SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-10725
FURR'S/BISHOP'S, INCORPORATED
INCORPORATED IN DELAWARE I.R.S. EMPLOYER IDENTIFICATION
NO.75-2350724
6901 QUAKER AVENUE, LUBBOCK, TX 79413
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (806)792-7151
- -------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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
- -------------------------------------------------------------------------------
As of August 11, 1998 there were 48,676,151 shares of Common Stock
outstanding.
Page 1 of 17
Exhibit Index Located on Page 16
<PAGE>
FURR'S/BISHOP'S, INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1998(Unaudited) and December 30, 1997 3
Unaudited Condensed Consolidated Statements
Of Operations - For the thirteen weeks
ended June 30, 1998 and July 1, 1997 5
Unaudited Condensed Consolidated Statements
of Operations - For the twenty-six weeks
ended June 30, 1998 and July 1, 1997 6
Unaudited Condensed Consolidated Statement
of Stockholders' Deficit - For the twenty-six weeks
ended June 30, 1998 7
Unaudited Condensed Consolidated Statements
of Cash Flows - For the twenty-six weeks
ended June 30, 1998 and July 1, 1997 8
Notes to Unaudited Condensed Consolidated
Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 14
SIGNATURES
Page 2
<PAGE>
<TABLE>
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except par value amounts)
<CAPTION>
June 30, December 30,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 8,050 $ 4,516
Accounts and notes receivable, net 886 882
Inventories 5,964 6,038
Prepaid expenses and other 1,627 1,122
----------- -----------
Total current assets 16,527 12,558
Property, plant and equipment, net 50,624 52,784
Other assets 448 459
----------- -----------
$ 67,599 $ 65,801
=========== ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
(Continued on following page)
Page 3
<PAGE>
<TABLE>
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(dollars in thousands, except par value amounts)
<CAPTION>
June 30, December 30,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Deficit
Current liabilities:
Current maturities of long-term debt $ 5,493 $ 5,493
Trade accounts payable 4,726 4,287
Other payables and accrued expenses 16,402 15,126
Reserve for store closings - current 1,002 1,344
----------- ----------
Total current liabilities 27,623 26,250
Reserve for store closings, net of current portion 3,083 3,331
Long-term debt, net of current portion 63,459 66,205
Other payables 7,404 7,276
Excess of future lease payments over fair value,
net of amortization 2,584 2,837
Contingencies
Stockholders' deficit:
Preferred stock, $.01 par value; 5,000,000
shares authorized, none issued
Common stock, $.01 par value; 65,000,000
shares authorized, 48,676,151 issued
and outstanding in 1998 and 1997 487 487
Additional paid-in capital 55,871 55,870
Accumulated other comprehensive income (2,504) (2,504)
Accumulated deficit (90,408) (93,951)
----------- ----------
Total stockholders' deficit (36,554) (40,098)
----------- ----------
$ 67,599 $ 65,801
=========== ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
Page 4
<PAGE>
<TABLE>
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<CAPTION>
Thirteen weeks ended
-------------------------
June 30, July 1,
1998 1997
----------- -----------
<S> <C> <C>
Sales $ 48,032 $ 49,787
Costs and expenses:
Cost of sales (excluding depreciation) 14,218 15,001
Selling, general and administrative 29,101 30,691
Depreciation and amortization 2,514 2,689
Net special charges 610
----------- -----------
46,443 48,381
----------- -----------
Operating income 1,589 1,406
Interest expense 70 78
----------- -----------
Net income $ 1,519 $ 1,328
=========== ===========
Weighted average number of shares
of common stock outstanding:
Basic 48,675,601 48,674,525
=========== ===========
Diluted 48,675,601 48,784,782
=========== ===========
Net income per share:
Basic $ 0.03 $ 0.03
=========== ===========
Diluted $ 0.03 $ 0.03
=========== ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
Page 5
<PAGE>
<TABLE>
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<CAPTION>
Twenty-six weeks ended
-------------------------
June 30, July 1,
1998 1997
----------- -----------
<S> <C> <C>
Sales $ 94,244 $ 97,140
Costs and expenses:
Cost of sales (excluding depreciation) 27,766 29,344
Selling, general and administrative 57,184 60,160
Depreciation and amortization 5,027 5,414
Net special charges 610 2,431
----------- -----------
90,587 97,349
----------- -----------
Operating income (loss) 3,657 (209)
Interest expense 114 134
----------- -----------
Net income (loss) $ 3,543 $ (343)
=========== ===========
Weighted average number of shares
of common stock outstanding:
Basic 48,675,384 48,673,138
=========== ===========
Diluted 48,675,384 48,673,138
=========== ===========
Net income (loss) per share:
Basic $ 0.07 $ (0.01)
=========== ===========
Diluted $ 0.07 $ (0.01)
=========== ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
Page 6
<PAGE>
<TABLE>
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE TWENTY-SIX WEEKS ENDED JUNE 30, 1998
(dollars in thousands)
<CAPTION>
Accumulated
Additional Other Total
Common Paid-In Comprehensive Accumulated Stockholders'
Stock Capital Income Deficit Deficit
------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at
December 30, 1997 $ 487 $ 55,870 $ (2,504) $ (93,951) $ (40,098)
Warrants exercised 1 1
Net income 3,543 3,543
------ ---------- ------------ ----------- ------------
Balance at
June 30, 1998 $ 487 $ 55,871 $ (2,504) $ (90,408) $ (36,554)
====== ========== ============ =========== ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
Page 7
<PAGE>
<TABLE>
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<CAPTION>
Twenty-six weeks ended
-------------------------
June 30, July 1,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,543 $ (343)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 5,027 5,414
(Gain) loss on disposition of assets (42) 199
Non-cash net special charges 2,431
Other, net 237 309
Changes in operating assets and liabilities:
(Increase) decrease in accounts and
notes receivable (4) 707
(Increase) decrease in inventories 74 (49)
Increase in prepaid expenses and other (505) (994)
Increase (decrease) in trade accounts
payable, other payables, accrued
expenses and other liabilities 1,715 (802)
----------- -----------
Net cash provided by operating activities 10,045 6,872
----------- -----------
Cash flows used in investing activities:
Purchases of property, plant and equipment (4,155) (2,687)
Expenditures charged to reserve for store
closings (669) (664)
Proceeds from the sale of property, plant
and equipment 1,100 16
Other, net 14 1
----------- -----------
Net cash used in investing activities (3,710) (3,334)
----------- -----------
Cash flows used in financing activities:
Payment of indebtedness (2,746) (2,749)
Other, net (55) (15)
----------- -----------
Net cash used in financing activities (2,801) (2,764)
----------- -----------
Increase in cash and cash equivalents 3,534 774
Cash and cash equivalents at beginning of period 4,516 3,696
----------- -----------
Cash and cash equivalents at end of period $ 8,050 $ 4,470
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid, including $2,746 of interest in
1998 and 1997 classified as payment of
indebtedness $ 2,748 $ 2,750
=========== ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
Page 8
<PAGE>
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: Summary of Significant Accounting Policies
Furr's/Bishop's, Incorporated, a Delaware corporation (the "Company"),
operates cafeterias and a buffet through its subsidiary Cafeteria Operators,
L.P., a Delaware limited partnership (together with its subsidiaries, the
"Partnership"). The financial statements presented herein are the unaudited
condensed consolidated financial statements of the Company and its majority
owned subsidiaries.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. These statements should be read in conjunction
with the consolidated financial statements, and notes thereto, which are
included in the Company's Form 10-K for the year ended December 30, 1997. In
the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation.
The results of operations for the twenty-six weeks ended June 30, 1998 may
not be indicative of the results that may be expected for the fiscal year
ending December 29, 1998.
The following table reconciles the denominators of basic and diluted
earnings per share for the periods ended June 30, 1998 and July 1, 1997.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
June 30, July 1, June 30, July 1,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding 48,675,601 48,674,525 48,675,384 48,673,138
Warrants 110,257
---------- ---------- ---------- ----------
Total Shares 48,675,601 48,784,782 48,675,384 48,673,138
========== ========== ========== ==========
</TABLE>
Warrants and options outstanding for the thirteen weeks ended June 30,
1998 and the twenty-six weeks ended June 30, 1998 and July 1, 1997 were not
considered in the computation of net income (loss) per common share because
their effect is antidilutive.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" which
establishes standards for reporting and display of comprehensive income in a
full set of general-purpose financial statements. Comprehensive income
includes net income and other comprehensive income which is generally comprised
of changes in the fair value of available-for-sale marketable securities,
foreign currency translation adjustments and adjustments to recognize
Page 9
<PAGE>
additional minimum pension liabilities. The Company had an accumulated other
comprehensive loss at December 30, 1997 of $2,504,000 consisting entirely of an
adjustment to recognize additional minimum pension liability. The Company had
no other comprehensive income for the twenty-six weeks ended June 30, 1998 and
July 1, 1997.
The Company is assessing the reporting and disclosure requirements of
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement requires a
public business enterprise to report financial and descriptive information
about its reportable operating segments. The statement is effective for
financial statements for periods beginning after December 31, 1997, but is not
required for interim financial statements in the initial year of its
application. The Company will adopt the provisions of this statement in its
December 29, 1998 consolidated financial statements.
NOTE B: Income Tax
During the twenty-six week period ended June 30, 1998, the Company had a
net loss for income tax purposes. The resulting tax benefit from the net
operating loss has been offset by an increase in the tax valuation allowance.
NOTE C: Special Charges
For the quarter ended June 30, 1998, the Company recognized a special
charge of $610,000 related to the proxy contest for the election of the Board
of Directors.
For the quarter ended April 1, 1997, the Company recognized net special
charges of $2,431,000, including a charge of $1,888,000 for the writedown of
assets and adjustments to closed store reserves, a charge of $1,835,000 to
recognize the writedown of certain assets in accordance with Statement of
Financial Accounting Standards, No. 121, "Accounting for the Impairment of
Long-Lived Assets" ("SFAS121"), and a credit of $1,292,000 related to the
settlement of a lawsuit previously filed against the Company.
NOTE D: Contingencies
The Company, in the ordinary course of business, is a party to various
legal actions. In the opinion of management, these actions ultimately will be
disposed of in a manner which will not have a material adverse effect upon the
Company's financial condition or results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen Weeks Ended June 30, 1998 Compared to Thirteen Weeks Ended July 1,
1997
Results of operations. Sales for the second fiscal quarter of 1998 were
$48.0 million, a decrease of $1.8 million from the same quarter of 1997.
Operating income for the second quarter of 1998 was $1.6 million compared to
Page 10
<PAGE>
operating income of $1.4 million in the comparable period in the prior year.
The operating income of the second quarter of 1998 included a special charge of
$610 thousand. The net income for the second quarter of 1998 was $1.5 million
compared to net income of $1.3 million in the second quarter of 1997.
Sales. Restaurant sales in comparable units were 2.33% higher in the
second quarter of 1998 than the same quarter of 1997. Sales for the second
fiscal quarter were $2.7 million lower than the same period of the prior year
due to a decline in the number of units at period end from 110 in 1997 to 101
in 1998. Management anticipates that one or two additional units will close in
the second half of 1998. A letter of intent has been executed for the
acquisition of a site in Sante Fe, New Mexico for a new unit that would open in
the second quarter of 1999. Sales by Dynamic Foods to third parties were $186
thousand lower in the second quarter of 1998 than the second quarter of the
prior year, reflecting an effort by management to improve margins by focusing
on sales to a smaller number of higher volume accounts.
Cost of sales. Excluding depreciation, cost of sales was 29.6% of sales
for the second quarter of 1998 as compared to 30.1% for the same quarter of
1997. The decrease in the percentage of sales was the result of changes in
pricing and menu mix. Produce costs in the current period were significantly
higher than the prior year period.
Selling, general and administrative. Selling, general and administrative
("SG&A") expense was lower in the aggregate by $1.6 million in the second
quarter of 1998 as compared to 1997 due primarily to there being fewer units
included in the operating results. Other changes in SG&A expense included an
increase of $97 thousand in marketing expense and $75 thousand in rent expense.
Depreciation and amortization. Depreciation and amortization expense was
lower by $175 thousand in the second quarter of 1998 due primarily to lower
depreciation on property, plant and equipment having been written down in
accordance with SFAS121.
Special charges. The operating income for the quarter ended June 30,
1998 included a special charge of $610 thousand to reflect the cost of the
proxy contest for the election of the Board of Directors.
Interest expense. Interest expense was $70 thousand in the second quarter
of 1998, which was slightly lower than the comparable period in the prior year.
In accordance with Statement of Financial Accounting Standards No. 15, the
Company's debt that was restructured at January 2, 1996 was recorded at the sum
of all future principal and interest payments and there is no recognition of
interest expense thereon.
Twenty-six Weeks Ended June 30, 1998 Compared to Twenty-six Weeks Ended July 1,
1997
Results of operations. Sales for the first twenty-six weeks of 1998 were
$94.2 million, a decrease of $2.9 million from the same period of 1997.
Operating income for the first twenty-six weeks of 1998 was $3.7 million
compared to an operating loss of $209 thousand in the comparable period in the
prior year. The operating income for the twenty-six weeks of 1998 included a
special charge of $610 thousand, while the prior year period included net
special charges of $2.4 million. The net income for the first twenty-six weeks
Page 11
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of 1998 was $3.5 million compared to a net loss of $343 thousand in the same
period of 1997.
Sales. Restaurant sales in comparable units were 2.71% higher in the
first twenty-six weeks of 1998 than the same period of 1997. Sales for the
first twenty-six weeks were $4.9 million lower than the same period of the
prior year due to there being nine fewer units included in operating results.
Sales by Dynamic Foods to third parties were $343 thousand lower in the first
twenty-six weeks of 1998 than the same period of the prior year.
Cost of sales. Excluding depreciation, cost of sales was 29.5% of sales
for the first twenty-six weeks of 1998 as compared to 30.2% for the same period
of 1997. The decrease in the percentage of sales was the result of changes in
pricing and menu mix. Produce costs in the current period were higher than the
prior year period.
Selling, general and administrative. Selling, general and administrative
("SG&A") expense was lower in the aggregate by $3.0 million in the first
twenty-six weeks of 1998 as compared to 1997 due primarily to there being fewer
units included in the operating results. Other changes in SG&A expense
included an increase in 1998 of $198 thousand in marketing expense and $271
thousand in labor and related benefits and a decrease of $238 thousand in
utility expenses.
Depreciation and amortization. Depreciation and amortization expense was
lower by $387 thousand in the first twenty-six weeks of 1998 due primarily to
lower depreciation on property, plant and equipment having been written down in
accordance with SFAS121.
Special charges. The operating income for the quarter ended June 30, 1998
included a special charge of $610 thousand to reflect the cost of the proxy
contest for the election of the Board of Directors. The loss from operations
for the quarter ended April 1, 1997 included net special charges of $2.4
million, which included charges of $1.9 million for the writedown of assets and
adjustments to closed store reserves and $1.8 million to recognize the
writedown of certain assets in accordance with SFAS121 and a credit of $1.3
million related to the settlement of a lawsuit previously filed against the
Company.
Interest expense. Interest expense was $114 thousand in the first
twenty-six weeks of 1998, which was slightly lower than the comparable period
in the prior year. In accordance with Statement of Financial Accounting
Standards No. 15, the Company's debt that was restructured at January 2, 1996
was recorded at the sum of all future principal and interest payments and there
is no recognition of interest expense thereon.
LIQUIDITY AND CAPITAL RESOURCES OF
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
During the twenty-six weeks ended June 30, 1998, cash provided by
operating activities of the Company was $10.0 million compared to $6.9 million
in the same period of 1997. The Company made capital expenditures of $4.2
million during the first twenty-six weeks of 1998 compared to $2.7 million
during the same period of 1997. Cash and cash equivalents were $8.1 million at
Page 12
<PAGE>
June 30, 1998 compared to $4.5 million at July 1, 1997. The current ratio of
the Company was .60:1 at June 30, 1998 compared to .47:1 at July 1, 1997 and
.48:1 at December 30, 1997. The Company's total assets at June 30, 1998
aggregated $67.6 million, compared to $70.0 million at July 1, 1997 and $65.8
million at December 30, 1997.
The improvement in results of operations in the twenty-six weeks ended
June 30, 1998 over the comparable period of the prior year reflects the impact
of the present marketing program, operating cost controls, as well as milder
winter weather in most of the company's markets at the beginning of the current
year.
The Company's restaurants are a cash business. Funds available from cash
sales are not needed to finance receivables and are not generally needed
immediately to pay for food, supplies and certain other expenses of the
restaurants. Therefore, the business and operations of the Company have not
historically required proportionately large amounts of working capital, which
is generally consistent with similar restaurant companies.
Total scheduled maturities of long-term debt and interest classified as
long-term debt of the Company and its subsidiaries over the next five calendar
years are: $2.7 million in the remainder of 1998, $5.5 million in 1999, $5.5
million in 2000 and $55.3 million in 2001.
The Partnership has outstanding $66.4 million of 12% Notes due December
31, 2001, which includes $20.6 million of interest to maturity. Under the
terms of the indenture covering the 12% Notes, a semi-annual cash interest
payment of approximately $2.7 million is due on each March 31 and September 30.
The obligations of the Partnership under the 12% Notes are secured by a
security interest in and a lien on all of the personal property of the
Partnership and mortgages on all fee and leasehold properties of the
Partnership (to the extent such properties are mortgageable).
The Partnership has outstanding $2.5 million of 10.5% Notes due December
31, 2001. A semi-annual cash interest payment of approximately $134 thousand
is due on each June 30 and December 31.
In 1993, the Partnership entered into an amendment of a master sublease
agreement pursuant to which it leased 43 properties from Kmart Corporation
("Kmart"). Pursuant to the amendment and subject to the terms and conditions
thereof, two properties were removed from the master sublease, and the
aggregate monthly rent for the period January 1, 1997 through and including
December 31, 1999 were reduced by 20%. The reductions in rent were subject to
termination by Kmart if Kevin E. Lewis ceased to be Chairman of the Board of
Directors of the Company. Mr. Lewis was not elected to the Board of Directors,
or as Chairman of the Board, at the meeting of stockholders on May 28, 1998,
and accordingly, Kmart has notified the Company of its intent to terminate the
reductions in rent. The additional rent payments through December 31, 1999
will amount to approximately $1.8 million. The Company accounts for its rental
payments under the straight-line method, and the increase in rent through
December 31, 1999 will be amortized over the remaining life of the leases,
which run through December 31, 2003, December 31, 2007, June 29, 2008 and
December 31, 2008. The increase in annual rent expense will be approximately
$288 thousand.
Page 13
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
(a) The Company filed a declaratory judgement lawsuit in state district
court in Lubbock, Texas in which it asks the court to find that the
Company is not obligated to make severance payments that have been
demanded by Theodore Papit, the former President and CEO of the
Company. Mr. Papit submitted his resignation on May 28, 1998,
following the election at the Company's annual meeting of
shareholders of a slate of directors proposed by Teacher's
Insurance and Annuity Association of America (TIAA), the Company's
largest shareholder. He subsequently demanded payment of more than
$500,000 of severance and other amounts that he claimed were owing
to him under a "President and Chief Executive Officer Agreement"
dated March 23, 1998. This Agreement was approved by a split vote
of the board of directors after TIAA had publicly announced that it
might take action affecting the control of the Company. The
Company has requested a jury trial and believes that there are a
number of grounds that will support the court in granting the
requested relief, among them being that the Agreement is void as an
interested party transaction that did not receive the necessary
approval of independent, disinterested directors, the terms of the
Agreement are not fair to the Company and the Agreement was entered
into by the Company without the benefit of full disclosure by Mr.
Papit and consideration by the board of directors of material
information regarding his management of the Company.
(b) The Company and certain of its subsidiaries, the Cavalcade Pension
Plan, the Cavalcade Pension Plan Committee (consisting of Donald
Dodson, Kevin Lewis, Alton Smith and Carlene Stewart), Kmart
Corporation and its pension plan and Michael Levenson are
defendants in a lawsuit brought against them in U.S. District Court
in Denver, Colorado by Robert H. Aull ("Plaintiff"), a former
employee of the Company and a participant in the Cavalcade Pension
Plan. The Plaintiff has requested that the court certify a class
of other plaintiffs who are similarly situated and seeks
unspecified damages.
The Plaintiff's allegations (all of which are disputed by the
Company) include: (i)that accrued benefits under the Cavalcade
Pension Plan have been improperly reduced, (ii) the "freeze" of the
Plan on June 30, 1989 was improper, (iii) an insufficient amount of
assets was transferred from the Kmart pension plan to the Cavalcade
Pension Plan in connection with the acquisition of the Company from
Kmart effected by Mr. Levenson and his affiliates, (iv) rent
concessions allowed to the Company by Kmart constituted prohibited
transactions that have bestowed illegal benefits upon the Company
and Mr. Lewis. In July 1998, the court deferred to November 1998 a
scheduled hearing on all pending motions in recognition of the
expressed desire of the parties to pursue mediation of the dispute
with the objective of achieving a settlement of all claims, which
is proceeding.
PAGE 14
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The Company has been defending this litigation vigorously.
Management believes that the Company, its affiliates and the Plan
Committee have meritorious defenses to the claims made by the
Plaintiff. Management also believes that the Cavalcade Pension
Plan is adequately funded to satisfy existing benefit levels and
that any increase in benefits that might result from this
litigation could be paid by the Plan from Plan assets or from
increased future contributions to the Plan in amounts that would
not have a material adverse effect on the financial condition or
results of operations of the Company. Because of the inherent
uncertainty of litigation, management cannot offer assurance that
the litigation will be resolved on terms that are favorable to the
Company or that will avoid the incurrence of material expense by
the Company.
Item 4. Submission of Matters to a Vote of Security Holders
The 1998 Annual Meeting of Stockholders was held on May 28,
1998. At the meeting, stockholders voted to amend the Company's
bylaws to reduce the number of directors from nine to seven and on
the election of seven directors to serve one-year terms.
Following is a summary of the tabulation of the vote for the
amendment to the Company's bylaws:
For Against
---------- ---------
39,021,444 25,000
Following is a summary of the votes cast for each director
nominee:
Steve Bartlett 137,412
Jacob C. Baum 39,021,319
Ben Evans 39,021,319
William C. Hale 137,801
Suzanne Hopgood 39,134,427
Damien Kovary 39,021,319
William J. Nightingale 39,021,319
Gilbert C. Osnos 39,021,319
Theodore J. Papit 138,071
Ross E. Puskar 137,832
Kenneth F. Reimer 138,083
Delia M. Reyes 137,400
Barry W. Ridings 39,021,319
Arnold Sheiffer 137,832
Page 15
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Item 6. Exhibits and Reports on Form 8-K
(c) Exhibits
10.1 Agreement Engaging the Services of Suzanne Hopgood as Interim
Manager, effective as of June 1, 1998, between Suzanne
Hopgood and Furr's/Bishop's, Incorporated.
10.2 First Amendment to the 1995 Stock Option Plan of
Furr's/Bishop's, Incorporated, effective as of June 18, 1998.
10.3 Form of Stock Option Agreement pursuant to the 1995 Stock
Option Plan of Furr's/Bishop's, Incorporated.
(b) Reports on Form 8-K
A report on Form 8-K was filed on April 30, 1998 with respect to
the Incentive Stock Option Agreement between the Company and
Theodore J. Papit as of March 23, 1998.
A report on Form 8-K was filed on June 11, 1998 with respect to the
election of five new members of the Board of Directors and the
resignation of Theodore J. Papit as President and Chief Executive
Officer of the Company.
Page 16
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
FURR'S/BISHOP'S, INCORPORATED FURR'S/BISHOP'S, INCORPORATED
BY: /s/ Suzanne Hopgood /s/ Alton R. Smith
------------------------------ -----------------------------
Suzanne Hopgood Alton R. Smith
Chairman of the Board, Principal Accounting Officer
President and Chief Executive Officer
DATE: August 12, 1998
<PAGE>
Exhibit 10.1
AGREEMENT ENGAGING THE SERVICES OF
SUZANNE HOPGOOD AS INTERIM MANAGER
WHEREAS, Furr's/Bishop's, Incorporated (the "Company") wishes to engage
professional management assistance to provide general management of the
Company's operating and business affairs.
NOW, THEREFORE, BE IT RESOLVED that the Company hereby engages Suzanne
Hopgood ("Hopgood") for the purpose of managing the Company on an interim basis
commencing June 1, 1998 and continuing until the earlier to occur of the
selection of a permanent President of the Company or ninety (90) days, provided
that if the Company has not selected a permanent President within that time,
this Agreement may be renewed on a month-to-month basis thereafter by agreement
of the parties. In the case of month-to-month employment, Hopgood shall, if
she terminates her employment with the Company, give at least thirty (30) days'
notice of her intent to terminate her employment with the Company.
Notwithstanding the foregoing, the engagement of Hopgood shall continue at the
pleasure of the Board of Directors and may be terminated at any time by
resolution of the Board of Directors, and with notice to Hopgood. Hopgood will
serve as interim Chief Executive Officer of the Company, with all of the
authority of the President and Chief Executive Officer of the Company set forth
in the Company's bylaws, subject to the following terms and conditions:
1. Hopgood shall have full access to all personnel and a relationship
with the entire internal organization much like that of the Chief
Executive Officer, although the relationship of Hopgood to the Company
shall, at all times, be that of an independent contractor.
2. Hopgood shall review and approve all financial and operating
policies, plans and programs and shall participate in any major decision
that might have a significant impact on such policies.
3. Hopgood shall be subject solely to the control of the Board of
Directors of the Company. Except for such control, Hopgood shall not be
subject to the control of any other person or persons.
4. Hopgood shall be compensated for her services under this Agreement
at the rate of $40,000 per month, plus expenses. Fees and expenses will
be billed monthly, and all invoices are due and payable upon receipt.
Hopgood agrees to devote an average of three working days per week at the
Company's offices or its restaurant facilities performing the services
described in this Agreement.
5. In consideration of Hopgood's undertaking to discharge the
responsibilities as set forth above, the Company shall and does, hereby,
forever release, remise and discharge, agree to indemnify, pay on demand,
and hold harmless, Hopgood, her agents, attorneys, employees, and
representatives, from any and all claims, costs, demands, actions, or
liabilities, whatsoever, in law or equity, which may result from any act
or failure to act in what she, in good faith, believes to be the best
1
<PAGE>
interests of the Company, arising out of the performance of the services
described in this Agreement. This Agreement will also confirm that
Hopgood's existing Indemnity Agreement with the Company will be applicable
to all services provided by Hopgood under this Agreement.
Dated: June 1, 1998
FURR'S/BISHOP'S, INCORPORATED
By: /s/ Barry Ridings
------------------------------
/s/ Suzanne Hopgood
------------------------------
SUZANNE HOPGOOD
2
<PAGE>
Exhibit 10.2
Amendment to 1995 Stock Option Plan of
Furr's/Bishop's Incorporated
Reference is hereby made to that certain 1995 Stock Option Plan of
Furr's/Bishop's, Incorporated, as amended from time to time.
Pursuant to action of the Board of Directors of the Company on June 18,
1998, Section 23 of the Option Plan is hereby amended and restated in its
entirety to read as follows:
23. Grants to Non-Employee Directors
(d) On the first business day following the election by the
Shareholders of the Company of each director of the Company
who (i) is not then an employee of the Company or any
Subsidiary thereof and (ii) has not previously been elected as
a director by the Shareholders of the Company, the Company
shall grant to such director an Option to purchase one hundred
thousand (100,000) shares of Common Stock (a "Non-employee
Director Option") (as such shares are denominated as of July
1, 1998). If the election of a director falls on a day on
which the Common Stock is not publicly traded, Non-employee
Director Options shall instead be deemed granted pursuant to
this Section 23 on the next following trading day: The Company
shall grant Non-employee Director Options to purchase one
hundred thousand (100,000) shares of Common Stock to each
director of the Company serving on the effective date of this
amendment of Section 23 of the Option Plan. A director who is
first elected to the Board by action of the Board will not be
entitled to receive a grant of Non-employee Director Options
until elected by vote of the Shareholders of the Company.
(e) The Option Price of Non-employee Director Options will be the
Fair Market Value of a share of Common Stock on the date of
grant. Non-employee Director Options will vest and become
exercisable as to one-third (1/3) of the shares subject to the
Non-employee Director Option on the day preceding each of the
first, second and third annual meetings of Shareholders at
which directors are elected which occur after the date of
grant. The Option Term for Non-employee Director Options
shall be ten years following the date of grant. Non-employee
Director Options are to be Nonqualified Stock Options.
(f) If, during the Option Term of an unexercised and unexpired
Non-employee Director Option, the Grantee ceases to be a
voting member of the Board for any reason (other than the
Grantee's death or Disability), the portion of the Option
which is vested and exercisable on the date such voting status
terminates may be exercised until the end of the three-month
period following the date the Grantee's voting status
terminates (but in no event later than the expiration of the
Option Term). Any portion of a Non-employee Director Option
that is not vested and exercisable on the date the Grantee's
voting status terminates will expire on such date. If the
1
<PAGE>
Grantee's voting status terminates by reason of the Grantee's
death or Disability, all outstanding unvested Non-employee
Director Options held by the Grantee will immediately become
vested and may thereafter be exercised, by the director or by
the director's estate or by a person who acquires the right to
exercise such Options by bequest or inheritance or otherwise
by reason of death or Disability of the director, at any time
within one-hundred eighty (180) days after the death or
Disability of the director (but in no event may a Non-employee
Director Option be exercised after the expiration of its
Option Term). If a Non-employee Director Option is exercised
by the legal representative of a deceased or Disabled
director, written notice of exercise must be accompanied by a
certified copy of letters testamentary or equivalent proof of
the right of the legal representative to exercise such Option.
(g) Non-employee Director Options will become fully vested and
exercisable upon the termination of the Grantee's status as a
voting member of the Board at any time within twelve months
following the occurrence of a "change of control," unless the
Grantee resigns or is removed from office for "cause" by the
action, in good faith, of the Board or the Shareholders within
such twelve month period.
The Grantee's status as a voting member of the Board will be
deemed to have been terminated for "cause" if the Grantee is
removed from office because of (i) the Grantee's material
breach of, or failure to perform, or willful and continual
neglect of, the Grantee's duties or obligations as a Director,
(ii) the Grantee's conviction of any crime or offense
involving (a) moral turpitude, either in connection with the
performance of the Grantee's obligations to the Company or its
affiliates or that will adversely affect the Grantee's ability
to perform such obligations or (b) money or other property of
the Company or its affiliates; or (iii) chronic alcoholism or
drug addiction.
A "change of control" of the Company will be deemed to exist
upon the occurrence of any of the following events:
(i) The Company is merged, consolidated or reorganized into
or with another corporation or other legal person and as a
result of such merger, consolidation or reorganization less
than 50% of the voting securities of the remaining corporation
or legal person or its ultimate parent immediately after such
transaction is available to be received by all Shareholders of
the Company on a pro rata basis and is actually received in
respect of or exchange for voting securities of the Company
pursuant to such transaction;
(ii) The Company sells all or substantially all of its
assets to any other corporation or other legal person and as a
result of such sale less than 50% of the combined voting
securities of such corporation or legal person or its ultimate
parent immediately after such transaction is available to be
2
<PAGE>
received by all Shareholders of the Company on a pro rata
basis and is actually received in respect of or exchange for
voting securities of the Company pursuant to such sale; or
(iii) Any person or group (including any "person" or "group"
as such terms are used in Section 13 or Section 14 of the
Securities Exchange Act of 1934 and the regulations thereunder
(the "Exchange Act")), other than a person or group owning at
least ten percent (10%) of the common stock of the Company as
of June 1, 1998, has become the beneficial owner (as the term
"beneficial owner" is defined under the Exchange Act) of
voting securities which, when added to any voting securities
already owned by such person, would represent in the aggregate
50% or more of the then outstanding voting securities of the
Company. "Voting Securities" mean common stock and any other
security which carries, or which is at the time of
determination convertible into or exercisable to acquire a
security that carries, the right to vote upon the election of
the Board, with the number of such voting securities to be
determined by reference to the number of votes that the holder
could cast in the election of directors on a fully converted
or exercised basis.
Notwithstanding any other provisions of this Plan to the
contrary, this Section 23 may not be amended more than once
every six months, other than to comport with changes in the
Code, the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder.
IN WITNESS WHEREOF, Furr's/Bishop's, Incorporated has caused this
Amendment to the 1995 Stock Option Plan to be executed effective as of June 18,
1998.
FURR'S/BISHOP'S, INCORPORATED
By /s/ Suzanne Hopgood
--------------------------
Suzanne Hopgood
Chief Executive Officer (Acting)
3
<PAGE>
Exhibit 10.3
NONQUALIFIED STOCK OPTION AGREEMENT
1995 STOCK OPTION PLAN
OF FURR'S/BISHOP'S, INCORPORATED
This STOCK OPTION AGREEMENT (the "Agreement") is made between
FURR'S/BISHOP'S, INCORPORATED, a Delaware corporation (the "Company"), and
_________________ (the "Director"). The Company considers that its interests
will be served by granting the Director an option to purchase shares of common
stock of the Company as an inducement for his continued and effective
performance of services for the Company. The Board of Directors of the Company
(the "Board") has adopted, and the stockholders have approved, the 1995 Stock
Option Plan of Furr's/Bishop's Incorporated (the "Plan"), a copy of which is
attached hereto and incorporated by reference herein. The Director has been
designated as a participant in the Plan.
IT IS AGREED:
1. Subject to the terms of the Plan, on June 18, 1998 (the "Date of
Grant"), the Company hereby grants to the Director an option (the "Option") to
purchase 100,000 shares of the common stock of the Company, $.01 par value per
share, at a price of $ 1.00 per share, subject to adjustment as provided in the
Plan ("the "Option Price"). The Option is exercisable according to the
following schedule:
(a) On the day after the first anniversary of the Date of Grant, the
Option may be exercised with respect to up to 1/3 of the shares subject to
the Option;
(b) after each succeeding anniversary of the Date of Grant, the Option
may be exercised with respect to up to an additional 1/3 of the shares
subject to the Option, so that after the expiration of the third
anniversary of the Date of Grant the Option will have been exercised in
full; and
(c) to the extent not exercised, installments will be cumulative, and
may be exercised in whole or in part.
(d) Non-employee Director Options will become fully vested and
exercisable upon the termination of the Director's status as a voting
member of the Board at any time within twelve months following the
occurrence of a "change of control," unless the Director resigns or is
removed from office for "cause" by the action, in good faith, of the Board
or the Shareholders within such twelve month period. The Director's
status as a voting member of the Board will be deemed to have been
terminated for "cause" if the Director is removed from office because of
(i) the Director's material breach of, or failure to perform, or willful
and continual neglect of, the Director's duties or obligations as a
Director, (ii) the Director's conviction of any crime or offense involving
(a) moral turpitude, either in connection with the performance of the
Director's obligations to the Company or its affiliates or that will
adversely affect the Director's ability to perform such obligations or (b)
money or other property of the Company or its affiliates; or (iii) chronic
alcoholism or drug addiction.
1
<PAGE>
A "change of control" of the Company will be deemed to exist upon the
occurrence of any of the following events:
(i) The Company is merged, consolidated or reorganized into or with
another corporation or other legal person and as a result of such merger,
consolidation or reorganization less than 50% of the voting securities of
the remaining corporation or legal person or its ultimate parent
immediately after such transaction is available to be received by all
Shareholders of the Company on a pro rata basis and is actually received
in respect of or exchange for voting securities of the Company pursuant to
such transaction;
(ii) The Company sells all or substantially all of its assets to any
other corporation or other legal person and as a result of such sale less
than 50% of the combined voting securities of such corporation or legal
person or its ultimate parent immediately after such transaction is
available to be received by all Shareholders of the Company on a pro rata
basis and is actually received in respect of or exchange for voting
securities of the Company pursuant to such sale; or
(iii) Any person or group (including any "person" or "group" as such
terms are used in Section 13 or Section 14 of the Securities Exchange Act
of 1934 and the regulations thereunder (the "Exchange Act")), other than a
person or group owning at least ten percent (10%) of the common stock of
the Company as of July 1, 1998, has become the beneficial owner (as the
term "beneficial owner" is defined under the Exchange Act) of voting
securities which, when added to any voting securities already owned by
such person, would represent in the aggregate 50% or more of the then
outstanding voting securities of the Company. "Voting securities" means
common stock and any other security which carries, or which is at the time
of determination convertible into or exercisable to acquire a security
that carries, the right to vote upon the election of the Board, with the
number of such voting securities to be determined by reference to the
number of votes that the holder could cast in the election of directors on
a fully converted or exercised basis.
2. The Option granted to the Director under this Agreement will not be
transferable or assignable by the Director other than by will or the laws of
descent and distribution, and will be exercisable during the Director's
lifetime only by him.
3. The Option, to the extent such rights will not previously have been
exercised, will terminate and become null and void on the earliest of:
(a) the last day within the ten year period commencing on the Date of
Grant (the "Expiration Date");
(b) the date that is 30 days after the date of termination of the
Director's service as a director of the Company for any reason other than
death or disability, as defined in the plan ("Disability");
(c) the date that is 180 days after the date of the termination of the
Director's service as a Director of the Company because of death or
Disability.
2
<PAGE>
In the event of the termination of the Director's service as Director of
the Company for any reason prior to the Expiration Date, the Option will not
continue to vest after such termination. Upon the death of the Director, his
executors, administrators or any person or persons to whom his Option may be
transferred by will or by the laws of descent and distribution, will have the
right to exercise the Option with respect to the number of shares that the
Director would have been entitled to exercise if he were still alive.
4. This Agreement may not be changed or terminated orally but only by an
agreement in writing signed by the party against whom enforcement of any such
change or termination is sought.
5. The Company will not be deemed by the grant of the Option (as
distinguished from a separate employment agreement, if any) to be required to
continue the Director's service or to nominate the Director for election.
6. The Director will not have any rights as a stockholder with respect to
any shares covered by the Option until the date of the issuance of the stock
certificate or certificates to him for such shares following his exercise of
the Option pursuant to its terms and conditions and payment for the shares. No
adjustment will be made for dividends or other rights for which the record date
is prior to the date such certificate or certificates are issued.
7. The Director consents to the placing on the certificate for any shares
covered by the Option of an appropriate legend restricting resale or other
transfer of such shares except in accordance with the Securities Act of 1933
and all applicable rules thereunder.
8. In the event of any difference of opinion concerning the meaning or
effect of the Plan or this Agreement, such difference will be resolved by the
committee referred to in the Plan.
9. The validity, construction and performance of this agreement will be
governed by the laws of the State of Delaware. Any invalidity of any provision
of this Agreement will not affect the validity of any other provision.
10. All offers, notices, demands, requests, acceptances or other
communications hereunder will be in writing and will be deemed to have been
duly made or given if mailed by registered or certified mail, return receipt
requested. Any such notice mailed to the Company must be addressed to its
principal office, and any notice mailed to the Director must be addressed to
the Director's residence address as it appears on the books and records of the
Company or to such other address as either party may hereafter designate in
writing to the other.
11. This Agreement will, except as herein stated to the contrary, inure to
the benefit of and bind the legal representatives, successors and assigns of
the parties hereto.
12. This Option is a nonqualified stock option and is not intended to be
governed by section 422 of the Internal Revenue Code of 1986, as amended.
13. In accepting this Option, the Director accepts and agrees to be bound
by all the terms and conditions of the Plan that pertain to nonqualified stock
options granted under the Plan.
3
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered to
be effective as of the day and year first above written.
FURR'S/BISHOP'S, INCORPORATED
By:
--------------------------
Barry W. Ridings
Chairman, Compensation Committee
By:
--------------------------
Director
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FURR'S/BISHOP'S, INCORPORATED FINANCIAL STATEMENTS AS OF AND FOR THE
PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 8,050
<SECURITIES> 0
<RECEIVABLES> 910
<ALLOWANCES> 24
<INVENTORY> 5,964
<CURRENT-ASSETS> 16,527
<PP&E> 103,666
<DEPRECIATION> 53,042
<TOTAL-ASSETS> 67,599
<CURRENT-LIABILITIES> 27,623
<BONDS> 63,459
0
0
<COMMON> 487
<OTHER-SE> (37,041)
<TOTAL-LIABILITY-AND-EQUITY> 67,599
<SALES> 94,244
<TOTAL-REVENUES> 94,244
<CGS> 27,766
<TOTAL-COSTS> 27,766
<OTHER-EXPENSES> 62,821
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114
<INCOME-PRETAX> 3,543
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,543
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,543
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
