Subsequent WCMA Loans to Customer in accordance with and subject to
the terms hereof, Customer has paid or shall, on or before the Closing Date pay,
the Commitment Fee to MLBFS. Customer acknowledges and agrees that the
Commitment Fee has been fully earned by MLBFS, and that it will not under any
circumstances be refundable.
2.4 USE OF LOAN PROCEEDS. Unless otherwise agreed by MLBFS in writing, the
proceeds of the Loan shall be used solely for the Loan Purpose. The Proceeds of
each Subsequent WCMA Loan initiated by Customer shall be used by Customer solely
for working capital in the ordinary course of its business, or, with the prior
written consent of MLBFS, for other lawful business purposes of Customer not
prohibited hereby. CUSTOMER AGREES THAT UNDER NO CIRCUMSTANCES WILL THE PROCEEDS
OF THE LOAN OR ANY SUBSEQUENT WCMA LOAN BE USED: (I) FOR PERSONAL, FAMILY OR
HOUSEHOLD PURPOSES OF ANY PERSON WHATSOEVER, OR (II) TO PURCHASE, CARRY OR TRADE
IN SECURITIES, OR REPAY DEBT INCURRED TO PURCHASE, CARRY OR TRADE IN SECURITIES,
WHETHER IN OR IN CONNECTION WITH THE WCMA ACCOUNT, ANOTHER ACCOUNT OF CUSTOMER
WITH MLPF&S OR AN ACCOUNT OF CUSTOMER AT ANY OTHER BROKER OR DEALER IN
SECURITIES, OR (III) UNLESS OTHERWISE CONSENTED TO IN WRITING BY MLBFS, TO REPAY
ANY DEBT TO MERRILL LYNCH AND CO., INC. OR ANY OF ITS SUBSIDIARIES.
<PAGE>
ARTICLE III. THE WCMA LINE OF CREDIT
3.1 ACTIVATION OF THE WCMA LINE OF CREDIT. Subject to the terms and conditions
hereof, on the Closing Date MLBFS will activate a WCMA Line of Credit for
Customer in the amount of the advance on account of the Loan made on such date.
Concurrently with each subsequent advance on account of the Loan prior to the
Conversion Date, the Maximum WCMA Line of Credit will be increased by the amount
of such advance. All such advances will be funded out of the WCMA Line of Credit
immediately after such activation or increase (or, if and to the extent
otherwise expressly contemplated in the definition of Loan Purpose or otherwise
directed in the Advance Certificate and hereafter expressly agreed by MLBFS, all
or part of the Loan may be made available as a WCMA Line of Credit and funded by
Customer.)
3.2 SUBSEQUENT WCMA LOANS. Subject to the terms and conditions hereof, during
the period from and after the Closing Date to the Termination Date: (a) Customer
may repay the WCMA Loan Balance in whole or in part at any time without premium
or penalty (except, as hereafter set forth, upon a refinancing by another
lender), and request a re-borrowing of amounts repaid on a revolving basis, and
(b) in addition to Subsequent WCMA Loans made automatically to pay accrued
interest, as hereafter provided, MLBFS will make such Subsequent WCMA Loans as
Customer may from time to time request or be deemed to have requested in
accordance with the terms hereof. Customer may request Subsequent WCMA Loans by
use of WCMA Checks, FTS, Visa(R) charges, wire transfers, or sucH other means of
access to the WCMA Line of Credit as may be permitted by MLBFS from time to
time; it being understood that so long as the WCMA Line of Credit shall be in
effect, any charge or debit to the WCMA Account which but for the WCMA Line of
Credit would under the terms of the WCMA Agreement result in an overdraft, shall
be deemed a request by Customer for a Subsequent WCMA Loan.
3.3 CONDITIONS OF SUBSEQUENT WCMA LOANS. Notwithstanding the foregoing, MLBFS
shall not be obligated to make any Subsequent WCMA Loan, and may without notice
refuse to honor any such request by Customer, if at the time of receipt by MLBFS
of Customer's request: (a) the making of such Subsequent WCMA Loan would cause
the Maximum WCMA Line of Credit, as reduced pursuant to the provisions of
Section 3.6 hereof, to be exceeded; or (b) the Termination Date shall have
occurred; or (c) an event shall have occurred and be continuing which shall have
caused any of the General Funding
<PAGE>
Conditions to not then be met or satisfied to the reasonable satisfaction of
MLBFS. The making by MLBFS of any Subsequent WCMA Loan (including, without
limitation, the making of a Subsequent WCMA Loan to pay accrued interest, as
hereafter provided) at a time when any one or more of said conditions shall not
have been met shall not in any event be construed as a waiver of said condition
or conditions or of any Default, and shall not prevent MLBFS at any time
thereafter while any condition shall not have been met from refusing to honor
any request by Customer for a Subsequent WCMA Loan.
3.4 WCMA NOTE. Customer hereby promises to pay to the order of MLBFS, at the
times and in the manner set forth in this Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing: (a) the
WCMA Loan Balance; (b) interest at the Interest Rate (or, if applicable, at the
Default Interest Rate) on the outstanding WCMA Loan Balance (computed for the
actual number of days elapsed on the basis of a year consisting of 360 days),
from and including the date on which the first advance on account of the Loan is
made until the date of payment of all WCMA Loans in full; and (c) on demand, all
other sums payable pursuant to this Loan Agreement, including, but not limited
to, any collection fees. Except as otherwise expressly set forth herein,
Customer hereby waives presentment, demand for payment, protest and notice of
protest, notice of dishonor, notice of acceleration, notice of intent to
accelerate and all other notices and formalities in connection with this WCMA
Note and this Loan Agreement.
3.5 INTEREST. (a) An amount equal to accrued interest on the WCMA Loan Balance
shall be payable by Customer monthly on each Interest Due Date, commencing with
the Interest Due Date occurring in the calendar month in which the Closing Date
shall occur. Unless otherwise hereafter directed in writing by MLBFS on or after
the Termination Date, such interest will be automatically charged to the WCMA
Account on the applicable Interest Due Date, and, to the extent not paid with
free credit balances or the proceeds of sales of any Money Accounts then in the
WCMA Account, as hereafter provided, such interest will be paid by a Subsequent
WCMA Loan and added to the WCMA Loan Balance. All interest shall be computed for
the actual number of days elapsed on the basis of a year consisting of 360 days.
(b) Upon the occurrence and during the continuance of any Default, but without
limiting the rights and remedies otherwise available to MLBFS hereunder or
waiving such Default, the interest payable by Customer hereunder shall at the
option of MLBFS accrue and be payable at the Default Interest Rate. The Default
Interest Rate, once implemented, shall continue to apply to the Obligations
under this Loan Agreement and be payable by Customer until the date such Default
is either cured or waived in writing by MLBFS.
(c) Notwithstanding any provision to the contrary in this Agreement or any of
the Additional Agreements, no provision of this Agreement or any of the
Additional Agreements shall require the payment or permit the collection of any
amount in excess of the maximum amount of interest permitted to be charged by
law ("Excess Interest"). If any Excess Interest is provided for, or is
adjudicated as being provided for, in this Agreement or any of the Additional
Agreements, then: (i) Customer shall not be obligated to pay any Excess
Interest; and (ii) any Excess Interest that MLBFS may have received hereunder or
under any of the Additional Agreements shall, at the option of MLBFS, be either
applied as a credit against the then WCMA Loan Balance, or refunded to the payer
thereof.
3.6 PERIODIC REDUCTION OF MAXIMUM WCMA LINE OF CREDIT. Commencing on the
Conversion Date, and continuing on the last Business Day of each calendar month
thereafter to and including the last Business Day of the one hundred nineteenth
(119th) such calendar month, the Maximum WCMA Line of Credit shall be reduced by
an amount equal to the percentage of the Loan Amount set forth below opposite
the number of such month following the Conversion Date, as follows:
Monthly Reduction
Months (Percentage of Loan Amount)
------ ---------------------------
1-12 .29%
13-24 .31%
25-36 .34%
37-48 .37%
49-60 .40%
61-72 .43%
73-84 .48%
85-96 .52%
97-108 .56%
109-119 .61%
In addition to the foregoing, on the closing date of any sale, exchange,
transfer or other disposition of any of the Real Properties permitted in
accordance with the terms of this Loan Agreement, the Maximum WCMA Line of
Credit shall be reduced by an amount equal to the following: the amount set
forth on the Advance Certificate for such Real Property location, divided by the
Loan Amount, and then multiplied by the Maximum WCMA Line of Credit as of the
date of such sale, exchange, transfer or other disposition of such Real Property
location.
Unless the WCMA Line of Credit shall have been earlier terminated pursuant to
the terms hereof, on the last Business Day of the one hundred twentieth (120th)
such calendar month, the WCMA Line of Credit shall, without further action of
either of the parties hereto, be terminated, Customer shall pay to MLBFS the
entire WCMA Loan Balance, if any, and all other Obligations, and the WCMA
Account, at the option of Customer, will either be converted to a WCMA Cash
Account (subject to any requirements of MLPF&S) or terminated. No failure or
delay on the part of MLBFS in entering into the WCMA computer system any
scheduled reduction in the Maximum WCMA Line of Credit pursuant to this Section
shall have the effect of preventing or delaying such reduction.
3.7 MANDATORY PAYMENTS. CUSTOMER AGREES THAT IT WILL, WITHOUT DEMAND, INVOICING
OR THE REQUEST OF MLBFS, FROM TIME TO TIME MAKE SUFFICIENT PAYMENTS ON ACCOUNT
OF THE WCMA LOAN BALANCE TO ASSURE THAT THE WCMA LOAN BALANCE WILL NOT AT ANY
TIME EXCEED THE MAXIMUM WCMA LINE OF CREDIT, AS REDUCED EACH MONTH PURSUANT TO
SECTION 3.6 HEREOF.
<PAGE>
3.8 METHOD OF MAKING PAYMENTS. All payments required or permitted to be made
pursuant to this Loan Agreement shall be made in lawful money of the United
States. Unless otherwise hereafter directed by MLBFS, such payments may be made
by the delivery of checks (other than WCMA Checks), or by means of FTS or wire
transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S for
credit to the WCMA Account. Payments to MLBFS from funds in the WCMA Account
shall be deemed to be made by Customer upon the same basis and schedule as funds
are made available for investment in the Money Accounts in accordance with the
terms of the WCMA Agreement. The acceptance by or on behalf of MLBFS of a check
or other payment for a lesser amount than shall be due from Customer, regardless
of any endorsement or statement thereon or transmitted therewith, shall not be
deemed an accord and satisfaction or anything other than a payment on account,
and MLBFS or anyone acting on behalf of MLBFS may accept such check or other
payment without prejudice to the rights of MLBFS to recover the balance actually
due or to pursue any other remedy under this Loan Agreement or applicable law
for such balance. All checks accepted by or on behalf of MLBFS in connection
with this Loan Agreement are subject to final collection.
3.9 IRREVOCABLE INSTRUCTIONS TO MLPF&S. In order to minimize the WCMA Loan
Balance, Customer hereby irrevocably authorizes and directs MLPF&S, effective on
the Closing Date and continuing thereafter so long as this Agreement shall be in
effect: (a) to immediately and prior to application for any other purpose pay to
MLBFS to the extent of any WCMA Loan Balance or other amounts payable by
Customer hereunder all available free credit balances from time to time in the
WCMA Account; and (b) if such available free credit balances are insufficient to
pay the WCMA Loan Balance and such other amounts, and there are in the WCMA
Account at any time any investments in Money Accounts (other than any
investments constituting any Minimum Money Accounts Balance under the WCMA
Directed Reserve Program), to immediately liquidate such investments and pay to
MLBFS to the extent of any WCMA Loan Balance and such other amounts the
available proceeds from the liquidation of any such Money Accounts.
3.10 PREPAYMENT. Customer may prepay the Loan and any Subsequent WCMA Loan at
any time in whole or in part without premium or penalty; provided, however, that
any refinancing of the WCMA Loan Balance by another financial institution shall:
(a) if such refinancing shall occur prior to the first anniversary of the
Conversion Date, be accompanied by a premium in an amount equal to 3% of the
amount prepaid by such refinancing; (b) if such refinancing shall occur
thereafter, but prior to the second anniversary of the Conversion Date, be
accompanied by a premium in an amount equal to 2% of the amount prepaid by such
refinancing; and (c) if such refinancing shall occur on or at any time after the
second anniversary of the Conversion Date, be accompanied by a premium in an
amount equal to 1% of the amount prepaid by such refinancing.
3.11 OPTION OF CUSTOMER TO TERMINATE. Customer will have the option to terminate
the WCMA Line of Credit at any time upon written notice to MLBFS. Concurrently
with any such termination, Customer shall pay to MLBFS the entire WCMA Loan
Balance and all other Obligations.
3.12 LIMITATION OF LIABILITY. MLBFS shall not be responsible, and shall have no
liability to Customer or any other party, for any delay or failure of MLBFS to
honor any request of Customer for a WCMA Loan or any other act or omission of
MLBFS, MLPF&S or any of their affiliates due to or resulting from any system
failure, error or delay in posting or other clerical error, loss of power, fire,
Act of God or other cause beyond the reasonable control of MLBFS, MLPF&S or any
of their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising from any
act or omission by MLBFS, MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.
3.13 STATEMENTS. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
or the Loan should be directed to MLBFS; and any questions with respect to any
other matter in such statements or about or affecting the WCMA Program should be
directed to MLPF&S.
ARTICLE IV. GENERAL PROVISIONS
4.1 REPRESENTATIONS AND WARRANTIES.
Customer represents and warrants to MLBFS that:
(a) ORGANIZATION AND EXISTENCE. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Delaware and is
qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary; and, where applicable, each Business Guarantor is duly organized,
validly existing and in good standing under the laws of the state of its
formation and is qualified to do business and in good standing in each other
state where the nature of its business or the property owned by it make such
qualification necessary.
(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and performance
by Customer of this Loan Agreement and by Customer and each Guarantor of such of
the Additional Agreements to which it is a party: (i) have been duly authorized
by all requisite action, (ii) do not and will not violate or conflict with any
law or other governmental requirement, or any of the agreements, instruments or
documents which formed or govern Customer or any such Guarantor, and (iii) do
not and will not breach or violate any of the provisions of, and will not result
in a default by Customer or any such Guarantor under, any other agreement,
instrument or document to which it is a party or by which it or its properties
are bound.
(c) NOTICES AND APPROVALS. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Customer or any
Guarantor of such of this Loan Agreement and the Additional Agreements to which
it is a party.
(d) ENFORCEABILITY. This Loan Agreement and such of the Additional Agreements to
which Customer or any Guarantor is a party are the respective legal, valid and
binding obligations of Customer and such Guarantor, enforceable against it or
them, as the case may be, in accordance with their respective terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting the
rights of creditors generally or by general principles of equity.
<PAGE>
(e) FINANCIAL STATEMENTS. Except as expressly set forth in Customer's or any
Business Guarantor's financial statements, all financial statements of Customer
and each Business Guarantor furnished to MLBFS have been prepared in conformity
with generally accepted accounting principles, consistently applied, are true
and correct in all material respects, and fairly present the financial condition
of it as at such dates and the results of its operations for the periods then
ended (subject, in the case of interim unaudited financial statements, to normal
year-end adjustments); and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation. All financial statements furnished to MLBFS of any
Guarantor other than a Business Guarantor are true and correct in all material
respects and fairly represent such Guarantor's financial condition as of the
date of such financial statements, and since the most recent date of such
financial statements, there has been no material adverse change in such
financial condition.
(f) LITIGATION. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer or any Guarantor, which would, if adversely determined, materially and
adversely affect the liens and security interests of MLBFS hereunder or under
any of the Additional Agreements, the financial condition of Customer or any
such Guarantor or the continued operations of Customer or any Business
Guarantor.
(g) TAX RETURNS. All federal, state and local tax returns, reports and
statements required to be filed by Customer and each Guarantor have been filed
with the appropriate governmental agencies and all taxes due and payable by
Customer and each Guarantor have been timely paid (except to the extent that any
such failure to file or pay will not materially and adversely affect either the
liens and security interests of MLBFS hereunder or under any of the Additional
Agreements, the financial condition of Customer or any Guarantor, or the
continued operations of Customer or any Business Guarantor).
(h) NO OUTSIDE BROKER. Except for employees of MLBFS, MLPF&S or one of their
affiliates, Customer has not in connection with the transactions contemplated
hereby directly or indirectly engaged or dealt with, and was not introduced or
referred to MLBFS by, any broker or other loan arranger.
(i) OWNER-OCCUPIED. Not less than 80% of each of the Real Properties is
regularly occupied for use in a business operated by Customer or one or more
entities which are either (i) more than 50% owned and controlled by Customer or
a Guarantor, or (ii) if Customer is an entity, which own and control more than
50% of Customer.
Each of the foregoing representations and warranties: (i) has been and will be
relied upon as an inducement to MLBFS to make the Loan and each Subsequent WCMA
Loan, and (ii) is continuing and shall be deemed remade by Customer on the
Closing Date, on the date of funding of each additional advance on account of
the Loan, on the Conversion Date, and concurrently with each request by Customer
for a Subsequent WCMA Loan.
4.2 FINANCIAL AND OTHER INFORMATION.
(a) Customer shall furnish or cause to be furnished to MLBFS during the term of
this Loan Agreement all of the following:
(i) ANNUAL FINANCIAL STATEMENTS. Within 120 days after the close of each fiscal
year of Customer, a copy of the annual audited consolidated financial statements
of Customer and each Business Guarantor, including, in each case, in reasonable
detail, a balance sheet and statement of retained earnings as at the close of
such fiscal year and statements of profit and loss and cash flow for such fiscal
year with a breakdown of the profit and loss and cash flow of Customer and each
Business Guarantor on a store-by-store basis;
(ii) INTERIM FINANCIAL STATEMENTS. Within 45 days after the close of each fiscal
quarter of Customer, a copy of the interim financial statements of Customer and
each Business Guarantor for such fiscal quarter (including in reasonable detail
both a balance sheet as of the close of such fiscal period, and statement of
profit and loss for the applicable fiscal period with a breakdown of the profit
and loss of Customer and each Business Guarantor on a store-by-store basis);
(iii) SEC REPORTS. Customer shall furnish or cause to be furnished to MLBFS not
later than 10 days after the date of filing with the Securities and Exchange
Commission ("SEC"), a copy of each 10-K, 10-Q and other report required to be
filed with the SEC during the term hereof by Customer;
(iv) PAID TAX BILLS. A copy of each real estate tax bill on or issued in
connection with the Real Property, together with evidence of payment of such tax
bill; and
(v) OTHER INFORMATION. Such other information as MLBFS may from time to time
reasonably request relating to Customer or any Guarantor.
(b) GENERAL AGREEMENTS WITH RESPECT TO FINANCIAL INFORMATION. Customer agrees
that except as otherwise specified herein or otherwise agreed to in writing by
MLBFS: (i) all annual financial statements required to be furnished by Customer
to MLBFS hereunder will be prepared by either the current independent
accountants for Customer or other independent accountants reasonably acceptable
to MLBFS, and (ii) all other financial information required to be furnished by
Customer to MLBFS hereunder will be certified as correct by the party who has
prepared such information, and, in the case of internally prepared information
with respect to Customer or any Business Guarantor, certified as correct by
their respective chief financial officer.
4.3 OTHER COVENANTS. Customer further covenants and agrees during the term of
this Loan Agreement that:
(a) FINANCIAL RECORDS; INSPECTION. Customer and each Business Guarantor will:
(i) maintain at its principal place of business complete and accurate books and
records, and maintain all of its financial records in a manner consistent with
the financial statements heretofore furnished to MLBFS, or prepared on such
other basis as may be approved in writing by MLBFS; and (ii) permit MLBFS or its
duly authorized representatives, upon reasonable notice and at reasonable times,
to inspect its properties (both real and personal), operations, books and
records.
<PAGE>
(b) TAXES. Customer and each Guarantor will pay when due all taxes, assessments
and other governmental charges, howsoever designated, and all other liabilities
and obligations, except to the extent that any such failure to pay will not
materially and adversely affect either any liens and security interests of MLBFS
under any Additional Agreements, the financial condition of Customer or any
Guarantor or the continued operations of Customer or any Business Guarantor.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Neither Customer nor any Guarantor will
violate any law, regulation or other governmental requirement, any judgment or
order of any court or governmental agency or authority, or any agreement,
instrument or document to which it is a party or by which it is bound, if any
such violation will materially and adversely affect either any liens and
security interests of MLBFS under any Additional Agreements, the financial
condition of Customer or any Guarantor, or the continued operations of Customer
or any Business Guarantor.
(d) NO USE OF MERRILL LYNCH NAME. Except upon the prior written consent of
MLBFS, neither Customer nor any Guarantor will directly or indirectly publish,
disclose or otherwise use in any advertising or promotional material, or press
release or interview, the name, logo or any trademark of MLBFS, MLPF&S, Merrill
Lynch and Co., Incorporated or any of their affiliates.
(e) NOTIFICATION BY CUSTOMER. Customer shall provide MLBFS with prompt written
notification of: (i) any Default; (ii) any materially adverse change in the
business, financial condition or operations of Customer or any Business
Guarantor; (iii) any information which indicates that any financial statements
of Customer or any Guarantor fail in any material respect to present fairly the
financial condition and results of operations purported to be presented in such
statements; and (iv) any change in Customer's outside accountants. Each
notification by Customer pursuant hereto shall specify the event or information
causing such notification, and, to the extent applicable, shall specify the
steps being taken to rectify or remedy such event or information.
(f) NOTICE OF CHANGE. Customer shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business or residence of Customer or any Guarantor.
(g) REAL ESTATE EXPENSE DEPOSIT. On or before the date of execution hereof by
Customer, Customer shall pay to MLBFS a "Real Estate Expense Deposit" in the
aggregate amount of $35,000.00. Said deposit, which shall not bear interest and
which need not be segregated from other funds of MLBFS, shall be applied by
MLBFS on account of the out-of-pocket expenses to third parties incurred in
fulfilling the Real Properties Funding Condition. On the final Closing Date, or
if this Loan Agreement and any commitment of MLBFS to make the Loan shall for
any reason be terminated without a funding of any portion of the Loans, then
promptly after the date of such termination, any unused portion of the Real
Estate Expense Deposit shall be refunded to Customer. Nothing herein shall alter
the primary liability of Customer to pay or reimburse MLBFS for all of the
out-of-pocket expenses to third parties incurred in fulfilling the Real Property
Funding Condition, whether or not the Loan is funded.
(h) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) neither Customer nor any Business
Guarantor shall be a party to any merger or consolidation with, or purchase or
otherwise acquire all or substantially all of the assets of, or any material
stock, partnership, joint venture or other equity interest in, any person or
entity, or sell, transfer or lease all or any substantial part of its assets, if
any such action would result in either: (A) a material change in the principal
business, ownership or control of Customer or such Business Guarantor, or (B) a
material adverse change in the financial condition or operations of Customer or
such Business Guarantor; (ii) Customer and each Business Guarantor shall
preserve their respective existence and good standing in the jurisdiction(s) of
establishment and operation; (iii) neither Customer nor any Business Guarantor
shall engage in any material business substantially different from their
respective business in effect as of the date of application by Customer for
credit from MLBFS, or cease operating any such material business; (iv) neither
Customer nor any Business Guarantor shall cause or permit any other person or
entity to assume or succeed to any material business or operations of Customer
or such Business Guarantor; and (v) neither Customer nor any Business Guarantor
shall cause or permit any material change in its controlling ownership.
(i) FIXED CHARGE COVERAGE RATIO. Customer shall at all times during the term
hereof maintain a Fixed Charge Coverage Ratio of not less than 1.3 to 1. The
term Fixed Charge Coverage Ratio" shall mean the ratio of: (a) income before
interest (including payments in the nature of interest under capital leases),
state and federal income taxes, depreciation and amortization, less internally
financed capital expenditures, to (b) the sum the aggregate principal and
interest paid or accrued, the aggregate rental under capital leases paid or
accrued, any dividends and other distributions paid or payable to shareholders
and state and federal income taxes paid in cash; all as determined on a trailing
12-month basis from the regular consolidated financial statements of Customer
prepared in a manner consistent with the terms hereof.
(j) FUNDED DEBT TO CASH FLOW. Customer's Funded Debt shall not exceed a multiple
of 3.5 times Customer's Cash Flow. The term "Funded Debt" shall be defined as
all indebtedness that has a final maturity date more than one year after the
date of creation thereof (or which is renewable or extendable at the option of
the debtor(s) to a date more than one year from the date of creation), including
all final and serial maturities, prepayments and sinking fund payments required
to be made in one year or less after the date of determination thereof
(notwithstanding the fact that any amount thereof is at the time also included
in current liabilities as defined by GAAP). The term "Cash Flow" shall mean
Customer's Earnings Before Preopening Expenses (as identified by Customer's
accountant, but not to exceed $2,000,000.00 in any fiscal year), Interest,
Taxes, Depreciation and Amortization, as set forth on Customer's regular
consolidated financial statements prepared in a manner consistent with the terms
hereof.
(k) RELEASE OF REAL PROPERTY LOCATIONS. Provided no default or Event of Default
has occurred and is continuing, and provided that MLBFS has received
satisfactory evidence that the Maximum WCMA Line of Credit will be reduced in
accordance with paragraph 3.6 of this Loan Agreement, MLBFS will release its
lien on any Real Property location that is sold, exchanged, transferred or
otherwise disposed of in accordance with the terms of this Loan Agreement. In
connection with any release, the monthly reduction schedule in Section 3.6 will
be amended accordingly.
4.4 EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
<PAGE>
(a) FAILURE TO PAY. (i) Customer shall fail to deposit into the WCMA Account an
amount sufficient to assure that the WCMA Loan Balance does not exceed the
Maximum WCMA Line of Credit, as reduced in accordance with the provisions
hereof, or (ii) Customer shall fail to pay to MLBFS or deposit into the WCMA
Account when due any other amount owing or required to be paid or deposited by
Customer under this Loan Agreement, or (iii) Customer shall fail to pay when due
any other Obligations; and any such failure shall continue for more than five
(5) Business Days after written notice thereof shall have been given by MLBFS to
Customer.
(b) FAILURE TO PERFORM. Customer or any Guarantor shall default in the
performance or observance of any covenant or agreement on its part to be
performed or observed under this Loan Agreement or any of the Additional
Agreements (not constituting an Event of Default under any other clause of this
Section), and such default shall continue unremedied for ten (10) Business Days
after written notice thereof shall have been given by MLBFS to Customer.
(c) BREACH OF WARRANTY. Any representation or warranty made by Customer or any
Guarantor contained in this Loan Agreement or any of the other Additional
Agreements shall at any time prove to have been incorrect in any material
respect when made.
(d) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Customer or
any Guarantor shall occur under the terms of any other agreement, instrument or
document with or intended for the benefit of MLBFS, MLPF&S or any of their
affiliates, and any required notice shall have been given and required passage
of time shall have elapsed.
(e) BANKRUPTCY EVENT. Any Bankruptcy Event shall occur.
(f) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of full payment or performance
by Customer or any Guarantor of any of their respective liabilities or
obligations under this Loan Agreement or any of the Additional Agreements to
which Customer or such Guarantor is a party has been materially impaired. The
existence of such a material impairment shall be determined in a manner
consistent with the intent of Section 1-208 of the UCC.
(g) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Customer or any Guarantor to another creditor under any indenture, agreement,
undertaking, or otherwise.
4.5 REMEDIES.
(a) REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:
(i) TERMINATION. MLBFS may without notice terminate its obligation to make any
further advances on account of the Loan (if any portion of the Loan has not then
been funded), terminate the WCMA Line of Credit, and terminate any obligation to
make any Subsequent WCMA Loan (including, without limitation, any Subsequent
WCMA Loan to pay accrued interest) or otherwise extend any credit to or for the
benefit of Customer (it being understood that upon the occurrence of any
Bankruptcy Event the WCMA Line of Credit and all such obligations shall
automatically terminate without any action on the part of MLBFS); and upon any
such termination MLBFS shall be relieved of all such obligations.
(ii) ACCELERATION. MLBFS may declare the WCMA Loan Balance and all other
Obligations to be forthwith due and payable, whereupon all such amounts shall be
immediately due and payable, without presentment, demand for payment, protest
and notice of protest, notice of dishonor, notice of acceleration, notice of
intent to accelerate or other notice or formality of any kind, all of which are
hereby expressly waived; provided, however, that upon the occurrence of any
Bankruptcy Event the WCMA Loan Balance and other Obligations shall automatically
become due and payable without any action on the part of MLBFS.
(b) COLLECTION FEE. If following any acceleration of the WCMA Loan Balance and
all other Obligations pursuant to Section 4.5 (a) (ii) hereof Customer shall
fail to pay the entire WCMA Loan Balance and all such other Obligations in full
within ten (10) Business Days after Customer is notified of such acceleration,
then Customer shall pay to MLBFS, in addition to all other sums payable
hereunder, a collection fee in an amount equal to the lesser of: (i) five
percent (5%) of the sum of the then outstanding WCMA Loan Balance and the then
outstanding other Obligations, or (ii) the maximum collection fee permitted by
law. Such collection fee, which is intended to compensate MLBFS for its
administrative costs incident to the collection of the WCMA Loan Balance and
such other Obligations following an Event of Default and acceleration, shall be
payable on demand.
(c) SET-OFF. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credit, deposits, accounts,
financial assets, investment property, securities and any other property of
Customer which is in transit to or in the possession, custody or control of
MLBFS, MLPF&S or any agent, bailee, or affiliate of MLBFS or MLPF&S. Customer
hereby collaterally assigns and grants to MLBFS a continuing security interest
in all such property as additional security for the Obligations. Upon the
occurrence and during the continuance of an Event of Default, MLBFS shall have
all rights in such property available to collateral assignees and secured
parties under all applicable laws, including, without limitation, the UCC.
(d) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Additional Agreements, at law or in equity, and any
one or more of such rights and remedies may be exercised simultaneously or
successively.
<PAGE>
4.6 MISCELLANEOUS.
(a) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement or any of the Additional
Agreements shall operate as a waiver thereof, and no single or partial exercise
of any such right, power or remedy shall preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. Neither any waiver
of any provision of this Loan Agreement or any of the Additional Agreements, nor
any consent to any departure by Customer therefrom, shall be effective unless
the same shall be in writing and signed by MLBFS. Any waiver of any provision of
this Loan Agreement or any of the Additional Agreements and any consent to any
departure by Customer from the terms thereof shall be effective only in the
specific instance and for the specific purpose for which given. Except as
otherwise expressly provided herein, no notice to or demand on Customer shall in
any case entitle Customer to any other or further notice or demand in similar or
other circumstances.
(b) DISCLOSURE. Customer hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer.
(c) COMMUNICATIONS. All notices and other communications required or permitted
hereunder or in connection with any of the Additional Agreements shall be in
writing, and shall be either delivered personally, mailed by postage prepaid
certified mail or sent by express overnight courier or by facsimile. Such
notices and communications shall be deemed to be given on the date of personal
delivery, facsimile transmission or actual delivery of certified mail, or one
Business Day after delivery to an express overnight courier. Unless otherwise
specified in a notice sent or delivered in accordance with the terms hereof,
notices and other communications in writing shall be given to the parties hereto
at their respective addresses set forth at the beginning of this Loan Agreement,
or, in the case of facsimile transmission, to the parties at their respective
regular facsimile telephone number.
(d) FEES, EXPENSES AND TAXES. Customer shall pay or reimburse MLBFS for: (i) all
Uniform Commercial Code filing and search fees and expenses incurred by MLBFS in
connection with the verification, perfection or preservation of MLBFS' rights
hereunder or in any collateral for the Obligations; (ii) any and all stamp,
transfer and other taxes and fees payable or determined to be payable in
connection with the execution, delivery and/or recording of this Loan Agreement
or any of the Additional Agreements; (iii) any and all reasonable fees and
out-of-pocket expenses to third parties incurred by MLBFS in connection with the
title insurance, environmental audit, appraisal, survey and other instruments or
documents referred to in the definition of Real Property Funding Condition; and
(iv) all reasonable fees and out-of-pocket expenses (including, but not limited
to, reasonable fees and expenses of outside counsel) incurred by MLBFS in
connection with the collection of any sum payable hereunder or under any of the
Additional Agreements not paid when due, the enforcement of this Loan Agreement
or any of the Additional Agreements and the protection of MLBFS' rights
hereunder or thereunder, excluding, however, salaries and normal overhead
attributable to MLBFS' employees. Customer hereby authorizes MLBFS, at its
option, to either cause any and all such fees, expenses and taxes to be paid
with a WCMA Loan, or invoice Customer therefor (in which event Customer shall
pay all such fees, expenses and taxes within 5 Business Days after receipt of
such invoice). The obligations of Customer under this paragraph shall survive
the expiration or termination of this Loan Agreement and the discharge of the
other Obligations.
(e) RIGHT TO PERFORM OBLIGATIONS. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 Business Days written
notice is sent to Customer (or such lesser notice, including no notice, as is
reasonable under the circumstances), do the same or cause it to be done or
remedy any such breach, and may expend its funds for such purpose. Any and all
reasonable amounts so expended by MLBFS shall be repayable to MLBFS by Customer
upon demand, with interest at the Interest Rate during the period from and
including the date funds are so expended by MLBFS to the date of repayment, and
all such amounts shall be additional Obligations. The payment or performance by
MLBFS of any of Customer's obligations hereunder shall not relieve Customer of
said obligations or of the consequences of having failed to pay or perform the
same, and shall not waive or be deemed a cure of any Default.
(f) FURTHER ASSURANCES. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement or any of the Additional Agreements.
(g) BINDING EFFECT. This Loan Agreement and the Additional Agreements shall be
binding upon, and shall inure to the benefit of MLBFS, Customer and their
respective successors and assigns. Customer shall not assign any of its rights
or delegate any of its obligations under this Loan Agreement or any of the
Additional Agreements without the prior written consent of MLBFS. Unless
otherwise expressly agreed to in a writing signed by MLBFS, no such consent
shall in any event relieve Customer of any of its obligations under this Loan
Agreement or any of the Additional Agreements.
(h) HEADINGS. Captions and section and paragraph headings in this Loan Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(i) GOVERNING LAW. This Loan Agreement and, unless otherwise expressly provided
therein, each of the Additional Agreements, shall be governed in all respects by
the laws of the State of Illinois.
(j) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this Loan
Agreement and the Additional Agreements shall be interpreted in such manner as
to be effective and valid under applicable law. Any provision of this Loan
Agreement or any of the Additional Agreements which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions of this Loan Agreement and the Additional Agreements or
affecting the validity or enforceability of such provision in any other
jurisdiction.
<PAGE>
(k) TERM. This Loan Agreement shall become effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as: (i) MLBFS shall be obligated to
make the Loan, (ii) the WCMA Line of Credit shall be in effect, (iii) there
shall be any moneys outstanding under this Loan Agreement, or (iv) there shall
be any other Obligations outstanding.
(l) COUNTERPARTS. This Loan Agreement may be executed in one or more
counterparts which, when taken together, constitute one and the same agreement.
(m) JURISDICTION; WAIVER. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT AND THE ADDITIONAL
AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE
CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER CONSENTS
TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR FEDERAL COURT
IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES ANY AND ALL RIGHTS
TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER FURTHER WAIVES ANY RIGHTS TO
COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN THE COUNTY OF
COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY
AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY
MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE LOAN, THIS
LOAN AGREEMENT, ANY ADDITIONAL AGREEMENTS AND/OR ANY OF THE TRANSACTIONS WHICH
ARE THE SUBJECT MATTER OF THIS LOAN AGREEMENT.
(n) INTEGRATION. THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL AGREEMENTS,
CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES. WITHOUT LIMITING THE FOREGOING, CUSTOMER ACKNOWLEDGES
THAT: (I) NO PROMISE OR COMMITMENT HAS BEEN MADE TO IT BY MLBFS, MLPF&S OR ANY
OF THEIR RESPECTIVE EMPLOYEES, AGENTS OR REPRESENTATIVES TO MAKE THE LOAN OR ANY
SUBSEQUENT WCMA LOAN ON ANY TERMS OTHER THAN AS EXPRESSLY SET FORTH HEREIN, OR
TO MAKE ANY OTHER LOAN OR OTHERWISE EXTEND ANY OTHER CREDIT TO CUSTOMER OR ANY
OTHER PARTY; AND (II) EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, THIS LOAN
AGREEMENT SUPERSEDES AND REPLACES ANY AND ALL PROPOSALS, LETTERS OF INTENT AND
APPROVAL AND COMMITMENT LETTERS FROM MLBFS TO CUSTOMER, NONE OF WHICH SHALL BE
CONSIDERED AN ADDITIONAL AGREEMENT. NO AMENDMENT OR MODIFICATION OF THIS
AGREEMENT OR ANY OF THE ADDITIONAL AGREEMENTS TO WHICH CUSTOMER IS A PARTY SHALL
BE EFFECTIVE UNLESS IN A WRITING SIGNED BY BOTH MLBFS AND CUSTOMER.
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.
MAIN STREET AND MAIN INCORPORATED D/B/A TGI FRIDAY'S
By:
----------------------------------------------------------------------------
Signature (1) Signature (2)
- --------------------------------------------------------------------------------
Printed Name Printed Name
- --------------------------------------------------------------------------------
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By:
---------------------------------
MERRILL LYNCH UNCONDITIONAL GUARANTY
================================================================================
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend credit
or lease property to or for the benefit of, or modify its credit relationship
with, or enter into any other financial accommodations with MAIN STREET AND MAIN
INCORPORATED D/B/A TGI FRIDAY'S, a corporation organized and existing under the
laws of the State of Delaware (with any successor in interest, including,
without limitation, any successor by merger or by operation of law, herein
collectively referred to as "Customer") under: (a) that certain WCMA REDUCING
REVOLVER LOAN AGREEMENT NO. 78M-07B82 between MLBFS and Customer; (b) that
certain WCMA REDUCING REVOLVER LOAN AGREEMENT NO. 78M-07B84 between MLBFS and
Customer (collectively, the "Loan Agreements"); (c) any "Additional Agreements",
as that term is defined in the Loan Agreements; and (d) all present and future
amendments, restatements, supplements and other evidences of any extensions,
increases, renewals, modifications and other changes of or to the Loan
Agreements or any Additional Agreements (collectively, the "Guaranteed
Documents"), and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, THE UNDERSIGNED, MAIN ST.
CALIFORNIA, INC., a corporation organized and existing under the laws of the
State of Arizona ("Guarantor"), HEREBY UNCONDITIONALLY GUARANTEES TO MLBFS: (i)
the prompt and full payment when due, by acceleration or otherwise, of all sums
now or any time hereafter due from Customer to MLBFS under the Guaranteed
Documents, (ii) the prompt, full and faithful performance and discharge by
Customer of each and every other covenant and warranty of Customer set forth in
the Guaranteed Documents, and (iii) the prompt and full payment and performance
of all other indebtedness, liabilities and obligations of Customer to MLBFS,
howsoever created or evidenced, and whether now existing or hereafter arising
(collectively, the "Obligations"). Guarantor further agrees to pay all
reasonable costs and expenses (including, but not limited to, court costs and
reasonable attorneys' fees) paid or incurred by MLBFS in endeavoring to collect
or enforce performance of any of the Obligations, or in enforcing this Guaranty.
Guarantor acknowledges that MLBFS is relying on the execution and delivery of
this Guaranty in advancing moneys to or extending or continuing to extend credit
to or for the benefit of Customer.
This Guaranty is absolute, unconditional and continuing and shall remain in
effect until all of the Obligations shall have been fully and indefeasibly paid,
performed and discharged. Upon the occurrence and during the continuance of any
default or Event of Default under any of the Guaranteed Documents, any or all of
the indebtedness hereby guaranteed then existing shall, at the option of MLBFS,
become immediately due and payable from Guarantor (it being understood, however,
that upon the occurrence of any "Bankruptcy Event", as defined in the Loan
Agreements, all such indebtedness shall automatically become due and payable
without action on the part of MLBFS). Notwithstanding the occurrence of any such
event, this Guaranty shall continue and remain in full force and effect. To the
extent MLBFS receives payment with respect to the Obligations, and all or any
part of such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside, required to be repaid by MLBFS or is repaid by MLBFS
pursuant to a settlement agreement, to a trustee, receiver or any other person
or entity, whether under any Bankruptcy law or otherwise (a "Returned Payment"),
this Guaranty shall continue to be effective or shall be reinstated, as the case
may be, to the extent of such payment or repayment by MLBFS, and the
indebtedness or part thereof intended to be satisfied by such Returned Payment
shall be revived and continued in full force and effect as if said Returned
Payment had not been made.
The liability of Guarantor hereunder shall in no event be affected or impaired
by any of the following, any of which may be done or omitted by MLBFS from time
to time, without notice to or the consent of Guarantor: (a) any renewals,
amendments, restatements, modifications or supplements of or to any of the
Guaranteed Documents, or any extensions, forbearances, compromises or releases
of any of the Obligations or any of MLBFS' rights under any of the Guaranteed
Documents; (b) any acceptance by MLBFS of any collateral or security for, or
other guarantees of, any of the Obligations; (c) any failure, neglect or
omission on the part of MLBFS to realize upon or protect any of the Obligations,
or any collateral or security therefor, or to exercise any lien upon or right of
appropriation of any moneys, credits or property of Customer or any other
guarantor, possessed by or under the control of MLBFS or any of its affiliates,
toward the liquidation or reduction of the Obligations; (d) any invalidity,
irregularity or unenforceability of all or any part of the Obligations, of any
collateral security for the Obligations, or the Guaranteed Documents; (e) any
application of payments or credits by MLBFS; (f) the granting of credit from
time to time by MLBFS to Customer in excess of the amount set forth in the
Guaranteed Documents; or (g) any other act of commission or omission of any kind
or at any time upon the part of MLBFS or any of its affiliates or any of their
respective employees or agents with respect to any matter whatsoever. MLBFS
shall not be required at any time, as a condition of Guarantor's obligations
hereunder, to resort to payment from Customer or other persons or entities
whatsoever, or any of their properties or estates, or resort to any collateral
or pursue or exhaust any other rights or remedies whatsoever.
No release or discharge in whole or in part of any other guarantor of the
Obligations shall release or discharge Guarantor unless and until all of the
Obligations shall have been indefeasibly fully paid and discharged. Guarantor
expressly waives presentment, protest, demand, notice of dishonor or default,
notice of acceptance of this Guaranty, notice of advancement of funds under the
Guaranteed Documents and all other notices and formalities to which Customer or
Guarantor might be entitled, by statute or otherwise, and, so long as there are
any Obligations or MLBFS is committed to extend credit to Customer, waives any
right to revoke or terminate this Guaranty without the express written consent
of MLBFS.
So long as there are any Obligations, Guarantor shall not have any claim, remedy
or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security which MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantor at any time during the
continuance of an Event of Default under any of the Loan Agreements or any other
of the Guaranteed Documents or in respect of any of the Obligations, in its sole
discretion and without demand or notice of any kind, to appropriate, hold, set
off and apply toward the payment of any amount due hereunder, in such order of
application as MLBFS may elect, all cash, credits, deposits, accounts, financial
assets, investment property, securities and any other property of Guarantor
which is in transit to or in the possession, custody or control of MLBFS or
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), or any of their
respective agents, bailees or affiliates. Guarantor hereby collaterally assigns
and grants to MLBFS a continuing security interest in all such property as
additional security for the Obligations. Upon the occurrence and during the
continuance of an Event of Default, MLBFS shall have all rights in such property
available to collateral assignees and secured parties under all applicable laws,
including, without limitation, the Uniform Commercial Code.
<PAGE>
Guarantor agrees to furnish to MLBFS such financial information concerning
Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may
otherwise from time to time reasonably request. Guarantor further hereby
irrevocably authorizes MLBFS and each of its affiliates, including without
limitation MLPF&S, to at any time (whether or not an Event of Default shall have
occurred) obtain from and disclose to each other any and all financial and other
information about Guarantor.
No delay on the part of MLBFS in the exercise of any right or remedy under any
of the Guaranteed Documents, this Guaranty or any other agreement shall operate
as a waiver thereof, and, without limiting the foregoing, no delay in the
enforcement of any security interest, and no single or partial exercise by MLBFS
of any right or remedy shall preclude any other or further exercise thereof or
the exercise of any other right or remedy. This Guaranty may be executed in any
number of counterparts, each of which counterparts, once they are executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Guaranty. This Guaranty
shall be binding upon Guarantor and its successors and assigns, and shall inure
to the benefit of MLBFS and its successors and assigns. If there are more than
one guarantor of the Obligations, all of the obligations and agreements of
Guarantor are joint and several with such other guarantors.
This Guaranty shall be governed by the laws of the State of Illinois. WITHOUT
LIMITING THE RIGHT OF MLBFS TO ENFORCE THIS GUARANTY IN ANY JURISDICTION AND
VENUE PERMITTED BY APPLICABLE LAW, GUARANTOR AGREES THAT THIS GUARANTY MAY AT
THE OPTION OF MLBFS BE ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN WHICH
ANY OF THE GUARANTEED DOCUMENTS MAY BE ENFORCED. GUARANTOR AND MLBFS HEREBY EACH
EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY IN ANY
WAY RELATED TO OR ARISING OUT OF THIS GUARANTY OR THE OBLIGATIONS. Wherever
possible each provision of this Guaranty shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Guaranty shall be prohibited by or invalid under such law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Guaranty. No modification or waiver of any of the provisions of this Guaranty
shall be effective unless in writing and signed by both Guarantor and an officer
of MLBFS. Each signatory on behalf of Guarantor warrants that he or she has
authority to sign on behalf of Guarantor, and by so signing, to bind Guarantor
hereunder.
Dated as of November 22, 1999.
MAIN ST. CALIFORNIA, INC.
By:
----------------------------------------------------------------------------
Signature (1) Signature (2)
- --------------------------------------------------------------------------------
Printed Name Printed Name
- --------------------------------------------------------------------------------
Title Title
Address of Guarantor:
5050 N. 40th Street
Suite 200
Phoenix, AZ 85018
-2-
MERRILL LYNCH SECURITY AGREEMENT
================================================================================
SECURITY AGREEMENT ("Agreement") dated as of November 22, 1999, between MAIN ST.
CALIFORNIA, INC., a corporation organized and existing under the laws of the
State of Arizona having its principal office at 5050 N. 40th Street, Suite 200,
Phoenix, AZ 85018 ("Grantor"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC., a corporation organized and existing under the laws of the State of
Delaware having its principal office at 222 North LaSalle Street, Chicago, IL
60601 ("MLBFS").
In order to induce MLBFS to extend or continue to extend credit to MAIN STREET
AND MAIN INCORPORATED D/B/A TGI FRIDAY'S ("Customer") under the Loan Agreements
(as defined below) or otherwise, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, Grantor hereby
agrees with MLBFS as follows:
1. DEFINITIONS
(a) SPECIFIC TERMS. In addition to terms defined elsewhere in this Agreement,
when used herein the following terms shall have the following meanings:
(i) "Bankruptcy Event" shall mean any of the following: (A) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to by Grantor or
Customer; or (B) any such proceeding shall be filed against Grantor or Customer
and shall not be dismissed or withdrawn within sixty (60) days after filing; or
(C) Grantor or Customer shall make a general assignment for the benefit of
creditors; or (D) Grantor or Customer shall generally fail to pay or admit in
writing its inability to pay its debts as they become due; or (E) Grantor or
Customer shall be adjudicated a bankrupt or insolvent.
(ii) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(iii) "Collateral" shall mean all of the Furniture, Fixtures and Equipment of
Grantor, whether now owned or hereafter acquired, and located at a Location of
Collateral; together with all parts thereof (including spare parts), all
accessories and accessions thereto, all replacements therefor, all books and
records (including computer records) directly related thereto, all proceeds
thereof (including, without limitation, proceeds in the form of Accounts and
insurance proceeds), and the additional collateral described in Section 7 (b)
hereof.
(iv) "Default" shall mean an "Event of Default", as defined in Section 6 hereof,
or any event which with the giving of notice, passage of time, or both, would
constitute such an Event of Default.
(v) Loan Agreements" shall mean: (a) that certain WCMA REDUCING REVOLVER LOAN
AGREEMENT NO. 78M-07B82 between MLBFS and Customer; and (b) that certain WCMA
REDUCING REVOLVER LOAN AGREEMENT NO. 78M-07B84 between MLBFS and Customer,
together with all agreements, instruments and documents executed pursuant
thereto, as any or all of the same may from time to time be or have been
amended, restated, extended or supplemented.
(vi) "Location of Collateral" shall mean the addresses of Grantor set forth on
any exhibit hereto as being a Location of Collateral.
(vii) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer or Grantor to MLBFS, howsoever created, arising or
evidenced, whether now existing or hereafter arising, whether direct or
indirect, absolute or contingent, due or to become due, primary or secondary or
joint or several, and, without limiting the foregoing, shall include interest
accruing after the filing of any petition in bankruptcy, and all present and
future liabilities, indebtedness and obligations of Customer under the Loan
Agreements and the agreements, instruments and documents executed pursuant
thereto, and of Grantor under this Agreement.
(viii) "Permitted Liens" shall mean with respect to the Collateral: (A) liens
for current taxes not delinquent, other non-consensual liens arising in the
ordinary course of business for sums not due, and, if MLBFS' rights to and
interest in the Collateral are not materially and adversely affected thereby,
any such liens for taxes or other non-consensual liens arising in the ordinary
course of business being contested in good faith by appropriate proceedings; (B)
liens in favor of MLBFS; and (C) any other liens expressly permitted in writing
by MLBFS.
(b) OTHER TERMS. Except as otherwise defined herein, all terms used in this
Agreement which are defined in the Uniform Commercial Code of Illinois ("UCC")
shall have the meanings set forth in the UCC.
2. COLLATERAL
(a) PLEDGE OF COLLATERAL. To secure payment and performance of the Obligations,
Grantor hereby pledges, assigns, transfers and sets over to MLBFS, and grants to
MLBFS a first lien and security interest in and upon all of the Collateral,
subject only to Permitted Liens.
(b) LIENS. Except upon the prior written consent of MLBFS, Grantor shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
<PAGE>
(c) PERFORMANCE OF OBLIGATIONS. Grantor shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Grantor's said
obligations.
(d) NOTICE OF CERTAIN EVENTS. Grantor shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$25,000.00 or more of the Collateral.
(e) INDEMNIFICATION Grantor shall indemnify, defend and save MLBFS harmless from
and against any and all claims, losses, costs, expenses (including, without
limitation, reasonable attorneys' fees and expenses), demands, liabilities,
penalties, fines and forfeitures of any nature whatsoever which may be asserted
against or incurred by MLBFS arising out of or in any manner occasioned by (i)
the ownership, use, operation, condition or maintenance of any Collateral, or
(ii) any failure by Grantor to perform any of its obligations hereunder;
excluding, however, from said indemnity any such claims, losses, etc. arising
out of the willful wrongful act or active gross negligence of MLBFS. This
indemnity shall survive the expiration or termination of this Agreement as to
all matters arising or accruing prior to such expiration or termination.
(f) INSURANCE. Grantor shall insure all of the Collateral with an insurer or
insurers reasonably acceptable to MLBFS, under a policy or policies of physical
damage insurance reasonably acceptable to MLBFS providing that (i) losses will
be payable to MLBFS as its interests may appear pursuant to a Lender's Loss
Payable endorsement , and (ii) MLBFS will receive not less than 10 days prior
written notice of any cancellation; and containing such other provisions as may
be reasonably required by MLBFS. Grantor shall maintain such other insurance as
may be required by law or otherwise reasonably required by MLBFS. Grantor shall
furnish MLBFS with a copy or certificate of each such policy or policies and,
prior to any expiration or cancellation, each renewal or replacement thereof.
(g) EVENT OF LOSS. Grantor shall at its expense promptly repair all repairable
damage to any Collateral. In the event that any Collateral is damaged beyond
repair, lost, totally destroyed or confiscated (an "Event of Loss") and such
Collateral had a value prior to such Event of Loss of $25,000.00 or more, then,
on or before the first to occur of (i) 90 days after the occurrence of such
Event of Loss, or (ii) 10 Business Days after the date on which either Grantor
or MLBFS shall receive any proceeds of insurance on account of such Event of
Loss, or any underwriter of insurance on such tangible Collateral shall advise
either Grantor or MLBFS that it disclaims liability in respect of such Event of
Loss, Grantor shall, at Grantor's option, either replace the Collateral subject
to such Event of Loss with comparable Collateral free of all liens other than
Permitted Liens (in which event Grantor shall be entitled to utilize the
proceeds of insurance on account of such Event of Loss for such purpose, and may
retain any excess proceeds of such insurance), or pay to MLBFS on account of the
Obligations an amount equal to the actual cash value of such Collateral as
determined by either the applicable insurance company's payment (plus any
applicable deductible) or, in absence of insurance company payment, as
reasonably determined by MLBFS. Notwithstanding the foregoing, if at the time of
occurrence of such Event of Loss or any time thereafter prior to replacement or
payment, as aforesaid, an Event of Default shall have occurred and be continuing
hereunder, then MLBFS may at its sole option, exercisable at any time while such
Event of Default shall be continuing, require Grantor to either replace such
Collateral or make a payment on account of the Obligations, as aforesaid.
(h) ALTERATIONS AND MAINTENANCE. Except upon the prior written consent of MLBFS,
Grantor shall not make or permit any material alterations to any Collateral
which might materially reduce or impair its market value or utility. Grantor
shall at all times keep the Collateral in good condition and repair and shall
pay or cause to be paid all obligations arising from the repair and maintenance
of the Collateral, as well as all obligations with respect to any Location of
Collateral, except for any such obligations being contested in good faith by
Grantor by appropriate proceedings.
(i) LOCATION. Except for movements in the ordinary course of its business,
Grantor shall give MLBFS 30 days' prior written notice of the placing at or
movement of any Collateral to any location other than a Location of Collateral.
In no event shall Grantor cause or permit any Collateral to be removed from the
United States without the express prior written consent of MLBFS.
3. REPRESENTATIONS AND WARRANTIES
Grantor represents and warrants to MLBFS that:
(a) ORGANIZATION. Grantor is a corporation duly organized and validly existing
in good standing under the laws of the State of Arizona, and is qualified to do
business and in good standing in each other state where the nature of its
business or the property owned by it make such qualification necessary.
(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and performance
by Grantor of this Agreement have been duly authorized by all requisite action,
do not and will not violate or conflict with any law or other governmental
requirement, or any of the agreements, instruments or documents which formed or
governed Grantor, and do not and will not breach or violate any of the
provisions of, and will not result in a default by Grantor under, any other
agreement, instrument or document to which it is a party or by which it or its
properties are bound.
(c) NOTICE OR CONSENT. Except as may have been given or obtained, no notice to
or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Grantor of this
Agreement.
(d) VALID AND BINDING. This Agreement is the legal, valid and binding obligation
of Grantor, enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting the
rights of creditors generally or by general principles of equity.
(e) FINANCIAL STATEMENTS. Except as expressly set forth in Grantor 's financial
statements, all financial statements of Grantor furnished to MLBFS have been
prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct, and fairly present the financial
condition of it as at such dates and the results of its operations for the
periods then ended; and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation.
-2-
<PAGE>
(f) LITIGATION, ETC. No litigation, arbitration, administrative or governmental
proceedings are pending or threatened against Grantor, which would, if adversely
determined, materially and adversely affect the financial condition or continued
operations of Grantor, or the liens and security interests of MLBFS hereunder.
(g) TAXES. All federal, state and local tax returns, reports and statements
required to be filed by Grantor have been filed with the appropriate
governmental agencies and all taxes due and payable by Grantor have been timely
paid (except to the extent that any such failure to file or pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or the financial condition or continued operations of Grantor).
(h) COLLATERAL. Grantor has good and marketable title to the Collateral, and,
except for any Permitted Liens: (i) none of the Collateral is subject to any
lien, encumbrance or security interest, and (ii) upon the filing of all Uniform
Commercial Code financing statements executed by Grantor with respect to the
Collateral or a copy of this Agreement in the appropriate jurisdiction(s) and/or
the completion of any other action required by applicable law to perfect is lien
and security interests, MLBFS will have valid and perfected first liens and
security interests upon all of the Collateral.
Each of the foregoing representations and warranties has been and will be relied
upon as an inducement to MLBFS to advance funds or extend or continue to extend
credit to Customer, and is continuing and shall be deemed remade by Grantor
concurrently with each such advance or extension of credit by MLBFS to Customer.
4. FINANCIAL AND OTHER INFORMATION
Grantor covenants and agrees that Grantor will furnish or cause to be furnished
to MLBFS during the term of this Agreement such financial and other information
as may be required by the Loan Agreements or any other document evidencing the
Obligations or as MLBFS may from time to time reasonably request relating to
Grantor or the Collateral.
5. OTHER COVENANTS
Grantor further agrees during the term of this Agreement that:
(a) FINANCIAL RECORDS; INSPECTION. Grantor will: (i) maintain complete and
accurate books and records at its principal place of business, and maintain all
of its financial records in a manner consistent with the financial statements
heretofore furnished to MLBFS, or prepared on such other basis as may be
approved in writing by MLBFS; and (ii) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times, to inspect its
properties (both real and personal), operations, books and records.
(b) TAXES. Grantor will pay when due all taxes, assessments and other
governmental charges, howsoever designated, and all other liabilities and
obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder, or the financial condition or continued operations of Grantor.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Grantor will not violate any law,
regulation or other governmental requirement, any judgment or order of any court
or governmental agency or authority, or any agreement, instrument or document to
which it is a party or by which it is bound, if any such violation will
materially and adversely affect either the liens and security interests of MLBFS
hereunder, or the financial condition or continued operations of Grantor.
(d) NOTIFICATION BY GRANTOR. Grantor shall provide MLBFS with prompt written
notification of: (i) any Default; (ii) any materially adverse change in the
business, financial condition or operations of Customer or Grantor; and (iii)
any information which indicates that any financial statements of Customer or
Grantor fail in any material respect to present fairly the financial condition
and results of operations purported to be presented in such statements. Each
notification by Grantor pursuant hereto shall specify the event or information
causing such notification, and, to the extent applicable, shall specify the
steps being taken to rectify or remedy such event or information.
(e) NOTICE OF CHANGE Grantor shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business of Grantor.
(f) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Grantor shall not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets of, or any material stock, partnership, joint
venture or other equity interest in, any person or entity, or sell, transfer or
lease all or any substantial part of its assets, if any such action would result
in either: (A) a material change in the principal business, ownership or control
of Grantor, or (B) a material adverse change in the financial condition or
operations of Grantor; (ii) Grantor shall preserve its existence and good
standing in the jurisdiction(s) of establishment and operation; (iii) Grantor
shall not engage in any material business substantially different from its
business in effect as of the date of application by Customer for credit from
MLBFS, or cease operating any such material business; (iv) Grantor shall not
cause or permit any other person or entity to assume or succeed to any material
business or operations of Grantor; and (iv) Grantor shall not cause or permit
any material change in its controlling ownership.
(g) RELEASE OF COLLATERAL. Provided no default or Event of Default has occurred
and is continuing, and provided that MLBFS has received satisfactory evidence
that the Maximum WCMA Line of Credit of Customer will be reduced in accordance
with paragraph 3.6 of that certain WCMA Reducing Revolver Loan Agreement No.
78M-07B84, MLBFS will release its lien on the Collateral of a location that is
sold, exchanged, transferred or otherwise disposed of in accordance with the
terms of said Loan Agreement. In connection with any release, the monthly
reduction schedule of Customer will be amended accordingly.
-3-
<PAGE>
6. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" under this Agreement:
(a) EVENT OF DEFAULT UNDER ANY LOAN AGREEMENT. An Event of Default shall occur
under the terms of any of the Loan Agreements.
(b) FAILURE TO PERFORM. Grantor shall default in the performance or observance
of any covenant or agreement on its part to be performed or observed under this
Agreement (not constituting an Event of Default under any other clause of this
Section), and such default shall continue unremedied for 10 Business Days after
written notice thereof shall have been given by MLBFS to Grantor.
(c) BREACH OF WARRANTY. Any representation or warranty made by Grantor contained
in this Agreement shall at any time prove to have been incorrect in any material
respect when made.
(d) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Grantor
shall occur under the terms of any other agreement, instrument or document with
or intended for the benefit of MLBFS, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S") or any of their affiliates, and any required notice
shall have been given and required passage of time shall have elapsed.
(e) SEIZURE OR ABUSE OF COLLATERAL. The Collateral, or any material part
thereof, shall be or become subject to any levy, attachment, seizure or
confiscation which is not released within 10 Business Days.
(f) BANKRUPTCY EVENT. Any Bankruptcy Event shall occur.
(g) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of payment or performance by
Grantor has been materially impaired. The existence of such a material
impairment shall be determined in a manner consistent with the intent of Section
1-208 of the UCC.
(h) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Grantor to another creditor under any indenture, agreement, undertaking, or
otherwise.
7. REMEDIES
(a) REMEDIES UPON DEFAULT Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:
(i) ACCELERATION. MLBFS may declare all Obligations to be forthwith due and
payable, whereupon all such amounts shall be immediately due and payable,
without presentment, demand for payment, protest and notice of protest, notice
of dishonor, notice of acceleration, notice of intent to accelerate or other
notice or formality of any kind, all of which are hereby expressly waived;
provided, however, that upon the occurrence of any Bankruptcy Event all
Obligations shall automatically become due and payable without any action on the
part of MLBFS.
(ii) EXERCISE RIGHTS OF SECURED PARTY. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited to,
the UCC, and any or all of its other rights and remedies under this Agreement.
(iii) POSSESSION. MLBFS may require Grantor to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably convenient to Grantor, or may take possession of the
Collateral and the records pertaining to the Collateral without the use of any
judicial process and without any prior notice to Grantor.
(iv) SALE. MLBFS may sell any or all of the Collateral at public or private sale
upon such terms and conditions as MLBFS may reasonably deem proper, and MLBFS
may purchase any Collateral at any such public sale; and the net proceeds of any
such public or private sale and all other amounts actually collected or received
by MLBFS pursuant hereto, after deducting all costs and expenses incurred at any
time in the collection of the Obligations and in the protection, collection and
sale of the Collateral, will be applied to the payment of the Obligations, with
any remaining proceeds paid to Grantor or whoever else may be entitled thereto,
and with Customer and each guarantor of Customer's obligations remaining jointly
and severally liable for any amount remaining unpaid after such application.
(b) SET-OFF. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credits, deposits, accounts,
financial assets, investment property, securities and any other property of
Grantor which is in transit to or in the possession, custody or control of
MLBFS, MLPF&S or any agent, bailee, or affiliate of MLBFS or MLPF&S. Grantor
hereby collaterally assigns and grants to MLBFS a security interest in all such
property as additional Collateral.
(c) POWER OF ATTORNEY. Effective upon the occurrence and during the continuance
of an Event of Default, Grantor hereby irrevocably appoints MLBFS as its
attorney-in-fact, with full power of substitution, in its place and stead and in
its name or in the name of MLBFS, to from time to time in MLBFS' sole discretion
take any action and to execute any instrument which MLBFS may deem necessary or
advisable to accomplish the purposes of this Agreement, including, but not
limited to, to receive, endorse and collect all checks, drafts and other
instruments for the payment of money made payable to Grantor included in the
Collateral.
-4-
<PAGE>
(d) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available at law or in equity, and any one or more of such rights and
remedies may be exercised simultaneously or successively. Any notice required
under this Agreement or under applicable law shall be deemed reasonably and
properly given to Grantor if given at the address and by any of the methods of
giving notice set forth in this Agreement at least 5 Business Days before taking
any action specified in such notice.
(e) NOTICES. To the fullest extent permitted by applicable law, Grantor hereby
irrevocably waives and releases MLBFS of and from any and all liabilities and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale, holding of sale or reporting of
any sale, and Grantor waives all rights of redemption or reinstatement from any
such sale. MLBFS shall have the right to postpone or adjourn any sale or other
disposition of Collateral at any time without giving notice of any such
postponed or adjourned date. In the event MLBFS seeks to take possession of any
or all of the Collateral by court process, Grantor further irrevocably waives to
the fullest extent permitted by law any bonds and any surety or security
relating thereto required by any statute, court rule or otherwise as an incident
to such possession, and any demand for possession prior to the commencement of
any suit or action.
8. MISCELLANEOUS
(a) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Agreement shall operate as a waiver
thereof, and no single or partial exercise of any such right, power or remedy
shall preclude any other or further exercise thereof, or the exercise of any
other right, power or remedy. Neither any waiver of any provision of this
Agreement, nor any consent to any departure by Grantor therefrom, shall be
effective unless the same shall be in writing and signed by MLBFS. Any waiver of
any provision of this Agreement and any consent to any departure by Grantor from
the terms of this Agreement shall be effective only in the specific instance and
for the specific purpose for which given. Except as otherwise expressly provided
herein, no notice to or demand on Grantor shall in any case entitle Grantor to
any other or further notice or demand in similar or other circumstances.
(b) COMMUNICATIONS. All notices and other communications required or permitted
hereunder shall be in writing, and shall be either delivered personally, mailed
by postage prepaid certified mail or sent by express overnight courier or by
facsimile. Such notices and communications shall be deemed to be given on the
date of personal delivery, facsimile transmission or actual delivery of
certified mail, or one Business Day after delivery to an express overnight
courier. Unless otherwise specified in a notice sent or delivered in accordance
with the terms hereof, notices and other communications in writing shall be
given to the parties hereto at their respective addresses set forth at the
beginning of this Agreement, and, in the case of facsimile transmission, to the
parties at their respective regular facsimile telephone number.
(c) COSTS, EXPENSES AND TAXES. Grantor shall pay or reimburse MLBFS upon demand
for: (i) all Uniform Commercial Code filing and search fees and expenses
incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral; (ii) any and all
stamp, transfer and other taxes and fees payable or determined to be payable in
connection with the execution, delivery and/or recording of this Agreement; and
(iii) all reasonable fees and out-of-pocket expenses (including, but not limited
to, reasonable fees and expenses of outside counsel) incurred by MLBFS in
connection with the enforcement of this Agreement or the protection of MLBFS'
rights hereunder, excluding, however, salaries and expenses of MLBFS' employees.
The obligations of Grantor under this paragraph shall survive the expiration or
termination of this Agreement and the discharge of the other Obligations.
(d) RIGHT TO PERFORM OBLIGATIONS. If Grantor shall fail to do any act or thing
which it has covenanted to do under this Agreement or any representation or
warranty on the part of Grantor contained in this Agreement shall be breached,
MLBFS may, in its sole discretion, after 5 Business Days written notice is sent
to Grantor (or such lesser notice, including no notice, as is reasonable under
the circumstances), do the same or cause it to be done or remedy any such
breach, and may expend its funds for such purpose. Any and all reasonable
amounts so expended by MLBFS shall be repayable to MLBFS by Grantor upon demand,
with interest at the highest "Interest Rate" under the Loan Agreements under any
of the Loan Agreements, or the highest interest rate permitted by law, whichever
is less, during the period from and including the date funds are so expended by
MLBFS to the date of repayment, and any such amounts due and owing MLBFS shall
be additional Obligations. The payment or performance by MLBFS of any of
Grantor's obligations hereunder shall not relieve Grantor of said obligations or
of the consequences of having failed to pay or perform the same, and shall not
waive or be deemed a cure of any Default.
(e) FURTHER ASSURANCES. Grantor agrees to do such further acts and things and to
execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Agreement, or to establish, perfect and maintain MLBFS'
security interests and liens upon the Collateral, including, but not limited to:
(i) executing financing statements or amendments thereto when and as reasonably
requested by MLBFS; and (ii) if in the reasonable judgment of MLBFS it is
required by local law, causing the owners and/or mortgagees of the real property
on which any Collateral may be located to execute and deliver to MLBFS waivers
or subordinations reasonably satisfactory to MLBFS with respect to any rights in
such Collateral.
(f) BINDING EFFECT. This Agreement shall be binding upon Grantor and its
successors and assigns, and shall inure to the benefit of MLBFS and its
successors and assigns.
(g) HEADINGS. Captions and section and paragraph headings in this Agreement are
inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(h) GOVERNING LAW. This Agreement shall be governed in all respects by the laws
of the State of Illinois.
-5-
<PAGE>
(i) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
(j) TERM. This Agreement shall become effective upon acceptance by MLBFS, and,
subject to the terms hereof, shall continue in effect so long thereafter as
either MLBFS shall be committed to advance funds or extend credit to Customer or
there shall be any Obligations outstanding.
(k) COUNTERPARTS. This Agreement may be executed in one or more counterparts
which, when taken together, constitute one and the same agreement.
(l) JURISDICTION; WAIVER. GRANTOR ACKNOWLEDGES THAT THIS AGREEMENT IS BEING
ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN ITS
SOLE DISCRETION, TO ENFORCE THIS AGREEMENT IN EITHER THE STATE OF ILLINOIS OR IN
ANY OTHER JURISDICTION WHERE GRANTOR OR ANY COLLATERAL FOR THE OBLIGATIONS MAY
BE LOCATED GRANTOR CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE
IN ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND
GRANTOR WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE.
GRANTOR FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY
JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND
GRANTOR HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE
OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THE LOAN AGREEMENTS, THIS AGREEMENT AND/OR ANY OF THE
TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THE LOAN AGREEMENTS OR THIS
AGREEMENT.
(m) INTEGRATION. THIS WRITTEN AGREEMENT CONSTITUTES THE ENTIRE UNDERSTANDING AND
REPRESENTS THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE
SUBJECT MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN
AGREEMENTS OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. NO AMENDMENT OR
MODIFICATION OF THIS AGREEMENT SHALL BE EFFECTIVE UNLESS IN A WRITING SIGNED BY
BOTH MLBFS AND GRANTOR.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
MAIN ST. CALIFORNIA, INC.
By:
----------------------------------------------------------------------------
Signature (1) Signature (2)
- --------------------------------------------------------------------------------
Printed Name Printed Name
- --------------------------------------------------------------------------------
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By:
--------------------------------
-6-
LIST OF SUBSIDIARIES
Subsidiary Jurisdiction
- ---------- ------------
Main Entertainment, Inc. Arizona
Cornerstone Productions, Inc. Delaware
Main Street Cornerstone Texas, Inc. Texas
Main St. Northwest, Inc. Arizona
Main St. Hospitality, Inc. Arizona
Fiddlesticks, Inc. Arizona
Main St. Midwest, Inc. Kansas
Main St. California, Inc. Arizona
Main St. Louisana Restaurants, Inc. Arizona
Main St. El Paso, Inc. Arizona
Redfish America, LLC Arizona
Redfish Cleveland, Inc. Ohio
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 filed on Form S-3 (File Nos. 33-71230, 333-28659 and
333-78161) and Form S-8 (File Nos. 33-43612, 333-78155 and 333-89931).
/s/ Arthur Andersen LLP
Phoenix, Arizona,
March 22, 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS EXHIBIT CONTAINS SUMMARY FINANCIAL DATA INFORMATION FROM THE REGISTRANT'S
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 27, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS
EXHIBIT SHALL NOT BE DEEMED FILED FOR PURPOSES 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 UNLESS SUCH OTHER FILING EXPRESSLY INCORPORATES THIS EXHIBIT BY
REFERENCE.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> DEC-27-1999
<CASH> 3,055
<SECURITIES> 0
<RECEIVABLES> 3,434
<ALLOWANCES> 0
<INVENTORY> 1,453
<CURRENT-ASSETS> 8,563
<PP&E> 77,463
<DEPRECIATION> (19,457)
<TOTAL-ASSETS> 86,525
<CURRENT-LIABILITIES> 25,215
<BONDS> 31,513
0
0
<COMMON> 10
<OTHER-SE> 27,373
<TOTAL-LIABILITY-AND-EQUITY> 86,525
<SALES> 140,294
<TOTAL-REVENUES> 141,159
<CGS> 39,960
<TOTAL-COSTS> 125,952
<OTHER-EXPENSES> 11,415
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,604
<INCOME-PRETAX> 1,188
<INCOME-TAX> 50
<INCOME-CONTINUING> 1,138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 168
<NET-INCOME> 970
<EPS-BASIC> .09
<EPS-DILUTED> .09
</TABLE>
