<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1996
REGISTRATION NO. 333-04129
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LONE STAR STEAKHOUSE & SALOON, INC.
(Exact name of Registrant as specified in its charter)
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Delaware 5812 48-1109495
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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224 EAST DOUGLAS, SUITE 700
WICHITA, KANSAS 67202
(316) 264-8899
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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JAMIE B. COULTER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
LONE STAR STEAKHOUSE & SALOON, INC.
224 EAST DOUGLAS, SUITE 700
WICHITA, KANSAS 67202
(316) 264-8899
(Name, address, including zip code, and telephone number, including area
code, of agent of service)
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Copies to:
Steven Wolosky, Esq. Jeffrey D. Saper, Esq.
Kenneth A. Schlesinger, Esq. J. Robert Suffoletta, Esq.
Olshan Grundman Frome & Rosenzweig LLP Wilson Sonsini Goodrich
505 Park Avenue & Rosati, P.C.
New York, New York 10022 650 Page Mill Road
(212) 753-7200 Palo Alto, California 94304
(415) 493-9300
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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2
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LONE STAR STEAKHOUSE & SALOON, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K Showing Location
in Prospectus of Information Required by Items of Form S-1
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Item Number and Heading in Form S-1 Registration Statement Caption or Location in Prospectus
- ------------------------------------------------------------- -------------------------------------------------
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1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................... Forepart of the Registration Statement; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus ...................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges ....................... Prospectus Summary; Risk Factors
4. Use of Proceeds ................................. Use of Proceeds
5. Determination of Offering Price ................. Underwriting
6. Dilution ........................................ *
7. Selling Security Holders ........................ Principal and Selling Stockholders
8. Plan of Distribution ............................ Underwriting
9. Description of Securities to be Registered ...... Description of Capital Stock; Dividend Policy
10. Interests of Named Experts and Counsel .......... Legal Matters; Experts
11. Information with Respect to the Registrant ...... Front Cover Page of Prospectus; Prospectus
Summary; Risk Factors; The Company; Use of
Proceeds; Dividend Policy; Capitalization;
Selected Historical and Pro Forma Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Certain Relationships and Related
Transactions; Principal and Selling Stockholders;
Description of Capital Stock; Underwriting;
Available Information; Experts; Legal Matters;
Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ... *
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* Not applicable.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED MAY 29, 1996
4,000,000 SHARES
(LOGO)
COMMON STOCK
Of the 4,000,000 shares of Common Stock offered hereby, 2,500,000 shares
are being sold by Lone Star Steakhouse & Saloon, Inc. (the "Company") and
1,500,000 shares are being sold by the Selling Stockholders. See "Principal
and Selling Stockholders." The Company will not receive any of the proceeds
from the sale of shares by the Selling Stockholders.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "STAR." On May 28, 1996, the last sale price of the Common Stock
as reported on the Nasdaq National Market was $40 per share. See "Price
Range of Common Stock."
See "Risk Factors" beginning on page 6 for a discussion of certain factors
that should be considered by prospective purchasers of the Common Stock
offered hereby.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Price Underwriting Proceeds to Proceeds to
to Public Discount(1) Company(2) Selling Stockholders
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Per Share ... $ $ $ $
Total (3) ... $ $ $ $
=============================================================================================
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses of the offering estimated at $400,000, all of
which are payable by the Company.
(3) The Company and the Selling Stockholders have granted to the Underwriters
a 30-day option to purchase up to an additional 600,000 shares of Common
Stock at the Price to Public less the Underwriting Discount solely to
cover over-allotments, if any. If the Underwriters exercise this option
in full, the Price to Public will total $ , the Underwriting Discount
will total $ , the Proceeds to Company will total $ and the
Proceeds to Selling Stockholders will total $ . See "Underwriting."
The shares of Common Stock are offered by the Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to their right to
reject any order in whole or in part. It is expected that delivery of
certificates representing the shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1996.
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MONTGOMERY SECURITIES
SMITH BARNEY INC.
WESSELS, ARNOLD & HENDERSON
, 1996
<PAGE>
THE TRADENAME LOGOS OF THE COMPANY
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF THE
COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER
THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Consolidated Financial Statements (including the notes thereto) appearing
elsewhere in this Prospectus. In August 1995, the Company acquired 11 Lone
Star Steakhouse & Saloon restaurants. All financial and restaurant
information herein reflects this acqisition. Unless otherwise indicated, all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option.
THE COMPANY
Lone Star Steakhouse & Saloon, Inc. ("Lone Star" or the "Company") has
positioned itself as "The Steak Company" which will operate three distinct
steakhouse restaurant concepts. The primary growth vehicle will be the Lone
Star Steakhouse & Saloon restaurant concept which operates in the mid-scale
steak segment ("Lone Star Restaurants"). The Company is also developing two
restaurant concepts in the upscale steakhouse market, Del Frisco's Double
Eagle Steak House ("Del Frisco's") and Sullivan's Steakhouse ("Sullivan's").
The Company currently owns and operates 168 Lone Star Restaurants in the
United States. Internationally, the Company's Australian joint venture owns
and operates 11 restaurants in Australia. The Lone Star Restaurants are
mid-priced, full service casual dining restaurants which embrace a
Texas-style concept featuring Texas artifacts and country and western music.
The Lone Star Restaurants serve mesquite grilled steaks, ribs, chicken and
fish. The exciting and vibrant atmosphere created by the Lone Star
Restaurants' "Texas Roadhouse" ambiance is enhanced by free buckets of
roasted peanuts, neon beer signs and peanut-shell-littered floors. Lone Star
Restaurants are further distinguished by its high quality, USDA choice-graded
steaks which are hand- cut fresh daily at each restaurant and mesquite
grilled to order. Meals are served in generous "Texas-sized" portions and
full liquor and bar service is available. The Lone Star Restaurants serve
both lunch and dinner with an average check per customer for 1995 of
approximately $8.50 at lunch and $18.50 at dinner.
Lone Star opened its first restaurant in 1989 and currently operates in 32
states.The Company is continuing its domestic expansion program pursuant to
which it opened 36 Lone Star Restaurants in 1993, 48 restaurants in 1994 and
45 restaurants in 1995. In addition, in August 1995, the Company acquired 11
Lone Star Restaurants which had been operated under the Lone Star name
pursuant to a trademark license granted by the Company with respect to
certain areas of North Carolina (the "1995 Lone Star Acquisition"). As of May
20, 1996, the Company had opened eight of the 45 restaurants it intends to
open in 1996. New restaurants are expected to be located within the Company's
existing markets as well as in new markets. In addition, the Company expects
that its Australian joint venture will open seven to nine new restaurants in
1996.
The Company currently operates three Lone Star Restaurants in Europe pursuant
to a joint venture agreement. On May 20, 1996, the Company's Board of Directors
approved a plan to discontinue the European joint venture. The Company
anticipates closing its European restaurants as early as the second quarter of
fiscal 1996; however, the Company may seek to sell or license such restaurants.
The Company expects to incur a non-recurring pre-tax charge as early as the
second quarter of fiscal 1996 in the range of $9,000,000 to $11,000,000. See
"Risk Factors -- Discontinuance of European Operations."
3
<PAGE>
In connection with the Company's strategy to become "The Steak Company," the
Company recently decided to develop additional steak restaurant concepts in the
upscale segment. The Company entered this market in September 1995 by acquiring
the intellectual property rights, marks and tradename of Del Frisco's Double
Eagle Steak House restaurant, the existing Del Frisco's located in Dallas,
Texas, and a Del Frisco's under construction in Fort Worth, Texas (collectively,
the "Del Frisco's Acquisition") which opened in April 1996. The average check
per customer for the Del Frisco's concept is approximately $60. The Company
expects to open one or two additional Del Frisco's in the United States in 1996.
The Company is developing another upscale steak restaurant concept under
the tradename Sullivan's Steakhouse. The average check per customer for the
Sullivan's concept is anticipated to be $35 to $40. The Company opened its
first Sullivan's in May 1996 and expects to open one to three additional
Sullivan's in the United States in 1996.
THE OFFERING
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Common Stock offered by the Company ........ 2,500,000 shares
Common Stock offered by the Selling
Stockholders............................... 1,500,000 shares
Common Stock to be outstanding after
the Offering .............................. 40,427,580 shares (1)
Use of Proceeds ............................ To finance the development of additional
restaurants and for general corporate purposes,
including potential acquisitions.
Nasdaq National Market symbol .............. STAR
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(1) Does not include as of May 21, 1996 (i) 6,623,284 shares reserved for
issuance under the Company's 1992 Stock Option Plan (the "Plan"), of which
options to purchase 4,726,636 shares are currently outstanding, (ii) 329,334
shares reserved for issuance under the Company's 1992 Directors Stock Option
Plan (the "Directors Plan"), of which options to purchase 146,000 shares are
currently outstanding, and (iii) 200,000 shares reserved for issuance
pursuant to options granted in connection with the Australian joint venture.
See "Capitalization."
4
<PAGE>
SUMMARY PRO FORMA AND CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
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Twelve Weeks Ended(1)
Year Ended December 31,(1) ---------------------------
--------------------------------------------------------------------- March 21, March 19,
1991 1992(2) 1993 1994 1995(3) 1995 1996
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Income Statement Data:
Net sales .............. $ 9,231 $ 40,602 $ 112,263 $ 215,800 $ 340,857 $ 69,393 $ 106,375
Income from operations . 209 6,918 23,643 45,810 70,773 14,393 20,094
Net income ............. 128 4,512 16,371 30,173 47,568 9,237 12,936
Primary net income per
share ................ $ 0.22 $ 0.16 $ 0.49 $ 0.87 $ 1.27 $ 0.26 $ 0.33
Primary weighted average
shares outstanding .. 580,433 28,872,151 33,339,007 34,608,610 37,537,891 34,931,291 38,797,073
Pro Forma Income
Statement Data(4): .....
Income before income taxes,
net of minority interest $ 128 $ 7,277 $ 25,483 $ 47,073 $ 74,388 $ 14,552
Pro forma provision for
income taxes ........ 50 2,813 9,696 17,884 27,653 5,682
--------- ------------ ------------ ------------ ------------ ------------
Pro forma net income ... 78 4,464 15,787 29,189 46,735 8,870
Pro forma primary net
income per share .... $ 0.14 $ 0.15 $ 0.47 $ 0.84 $ 1.25 $ 0.25
Restaurant Operating Data:
Average sales per
restaurant on an
annualized basis .... $ 1,556 $ 2,389 $ 2,502 $ 2,481 $ 2,536 $ 2,587 $ 2,664
Number of restaurants
at end of period(5) .. 7 32 68 116 175 121 180
Number of full restaurant
periods open(6) ..... 78 241 569 1,114 1,521 351 529
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March 19, 1996
----------------------------------
Actual As Adjusted(7)
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Balance Sheet Data:
Working capital ............. $ 54,972 $150,272
Total assets ................ 370,530 465,830
Stockholders' equity ........ 336,238 431,538
- ------
(1) The Company operates on a 52 or 53 week fiscal year ending the last
Tuesday in December. The fiscal quarters for the Company consist of
accounting periods of 12, 12, 12, and 16 or 17 weeks, respectively. The
Company's 1991 fiscal year ended on December 31 and its 1992, 1993, 1994,
and 1995 fiscal years ended on December 29, 28, 27 and 26, respectively.
(2) Reflects the operations of eight restaurants acquired on March 19, 1992
from Lone Star Steakhouse & Saloon Group concurrently with the Company's
initial public offering in an exchange transaction whereby the Company
issued 5,308,432 shares of its Common Stock. The acquisition was
accounted for using the purchase method of accounting.
(3) In June 1995, the Company increased its ownership interest in the
Australian joint venture from 50% to 65%. The operations of the joint
venture are included in the Company's consolidated operating results
since the date of the change of control.
(4) Pro Forma Income Statement Data is based upon unaudited information
providing for income taxes on pooled S Corporations from a group of
related entities which were operated under common control (collectively,
the "CCC Group") prior to acquisition at the estimated effective tax
rate.
(5) Includes all restaurants for which restaurant sales are included in the
Company's net sales amounts for the period.
(6) Full restaurant periods are four-week accounting periods within the
fiscal year (excluding the first partial accounting period of operations)
that a restaurant was open.
(7) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered
by the Company hereby at an assumed public offering price of $39 7/8 per
share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
Prospective purchasers should carefully consider the following risk
factors in addition to the other information contained in this Prospectus in
evaluating an investment in the Common Stock of the Company.
Aggressive Expansion Strategy. The Company opened its first restaurant in
October 1989 and to date has opened 168 Lone Star Restaurants in the United
States. In addition, the Company's Australian joint venture has opened 11
restaurants in Australia and its European joint venture has opened three
restaurants in Holland. The Company's ability to expand will depend on a
number of factors, including identification of suitable locations,
negotiation of favorable real estate acquisition or lease terms,
availability, staffing, training and retention of skilled management
personnel, securing required governmental approvals and permits, adequately
supervising construction, securing adequate financing and other factors, some
of which are beyond the control of the Company. There can be no assurance
that the Company will be able to open all of its planned new restaurants or
that such newly opened restaurants can be operated profitably. While the
Company has experienced significant growth in net sales and net income since
inception, there can be no assurance that the Company will be able to sustain
such growth or profitability in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business --
Expansion Strategy."
New Upscale Strategy. The Company has recently decided to develop two
upscale steak restaurant concepts, Del Frisco's and Sullivan's. Prior to the
Del Frisco's Acquisition in September 1995, the Company did not operate in
the upscale segment. The Sullivan's concept has been internally developed by
the Company and the first Sullivan's opened in May 1996. There can be no
assurance that the Company will choose to develop additional Del Frisco's or
Sullivan's beyond those currently planned, or that any such restaurants, if
and when developed or operated, will achieve profitability or prove to be
successful. See "Business -- Expansion into Upscale Markets."
International Operations. The Company intends to selectively evaluate
international expansion opportunities through joint ventures licensing or other
corporate partnership arrangements. The Australian joint venture (the
"Australian Joint Venture") presently owns and operates 11 restaurants in
Australia and expects to open an additional seven to nine restaurants in 1996. A
licensed Lone Star Restaurant opened in Guam in mid-1995. There can be no
assurance that the Australian Joint Venture or any other joint venture will
be successful. In addition, it is unlikely that the profit margins or return on
investment of the Company's international operations will be at the levels of
the Company's domestic operation. There can be no assurance that any such
restaurants developed and operated in foreign countries, whether through the
Australian Joint Venture or otherwise, will achieve profitability. See "Business
- -- Expansion Strategy."
Discontinuance of European Joint Venture. The Company currently operates
three Lone Star Restaurants in Europe pursuant to a joint venture agreement (the
"European Joint Venture"). The first two restaurants opened by the European
Joint Venture in Amsterdam in 1995 have operated substantially below the
Company's expectations, and are currently incurring losses at the restaurant
level. The European Joint Venture opened a third restaurant in Rotterdam in May
1996. In addition, the European Joint Venture is scheduled to open a fourth
restaurant in Cologne, Germany in June 1996. On May 20, 1996, the Board of
Directors of the Company approved a plan to discontinue the European Joint
Venture. The Company anticipates closing its European restaurants as early as
the second quarter of fiscal 1996; however, the Company may seek to sell or
license such restaurants. The Company expects to incur a non-recurring pre-tax
charge as early as the second quarter of fiscal 1996 in the range of $9,000,000
to $11,000,000. The actual amount and the timing of such charge may vary
depending upon the timing and methods the Company utilizes in exiting its
current European operations. In addition, at the current time, the Company is
unable to determine what contingent liabilities, if any, may be associated with
the discontinuance of such operations, including resolution of any disputes with
its European Joint Venture partner. The Company has been unable to reach an
understanding with its European Joint Venture partners on the discontinuance of
the European operations, and absent such agreement, it is likely that litigation
will result. The Company is unable, at the present time, to estimate the
potential additional liability, if any, resulting from such potential
litigation. The proposed closing of the Company's European restaurants reflects
the risks associated with international operations.
6
<PAGE>
Competition. Competition in the restaurant industry is increasingly
intense. The Company competes primarily on the basis of quality of food and
service, ambiance, location and price-value relationship. The Company
believes that its concepts, attractive price-value relationship and quality
of food and service differentiate the Company from its competitors. The
Company also competes with restaurants and retail establishments for sites.
The Company is only a recent entrant in the upscale steakhouse segment and has
recently begun operating two different upscale steakhouse concepts and,
consequently, has not theretofore competed directly in such markets. Many of the
Company's competitors are well established in the upscale and mid-scale steak
segments and certain competitors have substantially greater financial, marketing
and other resources than the Company. See "Business -- Competition."
Restaurant Industry. The restaurant industry is often affected by changes
in consumer tastes, national, regional and local economic conditions,
demographic trends, traffic patterns, weather and the type, number and
location of competing restaurants. In addition, factors such as inflation,
increased food, labor and employee benefit costs and the availability of
experienced management and hourly employees may also adversely affect the
restaurant industry in general and the Company's restaurants in particular.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Business -- Competition."
Changes in Food Costs. The Company's profitability is dependent in large
measure on its ability to anticipate and react to changes in food costs.
Various factors beyond the Company's control, including adverse weather
conditions, may affect food costs. While management has been able to
anticipate and react to changing food costs to date through its purchasing
practices and menu price adjustments, there can be no assurance that it will
be able to do so in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Government Regulation. The restaurant industry is subject to various
federal, state and local government regulations, including those relating to
the sale of food and alcohol beverages. While the Company to date has not
experienced any material difficulties in obtaining necessary governmental
approvals, the failure to obtain or retain food and liquor licenses or any
other governmental approvals could have a material adverse effect on the
Company's operating results. In addition, restaurant operating costs are
affected by increases in the minimum hourly wage, unemployment tax rates,
sales taxes and similar matters over which the Company has no control. In
this regard, there are proposals under consideration in the United States
Congress to increase the minimum wage hourly requirements from $4.25 to $5.15
per hour. These and other initiatives could adversely affect the Company's
operating results. The Company also may be subject in certain states to "dram
shop" statutes, which generally provide a person injured by an intoxicated
person the right to recover damages from an establishment that wrongfully
served alcoholic beverages to the intoxicated person. Additionally, "tied-
house" laws in certain states may limit or delay the Company in obtaining
liquor licenses. See "Business -- Government Regulation."
Dependence on Senior Management. The success of the Company's business
will continue to be highly dependent upon the services of Jamie B. Coulter,
Chairman of the Board and Chief Executive Officer, and certain other
executive officers of the Company. The loss of the services of Mr. Coulter or
other executive officers could adversely affect the Company's business and
development. The Company's growth will also continue to depend upon its
ability to attract and retain additional skilled management personnel. See
"Management."
7
<PAGE>
Staggered Board; Blank-Check Preferred Stock. The Company's Certificate of
Incorporation provides for three classes of directors, to be elected on a
staggered basis, which also enables existing management to exercise
significant control over the Company's affairs. In addition, the Board of
Directors has the authority without further action by the stockholders to
issue up to 2,000,000 shares of Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions thereof. See
"Description of Capital Stock -- Preferred Stock."
Stock Price Volatility. Quarterly operating results of the Company or
other restaurant companies, changes in general conditions in the economy, the
financial markets or the restaurant industry, natural disasters, changes in
earnings estimates or recommendations by research analysts, or other
developments affecting the Company or its competitors could cause the market
price of the Common Stock to fluctuate substantially. In addition, in recent
years the stock market and the restaurant industry in particular have
experienced extreme price and volume fluctuations. This volatility has had a
significant effect on the market prices of securities issued by many
companies for reasons unrelated to the operating performance of these
companies.
Risks Associated with Forward Looking Statements. This Prospectus contains
certain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which
are intended to be covered by the safe harbors created thereby. Investors are
cautioned that all forward-looking statements involve risks and uncertainty,
including without limitation, the ability of the Company to continue its
aggressive expansion strategy, changes in costs of food, labor, and employee
benefits, the ability of the Company to continue to acquire prime locations
at acceptable lease or purchase terms, as well as general market conditions,
competition and pricing. Although the Company believes that the assumptions
underlying the forward-looking statements contained herein are reasonable,
any of the assumptions could be inaccurate, and therefore, there can be no
assurance that the forward-looking statements included in this Prospectus
will prove to be accurate. In light of the significant uncertainties inherent
in the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
THE COMPANY
The Company was incorporated in February 1991 as Texas Lone Star, Ltd., a
Nevada corporation ("Lone Star-Nevada"). Lone Star Steakhouse & Saloon, Inc.,
a Delaware corporation ("Lone Star Delaware"), was formed in January 1992 as
part of a corporate reorganization, pursuant to which Lone Star-Nevada was
merged into Lone Star-Delaware, with the successor corporation changing its
name to Lone Star Steakhouse & Saloon, Inc. The Company currently operates
separate subsidiary corporations in the states in which it has restaurants.
Unless the context requires otherwise, references to the Company and Lone
Star in this Prospectus shall mean Lone Star Steakhouse & Saloon, Inc. and
its subsidiaries. The Company's principal executive offices are located at
224 East Douglas, Suite 700, Wichita, Kansas 67202. The Company's telephone
number is (316) 264-8899.
Lone Star Steakhouse & Saloon(R), Lone Star Cafe(R), Del Frisco's(R) and
Double Eagle Steak House(R) are registered marks of the Company. This
Prospectus also includes trademarks of corporations other than the Company.
8
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered by the Company hereby (at an assumed public offering
price of $39 7/8 per share) are estimated to be approximately $95,300,000
($101,585,250 if the Underwriters' over-allotment option is exercised in
full). The Company expects to use the net proceeds to finance the development
of additional Lone Star, Del Frisco's and Sullivan's restaurants (including
the purchase of fee and leasehold interests). A portion of such net proceeds
is expected to be used to finance the development of additional restaurants
outside the United States, primarily through joint venture, licensing or
other corporate partnership arrangements. The Company may also utilize
certain of the net proceeds to acquire and develop multi-unit restaurant
operations with formats and concepts complementary to those of the Company or
to acquire existing restaurants for conversion to the Company's existing
concepts. The Company does not presently have any agreements, commitments,
plans or understandings concerning any specific acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business--Expansion
Strategy" and "-- Expansion into Upscale Markets." Pending such uses, the
Company will invest the net proceeds of this offering in short-term,
investment grade, interest-bearing securities.
The Company will not receive any proceeds from the sale of shares of
Common Stock offered by the Selling Stockholders hereby.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "STAR." The following table sets forth, for the periods indicated,
the high and low sale prices for the Common Stock, as reported on the Nasdaq
National Market.
Calendar 1994 High Low
------------- ------ -----
First Quarter ........................ $ 29 1/4 $ 19 1/2
Second Quarter ....................... 24 1/4 16 1/2
Third Quarter ........................ 26 1/2 17 1/2
Fourth Quarter ....................... 27 1/2 18 1/4
Calendar 1995
- -------------
First Quarter ........................ $ 30 3/8 $ 18 1/2
Second Quarter ....................... 34 27 1/8
Third Quarter ........................ 45 29 7/8
Fourth Quarter ....................... 42 3/4 34 7/8
Calendar 1996
- -------------
First Quarter ........................ $ 41 1/4 $ 30 1/2
Second Quarter (through May 28, 1996).. 45 36 7/8
On May 28, 1996, the last reported sale price of the Common Stock on the
Nasdaq National Market was $40. As of May 28, 1996, there were approximately 750
holders of record of the Company's Common Stock. The Company believes that
there are in excess of 7,000 beneficial owners of the Company's Common Stock.
9
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
19, 1996 and as adjusted to reflect the issuance and sale of the 2,500,000
shares of Common Stock offered by the Company hereby (at an assumed public
offering price of $39 7/8 per share), after deduction of the underwriting
discount and estimated offering expenses payable by the Company.
<TABLE>
<CAPTION>
March 19, 1996
---------------------------
Actual As Adjusted
---------- -------------
(Dollars in thousands)
<S> <C> <C>
Long-term debt ....................................................... $ 372 $ 372
-------- --------
Stockholders' equity:
Preferred Stock, $0.01 par value, 2,000,000 shares
authorized; none outstanding .................................. -- --
Common Stock, $0.01 par value, 98,000,000 shares authorized;
37,635,158 shares issued and outstanding; 40,135,158 shares
issued and outstanding, as adjusted(1) ........................ 377 402
Additional paid-in capital ...................................... 229,207 324,482
Retained earnings ............................................... 107,076 107,076
Translation adjustment .......................................... (422) (422)
--------- --------
Total stockholders' equity ..................................... 336,238 431,538
--------- --------
Total capitalization .................................. $ 336,610 $431,910
========= ========
</TABLE>
- ------
(1) Does not include at March 19, 1996: (i) 6,895,706 shares reserved for
issuance under the Plan, of which options to purchase 4,999,058 shares
were outstanding, (ii) 344,334 shares reserved for issuance under the
Directors Plan, of which options to purchase 155,000 shares were
outstanding, and (iii) 220,000 shares reserved for issuance pursuant to
options granted in connection with the Australian Joint Venture.
DIVIDEND POLICY
The Company anticipates that all future earnings will be retained to
support operations and to finance expansion. The Company does not intend to
pay cash dividends on its Common Stock for the foreseeable future. The
payment of cash dividends in the future will be at the discretion of the
Company's Board of Directors and will depend upon such factors as earnings
levels, capital requirements, the Company's financial condition and other
factors deemed relevant by the Company's Board of Directors.
10
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The following table sets forth selected consolidated financial data. The
selected consolidated data of the Company as of December 29, 1992, December
28, 1993, December 27, 1994, and December 26, 1995, and for each of the four
years in the period ended December 26, 1995, were derived from the Company's
audited consolidated financial statements. The selected consolidated
financial data as of December 31, 1991 and for the year then ended and as of
March 19, 1996 and for the 12 weeks ended March 19, 1996 and March 21, 1995
are derived from unaudited consolidated financial statements of the Company.
In the opinion of management, the unaudited consolidated financial statements
reflect all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the consolidated financial position and
results of operations for the unaudited periods. The pro forma data set forth
below for the periods presented are unaudited and have been prepared by
management solely to facilitate period-to-period comparison and do not
represent the actual results of operations for the periods presented. Said
pro forma adjustments reflect the income tax provisions at the estimated
effective federal and state income tax rates applicable to the operations of
the CCC Group (see Note 2 to the Company's Consolidated Financial Statements)
which were taxed as S Corporations for income tax purposes prior to their
acquisition by the Company in August 1995. Operations for the 12 week period
ended March 19, 1996 are not necessarily indicative of the results that may
be expected for the remainder of fiscal 1996.
11
<PAGE>
The following table should be read in conjunction with the Consolidated
Financial Statements including the notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Twelve Weeks Ended(1)
Year Ended December 31,(1) ------------------------
---------------------------------------------------------------------- March 21, March 19,
1991 1992(2) 1993 1994 1995(3) 1995 1996
--------- ------------ ------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales ..................... $ 9,231 $ 40,602 $ 112,263 $ 215,800 $ 340,857 $ 69,393 $ 106,375
Costs and expenses:
Costs of sales .............. 3,512 14,941 40,981 76,888 120,871 24,845 37,584
Restaurant operating expenses 5,125 15,726 36,979 71,996 116,703 23,212 37,719
General and administrative
expenses ................. 216 1,359 3,916 8,117 12,693 2,978 4,665
Depreciation and amortization 169 1,658 6,744 12,989 19,817 3,965 6,313
-------- ----------- ----------- ----------- ----------- ----------- ---------
Total costs and expenses ...... 9,022 33,684 88,620 169,990 270,084 55,000 86,281
-------- ----------- ----------- ----------- ----------- ----------- ---------
Income from operations ........ 209 6,918 23,643 45,810 70,773 14,393 20,094
Other income (expense), net ... (81) 359 1,840 1,263 2,910 159 634
-------- ----------- ----------- ----------- ----------- ----------- ---------
Income before provision for
income taxes and minority
interest .................... 128 7,277 25,483 47,073 73,683 14,552 20,728
Provision for income taxes .... -- 2,765 9,112 16,900 26,820 5,315 8,184
Minority interest ............. -- -- -- -- 705 -- 392
-------- ----------- ----------- ----------- ----------- ----------- ---------
Net income .................... $ 128 $ 4,512 $ 16,371 $ 30,173 $ 47,568 $ 9,237 $ 12,936
======== =========== =========== =========== =========== =========== =========
Primary net income per share .. $ 0.22 $ 0.16 $ 0.49 $ 0.87 $ 1.27 $ 0.26 $ 0.33
======== =========== =========== =========== =========== =========== =========
Primary weighted average shares
outstanding ................. 580,433 28,872,151 33,339,007 34,608,610 37,537,891 34,931,291 38,797,073
Pro Forma Income Statement
Data(4):
Income before income taxes, net
of minority interest ........ $ 128 $ 7,277 $ 25,483 $ 47,073 $ 74,388 $ 14,552
Pro forma provision for
income taxes ................ 50 2,813 9,696 17,884 27,653 5,682
--------- ----------- ----------- ----------- ----------- -----------
Pro forma net income .......... $ 78 $ 4,464 $ 15,787 $ 29,189 $ 46,735 $ 8,870
======== =========== =========== =========== =========== ===========
Pro forma primary net income per
share ....................... $ 0.14 $ 0.15 $ 0.47 $ 0.84 $ 1.25 $ 0.25
======== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,(1)
-------------------------------------------------------------- March 19,
1991 1992 1993 1994 1995 1996
---------- --------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) .......... $(2,066) $39,131 $ 83,606 $ 37,618 $ 59,880 $ 54,972
Total assets ....................... 3,062 71,029 164,763 204,028 358,218 370,530
Long-term debt, including current
portion ........................... 2,412 3,350 2,953 4,318 387 372
Stockholders' equity (deficit) ..... (442) 61,891 151,768 180,072 322,811 336,238
</TABLE>
- ------
(1) The Company operates on a 52 or 53 week fiscal year ending the last
Tuesday in December. The fiscal quarters for the Company consist of
accounting periods of 12, 12, 12, and 16 or 17 weeks, respectively. The
Company's 1991 fiscal year ended on December 31 and its 1992, 1993, 1994
and 1995 fiscal years ended on December 29, 28, 27 and 26, respectively.
(2) Reflects the operations of eight restaurants acquired on March 19, 1992,
from Lone Star Steakhouse & Saloon Group concurrently with the Company's
initial public offering in an exchange transaction whereby the Company
issued 5,308,432 shares of its Common Stock. The acquisition was
accounted for using the purchase method of accounting.
(3) In June 1995, the Company increased its ownership interest in the
Australian joint venture from 50% to 65%. The operations of the joint
venture are included in the Company's consolidated operating results
since the date of the change of control.
(4) Pro Forma Income Statement Data is based upon unaudited information based
upon providing for income taxes on pooled S Corporations of the CCC Group
prior to acquisition at the estimated effective tax rate.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the information set forth under "Selected Historical and Pro Forma Financial
Data" and the Consolidated Financial Statements and notes thereto included
elsewhere herein.
The Company began 1993 with 32 domestic restaurants, opened 36 restaurants
during 1993, 48 restaurants during 1994 and 45 restaurants during the year
ended December 26, 1995 and five restaurants during the 12 week period ended
March 19, 1996. In August 1995, the Company completed the 1995 Lone Star
Acquisition, pursuant to which it acquired 11 licensed Lone Star Restaurants
as well as three additional restaurants, from a group of related entities
which were operated under common control (collectively, the "CCC Group"). The
transaction was accounted for as a pooling of interests and, accordingly, the
accompanying consolidated financial statements and Management's Discussion
and Analysis of Financial Condition and Results of Operations have been
restated to include the accounts and operations of the CCC Group for all
periods prior to the acquisition.
In September 1995, the Company acquired the rights to operate the Del
Frisco's located in Dallas, Texas, a Del Frisco's under construction in Fort
Worth, Texas (which opened in April 1996), and the right to further develop Del
Frisco's. The Company also became the licensor of two Del Frisco's in Houston,
Texas and Orlando, Florida. In consideration for these transactions, the Company
paid $14.6 million in cash and issued an aggregate of 206,250 shares of Common
Stock. The Company expects to open one or two additional Del Frisco's in 1996.
The average check per customer at Del Frisco's is approximately $60.
The Company is developing another upscale steak restaurant concept under
the tradename Sullivan's Steakhouse. The average check per customer at a
Sullivan's is anticipated to be $35 to $40. The Company opened its first
Sullivan's in May 1996 and expects to develop one to three additional
Sullivan's in 1996.
Pre-opening costs include labor costs, costs of hiring and training
personnel and certain other costs relating to opening new restaurants, and
are capitalized and amortized over a 12 month period, beginning in the period
that the restaurants opens.
13
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated (i) the
percentages which certain items included in the Consolidated Statements of
Income bear to net sales, and (ii) other selected operating data:
<TABLE>
<CAPTION>
Years Ended(1) Twelve Weeks Ended(1)
------------------------------------------------ ------------------------
December 28, December 27, December 26, March 21, March 19,
1993 1994 1995 1995 1996
-------------- -------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales .................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Costs of sales ........................... 36.5 35.6 35.5 35.8 35.3
Restaurant operating expense ............. 32.9 33.4 34.2 33.5 35.5
Depreciation and amortization ............ 6.0 6.0 5.8 5.7 5.9
-------------- -------------- -------------- ----------- -----------
Restaurant costs and expenses ............ 75.4 75.0 75.5 75.0 76.7
-------------- -------------- -------------- ----------- -----------
Restaurant operating income ................ 24.6 25.0 24.5 25.0 23.3
General and administrative expenses ........ 3.5 3.8 3.7 4.2 4.4
-------------- -------------- -------------- ----------- -----------
Income from operations ..................... 21.1 21.2 20.8 20.8 18.9
Other income, and minority interest ........ 1.6 0.6 1.0 0.2 1.0
-------------- -------------- -------------- ----------- -----------
Income before provision for income taxes ... 22.7 21.8 21.8 21.0 19.9
Pro forma and historical provision for income
taxes(2) ................................. 8.6 8.3 8.1 8.2 7.7
-------------- -------------- -------------- ----------- -----------
Pro forma and historical net income(2) ..... 14.1% 13.5% 13.7% 12.8% 12.2%
============== ============== ============== =========== ===========
Restaurant Operating Data:
Average sales per restaurant on an annualized
basis($000s)(3) .......................... $2,502 $2,481 $2,536 $2,587 $2,664
Number of restaurants at end of period(4) .. 68 116 175 121 180
Number of full restaurant periods open(5) .. 569 1,114 1,521 351 529
</TABLE>
- ------
(1) The Company operates on a 52 or 53 week fiscal year ending the last
Tuesday in December. The fiscal quarters for the Company consist of
accounting periods of 12, 12, 12 and 16 or 17 weeks, respectively.
(2) Gives pro forma effect to providing for income taxes on pooled S
Corporations of the CCC Group prior to the August 1995 Lone Star
Acquisition at the estimated effective tax rate; thus the provision for
income taxes and net income amounts are pro forma for all periods
presented except for the 12 weeks ended March 19, 1996, which is
historical.
(3) Average sales per restaurant on an annualized basis are computed by
dividing a restaurant's total sales for full accounting periods by the
number of full accounting periods open in the reporting period, and
annualizing the result.
(4) Includes all restaurants for which restaurant sales are included in the
Company's net sales amounts for the period.
(5) Full restaurant periods are four-week accounting periods within the
fiscal year (excluding the first partial accounting period of operations)
that a restaurant was open.
TWELVE WEEKS ENDED MARCH 19, 1996 COMPARED TO TWELVE WEEKS ENDED MARCH 21,
1995
Net sales increased $36,982,000 (53%) for the 12 weeks ended March 19,
1996 compared to the comparable period in 1995 principally attributable to
$28,897,000 in sales from the 45 new domestic restaurants opened since March
1995, in addition to sales from the Australian Joint Venture and the European
Joint Venture. Same store sales increased 0.9% primarily due to growth in
customer counts.
Costs of sales, primarily food and beverages, decreased as a percentage of
net sales to 35.3% for the 12 weeks ended March 19, 1996, from 35.8% for the
comparable period in 1995 due to slightly lower beef prices.
Restaurant operating expenses for the 12 weeks ended March 19, 1996
increased $14,507,000 (63%) to $37,719,000, and such expenses increased as a
percentage of net sales from 33.5% to 35.5%. Labor costs increased as a
percentage of net sales due to staffing requirements for the opening of new
restaurants.
14
<PAGE>
Depreciation and amortization increased $2,349,000 (59%) in the 12 weeks
ended March 19, 1996 from the comparable period in 1995, principally
reflecting the amortization of capitalized pre-opening expenses relating to
the opening of 45 new restaurants since March 1995 and increases in
depreciation related to additional owned properties. General and
administrative expenses for the 12 weeks ended March 19, 1996, increased
$1,688,000 (57%) from the comparable period in 1995, reflecting costs
associated with the additional locations as well as increased legal and third
party consulting expenses.
Certain accounting and administrative services are contracted from Coulter
Enterprises, Inc. ("Coulter Enterprises"), a restaurant management services
company owned by the Company's Chairman of the Board and Chief Executive
Officer. The service agreement provides for specified accounting and
administration services to be provided on a cost pass-through basis under
which the Company paid a fixed annual charge of $837,000, plus an additional
fee of $406 per restaurant per 28-day accounting period and reimbursement of
out-of-pocket costs and expenses during the fiscal year ended December 26,
1995. The service agreement was renewed for fiscal 1996 with the fixed annual
charge increasing to $1,272,000 and the per restaurant, per accounting period
fee increasing to $416. The increase in the fixed charge is due to the
increase in the number of restaurants operated by the Company. Should the
service agreement not be renewed in the future, the Company would incur
direct costs for accounting and administration, personnel, rent and other
costs associated with a separate office; however, the Company believes that
such direct costs would not be materially different than the costs under the
contractual arrangement.
Other income, principally interest, for the 12 weeks ended March 19, 1996,
was $634,000, an increase of $476,000 from the comparable period in 1995,
reflecting increased interest income from the investment of the net proceeds
of the Company's public offering in April 1995.
The effective income tax rate for the 12 weeks ended March 19, 1996 and
the effective pro forma tax rate for the 12 weeks ended March 21, 1995 was
38.7% and 39.0%, respectively. The decrease in the rate is primarily the
result of an increase in tax-exempt interest income.
YEAR ENDED DECEMBER 26, 1995 COMPARED TO YEAR ENDED DECEMBER 27, 1994
Net sales increased $125,057,000 (58%) for the year ended December 26,
1995 compared to the fiscal year ended December 27, 1994. A 1.6% increase in
the comparable sales of restaurants open more than 18 months, plus
$71,075,000 in additional sales for the 48 restaurants which were opened in
1994, and $41,324,000 in sales for the 45 new domestic restaurants opened in
1995 accounted for the increase. Price increases were negligible. In
addition, since June 1995, the Company included the results of its Australian
Joint Venture in its Consolidated Financial Statements.
Costs of sales, primarily food and beverages, decreased slightly as a
percentage of sales to 35.5% for the year ended December 26, 1995, from 35.6%
due to slightly lower beef prices.
Restaurant operating expenses for the year ended December 26, 1995
increased $44,707,000 (62%) to $116,703,000. Such expenses increased as a
percentage of net sales to 34.2% from 33.4%. The increase is due in part to
slightly higher labor rates, and the consolidation of the Company's
international operations which have higher restaurant operating expense rates
than domestic units. Prior to the third quarter of 1995, international
operations were accounted for using the equity method.
Depreciation and amortization increased $6,828,000 (53%) in the year ended
December 26, 1995, principally reflecting the amortization of capitalized
pre-opening expenses relating to the opening of 45 new restaurants in 1995
and increases in depreciation related to additional owned properties. General
and administrative expenses for the year ended December 26, 1995 increased
$4,576,000 (56%), reflecting the costs associated with new store opening
personnel and the district manager positions being in existence for all of
1995 as well as increased legal and third party consulting expenses.
Pursuant to the Company's service agreement with Coulter Enterprises, the
Company paid a fixed annual charge of $837,000, plus an additional fee of
$406 per restaurant per 28-day accounting period and reimbursement of
out-of-pocket costs and expenses during the fiscal year ended December 26,
1995.
15
<PAGE>
Other income, principally interest, for the year ended December 26, 1995,
increased $1,646,000 to $2,910,000 compared to $1,263,000 in 1994. This
increase is attributable to the investment of the net proceeds of the
Company's public offering in April 1995.
The effective pro forma income tax rate for the years ended December 26,
1995 and December 27, 1994 was 37.1% and 38.0%, respectively. The decrease in
the rate is primarily the result of a decrease in the effective state income
tax rate.
YEAR ENDED DECEMBER 27, 1994 COMPARED TO YEAR ENDED DECEMBER 28, 1993
Net sales increased $103,537,000 (92%) in the fiscal year ended December
27, 1994 compared to 1993. A 6.6% increase in the comparable sales of
restaurants open more than 18 months, plus $54,783,000 in additional sales
for the 36 units which were opened in 1993, and $44,684,000 in sales for the
48 new restaurants opened in 1994 accounted for the increase. Price increases
were negligible.
Costs of sales, primarily food and beverages, decreased as a percentage of
net sales from 36.5% in the fiscal year ended December 28, 1993 to 35.6% for
1994. This decrease was primarily attributable to lower beef costs.
Restaurant operating expenses in the fiscal year ended December 27, 1994
increased $35,017,000 (95%) to $71,996,000, and such expenses increased as a
percentage of net sales from 32.9% to 33.4%. Labor costs as a percentage of
net sales increased primarily due to staffing requirements for the opening of
48 restaurants during the year.
Depreciation and amortization increased $6,246,000 (93%) in the fiscal
year ended December 27, 1994, principally reflecting the amortization of
capitalized pre-opening costs relating to the opening of 48 new units since
December 28, 1993, and the increase in depreciation related to additional
owned properties.
Pursuant to the Company's service agreement with Coulter Enterprises, Lone
Star paid a fixed annual charge of $394,000, plus an additional fee of $396
per restaurant per 28 day accounting period and reimbursement of
out-of-pocket costs and expenses.
Other income, principally interest, for the fiscal year ended December 27,
1994 was $1,263,000, a decrease of $577,000 from 1993, reflecting decreased
interest income from the investment of the remaining net proceeds of the
Company's public offering in May 1993.
The effective pro forma income tax rate for the years ended December 27,
1994 and December 28, 1993 was 38.0% in each year.
IMPACT OF INFLATION
The primary inflationary factors affecting the Company's operations
include food and labor costs. A significant number of the Company's
restaurant personnel are paid at federal and state established minimum wage
levels and, accordingly, changes in such wage levels affect the Company's
labor costs. In this regard, there are proposals under consideration in the
United States Congress to increase the minimum wage hourly requirements from
$4.25 to $5.15. As costs of food and labor have increased, the Company has
historically been able to offset these increases through economies of scale
and improved operating procedures, although there is no assurance that such
offsets will continue. To date, inflation has not had a material impact on
operating margins.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the Company's cash flows for the
fiscal years 1993, 1994 and 1995 and for the 12 weeks ended March 19, 1996:
<TABLE>
<CAPTION>
Twelve Weeks
Year Ended Year Ended Year Ended Ended
December 28, December 27, December 26, March 19,
1993 1994 1995 1996
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Net cash provided by operating activities .......... $ 18,487,864 $ 41,571,882 $ 63,824,777 $ 20,469,304
Net cash used in investment activities ............. (48,413,943) (78,839,427) (124,028,705) (22,282,983)
Net cash provided by (used in) financing activities . 72,321,775 (504,561) 82,052,141 628,411
Net increase (decrease) in cash .................... 42,395,696 (37,772,106) 21,563,850 (1,469,631)
</TABLE>
During the year ended December 26, 1995, the Company's investment in
property and equipment was $104,787,000 and during the 12-week period ended
March 19, 1996, such investment was $23,891,000.
The Company has opened 129 domestic Lone Star Restaurants in the past
three fiscal years, of which 48 opened in 1994 and an additional 45 opened
during the year ended December 26, 1995. The Company opened an additional
five restaurants during the 12 weeks ended March 19, 1996. The Company does
not have significant receivables or inventory and receives trade credit based
upon negotiated terms in purchasing food and supplies. Because funds
available from cash sales are not needed immediately to pay for food and
supplies, or to finance inventory, they may be considered as a source of
financing for noncurrent capital expenditures.
Through March 19, 1996, the Company had entered into four leases for new
locations. In addition, at such date the Company had acquired 17 sites and
signed contracts or options to purchase 13 sites. The Company was also
actively negotiating the purchase or lease of approximately 16 additional
sites. In the future, the Company anticipates that the vast majority of its
new Lone Star Restaurant locations will be purchased rather than leased. The
Company expects to expend approximately $100,000,000 in development costs to
open new restaurants through the remainder of fiscal 1996.
At March 19, 1996, the Company had $65,955,000 in cash and cash
equivalents. The Company believes that the net proceeds of this offering,
together with its existing cash resources and its cash flow generated from
operations will be sufficient to satisfy its cash needs for at least the next
12 months. While the Company has not established a credit facility, the
Company believes it could establish a facility on suitable terms.
DISCONTINUANCE OF EUROPEAN JOINT VENTURE
The Company currently operates three Lone Star Restaurants in Europe pursuant
to the European Joint Venture. The first two restaurants were opened by the
European Joint Venture in Amsterdam in 1995 have operated substantially below
the Company's expectations, and are currently incurring losses at the restaurant
level. The European Joint Venture opened a third restaurant in Rotterdam in May
1996. In addition, the European Joint Venture is scheduled to open a fourth
restaurant in Cologne, Germany in June 1996. On May 20, 1996 the Board of
Directors of the Company approved a plan to discontinue the European Joint
Venture. The Company anticipates closing its European restaurants as early as
the second quarter of fiscal 1996; however, the Company may seek to sell or
license such restaurants. The Company expects to incur a non-recurring pre-tax
charge as early as the second quarter of fiscal 1996 in the range of $9,000,000
to $11,000,000. The actual amount and the timing of such charge may vary
depending upon the timing and methods the Company utilizes in exiting its
current European operations. In addition, at the current time the Company is
unable to determine what contingent liabilities, if any, may be associated with
the discontinuance of such operations, including resolution of any disputes with
its European Joint Venture partner. The Company has been unable to reach an
understanding with its European Joint Venture partners on the discontinuance of
the European operations, and absent such agreement, it is likely that litigation
will result. The Company is unable, at the present time, to estimate the
potential additional liability, if any, resulting from such potential
litigation. The proposed closing of the Company's European restaurants reflects
the risks associated with international operations. See "Risk Factors --
Discontinuance of European Joint Venture."
17
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company adopted
Statement 121 in the first quarter of 1996 and such adoption had no material
effect to its financial position or results of operations.
FORWARD LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act, and Section 21E of the Exchange
Act which are intended to be covered by the safe harbors created thereby.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance
that the forward-looking statements included in this Prospectus will prove to
be accurate. Factors that could cause actual results to differ from the
results discussed in the forward-looking statements include, but are not
limited to, those discussed in "Risk Factors." In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by
the Company or any other person that the objectives and plans of the Company
will be achieved.
18
<PAGE>
BUSINESS
BACKGROUND
The Company currently owns and operates 168 mid-priced, full service,
casual dining restaurants located in the United States. Internationally, the
Australian Joint Venture operates 11 restaurants in Australia and the
European Joint Venture owns and operates three restaurants in Holland. The
Lone Star Restaurants embrace a Texas-style concept featuring Texas artifacts
and country and western music. The Lone Star Restaurants serve mesquite grilled
steaks, ribs, chicken and fish. Company management believes that this niche
is a dynamic growth area within the restaurant industry that offers
significant growth opportunity for the Company. To attract and retain
experienced restaurant managers, the Company grants an incentive stock option
with an aggregate exercise price of $50,000 with a five year vesting period
to each general manager of its restaurants. The Company also grants selected
general managers additional options based on their performance.
In connection with the Company's strategy to become "The Steak Company,"
the Company recently decided to develop additional steak restaurant concepts
in the upscale segment. The Company entered the upscale steakhouse market in
September 1995 through the Del Frisco's Acquisition. The Company is
developing another upscale steakhouse concept under the tradename of
Sullivan's Steakhouse. The Company opened its first Sullivan's in May 1996.
Americans consumed an estimated 68 pounds of beef on a per capita basis in
1995 (Source: Agricultural Department), up from an estimated 63 pounds of
beef in 1993 and steak continues to be one of the most frequently ordered
dinner entrees at restaurants. Company management believes the limited menu
of its Lone Star Restaurants, which concentrates primarily on high quality,
USDA choice-graded steaks, and the appeal of its "Texas Roadhouse" ambiance,
distinguishes the Lone Star Restaurants and provides the Company with a
competitive advantage.
CORPORATE STRATEGY
The Company has positioned itself as "The Steak Company," which will
operate three distinct steakhouse restaurant concepts. The primary growth
vehicle will be the Lone Star Restaurant concept which operates in the
mid-scale steak segment. Lone Star Restaurants emphasize the following
strategic elements:
o Positioning in the mid-priced, full-service casual dining segment of
the restaurant industry.
o The popular brand of Texas provides a unique and enduring attraction to
a broad and diverse demographic and socio-economic mix of customers in
the 25 to 54 age group.
o Generous "Texas-sized" portions offered at moderate prices.
o High quality and attentive service with each waitperson generally being
assigned to no more than three tables at dinner to ensure customer
satisfaction.
o Consistent high quality food products through careful ingredient
selection, food preparation and aging of steaks.
The Company believes that it can distinguish itself in the upscale market
by employing many of the strategies that have been successful in the
mid-priced market. The Company will continue to emphasize attentive service
and consistent, high quality food products. The Company expects that it can
successfully apply its restaurant operations and management systems to the
upscale markets, although there can be no assurance in this regard, nor can
there be any assurance that the restaurants it develops in these markets, if
they are successful, will be as successful as those it has developed in the
mid-priced, casual dining market.
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RESTAURANT CONCEPTS
Lone Star Restaurants are positioned as "destination restaurants" that
attract loyal clientele. Lone Star Restaurants embrace a Texas-style concept
that features Texas artifacts and country and western music. The authentic
"Texas Roadhouse" concept was developed to capitalize on the enduring
popularity of Texas related themes. The exciting and vibrant atmosphere
created by the restaurants' "Texas Roadhouse" ambiance is enhanced by free
buckets of roasted peanuts, specially selected upbeat country western music,
neon beer signs and peanut-shell-littered floors. The decor includes planked
wooden floors, dim lighting, flags and other Texas memorabilia, all of which
enhance the casual dining experience and establish a distinct identity for
the Lone Star Restaurant chain. Lone Star Restaurants are further
distinguished by their high quality, USDA choice-graded steaks which are
hand-cut fresh daily at each restaurant and mesquite grilled to order. A meat
counter visible from the dining area enables customers to have the
opportunity to view and personally select their own steaks. Meals are served
in generous "Texas-sized" portions and full liquor and bar service is
available. The Lone Star Restaurants serve both lunch and dinner with an
average check per customer for 1995 of approximately $8.50 at lunch and
$18.50 at dinner.
Del Frisco's is designed to serve a sophisticated clientele, including
business related dining occasions. The Del Frisco's concept embraces an
elegant and timeless early twentieth century motif. The concept features
traditional methods of cooking, such as master broiling and roasting. Del
Frisco's decor and ambiance include dark woods, fabric walls, fireplaces, and
soft background music featuring old favorites. All of these elements enhance
the dining experience and establish a distinct identity for Del Frisco's. Del
Frisco's is further distinguished by featuring its high quality, USDA
prime-graded steaks which are hand-cut fresh daily. Del Frisco's serve dinner
only and are open Monday through Saturday with an average guest check of
approximately $60.
Sullivan's embraces a 1940's steakhouse theme with nostalgic art deco
influences that feature music from the big band era. The decor includes wood
paneling, carpeted floors, warm lighting and white table cloths. Sullivan's
is further distinguished by its high quality Certified Angus Beef(TM) steaks,
chops and seafood. Sullivan's serve dinner only and are open Monday through
Saturday. Sullivan's average guest check is anticipated to be between $35 to
$40.
UNIT ECONOMICS
The Company's management team focuses on selecting locations with the
potential of producing significant revenues while controlling capital
expenditures and rent as a percentage of net sales. The Company's Lone Star
Restaurants have historically generated a sales to investment ratio of 1.6:1,
assuming that the average minimum annual rents pursuant to operating leases
were capitalized for purposes of determining the investment. The Company's
restaurants averaged approximately $2.5 million in net sales on an annualized
basis during 1995. Of the 165 domestic Lone Star Restaurants open at March
19, 1996, 85 were leased facilities and had an average cash investment of
$943,000 and 80 were owned and had an average cost for land acquisition,
construction, equipment and pre-opening expenses of $2,018,000. Assuming
average minimum annual rents pursuant to operating leases were capitalized
for 15 years at a rate of 10.5% per annum, total implied capital cost for the
leased units averaged $1,410,000. In the future, the Company anticipates that
a greater proportion of its new Lone Star Restaurant locations will be
purchased rather than leased, and anticipates an average total cost per unit
of between $1.3 million and $2.2 million.
The Company cannot at the present time determine with any certainty what
the average total investment per restaurant for Del Frisco's and Sullivan's
will be, but expects that the sales to investment ratio will be similar to
that of Lone Star Restaurants. The Company anticipates that the majority of
its Del Frisco's and Sullivan's will be leased.
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MENU
The dinner menu at a Lone Star Restaurant features a limited selection of
high quality, specially seasoned and mesquite grilled steaks, ribs, chicken
and fish. All dinners offer a complete meal including salad, bread and butter
and a choice of baked potato, baked sweet potato, steak fries or Texas rice.
The lunch menu offers a selection of hamburgers, chicken sandwiches, luncheon
steaks, ribs, soups and salads. Depending on local availability and quality,
a fresh fish selection is also offered at lunch and dinner. The lunch and
dinner menus also include appetizers and desserts, together with a full bar
service. Alcoholic beverage service accounts for approximately 15% of the
Company's net sales.
The menu at Del Frisco's features high quality USDA prime-graded steaks
and seafood. The menu at Sullivan's features high quality Certified Black
Angus(TM) steaks, chops and seafood.
SITE SELECTION
The Company believes the site selection process is critical in determining
the potential success of a particular restaurant and senior management
devotes significant time and resources to analyzing each prospective site. A
variety of factors are considered in the site selection process, including
local market demographics, site visibility and accessibility and proximity to
significant generators of potential customers such as major retailers, retail
centers and office complexes, office and hotel concentrations and
entertainment centers (stadiums, arenas, theaters, etc.). The Company also
reviews potential competition and attempts to analyze the profitability of
other national chain restaurants operating in the area.
Of the 168 existing domestic Lone Star Restaurants at May 20, 1996, 86
were leased and 82 were owned locations. As of May 20, 1996, the Company had
19 restaurants under construction, two of which were leased and 17 owned. As
of that date, the Company had entered into agreements for 25 additional
locations by either lease or purchase, subject to satisfaction of certain
contingencies. Leases are negotiated generally with initial terms of three to
five years, with multiple renewal options. The Company has generally required
approximately 150 to 280 days after the signing of a lease, or the closing of
a purchase to complete construction and open a new restaurant. Additional
time is sometimes required to obtain certain government approvals and
licenses, such as liquor licenses.
RESTAURANT LAYOUT
The Company believes that the decor and interior design of its restaurants
are significant factors in its success. Lone Star Restaurants' open layout
permits dining customers to view the bar and Texas memorabilia and enhance
the casual dining atmosphere. The Company also designs its kitchen space for
efficiency of work flow, thereby minimizing the amount of space required.
Lone Star Restaurants currently average approximately 5,700 square feet
and include a dining area with seating for approximately 190 customers. In
addition, a bar area is located adjacent to the dining room primarily to
accommodate customers waiting for dining tables or to accommodate overflow.
In some restaurants, an outside patio area can provide additional seating.
The Company anticipates that future Lone Star Restaurants will average
approximately 5,500 square feet.
The Del Frisco's located in Dallas, Texas, which was acquired by the
Company in the Del Frisco's Acquisition, is approximately 10,000 square feet
and seats approximately 350 persons. Future Del Frisco's will be
approximately 6,000-7,000 square feet and will include a dining area for
approximately 175-200 customers. Sullivan's are expected to average
approximately 6,000-7,000 square feet and include a dining area for
approximately 180-200 customers. In addition, for both Del Frisco's and
Sullivan's, a bar area is located adjacent to the dining room primarily to
accommodate customers waiting for dining tables.
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RESTAURANT LOCATIONS
The following table sets forth the locations of the Company's existing 168
domestic Lone Star Restaurants as of May 20, 1996:
ALABAMA ILLINOIS MISSOURI OKLAHOMA
Birmingham Bloomington Branson Oklahoma City
Huntsville Chicago (8) Springfield Tulsa
Mobile Peoria St. Louis (4)
Montgomery Rockford PENNSYLVANIA
Tuscaloosa Springfield NEBRASKA Allentown
Lincoln Harrisburg
ALASKA INDIANA Omaha (2) Lancaster
Anchorage Evansville Pittsburgh (3)
Fort Wayne NEVADA Pottstown
ARIZONA Indianapolis (4) Las Vegas (4) Wilkes-Barre
Phoenix (2) Lafayette York
South Bend NEW JERSEY
ARKANSAS Bridgewater S. CAROLINA
Ft. Smith IOWA Cherry Hill Greenville
Little Rock (2) Cedar Rapids Hazlet Myrtle Beach (2)
Springdale Coralville Marlton
Davenport Turnersville S. DAKOTA
COLORADO Des Moines Wayne Sioux Falls
Colorado Springs Waterloo
Denver (3) N. CAROLINA TENNESSEE
Fort Collins KENTUCKY Asheville Johnson City
Loveland Bowling Green Charlotte (4) Memphis (3)
Florence Durham
DELAWARE Lexington Fayetteville UTAH
Dover Louisville Greensboro (2) Layton
Wilmington (2) Greenville Salt Lake City
LOUISIANA Jacksonville
FLORIDA Baton Rouge Raleigh (3) VIRGINIA
Bradenton New Orleans Winston-Salem Alexandria
Clearwater Shreveport Centreville
Coral Springs N. DAKOTA Chesapeake
Fort Lauderdale MARYLAND Fargo Falls Church
Fort Myers Laurel Fredericksburg
Gainesville Waldorf OHIO Herndon
Lakeland Akron Norfolk
Ocala MICHIGAN Canton Potomac Mills
Pensacola Ann Arbor Cincinnati (3) Richmond (2)
Port Richey Detroit (6) Cleveland (3) Virginia Beach
Sarasota Grand Rapids Columbus (4)
St. Petersburg Dayton (2) W. VIRGINIA
Tampa Middletown Charleston
Orlando MISSISSIPPI Niles
Jackson Toledo (2) WISCONSIN
GEORGIA Youngstown Appleton
Augusta Racine
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EXPANSION STRATEGY
The Company is continuing its domestic Lone Star Restaurant expansion
program pursuant to which it opened 36 restaurants in 1993, 48 restaurants in
1994, 45 restaurants in 1995 and intends to open at least 45 Lone Star
Restaurants in 1996, all of which are expected to be Company-owned and
operated. The Company plans to develop such new restaurants in its existing
markets and expand into new markets that meet the Company's criteria. As of
May 20, 1996, the Company had 19 restaurants under construction, two of which
were leased and 17 owned. As of that date, the Company had entered into
agreements for 25 additional locations by either lease or purchase, subject
to satisfaction of certain contingencies. In addition to the Lone Star
Restaurants opened by the Company in 1995, the Company in August 1995,
acquired 11 Lone Star Restaurants in the 1995 Lone Star Acquisition. These
restaurants had been operated by a group of corporations which had been
granted, pursuant to a trademark license agreement, the exclusive right by
the Company to operate restaurants under the "Lone Star Steakhouse & Saloon"
name in the designated marketing areas of Wilmington, Greenville, New Bern,
Washington, Raleigh/Durham and Charlotte, North Carolina.
The Company intends to selectively evaluate international expansion
opportunities. The Australian Joint Venture owns and operates 11 restaurants and
expects to open an additional seven to nine restaurants in 1996. A licensed Lone
Star Restaurant opened in Guam in mid-1995. It is unlikely that international
profit margins or return on investment on the Company's international operations
will be at the levels of the Company's domestic operations. The Company is also
contemplating entering into restaurant development joint venture, licensing or
other corporate partnership arrangements in other foreign countries. The
European Joint Venture owns and operates three Lone Star Restaurants in Holland
and is scheduled to open a fourth restaurant in Cologne, Germany in June 1996.
On May 20, 1996, the Board of Directors of the Company approved a plan to
discountinue the European Joint Venture. See "Risk Factors-Discountinuance of
European Joint Venture."
EXPANSION INTO UPSCALE MARKETS
While the Company intends to continue to have a substantial and increasing
presence in the mid-priced, full service, casual dining steakhouse
restaurant market, the Company believes that expansion opportunities exist in
the upscale steakhouse markets.
To enter the upscale market, in September 1995, the Company acquired the
intellectual property rights, marks and tradename of Del Frisco's Steak House,
the existing Del Frisco's located in Dallas, Texas, and a Del Frisco's under
construction in Fort Worth, Texas (which opened in April 1996). The Company also
became the licensor of two Del Frisco's in Houston, Texas and Orlando, Florida.
The Company plans to develop the Del Frisco's concept, where the average check
is approximately $60. The Company expects to open either one or two
additional Del Frisco's in the United States in 1996.
The Company is also developing a second upscale steak restaurant concept
under the tradename Sullivan's Steakhouse, where the average check per
customer is anticipated to be $35 to $40 and its first
Sullivan's in May 1996. The Company expects to develop one to three
additional Sullivan's in the United States in 1996.
MARKETING
Lone Star Restaurants are "destination location restaurants." The Company has
relied principally on its commitment to customer service, an excellent
price-value relationship and the unique "Texas Roadhouse" ambiance of its Lone
Star Restaurants to attract and retain customers. Accordingly, the Company has
focused its resources on providing its customers with superior service, value
and an exciting and vibrant atmosphere, and has relied primarily on word of
mouth to attract new customers. The Company also utilizes radio and billboard
advertising to promote its restaurants and build customer awareness. The Company
intends to utilize a similar strategy for Del Frisco's and Sullivan's. The
Company also employs some print and direct mail advertising, and conducts some
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local restaurant promotions. To create additional Lone Star name recognition
and customer identification, the Company sells T-shirts and other items bearing
the Lone Star name and logo. In 1995, the Company's marketing expenses were less
than 1% of net sales.
RESTAURANT OPERATIONS AND MANAGEMENT
The Lone Star Restaurant concept has evolved from various steakhouse
restaurants that certain of the Company's principal stockholders have
operated since 1985. In addition, the restaurant operations and management
systems are an outgrowth of systems and controls that were developed by the
Company's senior management and have been successfully used to manage a large
number of affiliated restaurants located in numerous states. Management
intends to apply the restaurant operations and management systems, as
appropriate, to its new Del Frisco's and Sullivan's upscale concepts.
The Company strives to maintain quality and consistency in its restaurants
through careful hiring, training and supervision of personnel and the
establishment of standards relating to food and beverage preparation,
maintenance of facilities and conduct of personnel.
The Company maintains financial and accounting controls for each of its
restaurants through the use of centralized accounting and management
information systems. Sales information is collected daily from each
restaurant, and restaurant managers are provided with daily, weekly and
28-day period operating statements for their locations. Cash is controlled
through daily deposits of sales proceeds in local operating accounts, the
balances of which are wire transferred weekly to the Company's principal
operating account. Most of the Company's Lone Star Restaurants are open daily
from 11:00 A.M. to 10:00 P.M. weekdays and until 11:00 P.M. on weekends. The
bar customarily remains open for an additional hour.
The management team for a typical Lone Star Restaurant consists of one
general manager and four managers. Newly-developed Lone Star Restaurants will
have one general manager and three managers. Each restaurant also employs a
staff consisting of approximately 50 to 90 hourly employees, many of whom
work part-time. Typically, each general manager reports directly to a
district manager who, in turn, reports to the Company's senior vice president
of operations. Restaurant managers complete an eight week training program
during which they are instructed in areas including food quality and
preparation, customer satisfaction, alcoholic beverage service, governmental
regulations compliance, liquor liability avoidance and employee relations.
Restaurant management is also provided with a proprietary operations manual
relating to food and beverage preparation, all areas of restaurant management
and compliance with governmental regulations. Working in concert with
restaurant managers, the Company's senior management defines operations and
performance objectives for each restaurant and monitors implementation. An
incentive cash bonus program has been established in which each restaurant's
management team participates. Awards under the incentive plan are tied to
achievement of specified operating targets. Senior management regularly
visits the Company's restaurants and meets with the respective management
teams to ensure that the Company's strategies and standards of quality are
being met in all respects of restaurant operations and personnel development.
The Company utilizes a comprehensive peer review reporting system for its
general managers and district managers. Within seven days after the close of
each 28-day accounting period, profit and loss statements are produced and,
subsequently, the district managers and the Company's senior management meet
in person to review operating results for each district. The next week a
meeting is arranged during which the general manager of each restaurant
reviews the profit and loss statement of the restaurant with a district
manager and other general managers who report to the district manager. The
participants offer each other feedback on their respective performances and
suggest ways of improving profitability. The Company believes that the peer
review system enables each general manager to benefit from the collective
experience of all of the Company's management.
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The Company believes that customer service and satisfaction are keys to
the success of restaurant operations. The Company's commitment to customer
service and satisfaction is evidenced by several Company practices and
policies, including periodic visits by restaurant management to customers'
tables, active involvement of restaurant management in responding to customer
comments and assigning waitpersons to a limited number of tables, generally
three for dinner and four for lunch. Teamwork is emphasized through a runner
system for delivering food to the tables that is designed to serve customers
in an efficient and timely manner.
Each new restaurant employee of the Company participates in a training
program during which the employee works under the close supervision of a
restaurant manager, or experienced key employee. Management strives to
instill enthusiasm and dedication in its employees and to create a
stimulating and rewarding working environment where employees know what is
expected of them in measurable terms. Management continuously solicits
employee feedback concerning restaurant operations and strives to be
responsive to the employees' concerns.
PURCHASING
The Company negotiates directly with suppliers for food and beverage
products to ensure consistent quality and freshness of products and to obtain
competitive prices. The Company purchases substantially all food and beverage
products from local or national suppliers. Food and supplies are shipped
directly to the restaurants, although invoices for purchases are sent to the
Company for payment. The Company does not maintain a central product
warehouse or commissary. The Company has not experienced any significant
delays in receiving restaurant supplies and equipment.
From time to time, the Company engages in forward pricing and may consider
other hedging strategies with regard to its meat and other food costs in
order to minimize the impact of potential fluctuations in prices. This
practice could help stabilize the Company's food costs during times of
fluctuating prices.
MANAGEMENT INFORMATION SYSTEMS
The Company utilizes an in-store computer-based management support system
which is designed to improve labor scheduling and food cost management,
provide corporate management quicker access to financial data and reduce the
restaurant manager's administrative time. Each general manager uses the
system for production planning, labor scheduling and food cost variance
analysis. The system generates reports on sales, bank deposit data and
variance data to the Company's management on a daily basis.
The Company generates weekly consolidated sales reports and food and labor
cost variance reports at its corporate headquarters, as well as detailed
profit and loss statements for each restaurant every four weeks.
Additionally, the Company monitors the average check, customer count, product
mix and other sales trends on a daily basis.
ACCOUNTING AND ADMINISTRATIVE SERVICES
The Company utilizes certain accounting and administrative services
provided by Coulter Enterprises pursuant to the terms of a services
agreement. These services were provided to the Company during 1995 at an
annual fee of $837,000, plus an additional fee of $406 per restaurant per
28-day period, and reimbursement of all out-of-pocket costs and expenses. For
1996, the fixed annual charge is $1,272,000 and the per restaurant per 28-day
period fee is $416. The increase in the fixed charge is due to an increase in
the number of restaurants operated by the Company. In the future, the Company
may satisfy its accounting and administrative needs by hiring employees
directly; however, the Company believes that such direct costs would not be
materially different than the costs under the contractual arrangement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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COMPETITION
Competition in the restaurant industry is increasingly intense. The
Company competes primarily on the basis of quality of food and service,
ambiance, location and price-value relationship. The Company also competes
with a number of restaurants within its markets, including both locally owned
restaurants and regional or national chains. The Company believes that its
"Texas Roadhouse" concept, attractive price-value relationship and quality of
food and service enable it to differentiate itself from its competitors. The
Company has limited operating experience in the upscale steakhouse markets.
While the Company believes that its restaurants are distinctive in design and
operating concept, it is aware of restaurants that operate with similar
concepts. The Company also competes with other restaurants and retail
establishments for sites. Many of the Company's competitors are well-
established in the mid-priced and upscale dining segments and certain
competitors have substantially greater financial, marketing and other
resources than the Company. The Company believes that its ability to compete
effectively will continue to depend upon its ability to offer high quality,
competitively priced food in a full service, distinctive dining environment.
GOVERNMENT REGULATION
The Company's restaurants are subject to numerous federal, state and local
laws affecting health, sanitation, safety and ADA accessibility standards, as
well as to state and local licensing regulation of the sale of alcoholic
beverages. Each restaurant has appropriate licenses from regulatory
authorities allowing it to sell liquor, beer and wine, and each restaurant
has food service licenses from local health authorities. The Company's
licenses to sell alcoholic beverages must be renewed annually and may be
suspended or revoked at any time for cause, including violation by the
Company or its employees of any law or regulation pertaining to alcoholic
beverage control, such as those regulating the minimum age of patrons or
employees, advertising, wholesale purchasing, and inventory control. The
failure of a restaurant to obtain or retain liquor or food service licenses
could have a material adverse effect on its operations. In order to reduce
this risk, each restaurant is operated in accordance with standardized
procedures designed to assure compliance with all applicable codes and
regulations.
The Company may be subject in certain states to "dram-shop" statutes,
which generally provide a person injured by an intoxicated person the right
to recover damages from an establishment that wrongfully served alcoholic
beverages to the intoxicated person. The Company carries liquor liability
coverage as part of its existing comprehensive general liability insurance
and has never been named as a defendant in a lawsuit involving "dram-shop"
statutes.
A stockholder of the Company is also the owner of a wholesale liquor
distributorship in the State of Kansas. Because of this relationship,
"tied-house" laws may prohibit the Company from obtaining liquor licenses in
certain states. However, the Company has not experienced difficulties in
obtaining licenses except in the State of Kansas, where it has not been able
to obtain a license. The Company does not believe that its relationship with
such stockholder will have a material adverse effect on the Company's future
operations.
The development and construction of additional restaurants will be subject
to compliance with applicable zoning, land use and environmental regulations.
The Company's restaurant operations are also subject to federal and state
minimum wage laws governing such matters as working conditions, overtime and
tip credits and other employee matters. Significant numbers of the Company's
food service and preparation personnel are paid at rates related to the
federal minimum wage which is currently $4.25 per hour and, accordingly,
further increases in the minimum wage, such as the proposed increase in the
minimum wage to $5.15 per hour, could increase the Company's labor costs.
TRADEMARKS
The Company regards its marks, Lone Star Steakhouse & Saloon(R), Lone Star
Cafe(R), Del Frisco's(R) and Double Eagle Steak House(R), as having significant
value and as being important factors in the marketing of its restaurants. The
26
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Company also has an application pending for its Sullivan's service mark. The
Company is aware of names and marks similar to the service marks of the Company
used by other persons in certain geographic areas. However, the Company believes
such uses will not have a material adverse effect on the Company. The Company's
policy is to pursue registration of its marks whenever possible and to oppose
vigorously any infringement of its marks.
In April 1996, the Company settled a declaratory judgment action brought
by the Company against Max Shayne, Inc., a licensee of the Company, who had
certain rights to operate up to two nightclub restaurants in the New York
City metropolitan area utilizing the mark Lone Star Cafe. The settlement
terminates the Trademark License Agreement dated January 22, 1992 entered
into between the Company and Max Shayne, Inc. and provides that Max Shayne,
Inc. assign all of its rights, title and interest in the Lone Star Cafe mark
to the Company.
In December 1993, the Company filed a trademark infringement suit against
a restaurant operator who operated two steakhouse restaurants in metropolitan
Atlanta utilizing the mark and tradename Lone Star Steaks. By Order dated
April 24, 1995, the United States District Court for the Northern District of
Georgia, entered a permanent injunction barring the Company from using or
displaying the "Lone Star Steakhouse & Saloon name, trademark or service
mark" or any similar imitation of that mark or the "Lone Star Steaks" mark in
connection with the operation of any restaurant in Georgia. The permanent
injunction also encompasses any other acts within that state that unfairly
compete with Lone Star Steaks, Inc., trade off that company's reputation or
goodwill, or unlawfully injure its business reputation in any manner. The
permanent injunction also encompasses the Company's use of its mark in
connection with clothing within the state of Georgia. The Court further
awarded $60,000 in compensatory and liquidated damages and approximately
$113,000 in attorney's fees and costs. The Company is permitted to continue
to operate its restaurant in Augusta, Georgia, under the name Lone Star Cafe.
The Company has filed an appeal with the United States Court of Appeals for
the Eleventh Circuit, and briefing has been completed.
LEGAL MATTERS
Other than litigation in the ordinary course of business, the Company is
not a party to any material litigation.
EMPLOYEES
As of May 20, 1996, the Company employed approximately 14,000 persons,
eight of whom are executive officers, 15 of whom are district managers,
approximately 940 of whom are restaurant management personnel and the
remainder of whom are hourly restaurant personnel. None of the Company's
employees are covered by a collective bargaining agreement. The Company
considers its employee relations to be good.
PROPERTIES
As of May 20, 1996, the Company leased 86 and owned 82 of its domestic
Lone Star Restaurant locations. All of the Company's leases provide for a
minimum annual rent, and some leases provide for additional rent based on
sales volume at the particular location over specified minimum levels.
Generally, the leases are net leases which require the Company to pay the
costs of insurance, taxes and a pro rata portion of lessors' common area
costs. The Company anticipates that the majority of its Del Frisco's and
Sullivan's will be leased.
The Company's executive offices are located at 224 East Douglas, Suite
700, Wichita, Kansas, which space is provided pursuant to the terms of the
existing management agreement with Coulter Enterprises. The Company believes
that there is sufficient office space available at favorable leasing terms in
the Wichita, Kansas area to satisfy the additional needs of the Company that
may result from future expansion.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the
executive officers and Directors of the Company:
<TABLE>
<CAPTION>
Term of Office
Name Age Position as Director Expires
---- --- -------- -------------------
<S> <C> <C> <C>
Jamie B. Coulter ....... 55 Chairman of the Board and Chief Executive 1998
Officer
John D. White .......... 48 Chief Financial Officer, Executive Vice 1997
President, Treasurer and Director
Scott M. Somes (1) ..... 38 Chief Operating Officer --
Michael J. Archer ...... 35 Senior Vice President of Operations --
Dennis L. Thompson ..... 52 Senior Vice President of Real Estate and 1998
Director
Gerald T. Aaron ........ 55 Senior Vice President, Counsel and --
Secretary
Robert M. Kendall ...... 35 Senior Vice President of Operations --
Frank E. Furstenberg, Jr . 49 Vice President of New Store Development --
Clark R. Mandigo (2) ... 52 Director 1996
C. Robert Buford (2) ... 62 Director 1997
Fred B. Chaney (2) ..... 59 Director 1996
</TABLE>
- ------
(1) Mr. Somes is the son-in-law of Jamie B. Coulter.
(2) Member of Audit Committee and Compensation Committee.
Jamie B. Coulter has served as Chairman and Chief Executive Officer of the
Company since January 1992 (and has been a director and executive officer of
various subsidiaries of the Company since 1991) and President of the Company
from January 1992 to June 1995. Between 1965 and 1980, Mr. Coulter and his
partners developed and operated Pizza Hut and Kentucky Fried Chicken
restaurants as one of the largest franchisees of both systems. From 1980 to
the present, Mr. Coulter has been and continues to be the sole stockholder,
Chairman, Chief Executive Officer and President of various Pizza Hut entities
operating more than 100 Pizza Hut restaurants in 11 states. Since 1980, Mr.
Coulter has been the sole stockholder and President of Coulter Enterprises
(and its predecessor company), a management company that provides management,
accounting and administrative services for Mr. Coulter's Pizza Hut
franchises, other affiliated and non-affiliated businesses and the Company.
John D. White has been an Executive Vice President since June 1995, the
Chief Financial Officer and a Director of the Company since January 1992 and
a director and executive officer of various subsidiaries of the Company since
1991. Prior to joining the Company, Mr. White was employed for 11 years as
Senior Vice President of Finance for Coulter Enterprises. From 1970 to 1980,
Mr. White was a certified public accountant with Arthur Young & Company.
Scott M. Somes, has been Chief Operating Officer since June 1995 and
served as Senior Vice President of Operations of the Company from January
1992 until June 1995. Prior to joining the Company, Mr. Somes was employed in
various capacities, including President, of several Pizza Hut operating
entities owned by Mr. Coulter, and as an officer in various subsidiaries of
the Company.
Michael J. Archer, has been Senior Vice President of Operations of the
Company since April 1995. Prior to joining the Company, Mr. Archer was
employed in various capacities, including President, of Morton's of Chicago,
Inc., a subsidiary of Morton's Restaurant Group, Inc. for 13 years.
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Dennis L. Thompson has been Senior Vice President of Real Estate and a
Director of the Company since January 1992 and has been an executive officer
and a director of various subsidiaries of the Company since 1989. From 1985
to August 1995, he had been an executive officer, director and stockholder of
Creative Culinary Concepts, Inc. ("CCC"), a company which along with other
corporate entities owned and operated 11 Lone Star Restaurants. In August
1995, the Company acquired the restaurants owned by CCC and other affiliated
entities. See "Certain Relationships and Related Transactions."
Gerald T. Aaron, has been Senior Vice President, Counsel and Secretary of
the Company since January 1994. From November 1991 to January 1994, Mr. Aaron
was employed as General Counsel for Coulter Enterprises. From March 1989 to
November 1991, Mr. Aaron operated a franchise consultant practice. From 1969
to 1984, Mr. Aaron was Vice President--Counsel for Pizza Hut, Inc. and from
1984 to 1989, Mr. Aaron was President of International Pizza Hut Franchise
Holders Association.
Robert M. Kendall, has been Senior Vice President of Operations since June
1995 and was Vice President of Operations of the Company from September 1993
until June 1995. From March 1992 to September 1993, he assisted in new store
development for the Company. Prior thereto, he was a General Manager of
various restaurants owned or operated by CCC for more than two years.
Frank E. Furstenberg, Jr. has been Vice President of New Store Development
since January 1994. From March 1992 to January 1994, he was involved in
various aspects of new store development for the Company. Mr. Furstenberg has
been a Pizza Hut franchisee since 1979, although his restaurants are operated
under a management contract with Coulter Enterprises.
Clark R. Mandigo has been a Director of the Company since March 1992. Mr.
Mandigo is currently self-employed as a business consultant and has an
interest in a Papa John's Pizza Franchise. From 1986 to 1991, he was
President, Chief Executive Officer and director of Intelogic Trace, Inc., a
corporation engaged in the sale, lease and support of computer and
communications systems and equipment. Mr. Mandigo currently serves on the
board of directors of Physician Corporation of America, a managed healthcare
company, and Palmer Wireless, Inc., a cellular telephone system operator, and
as a Trustee of Accolade Funds.
C. Robert Buford has been a Director of the Company since March 1992. Mr.
Buford has served as Managing Partner of Grand Bluffs Development Company, a
real estate development company, since December 1985. Mr. Buford has served
as Chairman of the Board and President of Zenith Drilling Corporation of
Wichita, Kansas since February 1966 and is its principal stockholder. Mr.
Buford is a director of Intrust Bank, N.A. of Wichita, Kansas and a director
of Barrett Resources Corporation of Denver, Colorado.
Fred B. Chaney, Ph.D has been a Director of the Company since May 1995. Dr.
Chaney is President and Chief Executive Officer of TEC's Parent Company, Vedax
Sciences Corporation. Dr. Chaney through the TEC organization has formed a
network of various management organizations in several countries including the
United States where approximately 4,000 presidents of companies meet on a
quarterly basis. Dr. Chaney's early business career was with the Boeing Company
and Rockwell International, where he implemented management systems and quality
motivational programs. In 1968 he co-authored the book Human Factors in Quality
Assurance with Dr. D. H. Harris. Dr. Chaney has authored numerous publications
and professional papers and has taught management classes for the University of
Southern California. Dr. Chaney is a board member of Hobie Sports.
MEETINGS OF DIRECTORS AND DIRECTORS COMPENSATION
The Board of Directors has created an Audit Committee, a Compensation
Committee and a Stock Option Committee. The Audit Committee is composed of all
of the independent directors and is charged with reviewing the Company's annual
audit and meeting with the Company's independent auditors to review the
Company's internal controls and financial management practices. The Compensation
Committee, which is also composed of all of the independent directors,
recommends to the Board of Directors compensation for the Company's key
29
<PAGE>
employees. The Stock Option Committee also consists of all of the independent
directors and administers the Plan and awards stock options thereunder. The
members of the Audit Committee, Compensation Committee and Stock Option
Committee are Messrs. Buford, Chaney and Mandigo.
Directors who are not employees of the Company receive an annual fee of
$3,000 and a fee of $500 for each Board of Directors meeting attended and are
reimbursed for their expenses. Employees who are Directors are not entitled
to any compensation for their service as a Director. Non-employee Directors
are also entitled to receive grants of options under the Company's 1992
Directors Stock Option Plan (the "Directors Plan"), a formula stock option
plan. As of May 14, 1996, options to purchase 186,000 shares of Common Stock
have been granted to non-employee Directors under the Directors Plan at
exercise prices ranging from $3.375 per share to $40.00 per share, of which
options to purchase 40,000 shares of Common Stock have been exercised. In
1995, the Company's outside Directors were each automatically granted options
to purchase 6,000 shares of Common Stock under the Directors Plan. The
exercise price of such options was $27.00 per share. The Company also granted
options to purchase 40,000 shares to Fred Chaney at an exercise price of
$30.50 per share upon his election to the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years indicated, all
compensation awarded to, earned by or paid to the Chief Executive Officer
("CEO") and the four most highly compensated executive officers of the
Company (collectively with the CEO, the "Named Executive Officers") other
than the CEO whose salary and bonus exceeded $100,000 with respect to the
fiscal year ended December 26, 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation ----------------------
------------------------------ Number of Securities
Name and Principal Position Year Salary Bonus Underlying Options
- --------------------------- ------ ---------- ------- ----------------------
<S> <C> <C> <C> <C>
Jamie B. Coulter ....................... 1995 $210,000 -- 200,000
Chairman of the Board 1994 175,000 -- 500,000
and Chief Executive Officer 1993 145,000 -- 400,000
S. Douglas Glendenning ................. 1995 $192,000 -- 100,000
Former President(1) 1994 160,000 -- 125,000
1993 135,000 -- 100,000
John D. White .......................... 1995 $186,000 -- 100,000
Chief Financial Officer, Executive Vice 1994 155,000 -- 125,000
President and Treasurer 1993 130,000 -- 100,000
Scott M. Somes ......................... 1995 $180,000 -- 100,000
Chief Operating Officer 1994 150,000 -- 125,000
1993 125,000 -- 100,000
Dennis L. Thompson ..................... 1995 $180,000 -- 100,000
Senior Vice President of 1994 150,000 -- 125,000
Real Estate 1993 108,000 -- 100,000
</TABLE>
- ------
(1) Mr. Glendenning resigned on April 2, 1996.
30
<PAGE>
OPTION GRANT TABLE
The following table sets forth certain information regarding stock option
grants made to the CEO and the other Named Executive Officers for services
performed during the fiscal year ended December 26, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
--------------------------- Potential Realizable Value
% of Total at Assumed Rates of Stock
Number of Options Price Appreciation for
Securities Granted to Exercise Option Term (1)(2)
Underlying Employees in or Base Expiration ----------------------------
Name Options(3) Fiscal Year Price ($/Sh) Date 5% 10%
- ---- ---------- ----------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jamie B. Coulter ......... 200,000 12.7% $32.625 1/31/06 $4,103,536 $10,399,168
S. Douglas Glendenning (4) . 100,000 6.3 32.625 1/31/06 2,051,768 5,199,584
John D. White ............ 100,000 6.3 32.625 1/31/06 2,051,768 5,199,584
Scott M. Somes ........... 100,000 6.3 32.625 1/31/06 2,051,768 5,199,584
Dennis L. Thompson ....... 100,000 6.3 32.625 1/31/06 2,051,768 5,199,584
</TABLE>
- ------
(1) The options indicated vest ratably over a three-year period commencing
January 31, 1997.
(2) The potential realizable portion of the foregoing table illustrates value
that might be realized upon exercise of options immediately prior to the
expiration of their term, assuming the specified compounded rates of
appreciation on the Common Stock over the term of the options. These
numbers do not take into account provisions of certain options providing
for termination of the option following termination of employment,
nontransferability or differences in vesting periods. Regardless of the
theoretical value of an option, its ultimate value will depend on the
market value of the Common Stock at a future date, and that value will
depend on a variety of factors, including the overall condition of the
stock market and the Company's results of operations and financial
condition. There can be no assurance that the values reflected in this
table will be achieved.
(3) Does not include options to purchase Common Stock which were awarded in
January 1995 for services performed in 1994.
(4) Mr. Glendenning resigned April 2, 1996 and these options, which were not
vested, were cancelled in accordance with the terms of the Plan.
OPTION EXERCISE TABLE
No options were exercised by the CEO and the other Named Executive
Officers during the fiscal year ended December 26, 1995. The following table
sets forth certain information concerning unexercised options held as of
December 26, 1995 by the CEO and the other Named Executive Officers.
31
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Unexercised Value of Unexercised In-the-Money
Options at December 26, 1995 Options at December 26, 1995(1)
------------------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------- ------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Jamie B. Coulter ...... 333,334 866,666 $ 6,249,994 $ 17,225,000
S. Douglas Glendenning . 83,334 216,666 1,562,494 4,306,256
John D. White ......... 83,334 216,666 1,562,494 4,306,256
Scott M. Somes ........ 83,334 191,666 1,562,494 3,781,256
Dennis L. Thompson .... 83,334 191,666 1,562,494 3,781,256
</TABLE>
- ------
(1) Based on the closing price of a share of Common Stock ($40.00) as
reported by the Nasdaq National Market on December 26, 1995.
EMPLOYMENT AGREEMENTS
The Company has separate employment agreements with each of Messrs. White
and Somes providing for the employment of such individuals as Chief Financial
Officer and Senior Vice President of Operations, respectively. In June 1995,
Messrs. White and Somes were appointed Executive Vice President and Chief
Financial Officer and Chief Operating Officer, respectively. Each employment
agreement provides that the officer shall devote substantially all of his
professional time to the business of the Company. The agreements provided for
a 1995 annual base salary of $186,000 and $180,000 for Messrs. White and
Somes, respectively. For 1996, the annual base salaries for Messrs. White and
Somes were established at $236,000, and $230,000, respectively. Each
agreement terminates in February 1998, but the Company has the option to
extend the term for an additional one-year period. The Company had a similar
employment agreement with Mr. Glendenning which contained non-competition and
non-solicitation provisions which apply for eighteen months after cessation
of his employment. Messrs. Coulter and Thompson have also entered into
non-competition, confidentiality and non-solicitation agreements with the
Company. Messrs. Coulter's and Thompson's base salaries for 1996 have been
established at $250,000 and $214,000, respectively.
COMPENSATION COMMITTEE INTERLOCKS
The Compensation Committee consists of Messrs. Buford, Chaney and Mandigo.
None of such Directors was a party to any transaction with the Company which
constitutes an interlock with another entity.
32
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SERVICES AGREEMENT
The Company has entered into a services agreement with Coulter Enterprises
pursuant to which the Company utilizes certain accounting and administrative
services provided by Coulter Enterprises. The services agreement initially
expired on December 31, 1992 and is renewable thereafter on a year-to-year
basis. For fiscal year 1995, the fixed annual charge was $837,000 and the per
restaurant per 28-day accounting period fee was $406, plus reimbursement of
all direct out-of-pocket costs and expenses. For the fiscal years ended
December 28, 1993 and December 27, 1994, the Company incurred fees of
$308,057 and $792,913 under the services agreement. For the fiscal year ended
December 26, 1995, the Company incurred fees of $1,443,312 under the services
agreement. For fiscal year 1996, the fixed annual charge is $1,272,000 and
the per restaurant per 28-day accounting period fee is $416, plus
reimbursement of all direct out-of-pocket costs and expenses. All of the
disinterested Directors voted to renew the services agreement and approve the
new fee arrangements thereunder. The amount of the services fee will be
reviewed annually and will be subject to approval by a majority of the
disinterested directors of the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
1995 LONE STAR ACQUISITION
In August 1995, the Company acquired 11 Lone Star Restaurants which had
been operated by a group of corporations which had been granted, pursuant to
a trademark license agreement, the exclusive right by the Company to operate
restaurants under the "Lone Star Steakhouse & Saloon" name in certain
marketing areas of North Carolina. In such transaction, the Company also
acquired three other restaurants. In consideration for these transactions,
the Company issued 580,433 shares of Common Stock to the stockholders of the
various acquired entities. Dennis Thompson, a Director, executive officer and
5% stockholder of the Company, received 215,961 shares of Common Stock as
part of such transaction.
OTHER TRANSACTIONS
Jamie B. Coulter, Chairman of the Board and Chief Executive Officer of the
Company, owns, through controlled entities, an aircraft that, on occasion, is
used for Company business. The Company believes that the charges incurred by
the Company for its usage of this aircraft are at least as favorable as the
charges that would have been incurred for similar services received from
unaffiliated third parties. The cost of such services in 1995 was $27,907 and
in 1994 was $70,500. In 1993, the cost of such services was less than
$60,000.
In December 1995, the Company purchased from an unaffiliated third party
an aircraft for $1,550,000 that such party recently acquired from an entity
controlled by Mr. Coulter. The purchase price was at fair market value as
determined by three separate appraisals.
The Company believes that the foregoing transactions were in its best
interests. It is the Company's current policy that all transactions by the
Company with officers, directors, 5% stockholders and their affiliates will
be entered into only if such transactions are approved by a majority of the
disinterested independent Directors, are on terms no less favorable to the
Company than could be obtained from unaffiliated parties and are reasonably
expected to benefit the Company.
33
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of May 20, 1996, and as adjusted to
reflect the sale of the Common Stock offered hereby, by (i) each Director,
(ii) each of the Named Executive Officers, (iii) all Directors and executive
officers as a group, (iv) each person known by the Company to beneficially
own 5% or more of its Common Stock and (v) each of the Selling Stockholders.
Unless otherwise indicated, the address for 5% stockholders, officers and
directors of the Company and each of the Selling Stockholders is 224 E.
Douglas, Suite 700, Wichita, Kansas 67202. Except as specified, the named
beneficial owner has sole voting and investment power with respect to the
shares beneficially owned by such person.
<TABLE>
<CAPTION>
Shares to be
Shares Beneficially Owned Sold in Shares Beneficially Owned
Name of Beneficial Owner Prior to Offering Offering After Offering
- ------------------------------------ ------------------------------ ----------- ------------------------
Number Percentage Number Percentage
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Jamie B. Coulter(1) ........... 4,428,037 11.5% 1,000,000 3,428,037 8.5%
John D. White(2) .............. 441,359 1.2 110,000 331,359 *
Scott M. Somes(3) ............. 348,365 * 50,000 298,365 *
Clark R. Mandigo(4) ........... 38,000 * -- 38,000 *
C. Robert Buford(5) ........... 84,000 * -- 84,000 *
Dennis L. Thompson(6) ......... 2,640,793 6.9 250,000 2,390,793 5.8
Fred B. Chaney(7) ............. 13,333 * -- 13,333 *
Gerald T. Aaron(8) ............ 138,649 * 20,000 118,649 *
Frank E. Furstenberg, Jr.(9) .. 80,958 * 20,000 60,958 *
Christie Somes.................. 144,911 * 50,000 94,911 *
Janus Capital Corporation
Thomas H. Bailey
Janus Twenty Fund(10) ....... 3,184,640 8.4 -- 3,184,640 7.9
Fred Alger Management, Inc.
Fred M. Alger, III(11) ...... 3,101,618 8.2 -- 3,101,618 7.7
All directors and executive officer
group (11 persons)
(1)(2)(3)(4)(5)(6)(7)(8)(9)(12) 8,339,281 22.0% 1,450,000 6,889,281 16.4%
</TABLE>
- ------
* Less than 1%.
(1) Excludes 359,939 shares held by Gayla W. Coulter, Mr. Coulter's wife.
Also excludes shares held by Mr. Coulter's adult children, Jay Coulter,
Christie Somes and Lynnie Coulter. Mr. Coulter disclaims beneficial
ownership of these shares. Includes presently exercisable options to
purchase 733,334 shares of Common Stock.
(2) Includes presently exercisable options to purchase 183,334 shares of
Common Stock.
(3) Excludes 144,911 shares held by Christie Somes who is the daughter of Mr.
Coulter and the wife of Mr. Somes. Mr. Somes disclaims beneficial
ownership of these shares. Includes presently exercisable options to
purchase 175,000 shares of Common Stock.
(4) Includes presently exercisable options to purchase 18,000 shares of
Common Stock.
(5) Includes 6,000 shares held by Mr. Buford's wife and presently exercisable
options to purchase 58,000 shares of Common Stock.
(6) Includes shares held by a limited partnership for the benefit of Mr.
Thompson, his wife and minor children. Mr. Thompson has been a Director
and Senior Vice President of the Company since January 1992. Includes
presently exercisable options to purchase 175,000 shares of Common Stock.
(7) Represents presently exercisable options to purchase 13,333 shares of
Common Stock.
(8) Includes presently exercisable options to purchase 100,000 shares of
Common Stock.
(9) Includes presently exercisable options to purchase 57,500 shares of
Common Stock.
34
<PAGE>
(10) Based on a joint Schedule 13G filed in February 1996, Janus Capital
Corporation ("Janus"), Thomas H. Bailey ("Bailey") and the Janus Twenty
Fund ("Janus Twenty") and related entities collectively beneficially
hold 3,184,640 shares of Common Stock. The address of Janus, Bailey and
Janus Twenty is 100 Filmore Street, Suite 300, Denver, Colorado
80206-4923. Janus and Bailey disclaim beneficial ownership of these
shares.
(11) Based on a joint Schedule 13G filed in February 1996, Fred Alger
Management, Inc. and Fred M. Alger, III collectively beneficially hold
3,101,618 shares of the Company's Common Stock. The Address of Fred
Alger Management, Inc.and Fred M. Alger, III is 75 Maiden Lane, New
York, New York 10038.
(12) Excludes shares held by Christie Somes and Gayla Coulter and includes
175 shares of Common Stock and presently exercisable options to purchase
125,612 shares of Common Stock held by executive officers who are not
specified in the above table.
35
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 98,000,000 shares
of Common Stock, $0.01 par value, and 2,000,000 shares of Preferred Stock,
$0.01 par value.
The following summary of certain terms of the Common Stock and Preferred
Stock does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the Company's Certificate of Incorporation and
By-laws, which are included as exhibits to the Registration Statement of
which this Prospectus is a part, and the provisions of applicable law.
COMMON STOCK
At May 17, 1996, there were 37,927,580 shares of Common Stock outstanding,
owned by approximately 750 stockholders of record. Holders of Common Stock
are entitled to one vote for each share held of record on all matters
submitted to a vote of the stockholders. Subject to preferences that may be
applicable to any then outstanding Preferred Stock, holders of Common Stock
are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding Preferred Stock. Holders of Common Stock have no right to
convert their Common Stock into any other securities. The Common Stock has no
preemptive or other subscription rights. There are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of
Common Stock are duly authorized, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 2,000,000 shares of Preferred Stock in one or
more series and to fix the rights, preferences, privileges, and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms
of redemption, liquidation preferences and the number of shares constituting
any series or the designation of such series. The issuance of Preferred Stock
could adversely affect the voting power of holders of Common Stock and could
have the effect of delaying, deferring or preventing a change in control of
the Company. The Company has no present plan to issue any shares of Preferred
Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Union
National Bank, Charlotte, North Carolina.
36
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions contained in the underwriting agreement
by and among the Company, the Selling Stockholders and the Underwriters (the
"Underwriting Agreement"), to purchase from the Company and the Selling
Stockholders the number of shares of Common Stock indicated below opposite
their respective names at the public offering price less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions precedent and that the Underwriters are committed to
purchase all of the shares if they purchase any.
Number of
Shares to be
Underwriters Purchased
------------ ------------
Montgomery Securities ............
Smith Barney Inc. ................
Wessels, Arnold & Henderson, L.L.C.
----------
Total .......................... 4,000,000
==========
The Underwriters have advised the Company and the Selling Stockholders
that the Underwriters propose initially to offer the Common Stock to the
public at the public offering price set forth on the cover page of this
Prospectus. The Underwriters may allow to selected dealers a concession of
not more than $ per share; and the Underwriters may allow, and such
dealers may reallow, a concession of not more than $ per share to certain
other dealers. After the commencement of the offering, the public offering
price, allowances, concessions and other selling terms may be changed by the
Underwriters. The Common Stock is offered subject to receipt and acceptance
by the Underwriters and to certain other conditions, including the right to
reject orders in whole or in part.
The Company and the Selling Stockholders have granted an option to the
Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to a maximum of 600,000 additional shares of
Common Stock to cover over-allotments, if any, at the same price per share as
the initial shares to be purchased by the Underwriters. To the extent that
the Underwriters exercise this option, the Underwriters will be committed,
subject to certain conditions, to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may purchase shares only to cover over-allotments made in
connection with this offering.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
All of the Company's executive officers and Directors and each of the
Selling Stockholders have agreed that, for a period of 90 days after the date
of this Prospectus, they will not, without the prior written consent of
Montgomery Securities, directly or indirectly offer to sell, contract to sell
or otherwise sell or dispose of any shares of Common Stock (except for the
shares offered hereby by the Selling Stockholders) or any securities
convertible or exchangeable for shares of Common Stock. In addition, the
Company has agreed that for a period of 90 days after the date of this
Prospectus, it will not, without the prior written consent of Montgomery
Securities, directly or indirectly offer to sell, issue, distribute or
otherwise dispose of any equity securities or securities convertible into or
exchangeable for equity securities or any options, rights, or warrants with
respect to any equity securities except (i) shares of Common Stock offered by
the Company hereby, (ii) shares of Common Stock issued pursuant to exercise
of outstanding options disclosed in this Prospectus or (iii) options granted
after the date of this Prospectus under the 1992 Stock Option Plan and the
Directors Plan.
In connection with this offering, the Underwriters may engage in passive
market-making transactions in the Common Stock on the Nasdaq National Market
immediately prior to the commencement of sales in this offering, in accordance
with Rule 10b-6A under the Exchange Act. Passive market-making consists of
displaying bids on the Nasdaq National Market limited by the bid prices of
37
<PAGE>
independent market-makers and purchases limited by such prices and effected in
response to order flow. Net purchases by a passive market-maker on each day are
limited to a specified percentage of the passive market-maker's average daily
trading volume in the Common Stock during a specified prior period and must be
discontinued when such limit is reached. Passive market-making may stabilize the
market price of the Common Stock at a level above that which might otherwise
prevail and, if commenced, may be discontinued at any time.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
as well as at the following regional offices: 14th Floor, Seven World Trade
Center, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can also be obtained from
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Company's Common Stock is traded on the Nasdaq National Market. The foregoing
material also should be available for inspection at the National Association
of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has also filed with the Commission a Registration Statement on
Form S-1 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act with respect to the shares
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is made to the Registration Statement, copies of which
may be obtained from the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of the fees prescribed by the Commission. Copies of such Registration
Statement may also be requested from the Company, attention Mr. John D.
White, Executive Vice President, Chief Financial Officer and Treasurer, 224
East Douglas, Suite 700, Wichita, Kansas 67202.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited and reported upon by its independent
accounting firm and quarterly reports containing unaudited interim financial
information for the first three quarters of each year.
EXPERTS
The consolidated financial statements of Lone Star Steakhouse & Saloon,
Inc. at December 27, 1994 and December 26, 1995 and for each of the three
years in the period ended December 26, 1995, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Olshan Grundman Frome &
Rosenzweig LLP, New York, New York. Certain legal matters arising in
connection with this offering will be passed upon for the Underwriters by
Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California.
38
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pages
---------
<S> <C>
Report of Independent Auditors .................................................................. F-2
Consolidated Balance Sheets as of December 27, 1994 and December 26, 1995 ....................... F-3
Consolidated Statements of Income for the years ended December 28, 1993, December 27, 1994, and
December 26, 1995 .............................................................................. F-5
Consolidated Statements of Stockholders' Equity for the years ended December 28, 1993, December
27, 1994, and December 26, 1995 ................................................................ F-6
Consolidated Statements of Cash Flows for the years ended December 28, 1993, December 27, 1994,
and December 26, 1995 .......................................................................... F-7
Notes to Consolidated Financial Statements ...................................................... F-8
Condensed Consolidated Balance Sheets as of December 26, 1995 and March 19, 1996 (unaudited) ..... F-16
Consolidated Statements of Income for the twelve weeks ended March 21, 1995 and March 19, 1996
(unaudited) .................................................................................... F-17
Condensed Consolidated Statements of Cash Flows for the twelve weeks ended March 21, 1995 and
March 19, 1996 (unaudited) ..................................................................... F-18
Notes to Condensed Consolidated Financial Statements (unaudited) ................................ F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Lone Star Steakhouse & Saloon, Inc.
We have audited the accompanying consolidated balance sheets of Lone Star
Steakhouse & Saloon, Inc. as of December 27, 1994 and December 26, 1995, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 26, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lone Star
Steakhouse & Saloon, Inc. at December 27, 1994 and December 26, 1995, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 26, 1995, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Wichita, Kansas
January 18, 1996
F-2
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONSOLIDATED BALANCE SHEETS
December 27, 1994 December 26, 1995
----------------- -----------------
ASSETS
Current assets: Cash and cash equivalents $ 45,861,034 $ 67,424,884
Accounts receivable ................. 786,722 1,308,865
Inventories ......................... 2,495,134 4,156,355
Pre-opening costs, net .............. 6,593,015 10,328,686
Refundable income taxes ............. 2,638,658 5,006,856
Other current assets ................ 1,016,610 90,092
----------------- ----------------
Total current assets ............. 59,391,173 88,315,738
Property and equipment:
Land ................................ 37,834,664 68,887,543
Buildings ........................... 54,660,662 94,712,993
Leasehold improvements .............. 27,417,209 55,209,000
Equipment ........................... 22,906,565 37,159,906
Furniture and fixtures .............. 5,962,676 8,598,569
----------------- ----------------
148,781,776 264,568,011
Less: accumulated depreciation and
amortization ..................... 10,201,089 19,233,055
----------------- ----------------
138,580,687 245,334,956
Other assets:
Investment in and advances to joint
venture (Note 4) ................. 2,436,614 --
Intangible and other assets, net
(principally goodwill in 1995) ... 3,619,212 24,567,805
----------------- ----------------
Total other assets ............... 6,055,826 24,567,805
----------------- ----------------
Total assets ..................... $204,027,686 $358,218,499
================= ================
See notes to consolidated financial statements.
F-3
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
December 27, 1994 December 26, 1995
----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: ................
Accounts payable .................. $ 8,744,996 $ 9,245,331
Other current liabilities: ........
Sales tax payable .............. 1,215,295 1,367,263
Accrued payroll ................ 1,868,031 4,824,664
Gift certificates .............. 2,551,699 4,677,964
Deferred income taxes (Note 11) . 875,322 1,817,159
Current portion of long term debt
(Note 10) .................... 3,874,836 --
Current portion of capitalized
lease obligation (Note 8) .... 55,356 64,550
Other .......................... 2,587,509 6,438,362
----------------- -----------------
Total current liabilities .... 21,773,044 28,435,293
Capitalized lease obligation (Note 8). 387,330 322,781
Deferred income taxes (Note 11) ..... 1,795,490 3,966,968
Minority interest ................... -- 2,682,914
Commitments (Note 12) ............... -- --
Stockholders' Equity: (Notes 3, 5, 6)
Preferred stock, $.01 par value,
2,000,000 shares authorized; none
issued (Note 5) ................ -- --
Common stock, $.01 par value,
98,000,000 shares authorized;
37,587,974 shares issued and
outstanding (34,302,568 in 1994). 343,025 375,879
Additional paid-in capital ........ 131,482,689 228,578,790
Retained earnings ................. 48,246,108 94,140,238
Translation adjustment ............ -- (284,364)
----------------- -----------------
Total stockholders' equity ... 180,071,822 322,810,543
----------------- -----------------
Total liabilities and
stockholders' equity ...... $204,027,686 $358,218,499
================= =================
See notes to consolidated financial statements.
F-4
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the year ended
-------------------------------------------------------------
December 28, 1993 December 27, 1994 December 26, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales ............................... $112,263,334 $215,800,477 $340,857,223
Costs and expenses:
Costs of sales ........................ 40,980,953 76,887,928 120,870,646
Restaurant operating expenses ......... 36,979,001 71,996,039 116,703,192
Depreciation and amortization ......... 6,743,650 12,989,178 19,816,823
------------ ------------ ------------
Restaurant costs and expenses ........... 84,703,604 161,873,145 257,390,661
------------ ------------ ------------
Restaurant operating income ............. 27,559,730 53,927,332 83,466,562
General and administrative expenses:
Related parties (Note 7) .............. 308,057 792,913 1,443,312
Other ................................. 3,608,946 7,324,744 11,249,957
------------ ------------ ------------
Income from operations .................. 23,642,727 45,809,675 70,773,293
Other income (expense):
Other income, net (principally interest) 1,976,980 1,538,443 3,137,760
Interest expense ...................... (136,764) (275,033) (228,532)
------------ ------------ ------------
1,840,216 1,263,410 2,909,228
------------ ------------ ------------
Income before income taxes and minority
interest .............................. 25,482,943 47,073,085 73,682,521
Provision for income taxes (Note 11) .... (9,112,078) (16,900,130) (26,819,591)
Minority interest ....................... -- -- 705,160
------------ ------------ ------------
Net income .............................. $ 16,370,865 $ 30,172,955 $ 47,568,090
------------ ------------ ------------
Primary net income per share ............ $ 0.49 $ 0.87 $ 1.27
============ ============ ============
Fully diluted net income per share ...... $ 0.49 $ 0.87 $ 1.26
============ ============ ============
Unaudited pro forma information based on
providing for income taxes on pooled S
Corporations prior to acquisition at
the estimated effective tax rate:
Income before income taxes, net of
minority interest ................ $ 25,482,943 $ 47,073,085 $ 74,387,681
Pro forma provision for income taxes 9,695,820 17,883,699 27,652,784
------------ ------------ ------------
Pro forma net income ............... $ 15,787,123 $ 29,189,386 $ 46,734,897
============ ============ ============
Pro forma primary net income per share $ 0.47 $ 0.84 $ 1.25
============ ============ ============
Pro forma fully diluted net income per
share ............................ $ 0.47 $ 0.84 $ 1.23
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
Preferred ---------------------------- Additional Translation Retained
Stock Number Amount Paid-in-Capital Adjustment Earnings Total
----------- ------------ ----------- --------------- ------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 29, 1992
as previously reported . $ -- 30,622,728 $306,228 $ 57,571,533 $ -- $ 4,392,343 $62,270,104
Pooling of interests with
CCC Group (Note 2) ..... -- 580,433 5,804 23,535 -- (408,442) (379,103)
--------- ---------- -------- ------------ ----------- ----------- -----------
Balance, as restated .... 31,203,161 312,032 57,595,068 3,983,901 61,891,001
Stock options exercised . -- 210,294 2,102 2,949,324 -- -- 2,951,426
Tax benefit related to
options exercised ...... -- -- -- 787,500 -- -- 787,500
Shares issued in public
offering ............... -- 2,875,000 28,750 69,968,572 -- -- 69,997,322
Dividends paid by pooled
companies .............. -- -- -- -- -- (230,000) (230,000)
Net income .............. -- -- -- -- -- 16,370,865 16,370,865
--------- ---------- -------- ------------ ----------- ----------- -----------
Balance, December 28, 1993 -- 34,288,455 342,884 131,300,464 -- 20,124,766 151,768,114
Stock options exercised . -- 14,113 141 97,666 -- -- 97,807
Capital contributions of
pooled companies ....... -- -- -- 84,559 -- -- 84,559
Dividends paid by pooled
companies .............. -- -- -- -- -- (2,051,613) (2,051,613)
Net income .............. -- -- -- -- -- 30,172,955 30,172,955
--------- ---------- -------- ------------ ----------- ----------- -----------
Balance, December 27, 1994 -- 34,302,568 343,025 131,482,689 -- 48,246,108 180,071,822
Shares issued in public
offering ............... -- 2,906,710 29,067 85,638,616 -- -- 85,667,683
Translation adjustment .. -- -- -- -- (284,364) -- (284,364)
Stock options exercised . -- 172,446 1,724 1,970,382 -- -- 1,972,106
Tax benefit related to
options exercised ...... -- -- -- 1,239,166 -- -- 1,239,166
S Corporation deferred taxes -- -- -- -- -- (16,503) (16,503)
Shares issued for Del Frisco
Group .................. -- 206,250 2,063 8,247,937 -- -- 8,250,000
Dividends paid by pooled
companies .............. -- -- -- -- -- (1,657,457) (1,657,457)
Net income .............. -- -- -- -- -- 47,568,090 47,568,090
--------- ---------- -------- ------------ ----------- ----------- ------------
Balance, December 26, 1995 $ -- 37,587,974 $375,879 $ 228,578,790 $ (284,364) $94,140,238 $322,810,543
========== ========== ======== ============== =========== =========== ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
For the years ended
-----------------------------------------------------------------
December 28, 1993 December 27, 1994 December 26, 1995
-------------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 16,370,865 $ 30,172,955 $ 47,568,090
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ....................... 6,743,650 12,989,178 19,816,823
Deferred compensation ............................... 306,905 (422,760) --
Equity in net loss from investment in joint venture . -- -- 311,282
Deferred income taxes ............................... 1,198,275 1,322,187 3,113,315
Minority interest ................................... -- -- (705,160)
Net change in operating assets and liabilities:
Accounts receivable ............................... (140,239) (243,028) (467,868)
Inventories ....................................... (818,769) (892,826) (1,510,680)
Pre-opening costs ................................. (6,439,921) (9,480,268) (13,060,622)
Refundable income taxes ........................... (1,370,716) (480,442) (2,368,198)
Other current assets .............................. (111,215) (89,586) 1,491,275
Accounts payable .................................. 720,548 4,773,994 (560,084)
Other current liabilities ......................... 2,028,481 3,922,478 10,196,604
------------ ------------ -------------
Net cash provided by operating activities ........ 18,487,864 41,571,882 63,824,777
Cash flows from investing activities:
Purchases of property and equipment .................... (45,750,421) (76,909,289) (104,787,485)
Purchase of assets of Del Frisco's (Note 13) ........... -- -- (14,600,000)
Contribution to capital by minority interest ........... -- -- 1,748,189
Cash acquired in consolidation of joint venture (Note 4) -- -- 495,873
Investment in joint venture ............................ (521,078) (1,105,198) (2,436,689)
Other .................................................. (2,142,444) (824,940) (4,448,593)
------------ ------------ ------------
Net cash used in investing activities ............ (48,413,943) (78,839,427) (124,028,705)
Cash flows from financing activities:
Net proceeds from issuance of common stock ............. 72,948,748 97,807 87,639,789
Additions to long-term debt ............................ 456,531 2,160,517 --
Payment of notes payable and capital lease obligation on
company acquired .................................... (853,504) (795,831) (3,930,191)
Capital contributions by pooled companies .............. -- 84,559 --
Dividends on prior S Corporation income ................ (230,000) (2,051,613) (1,657,457)
------------ ------------ ------------
Net cash provided by (used in) financing activities 72,321,775 (504,561) 82,052,141
------------ ------------ ------------
Effect of exchange rate changes on cash .................. -- -- (284,363)
Net increase (decrease) in cash and cash equivalents 42,395,696 (37,772,106) 21,563,850
Cash and cash equivalents at beginning of period ......... 41,237,444 83,633,140 45,861,034
------------ ------------ ------------
Cash and cash equivalents at end of period ............... $ 83,633,140 $ 45,861,034 $ 67,424,884
============ ============ =============
Supplemental disclosure of cash flow information:
Cash paid for interest ................................. $ 136,764 $ 275,033 $ 75,170
Cash paid for income taxes ............................. $ 8,736,989 $ 16,058,385 $ 23,282,127
</TABLE>
Supplemental schedule of noncash investing and financing activities:
As described in Note 13, in September 1995, the Company issued 206,250
shares of common stock having a market value of $8,250,000 in connection
with the acquisition of Del Frisco Group.
See notes to consolidated financial statements.
F-7
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES
Background
Lone Star Steakhouse & Saloon, Inc. (the "Company") currently owns and
operates a chain of mid-priced full service, casual dining restaurants in the
United States, as well as in Australia and Europe through participation in
international joint ventures. The restaurants serve mesquite-grilled steaks,
ribs, chicken and fish in a "Texas Roadhouse" atmosphere that are positioned
to attract local clientele. During 1995, the Company expanded into the
upscale steakhouse market with the acquisition of Del Frisco's Double Eagle
Steak House and the development of Sullivan's Steakhouse. As of December 26,
1995, the Company owns and operates 160 Lone Star Steakhouse & Saloons in the
United States as well as nine in connection with the joint venture in
Australia and two in connection with the joint venture in Europe. In
addition, the Company owns and operates one Del Frisco's Double Eagle Steak
House and one Sullivan's Steakhouse is under development.
Significant Accounting Policies
o Principles of Consolidation
The consolidated financial statements include the accounts of Lone Star
Steakhouse & Saloon, Inc., its wholly-owned subsidiaries and its majority
owned foreign joint ventures. All significant intercompany accounts and
transactions have been eliminated in consolidation.
o Concentration of Credit Risk
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash and short-term investments (cash
equivalents). The Company places its cash with high credit quality financial
institutions and, at times, such cash may be in excess of the Federal
Depository insurance limit. The Company has cash equivalents in investment
grade securities with municipal, State and U.S. government agencies of
approximately $37,843,000 and $46,361,000 at December 27, 1994 and December
26, 1995, respectively.
o 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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from estimates.
o Income Taxes
The Company accounts for income taxes under the liability method in
accordance with FASB Statement No. 109 "Accounting for Income Taxes."
o Cash and Cash Equivalents
The Company considers cash and cash equivalents to include currency on
hand, demand deposits with banks or other financial institutions, and
short-term investments with maturities of three months or less when
purchased. Cash and cash equivalents are carried at cost, which approximates
fair value.
o Inventories
Inventories consist of food and beverages, and are stated at the lower of
cost (first-in, first-out) or market.
o Property and Equipment
Property and equipment are stated at cost. Maintenance, repairs and
renewals which do not enhance the value of, or increase the life of, the
assets are expensed as incurred.
F-8
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Background and Significant Accounting Policies - (Continued)
Buildings are depreciated using the straight-line method over twenty
years, which is the estimated useful life of the assets. Leasehold
improvements are amortized on the straight-line method over the lesser of the
maximum life of the lease or twenty years, or the estimated useful lives of
the assets. Equipment and furniture and fixtures are depreciated using the
straight-line method over seven years, which is the estimated useful life of
the assets.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company will adopt
Statement 121 in the first quarter of 1996 and, based on current
circumstances, does not believe the effect of adoption will be material.
o Pre-opening Costs
Labor costs and costs of hiring and training personnel and certain other
costs relating to opening new restaurants are capitalized until the
restaurant is open and then amortized over the subsequent twelve months.
Accumulated amortization related to stores opened during 1994 and 1995 was
approximately $3,141,000 and $9,236,000 at December 27, 1994 and December 26,
1995, respectively.
o Intangibles and Other Assets
Intangibles and other assets principally represent goodwill in 1995. Such
goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets at dates of acquisition and is being amortized
on a straight-line method over twenty years. The remaining intangibles and
other assets are being amortized by the straight-line method over the
estimated useful life of the related assets. Accumulated amortization for
intangibles and other assets as of December 27, 1994 and December 26, 1995,
is $39,165 and $351,144, respectively.
o Stock based compensation
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees," and intends
to continue to do so.
The Company operates on a fifty-two or fifty-three week fiscal year ending
the last Tuesday in December. The fiscal quarters for the Company consist of
accounting periods of twelve, twelve, twelve and sixteen or seventeen weeks,
respectively.
2. ACQUISITION OF CCC GROUP
On August 6, 1995, the Company completed the acquisition of 11 licensed Lone
Star Steakhouse & Saloon restaurants as well as three additional restaurants
from a group of related entities which were operated under common control,
collectively hereinafter referred to as the "CCC Group." The transaction was
accounted for as a pooling of interests and, accordingly, the accompanying
financial statements have been restated to include the accounts and operations
of the CCC Group for all periods presented prior to the acquisition. The Company
exchanged 580,433 shares of its Common Stock for all of the Common Stock and
related net assets of the various entities acquired. Net sales and net income
included in the Company's consolidated statements of income attributable to the
acquisition are as follows:
F-9
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Acquisition of CCC Group - (Continued)
<TABLE>
<CAPTION>
For the years ended
-------------------------------------------------
December 28, December 27, December 26,
1993 1994 1995
-------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Net Sales:
Lone Star Steakhouse & Saloon, $ 95,767 $194,632 $313,052
Inc. CCC Group ................ 16,496 21,168 27,805
Net Income:
Lone Star Steakhouse & Saloon, Inc. 14,912 27,714 43,934
CCC Group (unaudited pro forma) (1) 875 1,475 2,801
</TABLE>
- ------
(1) Pro forma net income reflects the pro forma income taxes applicable to
CCC Group as the entities were operated as S Corporations or Partnerships
and were not subject to income taxes.
3. ADDITIONAL PUBLIC OFFERINGS
On June 2, 1993, the Company completed an offering of 2,875,000 additional
shares of its Common Stock (the "June 1993 Offering") at $25.75 per share. Total
net proceeds to the Company of approximately $70 million were used for
restaurant development.
On April 12, 1995, the Company completed an offering of 2,906,710 additional
shares of its Common Stock at $31.00 per share. Total net proceeds to the
Company of approximately $86 million are being used for continued development
and funding of the Company's new upscale steakhouse concept.
4. INVESTMENT IN AND ADVANCES TO JOINT VENTURE
During 1992, the Company, through its wholly-owned subsidiary Lone Star
Steakhouse & Saloon of Las Vegas, Inc., entered into a joint venture agreement
with an unrelated third party to build and operate a chain of restaurants in
Australia under the Company's trademark "Lone Star." The Company owned a 50%
interest in the joint venture and accounted for its investment using the equity
method of accounting. The Company's equity portion of the results of operations,
which are not significant, are included in the accompanying financial statements
for the year ended December 27, 1994 and for the 24 weeks ended June 13, 1995.
In June 1995, the Company increased its ownership interest in the Australian
joint venture from 50% to 65%. The Company consolidated the accounts of the
joint venture effective with the change in control.
During 1995, the Company entered into a second joint venture agreement with
an unrelated third party to build and operate a chain of restaurants in Europe
under the Company's trademark "Lone Star." The Company owns a 65% interest in
the joint venture and, accordingly, its net assets and operations have been
consolidated with the Company in the accompanying consolidated financial
statements.
5. PREFERRED STOCK
The Company's Board of Directors has the authority to issue up to 2,000,000
shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preference
and the numbers of shares constituting any series or the designation of such
series.
F-10
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. STOCK OPTIONS
o 1992 Stock Option Plan
In January 1992, the Board of Directors adopted a stock option plan (the
"Plan") which was amended in May 1995, which provides for incentive and
non-qualified stock options pursuant to which up to 7,000,000 shares of Common
Stock are available for issuance.
o Directors Stock Option Plan
In January 1992, the Board of Directors adopted a stock option plan providing
for nondiscretionary grants to non-employee Directors pursuant to which up to
400,000 shares of Common Stock are available for issuance.
o Other Options
In connection with the Australian joint venture agreement, options to acquire
513,800 shares of Common Stock were granted to certain individuals of the
unrelated third party. The exercise price of such options granted was $14.50 per
share which was the fair market value of the Common Stock on the date of grant.
A summary of changes in Common Stock options during 1993, 1994 and 1995 is as
follows:
Number Price
of shares per share
----------- --------------
Outstanding at December 29, 1992 . 864,914 $ 3.38 - 17.25
Granted ....................... 796,014 16.25 - 28.88
Exercised ..................... (210,294) 3.38 - 15.75
Cancelled ..................... (19,286) 14.50 - 25.75
----------- --------------
Outstanding at December 28, 1993 . 1,431,348 3.38 - 28.88
Granted ....................... 1,317,253 16.25 - 26.88
Exercised ..................... (14,113) 3.38 - 17.25
Cancelled ..................... (77,006) 3.38 - 28.88
----------- --------------
Outstanding at December 27, 1994 . 2,657,482 3.38 - 28.88
Granted ....................... 2,140,937 19.00 - 43.25
Exercised ..................... (172,446) 3.38 - 28.88
Cancelled ..................... (51,386) 14.50 - 39.88
----------- --------------
Outstanding at December 26, 1995 . 4,574,587 3.38 - 43.25
===========
Options exerciseable at: ........
December 26, 1995 ............. 1,208,791
Available for grant at: .........
December 26, 1995 ............. 2,928,560
7. RELATED PARTY TRANSACTIONS
The Company utilizes an affiliate to provide certain accounting, computer and
administrative services. The Company incurred fees of $308,057, $792,913, and
$1,443,312, related to such services for fiscal years 1993, 1994, and 1995,
respectively.
8. LEASES
The Company leases one restaurant facility which is accounted for as a
capital lease and other facilities under noncancelable operating leases having
terms expiring between 1996 and 2022. The leases have renewal clauses of 5 to
F-11
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Leases - (Continued)
20 years, exercisable at the option of the lessee. In addition, certain leases
contain escalation clauses based upon a fixed percentage increase and provisions
for contingent rentals based on a percentage of gross revenues, as defined.
Total rental expense for the years ended December 28 1993, December 27, 1994,
and December 26, 1995, was $2,485,565, $3,847,077, and $4,962,163, respectively,
including contingent rentals of approximately $254,327, $316,601, and $419,357,
respectively.
Information regarding the Company's leasing activities at December 26, 1995,
are as follows:
Capital Operating
Leases Leases
----------- --------------
1996 ...................................... $ 120,000 $ 4,834,713
1997 ...................................... 120,000 4,057,926
1998 ...................................... 120,000 3,267,919
1999 ...................................... 120,000 2,221,017
2000 ...................................... 60,000 1,830,495
Thereafter ................................ -- 3,473,613
----------- --------------
Total minimum lease payments .............. 540,000 $19,685,683
==============
Less imputed interest ..................... (152,669)
-----------
Present value of capital lease obligations . 387,331
Less current portion ...................... (64,550)
-----------
Long-term portion ......................... $ 322,781
===========
The net carrying value of assets under capital lease at December 27, 1994,
and December 26, 1995, is $322,664, and $267,308, respectively (net of
accumulated amortization of $566,124 and $621,480, respectively).
9. EARNINGS PER SHARE
Primary earnings per share amounts are computed based on the weighted average
number of shares actually outstanding plus the shares that would be outstanding
assuming exercise of dilutive stock options which are considered to be common
stock equivalents. The number of shares that would be issued from the exercise
of stock options has been reduced by the number of shares that could have been
purchased from such proceeds at the average market price of the Company's stock.
The number of shares resulting from this computation for 1993, 1994, and 1995
was 33,339,007, 34,608,610, and 37,537,891, respectively.
For purposes of fully diluted computations, the number of shares that would
be issued from the exercise of stock options has been reduced by the number of
shares which could have been purchased from such proceeds at the market price of
the Company's stock on the last day of the fiscal year because that price was
higher than the average market prices during the year. The number of shares
resulting from this computation of fully diluted earnings per share for 1993,
1994, and 1995, were 33,392,556, 34,608,693, and 37,867,716, respectively.
F-12
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
1994
-------------
<S> <C>
The following is a summary of long-term debt at December 27, 1994:
Three unsecured notes payable to bank, due in monthly installments
ranging from $6,667 to $11,667, plus interest payable at the
bank's prime rate; final maturity in August 2000. .................. $1,370,000
Notes payable to stockholders of CCC Group. .......................... 1,548,443
Note payable to bank, due in monthly installments of $6,366 including
interest at 7.25% through November 2005, collateralized by a
building with a carrying value of approximately $642,000 at
December 27, 1994. ................................................. 577,926
Note payable to bank, due in monthly installments of $7,917 plus
interest payable at the bank's prime rate plus 1/2%;
collateralized by accounts receivable, inventory, property and
equipment, and a life insurance policy on a shareholder, payable
in full in November 1996. .......................................... 183,333
Six notes payable to bank, due in monthly installments ranging
from $1,136 to $1,202 plus interest ranging from 8.56% to 10.15%;
collateralized by computer equipment; ultimately payable in
full in September 1997. ............................................ 195,134
------------
3,874,836
Less current portion ................................................. 3,874,836
------------
Long-term portion .................................................... $ --
=============
</TABLE>
All of the related long-term debt described above relates to activities of
the CCC Group prior to its acquisition by the Company. Such indebtedness was
repaid by the Company in August 1995, and accordingly, all such indebtedness at
December 27, 1994 was classified as current in the accompanying consolidated
balance sheet.
11. INCOME TAXES
As discussed in Note 1, the Company accounts for income taxes in accordance
with FAS 109. Income tax expense consists of the following:
<TABLE>
<CAPTION>
For the years ended
-----------------------------------------------------------
December 28, 1993 December 27, 1994 December 26, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Current tax expense:
Federal ....................... $6,423,415 $12,410,595 $20,145,697
State ......................... 1,490,388 3,167,348 3,560,579
---------- ----------- -----------
Total current ............... 7,913,803 15,577,943 23,706,276
Deferred tax expense:
Federal ....................... 1,057,325 1,123,188 2,976,342
State ......................... 140,950 198,999 136,973
---------- ----------- -----------
Total deferred .............. 1,198,275 1,322,187 3,113,315
---------- ----------- -----------
Total provision for income taxes . $9,112,078 $16,900,130 $26,819,591
========== =========== ===========
</TABLE>
F-13
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Income Taxes - (Continued)
The difference between the reported provision for income taxes and a tax
determined by applying the applicable U.S. federal statutory income tax rate
to income before taxes, is reconciled as follows.
<TABLE>
<CAPTION>
For the years ended
----------------------------------------------------------------------
December 28, 1993 December 27, 1994 December 26, 1995
----------------- ----------------- -----------------
Amount Rate Amount Rate Amount Rate
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at federal statutory rate $8,919,030 35% $16,475,580 35% $25,788,882 35%
State tax expense, net .................. 1,202,076 5 2,464,990 5 2,403,409 3
Effect of income tax related to CCC Group which
were not taxed because of S Corporation status (583,742) (2) (983,369) (2) (833,193) (1)
Other items, net, none of which individually
exceeds 5% of federal taxes at statutory rate (425,286) (2) (1,057,071) (2) (539,507) (1)
--------- ------ ----------- ------ ----------- -----
Actual provision for income taxes ....... $9,112,078 36% $16,900,130 36% $26,819,591 36%
========== ====== =========== ====== =========== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax liabilities are presented below:
December 27, December 26,
1994 1995
-------------- --------------
Deferred tax liabilities: .....
Pre-opening costs ........ $ 875,322 $1,817,159
Property and equipment ... 1,795,490 3,966,968
-------------- --------------
Total deferred tax
liability .............. $2,670,812 $5,784,127
============== ==============
12. COMMITMENTS
As of December 26, 1995, the Company has entered into purchase or option
contracts to purchase 25 additional sites for future restaurant locations. Such
contracts aggregate approximately $20,089,000. The Company has also entered into
operating lease agreements, subject to certain contingencies, on two additional
sites. Such leases generally have initial lease terms of five years and the
aggregate future minimum lease payments total approximately $520,000.
Subsequent to December 26, 1995, the Company has entered into purchase
contracts, subject to certain contingencies, for ten additional sites totaling
approximately $5,865,000. The Company also has entered into operating lease
agreements on two additional sites. Such leases generally have initial lease
terms of five years and the aggregate future minimum lease payments total
approximately $1,285,000.
13. ACQUISITION OF THE DEL FRISCO GROUP
On September 16, 1995, the Company acquired substantially all the operating
assets, real estate and related operations that comprised Del Frisco's Double
Eagle Steak House Group in Dallas, Texas, including a restaurant under
construction in Fort Worth, Texas, for an aggregate purchase price of $22.8
million, consisting of $14.6 million of internally generated cash and 206,250
shares of the Company's Common Stock. The Company accounted for the transaction
using the purchase method of accounting. In connection with the purchase price
allocation, the Company recorded goodwill of approximately $16.5 million which
is being amortized over a period of twenty years. The following supplemental pro
forma information presents the combined results of operations of the Company as
though the acquisition had occurred at the beginning of periods presented. The
pro forma information is unaudited and not necessarily indicative of the results
of the Company had the acquisition occurred at the beginning of such periods.
F-14
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Acquisition of The Del Frisco Group - (Continued)
For the years ended
-----------------------------------------
December 27, 1994 December 26, 1995
----------------- -----------------
(Dollars in thousands, except per share amounts)
Revenues .................... $ 225,163 $347,630
Net income .................. 31,162 48,494
Primary net income per share . $ .90 $ 1.29
14. QUARTERLY FINANCIAL SUMMARIES (UNAUDITED)
Summarized quarterly financial data for 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1st Quarter(a) 2nd Quarter(a) 3rd Quarter 4th Quarter
---------------- ---------------- --------------- ---------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
1994
Net Sales ................................... $40,335 $45,922 $53,067 $ 76,476
Restaurant operating income ................. 10,014 11,185 12,690 20,038
Pro forma net income (b) .................... 5,575 6,104 6,954 10,556
Pro forma primary net income per share ...... $ 0.16 $ 0.18 $ 0.20 $ 0.30
Pro forma fully diluted net income per share . 0.16 0.18 0.20 0.30
1995
Net Sales ................................... $69,393 $71,695 $81,633 $118,136
Restaurant operating income ................. 17,371 17,498 20,569 28,029
Pro forma net income (b) .................... 8,870 9,615 11,845 16,405
Pro forma primary net income per share ...... $ 0.26 $ 0.26 $ 0.31 $ 0.42
Pro forma fully diluted net income per share . 0.25 0.26 0.30 0.42
</TABLE>
(a) Results for the first and second quarters of 1994 and 1995 differ from
the results issued in the Company's quarterly reports on Form 10-Q, due
to such results being restated to account for the pooling of the CCC
Group which occurred during 1995. The net sales, restaurant operating
income, net income, and earnings per share for these quarters have
increased from amounts previously reported as follows:
Increase resulting from pooling of CCC Group
1st Quarter 2nd Quarter
--------------- ---------------
(In thousands, except per share amounts)
1994
Net sales .............................. $ 4,168 $4,623
Restaurant operating income ............ 885 855
Net income ............................. 321 317
Pro forma primary net income per share .. -- $ 0.01
Pro forma fully diluted net income per
share ................................ -- 0.01
1995
Net sales .............................. $ 6,212 $6,553
Restaurant operating income ............ 1,280 1,125
Net income ............................. 551 442
Pro forma primary net income per share .. $ 0.01 --
Pro forma fully diluted net income per
share ................................ 0.01 --
(b) Pro forma net income gives effect to providing for income taxes at the
estimated tax rate on pooled S Corporations of the CCC Group prior to the
acquisition of the CCC Group in 1995.
F-15
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 26, 1995 March 19, 1996
---------------- --------------
ASSETS
Current assets: ...........................
Cash and cash equivalents ............... $ 67,424,884 $ 65,955,253
Accounts receivable ..................... 1,308,865 1,357,263
Inventories ............................. 4,156,355 5,138,067
Pre-opening costs, net .................. 10,328,686 9,407,344
Refundable income taxes ................. 5,006,856 --
Other current assets .................... 90,092 300,765
---------------- -------------
Total current assets ............ 88,315,738 82,158,692
Property and equipment, net ............... 245,334,956 266,381,463
Intangible and other assets, net .......... 24,567,805 21,989,543
---------------- -------------
Total assets .................... $358,218,499 $370,529,698
================ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: ......................
Accounts payable ........................ $ 9,245,331 $ 7,224,257
Income taxes payable .................... -- 1,527,980
Deferred income taxes ................... 1,817,159 2,053,409
Other current liabilities ............... 17,372,803 16,381,011
---------------- -------------
Total current liabilities ....... 28,435,293 27,186,657
Deferred income taxes ..................... 3,966,968 4,509,818
Minority interest ......................... 2,682,914 2,290,673
Capitalized lease obligation .............. 322,781 305,033
Stockholders' equity: .....................
Preferred stock ......................... -- --
Common stock ............................ 375,879 376,351
Additional paid-in capital .............. 228,578,790 229,206,729
Retained earnings ....................... 94,140,238 107,076,319
Translation adjustment .................. (284,364) (421,882)
---------------- -------------
Total stockholders' equity ...... 322,810,543 336,237,517
---------------- -------------
Total liabilities and stockholders'
equity ........................ $358,218,499 $370,529,698
================ =============
See accompanying notes
F-16
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the twelve weeks ended
--------------------------------------
March 21, 1995 March 19, 1996
---------------- --------------
<S> <C> <C>
Net sales ................................................. $69,392,857 $106,375,328
Costs and expenses: ........................................
Costs of sales ........................................... 24,844,939 37,584,027
Restaurant operating expenses ............................ 23,212,444 37,718,967
Depreciation and amortization ............................ 3,964,520 6,313,030
-------------- ------------
Restaurant costs and expenses .............................. 52,021,903 81,616,024
-------------- ------------
Restaurant operating income ................................ 17,370,954 24,759,304
General and administrative expenses ........................ 2,977,621 4,665,802
-------------- ------------
Income from operations ..................................... 14,393,333 20,093,502
Other income, principally interest ......................... 158,584 634,194
-------------- ------------
Income before income taxes and minority interest ........... 14,551,917 20,727,696
Provision for income taxes ................................. (5,315,103) (8,183,856)
Minority interest .......................................... -- 392,241
-------------- ------------
Net income ................................................. $ 9,236,814 $ 12,936,081
============== ============
Primary net income per share ............................... $ 0.26 $ 0.33
============== ============
Fully diluted net income per share ......................... $ 0.26 $ 0.33
============== ============
Unaudited pro forma information based on providing for income
taxes on pooled S Corporations prior to acquisition at the
estimated effective tax rate: ............................
Income before income taxes ........................... $14,551,917
Pro forma provision for income taxes .................. (5,682,332)
-----------
Pro forma net income .................................. $ 8,869,585
===========
Pro forma primary net income per share ................ $ 0.25
===========
Pro forma fully diluted net income per share .......... $ 0.25
===========
</TABLE>
See accompanying notes
F-17
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
For the twelve weeks ended
------------------------------------
March 21, 1995 March 19, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities: ....................
Net income ............................................. $ 9,236,814 $ 12,936,081
Adjustments to reconcile net income to net cash provided
by operating activities: ............................
Depreciation and amortization ....................... 3,964,520 6,313,030
Net change in operating assets and liabilities: .....
Change in operating assets ........................ (383,418) 2,342,621
Change in operating liabilities ................... 240,090 (1,122,428)
----------- -----------
Net cash provided by operating activities ...... 13,058,006 20,469,304
Cash flows from investing activities: ....................
Purchases of property and equipment .................... (12,700,269) (23,890,992)
Other .................................................. (288,083) 1,608,009
----------- -----------
Net cash used in investing activities .......... (12,988,352) (22,282,983)
Cash flows from financing activities:
Net proceeds from issuance of common stock ............. 84,395 628,411
Payment of notes payable on company acquired ........... (307,130) --
Dividends on prior S Corporation income ................ (270,000) --
----------- -----------
Net cash provided by (used in) financing activities (492,735) 628,411
----------- -----------
Effect of exchange rate changes on cash .................. -- (284,363)
Net decrease in cash and cash equivalents ...... (423,081) (1,469,631)
Cash and cash equivalents at beginning of period ......... 45,861,034 67,424,884
------------ ------------
Cash and cash equivalents at end of period .............. $ 45,437,953 $ 65,955,253
============ ============
Supplemental disclosure of cash flow information: ........
Cash paid for interest ................................ $ 68,484 $ --
Cash paid for income taxes ............................. 3,536,876 869,920
</TABLE>
See accompanying notes
F-18
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(NOTE 1) BASIS OF PRESENTATION
The unaudited financial statements include all adjustments, consisting of
normal, recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and the results of operations for the
periods presented. The results of the twelve weeks ended March 19, 1996, are
not necessarily indicative of the results to be expected for the full year
ending December 31, 1996.
(NOTE 2) STOCK OPTIONS
During the twelve week period ended March 19, 1996, the Company granted
stock options for 1,201,394 shares of Common Stock at prices ranging from
$31.75 to $37.75 per share pursuant to its 1992 stock option plan for
employees.
(NOTE 3) EARNINGS PER SHARE
Primary earnings per share amounts are computed based on the weighted
average number of shares actually outstanding plus the shares that would be
outstanding assuming exercise of dilutive stock options which are considered
to be common stock equivalents. The number of shares that would be issued
from the exercise of stock options has been reduced by the number of shares
that could have been purchased from such proceeds at the average market price
of the Company's stock. The number of shares resulting from this computation
for the twelve weeks ended March 21, 1995 and March 19, 1996, was 34,931,291
and 38,797,073, respectively.
For purposes of fully diluted computations, the number of shares that
would be issued from the exercise of stock options has been reduced by the
number of shares which could have been purchased from such proceeds at the
market price of the Company's stock on the last day of the fiscal year
because that price was higher than the average market prices during the year.
The number of shares resulting from this computation of fully diluted
earnings per share for the twelve weeks ended March 21, 1995, and March 19,
1996, was 35,203,281 and 39,132,621, respectively.
(NOTE 4) SUBSEQUENT EVENT -- DISCONTINUANCE OF EUROPEAN JOINT VENTURE
The Company currently operates three Lone Star Restaurants in Europe pursuant
to a joint venture agreement (the "European Joint Venture"). On May 20, 1996 the
Board of Directors of the Company approved a plan to discontinue the European
Joint Venture. The Company anticipates closing its European restaurants as early
as the second quarter of fiscal 1996; however, the Company may seek to sell or
license such restaurants. The Company expects to incur a non-recurring pre-tax
charge as early as the second quarter of fiscal 1996 in the range of $9,000,000
to $11,000,000. The actual amount and the timing of such charge may vary
depending upon the timing and methods the Company utilizes in exiting its
current European operations. In addition, at the current time the Company is
unable to determine what contingent liabilities, if any, may be associated with
the discontinuance of such operations, including resolution of any disputes
which may arise with its European Joint Venture partner. The Company has been
unable to reach an understanding with its European Joint Venture partners on the
discontinuance of the European operations, and absent such agreement, it is
likely that litigation will result. The Company is unable, at the present time,
to estimate the potential additional liability, if any, resulting from such
potential litigation.
F-19
<PAGE>
==============================================================================
No dealer, salesman or any other person is authorized to give any information
or to make any representations in connection with this offering not contained
in this Prospectus and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company or any
Selling Stockholder. This Prospectus does not constitute an offer to sell or
solicitation of any offer to buy any security other than the registered
securities to which it relates or an offer to sell or solicitation of an
offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that information contained herein is correct as of any time
subsequent to the date hereof.
------
TABLE OF CONTENTS
------
Page
--------
Prospectus Summary ............................. 3
Risk Factors ................................... 6
The Company .................................... 8
Use of Proceeds ................................ 9
Price Range of Common Stock .................... 9
Capitalization ................................. 10
Dividend Policy ................................ 10
Selected Historical and Pro Forma Financial Data . 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations ........... 13
Business ....................................... 19
Management ..................................... 28
Certain Relationships and Related Transactions . 33
Principal and Selling Stockholders ............. 34
Description of Capital Stock ................... 36
Underwriting ................................... 37
Available Information .......................... 38
Experts ........................................ 38
Legal Matters .................................. 38
Index to Consolidated Financial Statements ..... F-1
==============================================================================
<PAGE>
==============================================================================
4,000,000 SHARES
[LOGO]
COMMON STOCK
------
PROSPECTUS
------
MONTGOMERY SECURITIES
SMITH BARNEY INC.
WESSELS, ARNOLD &
HENDERSON
, 1996
==============================================================================
<PAGE>
.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by it in connection with
the offering described in this registration statement (other than the
underwriting discount and commissions) will be as follows:
SEC Registration Fee ............................. $ 63,250.00
NASD Filing Fee .................................. 18,842.50
Nasdaq National Market Fee ....................... 17,500.00
Printing and engraving expenses .................. 75,000.00
Accounting fees and expenses ..................... 50,000.00
Legal fees and expenses .......................... 125,000.00
Blue sky qualification fees and expenses .......... 15,000.00
Transfer Agent's fees and expenses ................ 5,000.00
Miscellaneous. ................................... 30,407.50
-----------
Total ............................................ $400,000.00
===========
* To Be Completed By Amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of the Registrant provides that the
Registrant shall indemnify to the extent permitted by Delaware law any person
whom it may indemnify thereunder, including directors, officers, employees
and agents of the Registrant. Such indemnification (other than an order by a
court) shall be made by the Registrant only upon a proper determination that
the individual met the applicable standard of conduct. Advances of such
indemnification may be made pending such determination. Such determination
shall be made by a majority vote of a quorum consisting of disinterested
directors, or by independent legal counsel or by the stockholders. In
addition, the Registrant's Certificate of Incorporation eliminates, to the
extent permitted by Delaware law, personal liability of directors to the
Registrant and its stockholders for monetary damages for breach of fiduciary
duty as directors.
The Registrant also maintains a directors and officers insurance and
company reimbursement policy. The policy insures directors and officers
against unindemnified loss arising from certain wrongful acts in their
capacities and reimburses the Registrant for such loss for which the
Registrant has lawfully indemnified the directors and officers. The policy
contains various exclusions, none of which relates to the offering hereunder.
Section 145(a) of the Delaware Corporation Law (the "DGCL") provides in
relevant part that "a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the
corporation), by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, unlawful." With respect to derivative actions, Section 145(b) of
the DGCL provides in relevant part that "[a] corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor . . . [by reason of his
service in one of the capacities specified in the preceding sentence] against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
II-1
<PAGE>
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper."
The Registrant has entered into an Indemnification Agreement with each of
its directors and officers whereby is has agreed to indemnify each director
and officer from and against any and all expenses, losses, claims, damages
and liability incurred by such director or officer for or as a result of
action taken or not taken while such director was acting in his capacity as a
director, officer, employee or agent of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
1. In connection with the 1995 Lone Star Acquisition, on August 8, 1995,
the Company issued the following shares of Common Stock:
Leslie Rudd ...................... 231,504 shares
Dennis Thompson .................. 215,961 shares
James F. Haun ..................... 76,060 shares
James C. Verney ................... 54,742 shares
Daniel M. Kammerer ................. 1,083 shares
Thomas A. Hager .................... 1,083 shares
2. In connection with the 1995 Del Frisco Acquisition, on September 15,
1995, the Company issued the following shares of Common Stock:
Dale F. Wamstad ................. 181,500 shares
Dee Lincoln ...................... 24,750 shares
Such shares were issued pursuant to the exemption from registration
contained in Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT OF SCHEDULES.
(a) Exhibits:
Exhibit
-------
Number
-------
*1.1 Form of Underwriting Agreement
***3.1 Company's Certificate of Incorporation as amended
***3.2 Company's By-Laws
***4.1 Form of Common Stock Certificate
*5.1 Opinion of Olshan Grundman Frome & Rosenzweig LLP with
respect to legality of the Common Stock.
******10.1 Services Agreement as amended between the Company and
Coulter Enterprises, Inc., dated February 8, 1996
*****10.2 Employment Agreement between the Company and John D. White,
dated February 1, 1995
*****10.3 Employment Agreement between the Company and Scott M.
Somes, dated February 1, 1995
****10.4 1992 Lone Star Steakhouse & Saloon, Inc. Incentive and
Non-qualified Stock Option Plan (the "Plan") as amended
***10.5 Form of Indemnification Agreement for officers and
directors of the Company
***10.6 Non-Competition, Confidentiality and Non-Solicitation
Agreement between the Company and Jamie B. Coulter, dated
March 12, 1992
II-2
<PAGE>
Exhibit
-------
Number
-------
**10.7 Non-Competition, Confidentiality and Non-Solicitation
Agreement between the Company and Dennis L. Thompson,
dated March 12, 1992
*10.8 Merger between Creative Culinary Concepts, Inc., Steaks of
Raleigh, Inc., Lone Star Steaks of Pineville, Inc., Steaks
of Jacksonville, Inc., Steaks of Greenville, Inc., Steaks
of Cary, Inc. Steaks of Cornelius, Inc., Cowboy Steaks,
Inc. Leslie G. Rudd, Dennis L. Thompson, James F. Haun,
James C. Verney and Lone Star Steakhouse & Saloon, Inc. and
Lone Star Steaks, Inc.
*10.9 Merger between Nacho Mama's, Inc., Mama's Concept, Inc.
Leslie G. Rudd, Dennis L. Thompson, James F. Haun, and Lone
Star Steakhouse & Saloon, Inc.
*10.10 Merger between Morehead Restaurant Group, Inc., Dennis L.
Thompson, Thomas A. Hager, Daniel Kammerer, James Verney,
Lone Star Steakhouse & Saloon, Inc. and Frankie's
Restaurant, Inc.
*10.11 Asset Purchase Agreement among Creative Concepts of North
Carolina LLC, Leslie G. Rudd, Dennis L. Thompson, James F.
Haun, and James C. Verney, and Lone Star Steakhouse
& Saloon, Inc.
*******11.1 Statement regarding Computation of Per Share Earnings
******21.0 Subsidiaries of the Company
*23.1 Consent of Ernst & Young LLP
*******23.2 Consent of Olshan Grundman Frome & Rosenzweig LLP,
included in Exhibit No. 5.
*******24 Power of Attorney, included in Part II of the Registration
Statement
- ----------
* Filed herewith.
** Incorporated by reference to the Company's Registration Statement on
Form S-1, filed with the Commission on October 1, 1992 (Commission
File No. 33-52678) as amended.
*** Incorporated by reference to the Company's Registration Statement on
Form S-1, filed with the Commission on January 31, 1992 (Commission
File No. 33-45399), as amended.
**** Incorporated by reference to the Company's Registration Statement on
Form S-8, filed with the Commission on January 12, 1996 (Commission
File No. 333-280), as amended.
***** Incorporated by reference to the Company's Form 10-K for the year
ended December 27, 1994.
****** Incorporated by reference to the Company's Form 10-K for the year
ended December 26, 1995.
******* Previously filed.
All schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions
or are not applicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of an
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) of
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Wichita, State of Kansas, on the
28th day of May, 1996.
LONE STAR STEAKHOUSE & SALOON, INC.
By: /s/ JAMIE B. COULTER
-------------------------------
Jamie B. Coulter, Chairman of
the Board and Chief Executive
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
---------- ----- ----
<S> <C> <C>
/s/ Jamie B. Coulter Chairman of the Board and Chief May 28, 1996
------------------------- Executive Officer (Principal Executive
Jamie B. Coulter Officer)
/s/ John D. White* Executive Vice President, Chief May 28, 1996
------------------------- Financial Officer and (Principal
John D. White Accounting Officer), Treasurer and
Director
/s/ Dennis L. Thompson* Senior Vice President-Real Estate and May 28, 1996
------------------------- Director
Dennis L. Thompson
/s/ Clark R. Mandigo* Director May 28, 1996
-------------------------
Clark R. Mandigo
/s/ C. Robert Buford* Director May 28, 1996
-------------------------
C. Robert Buford
/s/ Fred B. Chaney* Director May 28, 1996
-------------------------
Fred B. Chaney
By: /S/ JAMIE B. COULTER
-------------------------
Jamie B. Coulter
Attorney-in-fact
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Exhibit Page Number
-------------- ------- -----------
<S> <C> <C>
*1.1 Form of Underwriting Agreement
***3.1 Company's Certificate of Incorporation as amended
***3.2 Company's By-Laws
***4.1 Form of Common Stock Certificate
*5.1 Opinion of Olshan Grundman Frome & Rosenzweig LLP with
respect to legality of the Common Stock.
******10.1 Services Agreement as amended between the Company and
Coulter Enterprises, Inc., dated February 8, 1996
*****10.2 Employment Agreement between the Company and John D. White,
dated February 1, 1995
*****10.3 Employment Agreement between the Company and Scott M.
Somes, dated February 1, 1995
****10.4 1992 Lone Star Steakhouse & Saloon, Inc. Incentive and
Non-qualified Stock Option Plan (the "Plan") as amended
***10.5 Form of Indemnification Agreement for officers and
directors of the Company
***10.6 Non-Competition, Confidentiality and Non-Solicitation
Agreement between the Company and Jamie B. Coulter, dated
March 12, 1992
**10.7 Non-Competition, Confidentiality and Non-Solicitation
Agreement between the Company and Dennis L. Thompson,
dated March 12, 1992
*10.8 Merger between Creative Culinary Concepts, Inc., Steaks of
Raleigh, Inc., Lone Star Steaks of Pineville, Inc., Steaks
of Jacksonville, Inc., Steaks of Greenville, Inc., Steaks
of Cary, Inc. Steaks of Cornelius, Inc., Cowboy Steaks,
Inc. Leslie G. Rudd, Dennis L. Thompson, James F. Haun,
James C. Verney and Lone Star Steakhouse & Saloon, Inc. and
Lone Star Steaks, Inc.
*10.9 Merger between Nacho Mama's, Inc., Mama's Concept, Inc.
Leslie G. Rudd, Dennis L. Thompson, James F. Haun, and Lone
Star Steakhouse & Saloon, Inc.
*10.10 Merger between Morehead Restaurant Group, Inc., Dennis L.
Thompson, Thomas A. Hager, Daniel Kammerer, James Verney,
Lone Star Steakhouse & Saloon, Inc. and Frankie's
Restaurant, Inc.
*10.11 Asset Purchase Agreement among Creative Concepts of North
Carolina LLC, Leslie G. Rudd, Dennis L. Thompson, James F.
Haun, and James C. Verney, and Lone Star Steakhouse
& Saloon, Inc.
*******11.1 Statement regarding Computation of Per Share Earnings
******21.0 Subsidiaries of the Company
*23.1 Consent of Ernst & Young LLP
*******23.2 Consent of Olshan Grundman Frome & Rosenzweig LLP,
included in Exhibit No. 5.
*******24 Power of Attorney, included in Part II of the Registration
Statement
- ----------
* Filed herewith.
** Incorporated by reference to the Company's Registration Statement on
Form S-1, filed with the Commission on October 1, 1992 (Commission
File No. 33-52678) as amended.
*** Incorporated by reference to the Company's Registration Statement on
Form S-1, filed with the Commission on January 31, 1992 (Commission
File No. 33-45399), as amended.
**** Incorporated by reference to the Company's Registration Statement on
Form S-8, filed with the Commission on January 12, 1996 (Commission
File No. 333-280), as amended.
***** Incorporated by reference to the Company's Form 10-K for the year
ended December 27, 1994.
****** Incorporated by reference to the Company's Form 10-K for the year
ended December 26, 1995.
******* Previously filed.
</TABLE>
<PAGE>
4,000,000 Shares
LONE STAR STEAKHOUSE & SALOON, INC.
Common Stock
UNDERWRITING AGREEMENT
May __, 1996
MONTGOMERY SECURITIES
SMITH BARNEY, INC.
WESSLES, ARNOLD & HENDERSON, L.L.C.
600 Montgomery Street
San Francisco, California 94111
Dear Sirs:
SECTION 1. Introductory. Lone Star Steakhouse & Saloon, Inc., a Delaware
corporation (the "Company"), proposes to issue and sell 2,500,000 shares of its
authorized but unissued Common Stock (the "Common Stock") and certain
stockholders of the Company named in Schedule A annexed hereto (the "Selling
Stockholders") propose to sell an aggregate of 1,500,000 shares of the Company's
issued and outstanding Common Stock to Montgomery Securities, Smith Barney, Inc.
and Wessels, Arnold & Henderson, L.L.C. (the "Underwriters"). Said aggregate of
4,000,000 shares are herein called the "Firm Common Shares." In addition, the
Company and the Selling Stockholders propose to grant to the Underwriter an
option to purchase up to 600,000 additional shares of Common Stock (the
"Optional Common Shares"), as provided in Section 4 hereof. The Firm Common
Shares and, to the extent such option is exercised, the Optional Common Shares
are hereinafter collectively referred to as the "Common Shares."
You have advised the Company and the Selling Stockholders that you
propose to make a public offering of the Common Shares on the effective date of
the registration statement hereinafter referred to, or as soon thereafter as in
your judgment is advisable.
The Company and each of the Selling Stockholders hereby confirm their
respective agreements with respect to the purchase of the Common Shares by the
Underwriter as follows:
SECTION 2. Representations and Warranties of the Company and the Selling
Stockholders.
I. The Company represents and warrants to the Underwriters that:
(a) A registration statement on Form S-1 (Reg. No.
333-04129) with respect to the Common Shares has been prepared by
the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, and has been filed with
the Commission. The Company has prepared and has filed or proposes
to file prior to the effective date of such registration statement
an amendment or amendments to such registration statement, which
-1-
<PAGE>
amendment or amendments have been or will be similarly prepared.
There have been delivered to you two signed copies of such
registration statement and amendments, together with two copies of
each exhibit filed therewith. Conformed copies of such
registration statement and amendments (but without exhibits) and
of the related preliminary prospectus have been delivered to you
in such reasonable quantities as you have requested. The Company
will next file with the Commission one of the following: (i) prior
to effectiveness of such registration statement, a further
amendment thereto, including the form of final prospectus, or (ii)
a final prospectus in accordance with Rules 430A and 424(b) of the
Rules and Regulations. As filed, such amendment and form of final
prospectus, or such final prospectus, shall include all Rule 430A
Information (as hereinafter defined) and, except to the extent
that you shall agree in writing to a modification, shall be in all
substantive respects in the form furnished to you prior to the
date and time that this Agreement was executed and delivered by
the parties hereto, or, to the extent not completed at such date
and time, shall contain only such specific additional information
and other changes (beyond that contained in the latest Preliminary
Prospectus (as hereinafter defined)) as the Company shall have
previously advised you in writing would be included or made
therein.
The term "Registration Statement" as used in this Agreement
shall mean such registration statement at the time such
registration statement becomes effective and, in the event any
post-effective amendment thereto becomes effective prior to the
First Closing Date (as hereinafter defined) shall also mean such
registration statement as so amended; provided, however, that such
term shall also include (i) all Rule 430A Information deemed to be
included in such registration statement at the time such
registration statement becomes effective as provided by Rule 430A
of the Rules and Regulations and (ii) a registration statement, if
any, filed pursuant to Rule 462(b) of the Rules and Regulations
relating to the Common Shares. The term "Preliminary Prospectus"
shall mean any preliminary prospectus referred to in the preceding
paragraph and any preliminary prospectus included in the
Registration Statement at the time it becomes effective that omits
Rule 430A Information. The term "Prospectus" as used in this
Agreement shall mean the prospectus relating to the Common Shares
in the form in which it is first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations or, if no
filing pursuant to Rule 424(b) of the Rules and Regulations is
required, shall mean the form of final prospectus included in the
Registration Statement at the time such registration statement
becomes effective, except that if any revised prospectus shall be
provided to the Underwriter that differs from the Prospectus on
file with the Commission at the time the registration statement
became or becomes, as the case may be, effective (whether or not
such revised prospectus is required to be filed with the
Commission pursuant to Rule 424(b)(3) of the Rules and
Regulations), the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first provided to the
Underwriter for such use. The term "Rule 430A Information" means
information with respect to the Common Shares and the offering
thereof permitted to be omitted from the Registration Statement
when it becomes effective pursuant to Rule 430A of the Rules and
Regulations.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each
Preliminary Prospectus has conformed in all material respects to
the requirements of the Act and the Rules and Regulations and, as
of its date, has not included any untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading; and at the time the Registration
Statement becomes effective, and at all times subsequent thereto
up to and including each Closing Date hereinafter mentioned, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, will contain all material statements and
information required to be included therein by the Act and the
Rules and Regulations and will in all material respects conform to
-2-
<PAGE>
the requirements of the Act and the Rules and Regulations, and
neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will include any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; provided, however, that no representation or warranty
contained in this subsection 2.I.(b) shall be applicable to
information contained in or omitted from any Preliminary
Prospectus, the Registration Statement, the Prospectus or any such
amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof. The documents
incorporated by reference in the Prospectus, when they were filed
with the Commission, conformed in all material respects to the
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations of the
Commission thereunder, and none of such documents contained an
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading.
(c) The Company does not own or control, directly or
indirectly, any corporation, association or other entity other
than the Corporations set forth in Schedule B hereto. The Company
and each of its subsidiaries have been duly organized and is
validly existing as a corporation in good standing under the laws
of its jurisdiction of incorporation, with full power and
authority (corporate and other) to own, lease and operate its
properties and to conduct its business as described in the
Registration Statement and the Prospectus. The Company owns all of
the outstanding capital stock of each of its subsidiaries free and
clear of all claims, liens, charges and encumbrances. The Company
and each of its subsidiaries is in possession of and operating in
compliance with all authorizations, licenses, permits, consents,
certificates and orders material to the conduct of its business,
all of which are valid and in full force and effect. The Company
and each of its subsidiaries is duly qualified to do business and
is in good standing as a foreign corporation in each jurisdiction
in which the ownership or leasing of properties or the conduct of
its business requires such qualification (except for jurisdictions
in which the failure to so qualify would not have a material
adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the
Company and each of its subsidiaries taken as a whole and, to the
Company's knowledge, no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing, or seeking to
revoke, limit or curtail, such power and authority or
qualification. Other than the Corporations listed in Schedule C
hereto (the "Material Subsidiaries"), the Company does not own or
control, directly or indirectly, any corporation, association or
other entity that has conducted operations or has entered into any
agreement for the lease or purchase of any property.
(d) The Company has full legal right, power and authority
to enter into this Agreement and to perform the transactions
contemplated hereby. This Agreement has been duly authorized,
executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, constitutes a valid
and binding obligation of the Company, enforceable in accordance
with its terms, except as enforcement may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles and
except as to those provisions relating to indemnity or
contribution for liabilities arising under the Act. The execution
and performance of this Agreement by the Company and the
consummation of the transactions herein contemplated will not
violate any provision of the charter or bylaws, or other
organizational documents, of the Company or any of its
subsidiaries and will not result in the breach or violation of, or
constitute, either by itself or upon notice or the passage of time
or both, a default under any material agreement, mortgage, deed of
trust, lease, franchise, license, indenture, permit or other
instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or any of
its or their property may be bound or affected, any statute or any
-3-
<PAGE>
authorization, judgment, decree, order, rule or regulation of any
court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its
subsidiaries or any of its or their property, except for such
violations, breaches and defaults that individually or in the
aggregate would not be material to the Company and its
subsidiaries taken as a whole. No consent, approval or
authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required for
the delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for compliance with the
Act, state securities or Blue Sky laws applicable to the public
offering of the Common Shares by the Underwriter and the clearance
of the underwriting terms and conditions of such offering by the
National Association of Securities Dealers, Inc. (the "NASD").
(e) The Company has an authorized and outstanding capital
stock as set forth under the heading "Capitalization" in the
Prospectus (except for subsequent issuances, if any, pursuant to
stock plans referred to in the Prospectus); the issued and
outstanding shares of Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable, are duly listed
on the National Market System (the "NMS") of the Nasdaq Stock
Market, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or to purchase
securities, and conform in all material respects to the
description thereof contained in the Prospectus. All issued and
outstanding shares of capital stock of each subsidiary of the
Company have been duly authorized and validly issued and are fully
paid and nonassessable. Except as disclosed in or contemplated by
the Prospectus and the pro forma consolidated financial statements
of the Company and its subsidiaries, the historical financial
statements of the Company and the historical combined financial
statements of the Company's subsidiaries (and, in each case, the
related notes thereto) included in or incorporated by reference in
the Prospectus, neither the Company nor any of its subsidiaries
has outstanding any options to purchase, or any preemptive rights
or other rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations. The description of
the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and
exercised thereunder, set forth in or incorporated by reference in
the Prospectus accurately and fairly presents in all material
respects the information required to be shown with respect to such
plans, arrangements, options and rights.
(f) The Common Shares have been duly authorized and either
are or, when issued, delivered and paid for in the manner set
forth in this Agreement, will be, duly authorized, validly issued,
fully paid and nonassessable, and will conform to the description
thereof contained in the Prospectus. No preemptive right or other
right to subscribe for or purchase exists with respect to the
issuance and sale of the Common Shares by the Company pursuant to
this Agreement. No stockholder of the Company has any right that
has not been waived to require the Company to register the sale of
any shares owned by such stockholder under the Act in the public
offering contemplated by this Agreement.
(g) Ernst & Young LLP, who have expressed their opinion
with respect to the financial statements and schedules filed with
the Commission as a part of the Registration Statement and
included in the Prospectus and in the Registration Statement or
incorporated by reference therein, are, to the Company's
knowledge, independent accountants as required by the Act and the
Rules and Regulations. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded
as necessary to permit preparations of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets;
-4-
<PAGE>
(iii) access to assets is permitted only in accordance with
management's general or specific authorizations; and (iv) the
recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(h) The financial statements and schedules, and the related
notes thereto, included in the Registration Statement and the
Prospectus present fairly the financial position of the Company
and its subsidiaries as of the respective dates of such financial
statements and schedules, and the results of operations and
changes in financial position of the Company and its subsidiaries
for the respective periods covered thereby. Except as otherwise
stated in the Registration Statement, such statements, schedules
and related notes have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis as
certified by Ernst & Young. The pro forma financial statements
included in the Registration Statement and the Prospectus present
fairly the information set forth therein on a basis consistent
with that of the audited financial statements included therein,
the assumptions on which such pro forma financial statements have
been prepared are reasonable and are set forth in the notes
thereto, and such pro forma financial statements have been
prepared, and the pro forma adjustments set forth therein have
been applied, in accordance with the applicable accounting
requirements of the Act and the Rules and Regulations (including,
without limitation, Regulation S-X promulgated by the Commission).
No other financial statements or schedules are required to be
included in the Registration Statement. The selected financial
data set forth in the Prospectus under the captions "Summary
Consolidated Financial Data," "Capitalization" and "Selected
Historical and Pro Forma Financial Data" fairly present the
information set forth therein on the basis stated in the
Registration Statement.
(i) Except as disclosed in the Prospectus, and except as to
defaults that individually or in the aggregate would not be
material to the Company and its subsidiaries taken as a whole,
neither the Company nor any of its subsidiaries is in violation of
or default under any provision of its respective charter or
bylaws, or other organizational documents, or is in breach of or
default with respect to any provision of any material agreement,
judgment, decree, order, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which
it is a party or by which it or any of its property is bound or
affected; and there does not exist any state of facts that
constitutes an event of default on the part of the Company or any
such subsidiary as defined in such documents or that, with notice
or lapse of time or both, would constitute such an event of
default.
(j) There are no statutes, contracts or other documents
required to be described in the Registration Statement or to be
filed as an exhibit to the Registration Statement by the Act or by
the Rules and Regulations that have not been described or filed as
required. The description in the Registration Statement and the
Prospectus of statutes and contracts fairly present the
information required to be provided by the Act and the Rules and
Regulations. The contracts so described in the Prospectus are in
full force and effect on the date hereof; and neither the Company
nor any of its subsidiaries, nor to the best of the Company's
knowledge, any other party is in breach of or default under any of
such contracts.
-5-
<PAGE>
(k) There is no legal or governmental action, suit or
proceeding pending or, to the best of the Company's knowledge,
threatened to which the Company or any of its subsidiaries is or
may be a party or of which property owned or leased by the Company
or any of its subsidiaries is or may be the subject which action,
suit or proceeding might, individually or in the aggregate,
prevent or adversely affect the transactions contemplated by this
Agreement, or result in a material adverse change in the condition
(financial or otherwise), properties, business, results of
operations or prospects of the Company and its subsidiaries taken
as a whole; and no labor disturbance by the employees of the
Company or any of its subsidiaries exists or, to the Company's
knowledge, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of
its principal suppliers, construction contractors or other persons
that might be expected to have a material adverse effect on the
condition (financial or otherwise), properties, business, results
of operations or prospects of the Company and its subsidiaries
taken as a whole. Neither the Company nor any of its subsidiaries
is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory
body, administrative agency or other governmental body.
(l) The Company and each of its subsidiaries has good and
marketable title to all the properties and assets reflected as
owned in the financial statements hereinabove described (or
elsewhere in the Prospectus), subject to no lien, mortgage,
pledge, charge or encumbrance of any kind except (i) those, if
any, reflected in such financial statements (or elsewhere in the
Prospectus) or (ii) those that are not material in amount and do
not adversely affect the use made and proposed to be made of such
property by the Company and each of its subsidiaries. The Company
and each of its subsidiaries holds its leased properties under
valid and binding leases, with such exceptions as are not
materially significant in relation to the business of the Company
and its subsidiaries taken as a whole. Except as disclosed in the
Prospectus, the Company and each of its subsidiaries owns or
leases all such properties as are necessary to its operations as
now conducted or as proposed to be conducted.
(m) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except
as described in or specifically contemplated by the Prospectus:
(i) neither the Company nor any of its subsidiaries has incurred
any material liability or obligation, direct, indirect or
contingent, or entered into any material verbal or written
agreement or other transaction that is not in the ordinary course
of business or that could result in a material reduction in the
future earnings of the Company and its subsidiaries taken as a
whole; (ii) neither the Company nor any of its subsidiaries has
sustained any material loss or interference with their respective
businesses or properties from fire, flood, windstorm, accident or
other calamity, whether or not covered by insurance; (iii) the
Company has not paid or declared any dividend or other
distribution with respect to its capital stock and neither the
Company nor any of its subsidiaries is in default in the payment
of principal or interest on any outstanding debt obligation; (iv)
there has not been any change in the capital stock (other than
upon the sale of the Common Shares hereunder or upon the exercise
of options described in the Registration Statement and the
Prospectus) or indebtedness material to the Company and its
subsidiaries taken as a whole (other than in the ordinary course
of business); and (v) there has not been any material adverse
change in the condition (financial or otherwise), business,
properties, results of operations or prospects of the Company and
its subsidiaries taken as a whole.
(n) Except as disclosed in or specifically contemplated by
the Prospectus, the Company and its subsidiaries have sufficient
trademarks, service marks, trade names, copyrights, licenses,
approvals and governmental authorizations to conduct their
businesses as now conducted; and the Company has no knowledge of
any material infringement by it or any of its subsidiaries of
trademark rights, service mark rights, trade name rights,
copyrights, licenses or other similar rights of others, and there
is no claim being made against the Company or any of its
subsidiaries regarding trademark, service mark, trade name,
copyright, license, or other infringement that could have a
material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company and
its subsidiaries taken as a whole.
-6-
<PAGE>
(o) To the Company's knowledge, the Company and each of its
subsidiaries is conducting business in compliance with the Fair
Labor Standards Act, the Federal Americans with Disabilities Act,
the rules and regulations of the federal Food and Drug
Administration, and all applicable federal, state and local laws,
rules and regulations of the jurisdictions in which it is
conducting business, including, without limitation, all applicable
local, state and federal laws and regulations governing health,
sanitation, safety, the purchase and sale of alcoholic beverages
(including, but not limited to, liquor licenses, "tied house"
statutes and "dram shop" statutes), environmental matters, zoning
and land use, except where the failure to be so in compliance
would not have a material adverse effect on the condition
(financial or otherwise), business, results of operations or
prospects of the Company and its subsidiaries taken as a whole.
(p) The Company and each of its subsidiaries have filed all
necessary federal, state and foreign income and franchise tax
returns in each jurisdiction in which it is conducting business
and have paid all taxes shown as due thereon to the extent due to
be paid prior to the date hereof and, to the extent not so due,
has made adequate reserves on its financial statements; and the
Company has no knowledge of any tax deficiency that has been or
might be asserted or threatened against the Company or any of its
subsidiaries that could materially and adversely affect the
business, operations or properties of the Company or its
subsidiaries.
(q) The Company has not distributed and will not distribute
prior to the First Closing Date any offering material in
connection with the offering and sale of the Common Shares other
than the Prospectus, the Registration Statement and the other
materials permitted by the Act.
(r) Each of the Company and its subsidiaries maintains
insurance of the types and in the amounts generally deemed
adequate for its business and consistent with insurance coverage
maintained by similar companies in similar businesses, including,
but not limited to, insurance covering real and personal property
owned or leased by the Company and its subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full
force and effect.
(s) The Company has not taken and will not take, directly
or indirectly, any action designed to or that might be reasonably
expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of
the Common Shares.
(t) The Common Stock has been approved for quotation on the
NMS.
(u) The Company has obtained agreements from each person
named in Schedule D hereto, providing that such person will not,
for a period of 180 days after the first date that any of the
Common Shares are released by you for sale to the public, sell,
offer to sell, contract to sell or otherwise sell or dispose of
any shares of Common Stock, or any options or warrants to purchase
any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock, owned directly by such
person or entity or with respect to which such person or entity
has the power of disposition, otherwise than hereunder or (i) as a
gift or gifts, provided that the donee or donees thereof agree to
be bound by this restriction or (ii) with the prior written
consent of the Underwriter. Each such person or entity shall also
agree and consent to the entry of stop transfer instructions with
the Company's transfer agent and registrar against the transfer of
shares of Common Stock held by such person or entity, except in
compliance with the foregoing restrictions.
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(v) The Company has filed all reports required to be filed
pursuant to the Act and the Rules and Regulations and pursuant to
the Exchange Act and the rules and regulations promulgated
thereunder.
(w) The Company has satisfied the conditions for use of
Form S-1, as set forth in the General Instructions thereto, with
respect to the Registration Statement.
II. (a) Each of the Selling Stockholders represents and
warrants to, and agrees with, the Underwriters that:
(i) Such Selling Stockholder has, and on the First
Closing Date and the Second Closing Date will have, valid
marketable title to the Common Shares proposed to be sold by such
Selling Stockholder hereunder on such Closing Date and full right,
power and authority to enter into this Agreement and to sell,
assign, transfer and deliver such Common Shares hereunder, free
and clear of all voting trust arrangements, liens, encumbrances,
equities, security interests, restrictions and claims whatsoever;
and upon delivery of and payment for such Common Shares hereunder,
the Underwriter acquiring such Common Shares without notice of
adverse claim will acquire valid marketable title thereto, free
and clear of all liens, encumbrances, equities, claims,
restrictions, security interests, voting trusts or other defects
of title whatsoever.
(ii) Such Selling Stockholder has executed and
delivered a Power of Attorney and caused to be executed and
delivered on his behalf a Custody Agreement (hereinafter
collectively referred to as the "Stockholders Agreement") and in
connection herewith such Selling Stockholder further represents,
warrants and agrees that such Selling Stockholder has deposited in
custody, under the Stockholders Agreement, with the agent named
therein (the "Agent") as custodian, certificates in negotiable
form for the Common Shares to be sold hereunder by such Selling
Stockholder, for the purpose of further delivery pursuant to this
Agreement. Such Selling Stockholder agrees that the Common Shares
to be sold by such Selling Stockholder on deposit with the Agent
are subject to the interests of the Company and the Underwriters,
that the arrangements made for such custody are to that extent
irrevocable, and that the obligations of such Selling Stockholder
hereunder shall not be terminated, except as provided in this
Agreement or in the Stockholders Agreement, by any act of such
Selling Stockholder, by operation of law, by the death or
incapacity of such Selling Stockholder or by the occurrence of any
other event. If the Selling Stockholder should die or become
incapacitated, or if any other event should occur, before the
delivery of the Common Shares hereunder, the documents evidencing
the Common Shares then on deposit with the Agent shall be
delivered by the Agent in accordance with the terms and conditions
of this Agreement as if such death, incapacity or other event had
not occurred, regardless of whether or not the Agent shall have
received notice thereof. The Stockholders Agreement has been duly
executed and delivered by or on behalf of such Selling Stockholder
and the form of such agreement has been delivered to you.
(iii) The performance of this Agreement and the
Stockholders Agreement and the consummation of the transactions
contemplated hereby and thereby will not result in a breach or
violation by such Selling Stockholder of any of the terms or
provisions of, or constitute a default by such Selling Stockholder
under, any indenture, mortgage, deed of trust, trust (constructive
or other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder or any of his or her
properties is bound, any statute, or any judgment, decree, order,
rule or regulation of any court or governmental agency or body
applicable to such Selling Stockholder or any of his or her
properties.
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(iv) Such Selling Stockholder has not taken and will
not take, directly or indirectly, any action designed to or which
has constituted or which might reasonably be expected to cause or
result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
Common Shares.
(v) Each Preliminary Prospectus and the Prospectus,
insofar as each has related to such Selling Stockholder, has
conformed in all material respects to the requirements of the Act
and the Rules and Regulations and has not included any untrue
statement of a material fact or omitted to state a material fact
necessary to make the statements therein not misleading in the
light of the circumstances under which they were made; and neither
the Registration Statement nor the Prospectus, nor any amendment
or supplement thereto, as it relates to such Selling Stockholder,
will include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary
to make the statements therein not misleading.
(b) Each of the Selling Stockholders agrees with the
Company and the Underwriters not to offer to sell, sell or
contract to sell or otherwise dispose of any shares of Common
Stock or securities convertible into or exchangeable for any
shares of Common Stock, for a period of 180 days after the first
date that any of the Common Shares are released by you for sale to
the public without the prior written consent of the Underwriters.
SECTION 3. Representations and Warranties of the Underwriters. The
Underwriters represent and warrant to the Company and to the Selling
Stockholders that the information set forth (i) on the cover page of the
Prospectus with respect to price, underwriting discounts and commissions and
terms of offering and (ii) under "Underwriting" in the Prospectus was furnished
to the Company by and on behalf of the Underwriters for use in connection with
the preparation of the Registration Statement and the Prospectus and is correct
in all material respects.
SECTION 4. Purchase, Sale and Delivery of Common Shares. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, (i) the Company agrees to issue and
sell to the Underwriters 2,500,000 Firm Common Shares, and (ii) the Selling
Stockholders agree, severally and not jointly, to sell to the Underwriter in the
respective amounts set forth in Schedule A hereto, an aggregate of 1,500,000
Firm Common Shares. The Underwriter agrees to purchase from the Company and the
Selling Stockholders, respectively, the number of Firm Common Shares described
above. The purchase price per share to be paid by the Underwriters to the
Company and to the Selling Stockholders, respectively, shall be $_____ per
share.
Delivery of certificates for the Firm Common Shares to be purchased by
the Underwriter and payment therefor shall be made at the offices of Montgomery
Securities, 600 Montgomery Street, San Francisco, California (or such other
place as may be agreed upon by the Company and the Underwriter) at such time and
date, not later than the third (or, if the Firm Common Shares are priced as
contemplated by Rule 15c6-1(c) of the Exchange Act, after 4:30 p.m. Washington,
D.C. time, the fourth) full business day following the first date that any of
the Common Shares are released by you for sale to the public, as you shall
designate by at least 48 hours prior notice to the Company (or at such other
time and date, not later than one week after such third or fourth, as the case
may be, full business day as may be agreed upon by the Company and the
Representatives) (the "First Closing Date"); provided, however, that if the
Prospectus is at any time prior to the First Closing Date recirculated to the
public, the First Closing Date shall occur upon the later of the third or
fourth, as the case may be, full business day following the first date that any
of the Common Shares are released by you for sale to the public or the date that
is 48 hours after the date that the Prospectus has been so recirculated.
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Delivery of certificates for the Firm Common Shares shall be made by or
on behalf of the Company and the Selling Stockholders to you, for your account
with respect to the Firm Common Shares to be sold by the Company and the Selling
Stockholders against payment by you, for your account, of the purchase price
therefor by certified or official bank check or checks payable in next day funds
to the order of the Company and of the Agent in proportion to the number of Firm
Common Shares to be sold by the Company and the Selling Stockholders,
respectively. The Company and the Custodian on behalf of the Selling
Stockholders agree to instruct the bank at which the check is deposited that the
funds are not to be made available to the Company or the Selling Stockholders
(nor transferred from the account of the Underwriters) prior to the first
business day following the First Closing Date. In this regard, the Company and
the Selling Stockholders agree not to deposit and to cause the Custodian not to
deposit any such check in the bank on which it is drawn earlier than the first
business day following the First Closing Date, and further agree not to take any
other action with the purpose or effect of receiving immediately available funds
or earning interest on such funds until the first business day following the
First Closing Date. In the event of any breach of the foregoing, the Company or
the Selling Stockholders, as the case may be, shall reimburse the Underwriters
for the interest lost and any other expenses borne by the Underwriters by reason
of such breach. The certificates for the Firm Common Shares shall be registered
in such names and denominations as you shall have requested at least two full
business days prior to the First Closing Date, and shall be made available for
checking and packaging on the business day preceding the First Closing Date at a
location in New York, New York, as may be designated by you. Time shall be of
the essence, and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriter.
In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the (i) Selling Stockholders, severally and not jointly, hereby grant
options to the several Underwriters to purchase, severally and not jointly, up
to an aggregate of 450,000 Optional Common Shares in the respective amounts set
forth opposite the name of each such Selling Stockholder in Schedule A hereto
and (ii) the Company hereby grants an option to the several Underwriters to
purchase, severally and not jointly, up to 150,000 Optional Common Shares; in
each case at the purchase price per share to be paid for the Firm Common Shares,
for use solely in covering any over-allotments made by you for the account of
the Underwriters in the sale and distribution of the Firm Common Shares. In the
event that the Underwriters elect to purchase less than all of the Optional
Common Shares, the number of Optional Common Shares to be purchased from each
Selling Stockholder and the Company shall be determined by multiplying the
aggregate number of Optional Common Shares to be purchased by a fraction, the
numerator of which is the total number of Optional Common Shares set forth
opposite the name of such Selling Stockholder or the Company in Schedule B
hereto and the denominator of which is 600,000. The option granted hereunder may
be exercised at any time (but not more than once) within 30 days after the first
date that any of the Common Shares are released by you for sale to the public,
upon notice by you to the Company and said Selling Stockholders setting forth
the aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, the names and denominations in which the certificates for
such shares are to be registered and the time and place at which such
certificates will be delivered. Such time of delivery (which may not be earlier
than the First Closing Date), being herein referred to as the "Second Closing
Date," shall be determined by you, but if at any time other than the First
Closing Date shall not be earlier than three full business days after delivery
of such notice of exercise. The number of Optional Common Shares to be purchased
by each Underwriter shall be determined by multiplying the number of Optional
Common Shares to be sold by the Selling Stockholders and the Company pursuant to
such notice of exercise by a fraction, the numerator of which is the number of
Firm Common Shares to be purchased by such Underwriter as set forth opposite its
name in Schedule A and the denominator of which is 4,000,000 (subject to such
adjustments to eliminate any fractional share purchases as you in your
discretion may make). Certificates for the Optional Common Shares will be made
available for checking and packaging on the business day preceding the Second
Closing Date at a location in New York, New York, as may be designated by you.
The manner of payment for and delivery of the Optional Common Shares shall be
the same as for the Firm Common Shares purchased from the said Selling
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<PAGE>
Stockholders and the Company as specified in the two preceding paragraphs. At
any time before lapse of the option, you may cancel such option by giving
written notice of such cancellation to the Company and said Selling
Stockholders. If the option is cancelled or expires unexercised in whole or in
part, the Company will deregister under the Act the number of Optional Common
Shares as to which the option has not been exercised.
Subject to the terms and conditions hereof, the Underwriter proposes to
make a public offering of the Common Shares as soon after the effective date of
the Registration Statement as in the judgment of the Underwriter is advisable
and at the public offering price set forth on the cover page of and on the terms
set forth in the Prospectus.
SECTION 5. Covenants of the Company. The Company covenants and agrees
that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective
at the time and date that this Agreement is executed and delivered
by the parties hereto, to become effective. If the Registration
Statement has become or becomes effective pursuant to Rule 430A of
the Rules and Regulations, or the filing of the Prospectus is
otherwise required under Rule 424(b) of the Rules and Regulations,
the Company will file the Prospectus, properly completed, pursuant
to the applicable paragraph of Rule 424(b) of the Rules and
Regulations within the time period prescribed and will provide
evidence satisfactory to you of such timely filing. The Company
will promptly advise you in writing (i) of the receipt of any
comments of the Commission, (ii) of any request of the Commission
for amendment of or supplement to the Registration Statement
(either before or after it becomes effective), any Preliminary
Prospectus or the Prospectus or for additional information, (iii)
when the Registration Statement shall have become effective and
(iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of
the institution of any proceedings for that purpose. If the
Commission shall enter any such stop order at any time, the
Company will use its best efforts to obtain the lifting of such
order at the earliest possible moment. The Company will not file
any amendment or supplement to the Registration Statement (either
before or after it becomes effective), any Preliminary Prospectus
or the Prospectus of which you have not been furnished with a copy
a reasonable time prior to such filing or to which you reasonably
object or that is not in compliance with the Act and the Rules and
Regulations.
(b) The Company will prepare and file with the Commission,
promptly upon your request, a registration statement pursuant to
Rule 462(b) of the Rules and Regulations related to the Common
Shares and any amendments or supplements to the Registration
Statement or the Prospectus which in your judgment may be
necessary or advisable to enable the several Underwriters to
continue the distribution of the Common Shares and will use its
best efforts to cause the same to become effective as promptly as
possible. The Company will fully and completely comply with the
provisions of Rule 430A of the Rules and Regulations with respect
to information omitted from the Registration Statement in reliance
upon such Rule.
(c) If at any time within the nine-month period referred to
in Section 10(a)(3) of the Act during which a prospectus relating
to the Common Shares is required to be delivered under the Act any
event occurs, as a result of which the Prospectus, including any
amendment or supplement thereto, would include an untrue statement
of a material fact, or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, or if it is necessary at any time to amend the
Prospectus, including any amendments or supplements thereto, to
comply with the Act or the Rules and Regulations, the Company will
promptly advise you thereof and will promptly prepare and file
with the Commission, at its own expense, an amendment or
supplement that will correct such statement or omission or an
amendment or supplement that will effect such compliance and will
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use its best efforts to cause the same to become effective as soon
as possible; and, in case the Underwriters are required to deliver
a prospectus after such nine-month period, the Company upon
request, but at the expense of the Underwriters, will promptly
prepare such amendment or amendments to the Registration Statement
and such Prospectus or Prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Act.
(d) As soon as practicable, but not later than 45 days
after the end of the first quarter ending after one year following
the "effective date of the Registration Statement" (as defined in
Rule 158(c) of the Rules and Regulations), the Company will make
generally available to its security holders an earnings statement
(which need not be audited) covering a period of 12 consecutive
months beginning after the effective date of the Registration
Statement that will satisfy the provisions of the last paragraph
of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law
to be delivered in connection with sales by the Underwriters or
dealers, the Company, at its expense, but only for the nine-month
period referred to in Section 10(a)(3) of the Act, will furnish to
you or mail to your order copies of the Registration Statement,
the Prospectus, the Preliminary Prospectus and all amendments and
supplements to any such documents in each case as soon as
available and in such quantities as you may reasonably request,
for the purposes contemplated by the Act.
(f) The Company shall cooperate with you and your counsel
in order to qualify or register the Common Shares for sale under
(or to obtain exemptions from the application of) the securities
and Blue Sky laws of such jurisdictions as you designate, will
comply with such laws and will continue such qualifications,
registrations and exemptions in effect so long as reasonably
required for the distribution of the Common Shares; provided,
however that the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of
process in any such jurisdiction where it is not presently
qualified or where it would be subject to taxation as a foreign
corporation. The Company will advise you promptly of the
suspension of the qualification or registration of (or any such
exemption relating to) the Common Shares for offering, sale or
trading in any jurisdiction or any initiation or threat of any
proceeding for any such purpose, and in the event of the issuance
of any order suspending such qualification, registration or
exemption, the Company, with your cooperation, will use its best
efforts to obtain the withdrawal thereof.
(g) During the period of five years hereafter or, if
shorter, for so long as required by law, the Company will furnish
to its stockholders, as soon as practicable after the end of each
respective period, annual reports (including financial statements
audited by independent certified public accountants) and unaudited
quarterly reports of operations for each of the first three
quarters of the fiscal year, and, upon your request, to you: (i)
as soon as practicable after the end of each fiscal year, copies
of the Annual Report of the Company containing the balance sheet
of the Company as of the close of such fiscal year and statements
of income, stockholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public
accountants; (ii) as soon as practicable after the filing thereof,
copies of each proxy statement, Annual Report on Form 10-K,
Quarterly Report on Form 10-Q, Report on Form 8-K or other report
filed by the Company with the Commission, the NASD or any
securities exchange; and (iii) as soon as available, copies of any
report or communication of the Company mailed generally to holders
of its Common Stock. During such five year or shorter period, as
the case may be, if the Company shall continue to have active
subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company
and its subsidiaries are required to be consolidated.
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(h) During the period of 180 days after the first date that
any of the Common Shares are released by you for sale to the
public, without the prior written consent of the Underwriters, the
Company will not, other than as disclosed in the Prospectus or
pursuant to the Company's 1992 Stock Option Plan or the Directors
Plan, issue, offer, sell, grant options to purchase or otherwise
dispose of any of the Company's equity securities or any other
securities convertible into or exchangeable with its Common Stock
or other equity security.
(i) The Company will apply the net proceeds of the sale of
the Common Shares sold by it substantially in accordance with its
statements under the caption "Use of Proceeds" in the Prospectus.
(j) The Company will maintain a transfer agent and registrar
for its Common Stock.
(k) If at any time during the 25-day period after the
Registration Statement becomes effective, any rumor, publication
or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Common
Stock has been or is likely to be materially affected (regardless
of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect
set forth above, forthwith prepare, consult with you concerning
the substance of, and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or
commenting on such rumor, publication or event.
(l) The Company will use its best efforts to qualify or
register its Common Stock for sale in non-issuer transactions
under (or obtain exemptions from the application of) the Blue Sky
laws of the State of California (and thereby permit market making
transactions and secondary trading in the Company's Common Stock
in California), will comply with such Blue Sky laws and will
continue such qualifications, registrations and exemptions in
effect for a period of five years after the date hereof.
You may, in your sole discretion, waive in writing the
performance by the Company of any one or more of the foregoing
covenants or extend the time for their performance.
SECTION 6. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company agrees to pay and, unless otherwise paid by the Company,
the Selling Stockholders agree to pay, in such proportion as they may agree
among themselves, all costs, fees and expenses incurred in connection with the
performance of their obligations hereunder and in connection with the
transactions contemplated hereby, including without limiting the generality of
the foregoing, (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the transfer agent and registrar of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriter, (iv) all fees and expenses of
the Company's counsel and the Company's independent accountants, (v) all costs
and expenses incurred in connection with the preparation, printing, filing,
shipping and distribution of the Registration Statement, each Preliminary
Prospectus and the Prospectus (including all exhibits and financial statements)
and all amendments and supplements thereto, this Agreement, and any other
underwriting documents and the Preliminary Blue Sky Memorandum and any
Supplemental Blue Sky Memorandum, (vi) all filing fees, reasonable attorneys'
fees and out-of- pocket expenses incurred by the Company or the Underwriter in
connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under state securities or Blue Sky laws, (vii) the filing fee of the
NASD with respect to the review of the underwriting terms and conditions of the
offering and with respect to the listing of the additional shares of Common
Stock, and (viii) all other fees, costs and expenses referred to in Item 13 of
the Registration Statement. The Underwriter may deem the Company to be the
primary obligor with respect to all costs, fees and expenses to be paid by the
Company and the Selling Stockholders. Except as provided in this Section 6,
Section 8 and Section 10 hereof, the Underwriter shall pay all of its own
expenses, including the fees and disbursements of its counsel (excluding those
relating to qualification, registration or exemption under state securities or
Blue Sky laws and the Preliminary or Supplemental Blue Sky Memoranda referred to
above). This Section 6 shall not affect any agreement relating to the payment of
expenses between the Company and the Selling Stockholders.
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The Selling Stockholders will pay (directly or by reimbursement) all fees
and expenses incident to the performance of their respective obligations under
this Agreement that are not otherwise specifically provided for herein,
including but not limited to (i) any fees and expenses of counsel for such
Selling Stockholders, (ii) any fees and expenses of the Agent and (iii) all
expenses and taxes incident to the sale and delivery of the Common Shares to be
sold by such Selling Stockholders to the Underwriters hereunder.
SECTION 7. Conditions of the Obligations of the Underwriters. The
obligations of the Underwriters to purchase and pay for the Firm Common Shares
on the First Closing Date and the Optional Common Shares on the Second Closing
Date shall be subject to the accuracy of the representations and warranties on
the part of the Company and the Selling Stockholders herein set forth as of the
date hereof and as of the First Closing Date or the Second Closing Date, as the
case may be, to the accuracy of the statements of Company officers and the
Selling Stockholders made pursuant to the provisions hereof, to the performance
by the Company and the Selling Stockholders of their respective obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective
not later than 5:00 P.M., Washington, D.C. time, on the date of
this Agreement, or at such later time as shall have been consented
to by you; if the filing of the Prospectus, or any supplement
thereto, is required pursuant to Rule 424(b) of the Rules and
Regulations, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424(b) of the Rules
and Regulations; and prior to such Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have
been instituted or shall be pending or, to the knowledge of the
Company, the Selling Stockholders or you, shall be contemplated by
the Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement, or
otherwise, shall have been complied with to your satisfaction.
(b) You shall be satisfied that since the respective dates
as of which information is given in the Registration Statement and
the Prospectus, (i) there shall not have been any change in the
capital stock of the Company or any of its subsidiaries other than
pursuant to the exercise of outstanding options or as otherwise
disclosed in or contemplated by the Prospectus, or any material
change in the indebtedness (other than in the ordinary course of
business) of the Company and its subsidiaries taken as a whole,
(ii) except as set forth or contemplated by the Registration
Statement or the Prospectus, no material verbal or written
agreement or other transaction shall have been entered into by the
Company or any of its subsidiaries , that is not in the ordinary
course of business or that could result in a material reduction in
the future earnings of the Company and its subsidiaries taken as a
whole, (iii) no loss or damage (whether or not insured) to the
property of the Company or any of its subsidiaries shall have been
sustained that materially and adversely affects the condition
(financial or otherwise), business, results of operations or
prospects of the Company and its subsidiaries taken as a whole,
(iv) no legal or governmental action, suit or proceeding affecting
the Company or any of its subsidiaries that is material to the
Company and its subsidiaries taken as a whole or that materially
adversely affects or may materially adversely affect the
transactions contemplated by this Agreement shall have been
instituted or threatened and (v) there shall not have been any
material change in the condition (financial or otherwise),
business, management, results of operations or prospects of the
Company and its subsidiaries taken as a whole that makes it
impractical or inadvisable in the judgment of the Underwriters to
proceed with the public offering or purchase the Common Shares as
contemplated hereby.
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(c) There shall have been furnished to you, as the
Underwriters, on each Closing Date, in form and substance
satisfactory to you, except as otherwise expressly provided below:
(i) An opinion of Olshan Grundman Frome &
Rosenzweig, counsel for the Company, addressed to the Underwriter
and dated the First Closing Date, or the Second Closing Date, as
the case may be, to the effect that:
(1) Each of the Company and its Material
Subsidiaries has been duly organized and is validly
existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, has full
corporate power and authority to own, lease and
operate its properties and to conduct its business
as described in the Registration Statement and the
Prospectus, and is duly qualified to do business as
a foreign corporation and is in good standing in all
other jurisdictions where the ownership or leasing
of properties or the conduct of its business
requires such qualification, except for
jurisdictions in which the failure to so qualify
would not have a material adverse effect on the
condition (financial or otherwise), earnings,
operations, business or business prospects of the
Company and its subsidiaries taken as a whole;
(2) The Company has corporate power and
authority to enter into this Agreement and to sell
and deliver the Common Shares to be sold by it to
the Underwriters; this Agreement has been duly
authorized, executed and delivered by the Company
and is a valid and binding obligation of the
Company, enforceable in accordance with its terms,
except as enforcement may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization,
moratorium or other laws relating to affecting
creditors' rights generally or by general equitable
principles and except as to those provisions
relating to indemnity or contribution for
liabilities arising under the Act as to which no
opinion need be expressed;
(3) The execution and the performance of this
Agreement and the consummation of the transactions
contemplated thereby will not violate any provision
of the charter or bylaws of the Company or any
Material Subsidiary and, to the best of such
counsel's knowledge, will not result in the breach
or violation of, or constitute either by itself or
upon notice or the passage of time or both, a
default under any material agreement, mortgage, deed
of trust, lease, franchise, license, indenture,
permit or other instrument to which the Company or
any Material Subsidiary is a party or by which the
Company or any Material Subsidiary or any of its or
their property may be bound or affected, or, so far
as is known to such counsel, violate any statute or
any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory agency,
administrative agency or other governmental body
applicable to the Company or any Material Subsidiary
or any of its or their property, which violation,
breach or default would have a material adverse
effect on the condition (financial or otherwise),
earnings, operations, business or business prospects
of the Company and its subsidiaries taken as a
whole; and no approval, authorization, order,
consent, registration, filing, qualification,
license or permit of or with any court, regulatory,
administrative or other governmental body is
required for the execution and delivery of this
Agreement by the Company or the consummation of the
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transactions contemplated herein, except such as
have been obtained and are in full force and effect
under the Act and such as may be required under
applicable state securities or Blue Sky laws in
connection with the purchase and distribution of the
Common Shares by the Underwriters and the clearance
of the underwriting terms and conditions of the
offering by the NASD;
(4) The authorized, issued and outstanding
capital stock of the Company is as set forth under
the caption "Capitalization" in the Prospectus as of
the date stated therein; all necessary and proper
corporate proceedings have been taken in order to
validly authorize such authorized Common Stock; all
outstanding shares of Common Stock have been duly
and validly authorized and issued, are fully paid
and nonassessable, were not issued in violation of
or subject to any preemptive or similar rights
contained in the charter or bylaws of the Company or
any Material Subsidiary or, to the best of such
counsel's knowledge, in any agreement to which the
Company or any Material Subsidiary is a party or is
bound; and the Common Stock conforms to the
description thereof contained in the Prospectus;
(5) All of the issued and outstanding shares
of the Company's Material Subsidiaries have been
duly and validly authorized and issued, are fully
paid and nonassessable and are owned beneficially by
the Company free and clear of all liens,
encumbrances, equities, claims, security interests,
voting trusts or other defects of title whatsoever;
(6) When the certificates evidencing the
Common Shares to be delivered pursuant to the terms
of this Agreement have been countersigned by the
Company's transfer agent and registrar and delivered
to the Underwriters against payment therefor in
accordance with the terms hereof, the Common Shares
represented thereby will be duly authorized and
validly issued, fully paid and nonassessable and
will not have been issued in violation of or subject
to any preemptive or similar rights contained in the
charter or bylaws of the Company or any Material
Subsidiary or, to the best of such counsel's
knowledge, in any agreement to which the Company or
any Material Subsidiary is a party or is bound, and
will conform in all material respects to the
description thereof contained in the Prospectus; and
the form of certificate used to evidence the Common
Stock is in due and proper form and complies with
Delaware law;
(7) Except as disclosed in or specifically
contemplated by the Prospectus, to the best of such
counsel's knowledge, there is no outstanding option,
warrant or other right calling for the issuance of,
and no commitment, plan or arrangement to issue, any
share of capital stock of the Company or any
security convertible into or exchangeable for
capital stock of the Company;
(8) (A) The Registration Statement has become
effective under the Act, and, to the best of such
counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or
preventing the use of the Prospectus has been issued
and no proceeding for that purpose has been
instituted or is pending or contemplated by the
Commission; any required filing of the Prospectus
and any supplement thereto pursuant to Rule 424(b)
of the Rules and Regulations has been made in the
manner and within the time period required by such
Rule 424(b);
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<PAGE>
(B) The Registration Statement, the
Prospectus and each amendment or supplement thereto
(except for the financial statements and schedules
included therein as to which such counsel need
express no opinion) comply as to form in all
material respects with the requirements of the Act
and the Rules and Regulations;
(C) To the best of such counsel's
knowledge, there is no franchise, lease, contract,
agreement or document of a character required to be
disclosed in the Registration Statement or the
Prospectus or to be filed as an exhibit to the
Registration Statement or the documents incorporated
by reference therein that is not disclosed or filed
as required; and
(D) To the best of such counsel's
knowledge, there is no legal or governmental action,
suit or proceeding pending or threatened against the
Company or any Material Subsidiary that is required
to be described in the Prospectus that is not
described as required.
(9) Neither the Company nor any of its
Material Subsidiaries is in violation of its charter
or bylaws or, to the best of such counsel's
knowledge, in breach of or default with respect to
any provision of any material agreement, mortgage,
deed of trust, lease, franchise, license, indenture,
permit or other instrument known to such counsel to
which the Company or any of its Material
Subsidiaries is a party or by which the Company or
any of its Material Subsidiaries or any of its or
their property may be bound or affected, except
where such default would not have a material adverse
effect on the condition (financial or otherwise),
earnings, operations, business or business prospects
of the Company and its subsidiaries taken as a
whole, and, to the best of such counsel's knowledge,
the Company and each Material Subsidiary is in
compliance with all laws, rules, regulations,
judgments, decrees, orders and statutes of any court
or jurisdiction to which it or they is subject,
except where noncompliance would not have a material
adverse effect on the condition (financial or
otherwise), earnings, operations, business or
business prospects of the Company and its
subsidiaries taken as a whole;
(10) To the best of such counsel's knowledge,
no holder of securities of the Company has rights
that have not been waived to the registration of
shares of Common Stock or other securities, because
of the filing of the Registration Statement by the
Company or the offering contemplated hereby;
(11) No transfer tax is required to be paid
in connection with the sale and delivery of the
Common Shares to the Underwriters hereunder; and
(12) The Company has satisfied the conditions
for use of Form S-1, as set forth in the General
Instructions thereto, with respect to the
Registration Statement.
In rendering such opinion, such counsel may rely, as to matters of
local law, on opinions of local counsel, and as to matters of fact, on
certificates of officers of the Company, the Selling Stockholders and of
governmental officials, in which case their opinion is to state that they
are so doing and that the Underwriters are justified in relying on such
opinions or certificates and copies of said opinions or certificates are
to be attached to the opinion. Such counsel shall also include a
statement to the effect that nothing has come to such counsel's attention
that would lead such counsel to believe that either at the effective date
of the Registration Statement or at the applicable Closing Date the
Registration Statement or the Prospectus, or any such
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<PAGE>
amendment or supplement (except for the financial statements and
schedules included therein as to which counsel need express no opinion),
contained or contains any untrue statement of a material fact or omitted
or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(ii) An opinion or opinions of Gerald T. Aaron, Esq.
and such other counsel as shall be acceptable to the Underwriters,
addressed to the Underwriters and dated the First Closing Date or
the Second Closing Date, as the case may be, with respect to the
validity of the sale, transfer and delivery of the Firm Common
Shares and Optional Common Shares, respectively, to the
Underwriters by the Selling Stockholders and related matters.
(iii) An opinion of Chuck McGrigg, Esq. addressed to
the Underwriters and dated the First Closing Date or the Second
Closing Date, as the case may be, to the effect that the Company
and its subsidiaries are in compliance with all applicable "tied
house" statutes and similar statutes and regulations relating to
the purchase, sale or marketing of alcoholic beverage in the
thirty-two (32) states in which the Company operates restaurants
as disclosed in the Registration Statement.
(iv) An opinion of the Company's Australian counsel,
addressed to the Underwriters and dated the First Closing Date or
the Second Closing Date, as the case may be, relating to the
Company's Austrailian Joint Venture, in form and substance
reasonably satisfactory to the Underwriters.
(v) Such opinion or opinions of Wilson Sonsini
Goodrich & Rosati, P.C., counsel for the Underwriters, dated the
First Closing Date or the Second Closing Date, as the case may be,
with respect to the incorporation of the Company, the sufficiency
of all corporate proceedings and other legal matters relating to
this Agreement, the validity of the Common Shares, the
Registration Statement and the Prospectus and other such related
matters as you may reasonably require, and the Company and the
Selling Stockholders shall have furnished to such counsel such
documents and shall have exhibited to them such papers and records
as they may reasonably request for the purpose of enabling them to
pass upon such matters. In connection with such opinions, such
counsel may rely on representations or certificates of officers of
the Company, the Selling Stockholders and governmental officials.
(vi) A certificate of the Company executed by the
Chairman of the Board and Chief Executive Officer and the Chief
Financial Officer and Treasurer of the Company, dated the First
Closing Date or the Second Closing Date, as the case may be, to
the effect that:
(1) The representations and warranties of the
Company set forth in Section 2.I. of this Agreement
are true and correct as of the date of this
Agreement and as of the First Closing Date or the
Second Closing Date, as the case may be, and the
Company has complied with all the agreements and
satisfied all the conditions on its part to be
performed or satisfied on or prior to such Closing
Date;
(2) The Commission has not issued any order
preventing or suspending the use of the Prospectus
or any Preliminary Prospectus filed as a part of the
Registration Statement or any amendment or
supplement thereto; no stop order suspending the
effectiveness of the Registration Statement has been
issued; and to the best of the knowledge of the
respective signers, no proceeding for that purpose
has been instituted or is pending or contemplated
under the Act;
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<PAGE>
(3) Each of the respective signers of the
certificate has carefully examined the Registration
Statement and the Prospectus; in his opinion and to
the best of his knowledge, the Registration
Statement and the Prospectus and any amendment or
supplement thereto contain all statements required
to be stated therein regarding the Company and its
subsidiaries; and neither the Registration Statement
nor the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material
fact or omits to state any material fact required to
be stated therein or necessary to make the
statements therein not misleading;
(4) Since the initial date on which the
Registration Statement was filed with the
Commission, no agreement, written or oral,
transaction or event has occurred that should have
been set forth in an amendment to the Registration
Statement or in a supplement to or amendment of any
prospectus that has not been disclosed in such a
supplement or amendment;
(5) Since the respective dates as of which
information is given in the Registration Statement
and the Prospectus, and except as disclosed in or
contemplated by the Prospectus, there has not been
any material adverse change or a development
involving a material adverse change in the condition
(financial or otherwise), business, properties,
results of operations, management or prospects of
the Company and its subsidiaries taken as a whole;
and no legal or governmental action, suit or
proceeding is pending or threatened against the
Company or any of its subsidiaries that is material
to the Company and its subsidiaries taken as a
whole, whether or not arising from transactions in
the ordinary course of business, or that may
materially adversely affect the transactions
contemplated by this Agreement; since such dates and
except as so disclosed, neither the Company nor any
of its subsidiaries has entered into any verbal or
written agreement or other transaction that is not
in the ordinary course of business or that could
result in a material reduction in the future
earnings of the Company and its subsidiaries taken
as a whole or incurred any material liability or
obligation, direct, indirect or contingent, made any
change in its capital stock, made any material
change in its short-term debt or funded debt or
repurchased or otherwise acquired any of the
Company's capital stock; and, other than as
disclosed in or contemplated by the Registration
Statement and the Prospectus, the Company has not
declared or paid any dividend, or made any other
distribution, upon its outstanding capital stock
payable to stockholders of record on a date prior to
the First Closing Date or Second Closing Date; and
(6) Since the respective dates as of which
information is given in the Registration Statement
and the Prospectus and except as disclosed in or
contemplated by the Prospectus, neither the Company
nor any of its subsidiaries has sustained a material
loss or damage by strike, fire, flood, windstorm,
accident or other calamity (whether or not insured).
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<PAGE>
(vii) A certificate, dated the First Closing Date or
the Second Closing Date, as the case may be, and addressed to you,
signed by or on behalf of each of the Selling Stockholders to the
effect that the representations and warranties of such Selling
Stockholders set forth in Section 2.II. of this Agreement are true
and correct, as if made at and as of the First Closing Date or the
Second Closing Date, as the case may be, and such Selling
Stockholder has complied with all the agreements and satisfied all
the conditions on his, her or its part to be performed or
satisfied prior to the First Closing Date or the Second Closing
Date.
(viii) On the date before this Agreement is executed
and also on the First Closing Date and the Second Closing Date, a
letter addressed to you from Ernst & Young, independent
accountants, the first one to be dated the date of this Agreement,
the second one to be dated the First Closing Date and the third
one (in the event of a Second Closing) to be dated the Second
Closing Date, in form and substance satisfactory to you.
(ix) On or before the First Closing Date, letters
from each person listed on Schedule D hereto, in form and
substance satisfactory to you, confirming that for a period of 180
days after the first date that any of the Common Shares are
released by you for sale to the public, such person will not
directly or indirectly sell or offer to sell or otherwise dispose
of any shares of Common Stock or any right to acquire such shares
without your prior written consent.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to
you and to Wilson Sonsini Goodrich & Rosati, P.C., counsel for the
Underwriter. The Company shall furnish you with such manually signed or
conformed copies of such opinions, certificates, letters and documents as
you request. Any certificate signed by any officer of the Company or a
Selling Stockholder and delivered to the Underwriters or to counsel for
the Underwriters shall be deemed to be a representation and warranty by
the Company or such Selling Stockholder, as the case may be, to the
Underwriters as to the statements made therein.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you, as
Underwriters, to the Company and the Selling Stockholders without
liability on the part of the Underwriters, the Company or the Selling
Stockholders except for the expenses to be paid or reimbursed by the
Company and by the Selling Stockholders pursuant to Sections 6 and 8
hereof and except to the extent provided in Section 10 hereof.
SECTION 8. Reimbursement of Underwriters' Expenses. Notwithstanding any
other provision hereof, if this Agreement shall be terminated by you pursuant to
Section 7 hereof, or if the sale to the Underwriters of the Common Shares at the
First Closing is not consummated because of any refusal, inability or failure on
the part of the Company to perform any agreement herein or to comply with any
provision hereof in all material respects, the Company agrees to reimburse you
upon demand for all out-of-pocket expenses that shall have been reasonably
incurred by you in connection with the proposed purchase and the sale of the
Common Shares, including but not limited to reasonable fees and disbursements of
counsel, printing expenses, travel expenses, postage, telegraph charges and
telephone charges relating directly to the offering contemplated by the
Prospectus. Any such termination shall be without liability of any party to any
other party except that the provisions of this Section 8 and Section 7 shall at
all times be effective and shall apply.
SECTION 9. Effectiveness of Registration Statement. You, the Company and
the Selling Stockholders will use your and its best efforts to cause the
Registration Statement to become effective, to prevent the issuance of any stop
order suspending the effectiveness of the Registration Statement and, if such
stop order be issued, to obtain as soon as possible the lifting thereof.
SECTION 10. Indemnification.
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<PAGE>
(a) The Company and each of the Selling Stockholders (to the
extent set forth below), jointly and severally, agree to indemnify and
hold harmless the Underwriter and each person, if any, who controls the
Underwriter within the meaning of the Act against any losses, claims,
damages, liabilities or expenses, joint or several, to which the
Underwriter or such controlling person may become subject, under the Act,
the Exchange Act, or other federal or state statutory law or regulation,
or at common law or otherwise (including in settlement of any litigation,
if such settlement is effected with the written consent of the Company),
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof as contemplated below) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state
in any of them a material fact required to be stated therein or necessary
to make the statements in any of them not misleading, or arise out of or
are based in whole or in part on any inaccuracy in the representations
and warranties of the Company or any Selling Stockholders contained
herein or any failure of the Company or any Selling Stockholders to
perform their respective obligations hereunder or under law; and will
reimburse the Underwriter and each such controlling person for any legal
and other expenses as such expenses are reasonably incurred by the
Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that neither the Company
nor any Selling Stockholders will be liable in any such case to the
extent that any such loss, claim, damage, liability or expense arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with the information furnished
to the Company pursuant to Section 3 hereof, and provided further, that
with respect to any untrue statement or omission or alleged untrue
statement or omission made in any Preliminary Prospectus, the indemnity
agreement contained in this paragraph shall not inure to the benefit of
the Underwriter from whom the person asserting any such losses, claims,
damages, liabilities or expenses purchased the Common Shares concerned
(or to the benefit of any person controlling the Underwriter) to the
extent that any such loss, claim, damages, liability or expense of the
Underwriter or controlling person results from the fact that a copy of
the Prospectus was not sent or given to such person at or prior to the
written confirmation of sale of such Common Shares to such person as
required by the Act, and if the untrue statement or omission has been
corrected in the Prospectus, unless such failure to deliver the
Prospectus was a result of noncompliance by the Company with its
obligations under Section 5(e) hereof; and provided further, that each
Selling Stockholder shall only be liable under this paragraph for an
amount equal to the public offering price of the Common Shares sold by
such Selling Stockholder to the Underwriter; and provided further that no
Selling Stockholder shall be required to provide indemnification
hereunder until the Underwriter or control person seeking indemnification
shall have first made a demand on the Company with respect to any such
loss, claim, damage, liability or expense and the Company shall have
either rejected such demand or failed to make such requested payment
within 60 days after receipt thereof; and provided further that each
Selling Stockholder other than Jamie B. Coulter, Dennis L. Thompson
(individually, and as a general partner on behalf of the Thompson Family
Limited Partnership), Gerald T. Aaron, Scott M. Somes, Frank E.
Furstenberg and John D. White will be liable in any such case only to the
extent that any such loss, claim, damage, liability or expense arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, in the
Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with information furnished to
the Company by such Selling Stockholder or arises out of or is based in
whole or in part on any inaccuracy in the representations and warranties
of such Selling Stockholder contained herein or any failure of such
Selling Stockholder to perform its obligations hereunder or under law.
The Company and the Selling Stockholders may agree, as among themselves
and without limiting the rights of the Underwriters under this Agreement,
as to their respective amounts of such liability for which they each
shall be responsible. In addition to their other respective obligations
under this Section 10(a), the Company and each Selling Stockholder agree
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that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, or any
inaccuracy in the representations and warranties of the Company or each
Selling Stockholder herein or failure to perform its obligations
hereunder, all as described in this Section 10(a), they will reimburse
the Underwriters on a quarterly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the Company's or such Selling
Stockholder's obligation to reimburse the Underwriters for such expenses
and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper, the
Underwriters shall promptly return it to the Company or such Selling
Stockholder, as the case may be, together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) announced from
time to time by Bank of America NT&SA, San Francisco, California (the
"Prime Rate"). Any such interim reimbursement payments that are not made
to the Underwriters within 30 days of a request for reimbursement, shall
bear interest at the Prime Rate from the date of such request. This
indemnity agreement will be in addition to any liability that the Company
or the Selling Stockholders may otherwise have.
(b) The Underwriters will indemnify and hold harmless the Company,
each of its directors, each of its officers who signed the Registration
Statement, each Selling Stockholder and each person, if any, who controls
the Company or any Selling Stockholder within the meaning of the Act,
against any losses, claims, damages, liabilities or expenses to which the
Company, or any such director, officer, Selling Stockholder or
controlling person may become subject, under the Act, the Exchange Act,
or other federal or state statutory law or regulation, or at common law
or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Underwriters),
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof as contemplated below) arise out of or are
based upon any untrue or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with the information
furnished to the Company pursuant to Section 3 hereof; and will reimburse
the Company, or any such director, officer, Selling Stockholder or
controlling person for any legal and other expense reasonably incurred by
the Company, or any such director, officer, Selling Stockholder or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense
or action. In addition to its other obligations under this Section 10(b),
the Underwriters agree that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding arising out
of or based upon any statement or omission, or any alleged statement or
omission, described in this Section 10(b) that relates to information
furnished to the Company pursuant to Section 3 hereof, it will reimburse
the Company (and, to the extent applicable, each officer, director,
Selling Stockholder or controlling person) on a quarterly basis for all
reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the Underwriters'
obligation to reimburse the Company (and, to the extent applicable, each
officer, director, Selling Stockholder or controlling person) for such
expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. To the extent
that any such interim reimbursement payment is so held to have been
improper, the Company (and, to the extent applicable, each officer,
director, Selling Stockholder or controlling person) shall promptly
return it to the Underwriters together with interest, compounded daily,
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determined on the basis of the Prime Rate. Any such interim
reimbursement payments that are not made to the Company within 30 days
of a request for reimbursement, shall bear interest at the Prime Rate
from the date of such request. This indemnity agreement will be in
addition to any liability that the Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability that it may
have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section or to the extent that
it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such indemnified
party seeks or intends to seek indemnity from an indemnifying party, the
indemnifying party will be entitled to participate in, and, to the extent
that it may wish, jointly with all other indemnifying parties similarly
notified, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded that there may be a conflict between the positions of the
indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it
and/or other indemnified parties that are different from or additional to
those available to the indemnifying party, the indemnified party or
parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action
on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of its election so
to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed such
counsel in connection with the assumption of legal defenses in accordance
with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses
of more than one separate counsel, approved by the Underwriters in the
case of paragraph (a), representing the indemnified parties who are
parties to such action) or (ii) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action, in each of which cases the fees and expenses
of counsel shall be at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 10 is
required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under
paragraphs (a), (b) or (c) in respect of any losses, claims, damages,
liabilities or expenses referred to herein, then each applicable
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of any losses, claims, damages, liabilities
or expenses referred to herein (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company, the Selling
Stockholders and the Underwriters from the offering of the Common Shares
or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the
relative fault of the Company, the Selling Stockholders and the
Underwriter in connection with the statements or omissions or
inaccuracies in the representations and warranties herein that resulted
in such losses, claims, damages, liabilities or expenses, as well as any
other relevant equitable considerations. The respective relative benefits
received by the Company, the Selling Stockholders and the Underwriters
shall be deemed to be in the same proportion, in the case of the Company
and the Selling Stockholders as the total price paid to the Company and
to the Selling Stockholders for the Common Shares sold by them to the
Underwriters (net of underwriting commissions but before deducting
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expenses), and in the case of the Underwriters as the underwriting
commissions received by them bears to the total of such amounts paid to
the Company and to the Selling Stockholders and received by the
Underwriters as an underwriting commission. The relative fault of the
Company and to the Selling Stockholders and the Underwriters shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact or the inaccurate or the alleged
inaccurate representation and/or warranty relates to information supplied
by the Company, the Selling Stockholders or the Underwriters and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in subparagraph (c) of this Section
10, any legal or other fees or expenses reasonably incurred by such party
in connection with investigating or defending any action or claim. The
provisions set forth in subparagraph (c) of this Section 10 with respect
to notice of commencement of any action shall apply if a claim for
contribution is to be made under this subparagraph (d); provided,
however, that no additional notice shall be required with respect to any
action for which notice has been given under subparagraph (c) for
purposes of indemnification. The Company, the Selling Stockholders and
the Underwriters agree that it would not be just and equitable if
contribution pursuant to this Section 10 were determined solely by pro
rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 10,
the Underwriters shall be required to contribute any amount in excess of
the amount of the total underwriting commissions received by the
Underwriters in connection with the Common Shares underwritten by it and
distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) It is agreed that any controversy arising out of the operation
of the interim reimbursement arrangements set forth in Sections 10(a) and
10(b) hereof, including the amounts of any requested reimbursement
payments and the method of determining such amounts, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules
of the Board of Governors of the New York Stock Exchange, Inc. or
pursuant to the Code of Arbitration Procedure of the NASD. Any such
arbitration must be commenced by service of a written demand for
arbitration or written notice of intention to arbitrate, therein electing
the arbitration tribunal. In the event the party demanding arbitration
does not make such designation of an arbitration tribunal in such demand
or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the
operation of the interim reimbursement provisions contained in Sections
10(a) and 10(b) hereof and would not resolve the ultimate propriety or
enforceability of the obligation to reimburse expenses that is created by
the provisions of such Sections 10(a) and 10(b) hereof.
SECTION 11. Effective Date. This Agreement shall become effective
immediately as to Sections 6, 8, 10, 12 and 13 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement has
not become effective, at 5:00 P.M., Washington, D.C. time, on the first full
business day following the effectiveness of the Registration Statement, or (ii)
if at the time of execution of this Agreement the Registration Statement has
been declared effective, at 5:00 P.M., Washington, D.C. time, on the first full
business day following the date of execution of this Agreement; but this
Agreement shall nevertheless become effective at such earlier time after the
Registration Statement becomes effective as you may determine on and by notice
to the Company or by release of any of the Common Shares for sale to the public.
For the purposes of this Section 11, the Common Shares shall be deemed to have
been so released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by you of telegrams (i)
advising the Underwriters that the Common Shares are released for public
offering, or (ii) offering the Common Shares for sale to securities dealers,
whichever may occur first.
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<PAGE>
SECTION 12. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to
you and the Selling Stockholders or by you by notice to the Company and
the Selling Stockholders at any time prior to the time this Agreement
shall become effective as to all its provisions, and any such termination
shall be without liability on the part of the Company or the Selling
Stockholders to the Underwriters (except for the expenses to be paid or
reimbursed by the Company and the Selling Stockholders pursuant to
Sections 6 and 8 hereof and except to the extent provided in Section 10
hereof) or of the Underwriters to the Company or the Selling Stockholders
(except to the extent provided in Section 10 hereof).
(b) This Agreement may also be terminated by you prior to the
First Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum
or maximum prices shall have been generally established on the New York
Stock Exchange or on the American Stock Exchange or in the over the
counter market by the NASD, or trading in securities generally shall have
been suspended on either such Exchange or in the over the counter market
by the NASD, or a general banking moratorium shall have been established
by federal, New York or California authorities, (ii) if an outbreak of
major hostilities or other national or international calamity or any
substantial change in political, financial or economic conditions shall
have occurred or shall have accelerated or escalated to such an extent,
as, in the judgment of the Underwriters, to affect adversely the
marketability of the Common Shares, (iii) if any adverse event shall have
occurred or shall exist that makes untrue or incorrect in any material
respect any statement or information contained in the Registration
Statement or the Prospectus or that is not reflected in the Registration
Statement or the Prospectus but should be reflected therein in order to
make the statements or information contained therein not misleading in
any material respect, or (iv) if there shall be any action, suit or
proceeding pending or threatened, or there shall have been any
development or prospective development involving particularly the
business or properties or securities of the Company or any of its
subsidiaries or the transactions contemplated by this Agreement, that, in
the reasonable judgment of the Underwriters, may materially and adversely
affect the business or earnings of the Company or any of its subsidiaries
taken as a whole and makes it impracticable or inadvisable to offer or
sell the Common Shares. Any termination pursuant to this subsection (b)
shall without liability on the part of the Underwriters to the Company or
the Selling Stockholders or on the part of the Company or the Selling
Stockholders to the Underwriters (except for expenses to be paid or
reimbursed by the Company and the Selling Stockholders pursuant to
Sections 6 and 8 hereof and except to the extent provided in Section 10
hereof).
SECTION 13. Failure of the Selling Stockholders to Sell and Deliver. If
one or more of the Selling Stockholders shall fail to sell and deliver to the
Underwriter the Common Shares to be sold and delivered by such Selling
Stockholders at the First Closing Date under the terms of this Agreement, then
the Underwriters may at their option, by written notice from the Underwriter to
the Company and the Selling Stockholders, either (i) terminate this Agreement
without any liability on the part of the Underwriters or, except as provided in
Sections 6, 8 and 10 hereof, the Company or the Selling Stockholders or (ii)
purchase the shares which the Company and other Selling Stockholders have agreed
to sell and deliver in accordance with the terms hereof. In the event of a
failure by one or more of the Selling Stockholders to sell and deliver as
referred to in this Section, either you or the Company shall have the right to
postpone the Closing Date for a period not exceed seven business days in order
that the necessary changes in the Registration Statement, the Prospectus and any
other documents, as well as any other arrangements, may be effected.
SECTION 14. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and of
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<PAGE>
the Underwriters set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on behalf of
the Underwriters or the Company or any of its or their partners, officers or
directors or any controlling person, or the Selling Stockholders, as the case
may be, and will survive delivery of and payment for the Common Shares sold
hereunder and any termination of this Agreement.
SECTION 15. Notices. All communications hereunder shall be in writing
and, if sent to the Underwriter shall be mailed, delivered or telegraphed and
confirmed to you at 600 Montgomery Street, San Francisco, California 94111,
Attention: Mr. Frank M. Dunlevy, with a copy to Jeffrey D. Saper, Esq., Wilson
Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, California
94304; and if sent to the Company or the Selling Stockholders shall be mailed,
delivered or telegraphed and confirmed to the Company at 224 East Douglas, Suite
700, Wichita, Kansas 67202, Attention: Mr. Jamie B. Coulter, with a copy to
Steven Wolosky, Esq., Olshan Grundman Frome & Rosenzweig, 505 Park Avenue, New
York, New York 10022. The Company, the Selling Stockholders or you may change
the address for receipt of communications hereunder by giving notice to the
others.
SECTION 16. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto, and to the benefit of the officers and
directors and controlling persons referred to in Section 10, and in each case
their respective successors, personal representatives and assigns, and no other
person will have any right or obligation hereunder. No such assignment shall
relieve any party of its obligations hereunder. The term "successors" shall not
include any purchaser of the Common Shares as such from the Underwriters merely
by reason of such purchase.
SECTION 17. Partial Unenforceability. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 18. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 19. General. This Agreement constitutes the entire agreement of
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
Any person executing and delivering this Agreement as Attorney-in-fact
for the Selling Stockholders represents by so doing that he has been duly
appointed as Attorney-in-fact by each Selling Stockholder pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-fact to
take such action. Any action taken under this Agreement by any of the
Attorneys-in-fact will be binding on all the Selling Stockholders.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Stockholders and you.
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<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement between the Company, the Selling Stockholders
and the Underwriter, all in accordance with its terms.
Very truly yours,
LONE STAR STEAKHOUSE & SALOON, INC.
By:
Jamie B. Coulter, Chairman of the Board,
President and Chief Executive Officer
SELLING STOCKHOLDERS
By:
Jamie B. Coulter
(Attorney-in-fact)
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as
of the date first above written.
MONTGOMERY SECURITIES
SMITH BARNEY, INC.
WESSELS, ARNOLD AND HENDERSON L.L.C.
Acting on behalf of the Underwriters.
By: MONTGOMERY SECURITIES
By:
---------------------------------
Richard A. Smith
Managing Director
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<PAGE>
May 28, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: Lone Star Steakhouse & Saloon, Inc. -
Registration Statement on Form S-1
---------------------------------------
Gentlemen:
Reference is made to the Registration Statement on Form S-1
dated May 21, 1996, as amended (the "Registration Statement"), filed with the
Securities and Exchange Commission by Lone Star Steakhouse & Saloon, Inc., a
Delaware corporation (the "Company"). The Registration Statement relates to an
aggregate of 4,600,000 shares of common stock, par value $.01 per share (the
"Common Stock"). Of the Common Stock being registered 2,950,000 shares will be
sold directly by the Company, and 1,650,000 shares will be sold by selling
stockholders, inclusive of 600,000 shares subject to an over-allotment option
granted to the Underwriter by the Company and the selling stockholders. All
capitalized terms not defined herein shall have the meanings accorded them in
the Registration Statement.
We advise you that we have examined originals or copies
certified or otherwise identified to our satisfaction of the Certificate of
Incorporation and By-laws of the Company, minutes of meetings of the Board of
Directors and shareholders of the Company, the Registration Statement, the
Underwriting Agreement and such other documents, instruments and certificates of
officers and representatives of the Company and public officials, and we have
made such examination of the law as we have deemedappropriate as the basis or
the opinion hereinafter expressed. In making such examination, we have assumed
the genuineness of all signatures, the authenticity of all documents submitted
to us as originals, and the conformity to original documents of documents
submitted to us as certified or photostatic copies.
Based upon the foregoing, we are of the opinion that:
(a) The 2,950,000 shares of Common Stock being registered and
sold by the Company are duly authorized and, when sold pursuant to the
Registration Statement, will be legally issued, fully paid and non-assessable;
and
(b) The 1,650,000 shares of Common Stock being sold by the
selling stockholders are presently outstanding or will be upon the exercise of
certain options, and when sold pursuant to the terms of the Registration
Statement will be, legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and we further consent to the reference to this
firm under the caption "Legal Opinions" in the Registration Statement and the
Prospectus forming a part thereof.
Very truly yours,
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
<PAGE>
AGREEMENT AND PLAN OF MERGER
Among
Creative Culinary Concepts, Inc., Steaks of
Raleigh, Inc., Lone Star Steaks of Pineville,
Inc., Steaks of Jacksonville, Inc., Steaks of
Greenville, Inc., Steaks of Cary, Inc., Steaks
of Cornelius, Inc., Cowboy Steaks, Inc.,
Leslie G. Rudd, Dennis L. Thompson, James F.
Haun and James C. Verney
and
Lone Star Steakhouse & Saloon, Inc.
and
Lone Star Steaks, Inc.
------------------------------------------------------------------------------
Dated as of August , 1995
------------------------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August , 1995 (the
"Agreement"), among Creative Culinary Concepts, Inc., Steaks of Raleigh, Inc.,
Lone Star Steaks of Pineville, Inc., Steaks of Jacksonville, Inc., Steaks of
Greenville, Inc., Steaks of Cary, Inc., Steaks of Cornelius, Inc. and Cowboy
Steaks, Inc., each of which is a North Carolina corporation (collectively, the
"Companies" and, individually, a "Company"), Leslie G. Rudd, Dennis L. Thompson,
James F. Haun and James C. Verney (collectively, the "Shareholders" and,
individually, a "Shareholder"), Lone Star Steakhouse & Saloon, Inc. a Delaware
corporation ("LSSS") and Lone Star Steaks Inc., a North Carolina corporation and
a wholly-owned subsidiary of LSSS ("LS").
WHEREAS, the Shareholders own all of the issued and
outstanding capital stock of the Companies in the respective amounts shown on
Exhibit A hereto;
WHEREAS, the parties wish to provide for the merger of each of
the Companies with and into LS and the conversion of all of the Companies'
presently outstanding shares into the right to acquire shares of the Common
Stock, $.01 par value, of LSSS (the "LSSS Common Stock");
WHEREAS, the parties intend that said mergers will qualify as
tax free reorganizations under Section 368(a) of the Internal Revenue Code of
1986, as amended; and
WHEREAS, the respective Boards of Directors and shareholders
of the Companies and LS and the Board of Directors of LSSS have unanimously
approved this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the
conditions hereof, and in accordance with the North Carolina Business
Corporation Act (the "Act") at the Effective Time (as hereinafter defined), the
Companies shall be merged with and into LS (the "Merger"). Following the Merger,
LS shall continue as the surviving corporation (as such, the "Surviving
Corporation") and the separate corporate existence of each of the Companies
shall cease.
<PAGE>
Section 1.2 Effective Time. The Merger shall be consummated by
filing with the Secretary of State of the State of North Carolina (the
"Secretary of State") articles of merger (the "Articles of Merger") in such form
as required by, and executed in accordance with, the relevant provisions of the
Act. The time of filing the Articles of Merger with the Secretary of State shall
be the "Effective Time."
Section 1.3 Effects of the Merger. The Merger shall have the
effects set forth in Section 55-11-06 of the Act. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, except
as otherwise provided herein, all of the properties, rights, privileges, powers
and franchises of the Companies shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Companies and LS shall become the debts,
liabilities and duties of the Surviving Corporation. From and after the
Effective Time, the Surviving Corporation shall continue to be a wholly-owned
subsidiary of LSSS.
Section 1.4 Articles of Incorporation and By-laws of the
Surviving Corporation.
(a) The articles of incorporation of LS as in effect at the
Effective Time shall, without any further action on the part of the parties to
the Merger, continue as the articles of incorporation of the Surviving
Corporation.
(b) The by-laws of LS as in effect at the Effective Time
shall, without any further action on the part of the parties to the Merger,
continue as the by-laws of the Surviving Corporation.
Section 1.5 Directors. The directors set forth on Schedule 1.5
shall become the directors of the Surviving Corporation and will hold office
from the Effective Time until their respective successors are duly elected or
appointed and qualify in the manner provided in the articles of incorporation
and regulations of the Surviving Corporation, or as otherwise provided by law.
Section 1.6 Officers. The officers set forth on Schedule 1.6
shall become the officers of the Surviving Corporation and will hold office from
the Effective Time until their respective successors are duly elected or
appointed and qualify in the manner provided in the articles of incorporation
and regulations of the Surviving Corporation, or as otherwise provided by law.
Section 1.7 Filing of Articles of Merger. (a) Upon the terms
and subject to the conditions hereof, (i) as soon as practicable after all
conditions to the obligations of the parties hereunder have been satisfied or
waived and so long as the Merger has not been abandoned or terminated as
provided herein, and (ii) at the Closing (as defined in Section 1.8), each of
the Companies and LS having executed the Articles of Merger as required by the
Act, shall file such Articles of Merger with the Secretary of State, and the
parties shall take all such other and further actions as may be required by law
or this Agreement to make the Merger effective.
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<PAGE>
Section 1.8 Closing. A closing (the "Closing") of the Merger
shall take place at 10:00 a.m., New York time, at the offices of Olshan Grundman
Frome & Rosenzweig LLP, 505 Park Avenue, New York, New York on the second
business day after satisfaction or waiver of the conditions to Closing set forth
in Articles VI and VII hereof, or at such other time and place or on such other
date as the Companies and LS may mutually agree, but in no event later than
August 4, 1995 (the date and time of such Closing being herein referred to as
the "Closing Date").
ARTICLE II
CONVERSION OF SHARES; CLOSING PAYMENT;
MERGER CONSIDERATION
Section 2.1 Conversion of Capital Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of the holders
of the capital stock of LS or the Companies other than as set forth in this
Agreement, each issued and outstanding share of Common Stock of each Company
immediately prior to the Effective Time shall be converted into the right to
receive that number of shares of LSSS Common Stock (the "Merger Consideration")
determined by: (i) subtracting from the dollar amount specified for such Company
in the "Agreed Value" column on page 1 of Exhibit B hereto the amount of current
and long term indebtedness for borrowed money (including indebtedness to
Shareholders) of such Company at the Closing Date (the parties' estimate of
which is set forth in the "Debt" column on page 1 of Exhibit B); (ii) dividing
the amount calculated in (i) by $32.00 (the parties' estimate of which is set
forth in the "Shares" column on page 1 of Exhibit B); and (iii) dividing the
amount calculated in (ii) by the number of shares of Common Stock of such
Company outstanding immediately prior to the Effective Time.
Section 2.2 Delivery Of Merger Consideration.
(a) At or prior to the Closing Date, LSSS will issue and
contribute to the capital of LS a sufficient number of shares of LSSS Common
Stock to enable it to pay the Merger Consideration in full in accordance with
the terms of this Agreement.
(b) On the terms and subject to the conditions set forth in
this Agreement, at the Closing, LS shall deliver to the Shareholders 100% of the
parties' estimate of the Merger Consideration as set forth on page 1 of Exhibit
B, by delivering to each Shareholder the number of shares of LSSS Common Stock
with respect to each of the Companies as set forth on page 2 of Exhibit B.
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<PAGE>
(c) The parties will endeavor in good faith to agree upon a
final determination of the Merger Consideration as promptly as possible after
the Closing. If such agreement is not reached within sixty (60) days after the
Closing Date, then within ninety (90) days after the Closing Date Ernst & Young
and Deloitte & Touche, accountants for LS and the Companies, respectively, will
determine (or, if they are unable to agree, will select a third accounting firm
which will determine) the amount of the Merger Consideration and will deliver to
the parties a certificate (a "Merger Consideration Certificate") setting forth
such determination, which determination shall be final and binding on all
parties hereto. If the amount of the Merger Consideration as finally agreed to
by the parties or as set forth in an accountants' Merger Consideration
Certificate is more or less than the amount thereof delivered to the
Shareholders at the Closing, LS and LSSS shall issue and deliver to the
Shareholders shares in the amount of any such excess, or the Shareholders shall
redeliver to LS shares in the amount of any such deficiency, so that, after such
delivery, the Shareholders shall have received pursuant to this Agreement shares
of LSSS Common Stock equal to the Merger Consideration, as finally determined.
Section 2.3 Fractional Shares. Notwithstanding any other
provision hereof, if the number of shares of LSSS Common Stock to which a
Shareholder shall be entitled as Merger Consideration includes a fraction of a
share, the number of shares to which he shall be entitled shall be rounded to
the next lower or higher number of shares, depending on whether such fraction of
a share is less than one-half a share or greater than or equal to one-half a
share.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS AND COMPANIES
Except as disclosed by the Shareholders and the Companies in the
Disclosure Schedule attached hereto (the "Disclosure Schedule"), each of the
Shareholders (as to himself only, with respect to Section 3.2 and all
representations and warranties that are made to the knowledge of the
Shareholders and the Companies) and each of the Companies hereby represents and
warrants to LS and LSSS as follows on the date hereof and as of the Closing Date
(all representations and warranties in Sections 3.11 through 3.20 inclusive are
made only to the knowledge of the Shareholders and the Companies):
Section 3.1 Corporate Organization. Each of the Companies is
duly organized, validly existing and in good standing under the laws of the
State of North Carolina and has the corporate power and authority to own,
operate and lease its properties and to carry on its business as now being
conducted. The Disclosure Schedule contains a list of all jurisdictions where
the Companies are duly licensed and qualified to do business as a foreign
corporation. Each of the Companies is in good standing in each jurisdiction in
which the character of the properties owned by it or the nature of its
activities is such that such qualification is required by applicable law except
where the failure to be so qualified would not have a Material Adverse Effect.
The copies of the articles of incorporation of the Companies, as amended to
date, and of the by-laws of the Companies, as currently in effect, and
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<PAGE>
the other instruments setting forth the terms of the Companies' capital stock
have been delivered to LS and are complete. For the purposes of this Agreement,
"Material Adverse Effect" refers to a material adverse effect on the results of
operations, properties, or financial condition of the Companies and each of the
businesses conveyed by the agreements set forth in Section 6.10 taken together
in the aggregate.
Section 3.2 Ownership of Shares. The Shareholders own all of
the issued and outstanding capital stock of each of the Companies free and clear
of all liens, claims, charges and other encumbrances and restrictions of any
kind or nature.
Section 3.3 Capitalization. The authorized capital stock and
the shares which are issued and outstanding for each of the Companies are set
forth on Exhibit A hereto. No shares of the capital stock of the Companies are
owned, directly or indirectly, by the Companies. All issued and outstanding
shares of the Companies are duly authorized and issued, fully paid and
non-assessable. Except for certain Buy/Sell Agreements among the Shareholders
and certain of the Companies, which shall be terminated prior to the Closing,
there are no subscriptions, options, warrants, calls, rights, contracts,
commitments, understandings, restrictions or arrangements of any kind relating
to the issuance, sale or transfer of any shares of capital stock of the
Companies, including any rights of conversion or exchange under any outstanding
securities or other instruments. There are no voting trusts or other agreements
or understandings of any kind with respect to the Companies outstanding stock.
Section 3.4 Authorization. The Companies have full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Boards of Directors and Shareholders of
the Companies have duly approved and authorized the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby, and
no other corporate proceedings on the part of the Companies are hereby necessary
to approve and authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. Assuming that this
Agreement constitutes a valid and binding agreement of LS and LSSS, this
Agreement constitutes the valid and binding agreement of each of the Companies
and each of the Shareholders enforceable in accordance with its terms, except as
the enforceability hereof may be subject to applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally and
to general principles of equity.
5
<PAGE>
Section 3.5 Consents and Approvals. Neither the execution and
delivery of this Agreement by any of the Shareholders or any of the Companies
nor the consummation by any of the Shareholders or any of the Companies of the
transactions contemplated hereby will (i) conflict with or result in a breach of
any provision of the articles of incorporation or by-laws of any of the
Companies, or (ii) except for those events and consents which are either set
forth in the Disclosure Schedule or which events or the absence of which
consents do not or would not be reasonably expected to result in a Material
Adverse Effect, (A) violate, or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or require consents from any
other party (except consents which have been obtained or the obtaining of which
has been waived by LS) or result in the termination or in a right of termination
or cancellation of, or accelerate or result in a right to accelerate the
performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of, any of the
Companies or result in being declared, or in the right to declare, void,
voidable, or without further binding effect any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, lease, contract, or agreement to which any of the Companies
or any of the Shareholders is a party, or (B) violate any order, writ,
injunction, decree, judgment, ruling, law, rule or regulation of any court or
governmental authority, federal, state, local or foreign, applicable to any of
the Companies or any of the Shareholders or require any consent, approval or
authorization of, or notice to, or declaration, filing or registration with, any
governmental or regulatory authority.
Section 3.6 No Violation. To the knowledge of the Shareholders
and the Companies, the Companies are not in violation of, or under investigation
with respect to or threatened to be charged with or given notice of, any
violation of any applicable law, statute, order, rule, regulation, or judgment
entered by any federal, state, local or foreign court or governmental authority
relating to the Companies, including, but not limited to those relating to state
and local health codes, the Americans with Disabilities Act, civil rights, and
liquor sales and services, except for any violation which does not or would not
reasonably be expected to result in a Material Adverse Effect. For purposes of
this Agreement, "knowledge" of a Shareholder refers to actual, personal
knowledge of such Shareholder.
Section 3.7 Financial Statements. The audited balance sheets
of the Companies as of December 27, 1994 (the "Balance Sheets") and the related
statements of income and retained earnings and changes in financial position for
the year then ended (the "Income Statements" ) and the unaudited balance sheets
of the Companies as of July 11, 1995 and the related statements of income and
retained earnings and changes in financial position for the 28 weeks then ended
have been delivered to LS. The financial statements referred to above in this
Section are sometimes collectively called the "Financial Statements." Except as
set forth in the notes to the Financial Statements or as provided in Section
3.9, the Financial Statements present fairly the financial position, the
consolidated results of operations and the consolidated changes in financial
position of the Companies as of the date and for the periods covered thereby in
conformity with generally accepted accounting principles (including the related
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notes and schedules thereto) consistently applied during the periods involved
(except as otherwise stated therein).
Section 3.8 Absence of Undisclosed Liabilities. Except as and
to the extent reflected or disclosed (or adequately reserved for or against) in
the Balance Sheets or in the notes thereto or in the Disclosure Schedule or
except as specifically provided by this Agreement, the Companies do not have any
liabilities or obligations of any nature, whether known or unknown, contingent
or absolute, other than liabilities or obligations (i) which are not required by
generally accepted accounting principles to be reflected on a balance sheet, or
(ii) which were incurred in the ordinary course of business consistent with past
practice since the dates of the Balance Sheets; provided, however, that no
representation is made in this Section 3.8 with respect to any class of
liabilities or obligations with respect to which a representation is made
elsewhere in this Article III.
Section 3.9 Absence of Certain Changes. Since July 11, 1995
the Companies have conducted their businesses in the ordinary course and there
has not been any change or event that has caused a Material Adverse Effect.
Except as set forth in the Disclosure Statement or as contemplated by this
Agreement, since July 11, 1995, the Companies have not (i) made or granted any
increases in the compensation or benefits payable or to become payable to other
employees other than in the ordinary course of business; or (ii) entered into
any commitment, contractual obligation or transaction other than in the ordinary
course of business (which includes any capital expenditure for improvement of
the business or property of any of the Companies).
Section 3.10 Legal Proceedings. Except as set forth on the
Disclosure Schedule, there are no uninsured claims, actions or proceedings
pending, or, to the knowledge of the Companies and the Shareholders, threatened,
against any of the Companies before any court or governmental body, federal,
state, local or foreign, which (i) seek to restrain or enjoin the consummation
of the transactions contemplated hereby or (ii) is reasonably likely to result
in liability of more than $25,000. Except as set forth in the Disclosure
Schedule the Companies are not bound by or subject to any continuing order,
injunction or decree of any domestic or foreign court, arbitrator or
governmental authority.
Section 3.11 Taxes and Tax Returns.
(a) For purposes of this Agreement, (i) the term "Taxes" shall
mean all taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, excise, property, sales, license, payroll
and franchise taxes, imposed by the United States, or any state, local or
foreign government or subdivision or agency thereof whether computed on a
unitary, combined or any other basis; and such term shall include any interest,
penalties or additions to tax; and (ii) the term "Tax Return" shall mean any
report, return or other information required to be filed with, supplied to or
otherwise made available to a taxing authority in connection with Taxes.
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(b) To the knowledge of the Shareholders and the Companies,
the Companies have (i) duly filed with the appropriate taxing authorities all
Tax Returns required to be filed by or with respect to the Companies for any
period ending on or before the Closing Date and all such duly filed Tax Returns
are true, correct and complete in all material respects, and (ii) paid in full
or made adequate provision for on their respective balance sheets (in accordance
with generally accepted accounting principles) all Taxes shown to be due on such
Tax Returns, except where the failure to file Tax Returns or to pay Taxes would
have a Material Adverse Effect. There are no liens for Taxes upon the assets of
any of the Companies except for statutory liens for current Taxes not yet due
and payable or which may thereafter be paid without penalty or are being
contested in good faith. Except as set forth in the Disclosure Schedule, none of
the Companies is undergoing an audit of any of its Tax Returns and none of the
Shareholders and none of the Companies has received any notice of audit of any
Tax Return of any of the Companies or any notice of deficiency or assessment
from any taxing authority with respect to liability for Taxes by any of the
Companies which has not been fully paid or finally settled, and any such
deficiency or assessment shown on such Disclosure Schedule is being contested in
good faith through appropriate proceedings. There have been no waivers of
statutes of limitation by any of the Companies or with respect to any Tax
Returns. Except as set forth in the Disclosure Schedule none of the Companies
has filed a request with the Internal Revenue Service for change in accounting
methods within the last two years which change would effect the accounting for
tax purposes, directly or indirectly, of the Companies. Neither the Companies
nor any of the Shareholders with respect to any of the Companies has filed any
election under Section 341(f) of the Internal Revenue Code of 1986, as amended
(the "Code").
Section 3.12 Property.
(a) To the knowledge of the Shareholders and the Companies,
the Disclosure Schedule contains a correct and complete schedule of all leases,
subleases and other agreements of like kind, as amended to date (collectively,
the "Leases") under which any of the Companies occupies or has the right to
occupy any real property in connection with the operation of its business (the
land, buildings and other improvements covered by the Leases being herein called
the "Leased Real Property"). The Companies have made available to LS true,
correct and complete copies of all such Leases (including all modifications,
amendments and supplements entered into by the Companies), summaries of which
(prepared by the Companies) are set forth on the Disclosure Schedule. To the
knowledge of the Shareholders and the Companies, each Lease is valid, binding
and in full force and effect and, all rent and other sums and charges payable by
or to the Companies, as appropriate, as tenant, sublessor or sublessee
thereunder are current. Except as set forth in the Disclosure Schedule, no
notice of default or termination under any Lease is outstanding, no termination
event or condition or uncured default on the part of the Companies or, to the
knowledge of the Shareholders and the Companies, on the part of the landlord or
sublessor, exits under any Lease, and no event has occurred and no condition
exists, and the consummation of the transactions contemplated by this Agreement
will not create or result in an event or condition, which, with the giving of
notice or the lapse of time or both, would constitute such a default or
termination event or condition. Except as set forth in the Disclosure Schedule,
the Shareholders and the Companies do not have any ownership interest in the
landlord under any Lease.
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(b) To the knowledge of the Shareholders and the Companies,
the Companies are owners of valid fee title to the property as set forth in the
Disclosure Schedule. All real property as owned by the Companies and all
leasehold interests of the Companies are held free and clear of all mortgages,
liens, security interests or encumbrances of any nature whatsoever except for
(i) mechanics', carriers', warehousemen's workmen's, repairmen's or other like
liens arising or incurred in the ordinary courses of business, liens for Taxes,
assessments and other governmental charges which are not due and payable or
which may thereafter be paid without penalty or are being contested in good
faith by appropriate proceedings, financing liens on furniture, fixtures and
equipment and other imperfections of title or non-monetary encumbrances, if any,
which do not materially detract from the value of the property subject thereto,
(ii) easements, covenants, rights of way and other encumbrances or restrictions,
of record, (iii) zoning and other similar restrictions and (iv) unrecorded
easements, covenants, rights of way or other restrictions which do not
materially impair the use of the real property to which they relate.
(c) None of the Shareholders and none of the Companies has any
knowledge of any pending or threatened condemnation proceeding affecting any
real property of the Companies or of any sale or other disposition of the real
property of the Companies in lieu of condemnation, or of any notice of any of
the foregoing.
(d) Except as provided in the Leases, to the knowledge of the
Shareholders and the Companies none of the Companies owns, holds or is obligated
under or a party to any option, right of first refusal or any other material
contractual right to purchase, acquire, sell or dispose of the real property of
any of the Companies or any portion thereof or interest therein.
Section 3.13 Contracts
(a) Except as described on the Disclosure Schedule or
disclosed in the Financial Statements, to the knowledge of the Shareholders and
the Companies none of the Companies is, as of the date of this Agreement, a
party to or bound by any agreement, contract or commitment:
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(i) involving a payment by any of the Companies after
the date hereof of an amount of money more than $25,000 and continuing
(including mandatory renewals or extensions which do not require the consent of
any of the Companies) more than six months from the date hereof and not made in
the ordinary course of business;
(ii) with management or any employee of any of the
Companies for personal services that is not by its terms immediately terminable
at will by the employer without cost or liability to any of the Companies at or
at any time after the Closing Date (subject to any rights an employee may have
by statute or regulation);
(iii) with any labor union or employees' association;
(iv) relating to consulting or advisory services
involving the future payment of more than $5,000 and not immediately terminable
at will by such Company without cost or liability to such Company;
(v) under which any of the Companies has borrowed any
money or issued any note, bond, indenture, loan, credit agreement or other
evidence of indebtedness or direct or indirect guarantee or assumption of
indebtedness, liabilities or obligations of others (other than overdraft
accounts or similar obligations used in the normal course of business);
(vi) relating to a mortgage, pledge, security agreement,
deed of trust or other document granting a lien over any material property, real
or personal, owned by any of the Companies;
(vii) relating to any bonus, retirement, deferred
compensation, pension, profit sharing, stock options (other than those to be
exercised on or prior to the Closing), life and health insurance,
hospitalization, or employee savings or retirement agreements, policies or
plans;
(viii) that contains any severance pay liability or
obligations in excess of $5,000 to any employee, former employee, director,
former director or consultant;
(ix) relating to employment which provides annual salary
in excess of $5,000;
(x) relating to all distribution, sales, agency or
advertising contracts in excess of $5,000, including contracts with sales
representatives or dealers; and
(b) Each of the contracts set forth on the Disclosure Schedule
is in full force and effect and valid and enforceable in accordance with its
terms and, except as set forth on the Disclosure Schedule, none of the Companies
has materially breached any of such contracts.
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Section 3.14 Intellectual Property. To the knowledge of the
Shareholders and the Companies, the Disclosure Schedule contains an accurate and
complete list of all registered patents, trademarks, service marks, trade names,
and copyrights and all pending trademark, patent and copyright applications
(collectively, "Intellectual Property"), currently owned or held by the
Companies and any agreement under which any of the Companies owns or holds any
license to use any of the foregoing except where the failure to disclose would
not have a Material Adverse Effect. Except as disclosed on the Disclosure
Schedule hereto, the Companies own or are licensed to use all Intellectual
Property listed on the Disclosure Schedule or rights therein without
infringement of or conflict with any rights of third parties except for
infringements or conflicts that do not have a Material Adverse Effect.
Section 3.15 Labor Difficulties. To the knowledge of the
Shareholders and the Companies, there is no labor strike, arbitration
proceeding, slowdown or stoppage (or charge of unfair labor practice) actually
pending or threatened against or affecting any of the Companies which would
result in a Material Adverse Effect. To the knowledge of the Companies and the
Shareholders, no union is seeking to represent the employees of any of the
Companies. Except as set forth in the Disclosure Schedule, to the knowledge of
the Companies and the Shareholders there are no charges or complaints of
discrimination pending before the Equal Employment Opportunity Commission or any
state or local agency with respect to any of the Companies. Except as set forth
in the Disclosure Schedule, no collective bargaining agreement is in force or is
binding on the Companies.
Section 3.16 Employment Benefit Plans; ERISA.
(a) To the knowledge of the Shareholders and the Companies,
none of the Companies maintains any bonus (including but not limited to all
arrangements with restaurant managers or other employees), deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
or medical plan, arrangement or practice, whether written or unwritten, which
covers employees of any of the Companies (the "Benefit Plans"), including
without limitation, any "employee benefit plan" within the meaning of Section
3(3) of the Employment Retirement Income Security Act of 1974, as amended
("ERISA"), and the final regulations thereunder. True and complete copies of
each written Benefit Plan sponsored by any of the Companies have been delivered
or made available to LS, or such copies shall be delivered to LS as soon as
practicable after the date hereof. None of the Companies has any commitment,
whether formal or informal and whether legally binding or not, to adopt any
benefit plan in addition to those shown in the Disclosure Schedule.
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(b) To the knowledge of the Shareholders and the Companies,
none of the Benefit Plans is a "defined benefit plan" within the meaning of
Section 3(35) of ERISA, and none of the Companies has ever maintained or
contributed to, or ever been obligated to contribute to, a defined benefit plan
on behalf of its employees. None of the Benefit Plans is a "multiemployer plan"
within the meaning of Section 3(37) of ERISA, and none of the Companies has ever
contributed to, or ever been obligated to contribute to, a multiemployer plan on
behalf of its employees.
(c) To the knowledge of the Shareholders and the Companies,
each Benefit Plan that qualifies as an "employee welfare benefit plan" within
the meaning of Section 3(1) of ERISA is and has been in material compliance with
the applicable provisions of ERISA and the Code. The Companies have complied in
all material respects with all of their obligations under each such Benefit Plan
including the making of all required contributions.
Section 3.17 Related Party Transactions. To the knowledge of
the Shareholders and the Companies, except for those agreements listed in the
Disclosure Schedule or as contemplated hereby and except for services (and
charges therefor) provided by Shareholders in the ordinary course of business to
the Companies, the Companies have not, within the past two (2) years, (i) loaned
any amount that is currently outstanding or (ii) sold, transferred or leased any
properties or assets (real, personal or mixed, tangible or intangible) to any of
their officers, directors, restaurant managers or other key employees.
Section 3.18 Insurance. To the knowledge of the Shareholders
and the Companies, the Disclosure Schedule contains a list of all insurance
policies or binders (including self-insurance) insuring the properties, assets,
business, and liabilities of the Companies that were in effect as of the date of
this Agreement, except where the failure to so disclose would not have a
Material Adverse Effect. Except as otherwise disclosed on the Disclosure
Schedule, all such insurance relating to the Companies has been issued to the
Companies under valid and enforceable policies or binders. The Companies have
not received any notice from any insurance organization threatening a
suspension, revocation, modification or cancellation of any Insurance Policy. No
facility has suffered any material damage by fire or other casualty since the
date of the Balance Sheets which facility has not been repaired and restored,
unless either the Company owning or using such facility has made adequate
financial provisions for its repair and restoration or such repair or
restoration has been adequately provided for by insurance relating to and for
the benefit of such Company.
Section 3.19 Environmental Matters.
(a) To the knowledge of the Shareholders and the Companies,
except as set forth on the Disclosure Schedule:
(i) the Companies have obtained all material permits and
licenses and filed all material documents which are required to be obtained or
filed by the Companies for the operation of their businesses under federal,
state and local laws relating to pollution or protection of the Environment;
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(ii) the Companies are in compliance with all material
terms and conditions of such required permits, licenses and authorizations;
(iii) the Companies are in compliance with all other
applicable material limitations, conditions, standards, requirements, and
schedules contained in those laws or contained in any regulation, code, order,
decree, judgment, Notice or demand letter issued, entered, promulgated or
approved thereunder, and have not received notice of any violation thereof; and
(iv) there are no currently existing Environmental
Conditions with respect to the Companies or any of their assets.
(b) For purposes of this Section 3.19, the following
terms shall have the meanings set forth below:
(i) "Hazardous Substances" include any pollutants, toxic
substances, hazardous materials or hazardous substances as defined in or
pursuant to the environmental laws of the State of North Carolina or any other
federal, state or local environmental law, ordinance, rule or regulation.
(ii) "Release" means release, spill, leak, pump, pour,
emit, empty, discharge, inject, escape, dispose or dump into the Environment.
(iii) "Notice" means any summons, citation, directive,
order, claim, litigation, investigation, proceeding, judgment, letter or other
communication, written or oral, actual or threatened from the State of North
Carolina or any agency thereof, the United States Environmental Protection
Agency ("USEPA") or other federal, state or local agency or authority or any
other entity or any individual concerning any intentional or unintentional act
or omission which has resulted or may reasonably be expected to result in the
Release of Hazardous Substances into the Environment from or on property of the
Companies and shall include the imposition of any lien on property of the
Companies pursuant to any violation of federal, state or local environmental
laws, ordinances, rules, regulations, government actions, orders or permits, or
any knowledge, after due inquiry and investigation, of any acts which may
reasonably be expected to give rise to any of the above.
(iv) "Environmental Conditions" means material
conditions with respect to the Environment of property of the Companies related
to the presence or Release of Hazardous Substances, which conditions may
reasonably be expected to require remedial action or may reasonably be expected
to result in material claims, demands and liabilities to any of the Companies by
third parties, including, without limitation, governmental entities, adjacent
property owners and any individuals suffering property damage or personal
injury.
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(v) "Environment" means any surface water, ground water,
drinking water supply, land surface, or subsurface strata.
(c) To the knowledge of the Shareholders and the Companies,
except as set forth on the Disclosure Schedule, (i) during the two (2) years
immediately prior to the date hereof, none of the Companies have been cited for
any material violations of the Occupational Safety and Health Act of 1970, as
amended ("OSHA"), nor, to the knowledge of the Shareholders or the Companies are
there any citations for material violations pending as a result of inspections,
and (ii) each of the material conditions which resulted in the issuance of a
citation has been abated or otherwise corrected to the satisfaction of OSHA as
of the date hereof. The Companies have made available to LS all reports and
filings, if any, made or filed by any of the Companies pursuant to OSHA and
similar state and local laws and regulations during the prior two (2) years.
Section 3.20 Trade Secrets. The Companies will deliver to LS
at the Closing a copy of the Recipe Book containing a description of recipes,
procedures and training manuals used by the Companies. To the knowledge of the
Companies and the Shareholders, except as set forth in the Disclosure Schedule,
and except for portions of recipes which are unwritten, each recipe in the
Recipe Book is sufficient in detail and content to allow its use by the
Companies. Except as set forth in the Disclosure Schedule, there are no liens,
claims or encumbrances upon any of the recipes, formulations and technologies,
processes, "know-how" and other technical data.
Section 3.21 Finders. The Companies are not obligated to pay
any fee or commission to any broker, finder or intermediary for or on account of
the transactions provided for in this Agreement.
Section 3.22 Investment Representation. Each of the
Shareholders will acquire the shares of LSSS Common Stock to be delivered to him
pursuant to this Agreement for investment and not with a view to the resale or
distribution thereof and the Shareholders acknowledge (a) that when issued such
shares will be restricted securities which may not be sold without registration
or exemption from representation under the Securities Act of 1933 and applicable
state securities laws, (b) that, except as provided in the Registration Rights
Agreement referred to in Section 7.6, LSSS has no present intention of
registering said shares, and (c) that the certificates evidencing said shares
will be bear a legend reading substantially as follows:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND NEITHER SUCH SHARES OF COMMON STOCK NOR
ANY INTEREST THEREIN MAY BE SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM UNDER SAID ACT AND THE RULES
AND REGULATIONS THEREUNDER. BY ITS ACCEPTANCE HEREOF,
THE HOLDER OF SUCH SHARES OF COMMON STOCK REPRESENTS THAT IT
IS ACQUIRING THIS COMMON STOCK FOR INVESTMENT AND AGREES TO
COMPLY IN ALL RESPECTS WITH ANY APPLICABLE STATE SECURITIES
LAWS COVERING THE PURCHASE OF THIS COMMON STOCK AND
RESTRICTING ITS TRANSFER."
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Section 3.23 Distributions and Debt Reduction. Since July 4,
1995, (a) the Companies have not declared and paid dividends or made other
distributions in respect of the Companies' capital stock or to the Shareholders
in an aggregate amount of more than $274,759 and (b) the Companies have not paid
any obligation or liability (absolute or contingent) except current liabilities
incurred in the ordinary course of business that have become due and payable and
debt to Shareholders in an aggregate amount of no more than $46,090.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LS AND LSSS
LS and LSSS each represents and warrants to the Companies and the
Shareholders as follows:
Section 4.1 Corporate Organization. Each of LS and LSSS is a
corporation duly organized, validly existing and in good standing under the laws
of, respectively, the State of North Carolina and the State of Delaware, with
full corporate power and authority to own, operate and lease its properties and
to carry on its business as now being conducted.
Section 4.2 Authorization. LS and LSSS have full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Boards of Directors of LS and of LSSS have
duly approved and authorized the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby, and no other corporate
proceedings on the part of LS or LSSS are necessary to approve and authorize the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. Assuming that this Agreement constitutes the
valid and binding obligations of the Shareholders and the Companies, this
Agreement constitutes the valid and binding agreement of LS and LSSS enforceable
in accordance with its terms, except as the enforceability hereof may be subject
to applicable bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and to general principles of equity.
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Section 4.3 Consents and Approvals. Neither the execution and
delivery by LS or LSSS of this Agreement nor the consummation by LS or LSSS of
the transactions contemplated hereby will (i) conflict with or result in a
breach of any provision of the articles or certificate of incorporation or
by-laws of LS or LSSS, or (ii) except for those of the following events which
would not prevent the consummation of the transactions contemplated by this
Agreement and would not result in any change in or effect on LS or LSSS that
would have a material adverse effect on the ability of LS or LSSS to consummate
the transactions contemplated hereby, (A) violate or conflict with, or result in
a breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or require
consents from any other party or result in the termination or in a right of
termination or cancellation of, or accelerate or result in a right to accelerate
the performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of, LS or LSSS, or
result in being declared, or in the right to declare, void, voidable, or without
further binding effect any of the terms, conditions or provisions of, any note,
bond mortgage, indenture, deed of trust, license, franchise, permit, lease,
contract, agreement or other instrument or commitment or obligation to which LS
or LSSS is a party, (B) violate any order, writ, injunction, decree, judgment,
ruling, law, rule or regulation of any court or United States governmental
authority, applicable to LS or LSSS or any of their properties, or (C) require
any consent, approval or authorization of, or notice to, or declaration, filing
or registration with, any governmental or regulatory authority. Except with
respect to certain state liquor license authorities, from which temporary
approvals have been obtained, no consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority is necessary to be obtained or made by LS in connection with the
execution, delivery and performance of this Agreement.
Section 4.4 Capitalization. The authorized capital stock of
LSSS consists of 98,000,000 shares of Common Stock, par value $.01 per share and
2,000,000 shares of Preferred Stock, par value $.01 per share. As of July 11,
1995, 36,771,612 shares of LSSS's Common Stock were issued and outstanding. All
shares of LSSS Common Stock to be issued to the Shareholders in connection with
the transaction contemplated hereby will be duly and validly issued, fully paid
and nonassessable. There is no personal liability, and there are no preemptive
or similar rights, attached to the LSSS Common Stock.
Section 4.5 Financial Statements. LSSS has heretofore
delivered to the Shareholders a copy of its consolidated balance sheet as of
December 27, 1994 and the related consolidated statements of income,
stockholders' investment and changes in financial position for the year ended on
such date, accompanied in each case by the report of Ernst & Young, independent
public accountants, and a copy of its unaudited consolidated balance sheet as of
June 13, 1995 and the related unaudited consolidated statements of income,
stockholders' investment and changes in financial position for the 24 weeks then
ended, said financial statements were prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except as may be otherwise stated in said financial
statements, the notes thereto or the reports of said accountants), and fairly
present the financial position of LSSS and its consolidated subsidiaries at the
dates thereof and the results of operations and changes in financial position of
LSSS and its consolidated subsidiaries for the periods indicated, except that
the aforementioned unaudited financial statements are subject to normal
recurring adjustments which might be required as a result of a year-end audit.
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Section 4.6 Absence of Changes. Since June 13, 1995 there has
not been any material adverse change in the condition (financial or otherwise),
of the assets, liabilities, earnings, business, prospects or results of
operations of LSSS and its subsidiaries, taken as a whole.
Section 4.7 Reports. Since January 1, 1994 LSSS has filed all
reports which were required to be filed by it with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended. All such
reports are complete and correct in all material respects.
Section 4.8 Finders. LS is not obligated to pay any fee or
commission to any broker, finder or intermediary for or on account of the
transactions provided for in this Agreement.
Section 4.9 Legal Proceedings. There are no claims, actions or
proceedings by or against LS or LSSS which may affect the transactions
contemplated hereby at law or in equity or before or by any federal, state,
local, foreign or other governmental department, commission, board, agency,
instrumentality or authority, except those in the aggregate in which an adverse
decision for LS or LSSS would not have a material adverse effect on the business
or financial condition of LSSS.
Section 4.10 NASDAQ Listing. On July 25, 1995 LSSS filed with
NASDAQ National Market System ("NASDAQ") an application to list the shares of
LSSS Common Stock to be delivered by LS to the Shareholders as the Merger
Consideration, and is using its best efforts to cause NASDAQ to approve the
listing of said shares.
Section 4.11 Control of LS; Investment Company; LS Stock. LSSS
owns stock of LS possessing at least 80 percent of the total combined voting
power of all classes of stock entitled to vote of LS and at least 80 percent of
the total number of shares of all other classes of stock of LS. Neither LS nor
LSSS is an investment company as defined in Section 368(a)(2)(F)(iii) and (iv)
of the Code. No stock of LS will be issued in connection with the Merger.
ARTICLE V
COVENANTS
Section 5.1 Access to Properties and Records; Confidentiality.
(a) Between the date of this Agreement and the Closing Date,
the Companies will provide LS, and its accountants, counsel and other authorized
representatives, and responsible financial institutions designated by LS as its
representatives, reasonable access, during normal business hours and under
reasonable circumstances, to any and all premises, properties, contracts,
commitments, books, records and other information of the Companies.
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(b) LS and LSSS hereby agree that they shall hold all
confidential information relating to the Shareholders and the Companies which
they obtain during the course of such investigation in strict confidence and, if
the Merger is abandoned pursuant to the terms hereof, LS shall return all such
information to the Companies and shall not thereafter use it for any purpose (as
long as it remains confidential in nature).
Section 5.2 Announcements. The Companies and LS shall consult
with each other prior to making any further public announcements prior to the
Closing Date with respect to this Agreement or the transactions contemplated
hereby, except as otherwise required by law.
Section 5.3 Conduct of the Business of the Companies Prior to
the Closing Date. The parties agree that between the date of this Agreement and
the Closing Date or the earlier termination of this Agreement, and except as
otherwise consented to or approved by LS in writing or contemplated by this
Agreement:
(a) The business, operations, activities and practices of the
Companies shall be conducted in the ordinary course and the Companies shall
maintain and preserve their existing properties in accordance with past practice
and shall account therefor as required by generally accepted accounting
principles in accordance with past practice.
(b) The Companies shall not: (i) incur any indebtedness,
except borrowings in the ordinary course of business; (ii) enter into any
agreement requiring the maintenance of a specified net worth; (iii) other than
in the ordinary course of business without the consent of LS which shall not be
unreasonably withheld, assume, guarantee, endorse, or otherwise become liable or
responsible (whether directly, contingently or otherwise), for the obligations
of any other individual, firm or corporation; (iv) other than in the ordinary
course of business, make any loans, advances or capital contributions to, or
investments in, any other individual, firm or corporation; or (v) other than in
the ordinary course of business, grant any general salary or compensation
increases to employees.
(c) The Companies will use all reasonable efforts to keep
available to LS the present services of the employees of the Companies if, and
to the extent, so requested by LS, and to preserve for LS the goodwill of the
Companies' agents, customers, suppliers and others with whom business
relationships exist.
(d) None of the parties hereto will take or agree to take any
action which would cause any of its representations contained herein to be or
become untrue in any material respect including as of the date hereof and as of
the Closing Date, as if such representations were made as of such time.
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<PAGE>
(e) None of the Companies and none of the Shareholders shall
enter into, or authorize any agent to enter into on their behalf, discussions
(i) relating to the merger or consolidation of any of the Companies with or into
any person; or (ii) relating to the sale of all or substantially all of the
capital stock or assets of the Companies.
(f) Except in the ordinary course of business, no increase or
commitment to increase the compensation or commission paid or payable by any of
the Companies to any employee, agent or independent contractor of any of the
Companies shall be made.
(g) Except as required by law or in the ordinary course of
business consistent with past practices, the Companies shall not amend, adopt,
approve, commence operation of or make any contribution to any bonus or
profit-sharing plan, or any other plan of a similar nature.
(h) None of the Companies will: amend or change its articles
of incorporation or by-laws (or equivalent constituent documents) or split,
redeem, combine or reclassify the outstanding shares of its capital stock;
acquire any shares of its capital stock or other securities; issue or agree to
issue any additional shares of its capital stock or other securities; grant any
right to purchase or to convert any obligation into shares of its capital stock
or other securities; or sell or pledge (or agree to sell or pledge) any capital
stock of any subsidiary.
Section 5.4 Consent. The parties hereto agree to use all
reasonable efforts to obtain all permits, approvals, authorizations and consents
of all third parties necessary (i) for the consummation of the transaction
contemplated hereby, or (ii) for the conduct, ownership, leasing or operating of
the business of the Companies after the Closing Date.
Section 5.5 Further Assurances. Consistent with the terms and
conditions hereof, each party hereto will execute and deliver such instruments,
certificates and other documents and take such other action as any other party
hereto may reasonably require in order to carry out this Agreement and the
transactions contemplated hereby.
Section 5.6 Shareholders' Contingent Obligations and
Liabilities. On the Closing Date, the Surviving Corporation shall assume, and
shall indemnify and hold the Shareholders harmless from, any obligations and
liabilities of the Shareholders relating to the business, properties or assets
of the Companies which are set forth on Section 5.8 of the Disclosure Schedule.
LS shall cooperate with the Shareholders, both before and after the Closing, by
taking all actions the Shareholders shall reasonably request to effect the
termination of such obligations and liabilities of the Shareholders.
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<PAGE>
Section 5.7 Regulatory Authorizations. The Companies and LS
shall execute and file, or join in the execution and filing of, any application
or other document that may be necessary in order to obtain the authorization,
approval or consent of any governmental agency or instrumentality, state or
federal, that may be required in connection with the consummation of the
transactions contemplated hereby, including without limitation, all filings,
applications and documentation in connection with liquor license applications.
Section 5.8 Payment of Expenses of Brokers and Finders. Except
as otherwise agreed to in writing by LS, no legal or other fees, commissions,
compensation (other then regular salaries of the Companies's employees) or
out-of-pocket expenses of persons who are not employees of the Companies and
have represented the Companies in connection with the negotiation of this
Agreement ("Expenses") will be paid by the Companies for or with respect to the
negotiation of this Agreement or the consummation of the transaction
contemplated hereby. The Shareholders shall pay all Expenses or, to the extent
the Companies have paid or become liable therefor, the Shareholders shall
reimburse the Companies therefor at the Closing.
Section 5.9 Assignment of Patents and Trade Secrets. The
Shareholders shall cause any patent, copyright, trademark, trade name,
application therefor or "know-how" agreement or interest therein or any trade
secrets (including all formulations and technologies, processes, "know-how" and
other technical data), owned, leased, created or licensed by the Shareholders
(if any) which is being used in the business of any of the Companies as it now
exists, to be assigned to the Companies at or before the Closing by means of
assignment agreements reasonably satisfactory in form and substance to LS.
Section 5.10 Tax Accounting Methods. LSSS and LS will not
change any accounting methods or take any filing position inconsistent with Tax
Returns filed, to the extent that taking such position may reasonably be
expected to result in an increase in any Taxes of any of the Companies for any
tax periods ending on or prior to the Closing Date.
Section 5.11 Maintenance of Tax-Exempt Reorganization Status.
LSSS and LS will not take any filing position or any other action that is
inconsistent with the Merger qualifying as a reorganization under Section
368(a)(2)(D) of the Code or take the filing position that any of the Companies
or any of the Shareholders received any consideration in the Merger other than
LSSS Common Stock.
Section 5.12 Capital Commitments.
(a) Notwithstanding anything herein to the contrary and except
for commitments existing on the date hereof, the Companies shall not make or
incur any capital expenditures in excess of $25,000 in any single instance
between the date of this Agreement and the Closing Date, including, but not
limited to equipment lease agreements and construction contracts, or enter into
any franchise agreement or license agreements without the prior written consent
of LS, which may not be unreasonably withheld.
20
<PAGE>
(b) Notwithstanding anything herein to the contrary, the
Companies shall not enter into any new Lease or amend (other than in connection
with obtaining consents required for consummation of the transactions
contemplated hereby) any existing Lease between the date of this Agreement and
the Closing Date without the prior written consent of LS, which may not be
unreasonably withheld.
Section 5.13 Notification of Litigation. Prior to the Closing
Date, the Shareholders agree to provide notice to LS of any litigation commenced
against the Companies in which claims are made for damages in excess of $25,000
or in which claims are made for equitable relief.
Section 5.14 Sale of LSSS Stock. The Shareholders have not
sold and will not sell or otherwise dispose of any shares of the capital stock
of LSSS, including the LSSS Common Stock to be received by them as the Merger
Consideration, during the period commencing 30 days prior to the Closing Date
and ending on that date when LSSS first makes publicly available operating
results covering at least 30 days of the Surviving Corporation's operations.
LSSS may cause each stock certificate to be issued pursuant to this Agreement to
contain a legend setting forth such restriction.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF LS AND LSSS
The obligations of LS and LSSS to consummate the transactions
contemplated hereby shall be subject to the satisfaction, at or prior to the
Closing Date, of each of the following conditions, each of which may be waived
by LS as provided herein:
Section 6.1 Representations and Warranties True. The
representations and warranties of the Shareholders and the Companies contained
in this Agreement shall be true and correct in all material respects as of the
date hereof and shall be true and correct in all material respects as if made on
the Closing Date (except to the extent that any representations and warranties
of the Shareholders and the Companies relate to a particular date).
Section 6.2 Performance of Obligations. Each of the
obligations of the Shareholders and the Companies to be performed by them at or
before the Closing Date pursuant to the terms hereof shall have been duly
performed and complied with in all respects, including the execution of all
agreements contemplated hereby, by the Closing Date. The Shareholders shall
deliver to LS an officer's certificate to such effect in form and substance
reasonably satisfactory to LS.
21
<PAGE>
Section 6.3 Absence of Litigation. No order, stay, judgment or
decree shall have been issued by any court restraining or prohibiting the
consummation of the transactions contemplated by this Agreement and no action
shall have been instituted or threatened by a third party against any of the
Companies before any court which action could reasonably be determined to have
substantial merit and a Material Adverse Effect.
Section 6.4 Tax Indemnification. Each of the Shareholders
shall have executed and delivered to LS a Tax Indemnification Agreement
substantially in the form of Exhibit D hereto.
Section 6.5 Pooling of Interests. Pooling of interest
accounting treatment shall have been approved in writing by Ernst & Young and
Deloitte & Touche.
Section 6.6 NASDAQ National Market System. Authorization shall
have been received from NASDAQ to list the LSSS Common Stock to be delivered by
LS to the Shareholders as the Merger Consideration.
Section 6.7 Fairness Opinion. LSSS shall have received an
opinion from Allen C. Ewing & Co. satisfactory to LSSS as to the fairness of the
terms of the Merger to the existing stockholders of LSSS.
Section 6.8 Non-Competition Agreements. LS shall have received
non-competition agreements from each of the Shareholders, substantially in the
form of Exhibit E1 to E4 hereto (the "Non- Competition Agreements"). LS, LSSS
and the Companies agree that no more than one dollar worth of Common Stock will
be allocated as consideration to the non-competition agreements.
Section 6.9 Consents. All consents listed in the Disclosure
Schedule shall have been obtained.
Section 6.10 Simultaneous Closing. The Closing of this
Agreement is conditioned on the simultaneous closing of the following agreements
(collectively, the "Other Agreements"): (i) Agreement and Plan of Merger among
Nacho Mama's Inc., the shareholders thereof, Mama's Concept, Inc. and LSSS; (ii)
Agreement and Plan of Merger among Morehead Restaurant Group, Inc., the
shareholders thereof, Frankie's Restaurant Inc., and LSSS; (iii) Asset Purchase
Agreement among Creative Concepts of North Carolina, LLC, the members thereof,
and LSSS; (iv) Agreement of Purchase and Sale among R&T Investments, LLC, the
members thereof, and LSSS; (v) Agreement of Purchase and Sale among RTH
Investments, the members thereof, and LSSS; and (vi) Contract of Assignment
among Creative Concepts of North Carolina, LLC, the members thereof and Mama's
Concept Inc.
Section 6.11 Termination of Agreements. The following
agreements shall be terminated as of the Closing: Any and all employment
agreements between any of the Companies or any of the parties to the Other
Agreements and James C. Verney, Matthew Wogan or Steven Fixman and Buy/Sell
Agreements among the Shareholders and certain of the Companies.
22
<PAGE>
Section 6.12 Opinion of Counsel. LS shall have received an
opinion of Moore & Van Allen, PLLC, counsel to the Companies, dated as of the
Closing Date, to the effect that (i) the execution and delivery of this
Agreement by the Companies have been duly authorized by requisite corporate
action on the part of the Companies, (ii) this Agreement (assuming the valid
authorization, execution and delivery of this Agreement by LS and LSSS) is a
valid and binding obligation of the Shareholders and the Companies enforceable
against the Shareholders and the Companies in accordance with its terms, except
(A) that such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditor's rights and (B) that the remedy of specific performance
and injunctive and other forms of equitable relief are subject to certain
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought and (iii) upon filing of the Articles of
Merger, the Merger will be effective, the separate corporate existence of each
of the Companies will cease and LS will continue as the surviving corporation.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS
OF THE COMPANIES AND THE SHAREHOLDERS
The obligations of the Companies and the Shareholders to
consummate the transactions contemplated hereby shall be subject to the
satisfaction, at or prior to the Closing Date, of each of the following
conditions, each of which may be waived by the Companies and the Shareholders as
provided herein:
Section 7.1 Representations and Warranties True. The
representations and warranties of LS and LSSS contained in this Agreement shall
be true and correct in all material respects as of the date hereof and shall be
true and correct in all material respects as if made on the Closing Date (except
to the extent that any representations and warranties of LS or LSSS relate to a
particular date).
Section 7.2 Performance of Obligations. Each of the
obligations of LS and LSSS to be performed by it on or before the Closing Date
pursuant to the terms hereof, including the execution of all agreements
contemplated hereby, shall have been duly performed and complied with in all
material respects by the Closing Date. LS shall deliver to the Shareholders an
officer's certificate to such effect in form and substance reasonably
satisfactory to LS.
23
<PAGE>
Section 7.3 Absence of Litigation. No order, stay, judgment or
decree shall have been issued by any court restraining or prohibiting the
consummation of the transactions contemplated by this Agreement.
Section 7.4 Corporate Documents. The Shareholders shall have
received from LS resolutions adopted by the Boards of Directors of LS and LSSS,
approving the Agreement and the transactions contemplated thereby, certified by
the respective corporate secretary of LS and LSSS.
Section 7.5 Opinion of Counsel. The Shareholders shall have
received an opinion of Olshan, Grundman, Frome & Rosenzweig LLP, counsel for LS
and LSSS, dated as of the Closing Date, to the effect that: (i) the execution
and delivery of this Agreement by LS and LSSS have been duly authorized by
requisite corporate action on the part of this LS and LSSS; (ii) this Agreement
(assuming the valid authorization, execution and delivery of this Agreement by
the Shareholders and the Companies) is a valid and binding obligation of LS
enforceable against LS in accordance with its terms, except (A) that such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
and (B) that the remedy of specific performance and injunctive and other forms
of equitable relief are subject to certain equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought;
(iii) the issuance and delivery of the shares of LSSS Common Stock to be issued
to the Shareholders as Merger Consideration have been duly authorized and, when
issued and delivered to the Shareholders, will be validly issued, fully paid and
non-assessable; and (iv) immediately following the Closing, the authorized
capital stock of LSSS will consist of 98,000,000 shares of Common Stock, par
value $.01 per share, of which ___ shares will be issued and outstanding, and
2,000,000 shares of Preferred Stock , par value $.01 per share, of which none
will be issued and outstanding.
Section 7.6 Registration Rights Agreement. LSSS shall have
delivered to each of the Shareholders a Registration Rights Agreement
substantially in the form of Exhibit F to this Agreement (the "Registration
Rights Agreement").
Section 7.7 Employment Agreement. LS shall have executed and
delivered to James C. Verney a one-year employment agreement in the same format
generally used by LSSS in respect to officers thereof.
Section 7.8 Simultaneous Closing. The Closing of this
Agreement is conditioned on the simultaneous closing of the Other Agreements.
ARTICLE VIII
TERMINATION AND ABANDONMENT
Section 8.1 Termination. This Agreement may be terminated at
any time prior to the Closing:
24
<PAGE>
(i) by mutual consent of the parties;
(ii) by either the Shareholders or LS if the Closing
shall not have occurred by August 4, 1995, provided that the failure to
consummate the transactions contemplated hereby is not a result of the failure
by the party so electing to terminate this Agreement to perform any of its
obligations hereunder; and
(iii) by the Shareholders or by LS, if any court of
competent jurisdiction in the United States or other United States governmental
body shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and such order, decree, ruling or other action shall not have been
vacated or reversed or set aside on appeal, with prejudice against the party
seeking to restrain the transaction, by August 4, 1995. The date on which this
Agreement is terminated pursuant to this Section is herein referred to as the
"Termination Date."
Section 8.2 Effect of Termination. Except (i) for the
obligations contained in Section 5.1(b) hereof and (ii) as set forth in Section
8.3 hereof, in the event that this Agreement shall be terminated pursuant to
Section 8.1, all obligations of the parties hereto under this Agreement shall
terminate and there shall be no liability, except for any breach of this
Agreement prior to such termination, of any party to any other party.
Section 8.3 Fees and Expenses. Except as provided in Section
5.8, each party hereto shall pay all of the fees and expenses incurred by it in
connection herewith.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
Section 9.1 Survival of Representations, Warranties and
Agreements. All representations and warranties, covenants and agreements of the
parties contained in this Agreement shall survive the Closing.
Section 9.2 Indemnification.
(a) Each of the Shareholders agrees, severally but not
jointly, to indemnify LS and LSSS (without duplication) against any and all
losses, liabilities, damages, costs and expenses (whether or not arising out of
third party claims and including without limitation interest, penalties and
reasonable attorneys' fees) (collectively "Losses") which are actually incurred
by LS or LSSS (without duplication) (which for purposes of this Section 9.2
shall be reduced by (i) any reserves or accruals with respect to such Losses
reflected on the Balance Sheets and (ii) the amount, if any, of insurance
proceeds received by LS or LSSS (or such proceeds received by a third party to
the extent such payment reduces the Loss) with respect to a Loss (less any
retrospective premiums or other forms of self-insurance)) arising out of or
resulting from the inaccuracy of any representation or the breach of any
warranty, covenant or agreement made by such Shareholder in this Agreement.
25
<PAGE>
(b) LS and LSSS agree to indemnify the Shareholders against
any and all Losses which are actually incurred by the Shareholders as a result
of the inaccuracy of any representation or the breach of any warranty, covenant
or agreement made by LS or LSSS in this Agreement or any other agreement
executed or delivered by LS or LSSS pursuant to this Agreement.
(c) Notwithstanding any other provision of this Agreement: (i)
the indemnification obligations of the parties under this Section 9.2 shall be
payable (and reimbursable and repayable under Section 9.2(e)) solely in shares
of LSSS Common Stock, with one share of LSSS Common Stock to be delivered for
each $32 (or part thereof) of indemnification obligation; (ii) the aggregate
indemnification obligation of each Shareholder under this Section 9.2 and any
corresponding provision of the Other Agreements shall be limited to delivering
that number of shares of LSSS Common Stock as shall equal the aggregate number
of shares of LSSS Common Stock which such Shareholder shall have received
pursuant to this Agreement and the Other Agreements plus, in the case of Dennis
L. Thompson, the aggregate number of such shares so received by Thomas A. Hager,
Daniel M. Kammerer and Thomas W. Shannon; and (iii) neither the Shareholders nor
LS and LSSS, as a group, shall be responsible for any Losses under this Section
9.2 and any corresponding provision of the Other Agreements unless the aggregate
amount of such Losses on a cumulative basis exceeds $50,000 and then only to the
extent of such excess.
(d) Except as otherwise provided herein, the indemnification
obligations of the parties under subsections (a), (b) and (c) of this Section
9.2 shall continue in full force only until December 31, 1995 after which no
party shall have recourse under this Agreement; provided, however, that (i) such
obligations shall not terminate with respect to any matter with respect to which
an indemnifiable party shall have made a claim prior to the close of business on
December 31, 1995 (stating in reasonable detail the basis of such claim,
including the specific date of such claim, the third parties affected thereby,
and the specific facts relating to the incident which gave rise to such claim)
to the indemnifying party.
(e) In order for a party (the "indemnified party") to be
entitled to any indemnification provided for under this Agreement in respect of,
arising out of, or involving a claim or demand or written notice made by any
third party against the indemnified party (a "Third Party Claim") after the
Closing Date, such indemnified party must notify the indemnifying party (the
"indemnifying party") in writing of the Third Party Claim within thirty (30)
business days after receipt by such indemnified party of written notice of the
Third Party Claim; provided that the failure of any indemnified party to give
timely notice shall not affect its right to indemnification hereunder except to
the extent the indemnifying party has actually been prejudiced or damaged
26
<PAGE>
thereby. If a Third Party Claim is made against an indemnified party, the
indemnifying party shall be entitled, if it so chooses, to assume the defense
thereof with counsel selected by the indemnifying party. If the indemnifying
party assumes the defense of a Third Party Claim the indemnified party will
cooperate in all reasonable respects with the indemnifying party in connection
with such defense, and shall have the right to participate in such defense with
counsel selected by it. The fees and disbursements of such counsel, however,
shall be at the expense of the indemnified party; provided, however, that, in
the case of any Third Party Claim of which the indemnifying party has not
employed counsel to assume the defense, the fees and disbursements of such
counsel shall be at the expense of the indemnifying person. Regardless of which
party assumes the defense of a Third Party Claim, (i) the indemnified party
shall not settle or compromise any Third Party Claim without the consent of the
indemnifying party, and (ii) the indemnified party shall consent to and
cooperate in any settlement or compromise of such claim by the indemnifying
party.
ARTICLE X
MISCELLANEOUS
Section 10.1 Headings. The descriptive headings of the several
Articles and Sections of this Agreement are inserted for convenience only and do
not constitute part of this Agreement.
Section 10.2 Notices. Any notices or communications required
or permitted hereunder shall be given in writing and shall be delivered or sent
by certified or registered mail, postage prepaid, addressed as follows:
If to LS or
LSSS, to: Lone Star Steakhouse & Saloon, Inc.
c/o John D. White
224 East Douglas, Suite 700
Wichita, Kansas 67206
With copies to: Gerald Aaron, Esq.
224 East Douglas, Suite 7000
Wichita, Kansas 67206
and
Olshan Grundman Frome &
Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: Steven Wolosky, Esq.
If to any of the
Shareholders or
any of the
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<PAGE>
Companies, to: Leslie Rudd Investment Company
314 South Galena
Aspen, Colorado 81611
Attention: Craig A. Ferraro
With copies to: Moore & Van Allen, PLLC
NationsBank Corporate Center
100 North Tryon Street
Floor 47
Charlotte, North Carolina 28202-4003
Attention: C. Wells Hall III, Esq.
and
Willkie Farr & Gallagher
153 East 53rd Street
New York, NY 10022
Attention: William J. Grant, Jr., Esq.
or to such other address as shall be furnished in writing by such party, and any
such notice or communication shall be effective and be deemed to have been given
as of the date so mailed; provided that any notice or communication changing any
of the addresses set forth above shall be effective and deemed given only upon
its receipt.
Section 10.3 Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests, or obligations hereunder shall be
assigned by any of the parties hereto without the prior written consent of the
other party.
Section 10.4 Complete Agreement. This Agreement, the
Disclosure Schedule, the Registration Rights Agreement, the Tax Indemnification
Agreement and the Non-Competition Agreements contain the entire understanding of
the parties with respect to the transactions contemplated hereby and supersede
all prior arrangements or understandings with respect thereto. There are no
restrictions, agreements, promises, warranties, covenants or undertakings other
than those expressly set forth herein or therein.
Section 10.5 Modifications, Amendments and Waivers. At any
time prior to the Closing (i) the parties hereto may, by written agreement,
modify, amend or supplement any term or provision of this Agreement and (ii) any
term or provision of this Agreement may be waived in writing by the party which
is entitled to the benefits thereof.
28
<PAGE>
Section 10.6 Counterparts. This Agreement may be executed in
two or more counterparts all of which shall be considered one and the same
agreement and each of which shall be deemed an original.
Section 10.7 Governing Law. This Agreement shall be governed
by the laws of the State of North Carolina (regardless of the laws that might be
applicable under principles of conflicts of law) as to all matters, including
but not limited to matters of validity, construction, effect and performance.
29
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement and Plan of Merger to be executed as of the day and year first above
written.
Attest: CREATIVE CULINARY CONCEPTS, INC.
By:
Name:
Title:
Attest: STEAKS OF RALEIGH, INC.
By:
Name:
Title:
Attest: LONE STAR STEAKS OF PINEVILLE, INC.,
By:
Name:
Title:
Attest: STEAKS OF JACKSONVILLE, INC.
By:
Name:
Title:
Attest: STEAKS OF GREENVILLE, INC.
By:
Name:
Title:
Attest: STEAKS OF CARY, INC.
By:
Name:
Title:
30
<PAGE>
Attest: STEAKS OF CORNELIUS, INC.
By:
Name:
Title:
Attest: COWBOY STEAKS, INC.
By:
Name:
Title:
LESLIE G. RUDD
DENNIS L. THOMPSON
JAMES F. HAUN
JAMES C. VERNEY
Attest: LONE STAR STEAKHOUSE & SALOON, INC.
By:
Name:
Title:
Attest: LONE STAR STEAKS, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT A
Capitalization of Companies
Shares Owned by:
<TABLE>
<CAPTION>
Leslie G. Dennis L. James F. James C. Total Total
Rudd Thompson Haun Verney Outstanding Authorized
--------- -------- -------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Creative Culinary 33,600 29,400 11,118 8,235.33 82,353.33
Concepts, Inc.
Steaks of 390 345 135 96.67 966.67
Raleigh, Inc.
Lone Star Steaks 390 345 135 96.67 966.67
of Pineville, Inc.
Steaks of 390 345 135 96.67 966.67
Jacksonville, Inc.
Steaks of 390 345 135 96.67 966.67
Greenville, Inc.
Steaks of 390 345 135 96.67 966.67
Cary, Inc.
Steaks of 390 345 135 96.67 966.67
Cornelius, Inc.
Cowboy Steaks, Inc. 390 345 135 96.67 966.67
</TABLE>
<PAGE>
Draft 8/3/95
AGREEMENT AND PLAN OF MERGER
Among
Nacho Mama's Inc., Leslie G. Rudd, Dennis L.
Thompson, and James F. Haun
and
Lone Star Steakhouse & Saloon, Inc.
and
Mama's Concept, Inc.
------------------------------------------------------------------------------
Dated as of August , 1995
------------------------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August , 1995 (the
"Agreement"), among Nacho Mama's, Inc., a North Carolina corporation (the
"Company"), Leslie G. Rudd, Dennis L. Thompson, and James F. Haun (collectively,
the "Shareholders" and, individually, a "Shareholder"), Lone Star Steakhouse &
Saloon, Inc. a Delaware corporation ("LSSS") and Mama's Concept, Inc., a North
Carolina corporation and a wholly-owned subsidiary of LSSS ("MC").
WHEREAS, the Shareholders own all of the issued and
outstanding capital stock of the Company in the respective amounts shown on
Exhibit A hereto;
WHEREAS, the parties wish to provide for the merger of the
Company with and into MC and the conversion of all of the Company's presently
outstanding shares into the right to acquire shares of the Common Stock, $.01
par value, of LSSS (the "LSSS Common Stock");
WHEREAS, the parties intend that said merger will qualify as a
tax free reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended; and
WHEREAS, the respective Boards of Directors and shareholders
of the Company and MC and the Board of Directors of LSSS have unanimously
approved this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the
conditions hereof, and in accordance with the North Carolina Business
Corporation Act (the "Act") at the Effective Time (as hereinafter defined), the
Company shall be merged with and into MC (the "Merger"). Following the Merger,
MC shall continue as the surviving corporation (as such, the "Surviving
Corporation") and the separate corporate existence of the Company shall cease.
Section 1.2 Effective Time. The Merger shall be consummated by
filing with the Secretary of State of the State of North Carolina (the
"Secretary of State") articles of merger (the "Articles of Merger") in such form
as required by, and executed in accordance with, the relevant provisions of the
Act. The time of filing the Articles of Merger with the Secretary of State shall
be the "Effective Time."
<PAGE>
Section 1.3 Effects of the Merger. The Merger shall have the
effects set forth in Section 55-11-06 of the Act. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, except
as otherwise provided herein, all of the properties, rights, privileges, powers
and franchises of the Company shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and MC shall become the debts,
liabilities and duties of the Surviving Corporation. From and after the
Effective Time, the Surviving Corporation shall continue to be a wholly-owned
subsidiary of LSSS.
Section 1.4 Articles of Incorporation and By-laws of the
Surviving Corporation.
(a) The articles of incorporation of MC as in effect at the
Effective Time shall, without any further action on the part of the parties to
the Merger, continue as the articles of incorporation of the Surviving
Corporation.
(b) The by-laws of MC as in effect at the Effective Time
shall, without any further action on the part of the parties to the Merger,
continue as the by-laws of the Surviving Corporation.
Section 1.5 Directors. The directors set forth on Schedule 1.5
shall become the directors of the Surviving Corporation and will hold office
from the Effective Time until their respective successors are duly elected or
appointed and qualify in the manner provided in the articles of incorporation
and regulations of the Surviving Corporation, or as otherwise provided by law.
Section 1.6 Officers. The officers set forth on Schedule 1.6
shall become the officers of the Surviving Corporation and will hold office from
the Effective Time until their respective successors are duly elected or
appointed and qualify in the manner provided in the articles of incorporation
and regulations of the Surviving Corporation, or as otherwise provided by law.
Section 1.7 Filing of Articles of Merger. (a) Upon the terms
and subject to the conditions hereof, (i) as soon as practicable after all
conditions to the obligations of the parties hereunder have been satisfied or
waived and so long as the Merger has not been abandoned or terminated as
provided herein, and (ii) at the Closing (as defined in Section 1.8), the
Company and MC having executed the Articles of Merger as required by the Act,
shall file such Articles of Merger with the Secretary of State, and the parties
shall take all such other and further actions as may be required by law or this
Agreement to make the Merger effective.
Section 1.8 Closing. A closing (the "Closing") of the Merger
shall take place at 10:00 a.m., New York time, at the offices of Olshan Grundman
Frome & Rosenzweig LLP, 505 Park Avenue, New York, New York on the second
business day after satisfaction or waiver of the conditions to Closing set forth
in Articles VI and VII hereof, or at such other time and place or on such other
date as the Company and MC may mutually agree, but in no event later than August
4, 1995 (the date and time of such Closing being herein referred to as the
"Closing Date").
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ARTICLE II
CONVERSION OF SHARES; CLOSING PAYMENT;
MERGER CONSIDERATION
Section 2.1 Conversion of Capital Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of the holders
of the capital stock of MC or the Company other than as set forth in this
Agreement, each issued and outstanding share of Common Stock of the Company
immediately prior to the Effective Time shall be converted into the right to
receive that number of shares of LSSS Common Stock (the "Merger Consideration")
determined by: (i) subtracting from the dollar amount specified for the Company
in the "Agreed Value" column on page 1 of Exhibit B hereto the amount of current
and long term indebtedness for borrowed money (including indebtedness to
Shareholders) of the Company at the Closing Date (the parties' estimate of which
is set forth in the "Debt" column on page 1 of Exhibit B); (ii) dividing the
amount calculated in (i) by $32.00 (the parties' estimate of which is set forth
in the "Shares" column on page 1 of Exhibit B); and (iii) dividing the amount
calculated in (ii) by the number of shares of Common Stock of the Company
outstanding immediately prior to the Effective Time.
Section 2.2 Delivery Of Merger Consideration. (a) At or prior
to the Closing Date, LSSS will issue and contribute to the capital of MC a
sufficient number of shares of LSSS Common Stock to enable it to pay the Merger
Consideration in full in accordance with the terms of this Agreement.
(b) On the terms and subject to the conditions set forth in
this Agreement, at the Closing, MC shall deliver to the Shareholders 100% of the
parties' estimate of the Merger Consideration as set forth on page 1 of Exhibit
B, by delivering to each Shareholder the number of shares of LSSS Common Stock
with respect to the Company as set forth on page 2 of Exhibit B.
(c) The parties will endeavor in good faith to agree upon a
final determination of the Merger Consideration as promptly as possible after
the Closing. If such agreement is not reached within sixty (60) days after the
Closing Date, then within ninety (90) days after the Closing Date Ernst & Young
and Deloitte & Touche, accountants for MC and the Company, respectively, will
determine (or, if they are unable to agree, will select a third accounting firm
which will determine) the amount of the Merger Consideration and will deliver to
the parties a certificate (a "Merger Consideration Certificate") setting forth
such determination, which determination shall be final and binding on all
parties hereto. If the amount of the Merger Consideration as finally agreed to
by the parties or as set forth in an accountants' Merger Consideration
Certificate is more or less than the amount thereof delivered to the
Shareholders at the Closing, MC and LSSS shall issue and deliver to the
Shareholders shares in the amount of any such excess, or the Shareholders shall
redeliver to MC shares in the amount of any such deficiency, so that, after such
delivery, the Shareholders shall have received pursuant to this Agreement shares
of LSSS Common Stock equal to the Merger Consideration, as finally determined.
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Section 2.3 Fractional Shares. Notwithstanding any other
provision hereof, if the number of shares of LSSS Common Stock to which a
Shareholder shall be entitled as Merger Consideration includes a fraction of a
share, the number of shares to which he shall be entitled shall be rounded to
the next lower or higher number of shares, depending on whether such fraction of
a share is less than one-half a share or greater than or equal to one-half a
share.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS AND Company
Except as disclosed by the Shareholders and the Company in the
Disclosure Schedule attached hereto (the "Disclosure Schedule"), each of the
Shareholders (as to himself only, with respect to Section 3.2 and all
representations and warranties that are made to the knowledge of the
Shareholders and the Companies) and the Company hereby represents and warrants
to MC and LSSS as follows on the date hereof and as of the Closing Date (all
representations and warranties in Sections 3.11 through 3.20 inclusive are made
only to the knowledge of the Shareholders and the Company):
Section 3.1 Corporate Organization. The Company is duly
organized, validly existing and in good standing under the laws of the State of
North Carolina and has the corporate power and authority to own, operate and
lease its properties and to carry on its business as now being conducted. The
Disclosure Schedule contains a list of all jurisdictions where the Company are
duly licensed and qualified to do business as a foreign corporation. The Company
is in good standing in each jurisdiction in which the character of the
properties owned by it or the nature of its activities is such that such
qualification is required by applicable law except where the failure to be so
qualified would not have a Material Adverse Effect. The copies of the articles
of incorporation of the Company, as amended to date, and of the by-laws of the
Company, as currently in effect, and the other instruments setting forth the
terms of the Company's capital stock have been delivered to MC and are complete.
For the purposes of this Agreement, "Material Adverse Effect" refers to a
material adverse effect on the results of operations, properties, or financial
condition of the Company and each of the businesses conveyed by the agreements
set forth in Section 6.10 taken together in the aggregate.
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Section 3.2 Ownership of Shares. The Shareholders own all of
the issued and outstanding capital stock of the Company free and clear of all
liens, claims, charges and other encumbrances and restrictions of any kind or
nature.
Section 3.3 Capitalization. The authorized capital stock and
the shares which are issued and outstanding for the Company are set forth on
Exhibit A hereto. No shares of the capital stock of the Company are owned,
directly or indirectly, by the Company. All issued and outstanding shares of the
Company are duly authorized and issued, fully paid and non-assessable. Except
for certain Buy/Sell Agreements among the Shareholders and certain of the
Company, which shall be terminated prior to the Closing, there are no
subscriptions, options, warrants, calls, rights, contracts, commitments,
understandings, restrictions or arrangements of any kind relating to the
issuance, sale or transfer of any shares of capital stock of the Company,
including any rights of conversion or exchange under any outstanding securities
or other instruments. There are no voting trusts or other agreements or
understandings of any kind with respect to the Company outstanding stock.
Section 3.4 Authorization. The Company have full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Boards of Directors and Shareholders of
the Company have duly approved and authorized the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, and no
other corporate proceedings on the part of the Company are hereby necessary to
approve and authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. Assuming that this
Agreement constitutes a valid and binding agreement of MC and LSSS, this
Agreement constitutes the valid and binding agreement of the Company and each of
the Shareholders enforceable in accordance with its terms, except as the
enforceability hereof may be subject to applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally and
to general principles of equity.
Section 3.5 Consents and Approvals. Neither the execution and
delivery of this Agreement by any of the Shareholders or Company nor the
consummation by any of the Shareholders or Company of the transactions
contemplated hereby will (i) conflict with or result in a breach of any
provision of the articles of incorporation or by-laws of Company, or (ii) except
for those events and consents which are either set forth in the Disclosure
Schedule or which events or the absence of which consents do not or would not be
reasonably expected to result in a Material Adverse Effect, (A) violate, or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or require consents from any other party (except
consents which have been obtained or the obtaining of which has been waived by
MC) or result in the termination or in a right of termination or cancellation
of, or accelerate or result in a right to accelerate the performance required
by, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties of, Company or result in being declared,
or in the right to declare, void, voidable, or without further binding effect
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, lease, contract, or
agreement to which Company or any of the Shareholders is a party, or (B) violate
any order, writ, injunction, decree, judgment, ruling, law, rule or regulation
of any court or governmental authority, federal, state, local or foreign,
applicable to Company or any of the Shareholders or require any consent,
approval or authorization of, or notice to, or declaration, filing or
registration with, any governmental or regulatory authority.
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Section 3.6 No Violation. To the knowledge of the Shareholders
and the Company, the Company are not in violation of, or under investigation
with respect to or threatened to be charged with or given notice of, any
violation of any applicable law, statute, order, rule, regulation, or judgment
entered by any federal, state, local or foreign court or governmental authority
relating to the Company, including, but not limited to those relating to state
and local health codes, the Americans with Disabilities Act, civil rights, and
liquor sales and services, except for any violation which does not or would not
reasonably be expected to result in a Material Adverse Effect. For purposes of
this Agreement, "knowledge" of a Shareholder refers to actual, personal
knowledge of such Shareholder.
Section 3.7 Financial Statements. The audited balance sheets
of the Company as of December 27, 1994 (the "Balance Sheet") and the related
statements of income and retained earnings and changes in financial position for
the year then ended (the "Income Statements" ) and the unaudited balance sheets
of the Company as of July 11, 1995 and the related statements of income and
retained earnings and changes in financial position for the 28 weeks then ended
have been delivered to MC. The financial statements referred to above in this
Section are sometimes collectively called the "Financial Statements." Except as
set forth in the notes to the Financial Statements or as provided in Section
3.9, the Financial Statements present fairly the financial position, the
consolidated results of operations and the consolidated changes in financial
position of the Company as of the date and for the periods covered thereby in
conformity with generally accepted accounting principles (including the related
notes and schedules thereto) consistently applied during the periods involved
(except as otherwise stated therein).
Section 3.8 Absence of Undisclosed Liabilities. Except as and
to the extent reflected or disclosed (or adequately reserved for or against) in
the Balance Sheet or in the notes thereto or in the Disclosure Schedule or
except as specifically provided by this Agreement, the Company do not have any
liabilities or obligations of any nature, whether known or unknown, contingent
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or absolute, other than liabilities or obligations (i) which are not required by
generally accepted accounting principles to be reflected on a balance sheet, or
(ii) which were incurred in the ordinary course of business consistent with past
practice since the dates of the Balance Sheet; provided, however, that no
representation is made in this Section 3.8 with respect to any class of
liabilities or obligations with respect to which a representation is made
elsewhere in this Article III.
Section 3.9 Absence of Certain Changes. Since July 11, 1995
the Company have conducted their businesses in the ordinary course and there has
not been any change or event that has caused a Material Adverse Effect. Except
as set forth in the Disclosure Statement or as contemplated by this Agreement,
since July 11, 1995, the Company have not (i) made or granted any increases in
the compensation or benefits payable or to become payable to other employees
other than in the ordinary course of business; or (ii) entered into any
commitment, contractual obligation or transaction other than in the ordinary
course of business (which includes any capital expenditure for improvement of
the business or property of Company).
Section 3.10 Legal Proceedings. Except as set forth on the
Disclosure Schedule, there are no uninsured claims, actions or proceedings
pending, or, to the knowledge of the Company and the Shareholders, threatened,
against Company before any court or governmental body, federal, state, local or
foreign, which (i) seek to restrain or enjoin the consummation of the
transactions contemplated hereby or (ii) is reasonably likely to result in
liability of more than $25,000. Except as set forth in the Disclosure Schedule
the Company are not bound by or subject to any continuing order, injunction or
decree of any domestic or foreign court, arbitrator or governmental authority.
Section 3.11 Taxes and Tax Returns.
(a) For purposes of this Agreement, (i) the term "Taxes" shall
mean all taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, excise, property, sales, license, payroll
and franchise taxes, imposed by the United States, or any state, local or
foreign government or subdivision or agency thereof whether computed on a
unitary, combined or any other basis; and such term shall include any interest,
penalties or additions to tax; and (ii) the term "Tax Return" shall mean any
report, return or other information required to be filed with, supplied to or
otherwise made available to a taxing authority in connection with Taxes.
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(b) To the knowledge of the Shareholders and the Company, the
Company have (i) duly filed with the appropriate taxing authorities all Tax
Returns required to be filed by or with respect to the Company for any period
ending on or before the Closing Date and all such duly filed Tax Returns are
true, correct and complete in all material respects, and (ii) paid in full or
made adequate provision for on their respective balance sheets (in accordance
with generally accepted accounting principles) all Taxes shown to be due on such
Tax Returns, except where the failure to file Tax Returns or to pay Taxes would
have a Material Adverse Effect. There are no liens for Taxes upon the assets of
Company except for statutory liens for current Taxes not yet due and payable or
which may thereafter be paid without penalty or are being contested in good
faith. Except as set forth in the Disclosure Schedule, the Company is not
undergoing an audit of any of its Tax Returns and neither the Company nor any of
the Shareholders has received any notice of audit of any Tax Return of Company
or any notice of deficiency or assessment from any taxing authority with respect
to liability for Taxes by Company which has not been fully paid or finally
settled, and any such deficiency or assessment shown on such Disclosure Schedule
is being contested in good faith through appropriate proceedings. There have
been no waivers of statutes of limitation by Company or with respect to any Tax
Returns. Except as set forth in the Disclosure Schedule the Company has not
filed a request with the Internal Revenue Service for change in accounting
methods within the last two years which change would effect the accounting for
tax purposes, directly or indirectly, of the Company. Neither the Company nor
any of the Shareholders with respect to Company has filed any election under
Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code").
Section 3.12 Property. (a) To the knowledge of the
Shareholders and the Company, the Disclosure Schedule contains a correct and
complete schedule of all leases, subleases and other agreements of like kind, as
amended to date (collectively, the "Leases") under which Company occupies or has
the right to occupy any real property in connection with the operation of its
business (the land, buildings and other improvements covered by the Leases being
herein called the "Leased Real Property"). The Company have made available to MC
true, correct and complete copies of all such Leases (including all
modifications, amendments and supplements entered into by the Company),
summaries of which (prepared by the Company) are set forth on the Disclosure
Schedule. To the knowledge of the Shareholders and the Company, each Lease is
valid, binding and in full force and effect and, all rent and other sums and
charges payable by or to the Company, as appropriate, as tenant, sublessor or
sublessee thereunder are current. Except as set forth in the Disclosure
Schedule, no notice of default or termination under any Lease is outstanding, no
termination event or condition or uncured default on the part of the Company or,
to the knowledge of the Shareholders and the Company, on the part of the
landlord or sublessor, exits under any Lease, and no event has occurred and no
condition exists, and the consummation of the transactions contemplated by this
Agreement will not create or result in an event or condition, which, with the
giving of notice or the lapse of time or both, would constitute such a default
or termination event or condition. Except as set forth in the Disclosure
Schedule, the Shareholders and the Company do not have any ownership interest in
the landlord under any Lease.
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(b) To the knowledge of the Shareholders and the Company, the
Company are owners of valid fee title to the property as set forth in the
Disclosure Schedule. All real property as owned by the Company and all leasehold
interests of the Company are held free and clear of all mortgages, liens,
security interests or encumbrances of any nature whatsoever except for (i)
mechanics', carriers', warehousemen's workmen's, repairmen's or other like liens
arising or incurred in the ordinary courses of business, liens for Taxes,
assessments and other governmental charges which are not due and payable or
which may thereafter be paid without penalty or are being contested in good
faith by appropriate proceedings, financing liens on furniture, fixtures and
equipment and other imperfections of title or non-monetary encumbrances, if any,
which do not materially detract from the value of the property subject thereto,
(ii) easements, covenants, rights of way and other encumbrances or restrictions,
of record, (iii) zoning and other similar restrictions and (iv) unrecorded
easements, covenants, rights of way or other restrictions which do not
materially impair the use of the real property to which they relate.
(c) Neither the Company nor any of the Shareholders has any
knowledge of any pending or threatened condemnation proceeding affecting any
real property of the Company or of any sale or other disposition of the real
property of the Company in lieu of condemnation, or of any notice of any of the
foregoing.
(d) Except as provided in the Leases, to the knowledge of the
Shareholders and the Company the Company does not own or hold and is not
obligated under or a party to any option, right of first refusal or any other
material contractual right to purchase, acquire, sell or dispose of the real
property of Company or any portion thereof or interest therein.
Section 3.13 Contracts
(a) Except as described on the Disclosure Schedule or
disclosed in the Financial Statements, to the knowledge of the Shareholders and
the Company the Company is not, as of the date of this Agreement, a party to or
bound by any agreement, contract or commitment:
(i) involving a payment by Company after the date hereof
of an amount of money more than $25,000 and continuing (including mandatory
renewals or extensions which do not require the consent of Company) more than
six months from the date hereof and not made in the ordinary course of business;
(ii) with management or any employee of Company for
personal services that is not by its terms immediately terminable at will by the
employer without cost or liability to Company at or at any time after the
Closing Date (subject to any rights an employee may have by statute or
regulation);
(iii) with any labor union or employees' association;
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(iv) relating to consulting or advisory services
involving the future payment of more than $5,000 and not immediately terminable
at will by the Company without cost or liability to the Company;
(v) under which Company has borrowed any money or issued
any note, bond, indenture, loan, credit agreement or other evidence of
indebtedness or direct or indirect guarantee or assumption of indebtedness,
liabilities or obligations of others (other than overdraft accounts or similar
obligations used in the normal course of business);
(vi) relating to a mortgage, pledge, security agreement,
deed of trust or other document granting a lien over any material property, real
or personal, owned by Company;
(vii) relating to any bonus, retirement, deferred
compensation, pension, profit sharing, stock options (other than those to be
exercised on or prior to the Closing), life and health insurance,
hospitalization, or employee savings or retirement agreements, policies or
plans;
(viii) that contains any severance pay liability or
obligations in excess of $5,000 to any employee, former employee, director,
former director or consultant;
(ix) relating to employment which provides annual salary
in excess of $5,000;
(x) relating to all distribution, sales, agency or
advertising contracts in excess of $5,000, including contracts with sales
representatives or dealers; and
(b) Each of the contracts set forth on the Disclosure Schedule
is in full force and effect and valid and enforceable in accordance with its
terms and, except as set forth on the Disclosure Schedule, the Company has not
materially breached any of such contracts.
Section 3.14 Intellectual Property. To the knowledge of the
Shareholders and the Company, the Disclosure Schedule contains an accurate and
complete list of all registered patents, trademarks, service marks, trade names,
and copyrights and all pending trademark, patent and copyright applications
(collectively, "Intellectual Property"), currently owned or held by the Company
and any agreement under which Company owns or holds any license to use any of
the foregoing except where the failure to disclose would not have a Material
Adverse Effect. Except as disclosed on the Disclosure Schedule hereto, the
Company own or are licensed to use all Intellectual Property listed on the
Disclosure Schedule or rights therein without infringement of or conflict with
any rights of third parties except for infringements or conflicts that do not
have a Material Adverse Effect.
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Section 3.15 Labor Difficulties. To the knowledge of the
Shareholders and the Company, there is no labor strike, arbitration proceeding,
slowdown or stoppage (or charge of unfair labor practice) actually pending or
threatened against or affecting Company which would result in a Material Adverse
Effect. To the knowledge of the Company and the Shareholders, no union is
seeking to represent the employees of Company. Except as set forth in the
Disclosure Schedule, to the knowledge of the Company and the Shareholders there
are no charges or complaints of discrimination pending before the Equal
Employment Opportunity Commission or any state or local agency with respect to
Company. Except as set forth in the Disclosure Schedule, no collective
bargaining agreement is in force or is binding on the Company.
Section 3.16 Employment Benefit Plans; ERISA.
(a) To the knowledge of the Shareholders and the Company, the
Company does not maintain any bonus (including but not limited to all
arrangements with restaurant managers or other employees), deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
or medical plan, arrangement or practice, whether written or unwritten, which
covers employees of Company (the "Benefit Plans"), including without limitation,
any "employee benefit plan" within the meaning of Section 3(3) of the Employment
Retirement Income Security Act of 1974, as amended ("ERISA"), and the final
regulations thereunder. True and complete copies of each written Benefit Plan
sponsored by Company have been delivered or made available to MC, or such copies
shall be delivered to MC as soon as practicable after the date hereof. The
Company does not have any commitment, whether formal or informal and whether
legally binding or not, to adopt any benefit plan in addition to those shown in
the Disclosure Schedule.
(b) To the knowledge of the Shareholders and the Company, none
of the Benefit Plans is a "defined benefit plan" within the meaning of Section
3(35) of ERISA, and the Company has never maintained or contributed to, or ever
been obligated to contribute to, a defined benefit plan on behalf of its
employees. None of the Benefit Plans is a "multiemployer plan" within the
meaning of Section 3(37) of ERISA, and the Company has never contributed to, or
ever been obligated to contribute to, a multiemployer plan on behalf of its
employees.
(c) To the knowledge of the Shareholders and the Company, each
Benefit Plan that qualifies as an "employee welfare benefit plan" within the
meaning of Section 3(1) of ERISA is and has been in material compliance with the
applicable provisions of ERISA and the Code. The Company have complied in all
material respects with all of their obligations under each such Benefit Plan
including the making of all required contributions.
Section 3.17 Related Party Transactions. To the knowledge of
the Shareholders and the Company, except for those agreements listed in the
Disclosure Schedule or as contemplated hereby and except for services (and
charges therefor) provided by Shareholders in the ordinary course of business to
the Company, the Company have not, within the past two (2) years, (i) loaned any
amount that is currently outstanding or (ii) sold, transferred or leased any
properties or assets (real, personal or mixed, tangible or intangible) to any of
their officers, directors, restaurant managers or other key employees.
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Section 3.18 Insurance. To the knowledge of the Shareholders
and the Company, the Disclosure Schedule contains a list of all insurance
policies or binders (including self-insurance) insuring the properties, assets,
business, and liabilities of the Company that were in effect as of the date of
this Agreement, except where the failure to so disclose would not have a
Material Adverse Effect. Except as otherwise disclosed on the Disclosure
Schedule, all such insurance relating to the Company has been issued to the
Company under valid and enforceable policies or binders. The Company have not
received any notice from any insurance organization threatening a suspension,
revocation, modification or cancellation of any Insurance Policy. No facility
has suffered any material damage by fire or other casualty since the date of the
Balance Sheet which facility has not been repaired and restored, unless either
the Company owning or using such facility has made adequate financial provisions
for its repair and restoration or such repair or restoration has been adequately
provided for by insurance relating to and for the benefit of the Company.
Section 3.19 Environmental Matters.
(a) To the knowledge of the Shareholders and the
Company, except as set forth on the Disclosure Schedule:
(i) the Company have obtained all material permits and
licenses and filed all material documents which are required to be obtained or
filed by the Company for the operation of their businesses under federal, state
and local laws relating to pollution or protection of the Environment;
(ii) the Company are in compliance with all material
terms and conditions of such required permits, licenses and authorizations;
(iii) the Company are in compliance with all other
applicable material limitations, conditions, standards, requirements, and
schedules contained in those laws or contained in any regulation, code, order,
decree, judgment, Notice or demand letter issued, entered, promulgated or
approved thereunder, and have not received notice of any violation thereof; and
(iv) there are no currently existing Environmental
Conditions with respect to the Company or any of their assets.
(b) For purposes of this Section 3.19, the following terms
shall have the meanings set forth below:
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(i) "Hazardous Substances" include any pollutants, toxic
substances, hazardous materials or hazardous substances as defined in or
pursuant to the environmental laws of the State of North Carolina or any other
federal, state or local environmental law, ordinance, rule or regulation.
(ii) "Release" means release, spill, leak, pump, pour,
emit, empty, discharge, inject, escape, dispose or dump into the Environment.
(iii) "Notice" means any summons, citation, directive,
order, claim, litigation, investigation, proceeding, judgment, letter or other
communication, written or oral, actual or threatened from the State of North
Carolina or any agency thereof, the United States Environmental Protection
Agency ("USEPA") or other federal, state or local agency or authority or any
other entity or any individual concerning any intentional or unintentional act
or omission which has resulted or may reasonably be expected to result in the
Release of Hazardous Substances into the Environment from or on property of the
Company and shall include the imposition of any lien on property of the Company
pursuant to any violation of federal, state or local environmental laws,
ordinances, rules, regulations, government actions, orders or permits, or any
knowledge, after due inquiry and investigation, of any acts which may reasonably
be expected to give rise to any of the above.
(iv) "Environmental Conditions" means material
conditions with respect to the Environment of property of the Company related to
the presence or Release of Hazardous Substances, which conditions may reasonably
be expected to require remedial action or may reasonably be expected to result
in material claims, demands and liabilities to Company by third parties,
including, without limitation, governmental entities, adjacent property owners
and any individuals suffering property damage or personal injury.
(v) "Environment" means any surface water, ground water,
drinking water supply, land surface, or subsurface strata.
(c) To the knowledge of the Shareholders and the Company,
except as set forth on the Disclosure Schedule, (i) during the two (2) years
immediately prior to the date hereof, the Company has not been cited for any
material violations of the Occupational Safety and Health Act of 1970, as
amended ("OSHA"), nor, to the knowledge of the Shareholders or the Company are
there any citations for material violations pending as a result of inspections,
and (ii) each of the material conditions which resulted in the issuance of a
citation has been abated or otherwise corrected to the satisfaction of OSHA as
of the date hereof. The Company have made available to MC all reports and
filings, if any, made or filed by Company pursuant to OSHA and similar state and
local laws and regulations during the prior two (2) years.
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Section 3.20 Trade Secrets. The Company will deliver to MC
within 30 days of the Closing a copy of the Recipe Book containing a description
of recipes, procedures and training manuals used by the Company. To the
knowledge of the Company and the Shareholders, except as set forth in the
Disclosure Schedule, and except for portions of recipes which are unwritten,
each recipe in the Recipe Book is sufficient in detail and content to allow its
use by the Company. Except as set forth in the Disclosure Schedule, there are no
liens, claims or encumbrances upon any of the recipes, formulations and
technologies, processes, "know-how" and other technical data.
Section 3.21 Finders. The Company are not obligated to pay any
fee or commission to any broker, finder or intermediary for or on account of the
transactions provided for in this Agreement.
Section 3.22 Investment Representation. Each of the
Shareholders will acquire the shares of LSSS Common Stock to be delivered to him
pursuant to this Agreement for investment and not with a view to the resale or
distribution thereof and the Shareholders acknowledge (a) that when issued such
shares will be restricted securities which may not be sold without registration
or exemption from representation under the Securities Act of 1933 and applicable
state securities laws, (b) that, except as provided in the Registration Rights
Agreement referred to in Section 7.6, LSSS has no present intention of
registering said shares, and (c) that the certificates evidencing said shares
will be bear a legend reading substantially as follows:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
NEITHER SUCH SHARES OF COMMON STOCK NOR ANY INTEREST THEREIN
MAY BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT AND THE RULES AND REGULATIONS THEREUNDER. BY
ITS ACCEPTANCE HEREOF, THE HOLDER OF SUCH SHARES OF COMMON
STOCK REPRESENTS THAT IT IS ACQUIRING THIS COMMON STOCK FOR
INVESTMENT AND AGREES TO COMPLY IN ALL RESPECTS WITH ANY
APPLICABLE STATE SECURITIES LAWS COVERING THE PURCHASE OF THIS
COMMON STOCK AND RESTRICTING ITS TRANSFER."
Section 3.23 Distributions and Debt Reduction. Since July 4,
1995, (a) the Company has not declared and paid dividends or made other
distributions in respect of the Company's capital stock or to the Shareholders
and (b) the Company has not paid any obligation or liability (absolute or
contingent) except current liabilities incurred in the ordinary course of
business that have become due and payable and debt to Shareholders in an
aggregate amount of no more than $70,000.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MC AND LSSS
MC and LSSS each represents and warrants to the Company and
the Shareholders as follows:
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Section 4.1 Corporate Organization. Each of MC and LSSS is a
corporation duly organized, validly existing and in good standing under the laws
of, respectively, the State of North Carolina and the State of Delaware, with
full corporate power and authority to own, operate and lease its properties and
to carry on its business as now being conducted.
Section 4.2 Authorization. MC and LSSS have full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Boards of Directors of MC and of LSSS have
duly approved and authorized the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby, and no other corporate
proceedings on the part of MC or LSSS are necessary to approve and authorize the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. Assuming that this Agreement constitutes the
valid and binding obligations of the Shareholders and the Company, this
Agreement constitutes the valid and binding agreement of MC and LSSS enforceable
in accordance with its terms, except as the enforceability hereof may be subject
to applicable bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and to general principles of equity.
Section 4.3 Consents and Approvals. Neither the execution and
delivery by MC or LSSS of this Agreement nor the consummation by MC or LSSS of
the transactions contemplated hereby will (i) conflict with or result in a
breach of any provision of the articles or certificate of incorporation or
by-laws of MC or LSSS, or (ii) except for those of the following events which
would not prevent the consummation of the transactions contemplated by this
Agreement and would not result in any change in or effect on MC or LSSS that
would have a material adverse effect on the ability of MC or LSSS to consummate
the transactions contemplated hereby, (A) violate or conflict with, or result in
a breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or require
consents from any other party or result in the termination or in a right of
termination or cancellation of, or accelerate or result in a right to accelerate
the performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of, MC or LSSS, or
result in being declared, or in the right to declare, void, voidable, or without
further binding effect any of the terms, conditions or provisions of, any note,
bond mortgage, indenture, deed of trust, license, franchise, permit, lease,
contract, agreement or other instrument or commitment or obligation to which MC
or LSSS is a party, (B) violate any order, writ, injunction, decree, judgment,
ruling, law, rule or regulation of any court or United States governmental
authority, applicable to MC or LSSS or any of their properties, or (C) require
any consent, approval or authorization of, or notice to, or declaration, filing
or registration with, any governmental or regulatory authority. Except with
respect to certain state liquor license authorities, from which temporary
approvals have been obtained, no consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority is necessary to be obtained or made by MC in connection with the
execution, delivery and performance of this Agreement.
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Section 4.4 Capitalization. The authorized capital stock of
LSSS consists of 98,000,000 shares of Common Stock, par value $.01 per share and
2,000,000 shares of Preferred Stock, par value $.01 per share. As of July 11,
1995, 36,771,612 shares of LSSS's Common Stock were issued and outstanding. All
shares of LSSS Common Stock to be issued to the Shareholders in connection with
the transaction contemplated hereby will be duly and validly issued, fully paid
and nonassessable. There is no personal liability, and there are no preemptive
or similar rights, attached to the LSSS Common Stock.
Section 4.5 Financial Statements. LSSS has heretofore
delivered to the Shareholders a copy of its consolidated balance sheet as of
December 27, 1994 and the related consolidated statements of income,
stockholders' investment and changes in financial position for the year ended on
such date, accompanied in each case by the report of Ernst & Young, independent
public accountants, and a copy of its unaudited consolidated balance sheet as of
June 13, 1995 and the related unaudited consolidated statements of income,
stockholders' investment and changes in financial position for the 24 weeks then
ended, said financial statements were prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except as may be otherwise stated in said financial
statements, the notes thereto or the reports of said accountants), and fairly
present the financial position of LSSS and its consolidated subsidiaries at the
dates thereof and the results of operations and changes in financial position of
LSSS and its consolidated subsidiaries for the periods indicated, except that
the aforementioned unaudited financial statements are subject to normal
recurring adjustments which might be required as a result of a year-end audit.
Section 4.6 Absence of Changes. Since June 13, 1995 there has
not been any material adverse change in the condition (financial or otherwise),
of the assets, liabilities, earnings, business, prospects or results of
operations of LSSS and its subsidiaries, taken as a whole.
Section 4.7 Reports. Since January 1, 1994 LSSS has filed all
reports which were required to be filed by it with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended. All such
reports are complete and correct in all material respects.
Section 4.8 Finders. MC is not obligated to pay any fee or
commission to any broker, finder or intermediary for or on account of the
transactions provided for in this Agreement.
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Section 4.9 Legal Proceedings. There are no claims, actions or
proceedings by or against MC or LSSS which may affect the transactions
contemplated hereby at law or in equity or before or by any federal, state,
local, foreign or other governmental department, commission, board, agency,
instrumentality or authority, except those in the aggregate in which an adverse
decision for MC or LSSS would not have a material adverse effect on the business
or financial condition of LSSS.
Section 4.10 NASDAQ Listing. On July 25, 1995 LSSS filed with
NASDAQ National Market System ("NASDAQ") an application to list the shares of
LSSS Common Stock to be delivered by MC to the Shareholders as the Merger
Consideration, and is using its best efforts to cause NASDAQ to approve the
listing of said shares.
Section 4.11 Control of MC; Investment Company; MC Stock. LSSS
owns stock of MC possessing at least 80 percent of the total combined voting
power of all classes of stock entitled to vote of MC and at least 80 percent of
the total number of shares of all other classes of stock of MC. Neither MC nor
LSSS is an investment company as defined in Section 368(a)(2)(F)(iii) and (iv)
of the Code. No stock of MC will be issued in connection with the Merger.
ARTICLE V
COVENANTS
Section 5.1 Access to Properties and Records; Confidentiality.
(a) Between the date of this Agreement and the Closing Date,
the Company will provide MC, and its accountants, counsel and other authorized
representatives, and responsible financial institutions designated by MC as its
representatives, reasonable access, during normal business hours and under
reasonable circumstances, to any and all premises, properties, contracts,
commitments, books, records and other information of the Company.
(b) MC and LSSS hereby agree that they shall hold all
confidential information relating to the Shareholders and the Company which they
obtain during the course of such investigation in strict confidence and, if the
Merger is abandoned pursuant to the terms hereof, MC shall return all such
information to the Company and shall not thereafter use it for any purpose (as
long as it remains confidential in nature).
Section 5.2 Announcements. The Company and MC shall consult
with each other prior to making any further public announcements prior to the
Closing Date with respect to this Agreement or the transactions contemplated
hereby, except as otherwise required by law.
Section 5.3 Conduct of the Business of the Company Prior to
the Closing Date. The parties agree that between the date of this Agreement and
the Closing Date or the earlier termination of this Agreement, and except as
otherwise consented to or approved by MC in writing or contemplated by this
Agreement:
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(a) The business, operations, activities and practices of the
Company shall be conducted in the ordinary course and the Company shall maintain
and preserve their existing properties in accordance with past practice and
shall account therefor as required by generally accepted accounting principles
in accordance with past practice.
(b) The Company shall not: (i) incur any indebtedness, except
borrowings in the ordinary course of business; (ii) enter into any agreement
requiring the maintenance of a specified net worth; (iii) other than in the
ordinary course of business without the consent of MC which shall not be
unreasonably withheld, assume, guarantee, endorse, or otherwise become liable or
responsible (whether directly, contingently or otherwise), for the obligations
of any other individual, firm or corporation; (iv) other than in the ordinary
course of business, make any loans, advances or capital contributions to, or
investments in, any other individual, firm or corporation; or (v) other than in
the ordinary course of business, grant any general salary or compensation
increases to employees.
(c) The Company will use all reasonable efforts to keep
available to MC the present services of the employees of the Company if, and to
the extent, so requested by MC, and to preserve for MC the goodwill of the
Company's agents, customers, suppliers and others with whom business
relationships exist.
(d) None of the parties hereto will take or agree to take any
action which would cause any of its representations contained herein to be or
become untrue in any material respect including as of the date hereof and as of
the Closing Date, as if such representations were made as of such time.
(e) Neither the Company nor any of the Shareholders shall
enter into, or authorize any agent to enter into on their behalf, discussions
(i) relating to the merger or consolidation of Company with or into any person;
or (ii) relating to the sale of all or substantially all of the capital stock or
assets of the Company.
(f) Except in the ordinary course of business, no increase or
commitment to increase the compensation or commission paid or payable by Company
to any employee, agent or independent contractor of Company shall be made.
(g) Except as required by law or in the ordinary course of
business consistent with past practices, the Company shall not amend, adopt,
approve, commence operation of or make any contribution to any bonus or
profit-sharing plan, or any other plan of a similar nature.
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(h) The Company will not amend or change its articles of
incorporation or by-laws (or equivalent constituent documents) or split, redeem,
combine or reclassify the outstanding shares of its capital stock; acquire any
shares of its capital stock or other securities; issue or agree to issue any
additional shares of its capital stock or other securities; grant any right to
purchase or to convert any obligation into shares of its capital stock or other
securities; or sell or pledge (or agree to sell or pledge) any capital stock of
any subsidiary.
Section 5.4 Consent. The parties hereto agree to use all
reasonable efforts to obtain all permits, approvals, authorizations and consents
of all third parties necessary (i) for the consummation of the transaction
contemplated hereby, or (ii) for the conduct, ownership, leasing or operating of
the business of the Company after the Closing Date.
Section 5.5 Further Assurances. Consistent with the terms and
conditions hereof, each party hereto will execute and deliver such instruments,
certificates and other documents and take such other action as any other party
hereto may reasonably require in order to carry out this Agreement and the
transactions contemplated hereby.
Section 5.6 Shareholders' Contingent Obligations and
Liabilities. On the Closing Date, the Surviving Corporation shall assume, and
shall indemnify and hold the Shareholders harmless from, any obligations and
liabilities of the Shareholders relating to the business, properties or assets
of the Company which are set forth on Section 5.8 of the Disclosure Schedule. MC
shall cooperate with the Shareholders, both before and after the Closing, by
taking all actions the Shareholders shall reasonably request to effect the
termination of such obligations and liabilities of the Shareholders.
Section 5.7 Regulatory Authorizations. The Company and MC
shall execute and file, or join in the execution and filing of, any application
or other document that may be necessary in order to obtain the authorization,
approval or consent of any governmental agency or instrumentality, state or
federal, that may be required in connection with the consummation of the
transactions contemplated hereby, including without limitation, all filings,
applications and documentation in connection with liquor license applications.
Section 5.8 Payment of Expenses of Brokers and Finders. Except
as otherwise agreed to in writing by MC, no legal or other fees, commissions,
compensation (other then regular salaries of the Company's employees) or
out-of-pocket expenses of persons who are not employees of the Company and have
represented the Company in connection with the negotiation of this Agreement
("Expenses") will be paid by the Company for or with respect to the negotiation
of this Agreement or the consummation of the transaction contemplated hereby.
The Shareholders shall pay all Expenses or, to the extent the Company have paid
or become liable therefor, the Shareholders shall reimburse the Company therefor
at the Closing.
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Section 5.9 Assignment of Patents and Trade Secrets. The
Shareholders shall cause any patent, copyright, trademark, trade name,
application therefor or "know-how" agreement or interest therein or any trade
secrets (including all formulations and technologies, processes, "know-how" and
other technical data), owned, leased, created or licensed by the Shareholders
(if any) which is being used in the business of Company as it now exists, to be
assigned to the Company at or before the Closing by means of assignment
agreements reasonably satisfactory in form and substance to MC.
Section 5.10 Tax Accounting Methods. LSSS and MC will not
change any accounting methods or take any filing position inconsistent with Tax
Returns filed, to the extent that taking such position may reasonably be
expected to result in an increase in any Taxes of Company for any tax periods
ending on or prior to the Closing Date.
Section 5.11 Maintenance of Tax-Exempt Reorganization Status.
LSSS and MC will not take any filing position or any other action that is
inconsistent with the Merger qualifying as a reorganization under Section
368(a)(2)(D) of the Code or take the filing position that Company or any of the
Shareholders received any consideration in the Merger other than LSSS Common
Stock.
Section 5.12 Capital Commitments.
(a) Notwithstanding anything herein to the contrary and except
for commitments existing on the date hereof, the Company shall not make or incur
any capital expenditures in excess of $25,000 in any single instance between the
date of this Agreement and the Closing Date, including, but not limited to
equipment lease agreements and construction contracts, or enter into any
franchise agreement or license agreements without the prior written consent of
MC, which may not be unreasonably withheld.
(b) Notwithstanding anything herein to the contrary, the
Company shall not enter into any new Lease or amend (other than in connection
with obtaining consents required for consummation of the transactions
contemplated hereby) any existing Lease between the date of this Agreement and
the Closing Date without the prior written consent of MC, which may not be
unreasonably withheld.
Section 5.13 Notification of Litigation. Prior to the Closing
Date, the Shareholders agree to provide notice to MC of any litigation commenced
against the Company in which claims are made for damages in excess of $25,000 or
in which claims are made for equitable relief.
Section 5.14 Sale of LSSS Stock. The Shareholders have not
sold and will not sell or otherwise dispose of any shares of the capital stock
of LSSS, including the LSSS Common Stock to be received by them as the Merger
Consideration, during the period commencing 30 days prior to the Closing Date
and ending on that date when LSSS first makes publicly available operating
results covering at least 30 days of the Surviving Corporation's operations.
LSSS may cause each stock certificate to be issued pursuant to this Agreement to
contain a legend setting forth such restriction.
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ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF MC AND LSSS
The obligations of MC and LSSS to consummate the transactions
contemplated hereby shall be subject to the satisfaction, at or prior to the
Closing Date, of each of the following conditions, each of which may be waived
by MC as provided herein:
Section 6.1 Representations and Warranties True. The
representations and warranties of the Shareholders and the Company contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and shall be true and correct in all material respects as if made on the
Closing Date (except to the extent that any representations and warranties of
the Shareholders and the Company relate to a particular date).
Section 6.2 Performance of Obligations. Each of the
obligations of the Shareholders and the Company to be performed by them at or
before the Closing Date pursuant to the terms hereof shall have been duly
performed and complied with in all respects, including the execution of all
agreements contemplated hereby, by the Closing Date. The Shareholders shall
deliver to MC an officer's certificate to such effect in form and substance
reasonably satisfactory to MC.
Section 6.3 Absence of Litigation. No order, stay, judgment or
decree shall have been issued by any court restraining or prohibiting the
consummation of the transactions contemplated by this Agreement and no action
shall have been instituted or threatened by a third party against Company before
any court which action could reasonably be determined to have substantial merit
and a Material Adverse Effect.
Section 6.4 Tax Indemnification. Each of the Shareholders
shall have executed and delivered to MC a Tax Indemnification Agreement
substantially in the form of Exhibit C hereto.
Section 6.5 Pooling of Interests. Pooling of interest
accounting treatment shall have been approved in writing by Ernst & Young and
Deloitte & Touche.
Section 6.6 NASDAQ National Market System. Authorization shall
have been received from NASDAQ to list the LSSS Common Stock to be delivered by
MC to the Shareholders as the Merger Consideration.
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Section 6.7 Fairness Opinion. LSSS shall have received an
opinion from Allen C. Ewing & Co. satisfactory to LSSS as to the fairness of the
terms of the Merger to the existing stockholders of LSSS.
Section 6.8 Non-Competition Agreements. MC shall have received
non-competition agreements from each of the Shareholders, substantially in the
form of Exhibit D1 to D3 hereto (the "Non- Competition Agreements"). LS, LSSS
and the Companies agree that no more than one dollar worth of Common Stock will
be allocated as consideration of the non-competition agreements.
Section 6.9 Consents. All consents listed in the Disclosure
Schedule shall have been obtained.
Section 6.10 Simultaneous Closing. The Closing of this
Agreement is conditioned on the simultaneous closing of the following agreements
(collectively, the "Other Agreements"): (i) Agreement and Plan of Merger among
Creative Culinary Concepts, Inc., Steaks of Raleigh, Inc., Lone Star Steaks of
Pineville, Inc., Steaks of Jacksonville, Inc., Steaks of Greenville, Inc.,
Steaks of Cary, Inc., Steaks of Cornelius, Inc., and Cowboy Steaks, Inc., the
shareholders thereof, Lone Star Steaks, Inc. and LSSS; (ii) Agreement and Plan
of Merger among Morehead Restaurant Group, Inc., the shareholders thereof,
Frankie's Restaurant Inc., and LSSS; (iii) Asset Purchase Agreement among
Creative Concepts of North Carolina, LLC, the members thereof, and LSSS; (iv)
Agreement of Purchase and Sale among R&T Investments, LLC, the members thereof,
and LSSS; (v) Agreement of Purchase and Sale among RTH Investments, the members
thereof, and LSSS; and (vi) Contract of Assignment among Creative Concepts of
North Carolina, LLC, the members thereof and Mama's Concept Inc.
Section 6.11 Termination of Agreements. The following
agreements shall be terminated as of the Closing: Any and all employment
agreements between Company or any of the parties to the Other Agreements and
James C. Verney, Matthew Wogan or Steven Fixman and Buy/Sell Agreements among
certain of the parties to the Other Agreements.
Section 6.12 Opinion of Counsel. MC shall have received an
opinion of Moore & Van Allen, PLLC, counsel to the Company, dated as of the
Closing Date, to the effect that (i) the execution and delivery of this
Agreement by the Company have been duly authorized by requisite corporate action
on the part of the Company, (ii) [except as set forth in the Disclosure Schedule
with regard to liquor license regulations,] this Agreement (assuming the valid
authorization, execution and delivery of this Agreement by MC and LSSS) is a
valid and binding obligation of the Shareholders and the Company enforceable
against the Shareholders and the Company in accordance with its terms, except
(A) that such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditor's rights and (B) that the remedy of specific performance
and injunctive and other forms of equitable relief are subject to certain
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought and (iii) upon filing of the Articles of
Merger, the Merger will be effective, the separate corporate existence of the
Company will cease and MC will continue as the surviving corporation.
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ARTICLE VII
CONDITIONS TO THE OBLIGATIONS
OF THE Company AND THE SHAREHOLDERS
The obligations of the Company and the Shareholders to
consummate the transactions contemplated hereby shall be subject to the
satisfaction, at or prior to the Closing Date, of each of the following
conditions, each of which may be waived by the Company and the Shareholders as
provided herein:
Section 7.1 Representations and Warranties True. The
representations and warranties of MC and LSSS contained in this Agreement shall
be true and correct in all material respects as of the date hereof and shall be
true and correct in all material respects as if made on the Closing Date (except
to the extent that any representations and warranties of MC or LSSS relate to a
particular date).
Section 7.2 Performance of Obligations. Each of the
obligations of MC and LSSS to be performed by it on or before the Closing Date
pursuant to the terms hereof, including the execution of all agreements
contemplated hereby, shall have been duly performed and complied with in all
material respects by the Closing Date. MC shall deliver to the Shareholders an
officer's certificate to such effect in form and substance reasonably
satisfactory to MC.
Section 7.3 Absence of Litigation. No order, stay, judgment or
decree shall have been issued by any court restraining or prohibiting the
consummation of the transactions contemplated by this Agreement.
Section 7.4 Corporate Documents. The Shareholders shall have
received from MC resolutions adopted by the Boards of Directors of MC and LSSS,
approving the Agreement and the transactions contemplated thereby, certified by
the respective corporate secretary of MC and LSSS.
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Section 7.5 Opinion of Counsel. The Shareholders shall have
received an opinion of Olshan, Grundman, Frome & Rosenzweig LLP, counsel for MC
and LSSS, dated as of the Closing Date, to the effect that: (i) the execution
and delivery of this Agreement by MC and LSSS have been duly authorized by
requisite corporate action on the part of this MC and LSSS; (ii) this Agreement
(assuming the valid authorization, execution and delivery of this Agreement by
the Shareholders and the Company) is a valid and binding obligation of MC
enforceable against MC in accordance with its terms, except (A) that such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
and (B) that the remedy of specific performance and injunctive and other forms
of equitable relief are subject to certain equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought;
(iii) the issuance and delivery of the shares of LSSS Common Stock to be issued
to the Shareholders as Merger Consideration have been duly authorized and, when
issued and delivered to the Shareholders, will be validly issued, fully paid and
non-assessable; and (iv) immediately following the Closing, the authorized
capital stock of LSSS will consist of 98,000,000 shares of Common Stock, par
value $.01 per share, of which ___ shares will be issued and outstanding, and
2,000,000 shares of Preferred Stock , par value $.01 per share, of which none
will be issued and outstanding.
Section 7.6 Registration Rights Agreement. LSSS shall have
delivered to each of the Shareholders a Registration Rights Agreement
substantially in the form of Exhibit E to this Agreement (the "Registration
Rights Agreement").
Section 7.7 Employment Agreement. MC shall have executed and
delivered to James C. Verney a one-year employment agreement in the same format
generally used by LSSS in respect to officers thereof.
Section 7.8 Simultaneous Closing. The Closing of this
Agreement is conditioned on the simultaneous closing of the Other Agreements.
ARTICLE VIII
TERMINATION AND ABANDONMENT
Section 8.1 Termination. This Agreement may be terminated at
any time prior to the Closing:
(i) by mutual consent of the parties;
(ii) by either the Shareholders or MC if the Closing
shall not have occurred by August 4, 1995, provided that the failure to
consummate the transactions contemplated hereby is not a result of the failure
by the party so electing to terminate this Agreement to perform any of its
obligations hereunder; and
(iii) by the Shareholders or by MC, if any court of
competent jurisdiction in the United States or other United States governmental
body shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and such order, decree, ruling or other action shall not have been
vacated or reversed or set aside on appeal, with prejudice against the party
seeking to restrain the transaction, by August 4, 1995. The date on which this
Agreement is terminated pursuant to this Section is herein referred to as the
"Termination Date."
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Section 8.2 Effect of Termination. Except (i) for the
obligations contained in Section 5.1(b) hereof and (ii) as set forth in Section
8.3 hereof, in the event that this Agreement shall be terminated pursuant to
Section 8.1, all obligations of the parties hereto under this Agreement shall
terminate and there shall be no liability, except for any breach of this
Agreement prior to such termination, of any party to any other party.
Section 8.3 Fees and Expenses. Except as provided in Section
5.8, each party hereto shall pay all of the fees and expenses incurred by it in
connection herewith.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
Section 9.1 Survival of Representations, Warranties and
Agreements. All representations and warranties, covenants and agreements of the
parties contained in this Agreement shall survive the Closing.
Section 9.2 Indemnification.
(a) Each of the Shareholders agrees, severally but not
jointly, to indemnify MC and LSSS (without duplication) against any and all
losses, liabilities, damages, costs and expenses (whether or not arising out of
third party claims and including without limitation interest, penalties and
reasonable attorneys' fees) (collectively "Losses") which are actually incurred
by MC or LSSS (without duplication) (which for purposes of this Section 9.2
shall be reduced by (i) any reserves or accruals with respect to such Losses
reflected on the Balance Sheet and (ii) the amount, if any, of insurance
proceeds received by MC or LSSS (or such proceeds received by a third party to
the extent such payment reduces the Loss) with respect to a Loss (less any
retrospective premiums or other forms of self-insurance)) arising out of or
resulting from the inaccuracy of any representation or the breach of any
warranty, covenant or agreement made by such Shareholder in this Agreement.
(b) MC and LSSS agree to indemnify the Shareholders against
any and all Losses which are actually incurred by the Shareholders as a result
of the inaccuracy of any representation or the breach of any warranty, covenant
or agreement made by MC or LSSS in this Agreement or any other agreement
executed or delivered by MC or LSSS pursuant to this Agreement.
(c) Notwithstanding any other provision of this Agreement: (i)
the indemnification obligations of the parties under this Section 9.2 shall be
payable (and reimbursable and repayable under Section 9.2(e)) solely in shares
of LSSS Common Stock, with one share of LSSS Common Stock to be delivered for
each $32 (or part thereof) of indemnification obligation; (ii) the aggregate
indemnification obligation of each Shareholder under this Section 9.2 and any
corresponding provision of the Other Agreements shall be limited to delivering
that number of shares of LSSS Common Stock as shall equal the aggregate number
of shares of LSSS Common Stock which such Shareholder shall have received
pursuant to this Agreement and the Other Agreements plus, in the case of Dennis
L. Thompson, the aggregate number of such shares so received by Thomas A. Hager,
Daniel M. Kammerer and Thomas W. Shannon; and (iii) neither the Shareholders nor
MC and LSSS, as a group, shall be responsible for any Losses under this Section
9.2 and any corresponding provision of the Other Agreements unless the aggregate
amount of such Losses on a cumulative basis exceeds $50,000 and then only to the
extent of such excess.
25
<PAGE>
(d) Except as otherwise provided herein, the indemnification
obligations of the parties under subsections (a), (b) and (c) of this Section
9.2 shall continue in full force only until December 31, 1995 after which no
party shall have recourse under this Agreement; provided, however, that (i) such
obligations shall not terminate with respect to any matter with respect to which
an indemnifiable party shall have made a claim prior to the close of business on
December 31, 1995 (stating in reasonable detail the basis of such claim,
including the specific date of such claim, the third parties affected thereby,
and the specific facts relating to the incident which gave rise to such claim)
to the indemnifying party.
(e) In order for a party (the "indemnified party") to be
entitled to any indemnification provided for under this Agreement in respect of,
arising out of, or involving a claim or demand or written notice made by any
third party against the indemnified party (a "Third Party Claim") after the
Closing Date, such indemnified party must notify the indemnifying party (the
"indemnifying party") in writing of the Third Party Claim within thirty (30)
business days after receipt by such indemnified party of written notice of the
Third Party Claim; provided that the failure of any indemnified party to give
timely notice shall not affect its right to indemnification hereunder except to
the extent the indemnifying party has actually been prejudiced or damaged
thereby. If a Third Party Claim is made against an indemnified party, the
indemnifying party shall be entitled, if it so chooses, to assume the defense
thereof with counsel selected by the indemnifying party. If the indemnifying
party assumes the defense of a Third Party Claim the indemnified party will
cooperate in all reasonable respects with the indemnifying party in connection
with such defense, and shall have the right to participate in such defense with
counsel selected by it. The fees and disbursements of such counsel, however,
shall be at the expense of the indemnified party; provided, however, that, in
the case of any Third Party Claim of which the indemnifying party has not
employed counsel to assume the defense, the fees and disbursements of such
counsel shall be at the expense of the indemnifying person. Regardless of which
party assumes the defense of a Third Party Claim, (i) the indemnified party
shall not settle or compromise any Third Party Claim without the consent of the
indemnifying party, and (ii) the indemnified party shall consent to and
cooperate in any settlement or compromise of such claim by the indemnifying
party.
26
<PAGE>
ARTICLE X
MISCELLANEOUS
Section 10.1 Headings. The descriptive headings of the several
Articles and Sections of this Agreement are inserted for convenience only and do
not constitute part of this Agreement.
Section 10.2 Notices. Any notices or communications required
or permitted hereunder shall be given in writing and shall be delivered or sent
by certified or registered mail, postage prepaid, addressed as follows:
If to MC or
LSSS, to: Lone Star Steakhouse & Saloon, Inc.
c/o John D. White
224 East Douglas, Suite 700
Wichita, Kansas 67206
With copies to: Gerald Aaron, Esq.
224 East Douglas, Suite 7000
Wichita, Kansas 67206
and
Olshan Grundman Frome &
Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: Steven Wolosky, Esq.
If to any of the
Shareholders or
any of the
Company, to: Leslie Rudd Investment Company
314 South Galena
Aspen, Colorado 81611
Attention: Craig A. Ferraro
With copies to: Moore & Van Allen, PLLC
NationsBank Corporate Center
100 North Tryon Street
Floor 47
Charlotte, North Carolina 28202-4003
Attention: C. Wells Hall III, Esq.
and
Willkie Farr & Gallagher
153 East 53rd Street
New York, NY 10022
Attention: William J. Grant, Jr., Esq.
or to such other address as shall be furnished in writing by such party, and any
such notice or communication shall be effective and be deemed to have been given
as of the date so mailed; provided that any notice or communication changing any
of the addresses set forth above shall be effective and deemed given only upon
its receipt.
27
<PAGE>
Section 10.3 Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests, or obligations hereunder shall be
assigned by any of the parties hereto without the prior written consent of the
other party.
Section 10.4 Complete Agreement. This Agreement, the
Disclosure Schedule, the Registration Rights Agreement, the Tax Indemnification
Agreement and the Non-Competition Agreements contain the entire understanding of
the parties with respect to the transactions contemplated hereby and supersede
all prior arrangements or understandings with respect thereto. There are no
restrictions, agreements, promises, warranties, covenants or undertakings other
than those expressly set forth herein or therein.
Section 10.5 Modifications, Amendments and Waivers. At any
time prior to the Closing (i) the parties hereto may, by written agreement,
modify, amend or supplement any term or provision of this Agreement and (ii) any
term or provision of this Agreement may be waived in writing by the party which
is entitled to the benefits thereof.
Section 10.6 Counterparts. This Agreement may be executed in
two or more counterparts all of which shall be considered one and the same
agreement and each of which shall be deemed an original.
Section 10.7 Governing Law. This Agreement shall be governed
by the laws of the State of North Carolina (regardless of the laws that might be
applicable under principles of conflicts of law) as to all matters, including
but not limited to matters of validity, construction, effect and performance.
28
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement and Plan of Merger to be executed as of the day and year first above
written.
Attest: NACHO MAMA'S, INC.
By:
Name:
Title:
LESLIE G. RUDD
DENNIS L. THOMPSON
JAMES F. HAUN
Attest: LONE STAR STEAKHOUSE & SALOON, INC.
By:
Name:
Title:
Attest: MAMA'S CONCEPT, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT A
Capitalization of Company
<TABLE>
<CAPTION>
Shares Owned by:
Leslie G. Dennis L. James F. Total Total
Rudd Thompson Haun Outstanding Authorized
--------- -------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Nacho Mama's, Inc. 425 779.17 70.83 1,275
</TABLE>
<PAGE>
Draft 8/3/95
AGREEMENT AND PLAN OF MERGER
Among
Morehead Restaurant Group, Inc., Dennis L.
Thompson and James C. Verney
and
Lone Star Steakhouse & Saloon, Inc.
and
Frankie's Restaurant, Inc.
-----------------------------------------------------------------------------
Dated as of August , 1995
------------------------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August , 1995 (the
"Agreement"), among Morehead Restaurant Group, Inc., a North Carolina
corporation (the "Company"), Dennis L. Thompson and James C. Verney
(collectively, the "Shareholders" and, individually, a "Shareholder"), Lone Star
Steakhouse & Saloon, Inc. a Delaware corporation ("LSSS") and Frankie's
Restaurant, Inc., a North Carolina corporation and a wholly-owned subsidiary of
LSSS ("FR").
WHEREAS, the Shareholders own a majority of the issued and
outstanding capital stock of the Company in the respective amounts shown on
Exhibit A hereto;
WHEREAS, the parties wish to provide for the merger of the
Company with and into FR and the conversion of all of the Company's presently
outstanding shares into the right to acquire shares of the Common Stock, $.01
par value, of LSSS (the "LSSS Common Stock");
WHEREAS, the parties intend that said mergers will qualify as
tax free reorganizations under Section 368(a) of the Internal Revenue Code of
1986, as amended; and
WHEREAS, the respective Boards of Directors and shareholders
of the Company and FR and the Board of Directors of LSSS have unanimously
approved this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the
conditions hereof, and in accordance with the North Carolina Business
Corporation Act (the "Act") at the Effective Time (as hereinafter defined), the
Company shall be merged with and into FR (the "Merger"). Following the Merger,
FR shall continue as the surviving corporation (as such, the "Surviving
Corporation") and the separate corporate existence of the Company shall cease.
Section 1.2 Effective Time. The Merger shall be consummated by
filing with the Secretary of State of the State of North Carolina (the
"Secretary of State") articles of merger (the "Articles of Merger") in such form
as required by, and executed in accordance with, the relevant provisions of the
Act. The time of filing the Articles of Merger with the Secretary of State shall
be the "Effective Time."
<PAGE>
Section 1.3 Effects of the Merger. The Merger shall have the
effects set forth in Section 55-11-06 of the Act. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, except
as otherwise provided herein, all of the properties, rights, privileges, powers
and franchises of the Company shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and FR shall become the debts,
liabilities and duties of the Surviving Corporation. From and after the
Effective Time, the Surviving Corporation shall continue to be a wholly-owned
subsidiary of LSSS.
Section 1.4 Articles of Incorporation and By-laws of the
Surviving Corporation.
(a) The articles of incorporation of FR as in effect at the
Effective Time shall, without any further action on the part of the parties to
the Merger, continue as the articles of incorporation of the Surviving
Corporation.
(b) The by-laws of FR as in effect at the Effective Time
shall, without any further action on the part of the parties to the Merger,
continue as the by-laws of the Surviving Corporation.
Section 1.5 Directors. The directors set forth on Schedule 1.5
shall become the directors of the Surviving Corporation and will hold office
from the Effective Time until their respective successors are duly elected or
appointed and qualify in the manner provided in the articles of incorporation
and regulations of the Surviving Corporation, or as otherwise provided by law.
Section 1.6 Officers. The officers set forth on Schedule 1.6
shall become the officers of the Surviving Corporation and will hold office from
the Effective Time until their respective successors are duly elected or
appointed and qualify in the manner provided in the articles of incorporation
and regulations of the Surviving Corporation, or as otherwise provided by law.
Section 1.7 Filing of Articles of Merger. (a) Upon the terms
and subject to the conditions hereof, (i) as soon as practicable after all
conditions to the obligations of the parties hereunder have been satisfied or
waived and so long as the Merger has not been abandoned or terminated as
provided herein, and (ii) at the Closing (as defined in Section 1.8), the
Company and FR having executed the Articles of Merger as required by the Act,
shall file such Articles of Merger with the Secretary of State, and the parties
shall take all such other and further actions as may be required by law or this
Agreement to make the Merger effective.
Section 1.8 Closing. A closing (the "Closing") of the Merger
shall take place at 10:00 a.m., New York time, at the offices of Olshan Grundman
Frome & Rosenzweig LLP, 505 Park Avenue, New York, New York on the second
business day after satisfaction or waiver of the conditions to Closing set forth
in Articles VI and VII hereof, or at such other time and place or on such other
date as the Company and FR may mutually agree, but in no event later than August
4, 1995 (the date and time of such Closing being herein referred to as the
"Closing Date").
2
<PAGE>
ARTICLE II
CONVERSION OF SHARES; CLOSING PAYMENT;
MERGER CONSIDERATION
Section 2.1 Conversion of Capital Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of the holders
of the capital stock of FR or the Company other than as set forth in this
Agreement, each issued and outstanding share of Common Stock of the Company
immediately prior to the Effective Time shall be converted into the right to
receive that number of shares of LSSS Common Stock (the "Merger Consideration")
determined by: (i) subtracting from the total after tax expenditures for start
up, organizational costs, capitalized costs and operating losses of the Company
as of the Closing Date (the parties' estimate of which is set forth in the
"Cost" and "Tax Benefits" columns on page 1 of Exhibit B hereto) the amount of
current and long term indebtedness for borrowed money (including indebtedness to
Shareholders) of the Company at the Closing Date (the parties' estimate of which
is set forth in the "Debt" column on page 1 of Exhibit B); (ii) dividing the
amount calculated in (i) by $32.00 (the parties' estimate of which is set forth
in the "Shares" column on page 1 of Exhibit B); and (iii) dividing the amount
calculated in (ii) by the number of shares of Common Stock of the Company
outstanding immediately prior to the Effective Time.
Section 2.2 Delivery Of Merger Consideration. (a) At or prior
to the Closing Date, LSSS will issue and contribute to the capital of FR a
sufficient number of shares of LSSS Common Stock to enable it to pay the Merger
Consideration in full in accordance with the terms of this Agreement.
(b) On the terms and subject to the conditions set forth in
this Agreement, at the Closing, FR shall deliver to the Shareholders 100% of the
parties' estimate of the Merger Consideration as set forth on page 1 of Exhibit
B, by delivering to each Shareholder the number of shares of LSSS Common Stock
with respect to the Company as set forth on page 2 of Exhibit B.
(c) The parties will endeavor in good faith to agree upon a
final determination of the Merger Consideration as promptly as possible after
the Closing. If such agreement is not reached within sixty (60) days after the
Closing Date, then within ninety (90) days after the Closing Date Ernst & Young
and Deloitte & Touche, accountants for FR and the Company, respectively, will
determine (or, if they are unable to agree, will select a third accounting firm
which will determine) the amount of the Merger Consideration and will deliver to
the parties a certificate (a "Merger Consideration Certificate") setting forth
such determination, which determination shall be final and binding on all
parties hereto. If the amount of the Merger Consideration as finally agreed to
by the parties or as set forth in an accountants' Merger Consideration
Certificate is more or less than the amount thereof delivered to the
Shareholders at the Closing, FR and LSSS shall issue and deliver to the
Shareholders shares in the amount of any such excess, or the Shareholders shall
redeliver to FR shares in the amount of any such deficiency, so that, after such
delivery, the Shareholders shall have received pursuant to this Agreement shares
of LSSS Common Stock equal to the Merger Consideration, as finally determined.
3
<PAGE>
Section 2.3 Fractional Shares. Notwithstanding any other
provision hereof, if the number of shares of LSSS Common Stock to which a
Shareholder shall be entitled as Merger Consideration includes a fraction of a
share, the number of shares to which he shall be entitled shall be rounded to
the next lower or higher number of shares, depending on whether such fraction of
a share is less than one-half a share or greater than or equal to one-half a
share.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS AND Company
Except as disclosed by the Shareholders and the Company in the
Disclosure Schedule attached hereto (the "Disclosure Schedule"), each of the
Shareholders (as to himself only, with respect to Section 3.2 and all
representations and warranties that are made to the knowledge of the
Shareholders and the Companies) and the Company hereby represents and warrants
to FR and LSSS as follows on the date hereof and as of the Closing Date (all
representations and warranties in Sections 3.11 through 3.20 inclusive are made
only to the knowledge of the Shareholders and the Company):
Section 3.1 Corporate Organization. The Company is duly
organized, validly existing and in good standing under the laws of the State of
North Carolina and has the corporate power and authority to own, operate and
lease its properties and to carry on its business as now being conducted. The
Disclosure Schedule contains a list of all jurisdictions where the Company are
duly licensed and qualified to do business as a foreign corporation. The Company
is in good standing in each jurisdiction in which the character of the
properties owned by it or the nature of its activities is such that such
qualification is required by applicable law except where the failure to be so
qualified would not have a Material Adverse Effect. The copies of the articles
of incorporation of the Company, as amended to date, and of the by-laws of the
Company, as currently in effect, and the other instruments setting forth the
terms of the Company's capital stock have been delivered to FR and are complete.
For the purposes of this Agreement, "Material Adverse Effect" refers to a
material adverse effect on the results of operations, properties, or financial
condition of the Company and each of the businesses conveyed by the agreements
set forth in Section 6.10 taken together in the aggregate.
4
<PAGE>
Section 3.2 Ownership of Shares. The Shareholders own all of
the issued and outstanding capital stock of the Company free and clear of all
liens, claims, charges and other encumbrances and restrictions of any kind or
nature.
Section 3.3 Capitalization. The authorized capital stock and
the shares which are issued and outstanding for the Company are set forth on
Exhibit A hereto. No shares of the capital stock of the Company are owned,
directly or indirectly, by the Company. All issued and outstanding shares of the
Company are duly authorized and issued, fully paid and non-assessable. Except
for certain Buy/Sell Agreements among the Shareholders and certain of the
Company, which shall be terminated prior to the Closing, there are no
subscriptions, options, warrants, calls, rights, contracts, commitments,
understandings, restrictions or arrangements of any kind relating to the
issuance, sale or transfer of any shares of capital stock of the Company,
including any rights of conversion or exchange under any outstanding securities
or other instruments. There are no voting trusts or other agreements or
understandings of any kind with respect to the Company outstanding stock.
Section 3.4 Authorization. The Company have full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Boards of Directors and Shareholders of
the Company have duly approved and authorized the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, and no
other corporate proceedings on the part of the Company are hereby necessary to
approve and authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. Assuming that this
Agreement constitutes a valid and binding agreement of FR and LSSS, this
Agreement constitutes the valid and binding agreement of the Company and each of
the Shareholders enforceable in accordance with its terms, except as the
enforceability hereof may be subject to applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally and
to general principles of equity.
Section 3.5 Consents and Approvals. Neither the execution and
delivery of this Agreement by any of the Shareholders or the Company nor the
consummation by any of the Shareholders or the Company of the transactions
contemplated hereby will (i) conflict with or result in a breach of any
provision of the articles of incorporation or by-laws of the Company, or (ii)
except for those events and consents which are either set forth in the
Disclosure Schedule or which events or the absence of which consents do not or
would not be reasonably expected to result in a Material Adverse Effect, (A)
violate, or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or require consents from any other party
5
<PAGE>
(except consents which have been obtained or the obtaining of which has been
waived by FR) or result in the termination or in a right of termination or
cancellation of, or accelerate or result in a right to accelerate the
performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of, the Company or
result in being declared, or in the right to declare, void, voidable, or without
further binding effect any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit, lease,
contract, or agreement to which the Company or any of the Shareholders is a
party, or (B) violate any order, writ, injunction, decree, judgment, ruling,
law, rule or regulation of any court or governmental authority, federal, state,
local or foreign, applicable to the Company or any of the Shareholders or
require any consent, approval or authorization of, or notice to, or declaration,
filing or registration with, any governmental or regulatory authority.
Section 3.6 No Violation. To the knowledge of the Shareholders
and the Company, the Company are not in violation of, or under investigation
with respect to or threatened to be charged with or given notice of, any
violation of any applicable law, statute, order, rule, regulation, or judgment
entered by any federal, state, local or foreign court or governmental authority
relating to the Company, including, but not limited to those relating to state
and local health codes, the Americans with Disabilities Act, civil rights, and
liquor sales and services, except for any violation which does not or would not
reasonably be expected to result in a Material Adverse Effect. For purposes of
this Agreement, "knowledge" of a Shareholder refers to actual, personal
knowledge of such Shareholder.
Section 3.7 Financial Statements. The audited balance sheets
of the Company as of December 27, 1994 (the "Balance Sheet") and the related
statements of income and retained earnings and changes in financial position for
the year then ended (the "Income Statements" ) and the unaudited balance sheets
of the Company as of July 11, 1995 and the related statements of income and
retained earnings and changes in financial position for the 28 weeks then ended
have been delivered to FR. The financial statements referred to above in this
Section are sometimes collectively called the "Financial Statements." Except as
set forth in the notes to the Financial Statements or as provided in Section
3.9, the Financial Statements present fairly the financial position, the
consolidated results of operations and the consolidated changes in financial
position of the Company as of the date and for the periods covered thereby in
conformity with generally accepted accounting principles (including the related
notes and schedules thereto) consistently applied during the periods involved
(except as otherwise stated therein).
Section 3.8 Absence of Undisclosed Liabilities. Except as and
to the extent reflected or disclosed (or adequately reserved for or against) in
the Balance Sheet or in the notes thereto or in the Disclosure Schedule or
6
<PAGE>
except as specifically provided by this Agreement, the Company do not have any
liabilities or obligations of any nature, whether known or unknown, contingent
or absolute, other than liabilities or obligations (i) which are not required by
generally accepted accounting principles to be reflected on a balance sheet, or
(ii) which were incurred in the ordinary course of business consistent with past
practice since the dates of the Balance Sheet; provided, however, that no
representation is made in this Section 3.8 with respect to any class of
liabilities or obligations with respect to which a representation is made
elsewhere in this Article III.
Section 3.9 Absence of Certain Changes. Since July 11, 1995
the Company have conducted their businesses in the ordinary course and there has
not been any change or event that has caused a Material Adverse Effect. Except
as set forth in the Disclosure Statement or as contemplated by this Agreement,
since July 11, 1995, the Company have not (i) made or granted any increases in
the compensation or benefits payable or to become payable to other employees
other than in the ordinary course of business; or (ii) entered into any
commitment, contractual obligation or transaction other than in the ordinary
course of business (which includes any capital expenditure for improvement of
the business or property of the Company).
Section 3.10 Legal Proceedings. Except as set forth on the
Disclosure Schedule, there are no uninsured claims, actions or proceedings
pending, or, to the knowledge of the Company and the Shareholders, threatened,
against the Company before any court or governmental body, federal, state, local
or foreign, which (i) seek to restrain or enjoin the consummation of the
transactions contemplated hereby or (ii) is reasonably likely to result in
liability of more than $25,000. Except as set forth in the Disclosure Schedule
the Company are not bound by or subject to any continuing order, injunction or
decree of any domestic or foreign court, arbitrator or governmental authority.
Section 3.11 Taxes and Tax Returns. (a) For purposes of this
Agreement, (i) the term "Taxes" shall mean all taxes, charges, fees, levies or
other assessments, including, without limitation, income, gross receipts,
excise, property, sales, license, payroll and franchise taxes, imposed by the
United States, or any state, local or foreign government or subdivision or
agency thereof whether computed on a unitary, combined or any other basis; and
such term shall include any interest, penalties or additions to tax; and (ii)
the term "Tax Return" shall mean any report, return or other information
required to be filed with, supplied to or otherwise made available to a taxing
authority in connection with Taxes.
7
<PAGE>
(b) To the knowledge of the Shareholders and the Company, the
Company have (i) duly filed with the appropriate taxing authorities all Tax
Returns required to be filed by or with respect to the Company for any period
ending on or before the Closing Date and all such duly filed Tax Returns are
true, correct and complete in all material respects, and (ii) paid in full or
made adequate provision for on their respective balance sheets (in accordance
with generally accepted accounting principles) all Taxes shown to be due on such
Tax Returns, except where the failure to file Tax Returns or to pay Taxes would
have a Material Adverse Effect. There are no liens for Taxes upon the assets of
the Company except for statutory liens for current Taxes not yet due and payable
or which may thereafter be paid without penalty or are being contested in good
faith. Except as set forth in the Disclosure Schedule, the Company is not
undergoing an audit of any of its Tax Returns and neither the Company nor any of
the Shareholders has received any notice of audit of any Tax Return of the
Company or any notice of deficiency or assessment from any taxing authority with
respect to liability for Taxes by the Company which has not been fully paid or
finally settled, and any such deficiency or assessment shown on such Disclosure
Schedule is being contested in good faith through appropriate proceedings. There
have been no waivers of statutes of limitation by the Company or with respect to
any Tax Returns. Except as set forth in the Disclosure Schedule the Company has
not filed a request with the Internal Revenue Service for change in accounting
methods within the last two years which change would effect the accounting for
tax purposes, directly or indirectly, of the Company. Neither the Company nor
any of the Shareholders with respect to the Company has filed any election under
Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code").
Section 3.12 Property. (a) To the knowledge of the
Shareholders and the Company, the Disclosure Schedule contains a correct and
complete schedule of all leases, subleases and other agreements of like kind, as
amended to date (collectively, the "Leases") under which the Company occupies or
has the right to occupy any real property in connection with the operation of
its business (the land, buildings and other improvements covered by the Leases
being herein called the "Leased Real Property"). The Company have made available
to FR true, correct and complete copies of all such Leases (including all
modifications, amendments and supplements entered into by the Company),
summaries of which (prepared by the Company) are set forth on the Disclosure
Schedule. To the knowledge of the Shareholders and the Company, each Lease is
valid, binding and in full force and effect and, all rent and other sums and
charges payable by or to the Company, as appropriate, as tenant, sublessor or
sublessee thereunder are current. Except as set forth in the Disclosure
Schedule, no notice of default or termination under any Lease is outstanding, no
termination event or condition or uncured default on the part of the Company or,
to the knowledge of the Shareholders and the Company, on the part of the
landlord or sublessor, exits under any Lease, and no event has occurred and no
condition exists, and the consummation of the transactions contemplated by this
Agreement will not create or result in an event or condition, which, with the
giving of notice or the lapse of time or both, would constitute such a default
or termination event or condition. Except as set forth in the Disclosure
Schedule, the Shareholders and the Company do not have any ownership interest in
the landlord under any Lease.
8
<PAGE>
(b) To the knowledge of the Shareholders and the Company, the
Company are owners of valid fee title to the property as set forth in the
Disclosure Schedule. All real property as owned by the Company and all leasehold
interests of the Company are held free and clear of all mortgages, liens,
security interests or encumbrances of any nature whatsoever except for (i)
mechanics', carriers', warehousemen's workmen's, repairmen's or other like liens
arising or incurred in the ordinary courses of business, liens for Taxes,
assessments and other governmental charges which are not due and payable or
which may thereafter be paid without penalty or are being contested in good
faith by appropriate proceedings, financing liens on furniture, fixtures and
equipment and other imperfections of title or non-monetary encumbrances, if any,
which do not materially detract from the value of the property subject thereto,
(ii) easements, covenants, rights of way and other encumbrances or restrictions,
of record, (iii) zoning and other similar restrictions and (iv) unrecorded
easements, covenants, rights of way or other restrictions which do not
materially impair the use of the real property to which they relate.
(c) Neither the Company nor any of the Shareholders has any
knowledge of any pending or threatened condemnation proceeding affecting any
real property of the Company or of any sale or other disposition of the real
property of the Company in lieu of condemnation, or of any notice of any of the
foregoing.
(d) Except as provided in the Leases, to the knowledge of the
Shareholders and the Company the Company does not own or hold and is not
obligated under or a party to any option, right of first refusal or any other
material contractual right to purchase, acquire, sell or dispose of the real
property of the Company or any portion thereof or interest therein.
Section 3.13 Contracts (a) Except as described on the
Disclosure Schedule or disclosed in the Financial Statements, to the knowledge
of the Shareholders and the Company the Company is not, as of the date of this
Agreement, a party to or bound by any agreement, contract or commitment:
(i) involving a payment by the Company after the date
hereof of an amount of money more than $25,000 and continuing (including
mandatory renewals or extensions which do not require the consent of the
Company) more than six months from the date hereof and not made in the ordinary
course of business;
(ii) with management or any employee of the Company for
personal services that is not by its terms immediately terminable at will by the
employer without cost or liability to the Company at or at any time after the
Closing Date (subject to any rights an employee may have by statute or
regulation);
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(iii) with any labor union or employees' association;
(iv) relating to consulting or advisory services
involving the future payment of more than $5,000 and not immediately terminable
at will by the Company without cost or liability to the Company;
(v) under which the Company has borrowed any money or
issued any note, bond, indenture, loan, credit agreement or other evidence of
indebtedness or direct or indirect guarantee or assumption of indebtedness,
liabilities or obligations of others (other than overdraft accounts or similar
obligations used in the normal course of business);
(vi) relating to a mortgage, pledge, security
agreement, deed of trust or other document granting a lien over any material
property, real or personal, owned by the Company;
(vii) relating to any bonus, retirement, deferred
compensation, pension, profit sharing, stock options (other than those to be
exercised on or prior to the Closing), life and health insurance,
hospitalization, or employee savings or retirement agreements, policies or
plans;
(viii) that contains any severance pay liability or
obligations in excess of $5,000 to any employee, former employee, director,
former director or consultant;
(ix) relating to employment which provides annual salary
in excess of $5,000;
(x) relating to all distribution, sales, agency or
advertising contracts in excess of $5,000, including contracts with sales
representatives or dealers; and
(b) Each of the contracts set forth on the Disclosure Schedule
is in full force and effect and valid and enforceable in accordance with its
terms and, except as set forth on the Disclosure Schedule, the Company has not
materially breached any of such contracts.
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Section 3.14 Intellectual Property. To the knowledge of the
Shareholders and the Company, the Disclosure Schedule contains an accurate and
complete list of all registered patents, trademarks, service marks, trade names,
and copyrights and all pending trademark, patent and copyright applications
(collectively, "Intellectual Property"), currently owned or held by the Company
and any agreement under which the Company owns or holds any license to use any
of the foregoing except where the failure to disclose would not have a Material
Adverse Effect. Except as disclosed on the Disclosure Schedule hereto, the
Company own or are licensed to use all Intellectual Property listed on the
Disclosure Schedule or rights therein without infringement of or conflict with
any rights of third parties except for infringements or conflicts that do not
have a Material Adverse Effect.
Section 3.15 Labor Difficulties. To the knowledge of the
Shareholders and the Company, there is no labor strike, arbitration proceeding,
slowdown or stoppage (or charge of unfair labor practice) actually pending or
threatened against or affecting the Company which would result in a Material
Adverse Effect. To the knowledge of the Company and the Shareholders, no union
is seeking to represent the employees of the Company. Except as set forth in the
Disclosure Schedule, to the knowledge of the Company and the Shareholders there
are no charges or complaints of discrimination pending before the Equal
Employment Opportunity Commission or any state or local agency with respect to
the Company. Except as set forth in the Disclosure Schedule, no collective
bargaining agreement is in force or is binding on the Company.
Section 3.16 Employment Benefit Plans; ERISA. (a) To the
knowledge of the Shareholders and the Company, the Company does not maintain any
bonus (including but not limited to all arrangements with restaurant managers or
other employees), deferred compensation, pension, profit sharing, retirement,
stock purchase, stock option, or medical plan, arrangement or practice, whether
written or unwritten, which covers employees of the Company (the "Benefit
Plans"), including without limitation, any "employee benefit plan" within the
meaning of Section 3(3) of the Employment Retirement Income Security Act of
1974, as amended ("ERISA"), and the final regulations thereunder. True and
complete copies of each written Benefit Plan sponsored by the Company have been
delivered or made available to FR, or such copies shall be delivered to FR as
soon as practicable after the date hereof. The Company does not have any
commitment, whether formal or informal and whether legally binding or not, to
adopt any benefit plan in addition to those shown in the Disclosure Schedule.
(b) To the knowledge of the Shareholders and the Company, none
of the Benefit Plans is a "defined benefit plan" within the meaning of Section
3(35) of ERISA, and the Company has never maintained or contributed to, or ever
been obligated to contribute to, a defined benefit plan on behalf of its
employees. None of the Benefit Plans is a "multiemployer plan" within the
meaning of Section 3(37) of ERISA, and the Company has never contributed to, or
ever been obligated to contribute to, a multiemployer plan on behalf of its
employees.
(c) To the knowledge of the Shareholders and the Company, each
Benefit Plan that qualifies as an "employee welfare benefit plan" within the
meaning of Section 3(1) of ERISA is and has been in material compliance with the
applicable provisions of ERISA and the Code. The Company have complied in all
material respects with all of their obligations under each such Benefit Plan
including the making of all required contributions.
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Section 3.17 Related Party Transactions. To the knowledge of
the Shareholders and the Company, except for those agreements listed in the
Disclosure Schedule or as contemplated hereby and except for services (and
charges therefor) provided by Shareholders in the ordinary course of business to
the Company, the Company have not, within the past two (2) years, (i) loaned any
amount that is currently outstanding or (ii) sold, transferred or leased any
properties or assets (real, personal or mixed, tangible or intangible) to any of
their officers, directors, restaurant managers or other key employees.
Section 3.18 Insurance. To the knowledge of the Shareholders
and the Company, the Disclosure Schedule contains a list of all insurance
policies or binders (including self-insurance) insuring the properties, assets,
business, and liabilities of the Company that were in effect as of the date of
this Agreement, except where the failure to so disclose would not have a
Material Adverse Effect. Except as otherwise disclosed on the Disclosure
Schedule, all such insurance relating to the Company has been issued to the
Company under valid and enforceable policies or binders. The Company have not
received any notice from any insurance organization threatening a suspension,
revocation, modification or cancellation of any Insurance Policy. No facility
has suffered any material damage by fire or other casualty since the date of the
Balance Sheet which facility has not been repaired and restored, unless either
the Company owning or using such facility has made adequate financial provisions
for its repair and restoration or such repair or restoration has been adequately
provided for by insurance relating to and for the benefit of the Company.
Section 3.19 Environmental Matters.
(a) To the knowledge of the Shareholders and the Company,
except as set forth on the Disclosure Schedule:
(i) the Company have obtained all material permits and
licenses and filed all material documents which are required to be obtained or
filed by the Company for the operation of their businesses under federal, state
and local laws relating to pollution or protection of the Environment;
(ii) the Company are in compliance with all material
terms and conditions of such required permits, licenses and authorizations;
(iii) the Company are in compliance with all other
applicable material limitations, conditions, standards, requirements, and
schedules contained in those laws or contained in any regulation, code, order,
decree, judgment, Notice or demand letter issued, entered, promulgated or
approved thereunder, and have not received notice of any violation thereof; and
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(iv) there are no currently existing Environmental
Conditions with respect to the Company or any of their assets.
(b) For purposes of this Section 3.19, the following terms
shall have the meanings set forth below:
(i) "Hazardous Substances" include any pollutants, toxic
substances, hazardous materials or hazardous substances as defined in or
pursuant to the environmental laws of the State of North Carolina or any other
federal, state or local environmental law, ordinance, rule or regulation.
(ii) "Release" means release, spill, leak, pump, pour,
emit, empty, discharge, inject, escape, dispose or dump into the Environment.
(iii) "Notice" means any summons, citation, directive,
order, claim, litigation, investigation, proceeding, judgment, letter or other
communication, written or oral, actual or threatened from the State of North
Carolina or any agency thereof, the United States Environmental Protection
Agency ("USEPA") or other federal, state or local agency or authority or any
other entity or any individual concerning any intentional or unintentional act
or omission which has resulted or may reasonably be expected to result in the
Release of Hazardous Substances into the Environment from or on property of the
Company and shall include the imposition of any lien on property of the Company
pursuant to any violation of federal, state or local environmental laws,
ordinances, rules, regulations, government actions, orders or permits, or any
knowledge, after due inquiry and investigation, of any acts which may reasonably
be expected to give rise to any of the above.
(iv) "Environmental Conditions" means material
conditions with respect to the Environment of property of the Company related to
the presence or Release of Hazardous Substances, which conditions may reasonably
be expected to require remedial action or may reasonably be expected to result
in material claims, demands and liabilities to the Company by third parties,
including, without limitation, governmental entities, adjacent property owners
and any individuals suffering property damage or personal injury.
(v) "Environment" means any surface water, ground water,
drinking water supply, land surface, or subsurface strata.
(c) To the knowledge of the Shareholders and the Company,
except as set forth on the Disclosure Schedule, (i) during the two (2) years
immediately prior to the date hereof, the Company has not been cited for any
material violations of the Occupational Safety and Health Act of 1970, as
amended ("OSHA"), nor, to the knowledge of the Shareholders or the Company are
there any citations for material violations pending as a result of inspections,
and (ii) each of the material conditions which resulted in the issuance of a
citation has been abated or otherwise corrected to the satisfaction of OSHA as
of the date hereof. The Company have made available to FR all reports and
filings, if any, made or filed by the Company pursuant to OSHA and similar state
and local laws and regulations during the prior two (2) years.
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Section 3.20 Trade Secrets. The Company will deliver to FR
within 30 days of the Closing a copy of the Recipe Book containing a description
of recipes, procedures and training manuals used by the Company. To the
knowledge of the Company and the Shareholders, except as set forth in the
Disclosure Schedule, and except for portions of recipes which are unwritten,
each recipe in the Recipe Book is sufficient in detail and content to allow its
use by the Company. Except as set forth in the Disclosure Schedule, there are no
liens, claims or encumbrances upon any of the recipes, formulations and
technologies, processes, "know-how" and other technical data.
Section 3.21 Finders. The Company are not obligated to pay any
fee or commission to any broker, finder or intermediary for or on account of the
transactions provided for in this Agreement.
Section 3.22 Investment Representation. Each of the
Shareholders will acquire the shares of LSSS Common Stock to be delivered to him
pursuant to this Agreement for investment and not with a view to the resale or
distribution thereof and the Shareholders acknowledge (a) that when issued such
shares will be restricted securities which may not be sold without registration
or exemption from representation under the Securities Act of 1933 and applicable
state securities laws, (b) that, except as provided in the Registration Rights
Agreement referred to in Section 7.6, LSSS has no present intention of
registering said shares, and (c) that the certificates evidencing said shares
will be bear a legend reading substantially as follows:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
NEITHER SUCH SHARES OF COMMON STOCK NOR ANY INTEREST THEREIN
MAY BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT AND THE RULES AND REGULATIONS THEREUNDER. BY
ITS ACCEPTANCE HEREOF, THE HOLDER OF SUCH SHARES OF COMMON
STOCK REPRESENTS THAT IT IS ACQUIRING THIS COMMON STOCK FOR
INVESTMENT AND AGREES TO COMPLY IN ALL RESPECTS WITH ANY
APPLICABLE STATE SECURITIES LAWS COVERING THE PURCHASE OF THIS
COMMON STOCK AND RESTRICTING ITS TRANSFER."
Section 3.23 Distributions and Debt Reduction. Since July 4,
1995, (a) the Company has not declared and paid dividends or made other
distributions in respect of the Company's capital stock or to the Shareholders
and (b) the Company has not paid any obligation or liability (absolute or
contingent) except current liabilities incurred in the ordinary course of
business that have become due and payable.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FR AND LSSS
FR and LSSS each represents and warrants to the Company and the
Shareholders as follows:
Section 4.1 Corporate Organization. Each of FR and LSSS is a
corporation duly organized, validly existing and in good standing under the laws
of, respectively, the State of North Carolina and the State of Delaware, with
full corporate power and authority to own, operate and lease its properties and
to carry on its business as now being conducted.
Section 4.2 Authorization. FR and LSSS have full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Boards of Directors of FR and of LSSS have
duly approved and authorized the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby, and no other corporate
proceedings on the part of FR or LSSS are necessary to approve and authorize the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. Assuming that this Agreement constitutes the
valid and binding obligations of the Shareholders and the Company, this
Agreement constitutes the valid and binding agreement of FR and LSSS enforceable
in accordance with its terms, except as the enforceability hereof may be subject
to applicable bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and to general principles of equity.
Section 4.3 Consents and Approvals. Neither the execution and
delivery by FR or LSSS of this Agreement nor the consummation by FR or LSSS of
the transactions contemplated hereby will (i) conflict with or result in a
breach of any provision of the articles or certificate of incorporation or
by-laws of FR or LSSS, or (ii) except for those of the following events which
would not prevent the consummation of the transactions contemplated by this
Agreement and would not result in any change in or effect on FR or LSSS that
would have a material adverse effect on the ability of FR or LSSS to consummate
the transactions contemplated hereby, (A) violate or conflict with, or result in
a breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or require
consents from any other party or result in the termination or in a right of
termination or cancellation of, or accelerate or result in a right to accelerate
the performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of, FR or LSSS, or
result in being declared, or in the right to declare, void, voidable, or without
further binding effect any of the terms, conditions or provisions of, any note,
bond mortgage, indenture, deed of trust, license, franchise, permit, lease,
contract, agreement or other instrument or commitment or obligation to which FR
or LSSS is a party, (B) violate any order, writ, injunction, decree, judgment,
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ruling, law, rule or regulation of any court or United States governmental
authority, applicable to FR or LSSS or any of their properties, or (C) require
any consent, approval or authorization of, or notice to, or declaration, filing
or registration with, any governmental or regulatory authority. Except with
respect to certain state liquor license authorities, from which temporary
approvals have been obtained, no consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority is necessary to be obtained or made by FR in connection with the
execution, delivery and performance of this Agreement.
Section 4.4 Capitalization. The authorized capital stock of
LSSS consists of 98,000,000 shares of Common Stock, par value $.01 per share and
2,000,000 shares of Preferred Stock, par value $.01 per share. As of July 11,
1995, 36,771,612 shares of LSSS's Common Stock were issued and outstanding. All
shares of LSSS Common Stock to be issued to the Shareholders in connection with
the transaction contemplated hereby will be duly and validly issued, fully paid
and nonassessable. There is no personal liability, and there are no preemptive
or similar rights, attached to the LSSS Common Stock.
Section 4.5 Financial Statements. LSSS has heretofore
delivered to the Shareholders a copy of its consolidated balance sheet as of
December 27, 1994 and the related consolidated statements of income,
stockholders' investment and changes in financial position for the year ended on
such date, accompanied in each case by the report of Ernst & Young, independent
public accountants, and a copy of its unaudited consolidated balance sheet as of
June 13, 1995 and the related unaudited consolidated statements of income,
stockholders' investment and changes in financial position for the 24 weeks then
ended, said financial statements were prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except as may be otherwise stated in said financial
statements, the notes thereto or the reports of said accountants), and fairly
present the financial position of LSSS and its consolidated subsidiaries at the
dates thereof and the results of operations and changes in financial position of
LSSS and its consolidated subsidiaries for the periods indicated, except that
the aforementioned unaudited financial statements are subject to normal
recurring adjustments which might be required as a result of a year-end audit.
Section 4.6 Absence of Changes. Since June 13, 1995 there has
not been any material adverse change in the condition (financial or otherwise),
of the assets, liabilities, earnings, business, prospects or results of
operations of LSSS and its subsidiaries, taken as a whole.
Section 4.7 Reports. Since January 1, 1994 LSSS has filed all
reports which were required to be filed by it with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended. All such
reports are complete and correct in all material respects.
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Section 4.8 Finders. FR is not obligated to pay any fee or
commission to any broker, finder or intermediary for or on account of the
transactions provided for in this Agreement.
Section 4.9 Legal Proceedings. There are no claims, actions or
proceedings by or against FR or LSSS which may affect the transactions
contemplated hereby at law or in equity or before or by any federal, state,
local, foreign or other governmental department, commission, board, agency,
instrumentality or authority, except those in the aggregate in which an adverse
decision for FR or LSSS would not have a material adverse effect on the business
or financial condition of LSSS.
Section 4.10 NASDAQ Listing. On July 25, 1995 LSSS filed with
NASDAQ National Market System ("NASDAQ") an application to list the shares of
LSSS Common Stock to be delivered by FR to the Shareholders as the Merger
Consideration, and is using its best efforts to cause NASDAQ to approve the
listing of said shares.
Section 4.11 Control of FR; Investment Company; FR Stock. LSSS
owns stock of FR possessing at least 80 percent of the total combined voting
power of all classes of stock entitled to vote of FR and at least 80 percent of
the total number of shares of all other classes of stock of FR. Neither FR nor
LSSS is an investment company as defined in Section 368(a)(2)(F)(iii) and (iv)
of the Code. No stock of FR will be issued in connection with the Merger.
ARTICLE V
COVENANTS
Section 5.1 Access to Properties and Records; Confidentiality.
(a) Between the date of this Agreement and the Closing Date,
the Company will provide FR, and its accountants, counsel and other authorized
representatives, and responsible financial institutions designated by FR as its
representatives, reasonable access, during normal business hours and under
reasonable circumstances, to any and all premises, properties, contracts,
commitments, books, records and other information of the Company.
(b) FR and LSSS hereby agree that they shall hold all
confidential information relating to the Shareholders and the Company which they
obtain during the course of such investigation in strict confidence and, if the
Merger is abandoned pursuant to the terms hereof, FR shall return all such
information to the Company and shall not thereafter use it for any purpose (as
long as it remains confidential in nature).
Section 5.2 Announcements. The Company and FR shall consult
with each other prior to making any further public announcements prior to the
Closing Date with respect to this Agreement or the transactions contemplated
hereby, except as otherwise required by law.
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Section 5.3 Conduct of the Business of the Company Prior to
the Closing Date. The parties agree that between the date of this Agreement and
the Closing Date or the earlier termination of this Agreement, and except as
otherwise consented to or approved by FR in writing or contemplated by this
Agreement:
(a) The business, operations, activities and practices of the
Company shall be conducted in the ordinary course and the Company shall maintain
and preserve their existing properties in accordance with past practice and
shall account therefor as required by generally accepted accounting principles
in accordance with past practice.
(b) The Company shall not: (i) incur any indebtedness, except
borrowings in the ordinary course of business; (ii) enter into any agreement
requiring the maintenance of a specified net worth; (iii) other than in the
ordinary course of business without the consent of FR which shall not be
unreasonably withheld, assume, guarantee, endorse, or otherwise become liable or
responsible (whether directly, contingently or otherwise), for the obligations
of any other individual, firm or corporation; (iv) other than in the ordinary
course of business, make any loans, advances or capital contributions to, or
investments in, any other individual, firm or corporation; or (v) other than in
the ordinary course of business, grant any general salary or compensation
increases to employees.
(c) The Company will use all reasonable efforts to keep
available to FR the present services of the employees of the Company if, and to
the extent, so requested by FR, and to preserve for FR the goodwill of the
Company's agents, customers, suppliers and others with whom business
relationships exist.
(d) None of the parties hereto will take or agree to take any
action which would cause any of its representations contained herein to be or
become untrue in any material respect including as of the date hereof and as of
the Closing Date, as if such representations were made as of such time.
(e) Neither the Company nor any of the Shareholders shall
enter into, or authorize any agent to enter into on their behalf, discussions
(i) relating to the merger or consolidation of the Company with or into any
person; or (ii) relating to the sale of all or substantially all of the capital
stock or assets of the Company.
(f) Except in the ordinary course of business, no increase or
commitment to increase the compensation or commission paid or payable by the
Company to any employee, agent or independent contractor of the Company shall be
made.
(g) Except as required by law or in the ordinary course of
business consistent with past practices, the Company shall not amend, adopt,
approve, commence operation of or make any contribution to any bonus or
profit-sharing plan, or any other plan of a similar nature.
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(h) The Company will not: amend or change its articles of
incorporation or by-laws (or equivalent constituent documents) or split, redeem,
combine or reclassify the outstanding shares of its capital stock; acquire any
shares of its capital stock or other securities; issue or agree to issue any
additional shares of its capital stock or other securities; grant any right to
purchase or to convert any obligation into shares of its capital stock or other
securities; or sell or pledge (or agree to sell or pledge) any capital stock of
any subsidiary.
Section 5.4 Consent. The parties hereto agree to use all
reasonable efforts to obtain all permits, approvals, authorizations and consents
of all third parties necessary (i) for the consummation of the transaction
contemplated hereby, or (ii) for the conduct, ownership, leasing or operating of
the business of the Company after the Closing Date.
Section 5.5 Further Assurances. Consistent with the terms and
conditions hereof, each party hereto will execute and deliver such instruments,
certificates and other documents and take such other action as any other party
hereto may reasonably require in order to carry out this Agreement and the
transactions contemplated hereby.
Section 5.6 Shareholders' Contingent Obligations and
Liabilities. On the Closing Date, the Surviving Corporation shall assume, and
shall indemnify and hold the Shareholders harmless from, any obligations and
liabilities of the Shareholders relating to the business, properties or assets
of the Company which are set forth on Section 5.8 of the Disclosure Schedule. FR
shall cooperate with the Shareholders, both before and after the Closing, by
taking all actions the Shareholders shall reasonably request to effect the
termination of such obligations and liabilities of the Shareholders.
Section 5.7 Regulatory Authorizations. The Company and FR
shall execute and file, or join in the execution and filing of, any application
or other document that may be necessary in order to obtain the authorization,
approval or consent of any governmental agency or instrumentality, state or
federal, that may be required in connection with the consummation of the
transactions contemplated hereby, including without limitation, all filings,
applications and documentation in connection with liquor license applications.
Section 5.8 Payment of Expenses of Brokers and Finders. Except
as otherwise agreed to in writing by FR, no legal or other fees, commissions,
compensation (other then regular salaries of the Company's employees) or
out-of-pocket expenses of persons who are not employees of the Company and have
represented the Company in connection with the negotiation of this Agreement
("Expenses") will be paid by the Company for or with respect to the negotiation
of this Agreement or the consummation of the transaction contemplated hereby.
The Shareholders shall pay all Expenses or, to the extent the Company have paid
or become liable therefor, the Shareholders shall reimburse the Company therefor
at the Closing.
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Section 5.9 Assignment of Patents and Trade Secrets. The
Shareholders shall cause any patent, copyright, trademark, trade name,
application therefor or "know-how" agreement or interest therein or any trade
secrets (including all formulations and technologies, processes, "know-how" and
other technical data), owned, leased, created or licensed by the Shareholders
(if any) which is being used in the business of the Company as it now exists, to
be assigned to the Company at or before the Closing by means of assignment
agreements reasonably satisfactory in form and substance to FR.
Section 5.10 Tax Accounting Methods. LSSS and FR will not
change any accounting methods or take any filing position inconsistent with Tax
Returns filed, to the extent that taking such position may reasonably be
expected to result in an increase in any Taxes of the Company for any tax
periods ending on or prior to the Closing Date.
Section 5.11 Maintenance of Tax-Exempt Reorganization Status.
LSSS and FR will not take any filing position or any other action that is
inconsistent with the Merger qualifying as a reorganization under Section
368(a)(2)(D) of the Code or take the filing position that the Company or any of
the Shareholders received any consideration in the Merger other than LSSS Common
Stock.
Section 5.12 Capital Commitments.
(a) Notwithstanding anything herein to the contrary and except
for commitments existing on the date hereof, the Company shall not make or incur
any capital expenditures in excess of $25,000 in any single instance between the
date of this Agreement and the Closing Date, including, but not limited to
equipment lease agreements and construction contracts, or enter into any
franchise agreement or license agreements without the prior written consent of
FR, which may not be unreasonably withheld.
(b) Notwithstanding anything herein to the contrary, the
Company shall not enter into any new Lease or amend (other than in connection
with obtaining consents required for consummation of the transactions
contemplated hereby) any existing Lease between the date of this Agreement and
the Closing Date without the prior written consent of FR, which may not be
unreasonably withheld.
Section 5.13 Notification of Litigation. Prior to the Closing
Date, the Shareholders agree to provide notice to FR of any litigation commenced
against the Company in which claims are made for damages in excess of $25,000 or
in which claims are made for equitable relief.
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Section 5.14 Sale of LSSS Stock. The Shareholders have not
sold and will not sell or otherwise dispose of any shares of the capital stock
of LSSS, including the LSSS Common Stock to be received by them as the Merger
Consideration, during the period commencing 30 days prior to the Closing Date
and ending on that date when LSSS first makes publicly available operating
results covering at least 30 days of the Surviving Corporation's operations.
LSSS may cause each stock certificate to be issued pursuant to this Agreement to
contain a legend setting forth such restriction.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF FR AND LSSS
The obligations of FR and LSSS to consummate the transactions
contemplated hereby shall be subject to the satisfaction, at or prior to the
Closing Date, of each of the following conditions, each of which may be waived
by FR as provided herein:
Section 6.1 Representations and Warranties True. The
representations and warranties of the Shareholders and the Company contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and shall be true and correct in all material respects as if made on the
Closing Date (except to the extent that any representations and warranties of
the Shareholders and the Company relate to a particular date).
Section 6.2 Performance of Obligations. Each of the
obligations of the Shareholders and the Company to be performed by them at or
before the Closing Date pursuant to the terms hereof shall have been duly
performed and complied with in all respects, including the execution of all
agreements contemplated hereby, by the Closing Date. The Shareholders shall
deliver to FR an officer's certificate to such effect in form and substance
reasonably satisfactory to FR.
Section 6.3 Absence of Litigation. No order, stay, judgment or
decree shall have been issued by any court restraining or prohibiting the
consummation of the transactions contemplated by this Agreement and no action
shall have been instituted or threatened by a third party against the Company
before any court which action could reasonably be determined to have substantial
merit and a Material Adverse Effect.
Section 6.4 Tax Indemnification. Each of the Shareholders
shall have executed and delivered to FR a Tax Indemnification Agreement
substantially in the form of Exhibit C hereto.
Section 6.5 Pooling of Interests. Pooling of interest
accounting treatment shall have been approved in writing by Ernst & Young and
Deloitte & Touche.
21
<PAGE>
Section 6.6 NASDAQ National Market System. Authorization shall
have been received from NASDAQ to list the LSSS Common Stock to be delivered by
FR to the Shareholders as the Merger Consideration.
Section 6.7 Fairness Opinion. LSSS shall have received an
opinion from Allen C. Ewing & Co. satisfactory to LSSS as to the fairness of the
terms of the Merger to the existing stockholders of LSSS.
Section 6.8 Non-Competition Agreements. FR shall have received
non-competition agreements from each of the Shareholders, substantially in the
form of Exhibit D1 and D2 hereto (the "Non- Competition Agreements"). FR, LSSS
and the Company agree that no more than one dollar worth of Common Stock will be
allocated as consideration to the non-competition agreements.
Section 6.9 Consents. All consents listed in the Disclosure
Schedule shall have been obtained.
Section 6.10 Simultaneous Closing. The Closing of this
Agreement is conditioned on the simultaneous closing of the following agreements
(collectively, the "Other Agreements"): (i) Agreement and Plan of Merger among
Nacho Mama's Inc., the shareholders thereof, Mama's Concept, Inc. and LSSS; (ii)
Agreement and Plan of Merger among Creative Culinary Concepts, Inc., Steaks of
Raleigh, Inc., Lone Star Steaks of Pineville, Inc., Steaks of Jacksonville,
Inc., Steaks of Greenville, Inc., Steaks of Cary, Inc., Steaks of Cornelius,
Inc., and Cowboy Steaks, Inc., the shareholders thereof, Lone Star Steaks, Inc.,
and LSSS; (iii) Asset Purchase Agreement among Creative Concepts of North
Carolina, LLC, the members thereof, and LSSS; (iv) Agreement of Purchase and
Sale among R&T Investments, LLC, the members thereof, and LSSS; (v) Agreement of
Purchase and Sale among RTH Investments, the members thereof, and LSSS; and (vi)
Contract of Assignment among Creative Concepts of North Carolina, LLC, the
members thereof and Mama's Concept Inc.
Section 6.11 Termination of Agreements. The following
agreements shall be terminated as of the Closing: Any and all employment
agreements between the Company or any of the parties to the Other Agreements and
James C. Verney, Matthew Wogan or Steven Fixman and Buy/Sell Agreements among
certain of the parties to the Other Agreements.
22
<PAGE>
Section 6.12 Opinion of Counsel. FR shall have received an
opinion of Moore & Van Allen, PLLC, counsel to the Company, dated as of the
Closing Date, to the effect that (i) the execution and delivery of this
Agreement by the Company have been duly authorized by requisite corporate action
on the part of the Company, (ii) [except as set forth in the Disclosure Schedule
with regard to liquor license regulations,] this Agreement (assuming the valid
authorization, execution and delivery of this Agreement by FR and LSSS) is a
valid and binding obligation of the Shareholders and the Company enforceable
against the Shareholders and the Company in accordance with its terms, except
(A) that such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditor's rights and (B) that the remedy of specific performance
and injunctive and other forms of equitable relief are subject to certain
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought and (iii) upon filing of the Articles of
Merger, the Merger will be effective, the separate corporate existence of the
Company will cease and FR will continue as the surviving corporation.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS
OF THE Company AND THE SHAREHOLDERS
The obligations of the Company and the Shareholders to
consummate the transactions contemplated hereby shall be subject to the
satisfaction, at or prior to the Closing Date, of each of the following
conditions, each of which may be waived by the Company and the Shareholders as
provided herein:
Section 7.1 Representations and Warranties True. The
representations and warranties of FR and LSSS contained in this Agreement shall
be true and correct in all material respects as of the date hereof and shall be
true and correct in all material respects as if made on the Closing Date (except
to the extent that any representations and warranties of FR or LSSS relate to a
particular date).
Section 7.2 Performance of Obligations. Each of the
obligations of FR and LSSS to be performed by it on or before the Closing Date
pursuant to the terms hereof, including the execution of all agreements
contemplated hereby, shall have been duly performed and complied with in all
material respects by the Closing Date. FR shall deliver to the Shareholders an
officer's certificate to such effect in form and substance reasonably
satisfactory to FR.
Section 7.3 Absence of Litigation. No order, stay, judgment or
decree shall have been issued by any court restraining or prohibiting the
consummation of the transactions contemplated by this Agreement.
Section 7.4 Corporate Documents. The Shareholders shall have
received from FR resolutions adopted by the Boards of Directors of FR and LSSS,
approving the Agreement and the transactions contemplated thereby, certified by
the respective corporate secretary of FR and LSSS.
23
<PAGE>
Section 7.5 Opinion of Counsel. The Shareholders shall have
received an opinion of Olshan, Grundman, Frome & Rosenzweig LLP, counsel for FR
and LSSS, dated as of the Closing Date, to the effect that: (i) the execution
and delivery of this Agreement by FR and LSSS have been duly authorized by
requisite corporate action on the part of this FR and LSSS; (ii) this Agreement
(assuming the valid authorization, execution and delivery of this Agreement by
the Shareholders and the Company) is a valid and binding obligation of FR
enforceable against FR in accordance with its terms, except (A) that such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
and (B) that the remedy of specific performance and injunctive and other forms
of equitable relief are subject to certain equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought;
(iii) the issuance and delivery of the shares of LSSS Common Stock to be issued
to the Shareholders as Merger Consideration have been duly authorized and, when
issued and delivered to the Shareholders, will be validly issued, fully paid and
non-assessable; and (iv) immediately following the Closing, the authorized
capital stock of LSSS will consist of 98,000,000 shares of Common Stock, par
value $.01 per share, of which ___ shares will be issued and outstanding, and
2,000,000 shares of Preferred Stock , par value $.01 per share, of which none
will be issued and outstanding.
Section 7.6 Registration Rights Agreement. LSSS shall have
delivered to each of the Shareholders a Registration Rights Agreement
substantially in the form of Exhibit E to this Agreement (the "Registration
Rights Agreement").
Section 7.7 Employment Agreement. FR shall have executed and
delivered to James C. Verney a one-year employment agreement in the same format
generally used by LSSS in respect to officers thereof.
Section 7.8 Simultaneous Closing. The Closing of this
Agreement is conditioned on the simultaneous closing of the Other Agreements.
ARTICLE VIII
TERMINATION AND ABANDONMENT
Section 8.1 Termination. This Agreement may be terminated at
any time prior to the Closing:
(i) by mutual consent of the parties;
(ii) by either the Shareholders or FR if the Closing
shall not have occurred by August 4, 1995, provided that the failure to
consummate the transactions contemplated hereby is not a result of the failure
by the party so electing to terminate this Agreement to perform any of its
obligations hereunder; and
(iii) by the Shareholders or by FR, if any court of
competent jurisdiction in the United States or other United States governmental
body shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and such order, decree, ruling or other action shall not have been
vacated or reversed or set aside on appeal, with prejudice against the party
seeking to restrain the transaction, by August 4, 1995. The date on which this
Agreement is terminated pursuant to this Section is herein referred to as the
"Termination Date."
24
<PAGE>
Section 8.2 Effect of Termination. Except (i) for the
obligations contained in Section 5.1(b) hereof and (ii) as set forth in Section
8.3 hereof, in the event that this Agreement shall be terminated pursuant to
Section 8.1, all obligations of the parties hereto under this Agreement shall
terminate and there shall be no liability, except for any breach of this
Agreement prior to such termination, of any party to any other party.
Section 8.3 Fees and Expenses. Except as provided in Section
5.8, each party hereto shall pay all of the fees and expenses incurred by it in
connection herewith.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
Section 9.1 Survival of Representations, Warranties and
Agreements. All representations and warranties, covenants and agreements of the
parties contained in this Agreement shall survive the Closing.
Section 9.2 Indemnification. (a) Each of the Shareholders
agrees, severally but not jointly, to indemnify FR and LSSS (without
duplication) against any and all losses, liabilities, damages, costs and
expenses (whether or not arising out of third party claims and including without
limitation interest, penalties and reasonable attorneys' fees) (collectively
"Losses") which are actually incurred by FR or LSSS (without duplication) (which
for purposes of this Section 9.2 shall be reduced by (i) any reserves or
accruals with respect to such Losses reflected on the Balance Sheet and (ii) the
amount, if any, of insurance proceeds received by FR or LSSS (or such proceeds
received by a third party to the extent such payment reduces the Loss) with
respect to a Loss (less any retrospective premiums or other forms of
self-insurance)) arising out of or resulting from the inaccuracy of any
representation or the breach of any warranty, covenant or agreement made by such
Shareholder in this Agreement.
(b) FR and LSSS agree to indemnify the Shareholders against
any and all Losses which are actually incurred by the Shareholders as a result
of the inaccuracy of any representation or the breach of any warranty, covenant
or agreement made by FR or LSSS in this Agreement or any other agreement
executed or delivered by FR or LSSS pursuant to this Agreement.
25
<PAGE>
(c) Notwithstanding any other provision of this Agreement: (i)
the indemnification obligations of the parties under this Section 9.2 shall be
payable (and reimbursable and repayable under Section 9.2(e)) solely in shares
of LSSS Common Stock, with one share of LSSS Common Stock to be delivered for
each $32 (or part thereof) of indemnification obligation; (ii) the aggregate
indemnification obligation of each Shareholder under this Section 9.2 and any
corresponding provision of the Other Agreements shall be limited to delivering
that number of shares of LSSS Common Stock as shall equal the aggregate number
of shares of LSSS Common Stock which such Shareholder shall have received
pursuant to this Agreement and the Other Agreements plus, in the case of Dennis
L. Thompson, the aggregate number of such shares so received by Thomas A. Hager,
Daniel M. Kammerer and Thomas W. Shannon; and (iii) neither the Shareholders nor
FR and LSSS, as a group, shall be responsible for any Losses under this Section
9.2 and any corresponding provision of the Other Agreements unless the aggregate
amount of such Losses on a cumulative basis exceeds $50,000 and then only to the
extent of such excess.
(d) Except as otherwise provided herein, the indemnification
obligations of the parties under subsections (a), (b) and (c) of this Section
9.2 shall continue in full force only until December 31, 1995 after which no
party shall have recourse under this Agreement; provided, however, that (i) such
obligations shall not terminate with respect to any matter with respect to which
an indemnifiable party shall have made a claim prior to the close of business on
December 31, 1995 (stating in reasonable detail the basis of such claim,
including the specific date of such claim, the third parties affected thereby,
and the specific facts relating to the incident which gave rise to such claim)
to the indemnifying party.
(e) In order for a party (the "indemnified party") to be
entitled to any indemnification provided for under this Agreement in respect of,
arising out of, or involving a claim or demand or written notice made by any
third party against the indemnified party (a "Third Party Claim") after the
Closing Date, such indemnified party must notify the indemnifying party (the
"indemnifying party") in writing of the Third Party Claim within thirty (30)
business days after receipt by such indemnified party of written notice of the
Third Party Claim; provided that the failure of any indemnified party to give
timely notice shall not affect its right to indemnification hereunder except to
the extent the indemnifying party has actually been prejudiced or damaged
thereby. If a Third Party Claim is made against an indemnified party, the
indemnifying party shall be entitled, if it so chooses, to assume the defense
thereof with counsel selected by the indemnifying party. If the indemnifying
party assumes the defense of a Third Party Claim the indemnified party will
cooperate in all reasonable respects with the indemnifying party in connection
with such defense, and shall have the right to participate in such defense with
counsel selected by it. The fees and disbursements of such counsel, however,
shall be at the expense of the indemnified party; provided, however, that, in
the case of any Third Party Claim of which the indemnifying party has not
employed counsel to assume the defense, the fees and disbursements of such
counsel shall be at the expense of the indemnifying person. Regardless of which
party assumes the defense of a Third Party Claim, (i) the indemnified party
shall not settle or compromise any Third Party Claim without the consent of the
indemnifying party, and (ii) the indemnified party shall consent to and
cooperate in any settlement or compromise of such claim by the indemnifying
party.
26
<PAGE>
ARTICLE X
MISCELLANEOUS
Section 10.1 Headings. The descriptive headings of the several
Articles and Sections of this Agreement are inserted for convenience only and do
not constitute part of this Agreement.
Section 10.2 Notices. Any notices or communications required
or permitted hereunder shall be given in writing and shall be delivered or sent
by certified or registered mail, postage prepaid, addressed as follows:
If to FR or
LSSS, to: Lone Star Steakhouse & Saloon, Inc.
c/o John D. White
224 East Douglas, Suite 700
Wichita, Kansas 67206
With copies to: Gerald Aaron, Esq.
224 East Douglas, Suite 7000
Wichita, Kansas 67206
and
Olshan Grundman Frome &
Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: Steven Wolosky, Esq.
If to any of the
Shareholders or
any of the
Company, to: Leslie Rudd Investment Company
314 South Galena
Aspen, Colorado 81611
Attention: Craig A. Ferraro
With copies to: Moore & Van Allen, PLLC
NationsBank Corporate Center
100 North Tryon Street
Floor 47
Charlotte, North Carolina 28202-4003
Attention: C. Wells Hall III, Esq.
and
27
<PAGE>
Willkie Farr & Gallagher
153 East 53rd Street
New York, NY 10022
Attention: William J. Grant, Jr., Esq.
or to such other address as shall be furnished in writing by such party, and any
such notice or communication shall be effective and be deemed to have been given
as of the date so mailed; provided that any notice or communication changing any
of the addresses set forth above shall be effective and deemed given only upon
its receipt.
Section 10.3 Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests, or obligations hereunder shall be
assigned by any of the parties hereto without the prior written consent of the
other party.
Section 10.4 Complete Agreement. This Agreement, the
Disclosure Schedule, the Registration Rights Agreement, the Tax Indemnification
Agreement and the Non-Competition Agreements contain the entire understanding of
the parties with respect to the transactions contemplated hereby and supersede
all prior arrangements or understandings with respect thereto. There are no
restrictions, agreements, promises, warranties, covenants or undertakings other
than those expressly set forth herein or therein.
Section 10.5 Modifications, Amendments and Waivers. At any
time prior to the Closing (i) the parties hereto may, by written agreement,
modify, amend or supplement any term or provision of this Agreement and (ii) any
term or provision of this Agreement may be waived in writing by the party which
is entitled to the benefits thereof.
Section 10.6 Counterparts. This Agreement may be executed in
two or more counterparts all of which shall be considered one and the same
agreement and each of which shall be deemed an original.
Section 10.7 Governing Law. This Agreement shall be governed
by the laws of the State of North Carolina (regardless of the laws that might be
applicable under principles of conflicts of law) as to all matters, including
but not limited to matters of validity, construction, effect and performance.
28
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement and Plan of Merger to be executed as of the day and year first above
written.
Attest: MOREHOUSE RESTAURANT GROUP, INC.
By:
Name:
Title:
DENNIS L. THOMPSON
JAMES C. VERNEY
Attest: LONE STAR STEAKHOUSE & SALOON, INC.
By:
Name:
Title:
Attest: FRANKIE'S RESTAURANT, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT A
Capitalization of Company
<TABLE>
<CAPTION>
Shares Owned by:
Dennis L. Thomas A. Daniel M. James C. Total Total
Thompson Hager Kammerer Verney Outstanding Authorized
--------- --------- --------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Morehead Restaurant 1,050 140 140 70 1,400
Group, Inc.
</TABLE>
<PAGE>
Draft: 8/3/95
ASSET PURCHASE AGREEMENT
Among
Creative Concepts of North Carolina, LLC,
Leslie G. Rudd, Dennis L. Thompson and
James C. Verney
and
Lone Star Steakhouse & Saloon, Inc.
------------------------------------------------------------------------------
Dated as of August , 1995
------------------------------------------------------------------------------
<PAGE>
ASSET PURCHASE AGREEMENT
THIS AGREEMENT dated as of August __, 1995 by and among
Creative Concepts of North Carolina, LLC, a North Carolina limited liability
company ("Seller") Leslie G. Rudd, Dennis L. Thompson and James C. Verney
(collectively, the "Members" and, individually, a "Member"), and Lone Star
Steakhouse & Saloon, Inc., a Delaware corporation ("Buyer").
W I T N E S S E T H:
WHEREAS, the sole activity of Seller is the ownership and
operation of a restaurant known as Wicked Burrito Restaurant at 214 Franklin,
Chapel Hill, North Carolina (the "Business");
WHEREAS, the Members are members of, and own a majority
of the equity interests in, Seller; and
WHEREAS, Buyer desires to purchase, and Seller and the Members
desire that Seller sell to Buyer, substantially all of the assets of Seller,
including the Business and all of Seller's assets related thereto;
NOW, THEREFORE, in consideration of the premises and the
mutual promises herein contained, the parties hereby agree as follows:
ARTICLE I
PURCHASE OF ASSETS AND ASSUMPTION OF LIABILITIES
Section 1.1 Description of Assets. Upon the terms and subject
to the conditions set forth in this Agreement, at the Closing (as hereinafter
defined), Seller shall convey, sell, transfer, assign and deliver to Buyer, and
Buyer shall purchase from Seller, all right, title and interest of Seller in and
to all of the assets, properties and rights (contractual or otherwise) of Seller
owned by it at the Closing Date (as hereinafter defined), other than the
Excluded Assets (as hereinafter defined), including without limitation those set
forth below:
(a) All leases, subleases, and other agreements under which
Seller occupies or has the right to occupy any real property (the "Real
Property Leases"), along with all of Seller's interest in the
appurtenant rights, easements and privileges appertaining or relating
thereto and construction in progress, if any, and improvements relating
to the real property subject to such leases, including without
limitation the Real Property Leases listed on the Disclosure Schedule
attached hereto (the "Disclosure Schedule");
<PAGE>
(b) All machinery, equipment, tooling, parts, furniture,
fixtures, supplies, and other tangible personal property of Seller,
including those used in the conduct of or located at the Business (the
"Personal Property");
(c) All foodstuffs, beverages and other inventory of Seller
(the "Inventory");
(d) All franchises, licenses, permits, consents,
authorizations, approvals and certificates of any regulatory,
administrative or other governmental agency or body of Seller (to the
extent the same are transferable) (the "Permits"), including without
limitation the permits listed on the Disclosure Schedule;
(e) All patents, inventions, trade secrets, processes,
proprietary rights, proprietary knowledge, know-how, computer software,
trademarks, names, service marks, trade names, copyrights, symbols,
logos, franchises and permits, and all applications therefor,
registrations thereof and licenses, sublicenses or agreements in
respect thereof, which Seller owns or has the right to use or to which
Seller is a party and all filings, registrations or issuances of any of
the foregoing with or by any federal, state, local or foreign
regulatory, administrative or governmental office (collectively, the
"Intellectual Property"), including without limitation the Intellectual
Property listed on the Disclosure Schedule;
(f) All leases of equipment or other tangible personal
property of Seller including those used in conducting the Business (the
"Personal Property Leases"), including without limitation the Personal
Property Leases listed on the
Disclosure Schedule;
(g) All contracts, agreements, contract rights, license
agreements, franchise rights and agreements, policies, purchase and
sales orders, quotations and executory commitments, instruments, third
party guaranties, indemnifications, arrangements, and understandings,
whether oral or written, to which Seller is a party (whether or not
legally bound thereby) including those used in conducting the Business
(the "Contracts"), including without limitation the Contracts listed on
the Disclosure Schedule;
(h) All cash, cash equivalents, investment securities,
deposits, prepaid expenses and other miscellaneous assets of Seller;
(i) All books of account, customer lists, files, papers and
records of Seller including those used in conducting the Business; and
(j) All goodwill of Seller including all goodwill relating to
the Business.
2
<PAGE>
Notwithstanding the foregoing, there shall be excluded from the assets,
properties, rights (contractual and otherwise) and business of Seller to be
conveyed, sold, transferred, assigned and delivered to Buyer under this
Agreement all corporate minute books, stock records, tax returns and supporting
schedules, books of original financial entry, and internal accounting documents
and records (all of which shall be subject to Buyer's right to inspect and copy
at Buyer's expense for any reasonable purpose during normal business hours). The
assets excluded in accordance with the preceding sentence are referred to herein
as the "Excluded Assets." All of the assets, properties, rights (contractual and
otherwise) and business to be conveyed, sold, transferred, assigned and
delivered to Buyer pursuant to this Section 1.1 are hereinafter collectively
referred to as the "Property."
Section 1.2 Non-Assignment of Certain Property. To the extent
that the assignment hereunder of any of the Contracts, Permits and Personal
Property Leases shall require the consent of any other party (or in the event
that any of the same shall be non-assignable), neither this Agreement nor any
action taken pursuant to its provisions shall constitute an assignment or an
agreement to assign if such assignment or attempted assignment would constitute
a breach thereof or result in the loss or diminution thereof; provided, however,
that in each such case, Seller shall use its reasonable efforts to obtain the
consents of such other party to an assignment to Buyer. If such consent is not
obtained, Seller shall cooperate with Buyer in any reasonable arrangement
designed to provide for Buyer the benefits of any such Contract, Permit or
Personal Property Lease including, without limitation, enforcement, for the
account and benefit of Buyer, of any and all rights of Seller against any other
person with respect to any such Contract, Permit or Personal Property Lease;
provided, however, that all expenses related thereto shall be borne by Buyer.
Section 1.3 Preservation of Books and Records. For a period of
5 years following the Closing, Seller shall preserve and maintain all books and
records of the Business in its possession. If Seller desires to dispose of any
such books and records at the end of such 5-year period or before the expiration
of such 5-year period, it shall first give notice thereof to Buyer and shall, at
Buyer's option and expense, appropriately package and deliver such books and
records to Buyer at such location as Buyer shall designate.
Section 1.4 Assumption of Liabilities. Buyer shall assume all
liabilities and obligations of Seller as they exist at the Closing Date (the
"Assumed Liabilities").
3
<PAGE>
ARTICLE II
PURCHASE CONSIDERATION
Section 2.1 Consideration. Upon the terms and subject to the
conditions set forth in this Agreement, in consideration for the Property and
the non-competition agreements of Seller and the Members referred to in Section
6.8, at the Closing Buyer shall (a) assume the Assumed Liabilities as provided
in Section 1.4 hereof and (b) issue to Seller ten (10) shares of the Common
Stock, $.01 par value (the "Buyer Common Stock"), of Buyer (the "Purchase
Consideration").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MEMBERS AND SELLER
Except as disclosed by the Members and Seller in the
Disclosure Schedule attached hereto (the "Disclosure Schedule"), each of the
Members (as to himself only, with respect to Section 3.2 and all representations
that are made to the knowledge of the Shareholders and the Companies) and Seller
hereby represents and warrants to Buyer as follows on the date hereof and as of
the Closing Date (all representations and warranties in Sections 3.11 through
3.20 inclusive are made only to the knowledge of the Members and Seller):
Section 3.1 Corporate Organization. Seller is duly organized,
validly existing and in good standing under the laws of the State of North
Carolina and has the corporate power and authority to own, operate and lease its
properties and to carry on its business as now being conducted. The Disclosure
Schedule contains a list of all jurisdictions where Seller is duly licensed and
qualified to do business as a foreign corporation. Seller is in good standing in
each jurisdiction in which the character of the properties owned by it or the
nature of its activities is such that such qualification is required by
applicable law except where the failure to be so qualified would not have a
Material Adverse Effect. The copies of the articles of incorporation of Seller,
as amended to date, and of the by-laws of Seller, as currently in effect, and
the other instruments setting forth the terms of Seller's capital stock have
been delivered to Buyer and are complete. For the purposes of this Agreement,
"Material Adverse Effect" refers to a material adverse effect on the results of
operations, properties, or financial condition of Seller and each of the
businesses conveyed by the agreements set forth in Section 6.10 taken together
in the aggregate.
Section 3.2 OMITTED.
Section 3.3 OMITTED.
4
<PAGE>
Section 3.4 Authorization. Seller has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Boards of Directors and Members of Seller
has duly approved and authorized the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, and no other
corporate proceedings on the part of Seller is hereby necessary to approve and
authorize the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby. Assuming that this Agreement constitutes a
valid and binding agreement of Buyer, this Agreement constitutes the valid and
binding agreement of Seller and each of the Members enforceable in accordance
with its terms, except as the enforceability hereof may be subject to applicable
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors' rights generally and to general principles of equity.
Section 3.5 Consents and Approvals. Neither the execution and
delivery of this Agreement by any of the Members or Seller nor the consummation
by any of the Members or Seller of the transactions contemplated hereby will (i)
conflict with or result in a breach of any provision of the articles of
incorporation or by-laws of Seller, or (ii) except for those events and consents
which are either set forth in the Disclosure Schedule or which events or the
absence of which consents do not or would not be reasonably expected to result
in a Material Adverse Effect, (A) violate, or conflict with, or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or require
consents from any other party (except consents which have been obtained or the
obtaining of which has been waived by Buyer) or result in the termination or in
a right of termination or cancellation of, or accelerate or result in a right to
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties of, Seller
or result in being declared, or in the right to declare, void, voidable, or
without further binding effect any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
lease, contract, or agreement to which Seller or any of the Members is a party,
or (B) violate any order, writ, injunction, decree, judgment, ruling, law, rule
or regulation of any court or governmental authority, federal, state, local or
foreign, applicable to Seller or any of the Members or require any consent,
approval or authorization of, or notice to, or declaration, filing or
registration with, any governmental or regulatory authority.
Section 3.6 No Violation. To the knowledge of the Members and
Seller, Seller is not in violation of, or under investigation with respect to or
threatened to be charged with or given notice of, any violation of any
applicable law, statute, order, rule, regulation, or judgment entered by any
federal, state, local or foreign court or governmental authority relating to
Seller, including, but not limited to those relating to state and local health
codes, the Americans with Disabilities Act, civil rights, and liquor sales and
services, except for any violation which does not or would not reasonably be
expected to result in a Material Adverse Effect. For purposes of this Agreement,
"knowledge" of a Shareholder refers to actual, personal knowledge of such
Shareholder.
5
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Section 3.7 Financial Statements. The audited balance sheets
of Seller as of December 27, 1994 (the "Balance Sheets") and the related
statements of income and retained earnings and changes in financial position for
the year then ended (the "Income Statements" ) and the unaudited balance sheets
of Seller as of July 11, 1995 and the related statements of income and retained
earnings and changes in financial position for the 28 weeks then ended have been
delivered to Buyer. The financial statements referred to above in this Section
are sometimes collectively called the "Financial Statements." Except as set
forth in the notes to the Financial Statements or as provided in Section 3.9,
the Financial Statements present fairly the financial position, the consolidated
results of operations and the consolidated changes in financial position of
Seller as of the date and for the periods covered thereby in conformity with
generally accepted accounting principles (including the related notes and
schedules thereto) consistently applied during the periods involved (except as
otherwise stated therein).
Section 3.8 Absence of Undisclosed Liabilities. Except as and
to the extent reflected or disclosed (or adequately reserved for or against) in
the Balance Sheets or in the notes thereto or in the Disclosure Schedule or
except as specifically provided by this Agreement, Seller does not have any
liabilities or obligations of any nature, whether known or unknown, contingent
or absolute, other than liabilities or obligations (i) which are not required by
generally accepted accounting principles to be reflected on a balance sheet, or
(ii) which were incurred in the ordinary course of business consistent with past
practice since the dates of the Balance Sheets; provided, however, that no
representation is made in this Section 3.8 with respect to any class of
liabilities or obligations with respect to which a representation is made
elsewhere in this Article III.
Section 3.9 Absence of Certain Changes. Since July 11, 1995
Seller has conducted their businesses in the ordinary course and there has not
been any change or event that has caused a Material Adverse Effect. Except as
set forth in the Disclosure Statement or as contemplated by this Agreement,
since July 11, 1995, Seller has not (i) made or granted any increases in the
compensation or benefits payable or to become payable to other employees other
than in the ordinary course of business; or (ii) entered into any commitment,
contractual obligation or transaction other than in the ordinary course of
business (which includes any capital expenditure for improvement of the business
or property of Seller).
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Section 3.10 Legal Proceedings. Except as set forth on the
Disclosure Schedule, there are no uninsured claims, actions or proceedings
pending, or, to the knowledge of Seller and the Members, threatened, against
Seller before any court or governmental body, federal, state, local or foreign,
which (i) seek to restrain or enjoin the consummation of the transactions
contemplated hereby or (ii) is reasonably likely to result in liability of more
than $25,000. Except as set forth in the Disclosure Schedule Seller is not bound
by or subject to any continuing order, injunction or decree of any domestic or
foreign court, arbitrator or governmental authority.
Section 3.11 Taxes and Tax Returns.
(a) For purposes of this Agreement, (i) the term "Taxes" shall
mean all taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, excise, property, sales, license, payroll
and franchise taxes, imposed by the United States, or any state, local or
foreign government or subdivision or agency thereof whether computed on a
unitary, combined or any other basis; and such term shall include any interest,
penalties or additions to tax; and (ii) the term "Tax Return" shall mean any
report, return or other information required to be filed with, supplied to or
otherwise made available to a taxing authority in connection with Taxes.
(b) To the knowledge of the Members and Seller, Seller has (i)
duly filed with the appropriate taxing authorities all Tax Returns required to
be filed by or with respect to Seller for any period ending on or before the
Closing Date and all such duly filed Tax Returns are true, correct and complete
in all material respects, and (ii) paid in full or made adequate provision for
on their respective balance sheets (in accordance with generally accepted
accounting principles) all Taxes shown to be due on such Tax Returns, except
where the failure to file Tax Returns or to pay Taxes would have a Material
Adverse Effect. There are no liens for Taxes upon the assets of Seller except
for statutory liens for current Taxes not yet due and payable or which may
thereafter be paid without penalty or are being contested in good faith. Except
as set forth in the Disclosure Schedule, neither Seller nor any Seller is not
undergoing an audit of any of its Tax Returns and neither Seller nor any of the
Members has received any notice of audit of any Tax Return of Seller or any
notice of deficiency or assessment from any taxing authority with respect to
liability for Taxes by Seller which has not been fully paid or finally settled,
and any such deficiency or assessment shown on such Disclosure Schedule is being
contested in good faith through appropriate proceedings. There have been no
waivers of statutes of limitation by Seller or with respect to any Tax Returns.
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Section 3.12 Property.
(a) To the knowledge of the Members and Seller, the Disclosure
Schedule contains a correct and complete schedule of all leases, subleases and
other agreements of like kind, as amended to date (collectively, the "Leases")
under which Seller occupies or has the right to occupy any real property in
connection with the operation of its business (the land, buildings and other
improvements covered by the Leases being herein called the "Leased Real
Property"). Seller has made available to Buyer true, correct and complete copies
of all such Leases (including all modifications, amendments and supplements
entered into by Seller), summaries of which (prepared by Seller) are set forth
on the Disclosure Schedule. To the knowledge of the Members and Seller, each
Lease is valid, binding and in full force and effect and, all rent and other
sums and charges payable by or to Seller, as appropriate, as tenant, sublessor
or sublessee thereunder are current. Except as set forth in the Disclosure
Schedule, no notice of default or termination under any Lease is outstanding, no
termination event or condition or uncured default on the part of Seller or, to
the knowledge of the Members and Seller, on the part of the landlord or
sublessor, exits under any Lease, and no event has occurred and no condition
exists, and the consummation of the transactions contemplated by this Agreement
will not create or result in an event or condition, which, with the giving of
notice or the lapse of time or both, would constitute such a default or
termination event or condition. Except as set forth in the Disclosure Schedule,
the Members and Seller do not have any ownership interest in the landlord under
any Lease.
(b) To the knowledge of the Members and Seller, Seller is
owner of valid fee title to the property as set forth in the Disclosure
Schedule. All real property as owned by Seller and all leasehold interests of
Seller are held free and clear of all mortgages, liens, security interests or
encumbrances of any nature whatsoever except for (i) mechanics', carriers',
warehousemen's workmen's, repairmen's or other like liens arising or incurred in
the ordinary courses of business, liens for Taxes, assessments and other
governmental charges which are not due and payable or which may thereafter be
paid without penalty or are being contested in good faith by appropriate
proceedings, financing liens on furniture, fixtures and equipment and other
imperfections of title or non-monetary encumbrances, if any, which do not
materially detract from the value of the property subject thereto, (ii)
easements, covenants, rights of way and other encumbrances or restrictions, of
record, (iii) zoning and other similar restrictions and (iv) unrecorded
easements, covenants, rights of way or other restrictions which do not
materially impair the use of the real property to which they relate.
(c) Neither Seller nor any of the Members has any knowledge of
any pending or threatened condemnation proceeding affecting any real property of
Seller or of any sale or other disposition of the real property of Seller in
lieu of condemnation, or of any notice of any of the foregoing.
(d) Except as provided in the Leases, to the knowledge of the
Members and Seller Seller does not own or hold and is not obligated under or a
party to any option, right of first refusal or any other material contractual
right to purchase, acquire, sell or dispose of the real property of Seller or
any portion thereof or interest therein.
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Section 3.13 Contracts
(a) Except as described on the Disclosure Schedule or
disclosed in the Financial Statements, to the knowledge of the Members and
Seller Seller is not, as of the date of this Agreement, a party to or bound by
any agreement, contract or commitment:
(i) involving a payment by Seller after the date
hereof of an amount of money more than $25,000 and continuing (including
mandatory renewals or extensions which do not require the consent of Seller)
more than six months from the date hereof and not made in the ordinary course of
business;
(ii) with management or any employee of Seller for
personal services that is not by its terms immediately terminable at will by the
employer without cost or liability to Seller at or at any time after the Closing
Date (subject to any rights an employee may have by statute or regulation);
(iii) with any labor union or employees' association;
(iv) relating to consulting or advisory services
involving the future payment of more than $5,000 and not immediately terminable
at will by such Company without cost or liability to such Company;
(v) under which Seller has borrowed any money or issued
any note, bond, indenture, loan, credit agreement or other evidence of
indebtedness or direct or indirect guarantee or assumption of indebtedness,
liabilities or obligations of others (other than overdraft accounts or similar
obligations used in the normal course of business);
(vi) relating to a mortgage, pledge, security agreement,
deed of trust or other document granting a lien over any material property, real
or personal, owned by Seller;
(vii) relating to any bonus, retirement, deferred
compensation, pension, profit sharing, stock options (other than those to be
exercised on or prior to the Closing), life and health insurance,
hospitalization, or employee savings or retirement agreements, policies or
plans;
(viii) that contains any severance pay liability or
obligations in excess of $5,000 to any employee, former employee, director,
former director or consultant;
(ix) relating to employment which provides annual salary
in excess of $5,000;
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(x) relating to all distribution, sales, agency or
advertising contracts in excess of $5,000, including contracts with sales
representatives or dealers; and
(b) Each of the contracts set forth on the Disclosure Schedule
is in full force and effect and valid and enforceable in accordance with its
terms and, except as set forth on the Disclosure Schedule, Seller has not
materially breached any of such contracts.
Section 3.14 Intellectual Property. To the knowledge of the
Members and Seller, the Disclosure Schedule contains an accurate and complete
list of all registered patents, trademarks, service marks, trade names, and
copyrights and all pending trademark, patent and copyright applications
(collectively, "Intellectual Property"), currently owned or held by Seller and
any agreement under which Seller owns or holds any license to use any of the
foregoing except where the failure to disclose would not have a Material Adverse
Effect. Except as disclosed on the Disclosure Schedule hereto, Seller own or are
licensed to use all Intellectual Property listed on the Disclosure Schedule or
rights therein without infringement of or conflict with any rights of third
parties except for infringements or conflicts that do not have a Material
Adverse Effect.
Section 3.15 Labor Difficulties. To the knowledge of the
Members and Seller, there is no labor strike, arbitration proceeding, slowdown
or stoppage (or charge of unfair labor practice) actually pending or threatened
against or affecting Seller which would result in a Material Adverse Effect. To
the knowledge of Seller and the Members, no union is seeking to represent the
employees of Seller. Except as set forth in the Disclosure Schedule, to the
knowledge of Seller and the Members there are no charges or complaints of
discrimination pending before the Equal Employment Opportunity Commission or any
state or local agency with respect to Seller. Except as set forth in the
Disclosure Schedule, no collective bargaining agreement is in force or is
binding on Seller.
Section 3.16 Employment Benefit Plans; ERISA.
(a) To the knowledge of the Members and Seller, Seller does
not maintain any bonus (including but not limited to all arrangements with
restaurant managers or other employees), deferred compensation, pension, profit
sharing, retirement, stock purchase, stock option, or medical plan, arrangement
or practice, whether written or unwritten, which covers employees of Seller (the
"Benefit Plans"), including without limitation, any "employee benefit plan"
within the meaning of Section 3(3) of the Employment Retirement Income Security
Act of 1974, as amended ("ERISA"), and the final regulations thereunder. True
and complete copies of each written Benefit Plan sponsored by Seller has been
delivered or made available to Buyer, or such copies shall be delivered to Buyer
as soon as practicable after the date hereof. Seller does not have any
commitment, whether formal or informal and whether legally binding or not, to
adopt any benefit plan in addition to those shown in the Disclosure Schedule.
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(b) To the knowledge of the Members and Seller, none of the
Benefit Plans is a "defined benefit plan" within the meaning of Section 3(35) of
ERISA, and Seller has never maintained or contributed to, or ever been obligated
to contribute to, a defined benefit plan on behalf of its employees. None of the
Benefit Plans is a "multiemployer plan" within the meaning of Section 3(37) of
ERISA, and Seller has never contributed to, or ever been obligated to contribute
to, a multiemployer plan on behalf of its employees.
(c) To the knowledge of the Members and Seller, each Benefit
Plan that qualifies as an "employee welfare benefit plan" within the meaning of
Section 3(1) of ERISA is and has been in material compliance with the applicable
provisions of ERISA and the Code. Seller has complied in all material respects
with all of their obligations under each such Benefit Plan including the making
of all required contributions.
Section 3.17 Related Party Transactions. To the knowledge of
the Members and Seller, except for those agreements listed in the Disclosure
Schedule or as contemplated hereby and except for services (and charges
therefor) provided by Members in the ordinary course of business to Seller,
Seller has not, within the past two (2) years, (i) loaned any amount that is
currently outstanding or (ii) sold, transferred or leased any properties or
assets (real, personal or mixed, tangible or intangible) to any of their
officers, directors, restaurant managers or other key employees.
Section 3.18 Insurance. To the knowledge of the Members and
Seller, the Disclosure Schedule contains a list of all insurance policies or
binders (including self-insurance) insuring the properties, assets, business,
and liabilities of Seller that were in effect as of the date of this Agreement,
except where the failure to so disclose would not have a Material Adverse
Effect. Except as otherwise disclosed on the Disclosure Schedule, all such
insurance relating to Seller has been issued to Seller under valid and
enforceable policies or binders. Seller has not received any notice from any
insurance organization threatening a suspension, revocation, modification or
cancellation of any Insurance Policy. No facility has suffered any material
damage by fire or other casualty since the date of the Balance Sheets which
facility has not been repaired and restored, unless either the Company owning or
using such facility has made adequate financial provisions for its repair and
restoration or such repair or restoration has been adequately provided for by
insurance relating to and for the benefit of such Company.
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Section 3.19 Environmental Matters.
(a) To the knowledge of the Members and Seller, except as set
forth on the Disclosure Schedule:
(i) Seller has obtained all material permits and
licenses and filed all material documents which are required to be obtained or
filed by Seller for the operation of their businesses under federal, state and
local laws relating to pollution or protection of the Environment;
(ii) Seller is in compliance with all material terms and
conditions of such required permits, licenses and authorizations;
(iii) Seller is in compliance with all other applicable
material limitations, conditions, standards, requirements, and schedules
contained in those laws or contained in any regulation, code, order, decree,
judgment, Notice or demand letter issued, entered, promulgated or approved
thereunder, and have not received notice of any violation thereof; and
(iv) there are no currently existing Environmental
Conditions with respect to Seller or any of their assets.
(b) For purposes of this Section 3.19, the following terms
shall have the meanings set forth below:
(i) "Hazardous Substances" include any pollutants, toxic
substances, hazardous materials or hazardous substances as defined in or
pursuant to the environmental laws of the State of North Carolina or any other
federal, state or local environmental law, ordinance, rule or regulation.
(ii) "Release" means release, spill, leak, pump, pour,
emit, empty, discharge, inject, escape, dispose or dump into the Environment.
(iii) "Notice" means any summons, citation, directive,
order, claim, litigation, investigation, proceeding, judgment, letter or other
communication, written or oral, actual or threatened from the State of North
Carolina or any agency thereof, the United States Environmental Protection
Agency ("USEPA") or other federal, state or local agency or authority or any
other entity or any individual concerning any intentional or unintentional act
or omission which has resulted or may reasonably be expected to result in the
Release of Hazardous Substances into the Environment from or on property of
Seller and shall include the imposition of any lien on property of Seller
pursuant to any violation of federal, state or local environmental laws,
ordinances, rules, regulations, government actions, orders or permits, or any
knowledge, after due inquiry and investigation, of any acts which may reasonably
be expected to give rise to any of the above.
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(iv) "Environmental Conditions" means material
conditions with respect to the Environment of property of Seller related to the
presence or Release of Hazardous Substances, which conditions may reasonably be
expected to require remedial action or may reasonably be expected to result in
material claims, demands and liabilities to Seller by third parties, including,
without limitation, governmental entities, adjacent property owners and any
individuals suffering property damage or personal injury.
(v) "Environment" means any surface water, ground water,
drinking water supply, land surface, or subsurface strata.
(c) To the knowledge of the Members and Seller, except as set
forth on the Disclosure Schedule, (i) during the two (2) years immediately prior
to the date hereof, Seller has not been cited for any material violations of the
Occupational Safety and Health Act of 1970, as amended ("OSHA"), nor, to the
knowledge of the Members or Seller is there any citations for material
violations pending as a result of inspections, and (ii) each of the material
conditions which resulted in the issuance of a citation has been abated or
otherwise corrected to the satisfaction of OSHA as of the date hereof. Seller
has made available to Buyer all reports and filings, if any, made or filed by
Seller pursuant to OSHA and similar state and local laws and regulations during
the prior two (2) years.
Section 3.20 Trade Secrets. Seller will deliver to Buyer
within 30 days of Closing a copy of the Recipe Book containing a description of
recipes, procedures and training manuals used by Seller. To the knowledge of
Seller and the Members, except as set forth in the Disclosure Schedule, and
except for portions of recipes which are unwritten, each recipe in the Recipe
Book is sufficient in detail and content to allow its use by Seller. Except as
set forth in the Disclosure Schedule, there are no liens, claims or encumbrances
upon any of the recipes, formulations and technologies, processes, "know-how"
and other technical data.
Section 3.21 Finders. Seller is not obligated to pay any fee
or commission to any broker, finder or intermediary for or on account of the
transactions provided for in this Agreement.
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Section 3.22 Investment Representation. Seller will acquire
the shares of Common Stock to be delivered to it pursuant to this Agreement, and
each Member to whom such shares may be distributed by Seller will acquire such
shares, for investment and not with a view to the resale or distribution thereof
(other than by Seller to its Members in respect of their interests in Seller),
and Seller and the Members acknowledge that when issued such shares will be
restricted securities which may not be sold without registration or exemption
from representation under the Securities Act of 1933 and applicable state
securities laws and that, except as provided in the Registration Rights
Agreement referred to in Section 7.6, Buyer has no present intention of
registering such shares, and that the certificates evidencing said shares will
be bear a legend reading substantially as follows:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
NEITHER SUCH SHARES OF COMMON STOCK NOR ANY INTEREST THEREIN
MAY BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT AND THE RULES AND REGULATIONS THEREUNDER. BY
ITS ACCEPTANCE HEREOF, THE HOLDER OF SUCH SHARES OF COMMON
STOCK REPRESENTS THAT IT IS ACQUIRING THIS COMMON STOCK FOR
INVESTMENT AND AGREES TO COMPLY IN ALL RESPECTS WITH ANY
APPLICABLE STATE SECURITIES LAWS COVERING THE PURCHASE OF THIS
COMMON STOCK AND RESTRICTING ITS TRANSFER."
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer each represents and warrants to Seller and the Members as
follows:
Section 4.1 Corporate Organization. Each of Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of, respectively, the State of North Carolina and the State of Delaware, with
full corporate power and authority to own, operate and lease its properties and
to carry on its business as now being conducted.
Section 4.2 Authorization. Buyer have full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Boards of Directors of Buyer and of Buyer
have duly approved and authorized the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, and no other
corporate proceedings on the part of Buyer are necessary to approve and
authorize the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby. Assuming that this Agreement constitutes
the valid and binding obligations of the Members and Seller, this Agreement
constitutes the valid and binding agreement of Buyer enforceable in accordance
with its terms, except as the enforceability hereof may be subject to applicable
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors' rights generally and to general principles of equity.
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Section 4.3 Consents and Approvals. Neither the execution and
delivery by Buyer of this Agreement nor the consummation by Buyer of the
transactions contemplated hereby will (i) conflict with or result in a breach of
any provision of the articles or certificate of incorporation or by-laws of
Buyer, or (ii) except for those of the following events which would not prevent
the consummation of the transactions contemplated by this Agreement and would
not result in any change in or effect on Buyer that would have a material
adverse effect on the ability of Buyer to consummate the transactions
contemplated hereby, (A) violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or require consents from any
other party or result in the termination or in a right of termination or
cancellation of, or accelerate or result in a right to accelerate the
performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of, Buyer, or result
in being declared, or in the right to declare, void, voidable, or without
further binding effect any of the terms, conditions or provisions of, any note,
bond mortgage, indenture, deed of trust, license, franchise, permit, lease,
contract, agreement or other instrument or commitment or obligation to which
Buyer is a party, (B) violate any order, writ, injunction, decree, judgment,
ruling, law, rule or regulation of any court or United States governmental
authority, applicable to Buyer or any of their properties, or (C) require any
consent, approval or authorization of, or notice to, or declaration, filing or
registration with, any governmental or regulatory authority. Except with respect
to certain state liquor license authorities, from which temporary approvals have
been obtained, no consent, approval or authorization of, or declaration, filing
or registration with, any governmental or regulatory authority is necessary to
be obtained or made by Buyer in connection with the execution, delivery and
performance of this Agreement.
Section 4.4 Capitalization. The authorized capital stock of
Buyer consists of 98,000,000 shares of Common Stock, par value $.01 per share
and 2,000,000 shares of Preferred Stock, par value $.01 per share. As of July
11, 1995, 36,771,612 shares of Buyer's Common Stock were issued and outstanding.
All shares of Buyer Common Stock to be issued to the Members in connection with
the transaction contemplated hereby will be duly and validly issued, fully paid
and nonassessable. There is no personal liability, and there are no preemptive
or similar rights, attached to the Buyer Common Stock.
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Section 4.5 Financial Statements. Buyer has heretofore
delivered to the Members a copy of its consolidated balance sheet as of December
27, 1994 and the related consolidated statements of income, stockholders'
investment and changes in financial position for the year ended on such date,
accompanied in each case by the report of Ernst & Young, independent public
accountants, and a copy of its unaudited consolidated balance sheet as of June
13, 1995 and the related unaudited consolidated statements of income,
stockholders' investment and changes in financial position for the 24 weeks then
ended, said financial statements were prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except as may be otherwise stated in said financial
statements, the notes thereto or the reports of said accountants), and fairly
present the financial position of Buyer and its consolidated subsidiaries at the
dates thereof and the results of operations and changes in financial position of
Buyer and its consolidated subsidiaries for the periods indicated, except that
the aforementioned unaudited financial statements are subject to normal
recurring adjustments which might be required as a result of a year-end audit.
Section 4.6 Absence of Changes. Since June 13, 1995 there has
not been any material adverse change in the condition (financial or otherwise),
of the assets, liabilities, earnings, business, prospects or results of
operations of Buyer and its subsidiaries, taken as a whole.
Section 4.7 Reports. Since January 1, 1994 Buyer has filed all
reports which were required to be filed by it with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended. All such
reports are complete and correct in all material respects.
Section 4.8 Finders. Buyer is not obligated to pay any fee or
commission to any broker, finder or intermediary for or on account of the
transactions provided for in this Agreement.
Section 4.9 Legal Proceedings. There are no claims, actions or
proceedings by or against Buyer which may affect the transactions contemplated
hereby at law or in equity or before or by any federal, state, local, foreign or
other governmental department, commission, board, agency, instrumentality or
authority, except those in the aggregate in which an adverse decision for Buyer
would not have a material adverse effect on the business or financial condition
of Buyer.
Section 4.10 NASDAQ Listing. On July 25, 1995 Buyer filed with
NASDAQ National Market System ("NASDAQ") an application to list the shares of
Buyer Common Stock to be delivered by Buyer to the Members as the Purchase
Consideration, and is using its best efforts to cause NASDAQ to approve the
listing of said shares.
ARTICLE V
COVENANTS
Section 5.1 Access to Properties and Records; Confidentiality.
(a) Between the date of this Agreement and the Closing Date,
Seller will provide Buyer, and its accountants, counsel and other authorized
representatives, and responsible financial institutions designated by Buyer as
its representatives, reasonable access, during normal business hours and under
reasonable circumstances, to any and all premises, properties, contracts,
commitments, books, records and other information of Seller.
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(b) Buyer hereby agrees that it shall hold all confidential
information relating to the Members and Seller which it obtains during the
course of such investigation in strict confidence and, if the transaction
contemplated hereby is abandoned pursuant to the terms hereof, Buyer shall
return all such information to Seller and shall not thereafter use it for any
purpose (as long as it remains confidential in nature).
Section 5.2 Announcements. Seller and Buyer shall consult with
each other prior to making any further public announcements prior to the Closing
Date with respect to this Agreement or the transactions contemplated hereby,
except as otherwise required by law.
Section 5.3 Conduct of the Business of Seller Prior to the
Closing Date. The parties agree that between the date of this Agreement and the
Closing Date or the earlier termination of this Agreement, and except as
otherwise consented to or approved by Buyer in writing or contemplated by this
Agreement:
(a) The business, operations, activities and practices of
Seller shall be conducted in the ordinary course and Seller shall maintain and
preserve their existing properties in accordance with past practice and shall
account therefor as required by generally accepted accounting principles in
accordance with past practice.
(b) Seller shall not: (i) incur any indebtedness, except
borrowings in the ordinary course of business; (ii) enter into any agreement
requiring the maintenance of a specified net worth; (iii) other than in the
ordinary course of business without the consent of Buyer which shall not be
unreasonably withheld, assume, guarantee, endorse, or otherwise become liable or
responsible (whether directly, contingently or otherwise), for the obligations
of any other individual, firm or corporation; (iv) other than in the ordinary
course of business, make any loans, advances or capital contributions to, or
investments in, any other individual, firm or corporation; or (v) other than in
the ordinary course of business, grant any general salary or compensation
increases to employees.
(c) Seller will use all reasonable efforts to keep available
to Buyer the present services of the employees of Seller if, and to the extent,
so requested by Buyer, and to preserve for Buyer the goodwill of Seller's
agents, customers, suppliers and others with whom business relationships exist.
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(d) None of the parties hereto will take or agree to take any
action which would cause any of its representations contained herein to be or
become untrue in any material respect including as of the date hereof and as of
the Closing Date, as if such representations were made as of such time.
(e) Neither Seller nor any of the Members shall enter into, or
authorize any agent to enter into on their behalf, discussions (i) relating to
the merger or consolidation of Seller with or into any person; or (ii) relating
to the sale of all or substantially all of the capital stock or assets of
Seller.
(f) Except in the ordinary course of business, no increase or
commitment to increase the compensation or commission paid or payable by Seller
to any employee, agent or independent contractor of Seller shall be made.
(g) Except as required by law or in the ordinary course of
business consistent with past practices, Seller shall not amend, adopt, approve,
commence operation of or make any contribution to any bonus or profit-sharing
plan, or any other plan of a similar nature.
(h) Seller will not: amend or change its articles of
incorporation or by-laws (or equivalent constituent documents) or split, redeem,
combine or reclassify the outstanding shares of its capital stock; acquire any
shares of its capital stock or other securities; issue or agree to issue any
additional shares of its capital stock or other securities; grant any right to
purchase or to convert any obligation into shares of its capital stock or other
securities; or sell or pledge (or agree to sell or pledge) any capital stock of
any subsidiary.
Section 5.4 Consent. The parties hereto agree to use all
reasonable efforts to obtain all permits, approvals, authorizations and consents
of all third parties necessary (i) for the consummation of the transaction
contemplated hereby, or (ii) for the conduct, ownership, leasing or operating of
the business of Seller after the Closing Date.
Section 5.5 Further Assurances. Consistent with the terms and
conditions hereof, each party hereto will execute and deliver such instruments,
certificates and other documents and take such other action as any other party
hereto may reasonably require in order to carry out this Agreement and the
transactions contemplated hereby.
Section 5.6 Members' Contingent Obligations and Liabilities.
On the Closing Date, Buyer shall assume, and shall indemnify and hold the
Members harmless from, any obligations and liabilities of the Members relating
to the business, properties or assets of Seller which are set forth on Section
5.8 of the Disclosure Schedule. Buyer shall cooperate with the Members, both
before and after the Closing, by taking all actions the Members shall reasonably
request to effect the termination of such obligations and liabilities of the
Members.
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Section 5.7 Regulatory Authorizations. Seller and Buyer shall
execute and file, or join in the execution and filing of, any application or
other document that may be necessary in order to obtain the authorization,
approval or consent of any governmental agency or instrumentality, state or
federal, that may be required in connection with the consummation of the
transactions contemplated hereby, including without limitation, all filings,
applications and documentation in connection with liquor license applications.
Section 5.8 Payment of Expenses of Brokers and Finders. Except
as otherwise agreed to in writing by Buyer, no legal or other fees, commissions,
compensation (other then regular salaries of Seller's employees) or
out-of-pocket expenses of persons who are not employees of Seller and have
represented Seller in connection with the negotiation of this Agreement
("Expenses") will be paid by Seller for or with respect to the negotiation of
this Agreement or the consummation of the transaction contemplated hereby. The
Members shall pay all Expenses or, to the extent Seller has paid or become
liable therefor, the Members shall reimburse Seller therefor at the Closing.
Section 5.9 Assignment of Patents and Trade Secrets. The
Members shall cause any patent, copyright, trademark, trade name, application
therefor or "know-how" agreement or interest therein or any trade secrets
(including all formulations and technologies, processes, "know-how" and other
technical data), owned, leased, created or licensed by the Members (if any)
which is being used in the business of Seller as it now exists, to be assigned
to Seller at or before the Closing by means of assignment agreements reasonably
satisfactory in form and substance to Buyer.
Section 5.10 OMITTED.
Section 5.11 Purchase Price Allocation. Seller and Buyer
hereby agree to agree upon the allocation of the aggregate purchase price among
all of the assets, properties and rights transferred to the Buyer under this
Agreement, for purposes of this Agreement and for federal, state and local tax
purposes, provided, however that no more than $1.00 worth of Common Stock is
allocated to the noncompetition agreements referred to in Section 6.8.
Furthermore, the Buyer and Seller shall file all federal, state, local and
foreign tax returns, including Internal Revenue Form 8594, in accordance with
the allocation agreed upon pursuant to this provision.
Section 5.12 Capital Commitments.
(a) Notwithstanding anything herein to the contrary and except
for commitments existing on the date hereof, Seller shall not make or incur any
capital expenditures in excess of $25,000 in any single instance between the
date of this Agreement and the Closing Date, including, but not limited to
equipment lease agreements and construction contracts, or enter into any
franchise agreement or license agreements without the prior written consent of
Buyer, which may not be unreasonably withheld.
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(b) Notwithstanding anything herein to the contrary, Seller
shall not enter into any new Lease or amend (other than in connection with
obtaining consents required for consummation of the transactions contemplated
hereby) any existing Lease between the date of this Agreement and the Closing
Date without the prior written consent of Buyer, which may not be unreasonably
withheld.
Section 5.13 Notification of Litigation. Prior to the Closing
Date, the Members agree to provide notice to Buyer of any litigation commenced
against Seller in which claims are made for damages in excess of $25,000 or in
which claims are made for equitable relief.
Section 5.14 Sale of Buyer Stock. The Members and Seller have
not sold and will not sell or otherwise dispose of any shares of the capital
stock of Buyer, including the Buyer Common Stock to be received by them as the
Purchase Consideration, during the period commencing 30 days prior to the
Closing Date and ending on that date when Buyer first makes publicly available
operating results covering at least 30 days of the Buyer's operations. Buyer may
cause each stock certificate to be issued pursuant to this Agreement to contain
a legend setting forth such restriction.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated
hereby shall be subject to the satisfaction, at or prior to the Closing Date, of
each of the following conditions, each of which may be waived by Buyer as
provided herein:
Section 6.1 Representations and Warranties True. The
representations and warranties of the Members and Seller contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and shall be true and correct in all material respects as if made on the
Closing Date (except to the extent that any representations and warranties of
the Members and Seller relate to a particular date).
Section 6.2 Performance of Obligations. Each of the
obligations of the Members and Seller to be performed by them at or before the
Closing Date pursuant to the terms hereof shall have been duly performed and
complied with in all respects, including the execution of all agreements
contemplated hereby, by the Closing Date. The Members shall deliver to Buyer an
officer's certificate to such effect in form and substance reasonably
satisfactory to Buyer.
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Section 6.3 Absence of Litigation. No order, stay, judgment or
decree shall have been issued by any court restraining or prohibiting the
consummation of the transactions contemplated by this Agreement and no action
shall have been instituted or threatened by a third party against Seller before
any court which action could reasonably be determined to have substantial merit
and a Material Adverse Effect.
Section 6.4 OMITTED.
Section 6.5 Pooling of Interests. Pooling of interest
accounting treatment shall have been approved in writing by Ernst & Young and
Deloitte & Touche.
Section 6.6 NASDAQ National Market System. Authorization shall
have been received from NASDAQ to list the Buyer Common Stock to be delivered by
Buyer to the Members as the Purchase Consideration.
Section 6.7 Fairness Opinion. Buyer shall have received an
opinion from Allen C. Ewing & Co. satisfactory to Buyer as to the fairness of
the terms of this transaction to the existing stockholders of Buyer.
Section 6.8 Non-Competition Agreements. Buyer shall have
received non-competition agreements from each of the Members and from Thomas W.
Shannon, substantially in the form of Exhibit A1 to A4 hereto (the
"Non-Competition Agreements").
Section 6.9 Consents. All consents listed in the Disclosure
Schedule shall have been obtained.
Section 6.10 Simultaneous Closing. The Closing of this
Agreement is conditioned on the simultaneous closing of the following agreements
(collectively, the "Other Agreements"): (i) Agreement and Plan of Merger among
Nacho Mama's Inc., the shareholders thereof, Mama's Concept, Inc. and Buyer;
(ii) Agreement and Plan of Merger among Morehead Restaurant Group, Inc., the
shareholders thereof, Frankie's Restaurant Inc., and Buyer; (iii) Agreement and
Plan of Merger among Creative Culinary Concepts, Inc., Steaks of Raleigh, Inc.,
Lone Star Steaks of Pineville, Inc., Steaks of Jacksonville, Inc., Steaks of
Greenville, Inc., Steaks of Cary, Inc., Steaks of Cornelius, Inc., and Cowboy
Steaks, Inc., the shareholders thereof, Lone Star Steaks, Inc. and Buyer; (iv)
Agreement of Purchase and Sale among R&T Investments, LLC, the members thereof,
and Buyer; (v) Agreement of Purchase and Sale among RTH Investments, the members
thereof, and Buyer; and (vi) Contract of Assignment among Creative Concepts of
North Carolina, LLC, the members thereof and Mama's Concept Inc.
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Section 6.11 Termination of Agreements. The following
agreements shall be terminated as of the Closing: Any and all employment
agreements between Seller or any of the parties to the Other Agreements and
James C. Verney, Matthew Wogan or Steven Fixman and Buy/Sell Agreements among
certain of the parties to the Other Agreements.
Section 6.12 Opinion of Counsel. Buyer shall have received an
opinion of Moore & Van Allen, PLLC, counsel to Seller, dated as of the Closing
Date, to the effect that (i) the execution and delivery of this Agreement by
Seller has been duly authorized by requisite corporate action on the part of
Seller, (ii) this Agreement (assuming the valid authorization, execution and
delivery of this Agreement by Buyer) is a valid and binding obligation of the
Members and Seller enforceable against the Members and Seller in accordance with
its terms, except (A) that such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditor's rights and (B) that the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
Section 6.13 Deliveries by Seller. Seller shall have delivered
to Buyer, duly and properly executed, the following:
(a) A General Conveyance, Assignment and Bill of Sale, in the
form attached hereto as Exhibit B.
(b) Assignment of the United States trademarks of Seller, in
the form attached hereto as Exhibit C Assignment").
(c) Assignment of the common law trademarks of Seller, in the
form attached hereto as Exhibit D.
(d) A certified or cashier's check or, at Buyer's election,
wire transfer, by Seller to the order of Buyer in the amount of the
aggregate of all Seller's cash on hand and in banks and other accounts
or, at Buyer's option, an assignment of all of Seller's bank and other
accounts in form and substance satisfactory to Buyer.
(e) Such other separate instruments of sale, assignment or
transfer as Buyer may reasonably deem necessary or appropriate in order
to perfect, confirm or evidence title to all or any part of the
Property.
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ARTICLE VII
CONDITIONS TO THE OBLIGATIONS
OF SELLER AND THE MEMBERS
The obligations of Seller and the Members to consummate the
transactions contemplated hereby shall be subject to the satisfaction, at or
prior to the Closing Date, of each of the following conditions, each of which
may be waived by Seller and the Members as provided herein:
Section 7.1 Representations and Warranties True. The
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects as of the date hereof and shall be
true and correct in all material respects as if made on the Closing Date (except
to the extent that any representations and warranties of Buyer relate to a
particular date).
Section 7.2 Performance of Obligations. Each of the
obligations of Buyer to be performed by it on or before the Closing Date
pursuant to the terms hereof, including the execution of all agreements
contemplated hereby, shall have been duly performed and complied with in all
material respects by the Closing Date. Buyer shall deliver to the Members an
officer's certificate to such effect in form and substance reasonably
satisfactory to Buyer.
Section 7.3 Absence of Litigation. No order, stay, judgment or
decree shall have been issued by any court restraining or prohibiting the
consummation of the transactions contemplated by this Agreement.
Section 7.4 Corporate Documents. The Members shall have
received from Buyer resolutions adopted by the Boards of Directors of Buyer,
approving the Agreement and the transactions contemplated thereby, certified by
the respective corporate secretary of Buyer.
Section 7.5 Opinion of Counsel. The Members shall have
received an opinion of Olshan, Grundman, Frome & Rosenzweig LLP, counsel for
Buyer, dated as of the Closing Date, to the effect that: (i) the execution and
delivery of this Agreement by Buyer have been duly authorized by requisite
corporate action on the part of this Buyer; (ii) this Agreement (assuming the
valid authorization, execution and delivery of this Agreement by the Members and
Seller) is a valid and binding obligation of Buyer enforceable against Buyer in
accordance with its terms, except (A) that such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and (B) that the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought; (iii) the issuance and delivery of
the shares of Buyer Common Stock to be issued to the Members as Purchase
Consideration have been duly authorized and, when issued and delivered to the
Members, will be validly issued, fully paid and non-assessable; and (iv)
immediately following the Closing, the authorized capital stock of Buyer will
consist of 98,000,000 shares of Common Stock, par value $.01 per share, of which
___ shares will be issued and outstanding, and 2,000,000 shares of Preferred
Stock , par value $.01 per share, of which none will be issued and outstanding.
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Section 7.6 Registration Rights Agreement. Buyer shall have
delivered to each of the Members a Registration Rights Agreement substantially
in the form of Exhibit E to this Agreement (the "Registration Rights
Agreement").
Section 7.7 Employment Agreement. Buyer shall have executed
and delivered to James C. Verney a one-year employment agreement in the same
format generally used by Buyer in respect to officers thereof.
Section 7.8 Simultaneous Closing. The Closing of this
Agreement is conditioned on the simultaneous closing of the Other Agreements.
Section 7.9 Deliveries by Buyer. Buyer shall have delivered to
Seller the Purchase Consideration in accordance with Section 3.5 and the
following, duly and properly executed:
(a) Assumption by Buyer of the obligations and
liabilities of Seller, in the form attached hereto as
Exhibit F (the "Assumption Agreement").
(b) Such other separate instruments of assumption that Seller
may reasonably deem necessary or appropriate in order to confirm or
evidence Buyer's assumption of the Assumed Liabilities.
ARTICLE VIII
TERMINATION AND ABANDONMENT
Section 8.1 Termination. This Agreement may be terminated at
any time prior to the Closing:
(i) by mutual consent of the parties;
(ii) by either the Members or Buyer if the Closing shall
not have occurred by August 4, 1995, provided that the failure to consummate the
transactions contemplated hereby is not a result of the failure by the party so
electing to terminate this Agreement to perform any of its obligations
hereunder; and
(iii) by the Members or by Buyer, if any court of
competent jurisdiction in the United States or other United States governmental
body shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and such order, decree, ruling or other action shall not have been
vacated or reversed or set aside on appeal, with prejudice against the party
seeking to restrain the transaction, by August 4, 1995. The date on which this
Agreement is terminated pursuant to this Section is herein referred to as the
"Termination Date."
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Section 8.2 Effect of Termination. Except (i) for the
obligations contained in Section 5.1(b) hereof and (ii) as set forth in Section
8.3 hereof, in the event that this Agreement shall be terminated pursuant to
Section 8.1, all obligations of the parties hereto under this Agreement shall
terminate and there shall be no liability, except for any breach of this
Agreement prior to such termination, of any party to any other party.
Section 8.3 Fees and Expenses. Except as provided in Section
5.8, each party hereto shall pay all of the fees and expenses incurred by it in
connection herewith.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
Section 9.1 Survival of Representations, Warranties and
Agreements. All representations and warranties, covenants and agreements of the
parties contained in this Agreement shall survive the Closing.
Section 9.2 Indemnification.
(a) Each of the Members agrees, severally but not jointly, to
indemnify Buyer (without duplication) against any and all losses, liabilities,
damages, costs and expenses (whether or not arising out of third party claims
and including without limitation interest, penalties and reasonable attorneys'
fees) (collectively "Losses") which are actually incurred by Buyer (without
duplication) (which for purposes of this Section 9.2 shall be reduced by (i) any
reserves or accruals with respect to such Losses reflected on the Balance Sheets
and (ii) the amount, if any, of insurance proceeds received by Buyer (or such
proceeds received by a third party to the extent such payment reduces the Loss)
with respect to a Loss (less any retrospective premiums or other forms of
self-insurance)) arising out of or resulting from the inaccuracy of any
representation or the breach of any warranty, covenant or agreement made by such
Shareholder in this Agreement.
(b) Buyer agree to indemnify the Members against any and all
Losses which are actually incurred by the Members as a result of the inaccuracy
of any representation or the breach of any warranty, covenant or agreement made
by Buyer in this Agreement or any other agreement executed or delivered by Buyer
pursuant to this Agreement.
(c) Notwithstanding any other provision of this Agreement: (i)
the indemnification obligations of the parties under this Section 9.2 shall be
payable (and reimbursable and repayable under Section 9.2(e)) solely in shares
of Buyer Common Stock, with one share of Buyer Common Stock to be delivered for
each $32 (or part thereof) of indemnification obligation; (ii) the aggregate
indemnification obligation of each Shareholder under this Section 9.2 and any
corresponding provision of the Other Agreements shall be limited to delivering
that number of shares of Buyer Common Stock as shall equal the aggregate number
of shares of Buyer Common Stock which such Shareholder shall have received
pursuant to this Agreement and the Other Agreements plus, in the case of Dennis
L. Thompson, the aggregate number of such shares so received by Thomas A. Hager,
Daniel M. Kammerer and Thomas W. Shannon; and (iii) neither the Members nor
Buyer shall be responsible for any Losses under this Section 9.2 and any
corresponding provision of the Other Agreements unless the aggregate amount of
such Losses on a cumulative basis exceeds $50,000 and then only to the extent of
such excess.
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(d) Except as otherwise provided herein, the indemnification
obligations of the parties under subsections (a), (b) and (c) of this Section
9.2 shall continue in full force only until December 31, 1995 after which no
party shall have recourse under this Agreement; provided, however, that (i) such
obligations shall not terminate with respect to any matter with respect to which
an indemnifiable party shall have made a claim prior to the close of business on
December 31, 1995 (stating in reasonable detail the basis of such claim,
including the specific date of such claim, the third parties affected thereby,
and the specific facts relating to the incident which gave rise to such claim)
to the indemnifying party.
(e) In order for a party (the "indemnified party") to be
entitled to any indemnification provided for under this Agreement in respect of,
arising out of, or involving a claim or demand or written notice made by any
third party against the indemnified party (a "Third Party Claim") after the
Closing Date, such indemnified party must notify the indemnifying party (the
"indemnifying party") in writing of the Third Party Claim within thirty (30)
business days after receipt by such indemnified party of written notice of the
Third Party Claim; provided that the failure of any indemnified party to give
timely notice shall not affect its right to indemnification hereunder except to
the extent the indemnifying party has actually been prejudiced or damaged
thereby. If a Third Party Claim is made against an indemnified party, the
indemnifying party shall be entitled, if it so chooses, to assume the defense
thereof with counsel selected by the indemnifying party. If the indemnifying
party assumes the defense of a Third Party Claim the indemnified party will
cooperate in all reasonable respects with the indemnifying party in connection
with such defense, and shall have the right to participate in such defense with
counsel selected by it. The fees and disbursements of such counsel, however,
shall be at the expense of the indemnified party; provided, however, that, in
the case of any Third Party Claim of which the indemnifying party has not
employed counsel to assume the defense, the fees and disbursements of such
counsel shall be at the expense of the indemnifying person. Regardless of which
party assumes the defense of a Third Party Claim, (i) the indemnified party
shall not settle or compromise any Third Party Claim without the consent of the
indemnifying party, and (ii) the indemnified party shall consent to and
cooperate in any settlement or compromise of such claim by the indemnifying
party.
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ARTICLE X
MISCELLANEOUS
Section 10.1 Headings. The descriptive headings of the several
Articles and Sections of this Agreement are inserted for convenience only and do
not constitute part of this Agreement.
Section 10.2 Notices. Any notices or communications required
or permitted hereunder shall be given in writing and shall be delivered or sent
by certified or registered mail, postage prepaid, addressed as follows:
If to Buyer or
Buyer, to: Lone Star Steakhouse & Saloon, Inc.
c/o John D. White
224 East Douglas, Suite 700
Wichita, Kansas 67206
With copies to: Gerald Aaron, Esq.
224 East Douglas, Suite 7000
Wichita, Kansas 67206
and
Olshan Grundman Frome &
Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: Steven Wolosky, Esq.
If to Seller or
to any of the
Members, to: Leslie Rudd Investment Company
314 South Galena
Aspen, Colorado 81611
Attention: Craig A. Ferraro
With copies to: Moore & Van Allen, PLLC
NationsBank Corporate Center
100 North Tryon Street
Floor 47
Charlotte, North Carolina 28202-4003
Attention: C. Wells Hall III, Esq.
and
Willkie Farr & Gallagher
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153 East 53rd Street
New York, NY 10022
Attention: William J. Grant, Jr., Esq.
or to such other address as shall be furnished in writing by such party, and any
such notice or communication shall be effective and be deemed to have been given
as of the date so mailed; provided that any notice or communication changing any
of the addresses set forth above shall be effective and deemed given only upon
its receipt.
Section 10.3 Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests, or obligations hereunder shall be
assigned by any of the parties hereto without the prior written consent of the
other party.
Section 10.4 Complete Agreement. This Agreement, the
Disclosure Schedule, the Registration Rights Agreement, the Tax Indemnification
Agreement and the Non-Competition Agreements contain the entire understanding of
the parties with respect to the transactions contemplated hereby and supersede
all prior arrangements or understandings with respect thereto. There are no
restrictions, agreements, promises, warranties, covenants or undertakings other
than those expressly set forth herein or therein.
Section 10.5 Modifications, Amendments and Waivers. At any
time prior to the Closing (i) the parties hereto may, by written agreement,
modify, amend or supplement any term or provision of this Agreement and (ii) any
term or provision of this Agreement may be waived in writing by the party which
is entitled to the benefits thereof.
Section 10.6 Counterparts. This Agreement may be executed in
two or more counterparts all of which shall be considered one and the same
agreement and each of which shall be deemed an original.
Section 10.7 Governing Law. This Agreement shall be governed
by the laws of the State of North Carolina (regardless of the laws that might be
applicable under principles of conflicts of law) as to all matters, including
but not limited to matters of validity, construction, effect and performance.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Asset Purchase Agreement to be executed as of the day and year first above
written.
CREATIVE CONCEPTS OF NORTH
CAROLINA, LCC
By:
Name:
Title:
LESLIE G. RUDD
DENNIS L. THOMPSON
JAMES C. VERNEY
Attest: LONE STAR STEAKHOUSE & SALOON, INC.
By:
Name:
Title:
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 18, 1996, with respect to the
consolidated financial statements of Lone Star Steakhouse & Saloon, Inc.
included in the Registration Statement (Form S-1) and related Prospectus of
Lone Star Steakhouse & Saloon, Inc. for the registration of 4,000,000 shares
of its common stock.
ERNST & YOUNG LLP
Wichita, Kansas
May 28, 1996
