UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended
December 29, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 0-20716
TACO CABANA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2201241
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8918 Tesoro Drive, Suite 200
San Antonio, Texas 78217
(Address of principal executive offices, including ZIP Code)
Telephone Number (210) 804-0990
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
None None
Securities Registered Pursuant to Section 12(g) of the
Act:
Title of Each Class
Common Stock, $0.01 par value
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
As of February 28, 1997, the aggregate market value of the
voting stock held by non-affiliates of the Registrant, based on the
last sale price of the Common Stock of the Registrant as quoted on
the NASDAQ National was $58,377,034 (for purposes of calculating
this amount, only directors, officers, and beneficial owners of 5%
or more of the capital stock of the Registrant have been deemed
affiliates).
The number of shares of the Common Stock of the Registrant
outstanding as of February 28, 1997 was 15,706,537.
FORM 10-K INDEX
PART I
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 9
ITEM 3. LEGAL PROCEEDINGS 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS 11
ITEM 6. SELECTED FINANCIAL DATA 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 24
ITEM 11. EXECUTIVE COMPENSATION 26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 31
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K 34
PART I
ITEM 1. BUSINESS
General
Taco Cabana, Inc., a Delaware corporation (the "Company"),
pioneered the Mexican patio cafe concept with its first restaurant
in 1978 and, as of December 29, 1996, operates and franchises a
total of 121 such restaurants system-wide. Of these, the Company
owns and operates 96 Taco Cabana restaurants, two free-standing Two
Pesos restaurants, and four mall-unit Two Pesos restaurants. The
Company also owns and operates two Mexican patio cafes under the
Sombrero Rosa name. Subsequent to year end, the Company converted
two of the mall-unit Two Pesos and one Sombrero Rosa to the Taco
Cabana name. Franchisees of the Company own and operate the
remaining 17 Taco Cabana restaurants. The Company's restaurants
(including franchises) are located primarily in Texas, and are also
located in Arizona, Colorado, Georgia, Indiana, New Mexico, Nevada,
and Oklahoma.
Taco Cabana restaurants feature generous portions of fresh,
premium quality Tex-Mex and traditional Mexican style food at an
exceptional value. The restaurants provide interior, semi-enclosed
and patio dining areas with a festive Mexican theme. Menu items
include flame-grilled beef and chicken fajitas served on sizzling
iron skillets, "Chicken Flameante"TM (a marinated rotisserie
chicken), quesadillas, traditional Mexican and American
breakfasts, other Tex-Mex dishes, fresh, hot flour tortillas, and
lighter items such as a variety of salad entrees. Unlike many of
its competitors, the Company makes most menu items fresh daily in
each of its restaurants.
Taco Cabana Food and Pricing Philosophy
The Company is committed to selling premium food which it
believes to be among the highest quality of any chain in the
restaurant industry. This process begins with the selection of the
freshest available ingredients. The Company's menu items are
prepared strictly in accordance with authentic and well-tested
recipes. Taco Cabana restaurants also offer a variety of beverage
choices, including margaritas and beer. Alcoholic beverages
currently account for approximately 5% of gross sales.
The Ingredients. The Company has implemented a purchasing
program structured to ensure that all of the ingredients used in
the preparation of the Taco Cabana menu items are of the highest
quality. The Company regularly inspects its vendors to ensure both
that the products purchased by the Company conform to its
standards, and that the prices offered are competitive. The meat
used in making fajitas as well as certain other principal
ingredients are purchased through supply contracts to ensure
availability and minimize the risks of price fluctuation.
The Preparation. The menu items offered at any Taco Cabana
restaurant are prepared at that restaurant from fresh meat and
produce ingredients delivered by suppliers at least three times
each week to each restaurant. The Company is committed to
differentiating itself from sit-down Mexican and fast food
restaurants, which management believes offers a substantially
greater number of items that are either pre-prepared, pre-packaged
or frozen.
Pricing Philosophy. The Company offers value by pricing its
menu items below the price of comparable menu items in sit-down
Mexican restaurants. Although Taco Cabana's food costs (as a
percentage of sales) are generally higher than fast food chains as
a result of the premium quality of ingredients used, the Company
believes that this point of differentiation contributes to the
achievement of average unit volumes in excess of most fast food
restaurants.
Taco Cabana Restaurants
Restaurant Layout. Taco Cabana restaurants average
approximately 3,200 square feet (exclusive of the exterior dining
area) and provide seating for approximately 80 customers, with
additional patio seating for approximately 50 customers.
Taco Cabana restaurants are typically a vivid pink color (with
painted and neon accents), conveying a distinctive Mexican theme
and permitting easy identification by passing motorists. Inside,
exposed elements of the kitchen display the freshness of Taco
Cabana's food and the authenticity of its preparation. Taco
Cabana's restaurant design enables customers to observe fresh
fajitas cooking on a charcoal grill, a machine making fresh, hot
flour tortillas, Chicken FlameanteTM rotating on spits and the
preparation of other food items. Upon entry, the customer places
an order selected from an overhead menu board, proceeds down a
service line to where the order is picked up, and then passes a
Salsa Bar en route to the dining area. The distinctive Salsa Bar
offers Taco Cabana customers freshly prepared, authentic Tex-Mex
ingredients such as Salsa de Fuego (made with charred peppers and
tomatoes), pico de gallo and salsa (all "made from scratch"
throughout the day at each restaurant), and cilantro, pickled
jalapeno slices, crisp chopped onions, and fresh sliced limes.
According to the season, time of day and personal preference, the
customer may choose to dine either in the restaurant's brightly
colored and festive interior dining area or the semi-enclosed or
outdoor patio areas. The addition of traditional and contemporary
Latin music, tropical landscaping, and authentic decorative
artifacts create an overall dining environment which the Company
believes is both attractive and festive. Most Taco Cabana
restaurants also offer drive-thru service.
During November 1996, the Company opened a new prototype
restaurant in the Dallas market, which incorporates several new
and different features that set it apart from the current Taco
Cabana restaurant design. The new prototype features a rounded
front, as well as Southwest accents such as a clay tile roof, heavy
wood beams and a trellis that shades the patio area, and adds the
use of bright colors outside and inside, including colored tiles,
doors, windows, and awnings. Corrugated metal wall panels, aged
wood finishes, and distressed stainless steel counter tops are
featured inside, all of which are intended to replicate an old
Mexican cafe. Bright neon on the exterior of the building
broadcasts the unique menu items served at Taco Cabana. Favorite
features retained from the original Taco Cabana restaurants include
working garage doors that open up the dining area to the outside
when weather permits, display cooking where the guest can see the
food being prepared, liberal use of the Taco Cabana's signature
pink color, and the self-serve fresh Salsa Bar. The prototype was
designed to reduce overall construction costs, improve functional
efficiency, allow for better guest service, and to enhance Taco
Cabana's unique patio cafe image.
Restaurant Locations. The following table sets forth the
number of restaurants as of December 29, 1996 by area of dominant
influence ("ADI") for television and radio advertising:
Company- Franchised(1) Total
Owned
ADI*
Houston 30 (2) 0 30
San Antonio 29 (3) 0 29
Austin 13 0 13
Dallas/Fort Worth 12 0 12
Denver, Colorado 7 0 7
El Paso 7 0 7
Rio Grande Valley 2 0 2
Phoenix, Arizona 2 (4) 0 2
Lubbock 2 0 2
Tyler 0 1 (6) 1
Atlanta, Georgia 0 3 (5)(7) 3
Bryan/College Station 0 2 2
Las Vegas, Nevada 0 1 1
Tulsa, Oklahoma 0 1 1
Waco 0 1 1
Albuquerque, New Mexico 0 2 2
Amarillo 0 2 2
Eagle Pass 0 1 1
Corpus Christi 0 1 1
Ft. Wayne, Indiana 0 1 1
Killeen 0 1 1
Total 104 17 121
=== === ===
* All of the ADIs are located in Texas except as otherwise
indicated.
(1) Represents franchised Taco Cabana restaurants, except as
otherwise indicated. Does not include licensed Two Pesos
franchises
(2) Includes four mall-unit Two Pesos restaurants
(3) Includes two Sombrero Rosa restaurants
(4) Represents free-standing Two Pesos restaurants
(5) Represents a joint-venture
(6) Restaurant was closed subsequent to year end
(7) Two of the three restaurants were closed subsequent to year
end
Customer Convenience
The Company operates its restaurants to enable customers to
dine-in or take-out, as they choose. In most cases, the
restaurants also provide the convenience of drive-thru windows
which, in the aggregate, account for approximately 38% of the
Company's sales. A majority of the restaurants are open 24 hours a
day. This strategy is continually evaluated for economic viability
on a restaurant by restaurant basis.
Customer Service
The Company is committed to consistently providing personal,
attentive and efficient service in order to attract repeat
customers. Restaurant and shift managers are encouraged to follow
a "front of the house" style of management, which requires that the
managers spend most of their time attending to customers at the
register, drive-thru windows or in the dining areas.
Marketing
The Company is utilizing an integrated, multi-level marketing
calendar for 1997 which includes monthly company-wide promotions,
direct mail, in-store promotions, local store marketing, and other
strategies, including the use of television and/or radio
advertising in its major markets. The Company will execute this
plan utilizing a marketing budget of approximately 4% of sales.
In March 1996, the Company selected The Richards Group of
Dallas, Texas as its advertising agency for broad market
advertising. Additionally, in April 1996, Montemayor Y Associados
of San Antonio, Texas was named as Taco Cabana's advertising agency
for Hispanic marketing. The Company believes the selection of the
two agencies provides the opportunity for development and
implementation of an improved advertising and marketing strategy.
Expansion
The Company's strategy is to achieve a dominant or leading
position among Mexican food restaurants in each of its targeted
markets in order to obtain marketing and operating efficiencies.
The Company seeks to implement this strategy by selectively adding
restaurants in existing markets and opening restaurants in new
markets where it believes it can obtain a significant market share.
In accordance with this strategy, the Company may locate new
restaurants in close proximity to existing Taco Cabana restaurants
in order to provide the Company with increased market penetration
and market profitability, even if this may result in a reduction in
comparable store sales volumes of certain restaurants.
The Company's 1997 objective is to open six to eight
freestanding and two non-traditional restaurants in existing
markets. The freestanding restaurants will utilize the new
prototype design described previously. The two non-traditional
restaurants are located within H-E-B grocery stores.
The Company believes the site selection process is very
important in determining the potential success of a particular
restaurant and senior management devotes substantial time and
resources to analyzing each prospective site. The Company focuses
on selecting locations with the potential of matching or surpassing
its average current per unit economic performance and of producing
significant revenues while controlling capital expenditures and
rent as a percentage of net sales. A variety of factors are
considered in the site selection process, including local market
demographics, site visibility and accessibility (including drive-by
traffic and ease of drive-thru accessibility), proximity to
competitive operations, and proximity to generators of potential
customers, such as major retailers, retail centers, medical or
hospital facilities, office complexes, hotel concentrations, and
stadiums, arenas, theaters or other entertainment centers. During
1996, using the services of a consulting firm, the Company
developed a software model which is currently used to evaluate
potential locations.
Restaurant Operations and Management
The Company seeks to maintain quality and consistency in its
restaurant operations by carefully training and supervising
personnel and establishing exacting standards relating to food
quality, friendliness of service and cleanliness of the restaurant
facility. It is the Company's policy to ensure that customers are
served quickly and that customers receive orders correctly filled
and delivered in a courteous manner.
The Company maintains financial and accounting controls for
each of its restaurants through use of centralized accounting and
management information systems. The Company has installed
throughout all of its company-owned restaurants an in-store
computer-based management support system that allows for daily
polling of sales and labor information. Additionally, a separate
management information system has been developed and implemented in
all company-owned restaurants which provides for daily polling of
food costs. This system records the receipt of inventory through
the scanning of bar-codes and integrates with the point of sale
system thus providing immediate cost of sales data and inventory
records. The system is designed to improve food cost management,
provide corporate management quicker access to financial data and
reduce the time devoted by its restaurant managers to
administrative responsibilities.
Operations are managed by restaurant general managers who
complete an intensive training program during which they are
instructed in all areas of Taco Cabana's restaurant operations.
Such areas of training include food preparation, customer service,
cost controls, facility maintenance, communications skills and
employee relations. Restaurant general managers are overseen by
division leaders (individuals with responsibility for the operation
of multiple restaurants within a market) and by regional Vice
Presidents of Operations. An incentive plan has been established
in which all restaurant and division managers participate. Awards
under the incentive plan are tied to the achievement of specified
sales, profitability and qualitative performance goals.
Franchising Program
At December 29, 1996, the Company had 8 franchisees and one
joint venture partner operating a total of 17 Taco Cabana
restaurants.
The Company typically offers area development agreements to
franchisees for construction of several restaurants over a defined
period of time within a specific geographic area. Under the
standard development agreement, a franchisee is generally required
to pay a nonrefundable $25,000 fee at the time the agreement is
signed for each restaurant to be developed. The number of
potential restaurants is determined by negotiation between the
Company and the franchisee. The Company's current area development
agreement also provides for a franchise fee of $50,000 for each
restaurant (with the $25,000 development fee applied as a partial
credit). The balance of the $50,000 franchise fee is due when
construction is commenced for each restaurant. Each standard
franchise agreement has a 20 year initial term with certain renewal
rights and typically provides for payment to the Company of
royalties equal to 4% of gross sales and advertising fees or
required marketing expenditures of up to 3.5% of gross sales. The
Company requires each franchisee to have an approved full-time
principal operator who is responsible for the supervision and
conduct of the franchise.
The Company did not enter into any new franchise agreements
during 1996 and does not currently anticipate significant new
franchisee signings until 1998.
Competition
Taco Cabana's restaurants compete both with fast food
operations and with traditional sit-down Mexican restaurants.
Management believes that the Company's combination of freshly
prepared food, distinctive ambiance, and superior service help to
distinguish Taco Cabana restaurants from fast food operations,
while Taco Cabana's price-value relationship differentiates its
restaurants from more expensive sit-down or casual dining
restaurants.
The food service industry is intensely competitive with
respect to price, service, location and food quality, and there are
many well-established national, regional and locally-owned
competitors in the Company's market areas, some of which have
greater financial and other resources than the Company. Some of
such competitors have also been in existence longer than the
Company and are better established in areas where Taco Cabana's
restaurants are or will be located. The restaurant business is
often affected by changes in consumer tastes, economic conditions,
population, traffic patterns, availability of employees and cost
increases.
Employees
At December 29, 1996, the Company employed approximately 3,300
persons, of whom approximately 3,200 were operations employees and
the remainder were corporate personnel. Most employees, other than
restaurant management and corporate personnel, are paid on an
hourly basis. The Company believes that it provides working
conditions and wages that are comparable with those of other
companies in the restaurant industry operating in its market area.
The Company's employees are not covered by a collective bargaining
agreement.
The Company does not subscribe to any workers' compensation
insurance program in the State of Texas, where the great majority
of its company-owned restaurants are currently located. As such,
it is subject to negligence actions by its employees and is not
able to assert contributory negligence and certain other defenses.
In addition, employees might be able to recover certain types of
damages that would not be available to them if the Company
subscribed to a workers' compensation insurance program. The
Company self-insures a portion of such risk, and carries excess
liability coverage that it believes is adequate. This practice has
not had any material adverse effect upon the Company's operations
or financial position since it was adopted in November 1988.
Trademarks, Service Marks and Trade Dress
The Company regards its trademarks, service marks and trade
dress as having significant value and as being important to its
marketing efforts. The Company has registered its principal Taco
Cabana logo and design with the United States Patent and Trademark
Office on the Principal Register as a service mark for its
restaurant services, has secured or has applied for state and
federal registrations of several other advertising or promotional
marks, including variations of its principal mark and the service
mark "Get Real," and has applied for registrations in foreign
countries of its principal mark and several other marks. The
Company's policy is to pursue registration of its principal marks
and to oppose strenuously any infringement of its marks or trade
dress.
Government Regulation
Each company-owned and franchised restaurant is subject to
regulation by federal agencies and to licensing and regulation by
state and local health, sanitation, safety, fire and other
departments relating to the development and operation of
restaurants, including regulations relating to alcoholic beverage
sales, environmental, building and zoning requirements, preparation
and sale of food, and laws governing the Company's relationship
with its employees, including minimum wage requirements, overtime,
working conditions and citizenship requirements. Difficulties or
failures in obtaining the required licenses or approvals could
delay or prevent the opening of new restaurants.
The Company is subject to Federal Trade Commission ("FTC")
regulation and state laws which regulate the offer and sales of
franchises. The Company may also become subject to state laws
which regulate substantive aspects of the franchisor-franchisee
relationship. The FTC requires the Company to furnish to
prospective franchisees a franchise offering circular containing
prescribed information. A number of states in which the Company
might consider franchising also regulate the offer and sale of
franchises and require registration of the franchise offering with
state authorities. State laws that regulate the
franchisor-franchisee relationship presently exist in a substantial
number of states and bills have been introduced in Congress and
other states from time to time which would provide for regulation
of the franchisor-franchisee relationship in certain respects.
Certain of such laws may restrict a franchisor in the termination
of a franchise agreement, although these provisions have not had a
significant effect on the Company's operations.
The Company is subject to the Fair Labor Standards Act and
various state laws governing such matters as minimum wage
requirements, overtime and other working conditions and citizenship
requirements. A significant number of the Company's food service
personnel are paid at rates related to the federal minimum wage and
increases in the minimum wage will increase the Company's labor
costs. In September 1997, the federal minimum wage will increase
to $5.15 per hour. The Company is subject to the Texas "dram-shop"
laws and may be subject to the "dram-shop" laws of certain other
states. Dram-shop laws 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 is also subject to the Americans with Disabilities Act
of 1990, which, among other things, may require certain minor
renovations to existing restaurants to meet federally mandated
access and use requirements. The cost of these renovations is not
expected to be material to the Company.
The Company believes that it is operating in substantial
compliance with applicable laws and regulations governing its
operations.
ITEM 2. PROPERTIES
The Company currently owns 43 of its restaurant buildings, 30
of its sites, and leases the remaining restaurant locations. The
Company may purchase a number of its current and future restaurant
locations where it is cost effective to do so. Substantially all of
Taco Cabana's restaurants are free-standing buildings. The Company
has typically needed 90 days after the signing of a lease and
obtaining required permits to complete construction and open a new
restaurant. Additional time is sometimes needed to obtain certain
government approvals and licenses, such as liquor licenses.
Land leased by the Company is typically leased under "triple
net" leases that require the Company to pay real estate taxes and
utilities and maintain insurance with respect to the premises and,
in many cases, to pay contingent rentals based on sales in excess
of specified amounts. The leases have initial terms of 10 to 20
years with options to renew for additional periods which range from
5 to 15 years. Approximately 91% of the Company's current leases
have remaining terms or renewal options extending more than five
years from December 29, 1996.
ITEM 3. LEGAL PROCEEDINGS
On September 13, 1995 a shareholder lawsuit (A.L. Park, et al.
v. Taco Cabana, Inc., et al) was filed in the United States
District Court for the Western District of Texas (Cause No.
SA95CA0847) seeking status as a class action. The lawsuit alleged
that the defendants violated federal securities laws by alleged
misrepresentations which the plaintiffs claim were designed to
artificially inflate the Company's stock price. The suit alleged
that the defendants misrepresented the condition of the Company's
business, principally with regard to the success of its acquisition
of certain Two Pesos restaurants, its future earnings prospects,
and its declining sales volume. The allegations covered the time
period from April 8, 1993 to September 17, 1994, including public
offerings of the Company's stock on July 7, 1993 and December 7,
1993.
On July 24, 1996, the Company entered into a proposed
settlement, (the "Settlement"), subject to court approval and
certain other conditions. Under the terms of the Settlement, the
plaintiffs will receive a total of $6.0 million. The Company's
insurance carrier has deposited $3.05 million in cash, and the
Company has deposited $2.95 million in cash into an escrow account
for such purposes. Additionally, the Company accrued and paid
approximately $450,000 for legal and related expenses incurred in
connection with the Settlement.
The Company has denied any liability or wrongdoing in
connection with the Lawsuit. The Settlement was entered into to
avoid continuing distraction of management, reduce overall legal
cost liability and exposure to risk of adverse outcome. The
Settlement was approved by the U.S. District Court on December 20,
1996.
In addition, the Company is a party to routine negligence or
employment-related litigation in the ordinary course of its
business. No such pending matters, individually or in the
aggregate, are deemed to be material to the results of operations
or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter during the fourth
quarter of the Company's fiscal year ended December 29, 1996 to a
vote of the Company's stockholders, through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Common Stock, $.01 par value, of the Company ("Common
Stock") began trading on the NASDAQ National Market on October 16,
1992, the effective date of the Company's initial public offering.
Prior to October 16, 1992, there was no public market for the
Common Stock.
The table below sets forth, for the periods indicated, the
reported high and low last sale prices of the Company's Common
Stock, as reported on the NASDAQ National Market:
High Low
Fiscal Year Ended December 29,1996
Quarter Ended December 29, 1996 $ 7 3/4 $ 5 5/16
Quarter Ended September 29, 1996 8 3/16 5 9/16
Quarter Ended June 30, 1996 8 7/8 7
Quarter Ended March 31, 1996 6 11/16 5
Fiscal Year Ended December 31, 1995
Quarter Ended December 31, 1995 6 1/8 4 5/8
Quarter Ended October 1, 1995 6 3/8 5 1/8
Quarter Ended July 2, 1995 7 1/16 5 1/8
Quarter Ended April 2, 1995 9 5 5/8
As of February 28, 1997, the last reported sale price of the
Common Stock on the NASDAQ National Market System was $5.25 per
share. As of February 28, 1997, there were approximately 1,000
record holders of Common Stock.
On June 9, 1995 the Board of Directors declared a dividend
distribution of Preferred Share Purchase Rights. The Rights may be
redeemed by the Board of Directors for one cent per Right prior to
the close of the tenth day (subject to extension by the Board of
Directors to the 30th day) after a person or group acquires (or has
obtained the right to acquire or announces an intent to acquire)
through open-market purchases, a tender offer or otherwise, 15% or
more of the Company's shares. For a 120-day period after any date
of a change (resulting from a proxy or consent solicitation) in a
majority of the Board of Directors in office at the time the
solicitation was commenced, the Rights may only be redeemed if
there are directors then in office who are continuing directors and
the Board of Directors of the Company, with the concurrence of a
majority of such continuing directors, determine that the
redemption is in the best interest of the Company and its
stockholders.
The Rights were issued on June 20, 1995 to stockholders of
record on that date and will expire in ten years. The Rights are
not currently exercisable and automatically trade with the common
shares. However, upon the earlier of (i) ten days after a person or
group acquires or has obtained the right to acquire 15% or more of
the Company's shares, or (ii) ten business days after a person or
group commences or discloses an intent to commence a tender or
exchange offer the consummation of which would result in such
person or group owning 15% or more of the shares, and subject to
the Board's right to set a later date (which date will not be later
than the 30th day after an event described in (i) or (ii)), the
Rights will become exercisable and separate certificates
representing the Rights will be distributed.
When the Rights first become exercisable, a holder will be
entitled to buy from the Company one one-thousandth of a share of a
new series of participating cumulative preferred stock for $37.50.
If the Company is involved in a merger or other business
combination with, or 50% or more of its assets or earning power are
sold to, a publicly-traded person or group that has acquired 15% or
more of the Company's shares, the "flip-over" provision of the
Rights will be triggered and the Rights will entitle a holder to
buy a number of shares of common stock of the acquiring company
having a market value of twice the exercise price of each Right.
If the acquiring person or group is not publicly traded, the "flip-
over" provision of the Rights will be triggered and the Rights will
entitle the holder to buy at the exercise price, at the holder's
option (i) the number of shares of the surviving company having a
book value of twice the exercise price, (ii) the number of shares
of the acquiring company having a book value of twice the exercise
price, or (iii) the number of shares of any publicly traded
affiliate of the acquiring company having a market value of twice
the exercise price.
If any person or group acquires or has obtained the right to
acquire 15% or more of the Company's outstanding common stock, the
"flip-in" provision of the Rights will be triggered and the Rights
will entitle a holder (other than such person or any member of such
group) to buy that number of one one-thousandths of a preferred
share equivalent to the number of shares of common stock of the
Company having a market value of twice the exercise price of each
Right.
Following the acquisition by any person or group of 15% or
more of the Company's common stock, the Board of Directors will
also have the ability to exchange the Rights, in whole or in part,
for consideration per Right consisting of one-half of the
securities that would be issuable at such time upon the exercise of
one Right or cash equal to the exercise price of the Right.
In addition to authorizing the Stockholder Rights Plan, the
Board authorized a new series of participating cumulative preferred
stock purchasable upon exercise of the Rights. The shares of the
new series of participating cumulative preferred stock will be
nonredeemable. Each preferred share will be entitled to a
quarterly dividend equal to the greater of $.01 per share or 1,000
times any dividend declared on the common shares during such
quarter. In the event of liquidation, the holders of the preferred
shares will be entitled to receive an aggregate liquidation payment
equal to the greater of $.01 per whole share or an amount per share
equal to 1,000 times the payment made per share of common stock.
Each preferred share will have 1,000 votes, voting together with
the common shares. Finally, in the event of any merger,
consolidation or other transaction in which common shares are
exchanged, each preferred share will be entitled to receive 1,000
times the amount received per common share. These rights are
protected by customary anti-dilution provisions. In the event of
issuance of preferred shares upon exercise of the Rights, in order
to facilitate trading a depository receipt may be issued for each
one one-thousandth of a preferred share. The dividend, liquidation
and voting rights, and the non-redemption feature, of the preferred
shares are designed so that the value of the one-thousandth
interest in a preferred share purchasable with each right will
approximate the value of one share of common stock.
The Company has never declared or paid cash dividends on the
Common Stock or any of its other securities. The Company presently
intends to retain all earnings for the operation and development of
its business and does not anticipate paying any cash dividends on
the Common Stock in the foreseeable future. Any future
determination as to the payment of cash dividends will depend on a
number of factors, including future earnings, capital requirements,
the financial condition and prospects of the Company and present
restrictions under credit facilities, as well as such other factors
as the Board of Directors may deem relevant. There can be no
assurance that the Company will pay any dividends in the future.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data, which set forth certain
financial information with respect to the Company, have been
derived from the financial statements of the Company. The
financial statements of the Company for each of the fiscal years in
the five-year period ended December 29, 1996 have been audited by
Deloitte & Touche LLP, independent certified public accountants.
The following selected financial data should be read in conjunction
with the Consolidated Financial Statements and the notes thereto
included elsewhere in this report.
<TABLE>
<S> <C> <C> <C> <C> <C>
January 2, January 1, January 1, December 31, December 29,
1993(1) 1994(2) 1995(3) 1995 1996
(in thousands, except per share data)
Income Statement Data:
REVENUES:
Restaurant sales $58,277 $95,290 $124,826 $137,191 $131,680
Franchise fees and royalty
income 968 1,582 2,424 1,342 516
------- ------ ------- ------- -------
Total revenues 59,245 96,872 127,250 138,533 132,196
COSTS AND EXPENSES:
Restaurant cost of sales
and operating costs 48,053 77,871 102,236 115,195 107,703
General and administrative 2,845 3,393 4,818 6,068 6,445
Depreciation and
amortization 2,524 4,705 7,112 10,301 9,245
Litigation settlement (4) - - - - 3,400
Special charge (5) - - - 8,100 2,497
Reserve for notes and other
receivables (6) - - - 3,500 -
------ ------ ------- ------- -------
Total costs and expenses 53,422 85,969 114,166 143,164 129,290
------ ------ ------- ------- -------
INCOME (LOSS) FROM OPERATIONS 5,823 10,903 13,084 (4,631) 2,906
------ ------ ------- ------- -------
NON-OPERATING INCOME (EXPENSE):
Interest income (expense) (644) 46 220 (1,397) (1,348)
Gain (loss) on sale of assets 11 (43) - - -
------ ------ ------- ------ -------
Total non operating income
(expense) (633) 3 220 (1,397) (1,348)
------ ------- ------- ------ -------
INCOME (LOSS) BEFORE INCOME
TAXES 5,190 10,906 13,304 (6,028) 1,558
BENEFIT (PROVISION)
FOR INCOME TAXES (1,998) (3,850) (4,784) 2,230 (854)
----- ------ ------- ------ -------
NET INCOME (LOSS) 3,192 7,056 8,520 (3,798) 704
===== ====== ======= ====== =======
NET INCOME (LOSS) PER SHARE 0.40 0.55 0.55 (0.24) 0.04
===== ===== ======= ====== =======
WEIGHTED AVERAGE SHARES
OUTSTANDING (7) 7,909 12,945 15,644 15,648 15,695
====== ====== ======== ======= ========
Balance Sheet Data:
Total assets 42,496 118,747 152,222 148,578 142,706
Line of credit, long-term
debt and capital leases,
including current maturities 1,854 4,730 12,945 19,290 13,668
Stockholders' equity 35,402 100,964 115,652 112,327 113,172
Dividends per common - - - - -
share
</TABLE>
(1) Includes results of operations of the acquired Sombrero Rosa
and TaCasita restaurants since the respective dates of
acquisition.
(2) Includes results of operations of the acquired Two Pesos
restaurants and five acquired franchised restaurants since
their respective dates of acquisition.
(3) Includes results of eight acquired franchised restaurants
since their respective dates of acquisition.
(4) Includes the 1996 litigation settlement for $3.4 million pre-
tax, as described in Note 2 to the Consolidated Financial
Statements.
(5) Includes the charge related to the 1995 operations review of
$8.1 million and the 1996 write-down of the Company's
investment in a joint venture and the accrual of related exit
costs of $2.5 million, as described in Note 3 to the
Consolidated Financial Statements.
(6) Reserve resulted from the 1995 operations review as described
in Note 4 to the Consolidated Financial Statements.
(7) Reflects a three-for-two stock split effective October 18,
1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company commenced operations in 1978 with the opening of
its first Taco Cabana restaurant in San Antonio. As of December
29, 1996, the Company had 104 company-owned restaurants, three
joint-venture owned and 14 franchised restaurants. The Company's
revenues are derived primarily from sales by Company-owned
restaurants, with franchise fees and royalty income contributing
less than 1% of total revenues for the 1996 fiscal year.
Since April 1992, the Company has acquired a total of 57
restaurants. These acquisitions were accounted for under the
purchase method of accounting. Goodwill aggregating approximately
$47.7 million recognized in connection with these acquisitions is
being amortized on a straight-line basis over periods ranging from
25 to 40 years. Management assesses the recoverability of goodwill
on the basis of actual and projected cash flows from the
restaurants acquired.
During the fiscal year ended December 29, 1996, the Company
opened one restaurant, and closed three restaurants. Additionally,
franchisees of the Company closed five restaurants and a franchisee
of the Company, in which the Company has a joint-venture interest,
opened one restaurant.
Results of Operations
The following table sets forth the percentage relationship to
total revenues, unless otherwise indicated, of certain income
statement data. The table also sets forth certain restaurant data
for the periods indicated.
Fiscal Year Ended
---------------------------------------
January 1, December 31, December 29,
1995 1995 1996
Income Statement Data:
REVENUES:
Restaurant sales 98.1% 99.0% 99.6%
Franchise fees and royalty
income 1.9 1.0 0.4
----- ----- -----
Total revenues 100.0% 100.0% 100.0%
===== ===== =====
COSTS AND EXPENSES:
Restaurant cost of sales (1) 33.1 32.1 31.4
Labor (1) 25.1 26.4 26.3
Occupancy (1) 6.2 6.0 6.2
Other restaurant operating
costs (1) 17.5 19.4 17.9
General and administrative
costs 3.8 4.4 4.9
Depreciation and amortization 5.6 7.4 7.0
Litigation settlement - - 2.6
Special charge - 5.8 1.9
Reserve for notes and other
receivables - 2.5 -
INCOME (LOSS) FROM OPERATIONS 10.3 (3.3) 2.2
INTEREST INCOME (EXPENSE), NET 0.2 (1.0) (1.0)
---- ----- ----
INCOME (LOSS) BEFORE INCOME
TAXES 10.5 (4.3) 1.2
INCOME TAXES (3.8) 1.6 (0.6)
----- ----- ----
NET INCOME (LOSS) 6.7% (2.7)% 0.5%
===== ====== =====
Restaurant Data:
COMPANY-OWNED RESTAURANTS:
Beginning of period 82 104 106
Opened 20 12 1
Acquired 8 1 -
Sold (Refranchised) (4) (3) -
Closed (2) (8) (3)
--- --- ---
End of period 104 106 104
FRANCHISED RESTAURANTS (2):
End of period 17 21 17
--- --- ---
TOTAL RESTAURANTS:
End of period 121 127 121
=== === ===
________________________________
(1) As a percentage of restaurant sales.
(2) Excludes Two Pesos licensed restaurants.
Fiscal 1996 Compared to Fiscal 1995
Restaurant Sales. Restaurant sales decreased by $5.5 million,
or 4.0%, to $131.7 million for fiscal 1996 from $137.2 million for
fiscal 1995. The decrease in sales is due to a decrease in the
number of restaurants open during 1996 compared to 1995 and due to
a decrease in comparable store in 1996 compared to 1995. In the
aggregate, the number of operating weeks declined 2.9% in 1996
compared to 1995. Comparable store sales, defined as Taco Cabana
restaurants that have been open 18 months or more at the beginning
of each quarter, decreased 2.1% during 1996. Comparable store
sales in the Company's core markets of San Antonio, Austin,
Houston, and Dallas, which represent over 90% of the Company's
sales volume increased 0.1% during 1996. Management attributes
much of the decline in sales to the adverse economic conditions in
the Texas - Mexico border market. The Company also experienced a
decrease in sales in its Colorado market during 1996. Management
is attempting to counteract the sales decline in these markets with
a significant increase in marketing expenditures in these markets
during 1997.
Franchise Fees and Royalty Income. Franchise and royalty fees
decreased by approximately $826,000 to $516,000 for 1996, compared
to approximately $1.3 million for 1995, due primarily to a decrease
in fees from new franchise development agreements and related
franchise royalties and due to a decrease in the number of
franchises open during 1996 compared to 1995.
Restaurant Cost of Sales. Restaurant cost of sales,
calculated as a percentage of restaurant sales, decreased to 31.4%
in 1996 from 32.1% in 1995. The decrease was due primarily to
continued improvements in the management of food costs through
utilizing increased controls and improved purchasing programs,
including the negotiation of favorable commodity pricing at the
beginning of 1996.
Labor. Labor costs calculated as a percentage of restaurant
sales improved slightly to 26.3% during 1996 from 26.4% in 1995.
The labor costs were negatively impacted due to an increase in
salaried restaurant management and a relatively high rate of
restaurant management turnover. The turnover is part of the
Company's continuing process of raising the standards and
accountability within the management ranks of the Company.
Occupancy. Occupancy costs decreased slightly during 1996
compared to 1995. The decrease is due to a decrease in the number
of restaurants open during fiscal 1996 compared to fiscal 1995. As
a percentage of restaurant sales, occupancy costs increased to 6.2%
in 1996 compared to 6.0% in 1995. The increase is due to decreased
sales at the restaurant level.
Other Restaurant Operating Costs. Other restaurant operating
costs as a percentage of restaurant sales decreased to 17.9% in
1996 from 19.4% for 1995. This decrease is due primarily to
management's increased focus on unit level operations.
General and Administrative. General and administrative
expenses increased to $6.4 million from $6.1 million, and increased
as a percentage of total revenues to 4.9% for fiscal 1996 from 4.4%
for fiscal 1995. This increase was primarily attributable to the
addition of management, as well as an increased level of
expenditures to support the Company's operations.
Depreciation and Amortization. Depreciation and amortization
expense consisted of the following:
Year Ended
----------------------------
December 31, December 29,
1995 1996
Depreciation of property and
equipment $ 6,209,000 $7,079,000
Amortization of intangible assets 1,663,000 1,651,000
Amortization of pre-opening costs 2,429,000 515,000
Depreciation expense increased by approximately $870,000 for the
year ended December 29, 1996 compared to the year ended December
31, 1995. The increase was due primarily to restaurant openings
during 1995, as well as capital expenditures on existing
restaurants during 1996. Amortization of pre-opening costs
decreased by approximately $1.9 million in the year ended December
29, 1996 compared to the year ended December 31, 1995, due to the
decrease in the number of stores opened during the most recent
twelve-month period compared to the twelve-month period ended
December 31, 1995.
Litigation Settlement. On July 24, 1996, the Company approved
the proposed settlement of A.L. Park, et al v. Taco Cabana, Inc.,
et al., a suit originally filed in September 1995 seeking status as
a class action. As a result thereof, the Company recorded a charge
of $3.4 million pre-tax, $2.2 million after-tax, or $0.14 per
share, during the second quarter of fiscal 1996. Under the terms of
the settlement, the plaintiffs will receive a total of $6.0
million. The Company's insurance carrier has deposited $3.05
million in cash, and the Company has deposited $2.95 million in
cash into an escrow account for such purposes. Additionally, the
Company has accrued and paid approximately $450,000 for legal and
related expenses incurred in connection with the settlement
Special Charge. The Company has a 50% interest in a joint
venture which operated three restaurants in the Atlanta market.
During the fourth quarter of 1996, the Company decided to write-
down its investment in the joint venture and accrue for certain
costs associated with the closing of two of the three restaurants
operated by the joint venture. This decision resulted in a special
charge of approximately $2.5 million pre-tax, $1.7 million after-
tax or $0.11 per share. The special charge was comprised of the
following:
Write-down of investment in joint venture $1,191,000
Reserve for notes and accounts receivable 268,000
Estimated lease obligations 632,000
Legal and professional fees 245,000
Other costs 161,000
Subsequent to December 29, 1996, two of the three restaurants in
the Atlanta market were closed. It is currently anticipated that
the third restaurant will remain in operation.
Interest Income (Expense). Interest expense, net of interest
capitalized on construction costs, decreased to $1.1 million in
1996 from $1.2 million in 1995 as a result of the repayment of a
substantial portion of the Company's outstanding borrowings during
1996. The Company earned $201,000 of interest income during 1996 on
cash balances compared to $310,000 of interest income earned during
1995. The decrease was due to a reduction in short-term
investments during 1996.
Net Income (Loss) and Net Income (Loss) Per Share. The
Company recorded net income of $704,000 for 1996 compared to a net
loss of $3.8 million for 1995. The recorded net income was 0.5% as
a percentage of total revenues for 1996 compared to net loss of
2.7% for 1995. Income per share was $0.04 for 1996 compared to
loss per share of $0.24 in 1995. Disregarding the litigation
settlement, the reserve for notes and other receivables and the
special charges, the Company would have reported net income of $4.7
million equal to $0.30 per share or 3.6% as a percentage of
revenues for 1996 compared to $3.5 million equal to $0.22 per share
or 2.5% as a percentage of total revenues for 1995. Disregarding
the litigation settlement and the special charges, management
believes that the remaining increase is largely due to better cost
controls at the restaurant level as well as a substantial decrease
in amortization of pre-opening costs.
Fiscal 1995 Compared to Fiscal 1994
Restaurant Sales. Restaurant sales increased by $12.4
million, or 9.9%, to $137.2 million for fiscal 1995 from $124.8
million for fiscal 1994. In the aggregate, the number of operating
weeks increased 18.5% in 1995 compared to 1994. Comparable store
sales, defined as Taco Cabana restaurants that have been open 18
months or more at the beginning of each quarter, decreased 7.3%
during 1995. Management attributed much of this decline in sales
to the effect of opening new restaurants in close proximity to
existing restaurants as well as increased levels of competition
from other restaurants in the Company's core markets.
Franchise Fees and Royalty Income. Franchise and royalty fees
decreased by approximately $1.1 million to $1.3 million for 1995,
compared to approximately $2.4 million for 1994, due primarily to a
decrease in fees from new franchise development agreements and
related franchise royalties.
Restaurant Cost of Sales. Restaurant cost of sales calculated
as a percentage of restaurant sales, decreased to 32.1% in 1995
from 33.1% in 1994. The decrease was due primarily to continued
improvements in the management of food costs through utilizing
increased controls and improved purchasing programs.
Labor. Labor costs calculated as a percentage of restaurant
sales increased to 26.4% in 1995 from 25.1 % in 1994. The increase
was primarily due to lower average unit volumes during 1995
compared to 1994.
Occupancy. Occupancy costs increased to $8.2 million in 1995
from $7.8 million in 1994. The increase was due to an increase in
the number of restaurants open during fiscal 1995 compared to
fiscal 1994. As a percentage of restaurant sales, occupancy costs
decreased to 6.0% in 1995 compared to 6.2% in 1994.
General and Administrative. General and administrative
expenses increased to $6.1 million from $4.8 million, and increased
as a percentage of revenues to 4.4% for 1995 from 3.8% in 1994.
The increase as a percentage of total revenues was attributable to
the addition of middle and senior level management to support the
Company's operations.
Depreciation and Amortization. Depreciation and amortization
expense consisted of the following:
Year Ended
------------------------------
January 1, December 31,
1995 1995
Depreciation of property and
equipment $ 3,991,000 $ 6,209,000
Amortization of intangible assets 1,574,000 1,663,000
Amortization of pre-opening costs 1,547,000 2,429,000
Depreciation and amortization expense increased by $3.2
million to $10.3 million for 1995 compared to $7.1 million for
1994. Of the total increase, $1.5 million was attributable to
additional depreciation expense associated with the 18 new
restaurants that were opened during 1995 and the fourth quarter of
1994. Amortization of preopening costs accounted for
approximately $900,000 of the increase. The remaining increase was
attributable to increases in corporate depreciation and intangible
asset amortization.
Special Charge. During the second quarter of 1995, the
Company recorded a reserve for notes and other receivables of $3.5
million and a special charge of $8.1 million. The charges were the
result of a review of all operations which was performed during the
second quarter of 1995. The review was precipitated by a change in
the Company's core markets, including a decline in average unit
volumes and profitability, as well as a change in the Company's
senior management.
The sales trends of the Company's core markets had turned
negative. Comparable restaurants sales trends softened in the
third and fourth quarters of 1994, declining by about 2.9% in the
third quarter and 5.9% in the fourth quarter. The decrease
continued in the first quarter of 1995, when comparable restaurant
sales declined by approximately 10.1%. The decline continued into
the second quarter of 1995, which finished with a decline of
approximately 7.7%. This decline in sales led to a decline in
profitability.
In late April 1995, Stephen Clark was hired as President and
Chief Operating Officer of Taco Cabana. After several weeks of
analyzing the then recent trends and personnel, Mr. Clark led a
comprehensive review of the Company's operations. The review,
which took place during May and June 1995, included a detailed
review of the existing restaurants including their sales and
profitability trends, recent and future marketing plans,
development plans for new Company restaurants as well as for
franchisees; relationships with current franchisees; and overhead
components, including mid and senior level management, office
space, non-restaurant assets, and bonus payouts.
To reverse the adverse trends in operating results, management
began implementing a plan to improve the unit level economics of
the Company's restaurants. In particular, the Company created
several operations-related positions to design and implement
comprehensive labor management and restaurant operating systems;
increased the number of operations supervisory positions thus
lowering the average number of restaurants each supervisor is
responsible for, in order to increase the effectiveness of such
positions; redirected its marketing program to increase focus on
local store marketing efforts and promotional-based advertising;
performed market research to enhance the effectiveness of the
Company's marketing efforts and to provide improved market data to
aid in the design and location of future restaurants; and revised
its development criteria, including construction costs, design
factors, menu strategy, and began reviewing the possibility of
alternative development (e.g., in-line and other non-traditional
construction versus stand-alone restaurants).
The review resulted in the decision to close several
restaurants, allow several franchise restaurants to close or revert
back to the Company's control, restructure or forgive several
franchise-related receivables, make several management personnel
changes, sell certain non-restaurant assets, pay certain
discretionary bonuses which related to the prior year but were not
going to be paid by prior management, restructure the Company's
marketing efforts, slow all current Company and franchise
development, and write-off certain prepaid costs determined to no
longer have future value due to the changes management planned to
make.
These decisions resulted in the Company's recording a special
charge of $8.1 million pretax, and a reserve for notes and other
receivables of $3.5 million pretax (a total of $7.3 million after
tax, or $0.47 per share). The special charge of $8.1 million was
comprised of:
* Market valuation adjustments totaling $2.65 million resulting
from the decision to close six Company-owned restaurants, and
dispose of those restaurant assets;
* A provision of $1.225 million to record the estimated monthly
lease obligation, net of expected sublease receipts, for certain
other restaurants which had been closed or were to be closed;
* Market valuation adjustments totaling $1.225 million to allow
for the disposition of certain non-restaurant capital assets,
including the Company's principal office and corporate airplanes
(most of which assets were owned by the Company, so that the
disposition of such assets would generate cash);
* The accrual of $980,000 related to the severance of certain
contractual employment and consulting agreements and the payment of
relocation expenses for Mr. Clark and other new members of
management;
* The write-off of $810,000 related to certain capitalized media
production assets which will no longer be utilized or were deemed
to no longer have value due to the change in the Company's
marketing philosophy described above;
* The write-off of $370,000 in development costs associated with
the sites which were under development at the time of the decision
to slow development;
* An accrual of $300,000 for the payment of certain operational
bonuses which are described above;
* An accrual of $420,000 for certain employee litigation claims;
* An accrual of $120,000 for miscellaneous expenses.
Reserve for Notes and Other Receivables. The reserve for
notes and other receivables included $2.0 million for notes
receivable which were outstanding in connection with the sales of
restaurants to franchisees. The decision to reserve for these
notes was based on discussions held with the franchisees during the
second quarter of 1995 and a review of their financial position.
Three notes totaling approximately $1.3 million of this amount were
reserved due to the fact that the franchisee approached the Company
during the second quarter of 1995 and indicated that the
devaluation of the Mexican Peso in December 1994 had permanently
harmed its restaurants to an extent that they were going to close
the restaurants. These restaurants were all closed during 1995.
The remaining amount relates to a restaurant whose sales trends
were continuing to erode and there was substantial doubt as to the
recoverability of the balance. This restaurant was closed during
the first quarter of 1997. The reserve amounts were calculated by
reducing the outstanding note balances to the estimated value of
the underlying collateral and reserving the remaining balance. The
restaurants reserved for were all in Texas.
The remaining $1.5 million primarily relates to franchisee
receivables. Approximately $250,000 of this amount relates to
periodic franchise and royalty fees owed by the franchisees noted
above, including interest. An additional $500,000 was reserved due
to a franchisee's failure to meet a contractual obligation and make
payment on a development agreement during the second quarter of
1995. Approximately $350,000 of the amount relates to periodic
royalty fees and franchise fees from a franchisee with whom the
Company had been in discussions to acquire its restaurants. Due to
the Company's decision to slow all development, the Company broke
off these negotiations. The remaining balances, totaling $400,000,
included various types of receivables including other franchisee
amounts, employee receivables, and other miscellaneous receivables.
Interest Income (Expense). Interest expense, net of interest
capitalized on construction costs, increased to $1,707,000 in 1995
from $422,000 in 1994 as a result of interest expense associated
with the utilization of the Company's line of credit and notes
associated with the purchase and construction of restaurants. The
Company earned $310,000 in interest income during 1995 on cash
balances. The Company earned $642,000 of interest income during
1994.
Net Income (Loss) and Net Income (Loss) Per Share. The
Company recorded a net loss of $3.8 million for 1995 compared
to net income of $8.5 million for 1994. The recorded net loss was
2.7% as a percentage of total revenues for 1995 compared to net
income of 6.7% for 1994. Loss per share was $0.24 for 1995
compared to income per share of $0.55 in 1994. Disregarding the
reserve for receivables and the special charge, the Company would
have reported net income of $3.5 million for 1995, equal to $0.22
per share or 2.5% as a percentage of total revenues. Disregarding
the reserve for receivables and the special charge, management
believes that the remaining decrease is largely due to decreases in
average unit volumes, which resulted in higher restaurant operating
costs as a percentage of sales, lower franchise fees and royalty
income, higher depreciation and amortization, lower interest income
and higher interest expense.
Liquidity and Capital Resources
Historically, the Company has financed business and expansion
activities by using funds generated from operating activities,
build-to-suit leases, equity financing, short and long-term debt
and capital leases. The Company maintains credit facilities
totaling $20 million, including a $5 million unsecured revolving
line of credit. As of March 5, 1997, approximately $9.6 million
had been used under these commitments.
Net cash provided by operating activities was $12.2 million for
1996, and $5.8 million for 1995. Management attributes much of the
increase to the receipt of $2.5 million of federal income tax
refunds during 1996, as well as less cash being utilized in the
reduction of accrued and acquisition liabilities.
Net cash used in investing activities was $8.7 million for
1996, representing primarily capital expenditures for improvements
to existing restaurants, the construction of one restaurant, and
the purchase of two pieces of land for future development. This
compares to $17.7 million for 1995, representing primarily capital
expenditures for the construction of twelve Company-owned
restaurants.
Net cash used in financing activities was $5.5 million for 1996
representing primarily repayment of the Company's line of credit
and long-term debt compared to net cash provided from financing
activities of $7.4 million in the same period of 1995 representing
borrowings from the Company's debt facilities.
In connection with the special charge of $2.5 million recorded
during 1996, the Company has accrued approximately $1.0 million for
estimated exit costs. The Company expects to pay these costs during
1997.
The special charge recorded in the second quarter of 1995
included an accrual of approximately $1.2 million to record the
estimated monthly lease payments, net of expected sublease
receipts, associated with certain restaurants which have been
closed. Cash requirements for this accrual were approximately
$362,000 in 1996. Several of the restaurants which have been
closed, as well as the Company's previous corporate offices, are
currently for sale. Although there can be no assurance of the
particular price at which any of such properties will be sold, the
Company expects to receive funds equal to or in excess of the
carrying value upon the actual disposition of these properties.
During 1996, the Company sold properties relating to the special
charge which resulted in proceeds of $788,000. In addition, certain
acquisition and accrued liabilities related to the Two Pesos
acquisition were reduced by payments of approximately $730,000
during 1996.
The Company believes that existing cash balances, funds
generated from operations, its ability to borrow, and the possible
use of lease financing will be sufficient to meet the Company's
capital requirements through 1997, including the planned opening
of six to eight free standing and two non-traditional
restaurants. The average total investment for the free standing
restaurants, including land, is expected to be approximately $1.3
million per restaurant. Cash investment requirements are expected
to average $1.1 million per restaurant. Total capital expenditures
for 1997 are expected to approximate $12.0 to $15.0 million and
will include, in addition to new construction, a program to remodel
several of the Company's existing restaurants.
Impact of Inflation
Although increases in labor, food or other operating costs
could adversely affect the Company's operations, management does
not believe that inflation has had a material adverse effect on the
Company's operations to date.
Seasonality and Quarterly Results
The Company's sales fluctuate seasonally. Historically, the
Company's highest sales and earnings occur in the second and third
quarters. In addition, quarterly results are affected by the
timing of the opening of new stores, and the Company's growth may
offset the impact of seasonal influences. Therefore, quarterly
results are not indicative of results for the entire year.
Forward-Looking Statements
Statements in this Annual Report, including those contained in
the foregoing discussion and other items herein, concerning the
Company which are (a) projections of revenues, capital expenditures
or other financial items, (b) statements of plans and objectives
for future operations, (c) statements of future economic
performance, or (d) statements of assumptions or estimates
underlying or supporting the foregoing are forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Act of 1934. The
ultimate accuracy of forward-looking statements is subject to a
wide range of business risks and changes in circumstances, and
actual results and outcomes often differ from expectations. Any
number of important factors could cause actual results to differ
materially from those in the forward-looking statements herein,
including the following: the timing and extent of changes in
prices; actions of our customers and competitors; state and federal
environmental, economic, safety and other policies and regulations,
any changes therein, and any legal or regulatory delays or other
factors beyond the Company's control; execution of planned capital
projects; weather conditions affecting the Company's operations or
the areas in which the Company's products are marketed; natural
disasters affecting operations; and adverse rulings, judgments, or
settlements in litigations or other legal matters. The Company
undertakes no obligation to publicly release the result of any
revisions to any such forward-looking statements that may be made
to reflect events or circumstances after the date hereof or to
reflect the occurrence of unantincipated events.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are set forth
in this annual report on Form 10-K commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
The directors and executive officers of the Company and their
respective ages are as follows:
Name Age Position
- ----------------- --- ---------------------------
Stephen V. Clark 43 Chief Executive Officer,
President, and Director
James A. Eliasberg 39 Executive Vice President and
General Counsel
David G. Lloyd 33 Senior Vice President -
Finance, Chief Financial
Officer, Secretary and
Treasurer
William J. Nimmo 42 Director
Richard Sherman 53 Director
Cecil Schenker 54 Director
Mr. Clark has served as the Company's Chief Executive Officer
since November 1996, and as the President, Chief Operating Officer,
and as a Director since April 1995. Prior to that, Mr. Clark was
with Church's Chicken, a division of America's Favorite Chicken,
for eighteen years with his final title having been Senior Vice
President and Concept General Manager. He also served on the
executive committee of America's Favorite Chicken and was on the
Board of Directors of Church's Operators Purchasing Association.
In his final position with America's Favorite Chicken, Mr. Clark
was primarily responsible for the day-to-day operations of over
1100 company-owned and franchised units with aggregate sales volume
in excess of $600 million.
Mr. Eliasberg has served as the Company's Executive Vice
President and General Counsel since April 1995. From January 1991
to April 1995, Mr. Eliasberg served as the Company's Senior Vice
President and General Counsel. Prior to that, Mr. Eliasberg was
engaged in the private practice of law in Southern California at
the law firms of Fierstein & Sturman (March 1989 to January 1991),
Hill, Wynne, Troop & Meisinger (May 1986 to February 1989) and
Jones, Day, Reavis & Pogue (October 1984 to March 1986). In
addition to supervising all of the Company's legal affairs, Mr.
Eliasberg's responsibilities include real estate, construction and
franchise development. Mr. Eliasberg is a graduate of the
University of Chicago law school.
Mr. Lloyd joined the Company in October 1994 as Vice President
- - Finance, Chief Financial Officer, Secretary and Treasurer and was
promoted to Senior Vice President in May 1996. From August 1985 to
October 1994, Mr. Lloyd served in various capacities with Deloitte
& Touche (the Company's independent auditors), with his last
position being Senior Audit Manager. Mr. Lloyd is a certified
public accountant.
Mr. Nimmo has served as a director of the Company since
November 1991. Mr. Nimmo has served as Managing Director of
Cornerstone Equity Investors, Inc., and its predecessor firm, since
September 1989. For the ten years prior to that, Mr. Nimmo was a
Vice President of J.P. Morgan & Co.
Mr. Sherman has been a director of the Company since November
1991. Mr. Sherman is a private investor and retail consultant.
Mr. Sherman served as President and Chief Executive Officer of
Rally's, Inc. from September 1987 to January 1991. From August
1989 to January 1991, he also served as Chairman of the Board of
Rally's, Inc. Mr. Sherman currently serves as a member of the
Board of Trustees of Paul Quinn College in Dallas, Texas and as a
director of Reed's Jewelers, Inc., Papa John's International, Inc.,
and PJ America, Inc.
Mr. Schenker has been a director of the Company since January
1992. Mr. Schenker is a corporate securities attorney and is the
managing partner of the San Antonio, Texas office of the law firm
of Akin, Gump, Strauss, Hauer & Feld, L.L.P., of which Mr. Schenker
has been a partner, through his professional corporation since
January of 1984. Akin, Gump, Strauss, Hauer & Feld, L.L.P. has
regularly performed legal services for the Company. See
"Compensation Committee Interlocks and Insider Participation." Mr.
Schenker is also a director of 50-Off Stores, Inc.
The Board of Directors has a compensation and stock option
committee and an audit committee, each of which currently consists
of William J. Nimmo, Richard Sherman and Cecil Schenker. The Board
of Directors does not currently have a nominating committee. All
directors serve for a term of one year and until their successors
are duly elected. Each director who is not also an employee of the
Company, except William J. Nimmo, receives an annual retainer of
$25,000, and an attendance fee of $2,500 per Board meeting for up
to four meetings each year. All non-employee directors are
reimbursed for their expenses.
Compliance with Section 16(a) of the Securities Exchange Act of
1934
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") requires each director and executive
officer of the Company, and each person who owns more than 10% of a
registered class of the Company's equity securities to file by
specific dates with the Securities and Exchange Commission (the
"SEC") initial reports of ownership and reports of change in
ownership of Common Stock and other equity securities of the
Company. Officers, directors and 10% stockholders are required by
SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. The Company is required to report in this
report any failure of its directors and executive officers to file
by the relevant due date any of these reports during the Company's
fiscal year.
To the Company's knowledge, all Section 16(a) filing
requirements applicable to the Company's officers, directors, and
10% stockholders were complied with.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth
certain information concerning the compensation earned during the
Company's last three fiscal years by the Company's Chief Executive
Officer and the Company's only two other executive officers
(collectively the "named executive officers"):
<TABLE>
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------- --------------------------------
Awards Payouts
---------------------- -------
Other Securities
Annual Restricted Underly- All Other
Compen- Stock ing LTIP Compen-
Name and Fiscal Salary Bonus sation Award(s) Options/ Payouts sation
Principal Year ($) ($) ($)(1) ($) SARs ($) ($)
Position (#)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Stephen V. 1996 233,404 - - - - - -
Clark, 1995 152,455(2) 50,000 - - 200,000 - -
Chief, 1994 - - - - - - -
Executive
Officer,
President,
Chief
Operating
Officer
- ----------------------------------------------------------------------------------------
James A. 1996 189,235 - - - - - -
Eliasberg, 1995 175,025 - - - 200,000 - -
Executive 1994 135,000 - - - 25,000(4) - -
Vice
President
and General
Counsel
- -----------------------------------------------------------------------------------------
David G. 1996 135,138 - - - - - -
Lloyd, 1995 117,605 - - - 75,000 - -
Senior 1994 15,769(3) - - - 25,000 - -
Vice
President,
Chief
Financial
Officer,
Secretary
and Treasurer
- -----------------------------------------------------------------------------------------
</TABLE>
__________________
(1) Certain of the Company's executive officers receive personal
benefits in addition to salary; however, the Company has
concluded that the aggregate amounts of such personal benefits
do not exceed the lesser of $50,000 or 10% of annual salary
and bonus reported for any named executive officer.
(2) Mr. Clark joined the Company in April 1995.
(3) Mr. Lloyd joined the Company in October 1994.
(4) Mr.Eliasberg voluntarily rescinded his option grant in January
1997.
Employment Agreements. The Company has written employment
agreements with Stephen Clark and James Eliasberg. The Company's
agreement with Mr. Clark expires in April 1998. Mr. Clark receives
a base salary of not less than $200,000 per year during the term of
his contract. Additionally, Mr. Clark can be paid a bonus based on
the Company's achievement of certain performance goals. Pursuant
to such agreement, Mr. Clark has agreed not to participate in any
manner, during his term of employment and for two years thereafter,
in any business which owns a Mexican fast food restaurant or
Mexican "quick service" restaurant in the Continental United
States.
The Company's agreement with Mr. Eliasberg expires in April
1998. Mr. Eliasberg receives a base salary of $185,000 per year
during the term of his contract. Additionally, Mr. Eliasberg will
be paid a bonus based on the Company's achievement of certain
performance goals. Pursuant to such agreement, Mr. Eliasberg has
agreed not to participate in any manner, during his term of
employment and for two years thereafter, in any business which owns
a Mexican fast food restaurant or Mexican "quick service"
restaurant in the Continental United States.
Stock Option Plans and Directors' Options
Under the Taco Cabana, Inc. 1990 Stock Option Plan (the "1990
Option Plan"), amended in August 1992, and the 1994 Stock Option
Plan (the "1994 Option Plan") options to purchase up to 1,500,000
and 500,000 shares, respectively, of Common Stock may be granted to
employees, outside directors and consultants and advisers of the
Company or any subsidiary corporation or entity. The stock is
intended to permit the Company to retain and attract qualified
individuals who will contribute to its overall success. Shares
that by reason of the expiration of an option (other than by reason
of exercise) or which are no longer subject to purchase pursuant to
an option granted under an Option Plan may be reoptioned
thereunder. The 1990 and 1994 Option Plans are administered by a
committee of outside directors (the "Committee"). The Committee
sets specific terms and conditions of options granted under the
1990 and 1994 Option Plans and administers the 1990 and 1994 Option
Plans, as well as the Company's other employee benefit plans which
may be in effect from time to time. The Committee currently
consists of William J. Nimmo, Cecil Schenker and Richard Sherman.
The Company's employees are eligible to receive either
incentive stock options or nonqualified stock options or a
combination of both, as the Committee determines. Non-employee
participants may be granted only nonqualified stock options. Stock
options may be granted for a term not to exceed ten years (five
years with respect to a holder of 10% or more of the Company's
shares in the case of an incentive stock option) and are not
transferable other than by will or the laws of descent and
distribution. Each option may be exercised within the term of the
option pursuant to which it is granted (so long as the optionee, if
an employee, continues to be employed by the Company). In
addition, an incentive option may be exercised within 90 days after
the termination of employment of the optionee (subject to any
limitations in the particular option), within one year after
termination in case of termination because of disability, or
throughout the term of the option in the event of the optionee's
death, to the extent in each case the option was exercisable at the
termination date. A nonqualified stock option may be exercised for
such period, but not later than the expiration date, after
termination of employment, disability or death, as may be specified
in the particular option.
The exercise price of all incentive stock options must be at
least equal to the fair market value of the Common Stock on the
date of grant, or 110% of fair market value with respect to any
incentive stock option issued to a holder of 10% or more of the
Company's shares. Stock options may be exercised by payment in
cash of the exercise price with respect to each share to be
purchased, by delivering Common Stock of the Company already owned
by such optionee with a market value equal to the exercise price,
or by a method in which a concurrent sale of the acquired stock is
arranged, with the exercise price payable in cash from such sale
proceeds.
The 1994 Option Plan provides that each outside director will
automatically receive a grant of 3,000 nonqualified stock options
each year on the fifth business day following the first public
release of the Company's audited earnings report on results of
operations for the preceding fiscal year. Each such option will
become exercisable in whole or in part on the first anniversary of
the award through the balance of its ten-year term. Subject to
availability of shares allocated to the 1994 Option Plan and not
already reserved for other outstanding stock options, outside
directors who join the Board in the future will in addition receive
an initial grant of options for 35,000 shares, which will become
exercisable in five equal increments beginning on the first
anniversary of the award and on each of the next four succeeding
anniversary dates. Such options will be exercisable for a term of
ten years. Such options will be awarded upon their appointment or
election to the Board. Options, once granted and to the extent
exercisable, will remain exercisable throughout their term,
regardless of whether the holder continues as a director. The
exercise price of the options is equal to 100% of the fair market
value of a share of Common Stock at the time of grant.
The 1990 Option Plan will terminate on October 14, 2000. The
1994 Option Plan will terminate on October 17, 2004. The Board of
Directors may, however, terminate the 1990 and 1994 Option Plans
at any time prior to such respective dates. Termination of the
1990 and 1994 Option Plans will not alter or impair, without the
consent of the optionee, any of the rights or obligations pursuant
to any option granted under the Option Plans.
As of December 29, 1996, options for 635,158 shares of common
stock had been granted under the 1990 Option Plan and were
outstanding, with a weighted average exercise price of $6.42 per
share, and no additional shares were available for issuance upon
exercise of options which may be granted in the future. As of
December 29, 1996, options for 861,842 shares had been exercised.
As of December 29, 1996, options for 476,342 shares of common
stock had been granted under the 1994 Option Plan and were
outstanding, with a weighted average exercise price of $5.76 per
share, and 23,658 additional shares were available for issuance
upon exercise of options which may be granted in the future. As of
December 29, 1996, no options had been exercised.
Stock Option Grant Table. The following table sets forth
certain information concerning options granted to the named
executive officers during the Company's fiscal year ended December
29, 1996:
Option Grants in Last Fiscal Year
Potential Realizable
Percent Value at Assumed
of Annual Rates of
Options Total Exercise Stock Price
Granted Options or Expiration Appreciation
#(1) Granted Base Date of Option Term (2)
to Price ------------------
Name Employees 5%($) 10%($)
- ---------------------------------------------------------------------------
Stephen V. - - - - - -
Clark
James A. - - - - - -
Eliasberg
David G. - - - - - -
Lloyd
Stock Option Exercises and Holdings Table. The following table
provides information concerning the exercise of options and value of
unexercised options held by the named executive officers at December
29, 1996:
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Shares
Acquired
on Value Number of Unexercised Value of Unexercised
Exercise Realized Options In-the-Money Options
Name (#) ($) at Fiscal Year End (#) at Fiscal Year End
($)(1)
- -----------------------------------------------------------------------------
Exercis- Unexercis- Exercis- Unexercis-
able able able able
- -----------------------------------------------------------------------------
Stephen V. - - 40,000 160,000 $85,000 $340,000
Clark
James A. - - 83,000 166,000 $160,114 $365,038
Eliasberg
David G. - - 25,000 75,000 $ 21,570 $ 86,280
Lloyd
(1) Values stated are based on the last sale price of $7.31 per share
of the Company's Common Stock on the NASDAQ National Market System
on December 27, 1996, the last trading day of the fiscal year, and
equal the aggregate amount by which the market value of the option
shares exceeds the exercise price of such options at the end of
the fiscal year.
Compensation Committee Interlocks and Insider Participation
During 1996, William J. Nimmo, Richard Sherman and Cecil
Schenker served on the Company's compensation and stock option
committee.
Since 1987, the law firm of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., has regularly rendered legal services as counsel to the
Company. Cecil Schenker, a director of the Company and a member of
the Company's compensation and stock option committee, is the sole
shareholder of Cecil Schenker, P.C., a partner of Akin, Gump,
Strauss, Hauer & Feld, L.L.P.
The Company believes that the abilities of Mr. Schenker to
make fair compensation decisions have not and will not be
compromised by the relationships referred to above.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information concerning
the beneficial ownership of the Company's Common Stock as of March
1, 1997, by: (i) each person known by the Company to be the
beneficial owner of more than 5% of its Common Stock, (ii) each
named executive officer of the Company, (iii) each director of the
Company, and (iv) all directors and officers as a group. Unless
otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares beneficially owned.
Shares Beneficially
Owned
Name Number Percent
Stephen V. Clark (1) 40,000 *
James A. Eliasberg (2) 167,750 1.1%
David G. Lloyd (3) 31,800 *
William J. Nimmo 3,817 *
Richard Sherman (4) 70,003 *
Cecil Schenker (5) 90,503 *
Massachusetts Financial Services 1,305,370 8.2%
Co. (6)
Smith Barney Inc., Smith Barney 2,190,801 13.7%
Holdings Inc., Travelers Group
Inc. (7)
Dimensional Fund Advisors, Inc. 995,564 6.2%
(8)
All directors and officers as a 408,873 2.5%
group (6 persons) (9)
- ----------------------------
* Less than 1%.
(1) Includes 40,000 shares subject to presently exercisable
options (or those exercisable within 60 days). Excludes
160,000 shares issuable pursuant to options which are not
currently exercisable (or exercisable within 60 days).
(2) Includes 83,000 shares subject to presently exercisable
options (or those exercisable within 60 days). Excludes
166,000 shares issuable pursuant to options which are not
currently exercisable (or exercisable within 60 days).
(3) Includes 25,000 shares issuable pursuant to presently
exercisable options (or those exercisable within 60 days).
Excludes 75,000 shares issuable pursuant to options which are
not currently exercisable (or exercisable within 60 days).
(4) Represents shares subject to presently exercisable options (or
those exercisable within 60 days). Excludes 27,000 shares
issuable pursuant to options which are not currently
exercisable (or exercisable within 60 days).
(5) Represents shares subject to presently exercisable options (or
those exercisable within 60 days). Excludes 27,000 shares
issuable pursuant to options which are not currently
exercisable (or exercisable within 60 days).
(6) Based upon Schedule 13G, filed jointly in February 1996, and
amended in February 1997, indicating beneficial ownership as
stated in the table, and shared dispositive power as to all
shares beneficially owned. Included in the joint filing were
Massachusetts Financial Services Company ("MFS"), indicating
beneficial ownership of 1,305,370 shares and sole dispositive
power as to 1,305,370 shares and MFS Series Trust II - MFS
Emerging Growth Fund ("MEG"), indicating 962,395 shares
beneficially owned by MFS as well as MEG. Address: 500
Boylston Street, Boston, Massachusetts 02116.
(7) Based on Schedule 13G, filed jointly in October 1995, and
amended in January 1997, indicating beneficial ownership as stated
in the table. Included in the joint filing were Smith Barney Inc.
("SB"), indicating shared voting and dispositive power as to
1,415,801 shares, and sole voting and dispositive power as to 0
shares; Smith Barney Holdings Inc. ("SB Holdings"), indicating
shared voting and dispositive power as to 2,190,801, and sole
voting and dispositive power as to 0 shares; and Travelers Group
Inc. ("TRV"), indicating shared voting and dispositive power as to
2,190,801, and sole voting and dispositive power as to 0 shares.
Address: 388 Greenwich Street, New York, New York 10013.
(8) Based on Schedule 13G, filed in February 1997, indicating
beneficial ownership and sole dispositive power as stated in
the table and sole voting power as to 665,464 shares. Address:
1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
(9) Includes 308,506 shares subject to presently exercisable
options (or those exercisable within 60 days). Excludes
455,000 shares issuable pursuant to options which are not
currently exercisable (or exercisable within 60 days).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Compensation Committee Interlocks and Insider
Participation" for certain relationships and related party
transactions.
Any future transactions between the Company and related
parties will be approved by outside directors and will be on terms
no less favorable than those which could have been obtained from
unrelated third parties.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this report:
Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 1995 and December 29,
1996
Consolidated Statements of Operations for the years ended January
1, 1995, December 31 1995 and December 29, 1996
Consolidated Statements of Stockholders' Equity for the years ended
January 1, 1995, December 31, 1995 and December 29, 1996
Consolidated Statements of Cash Flows for the years ended January
1, 1995, December 31, 1995 and December 29, 1996
Notes to Consolidated Financial Statements
Exhibits
3.1 Restated Certificate of Incorporation, filed on
December 29, 1993. (d)
3.2 Bylaws of Registrant. (a)
4.1 Form of Common Stock Certificate. (a)
4.2 Rights Agreement dated as of June 9, 1995,
between Taco Cabana, Inc. and Society National
Bank, as Rights Agent. (f)
10.1* Employment Agreement dated April 24, 1995 between
the Registrant and Stephen V. Clark. (e)
10.4 Restaurant Assets Purchase Agreement and Plan of
Reorganization between Registrant and Two
Pesos, Inc., including Controlling Shareholder
Agreement between Registrant and Ghulam
Bombaywala and Controlling Shareholder
Agreement between Registrant, Marno McDermott
and The Bay Lake Limited Partnership. (c)
10.5 Sample Franchise Agreement. (a)
10.6 Sample Franchise Development Agreement. (a)
10.7 Sample Beverage Sublease Agreement. (a)
10.8 Sample Concessionaire Management Agreement. (a)
10.9* Amended and Restated Stock Option Plan. (a)
10.10* Agreement Regarding Compensation of Outside
Director, dated as of May 29, 1992, between
the Registrant and Richard Sherman. (b)
10.11* Agreement Regarding Compensation of Outside
Director, dated as of May 29, 1992, between
the Registrant and Cecil Schenker. (b)
10.12 Stock Option Agreements between Registrant and
Richard Sherman. (a)
10.13 Stock Option Agreements between Registrant and
Cecil Schenker. (a)
10.14* 1994 Stock Option Plan. (d)
10.15 Employment Agreement dated April 24, 1995 between
the Registrant and James Eliasberg. (g)
10.16 Second Amended Loan Agreement with International
Bank of Commerce. (g)
11. Statement re computation of per share earnings
(loss). (g)
21. Subsidiaries of the Registrant. (g)
23. Consent of Deloitte & Touche LLP. (g)
24. Powers of attorney to sign amendments to this
report. Reference is made to the signature
page of this report.
27. Financial Data Schedule. (g)
* Executive compensation plan or arrangement.
(a) Filed as an exhibit to Form S-1 Registration
Statement No. 33-51430, effective October 16,
1992.
(b) Filed as an exhibit to Form S-8 Registration
Statement No. 33-56438, effective December 24,
1992.
(c) Filed as an exhibit to Form S-4 Registration
Statement No. 33-60672, effective June 11,
1993.
(d) Filed as an exhibit to Form 10-K for the fiscal
year ended January 1, 1995.
(e) Filed as an exhibit to Form 10-K for the fiscal
year ended December 31, 1995.
(f) Filed as an exhibit to Form 8-A Registration
Statement No. 0-20716, effective June 9,
1995
(g) Filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
fourth quarter of the fiscal year covered by this
report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TACO CABANA, INC.
By: STEPHEN V. CLARK
----------------------------------
Stephen V. Clark
Chief Executive Officer and
President
Date: March 28, 1997
Each person whose signature appears below authorizes Stephen
V. Clark and David Lloyd or either of them, each of whom may act
without joiner of the other, to execute in the name of each such
person who is then an officer or director of the Registrant and to
file any amendments to this annual report on Form 10-K necessary or
advisable to enable the Registrant to comply with the Securities
Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect
thereof, which amendments may make such changes in such report as
such attorney-in-fact may deem appropriate.
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed by the following
persons in the capacities and on the dates indicated.
Signature Title Date
STEPHEN V. CLARK Chief Executive March 28, 1997
Stephen V. Clark Officer, President
and Director
(Principal
Executive Officer)
DAVID G. LLOYD Senior Vice March 28, 1997
David G. Lloyd President Finance,
Chief Financial
Officer and
Secretary
(Principal
Financial and
Accounting Officer)
WILLIAM J. NIMMO Director March 28, 1997
William J. Nimmo
RICHARD SHERMAN Director March 28, 1997
Richard Sherman
CECIL SCHENKER Director March 28, 1997
Cecil Schenker
EXHIBIT INDEX
Exhibit
No.
10.15 Employment Agreement dated April 24,
1995 between the Registrant and James A.
Eliasberg.
10.16 Second Amended Loan Agreement with
International Bank of Commerce.
11. Statement Regarding Computation of Per Share Earnings (Loss)
21. Subsidiaries of the Registrant
23. Consent of Deloitte & Touche LLP
27. Financial Data Schedule
TACO CABANA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Financial Statements:
Independent Auditors' Report F-2
Consolidated Balance Sheets at December 31, 1995 and F-3
December 29, 1996
Consolidated Statements of Operations for the Years Ended F-4
January 1, 1995, December 31, 1995 and December 29, 1996
Consolidated Statements of Stockholders' Equity for the F-5
Years Ended January 1, 1995, December 31, 1995 and
December 29, 1996
Consolidated Statements of Cash Flows for the Years Ended F-6
January 1, 1995, December 31, 1995 and December 29, 1996
Notes to Consolidated Financial Statements F-8
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Taco Cabana, Inc.
We have audited the accompanying consolidated balance sheets of
Taco Cabana, Inc. and subsidiaries as of December 29, 1996 and
December 31, 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the
three years in the period ended December 29, 1996. 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, such consolidated financial statements present
fairly, in all material respects, the financial position of
Taco Cabana, Inc. and subsidiaries at December 29, 1996 and
December 31, 1995, and the results of their operations and
their cash flows for each of the three years in the period
ended December 29, 1996 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
San Antonio, Texas
February 4, 1997
TACO CABANA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31, December 29,
1995 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,749,000 $ 748,000
Receivables, net 1,376,000 792,000
Inventory 1,846,000 1,858,000
Prepaid expenses 1,700,000 1,353,000
Pre-opening costs, net 500,000 129,000
Federal income taxes receivable 2,777,000 363,000
Deferred income taxes 497,000 1,827,000
----------- -----------
Total current assets 11,445,000 7,070,000
PROPERTY AND EQUIPMENT, net 87,695,000 88,963,000
NOTES RECEIVABLE, net 780,000 738,000
INTANGIBLE ASSETS, net 47,038,000 45,394,000
OTHER ASSETS 1,620,000 541,000
----------- -----------
TOTAL ASSETS $148,578,000 $142,706,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,409,000 $ 4,181,000
Accrued liabilities 3,864,000 3,171,000
Current maturities of long-term debt
and capital leases 2,074,000 2,409,000
Line of credit 2,186,000 625,000
----------- -----------
Total current liabilities 13,533,000 10,386,000
LONG-TERM OBLIGATIONS, net of current
maturities:
Capital leases 4,242,000 4,041,000
Long-term debt 10,788,000 6,593,000
----------- -----------
Total long-term obligations 15,030,000 10,634,000
ACQUISITION LIABILITIES 4,888,000 4,212,000
DEFERRED LEASE PAYMENTS 935,000 657,000
DEFERRED INCOME TAXES 1,865,000 3,645,000
STOCKHOLDERS' EQUITY:
Preferred stock, series A; $.01 par
value, 100,000 shares authorized - -
Common stock; $.01 par value,
30,000,000 shares authorized --
15,681,162 and 15,706,537 shares
issued and outstanding at December
31, 1995 and December 29, 1996,
respectively 157,000 157,000
Additional paid-in capital 96,954,000 97,095,000
Retained earnings 15,216,000 15,920,000
----------- -----------
Total stockholders' equity 112,327,000 113,172,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $148,578,000 $142,706,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
TACO CABANA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Year Ended
------------------------------------
January 1, December 31, December 29,
1995 1995 1996
<S> <C> <C> <C>
REVENUES:
Restaurant sales $124,826,000 $137,191,000 $131,680,000
Franchise fees and royalty
income 2,424,000 1,342,000 516,000
----------- ----------- -----------
Total revenues 127,250,000 138,533,000 132,196,000
----------- ----------- -----------
COSTS AND EXPENSES:
Restaurant cost of sales 41,252,000 44,083,000 41,336,000
Labor 31,374,000 36,262,000 34,653,000
Occupancy 7,757,000 8,192,000 8,161,000
Other restaurant operating
costs 21,853,000 26,658,000 23,553,000
General and administrative 4,818,000 6,068,000 6,445,000
Depreciation and amortization 7,112,000 10,301,000 9,245,000
Litigation settlement - - 3,400,000
Special charge - 8,100,000 2,497,000
Reserve for notes and other
receivables - 3,500,000 -
----------- ----------- ----------
Total costs and expenses 114,166,000 143,164,000 129,290,000
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 13,084,000 (4,631,000) 2,906,000
INTEREST INCOME (EXPENSE), NET 220,000 (1,397,000) (1,348,000)
---------- ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES 13,304,000 (6,028,000) 1,558,000
BENEFIT (PROVISION) FOR INCOME
TAXES (4,784,000) 2,230,000 (854,000)
----------- ----------- ----------
NET INCOME (LOSS) $ 8,520,000 $(3,798,000) $ 704,000
========== =========== ==========
NET INCOME (LOSS) PER SHARE $ 0.55 $ (0.24) $ 0.04
========== =========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 15,643,577 15,648,624 15,694,757
========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
TACO CABANA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOILDERS' EQUITY
<TABLE>
Preferred Stock Common Stock
------------------- ------------------ Additional Total
Shares Shares Paid-in Retained Stockholders'
Outstanding Amount Outstanding Amount Capital Earnings Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 - $ - 14,763,814 $148,000 $90,322,000 $10,494,000 $100,964,000
Sale of stock, net of related
cost of $67,000 - - 225,000 2,000 3,667,000 - 3,669,000
Issuance of stock - - 115,385 1,000 1,500,000 - 1,501,000
Options exercised - - 456,963 5,000 868,000 - 873,000
Tax benefit from stock options - - - - 125,000 - 125,000
Net income - - - - - 8,520,000 8,520,000
---- ---- ---------- ------- ---------- ---------- -----------
Balance, January 1, 1995 - - 15,561,162 156,000 96,482,000 19,014,000 115,652,000
Options exercised - - 120,000 1,000 375,000 - 376,000
Tax benefit from stock options - - - - 97,000 - 97,000
Net loss - - - - - (3,798,000) (3,798,000)
---- ---- ---------- ------- ---------- ---------- -----------
Balance, December 31, 1995 - - 15,681,162 157,000 96,954,000 15,216,000 112,327,000
Options exercised - - 25,375 - 119,000 - 119,000
Tax benefit from stock options - - - - 22,000 - 22,000
Net income - - - - - 704,000 704,000
---- ---- ---------- ------- ---------- ---------- -----------
Balance, December 29, 1996 - $ - 15,706,537 $157,000 $97,095,000 $15,920,000 $113,172,000
==== ==== ========= ======= ========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
TACO CABANA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Year Ended
------------------------------------------
January 1, December 31, December 29,
1995 1995 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $8,520,000 $(3,798,000) $ 704,000
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 7,112,000 10,301,000 9,245,000
Deferred income taxes 1,220,000 386,000 450,000
Special charge - 8,100,000 2,497,000
Reserve for notes and other
receivables - 3,500,000 -
Capitalized interest (312,000) (117,000) (12,000)
Deferred income and lease
payments 9,000 (687,000) (278,000)
Other (113,000) - -
(Increase) decrease in assets, net
of effects from acquisition of
assets of other companies:
Receivables (163,000) (953,000) 291,000
Inventory (519,000) 2,000 (12,000)
Prepaid expenses and other
assets (1,295,000) 509,000 347,000
Pre-opening costs (1,884,000) (1,289,000) (144,000)
Federal income taxes
receivable 948,000 (2,415,000) 2,414,000
Other assets - 526,000 393,000
Increase (decrease) in liabilities,
net of effects from acquisition
of liabilities of other
companies:
Accounts payable and accrued
liabilities 1,858,000 (5,237,000) (3,009,000)
Acquisition liabilities - (3,052,000) (676,000)
Income taxes payable (254,000) - -
---------- ----------- ----------
Net cash provided by operating
activities 15,127,000 5,776,000 12,210,000
---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (36,645,000) (18,738,000) (9,188,000)
Proceeds from sales of property and
equipment 269,000 1,179,000 846,000
Payment for acquisition of assets
of other companies (1,315,000) - -
Investment in joint venture (500,000) (186,000) (388,000)
---------- ----------- ----------
Net cash used by investing
activities (38,191,000) (17,745,000) (8,730,000)
---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt and draws on line of credit - 19,038,000 -
Principal payments under long-term
debt and line of credit (344,000) (11,823,000) (5,398,000)
Principal payments under capital
leases (166,000) (148,000) (224,000)
Sale of stock, net of costs 3,669,000 - -
Exercise of stock options 873,000 376,000 119,000
Repayment of franchisee loans 139,000 - -
--------- ----------- ----------
Net cash provided (used) by
financing activities 4,171,000 7,443,000 (5,481,000)
---------- ---------- ----------
NET DECREASE IN CASH (18,893,000) (4,526,000) (2,001,000)
CASH AND CASH EQUIVALENTS,
beginning of period 26,168,000 7,275,000 2,749,000
---------- ---------- ----------
CASH AND CASH EQUIVALENTS,
end of period $ 7,275,000 $ 2,749,000 $ 748,000
========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
TACO CABANA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUMMARY OF NON-CASH TRANSACTIONS:
During 1996, the Company closed one restaurant and charged its net
book value of $139,000 to acquisition liabilities.
During 1995, the Company closed four restaurants and charged their
net book value of $2.1 million to acquisition liabilities. Also,
the Company sold three restaurants to various franchisees in
exchange for $1.2 million in notes receivable during 1995. Capital
leases in the amount of $405,000 were terminated due to the sale of
one of these restaurants.
During 1994, eight restaurants were purchased from various
franchisees in exchange for cash of $1.3 million, common stock of
$1.5 million, notes payable aggregating $8.0 million, and assets
totaling $2.6 million. Additionally, the Company recorded goodwill
of $8.6 million during 1994 which resulted from the finalizing of
the acquisition liabilities of previous business combinations.
Furthermore, capital lease obligations of approximately $725,000
were incurred when the Company entered into new lease agreements
for property and equipment during 1994.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
Year Ended
-------------------------------------
January 1, December December
1995 31, 1995 29, 1996
<S> <C> <C> <C>
Cash paid for interest, net
of interest capitalized $ 759,000 $1,672,000 $1,144,000
Cash received for income
taxes - 1,126,000 2,504,000
Cash paid for income taxes 2,625,000 580,000 477,000
</TABLE>
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF
OPERATIONS
Nature of Operations - Taco Cabana, Inc. (the "Company")
operates a chain of Mexican patio style fast food restaurants
located primarily in the Southwestern United States. At
December 29, 1996, the Company owned and operated a total of 104
units, 96 under the "Taco Cabana" name, two under the "Sombrero
Rosa" name, six under the "Two Pesos" name. There were also 17
Taco Cabana franchise units and three Two Peso licensed units
under operation by others.
Principles of Consolidation - The consolidated financial
statements include all accounts of the Company and its
wholly-owned subsidiaries. All significant inter-company
balances and transactions have been eliminated.
Fiscal Year - The Company's accounting period is based upon a 52
or 53 week fiscal year ending on the Sunday closest to
December 31. The fiscal years 1994, 1995 and 1996 were
comprised of the 52 weeks ending January 1, 1995, December 31,
1995 and December 29, 1996, respectively.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Liquor Sales - To conform to state liquor laws, the liquor
licenses are maintained and liquor sales are accounted for by a
separate liquor corporation. The liquor corporation pays the
Company a management fee based on liquor sales, reimburses the
Company for its share of operating costs, and pays base and
additional rent based on liquor sales. In order to more
accurately reflect restaurant operations, all revenues and
expenses relating to liquor sales have been included in the
consolidated financial statements of the Company.
Inventory - Inventory is stated at the lower of cost using the
first-in, first-out method, or market and consists primarily of
food products, beverages and paper supplies.
Property and Equipment - Property and equipment is stated at
cost. Equipment and buildings under capital leases are stated at
the lower of the present value of minimum lease payments or fair
market value of the asset at the inception of the lease.
Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the
assets or the applicable lease term, if less.
The estimated useful lives used in computing depreciation and
amortization are as follows:
Furniture, fixtures and equipment 2-10 years
Buildings 20-30 years
Leasehold improvements 5-30 years
Maintenance and repairs are charged to expense as incurred;
improvements which increase the value of the property and extend
the useful life are capitalized.
Intangible Assets - Goodwill, or the excess of acquisition costs
over the fair market value of the assets acquired and
liabilities assumed, is amortized using the straight-line method
from 25 to 40 years. The trade name and the rights to the Taco
Cabana name are amortized using the straight-line method over
forty years. Non-compete agreements are amortized using the
straight-line method over their estimated useful lives, ranging
from five to fifteen years. Management assesses the
recoverability of goodwill on the basis of actual and
undiscounted, projected cash flows from the restaurants
acquired. Should projected cash flows not be sufficient to
recover the Company's investment, including any recorded
goodwill, management would utilize either a discounted cash flow
basis or other determination of current fair value, in order to
determine the amount of the impairment.
Pre-opening Costs - The costs associated with opening new
restaurants are capitalized and amortized over a twelve-month
period. Such amounts are net of accumulated amortization of
$1.2 million and $4,000 at December 31, 1995 and December 29,
1996, respectively.
Franchise Income - The Company has sold franchises that give the
franchisees the right to operate Taco Cabana restaurants in
specified areas. Generally, each franchisee acquires the right
to open three or more restaurants. A development fee is
recognized as income when the agreement is signed, while the
franchise fee on each restaurant is deferred until the opening
of the franchised restaurant. In addition, the franchise
agreement requires a franchise royalty fee and an advertising
fee on gross sales; such fees are recorded as income when
earned. In some markets, franchisees pay an additional
percentage of gross sales for expanded media coverage in their
respective areas.
Concentrations of Credit Risk - Financial instruments that
potentially subject the Company to concentrations of credit risk
consisted principally of amounts due from franchisees and
receivables from credit card sales. These risks are limited due
to their geographic dispersion. The Company has no significant
concentrations of credit risk.
Income Taxes - Income taxes are recorded using a liability
approach based upon currently enacted tax rates. The effect of
future changes in tax laws will be recorded, when the laws are
enacted.
Net Income (Loss) Per Share - Net income (loss) per share is
computed by dividing net income (loss) by the weighted average
number of common shares outstanding during each year. Common
stock equivalent shares, which relate to stock options, are
included in the weighted average when the effect is dilutive.
Statements of Cash Flows - For purposes of reporting cash flows,
the Company considers all highly liquid debt instruments with a
remaining maturity at the date of purchase of three months or
less to be cash equivalents.
Commitments and Contingencies - The Company does not subscribe
to worker's compensation insurance in its Texas market. The
Company accrues for claims based on historical actual payments
made for such claims and expenses, as well as an evaluation of
current and anticipated claims and expenses. The Company does
maintain an excess liability coverage which management believes
is adequate to cover any substantial claims.
Stock-Based Compensation - The Company accounts for stock-based
compensation using the intrinsic value method prescribed in
Accounting Principles Board ("APB") No. 25, Accounting for Stock
Issued to Employees, and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess,
if any, of the quoted market price of the Company's common stock
at the date of grant over the amount an employee must pay to
acquire the stock. The Company has adopted the disclosure
requirements of Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation, as
included in Note 12.
2. LITIGATION SETTLEMENT AND LEGAL PROCEEDINGS
On September 13, 1995, a shareholder lawsuit (A.L. Park, et al.
v. Taco Cabana, Inc., et al.) was filed in the United States
District Court for the Western District of Texas (Cause
No. SA95CA0847) in September 1995 seeking status as a class
action. The lawsuit alleged that the defendants violated
federal securities laws by alleged misrepresentations which the
plaintiffs claim were designed to artificially inflate the
Company's stock price. The suit alleged that the defendants
misrepresented the condition of the Company's business,
principally with regard to the success of its acquisition of
certain Two Pesos restaurants, its future earnings prospects,
and its declining sales volume. The allegations cover the time
period from April 8, 1993 to September 17, 1994, including
public offerings of the Company's stock on July 7, 1993 and
December 7, 1993.
On July 24, 1996, the Company entered into a proposed settlement
(the "Settlement"), subject to court approval and certain other
conditions. Under the terms of the Settlements, the plaintiffs
will receive a total of $6.0 million. The Company's insurance
carrier has deposited $3.05 million in cash, and the Company has
deposited $2.95 million in cash into an escrow account for such
purposes. Additionally, the Company has accrued and paid
approximately $450,000 for legal and related expenses incurred
in connection with the Settlement.
The Company denies any liability or wrongdoing in connection
with the lawsuit. The Settlement was entered into to avoid
continuing distraction of management, reduce overall legal cost
liability and exposure to risk of adverse outcome. The
Settlement was approved by the U.S. District Court on December
20, 1996.
In addition, the Company is a party to routine negligence or
employment-related litigation in the ordinary course of its
business. No such pending matters, individually or in the
aggregate, are deemed to be material to the results of
operations or financial condition of the Company.
3. SPECIAL CHARGE
During fiscal 1995 and 1996, the following special charges are
included in the Company's financial statements:
Year Ended
---------------------------------------
December 31, 1995 December 29, 1996
----------------- -----------------
Special Charge $8,100,000 $2,497,000
Income tax benefit (3,000,000) (747,000)
Impact on net income (loss) 5,100,000 1,750,000
Impact on net income (loss)
per share $0.33 $0.11
Fiscal 1996 - The Company has a 50% interest in a joint venture
which operated three restaurants in the Atlanta market. During
the fourth quarter of 1996, the Company decided to write-down
its investment in the joint venture and accrue for certain costs
associated with the closing of two of the three restaurants
operated by the joint venture. This decision resulted in a
special charge for $2.5 million pre-tax, $1.7 million after-tax
or $0.11 per share. The special charge was comprised of the
following:
Write-down of investment in joint venture $1,191,000
Reserve for notes and accounts receivable 268,000
Estimated lease obligations 632,000
Estimated legal and professional fees 245,000
Other 161,000
---------
Total $2,497,000
=========
Subsequent to December 29, 1996, two of the three restaurants in
the Atlanta market were closed.
Fiscal 1995 - During the second quarter of 1995, a review of
all operations of the Company was performed. The review was
precipitated by a change in the Company's core markets,
including a decline in average unit volumes and profitability,
as well as a change in the Company's senior management.
Comparable restaurant sales trends softened in the third and
fourth quarters of 1994, declining by about 2.9% in the third
quarter and 5.9% in the fourth quarter. The decrease continued
in the first quarter of 1995, when comparable restaurant sales
declined by approximately 10.1%. The decline continued into the
second quarter of 1995, which finished with a decline of
approximately 7.7%. This decline in sales led to a decline in
profitability.
In late April 1995, Stephen Clark was hired as President and
Chief Operating Officer of the Company. After several weeks of
analyzing the trends and personnel, Mr. Clark led a
comprehensive review of the Company's operations. The review,
which took place during May and June 1995, included a detailed
review of the existing restaurants including their sales and
profitability trends, recent and future marketing plans,
development plans for new Company restaurants as well as for
franchisees; relationships with current franchisees; and
overhead components, including middle and senior level
management, office space, non-restaurant assets and bonus pay-
outs.
To reverse the adverse trends in operating results, management
began implementing a plan to improve the unit level economics of
the Company's restaurants. In particular, the Company created
several operations-related positions to design and implement
comprehensive labor management and restaurant operating systems;
increased the number of operations supervisory positions thus
lowering the average number of restaurants each supervisor is
responsible for, in order to increase the effectiveness of such
positions; redirected its marketing program to increase focus on
local store marketing efforts and promotional-based advertising;
performed market research to enhance the effectiveness of the
Company's marketing programs and to provide improved market data
to aid in the design and location of future restaurants; and
revised its development criteria, including the construction
costs, design factors, menu strategy, and began reviewing the
possibility of alternative development (e.g., in-line and other
non-traditional construction versus stand-alone restaurants).
The review described above resulted in the decision to close
several restaurants, allow several franchise restaurants to
close or revert back to the Company's control, restructure or
forgive several franchise-related receivables, make several
management personnel changes, sell certain non-restaurant
assets, pay certain discretionary bonuses which related to the
prior year but were not going to be paid by prior management,
restructure the Company's marketing efforts, slow all current
Company and franchise development, and write-off certain prepaid
costs determined to no longer have future value due to the
changes that management planned to make.
These decisions resulted in the Company's recording a special
charge during the second quarter of 1995 of $8.1 million pre-tax
, $5.1 million after tax or $0.33 per share which was comprised
of:
* Market valuation adjustments totaling $2.7 million
resulting from the decision to close six Company-owned
restaurants and dispose of those restaurant assets;
* A provision of $1.2 million to record the estimated monthly
lease obligation, net of expected sublease receipts, for certain
other restaurants which have been closed or were to be closed;
* Market valuation adjustments totaling $1.2 million to allow
for the disposition of certain non-restaurant capital assets,
including the Company's principal office and corporate airplanes
(most of which assets are owned by the Company, so that the
disposition of such assets will generate cash);
* The accrual of $980,000 related to the severance of certain
contractual employment and consulting agreements and the payment
of relocation expenses for Mr. Clark and other new members of
management;
* The write-off of $810,000 related to certain capitalized
media production assets which will no longer be utilized or were
deemed to no longer have value due to the change in the
Company's marketing philosophy described above;
* The write-off of $370,000 in development costs associated
with the sites which were under development at the time of the
decision to slow development;
* An accrual of $300,000 for the payment of certain
operational bonuses which are described above;
* An accrual of $420,000 for certain employee litigation
claims;
* An accrual of $120,000 for miscellaneous expenses.
As of December 29, 1996, the Company had closed all of the six
restaurants identified in the review above and paid costs of
approximately $1.3 million that were applied against amounts
accrued in the special charge. In addition, the Company sold a
portion of the non-restaurant assets discussed above charging
the loss of approximately $752,000 to the related accrual and
generating cash of $788,000.
4. RESERVE FOR NOTES AND OTHER RECEIVABLES
During the second quarter of 1995, the decision was made to
reserve for notes and other receivables of $3.5 million pre-tax.
This reserve included $2.0 million for notes receivable which
were outstanding in connection with the sales of restaurants to
franchisees. The decision to reserve for these notes was based
on discussions held with the franchisees during the second
quarter of 1995 and a review of their financial position. Three
notes totaling $1.3 million of this amount were reserved due to
the fact that the franchisee approached the Company during the
second quarter of 1995 and indicated that the devaluation of the
Mexican Peso in December 1994 had permanently harmed its
restaurants to an extent that they were going to close the
restaurants. These restaurants were all closed during 1995. The
remaining amount relates to a restaurant whose sales trends
continue to erode and there is substantial doubt as to the
recoverability of the balance. The reserve amounts were
calculated by reducing the outstanding note balances to the
estimated value of the underlying collateral and reserving the
remaining balance. The restaurants were all in Texas.
The remaining $1.5 million primarily relates to franchisee
receivables. Approximately $250,000 of this amount relates to
periodic franchise and royalty fees owed by the franchisees
noted above, including interest. An additional $500,000 is
reserved due to a franchisee's failure to meet a contractual
obligation and make payment on a development agreement during
the second quarter of 1995. Approximately $350,000 of the
amount relates to periodic royalty fees and franchise fees from
a franchisee with whom the Company had been in discussions to
acquire its restaurants. Due to the Company's decision to slow
all development, the Company broke off these negotiations. The
remaining balances, totaling $400,000, include various types of
receivables including other franchise amounts, employee
receivables and other miscellaneous receivables.
5. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consisted of the following:
December 31, December 29,
1995 1996
Trade receivables:
Royalties $ 696,000 $ 668,000
Other 510,000 451,000
Notes receivable-current portion 379,000 250,000
Employees 176,000 18,000
Related party 132,000 -
---------- ----------
Total 1,893,000 1,378,000
Less allowance for doubtful accounts (517,000) (595,000)
---------- ----------
Accounts receivable, net $1,376,000 $ 792,000
========= =========
Notes receivable - noncurrent:
Franchisees $1,552,000 $1,470,000
Other 93,000 4,000
--------- ---------
Total 1,645,000 1,474,000
Less allowance for uncollectible notes (865,000) (736,000)
--------- ---------
Notes receivable, net $ 780,000 $ 738,000
========= =========
Notes receivable from franchisees approximate fair value because
the underlying instrument states an interest rate that
approximates current market rates. The Company's allowance for
doubtful accounts is reflected as a reduction of receivables in
the consolidated balance sheets. The following table reconciles
the change in the Company's allowance for doubtful accounts:
December 31, December 29,
1995 1996
Balance at beginning of year $ - $ 517,000
Reserve for doubtful accounts 517,000 78,000
---------- ---------
Balance at end of year $ 517,000 $ 595,000
========== =========
6. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of the following:
December 31, December 29,
1995 1996
Property and Equipment:
Land $20,731,000 $20,507,000
Furniture, fixtures and equipment 42,805,000 48,504,000
Leasehold improvements 17,094,000 19,048,000
Buildings 15,569,000 16,587,000
Construction in progress 300,000 178,000
---------- ----------
Total 96,499,000 104,824,000
Less accumulated depreciation and
amortization (13,977,000) (20,348,000)
---------- -----------
Total 82,522,000 84,476,000
---------- -----------
Property and Equipment Held Under
Capital Leases:
Buildings 6,178,000 5,780,000
Less accumulated amortization (1,005,000) (1,293,000)
---------- -----------
Total 5,173,000 4,487,000
---------- -----------
Property and Equipment, net $87,695,000 $88,963,000
========== ==========
At December 29, 1996, the Company had three restaurants and one
office building held for sale. The total carrying amount of
these assets are $3.1 million which management estimates to be
the net proceeds from the disposition of these assets. See Note
3.
7. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consisted of the following:
December 31, December 29,
1995 1996
Intangible assets:
Goodwill $48,048,000 $48,048,000
Noncompetition agreements 2,500,000 2,500,000
Trade name 1,564,000 1,571,000
---------- ----------
Total 52,112,000 52,119,000
Less accumulated amortization (5,074,000) (6,725,000)
---------- ----------
Intangible assets, net $47,038,000 $45,394,000
========== ==========
Other assets:
Deposits $ 341,000 $ 290,000
Prepaid leases 482,000 208,000
Investment in joint venture 686,000 -
Other 111,000 43,000
---------- ----------
Other assets $ 1,620,000 $ 541,000
========== ==========
8. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
December 31, December 29,
1995 1996
Closed store lease obligations $ 579,000 $ 845,000
Payroll related 1,061,000 777,000
Severance 319,000 474,000
Property taxes 325,000 429,000
Employee injury 307,000 200,000
Restaurant expenses 127,000 91,000
Acquisition costs 684,000 25,000
Other 462,000 330,000
--------- ---------
Total $3,864,000 $3,171,000
========= =========
9. LEASES
Operating Leases - The Company leases restaurant facilities
under non-cancelable operating leases with initial terms ranging
from three to twenty years with options to renew. The future
minimum lease commitments under all non-cancelable lease
obligations as of December 29, 1996 were as follows:
1997 $ 8,283,000
1998 8,577,000
1999 8,754,000
2000 8,462,000
2001 7,960,000
Thereafter 52,480,000
----------
Total $94,516,000
==========
The total rental expense for operating leases for 1994, 1995 and
1996 was approximately $7.0 million, $6.9 million and $8.4
million, respectively, including additional rents of
approximately $458,000, $467,000 and $376,000, respectively.
The Company remains contingently liable on three operating
leases which were assigned to the purchasers of units previously
sold or closed. Future minimum lease commitments under these
contingent obligations approximate $292,000 in 1997, and
$303,000 in 1998 through 2001. Thereafter, the total minimum
lease payments are approximately $3.2 million. The Company
assesses the probability of its having to assume primary
liability under these assignments as part of its ongoing
assessment of franchisee relationships.
Capital Leases - The Company leases certain buildings under
capital lease agreements with third parties. The leases have
fifteen and twenty year terms. Future minimum lease payments
under the capital leases and the net present value of the
minimum lease payments at December 29, 1996 were:
Years ending:
1997 $ 630,000
1998 642,000
1999 650,000
2000 656,000
2001 634,000
Thereafter 2,934,000
---------
Total minimum lease payment 6,146,000
Less amount representing interest at 9% to 13% 1,906,000
---------
Net present value of minimum lease payments 4,240,000
Less current portion 199,000
---------
Long-term portion of capital leases $4,041,000
=========
In addition to the minimum lease payments, several of the leases
have a contingent rental based on 5% to 6% of gross sales, if
such amounts exceed minimum rent. No payments have been made
under these agreements. Furthermore, certain leases have been
guaranteed by a stockholder of the Company.
10.LONG-TERM DEBT
Long-term debt consisted of the following notes payable bearing
interest at the prime rate of 8.25% at December 29, 1996:
December 31, December 29,
1995 1996
Note payable to a bank, collateralized by
certain restaurant assets, due in monthly
installments of principal and interest
through January 2002 $ 9,341,000 $ 6,101,000
Note payable to a bank, unsecured, due in
monthly installments of principal and
interest through April 2000 2,603,000 2,189,000
Note payable to a corporation, collateralized
by certain restaurants, due in monthly
installments of principal and interest
through September 1998 742,000 513,000
----------- -----------
Total 12,686,000 8,803,000
Less current maturities 1,898,000 2,210,000
----------- -----------
Long-term debt, net $10,788,000 $ 6,593,000
=========== ===========
The future minimum payments of long-term debt outstanding at
December 29, 1996 were as follows:
Years ending:
1997 $2,210,000
1998 2,341,000
1999 2,231,000
2000 2,021,000
---------
Total $8,803,000
=========
The amounts stated in the Company's consolidated balance sheets
for long-term debt approximate fair value because the underlying
note payable balance fluctuates frequently or it is at a fixed
rate approximating current market rates.
11.LINE OF CREDIT
During 1995, the Company signed two secured credit facilities
totaling $20.0 million including a $5.0 million revolving line
of credit. The commitments are due to expire on January 31,
1999. Interest on funds borrowed under the facilities are
charged at the New York prime rate which was 8.25% at
December 29, 1996. The credit facilities are secured by the
stock of a subsidiary company. The facilities contain certain
covenants, including cash flow to fixed charges ratio, minimum
net worth, debt to tangible net worth ratio, and intangible
assets to net worth ratio requirements. During the year ended
December 29, 1996, the Company was in compliance with all such
covenants. At December 29, 1996, the Company had approximately
$11.1 million available for cash borrowings under these credit
facilities.
12.STOCKHOLDERS' EQUITY AND STOCK OPTIONS
Stock Options - The Company has stock option plans (the "Plans")
for employees, outside directors, and advisors of the Company
covering 2,000,000 shares of the Company's common stock.
Options under such plans principally are exercisable beginning
one to ten years from the grant date. The Plans terminate in
2000 and in 2004. The Plans are administered by a committee of
outside members of the Board of Directors. In addition, certain
directors were awarded non-qualified stock options pursuant to
the terms of separate compensation agreements. At December 29,
1996, there were 23,658 shares available for issuance upon
exercise of options that may be granted in the future. Options
outstanding are as follows:
Weighted
Average
Total Options Exercise
Outstanding Price
Options outstanding, January 1, 1994 946,819 $ 6.03
Granted 712,431 13.60
Exercised (574,467) 1.91
Expired or canceled (184,783) 13.53
--------
Options outstanding, January 1, 1995 927,000 $11.80
Granted 938,125 5.41
Exercised (120,000) 3.14
Expired or canceled (692,000) 13.20
--------
Options outstanding, December 31, 1995 1,053,125 $ 6.40
Granted 231,250 6.30
Exercised (25,375) 4.85
Expired or canceled (147,500) 5.36
--------
Options outstanding, December 29, 1996 1,111,500 $ 6.18
=========
Options exersisable, December 29, 1996 427,881 $ 5.39
=========
For the options outstanding at December 29, 1996, the weighted
average remaining life and exercise price of these outstanding
options were 18 months and $6.33, respectively. In addition,
the weighted average exercise price of options granted during
1996 was $6.38.
SFAS No. 123, Accounting for Stock-Based Compensation, allows
for the election to continue to use Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to
Employees. The Company has evaluated SFAS No. 123 and intends to
continue following APB Opinion No. 25 for expense recognition
purposes. The pro-forma compensation expense, net income and
earnings per share which were calculated as if SFAS No. 123 had
been applied are as follows:
January 1, December 31, December 29,
1995 1995 1996
Pro Forma
Compensation expense $ 433,000 $ 669,000 $ 741,000
Net income 8,247,000 (4,220,000) 237,000
Income (loss) per share $ 0.53 $ (0.27) $ 0.01
The Black-Scholes option pricing model was used to determine the
above pro-forma information. The calculations relied upon
estimates of the volatility of the Company's stock and expected
dividends, as well as determinations of a risk-free interest
rate and expected life of the options. A volatility rate of
49.0% was used for options issued prior to 1994, 37.5% was used
for options issued during 1994 and 36.0% was used for options
issued during 1995 through 1996. Dividends were estimated at
zero. The discount rate charged on loans to depository
institutions by the Federal Reserve Bank was used as the risk-
free interest rate. The discount rate was 5.0% throughout 1996,
and varied from a low of 3.0% to a high of 6.5% for the time
periods which affected the calculations above. In some cases,
the life of the Company's options was specifically stated as two
years, otherwise, the life is expected to be three years.
Preferred Stock Purchase Rights - In June 1995, the Company's
Board of Directors declared a distribution of one preferred
stock purchase right for each share of the Company's common
stock. The rights were distributed on June 20, 1995 to
stockholders of record as of the close of business on that day.
Each right will entitle the holder to buy 1/100 of a share of a
newly authorized Series A preferred stock at an exercise price
of $37.50 per right. The rights become exercisable on the tenth
day after public announcement that a person or group has
acquired 15% or more of the Company's common stock. The rights
may be redeemed by the Company prior to becoming exercisable by
action of the Board of Directors at a redemption price of $0.01
per right. If the Company is acquired in a merger or other
business combination transaction in which it is not the
surviving corporation, each right will entitle its holder to
purchase stock of the acquiring company having a market value of
twice the exercise price. In the event that the Company is the
surviving corporation, each right will entitle its holder to
purchase the Company's common stock having a market value of
twice the exercise price of each right. At December 29, 1996,
there were 15,706,537 rights outstanding.
Preferred Stock - In June 1995, the Company authorized 100,000
shares of Series A, preferred stock with a par value of $0.01
per share. As of December 29, 1996, there were no shares
outstanding.
13.INCOME TAXES
The provision (benefit) for income taxes differs from the amount
computed using statutory rates as shown below:
Year Ended
---------------------------------------
January 1, December 31, December 29,
1995 1995 1996
Federal income tax at statutory
rate $4,656,000 $(2,049,000) $530,000
State income taxes 285,000 (87,000) 39,000
Other (157,000) (94,000) 285,000
--------- ---------- -------
Total $4,784,000 $(2,230,000) $854,000
========= =========== =======
The provision (benefit) for income taxes is comprised of the following:
Year Ended
---------------------------------------
January 1, December 31, December 29,
1995 1995 1996
Current $3,564,000 $(1,844,000) $404,000
Deferred 1,220,000 (386,000) 450,000
--------- ---------- -------
Total $4,784,000 $(2,230,000) $854,000
========= ========== =======
Deferred income taxes and benefits are provided for differences
between the financial statement carrying amount of existing
assets and liabilities and their respective tax bases.
Significant deferred tax assets and liabilities are as follows:
Year Ended
December 31, December 29,
1995 1996
Current:
Deferred Federal Tax Assets:
Workmen's compensation claims $ 165,000 $ 194,000
Investment in joint venture - 879,000
Accounts receivable 178,000 211,000
Charitable contributions - 32,000
Net operating loss carryforward 324,000 558,000
--------- ---------
Total 667,000 1,874,000
--------- ---------
Deferred Federal Tax Liabilities -
Pre-opening costs (170,000) (46,000)
State taxes - (1,000)
--------- ---------
Total (170,000) (47,000)
--------- ---------
Net Current Deferred Tax Asset $ 497,000 $1,827,000
========= =========
Noncurrent:
Deferred Federal Tax Assets:
Net operating loss carryforward $1,517,000 $1,598,000
Tax credit carryforward 178,000 627,000
Notes receivable 464,000 261,000
Media and production 208,000 202,000
Closed stores 81,000 (83,000)
State taxes (11,000) 160,000
Alternative minimum tax - 1,056,000
--------- ---------
Total 2,437,000 3,821,000
--------- ---------
Deferred Federal Tax Liabilities:
Franchise/start-up costs (9,000) -
Deferred rent (975,000) (1,505,000)
Fixed and intangible assets (3,318,000) (5,961,000)
--------- ---------
Total (4,302,000) (7,466,000)
--------- ---------
Net Noncurrent Deferred Tax Liability $(1,865,000) $(3,645,000)
========== ==========
Net Deferred Tax Liability $(1,368,000) $(1,818,000)
========== ==========
At December 29, 1996, the Company had net operating loss,
alternative minimum tax and general business tax credit carry-
forwards of approximately $6.1 million, $1.1 million and
$627,000, respectively. A portion of the above carry-forwards
resulted from the acquisition of Two Pesos; the Company was
allowed to utilize the net operating loss of $5.4 million and
tax credit carry-forwards of $178,000 of Two Pesos that existed
at the date of acquisition. However, these carry-forwards may
only offset the post-acquisition taxable income and tax
liability of the Company's subsidiary that acquired Two Pesos.
In addition, because of the change in ownership, the net
operating loss carry-forward utilization is further limited to
approximately $953,000 per year, and the tax credit carry-
forward acquired from Two Pesos is limited each year to the tax
equivalent of any remaining portion of the net operating loss
limitation. The net operating loss and tax credit carry-
forwards begin to expire in 2003 and 2000, respectively.
The alternative minimum tax credit carry-over and the remaining
general business credit carry-over resulted from prior-year
losses which were carried back three preceding tax years. These
credits are available to offset future taxable income. The
general business credit begins to expire in 2007. The
alternative minimum tax credit has no expiration date.
14.ACQUISITION LIABILITIES
The Company establishes acquisition liabilities, as necessary,
in connection with the purchase method of accounting for
restaurants and other assets it acquires. Such liabilities are
primarily related to leases that were at terms less favorable
than market rates prevailing at the acquisition date and
anticipated restaurant closure costs, if any.
The liability established for leases in excess of the prevailing
market were based on current market rental rates at the date of
acquisition as compared to the terms of the leases acquired.
This liability is being amortized as a reduction of occupancy
expense over the remaining term of the applicable leases. The
total amount of this reserve was $2.0 million and $1.8 million,
at December 31, 1995 and December 29, 1996, respectively.
During 1996, approximately $157,000 of the balance was amortized
in this manner.
The remaining balance relates to reserves established for the
closure of certain acquired restaurants. These restaurants were
anticipated to be closed at the time of acquisition. The
amounts reserved were equal to the value assigned to the
building and equipment acquired, less any anticipated salvage
value, plus an amount estimated to terminate the lease prior to
its expiration date. The total amount of this reserve was $4.5
million and $2.8 million, at December 31, 1995 and December 29,
1996, respectively. During 1995 and 1996, approximately $2.4
million and $1.7 million, respectively, of this reserve was
utilized in the closure of restaurants. No gain or loss was
recorded on any of these transactions.
15.QUARTERLY FINANCIAL DATA (Unaudited)
Quarter Ended
---------------------------------------------------
April 2, July 2, Octoer 1, December 31,
1995 1995(1) 1995 1995
Total revenues $32,837,000 $36,935,000 $35,668,000 $33,093,000
Gross profit 22,463,000 25,113,000 24,214,000 22,660,000
Net income (loss)
applicable to
common stock 1,038,000 (6,028,000) 751,000 441,000
Net income (loss)
per share of
common stock $ 0.07 $ (0.39) $ 0.05 $ 0.03
Average common and
common equivalent
shares outstanding 15,746,087 15,564,162 15,723,263 15,730,854
Quarter Ended
---------------------------------------------------
March 31, June 30, September 29, December 29,
1996 1996 (2) 1996 1996 (1)
Total revenues $31,264,000 $35,308,000 $33,810,000 $31,814,000
Gross profit 21,562,000 24,234,000 23,040,000 22,024,000
Net income (loss)
applicable to
common stock 734,000 (533,000) 1,220,000 (698,000)
Net income (loss)
per share of
common stock $ 0.05 $ (0.04) $ 0.08 $ (0.04)
Average common and
common equivalent
shares outstanding 15,867,382 15,687,689 16,014,352 15,703,412
(1) See Notes 3 and 4 for discussion of charges recorded in these quarters.
(2) See Note 2 for discussion of charge recorded in this quarter.
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered
into this 15th day of September, 1995 to be effective as of the
24th day of April, 1995 ("Effective Date"), by and between TACO
CABANA, INC., a Delaware corporation ("Company"), and JAMES A.
ELIASBERG ("Employee").
W I T N E S S E T H:
Company and Employee wish to enter into this Agreement so as
to establish their understanding with respect to employment of
Employee by Company and to resolve certain other matters
involving Company and Employee, all as set forth herein.
NOW, THEREFORE, for and in consideration of the mutual
covenants and agreements of the parties, and the mutual benefits
to be gained by the performance thereof, and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Employment, Duties and Acceptance. Company hereby
employs Employee, and Employee hereby accepts employment from
Company, on the terms and conditions set forth herein, to serve
as Executive Vice President and General Counsel of the Company.
Employee shall also serve as Executive Vice President of the
Company's affiliated corporations excluding Get Real, Inc. and
Taco Cabana Investments, Inc. Employee shall devote exclusive
and full time services to the Company and its affiliates, subject
to the direction of the President and the Board of Directors of
the Company and its affiliates, and, in connection therewith,
shall perform such duties commensurate with such office as he
shall reasonably be directed to perform.
2. Term of Employment. The term of this Agreement
("Term") shall commence on the Effective Date and shall continue
until April 23, 1998 unless earlier terminated as hereinafter
provided.
3. Compensation.
3.1. Base Salary. As compensation for all services to
be rendered by Employee pursuant to this Agreement, Company
agrees to pay or cause to be paid to Employee, during the Term, a
base salary ("Base Salary") of $185,000 per annum, payable in
equal installments in accordance with Company's general payroll
practices, less such deductions or amounts to be withheld as
shall be required by applicable law and regulations or pursuant
to any benefit plan in which Employee is a participant.
3.2. Expenses. Company shall pay or reimburse Employee
for all reasonable and necessary expenses actually incurred and
paid by Employee during the Term in the performance of his
services under this Agreement, upon presentation of written
expense statements or vouchers accompanied by receipts and such
other supporting documentation as Company may require; provided,
however, that the maximum amount available for such expenses
during any period may be fixed by the Board of Directors of
Company.
3.3. Car Allowance. During the term of this Agreement,
the Company shall pay to Employee a monthly car allowance in the
amount of $625.00.
3.4. Bonus. In addition to any discretionary bonus
that Employee may be paid in the sole discretion of the Board of
Directors of the Company, Employee shall participate in a formula
bonus program to be established for senior management of the
Company based upon the results and performance of the Company as
compared to a financial plan which is approved by the Board of
Directors of the Company. To date such formula bonus program has
not been fully developed but generally it is anticipated that for
each year commencing January 1, 1996, Employee shall be paid a
bonus based upon the Company's achievement of certain performance
goals set forth in a financial plan to be prepared by senior
management of the Company and approved by the Board of Directors
of the Company. For the purposes hereof, "Approved Annual
Financial Plan" shall mean the projections of revenue, expenses
and net income of the Company for each of its calendar years
during the term hereof which is approved by the Board of
Directors of the Company. Commencing fiscal year 1996 and for
each fiscal year thereafter, a financial plan (the "Annual
Financial Plan") is to be prepared by Employee and senior
management of the Company and submitted to the Company's
Compensation Committee for review and comment on approximately
November 30 prior to the commencement of the fiscal year covered
by the Annual Financial Plan. The Company's Compensation
Committee is a committee of the Board of Directors of the
Company. The Annual Financial Plan will include a qualitative
and quantitative analysis of revenues and net profits which shall
be considered by the Compensation Committee of the Company.
Employee and the other members of the Company's senior management
will make themselves available at the convenience of the members
of the Company's Compensation Committee to discuss, analyze,
review, explain, comment and if appropriate, make revisions, to
the Annual Financial Plan which has been submitted by Employee
and senior management of the Company. After this process of
discussion, analysis, review, explanation, comment and revision,
the proposed Annual Financial Plan will be submitted to the Board
of Directors of the Company for discussion, review, amendment, if
necessary, and approval, upon which approval the Annual Financial
Plan, as same may be amended, will become the "Approved Annual
Financial Plan." The Board of Directors of the Company, in its
sole discretion, reserves the right to establish the Approved
Annual Financial Plan upon which the performance of the Company
for any fiscal year will be based for the payment of bonuses to
the Company's senior management. Each year commencing January 1,
1996, Employee shall be paid a bonus equal to a percentage of his
Base Salary set forth in Section 3.1 above as a bonus if the
Company shall achieve not less than 85% of the Approved Annual
Financial Plan and if the Approved Annual Financial Plan is met
or exceeded the bonus will increase. The bonus shall be paid
within seven (7) days after the Independent Public Accountants
regularly employed by the Company shall complete and distribute
the annual audit of the Company for the prior fiscal year. The
details of such formula bonus program will be set forth in
writing on or before December 31, 1995.
4. Death During Employment. This Agreement and all
rights, benefits and obligations of the parties hereunder shall
immediately terminate upon the death of Employee, except that
Employee's legal representative shall be entitled to receive
payments based on the Base Salary specified in Section 3.1 hereof
to the last day of the month next following the month in which
Employee's death occurs and Employee's estate shall be entitled
to receive a prorated portion of the percentage bonus described
in Section 3.4. The bonus shall be prorated based upon the
portion of the calendar year before the employee's death and
shall be paid within ninety (90) days after the end of the
calendar year in which the Employee's death occurs.
5. Disability. If Employee shall become disabled, as
herein defined, the Company may, upon thirty (30) days written
notice, terminate Employee's employment hereunder as herein
provided. For the purposes of this Agreement, "disability" shall
be defined as substantial impairment, physical or mental, of
Employee's ability to substantially perform his duties as set
forth herein if such impairment continues for a period of ninety
(90) continuous days. Such determination of disability shall be
certified by three qualified and licensed physicians, one of
which is to be selected by the Company, one is to be selected by
the Employee or Employee's designee and the other is to be
selected by the other two physicians selected. If the two
physicians selected by the Company and Employee or Employee's
designee can not agree upon a third physician within thirty (30)
days, a third physician will be selected by the head of the Bexar
County Medical Association. The determination of a majority of
the physicians as to Employee's disability shall control and be
binding upon the parties hereto and their respective legal
representatives and successors. Company shall continue to pay
Employee his full Base Salary compensation up to and including
the date of termination. Upon such termination, all rights,
benefits and obligations of the parties hereunder shall
immediately terminate, except that Employee shall be entitled to
receive a prorated portion of the percentage bonus described in
Section 3.4. The bonus shall be prorated based upon the portion
of the calendar year before the Employee's disability and shall
be paid within ninety (90) days after the end of the calendar
year in which the Employee's disability occurs.
6. Termination.
6.1. Termination. This Agreement may be terminated by
Employee upon thirty (30) days written notice to the Company.
Upon termination of this Agreement, all rights, benefits and
obligations of the parties hereunder shall immediately terminate
and neither party shall have any further obligation to the other
except the payment by Company to Employee of compensation based
on the Base Salary specified in Section 3.1 hereof through the
date of termination, and the rendition of services by Employee
through such date of termination.
6.2. Termination for Cause. Company may terminate and
discharge Employee for cause (as defined herein) at any time,
effective immediately upon the giving of notice to such effect to
Employee. Such discharge shall be effected by written notice to
Employee which shall specify the reasons for Employee's
discharge. As used herein, the term "for cause" shall only
include (i) Employee's theft or fraud, (ii) Employee's conviction
of a felony, (iii) Employee's violation of the terms and
conditions of Sections 8.1 or 9, or (iv) Employee's failure to
comply with all reasonable policies, standards, and regulations
of the Company or any of its affiliated companies in effect as of
the date of this Agreement and failure to cure such violation
within thirty days after receipt of written notice thereof.
7. Vacation and Benefits.
7.1. Vacation and Benefits. Employee shall be entitled
to three (3) weeks paid vacation time each calendar year. The
times for such vacation shall be mutually agreed upon by Company
and Employee. Vacation time not used in one calendar year shall
carry over and may be used in the next calendar year; provided,
however, Employee shall not be entitled to more than six (6)
weeks of vacation time in any one calendar year; and provided
further, that vacation time carried over to the next calendar
year shall not exceed six (6) weeks. As a full-time employee of
Company, Employee shall be entitled to participate in such other
fringe benefits as are formally adopted by Company and its
affiliated companies from time to time for and on behalf of its
full-time employees. In this regard, during the Term, Employee
shall be eligible to participate, and shall be entitled to
participate, in any
(i) pension, profit sharing, bonus, stock option, stock
ownership or similar plans or programs of Company and its
affiliated companies established for or benefitting
executive employees, or
(ii) group insurance, hospitalization, medical,
health and accident, disability or similar insurance plans
or programs of Company and its affiliated companies now
existing or hereafter established, to the extent that he is
eligible under the general provisions thereof.
7.2. Stock Options. Taco Cabana will grant to Employee
an option to acquire 200,000 shares of common stock (the
"Option") at an exercise price not less than the closing price of
the common stock on the effective date of grant. Such Option
will vest in five equal annual installments of 40,000 shares
each, commencing on June 6, 1996; provided, however, that any
portion of such Option to the extent not vested shall vest
immediately upon any Change of Control of the Company during the
term hereof (as Change of Control is defined in the Employee's
Stock Option Agreement to be entered into to evidence the Option
referenced herein). Such Stock Option Agreement will be entered
into no later than sixty days from September 15, 1995.
8. Restrictive Covenants.
8.1. During Employment. Employee is hired by Company
as a full-time employee and Employee agrees to use his best
efforts to serve and advance the interests of Company and its
affiliated companies well and faithfully and to devote his full
time and attention exclusively to the business of Company and its
affiliated companies for so long as he shall be employed
hereunder. During the Term, Employee shall not, directly or
indirectly, alone or as a member of a partnership or as an
officer, director, shareholder or consultant of any other
corporation, be engaged in or concerned with any business or
commercial activities, duties or pursuits whatsoever, other than
those of Company. Without limiting the generality of the
foregoing, Employee shall not, directly or indirectly, own,
manage, operate, join, control, participate in or be connected
with as an officer, director, employee, consultant, partner,
shareholder or individual, in or with any business or occupation
which is a competitor with Company or any of its affiliated
companies. Notwithstanding anything to the contrary herein
contained, nothing herein shall be construed to prohibit Employee
from making passive personal investments or writing books,
screenplays or other literary endeavors during periods of time
outside normal and customary business hours and such passive
investments and any screenplays, books or literary endeavors
written by the Employee shall remain his sole and exclusive
property, together with any commercialization proceeds thereof.
8.2. After Termination of Employment. For and in
consideration of the promises herein contained and for other good
and valuable consideration the receipt and sufficiency of which
is hereby acknowledged, Employee agrees that for a period of two
(2) years after Employee's employment is terminated for any
reason, Employee shall not, directly or indirectly, own, manage,
operate, control, participate in or be connected with as an
officer, director, employee, consultant, partner, shareholder or
individual, in or with any business or occupation which owns a
Mexican fast food restaurant or Mexican "quick service"
restaurant in the continental United States.
9. Protection of Confidential Information. Employee
acknowledges that in his employment with Company hereunder he
occupies a position of trust and confidence and that during the
Term of this Agreement, he will have access to and will become
familiar with many confidential affairs of Company and its
affiliated companies, including, without limitation, information
about costs, profits, markets, sales, products, key personnel,
pricing policies, operational methods, trade secrets, technical
processes and other business affairs and methods, plans for
future developments and other information not readily available
to the public (collectively "Confidential Information").
Employee covenants and agrees that he will keep secret all
Confidential Information of Company and that he will not disclose
any of such Confidential Information, directly or indirectly,
unless he is compelled to disclose it by judicial process.
Employee further covenants and agrees that he will not use any
such Confidential Information in any way, either during the Term
of this Agreement or at any time thereafter, except as required
in the course of his employment. All files, records, documents,
drawings, specifications, equipment and other similar items
relating to the business of Company shall remain the sole and
exclusive property of Company and shall not be removed by
Employee from the premises of Company under any circumstances
whatsoever without the prior written consent of Company and shall
in no way be reproduced or copied by Employee without the prior
written consent of Company. Employee agrees to deliver or return
to Company, upon termination of his employment, all copies, data,
drawings, prints and written information furnished by Company or
prepared by Employee during the Term of this Agreement in
connection with his services hereunder. Employee will retain no
copies thereof after termination of his employment. Employee
hereby releases and transfers, assigns and conveys any right,
title or interest Employee may have in any trademarks, trade
names, service marks, service names or other proprietary marks
("Marks") of Company or any of its affiliated companies, whether
presently existing or hereafter developed, and Employee agrees
not to undertake either during the Term hereof or at any time
thereafter, to apply for any registration with respect to any
such Mark except on behalf of the Company or any affiliated
company pursuant to a specific written directive from Company.
Employee is an attorney and should he develop legal form files,
form agreements or other similar attorney work products that do
not contain Company confidential information, Employee shall be
entitled to retain copies of such attorney work product
notwithstanding anything to the contrary herein contained.
10. Specific Remedy. Company and Employee agree that in
the event Employee commits a material breach of Sections 8 or 9
of this Agreement, Company shall have, in addition to any other
remedies provided by law, the right and remedy to have such
provision specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such
breach or threatened breach will cause irreparable injury to
Company and that money damages will not provide an adequate
remedy to Company.
11. Prohibition Against Assignment. Employee agrees on
behalf of himself and of his executors, administrators, heirs,
legatees, distributees and any other person or persons claiming
any benefits through or under him under this Agreement that this
Agreement and its rights, interests and benefits shall not be
assigned, transferred, pledged or hypothecated in any way by
Employee or any executor, administrator, heir, legatee,
distributee or other person claiming through or under Employee by
virtue of this Agreement, and shall not be subject to execution,
attachment or similar process. Any attempted assignment,
transfer, pledge or hypothecation, or disposition of this
Agreement or of such rights, interests and benefits contrary to
the above provisions, or the levy of any attachment or similar
process thereupon, shall be null and void and without effect.
12. General.
12.1. Severability. The provisions of this Agreement
are severable and the invalidity or unenforceability of any
provision hereof shall not affect the validity or enforceability
of any other provision. In addition, in the event that any
provision of this Agreement (or portion thereof) is determined by
a court to be unenforceable as drafted by virtue of the scope,
duration, extent or character of any obligation contained
therein, the parties acknowledge that it is their intention that
such provision (or portion thereof) shall be construed in a
manner designed to effectuate the purposes of such provision to
the maximum extent enforceable under applicable law.
12.2. Waiver. Failure or delay in insisting upon strict
compliance with any provision hereof shall not be deemed a waiver
of such provision or any other provision hereof with respect to
prior, contemporaneous or subsequent occurrences. No waiver by
either party of any right hereunder or of any default shall be
binding upon such party unless such waiver is in writing and
signed by a duly authorized officer of such party.
12.3. Remedies Cumulative. All remedies provided for in
this Agreement shall be cumulative and in addition to and not in
lieu of any other remedies available to either party at law, in
equity or otherwise.
12.4. Notice. Any notice, demand, payment, request,
response or other communication contemplated herein or required
or permitted to be given hereunder shall be deemed to be given
and sufficient in all respects if given in writing, by personal
delivery or by United States Mail, Certified Mail, Postage
Prepaid, Return Receipt Requested to the parties at the
respective addresses set forth below:
if to Company: 262 Losoya, Suite 330
San Antonio, Texas 78205
if to Employee: Employee's address
as recorded
in the Personnel Files of
the Company
or to such other address as the party to receive such
communication has last designated by notice delivered to the
other party in accordance with the foregoing provisions. All
notices shall be effective upon receipt.
12.5. Entire Agreement. This Agreement constitutes the
entire understanding and agreement between the parties hereto
with respect to the subject matter hereof and supersedes any
prior understanding or agreement (including the prior signed
Employment Agreement entered into September 15, 1995, which was
inadvertently and mistakenly executed and shall be deemed to have
never been of any force or effect) between Company or any of its
affiliated companies and Employee relating to Employee's
employment with Company or any of its affiliated companies.
There are no representations, agreements, arrangements or
understandings, oral or written, between or among the parties
hereto relating to the subject matter of this Agreement which are
not fully expressed herein.
12.6. Amendment. This Agreement may not be modified or
amended except by written agreement executed by all the parties
to this Agreement at the time of such amendment.
12.7. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
Texas, and the parties hereto hereby agree that the sole and
exclusive place of jurisdiction for resolution of any disputes
arising hereunder or related hereto shall be San Antonio, Bexar
County, Texas.
12.8. Binding Effect and Assignment. Subject to the
restrictions against assignment set forth in Section 11, this
Agreement and the terms and conditions hereof shall be binding
upon and inure to the benefit of the parties hereto, their
respective legal representatives, successors and assigns.
12.9. Captions and Section Headings. Captions and
section headings used herein are for convenience only and shall
not be used in construing this Agreement.
12.10. Language. The language used in this
Agreement shall be deemed to be language chosen by both parties
hereto to express their mutual intent, and no rule of strict
construction against either party shall apply to any term or
condition of this Agreement.
12.11. Further Assurances. Each of the parties
hereto agrees to perform any further acts and to execute and
deliver any further documents which may be reasonably necessary
to carry out the purpose or intent of the provisions of this
Agreement.
12.12. Counterparts. This Agreement may be executed
in several counterparts, each of which shall constitute an
original, but all of which taken together shall constitute one
single agreement between the parties hereto.
12.13. Indemnity. The Company shall indemnify the
Employee and hold him harmless for any acts or decisions made by
him in good faith while performing services for the Company as
Employee and/or agent of Company and, in addition thereto, shall
use its best efforts to obtain insurance coverage for him under
any insurance policy now in force or hereinafter obtained during
the term of this Agreement covering the officers and directors of
the Company against lawsuits as Employee and/or agent of Company.
The Company will pay all expenses, including attorneys' fees,
actually and necessarily incurred by the Company or Employee in
connection with the defense of any such act, suit or proceeding
and in connection with any appeal thereon, including costs of
court settlement.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the 15th day of September, 1995, effective as of the Effective
Date.
COMPANY:
TACO CABANA, INC.
BY:
ITS:
EMPLOYEE:
JAMES A. ELIASBERG
SECOND AMENDED LOAN AGREEMENT
This Second Amended Loan Agreement, dated as of the 31st day
of January, 1997, is entered into by and among TACO CABANA, INC.,
a Delaware corporation, TEXAS TACO CABANA, L.P., T.P. ACQUISITION
CORP., T.C. MANAGEMENT, INC., TACO CABANA MANAGEMENT, INC.,
COLORADO CABANA, INC., AND TACO CABANA MULTISTATE, INC.
(collectively the "Borrower"), and INTERNATIONAL BANK OF
COMMERCE, a state banking association (the "Lender").
For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as
follows:
SECTION 1. THE LOANS.
1.1 Loan Commitment. Subject to the terms and conditions
hereof, the Lender agrees to lend and advance to Borrower, from
time to the time until April 15, 1999 (the "Loan Commitment
Period"), such sums as the Borrower may request, but which shall
not exceed, in the aggregate principal amount at any one time
outstanding, the amount of $15,000,000.00 ("Loan Commitment").
1.2 The Loans. Each borrowing under the Loan Commitment
shall be referred to herein as a "Loan", shall be deemed a
separate and independent loan and shall be evidenced and secured
as set forth below. Each Loan shall bear interest at the lesser
of (i) the maximum rate allowed by law, or (ii) the floating per
annum rate equal to the New York Prime Rate. The "New York Prime
Rate" shall mean the annual lending rate of interest announced
from time to time by the Chase Manhattan Bank, N.A., New York,
New York, as its prime rate; if a prime rate is not announced by
Chase Manhattan Bank, N.A., then the Loans shall bear interest at
the annual lending rate of interest announced from time to time
by Lender less one percent (1%) as its prime rate. Borrower
acknowledges that Lender makes no warranty or representation that
either of the prime rates charged by Chase Manhattan Bank, N.A.
or Lender is more favorable than another rate or index, or that
rates on other loans or credit facilities may not be based on
other indices, or that rates on loans to other may not be made
below such prime rate. Installments of principal and interest
under each Loan shall be payable quarterly and amortized under a
ten (10) year period, and have a term specified by Lender which
shall not exceed seven (7) years from the date of such Loan.
1.3 Commitment Fee. During the Loan Commitment Period,
Borrower agrees to pay to Lender a commitment fee computed at the
rate of one-quarter of one percent (0.25%) per annum on the daily
average unused amount of the Loan Commitment during each
Quarterly Cycle (as hereinafter defined). Such commitment fee
shall be payable quarterly, in arrears, on the last day of each
March, June, September and December during the Loan Commitment
Period, commencing March 30, 1997 and continuing in consecutive
quarterly payments thereafter until the date of expiration of the
Loan Commitment Period, on which date any accrued and unpaid fee
computed in accordance with the provisions of this Section shall
be due and payable. For purposes of this Section 1.4, the term
"Quarterly Cycle" shall refer to each calendar quarter during the
Loan Commitment Period.
1.4 Replaces Prior Commitment. This Second Amended Loan
Agreement replaces entirely that certain First Amended Loan
Agreement dated as of January 31, 1995 which governed the terms
of a $15,000,000.00 loan commitment from Lender to Taco Cabana,
Inc. ("Prior Commitment"). The Borrower and Lender acknowledge
that the Prior Commitment is null and void and of no further
force or effect.
1.5. Revolving Loan Agreement. The Borrower and Lender
have entered into a Revolving Loan Agreement of even date
herewith ("Revolving Loan Agreement"). The term "Revolving Loan
Documents" as used in this Second Amended Loan Agreement shall
have the meaning provided in Section 3.2 of the Revolving Loan
Agreement.
SECTION 2. SECURITY AND COLLATERAL.
2.1 Composition of the Collateral. The Loans shall be
secured primarily with first liens and security interests upon
those tracts of Borrower's real property which are agreed upon
between Borrower and Lender ("Security Tracts"), together with
the improvements, furniture, fixtures, equipment, accounts and
inventory located on, attributable to or used in connection with
the Security Tracts, as specifically set out in, and together
with such other mortgages, liens and security interests as set
out in the Loan Documents set forth in Section 3.2 below. The
security granted by the Loan Documents shall constitute
collateral for the indebtedness established by the Loans and as
otherwise established and set out in the Loan Documents
(cumulatively the "Secured Indebtedness"). All of the mortgages,
liens, security interests, and rights granted to Lender by the
Loan Documents shall secure any and all Secured Indebtedness.
Lender shall not be required to release any of the liens,
security interests, and rights granted or given to Lender by any
of the Loan Documents unless and until all of the Secured
Indebtedness has been paid in full. The Loan Documents shall
provide that a default under any Loan Document shall constitute a
default under the Loan Documents for all Loans.
2.2 Priority of Liens. The liens, security interests, and
rights granted to Lender to secure the Secured Indebtedness shall
be first and prior except for (i) liens for ad valorem taxes not
yet due or payable, and (ii) those matters expressly approved by
Lender, in advance and in writing, which approval Lender is under
no obligation to provide.
2.3 Perfection and Preservation of Liens. Borrower will
(i) execute and deliver to Lender from time to time at the
request of Lender such documents or instruments as Lender shall
deem necessary or appropriate, and will take such other and
further actions as Lender may from time to time request, in order
to perfect, continue, protect and preserve the liens, security
interests and rights granted to Lender by the Loan Documents; and
(ii) pay or reimburse the Lender for all costs and taxes of
filing or recording the same in such public offices as the Lender
may designate.
SECTION 3. CONDITIONS PRECEDENT.
The obligation of the Lender to make a Loan hereunder is
subject to the following conditions precedent:
3.1 Certain Events. The following conditions precedent
must be fully satisfied as of the date of any Loan:
a. No event of default under this Agreement or any
Loan Document, as defined below, shall have occurred, and no
event shall have occurred and be continuing that, with the giving
of notice or passage of time, or both, would be such an event of
default.
b. Lender shall have received an appraisal of the
fair market value of the real property and improvements thereon
to be granted as security for the Loan, in a form, and prepared
by an appraiser, approved by Lender, which indicates that the
amount of the proposed Loan is no greater than seventy-five
percent (75%) of the lesser of (i) the appraised fair market
value of such property, or (ii) the purchase price paid by
Borrower for such property.
3.2 Documents Required for the Closing. Prior to any
disbursement of any Loan (the "Closing"), the following documents
("Loan Documents") shall have been delivered to Lender, fully
executed and acknowledged where required and all in form and
substance acceptable to Lender:
a. This Agreement.
b. A Real Estate Lien (Promissory) Note ("Note").
c. A Security Agreement between Borrower and Lender,
granting to Lender a security interest in, among other property,
all of Borrower's right, title and interest, whether now or
hereafter acquired, in all accounts, inventory and equipment, and
all proceeds thereof, located on, attributable to or used in
connection with the Security Tracts.
d. A Deed of Trust, Assignment of Rents, Security
Agreement and Financing Statement from Borrower to Thomas L.
Travis, Trustee for the benefit of Lender, granting a first lien
upon the real property and improvements thereon to secure t he
respective Loan.
e. Financing statements as Lender shall deem
necessary to file from time to time in order to perfect and
preserve the security interests granted by the Loan Documents.
f. A Commitment and Policy for Mortgagee Title
Insurance issued by a title company acceptable to Lender and for
the aggregate amount of the respective Loan.
g. A survey of the real property and improvement
thereon prepared by a surveyor acceptable to Lender.
h. Engineering and other information evidencing the
absence of pollution or contamination on the property being
acquired and the suitability of such property for Borrower's
intended restaurant operation.
i. Tax Certificates evidencing that there are no ad
valorem taxes or assessments which are past due or payable.
j. Liability and casualty insurance coverage in an
amount and issued by carriers approved by Lender.
k. For the first Loan made hereunder, certified (as
of the date of Closing) copies of (i) resolutions of the
Borrower's board of directors (for each borrower which is a
corporation) or a consent of all general partners (for each
Borrower which is a partnership) authorizing the execution,
delivery, and performance of this Agreement and the Loan
Documents, and each other document to be delivered pursuant
hereto including a certification (dated the date of the Closing)
of the Borrower's secretary or its managing or general partner,
as the case may be, as to the incumbency and signatures of the
officers of the Borrower signing the Loan Documents, and each
other document to be delivered pursuant hereto; (ii) Borrower's
bylaws, or partnership agreement, including all amendments
thereto; (iii) Borrower's articles of incorporation, including
any and all amendments thereto; and (iv) certificates as to the
good standing of Borrower from applicable governmental
authorities. For each Loan after the first Loan, Borrower shall
deliver to Lender and the applicable title insurer (i) a current
written statement of the Borrower's corporate secretary or
managing partner, as the case may be, stating that each of the
documents listed in this Section 3.2(k) delivered in conjunction
with the first Loan remains valid, unamended and effective and
applicable to the particular Loan to be made (or, if such
statement cannot truthfully be given then a current written
statement of Borrower's corporate secretary stating the
particular reasons why such statement cannot be truthfully given,
together with any amended documents), and (ii) any of the
documents listed in this Section 3.2(k) which are required by the
title insurer for a particular Loan, in order to issue the
required mortgagee's title insurance policy.
l. Any and all other documents or instruments as may
be required by Lender.
m. Prior to the first Loan, and thereafter at the
request of Lender, a true and complete list of all legal actions,
claims, proceedings, investigations and notices thereof, against
or affecting Borrower.
SECTION 4. REPRESENTATIONS AND WARRANTIES
4.1 Original. To induce the Lender to enter into this
Agreement, and to fund the Loans to be made hereunder, each
Borrower represents and warrants to the Lender as follows:
a. Borrower is a corporation or general partnership
or limited partnership, as applicable, duly organized, validly
existing, and in good standing under the laws of the state under
which it was organized; Borrower has the lawful power to own its
properties and to engage in the business it conducts, and is duly
qualified and in good standing as a foreign corporation or
foreign partnership in the jurisdictions wherein the nature of
the business transacted by it or property owned by it makes such
qualification necessary.
b. Borrower is not in default with respect to any of
its existing indebtedness, and the making and performance of the
Loan Documents will not immediately or with the passage of time,
or the giving of notice, or both: (i) Violate the charter or
bylaw or partnership provisions of Borrower; or (ii) Violate any
Laws or result in a default under any contract, agreement, or
instrument to which Borrower is a party or by which Borrower or
its property is bound.
c. Borrower has the power and authority to enter into
and perform each of the Loan Documents to which it is a party,
and to incur the obligations herein and therein provided for, and
has taken all corporate or partnership action necessary to
authorize the execution, delivery, and performance of this
Agreement and such other Loan Documents.
d. The Loan Documents are, and the Note when
delivered will be, valid, binding, and enforceable in accordance
with their respective terms.
e. There is no pending order, notice, claim,
litigation, proceeding, or investigation against or affecting
Borrower, whether or not covered by insurance, that would
materially and adversely affect the business of Borrower if
adversely determined.
f. All financial information given to Lender,
including any schedules and notes pertaining thereto, have been
prepared in accordance with generally accepted accounting
principles consistently applied, and fully and fairly present the
financial condition of Borrower at the dates thereof and the
results of operations for the periods covered thereby, and there
have been no material adverse changes in the consolidated
financial condition or business of Borrower set forth therein, to
the date hereof.
g. Except as otherwise permitted herein, Borrower has
filed and paid all federal, state, and local tax returns and
other required reports and all taxes, assessments, and other
governmental charges that are due and payable prior to the date
hereof.
h. Except to the extent that the failure to comply
would not materially interfere with the conduct of the business
of the Borrower, Borrower has complied, and shall comply, with
all applicable laws and regulations.
i. No representation or warranty by the Borrower
contained herein or in any Loan Document or certificate or other
document furnished by the Borrower contains any untrue or
misleading statement of material fact or omits to state a
material fact necessary to make such representation or warranty
not misleading in light of the circumstances under which it was
made.
j. Each consent, approval or authorization of, or
filing, registration, or qualification required to be obtained by
Borrower in connection with the execution and delivery of this
Agreement, the Loan Documents, or the undertaking or performance
of any obligation hereunder or thereunder, has been duly
obtained.
4.2 Survival. All of the representations and warranties
set forth in Section 4.1 shall survive until all Secured
Indebtedness is satisfied in full.
SECTION 5. COVENANTS OF BORROWER.
Borrower does hereby covenant and agree with the Lender
that, so long as any of the Secured Indebtedness remains unpaid,
Borrower will comply with the following covenants:
5.1 Affirmative Covenants.
a. Taco Cabana, Inc. will furnish to Lender within
one hundred twenty (120) days after the close of each fiscal year
(or, in the event an extension of the deadline for filing such
information with the Securities and Exchange Commission ("SEC")
is required or authorized by the SEC, then within one hundred
eighty (180) days after the close of each fiscal year), for such
fiscal year, the following independently audited and prepared
financial information for itself and its subsidiaries prepared on
a consolidated basis: (i) a statement of stockholders' or
partners' equity and a statement of changes of cash flows; ; (ii)
income statements; and (iii) balance sheets; , all in reasonable
detail, including all supporting schedules and comments, and
certified by an independent certified public accountant auditor,
approved by Lender, to have been prepared in accordance with
generally accepted accounting principles consistently applied.
b. Taco Cabana, Inc. will furnish to Lender within
fifty (50) days after the close of each quarterly accounting
period in each fiscal year of each Borrower and its subsidiaries,
for such quarter, prepared on a consolidated basis: (i) a
statement of stockholders' or partners' equity and a statement of
changes in financial position; (ii) income statements; and (iii)
balance sheets as of the end of such quarterly period, all in
reasonable detail, subject to year-end audit adjustments, and
certified by Taco Cabana Inc.'s secretary to have been prepared
in accordance with generally accepted accounting principles
consistently applied.
c. Borrower will furnish to Lender such other
financial statements or reports as Lender may reasonably and
periodically require, including without limitation balance sheets
and income statements for each Borrower on an individual basis.
d. Borrower will maintain its inventory, equipment,
real estate, and other properties in good condition and repair
(normal wear and tear excepted); will pay and discharge, or cause
to be paid and discharged when due, the cost of repairs to or
maintenance of the same; and will pay or cause to be paid all
rental or mortgage payments due on such real estate. The
Borrower hereby agrees that, in the event Borrower fails to pay
or cause to be paid any such payment, the Lender may do so and on
demand be reimbursed therefor by the Borrower.
e. In addition to any requirements in the Loan
Documents, Borrower will maintain, or cause to be maintained,
public liability insurance and fire and extended coverage
insurance on all assets owned by them, all in such form and
amounts, and with such insurers, as are reasonably satisfactory
to Lender. Such policies shall contain a provision whereby they
cannot be canceled except after thirty (30) days' written notice
to the Lender, and shall name Lender as an additional insured.
Borrower will furnish to the Lender such evidence of insurance as
the Lender may require. Borrower hereby agrees that, in the
event it or any Borrower fails to pay or cause to be paid the
premium on any such insurance, the Lender may do so and on demand
be reimbursed therefor by the Borrower.
f. Borrower will pay or cause to be paid when due all
taxes, assessments or fees imposed upon it or on any of its
property or that it is required to withhold and pay over, except
when, prior to impending foreclosure such taxes, assessments or
fees are contested in good faith by appropriate proceedings, with
adequate reserves therefor having been set aside on its books.
g. Borrower will, when requested so to do, make
available for inspection by duly authorized representatives of
the Lender any of their books and records, and will furnish the
Lender any information regarding their business affairs and
financial condition within a reasonable time after written
request therefor.
h. Borrower will take all necessary steps to preserve
its corporate or partnership existence and franchises and will
comply with all present and future Laws applicable to them in the
operation of their respective businesses and all material
agreements to which they are subject.
i. Within ten (10) days after the Lender's request
therefor, Borrower will furnish the Lender with copies of federal
income tax returns filed by the Borrower.
j. Borrower will pay when due (or within applicable
grace periods) all indebtedness due third parties. If any
Borrower defaults in the payment of any principal (or installment
thereof) of, or interest on, any such indebtedness, the Lender
shall have the right, but not the obligation, to pay such
interest or principal for the account of Borrower and be
reimbursed by Borrower therefor on demand.
k. The Borrower will notify the Lender immediately if
it becomes aware of the occurrence of any Event of Default, as
defined below, or of any fact, condition, or event that, with the
giving of notice or passage of time, or both, could become an
Event of Default hereunder, or of the failure of Borrower to
observe any of its undertakings hereunder.
l. The Tangible Net Worth of Borrower (as defined)
shall at all times equal or exceed 90% of Tangible Net Worth as
determined for the purposes of Section 5.2(a).
m. All cash, cash equivalents and funds derived from
operations of the Borrower shall be the property of the Borrower
at the close of each business day, unless such cash, cash
equivalents and funds are utilized by other entities for the
payment of obligations in compliance with applicable law. This
provision is not intended to restrict Borrower's use of fund or
usual and regular course of business.
n. Borrower will maintain Quarterly Cash Flow (as
defined) in an amount equal to, or in excess of, $2,750,000.00.
5.2 Negative Covenants.
a. For so long as any indebtedness under the Loans
remains outstanding, Borrower shall not without the prior written
consent of the holder of the Note:
(1) Permit the ratio of Consolidated Cash Flow to
Consolidated Fixed Charges for any period consisting of four (4)
consecutive fiscal quarters to be less than 2.0:1.0;
(2) Permit Consolidated Net Worth at any time to
be less than (i) $110,000,000.00 through December 31, 1997; and
(ii) $110,000,000.00 plus fifty percent (50%) of the consolidated
net income of Borrower and its Subsidiaries (as of December 31,
1997) thereafter.
(3) Permit the ratio of Debt to Tangible Net
Worth to be greater than 0.5:1.0 at any time; or
(4) Permit the ratio of Intangible Assets to
Consolidated Net Worth to be greater than 0.55:1.0 at any time;
or
(5) Incur capital expenditures: ; (i) in excess
of $20,000,000.00 during the 1997 fiscal year of Borrower; or
(ii) in excess of $40,000,000.00 during the 1998 fiscal year of
Borrower.
For purposes of this subsection 5.2(a), the following terms
shall have the following meanings:
"Consolidated Cash Flow" for any period shall mean the
consolidated net income of the Borrower and all Subsidiaries for
such period (after having taken into account the effects of
income tax), plus (without duplication) interest expense,
depreciation, amortization and all other non-cash charges, all as
determined in accordance with generally accepted accounting
principles consistently applied.
"Consolidated Fixed Charges" for any period shall mean (i)
consolidated interest expense, and obligations under capitalized
leases for such period, plus (ii) matured debt and any additional
debt maturing within one year of the date of determination, plus
(iii) dividends and distributions to partners in respect of their
partnership interest, for the Borrower and all Subsidiaries, all
as determined in accordance with generally accepted accounting
principles consistently applied.
"Consolidated Net Worth" shall mean consolidated
shareholders' or partners' equity of the Borrower and all
Subsidiaries as determined in accordance with generally accepted
accounting principles consistently applied.
"Debt" means, with respect to the Borrower and its
Subsidiaries, on a consolidated basis, (i) indebtedness for
borrowed money or for the deferred purchase price of property or
services, (ii) obligations as lessee under leases which shall
have been or should be, in accordance with generally accepted
accounting principles, recorded as capital leases, (iii)
obligations under direct or indirect guaranties in respect of and
obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise to assure a creditor against loss in
respect of, indebtedness or obligations of others of the kinds
referred to in clause (i) or (ii) above, and (iv) liabilities in
respect of unfunded vested benefits under plans covered by Title
IV of the Employee Retirement Income Security Act of 1974, as
amended.
"Intangible Assets" means, with respect to the Borrower and
its Subsidiaries, on a consolidated basis, goodwill,
organizational expenses, trademarks, tradenames, and any other
items which are treated as intangibles in conformity with
generally accepted accounting principles consistently applied.
"Quarterly Cash Flow" shall mean for any fiscal quarter of
Borrower the consolidated net income of Borrower and its
Subsidiaries for such period (after having taken into account the
effects of income tax) plus (without duplication) interest
expense, depreciation, amortization and all other non-cash
charges, all as determined in accordance with generally accepted
accounting principles consistently applied.
"Subsidiaries" means all corporations or partnerships of
which at least 99% of the partnership interests, or of the shares
of stock of every class of which, outstanding at the time as of
which any determination is being made, is owned by the Borrower,
either directly or through a Subsidiary. "Subsidiary" means each
of the Subsidiaries.
"Tangible Net Worth" means, with respect to the Borrower and
its Subsidiaries, on a consolidated basis, Consolidated Net Worth
less the value of any intangible assets as determined in
accordance with generally accepted accounting principles
consistently applied.
b. No Borrower shall change its name, enter into any
merger, consolidation, reorganizations or recapitalization, or
reclassify its capital stock without the prior written consent of
Lender, which consent shall not be unreasonably withheld, except
that Borrower shall be permitted to purchase common stock of
Borrower in an aggregate amount not to exceed $3,000,000.00
during the term of this Agreement.
c. No Borrower shall sell, transfer, lease, or
otherwise dispose of all, or (except in the ordinary course of
business) any material part of, its assets, without the prior
written consent of Lender, which consent shall not be
unreasonably withheld.
d. No Borrower shall mortgage, pledge, grant, or
permit to exist a security interest in or lien upon any of the
security given for the Loans, other than pursuant to the Loan
Documents and Revolving Loan Documents and statutory liens in the
ordinary course of its business.
e. Borrower shall not furnish the Lender with any
certificate or other document that will contain any untrue
statement of material fact or that will omit to state a material
fact necessary to make it not misleading in light of the
circumstances under which it was furnished.
f. No Borrower shall transfer, alienate, sell,
assign, or encumber any of its capital stock or partnership
interests in any Subsidiary.
g. No Borrower shall incur, create, assume, or permit
any indebtedness other than (i) under the Revolving Loan
Documents and the Loan Documents; (ii) obligations under leases
for real or personal property used in Borrower's business; (iii)
loans between Borrowers; (iv) loans between Borrowers and
nonborrower Subsidiaries not exceeding the aggregate principal
amount of $100,000.00 without the consent of the Lender, which
consent shall not be unreasonably withheld; (v) normal accruals
and trade accounts payable incurred in the ordinary course of
business; or otherwise become liable, directly or indirectly, as
guarantor or otherwise for any obligation (other than the
endorsement of commercial paper for deposit or collection in the
ordinary course of business and guaranties of affiliate
transactions made in the ordinary course of business).
h. Borrower shall not make any loans or advances to
any officer, shareholder, director, or employee of Borrower or of
any Subsidiary which, at ant time, exceed the outstanding
aggregate principal amount of $300,000.00.
SECTION 6. DEFAULT.
6.1 Events of Default. The occurrence of any one or more
of the following events shall constitute an Event of Default
hereunder:
a. Any installment of principal and/or interest on
the Loans or any other sums due by Borrower under the Loan
Documents shall not be paid when due and payable.
b. Any Borrower shall breach any of the affirmative
or negative covenants contained herein and the breach is not
cured within five days of the receipt of written notice of the
breach from the Lender to the Borrower.
c. Any Borrower shall fail to perform, keep or
otherwise observe any other obligation, term, provision,
covenant, warranty or representation contained herein or in any
of the Loan Documents and such failure is not cured within five
days of the receipt of written notice of the breach from the
Lender to the Borrower.
d. Any financial statement or report, representation,
warranty, or certificate made or furnished by any Borrower to the
Lender hereunder or in connection with this Agreement, any Loan
or any Loan Documents, or in any separate statement or document
to be delivered under the Loan Documents to the Lender, shall be
materially false, incorrect, or incomplete when made or
furnished.
e. Any Borrower shall admit its inability to pay its
debts as they mature, or shall make an assignment for the benefit
of its or any of its creditors.
f. Proceedings in bankruptcy, or for the dissolution,
full or partial liquidation or reorganization of any Borrower, or
for the readjustment of any of their respective debts, under the
Bankruptcy Code, as amended, or any part thereof, or under any
other laws, whether state or federal, for the relief of debtors,
now or hereafter existing, shall be commenced by Borrower.
g. If an application is made by any Borrower for the
appointment of a receiver, trustee, or custodian for Borrower or
for any substantial part of their respective assets, or any
Borrower shall discontinue business or materially change the
nature of its business.
h. If a receiver, trustee, or custodian shall be
appointed for any Borrower or for any part of their respective
assets, and shall not be discharged within 30 days of such
appointment.
i. If all or any of any borrower's assets are
attached, seized, subjected to a writ, or are levied upon, or
come within the possession of any receiver, trustee, custodian or
assignee for the benefit of creditors.
j. If any Borrower is permanently enjoined,
restrained or in any way prevented by court order from conducting
any material part of its business affairs.
k. If a notice of lien, levy or assessment is filed
of record with respect to all or any of Borrower's assets by the
United States or any department, agency or instrumentality
thereof, or by any state, county, municipality or other
governmental agency, or if any taxes or debts owing at any time
or times hereafter to any one or more of them becomes a lien,
upon all or any material portion of Borrower's assets.
l. A judgment creditor of any Borrower shall obtain
possession of any of the collateral securing repayment of the
Loans by any means, including, but without limitation, levy,
distraint, replevin, or self-help.
m. Any Event of Default occurs under the terms of any
of the Loan Documents or under the terms of any of the Revolving
Loan Documents.
n. Any Borrower shall dissolve, liquidate, or
otherwise terminate its existence, or take any action to effect
such termination.
o. Any Borrower shall suffer a final judgement in
excess of $250,000.00, and shall not discharge the same within
thirty (30) days.
p. To furnish the Lender with any certificate or
other document that will contain any untrue statement of material
fact or that will omit to state a material fact necessary to make
it not misleading in light of the circumstances under which it
was furnished.
q. Any material nonborrower Subsidiary shall have
failed to pay when due all taxes, assessments or fees imposed
upon it or on any of its property or that it is required to
withhold and pay over, except when, prior to impending
foreclosure such taxes, assessments or fees are contested in good
faith by appropriate proceedings, with adequate reserves therefor
having been set aside on its books.
r. Any material nonborrower Subsidiary fails to take
all necessary steps to preserve its corporate or partnership
existence and franchises, or fails to comply with all present and
future laws applicable to it in the operation of its business and
all material agreements to which it is subject.
s. Lender, at its discretion and after five days
written notice given to Borrower, deems itself to be adversely
affected and/or insecure by reason of any material change in any
of Borrower's (including any endorsers and/or guarantors) net
worth, or by reason of any other material change of condition
whether or not described herein.
6.2 Remedies. Upon the occurrence of an Event of Default,
Lender, at its option, may:
a. Terminate any obligation to make any further Loans
and declare the entire principal balance of the Secured
Indebtedness and all interest, unpaid accrued and earned thereon
to be immediately due and payable without demand for payment,
presentment for payment, notices of intention to accelerate
maturity, notices of election to accelerate maturity, protest and
notice of protest or any other notice whatsoever, all of which
are hereby expressly waived.
b. Enforce or avail itself of any and all rights and
remedies given to it by any or all of the Loan Documents.
c. Enforce or avail itself of all rights and remedies
allowed by all applicable laws.
SECTION 7. INTEREST LIMITATION
7.1 Limitation. Interest on the debt evidenced by the
Notes or otherwise in connection with the Loans shall not exceed
the maximum amount of nonusurious interest that may be contracted
for, taken, reserved, charged, or received under law; any
interest in excess of that maximum amount shall be credited on
the principal of the debt or, if that has been paid, refunded.
On any acceleration or required or permitted prepayment, any such
excess shall be canceled automatically as of the acceleration or
prepayment or, if already paid, credited on the principal of the
debt or, if the principal of the debt has been paid, refunded.
This provision overrides other provisions in this and all other
instruments concerning the debt. All sums paid or agreed to be
paid for the use, forbearance or detention of the indebtedness of
Borrower to Lender shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the
full stated term of such indebtedness until payment in full so
that the rate or amount of interest on account of such
indebtedness does not exceed the maximum rate of interest allowed
by law for so long as such indebtedness is outstanding, and to
the extent that TEX. REV. CIV. STAT. Ann. Art. 5069-1.04, as
amended, is applicable to such indebtedness, the quarterly rate
ceiling from time to time in effect under such article shall be
the applicable ceiling. This provision overrides other
provisions in this and all other instruments concerning the debt.
SECTION 8. MISCELLANEOUS
8.1 No Permanent Waivers. No waiver at any time of the
provisions or conditions of this Agreement or of any of the other
Loan Documents shall be construed as a waiver of any of the other
provisions or conditions hereof or thereof nor be construed as a
right to a subsequent waiver or any other provisions or
conditions.
8.2 Severability. Unenforceability for any reason against
any person or persons of any provision of this Loan Agreement, or
of any of the other Loan Documents or other Agreements between
Borrower and the Lender, shall not limit or impair the operation
or validity of any other provisions of this Agreement or any of
the other Loan Documents.
8.3 Descriptive Headings. The descriptive headings of the
various sections and subsection of this Agreement and the Loan
Documents and any schedule, agreement or other instrument,
executed with reference hereto are inserted for convenience of
reference only, do not constitute a part of any such document and
no inference is to be drawn from such headings. Whenever the
context shall require, words of any gender shall be deemed to
include the other genders and either the singular or the plural
shall include the other.
8.4 Further Assurance. From time to time, Borrower will
execute and deliver to the Lender such additional documents and
will provide such additional information as the Lender may
reasonably require to carry out the terms of this Agreement and
be informed of the Borrower's status and affairs.
8.5 Enforcement and Waiver by the Lender. All rights and
remedies of the Lender are cumulative and concurrent, and the
exercise of one right or remedy shall not be deemed a waiver or
release of any other right or remedy. The Lender shall have the
right at all times to enforce the provisions of this Agreement
and the Loan Documents in strict accordance with the terms hereof
and thereof, notwithstanding any conduct or custom on the part of
the Lender in refraining from so doing at any time or times. Th
failure of the Lender at any time or times to enforce its rights
under such provisions, strictly in accordance with the same,
shall not be construed as having created a custom in any way or
manner contrary to specific provisions of this Agreement or such
Loan Documents or as having in any way or manner modified or
waived the same.
8.6 Expenses of the Lender. The Borrower will, on demand,
pay, or reimburse the lender, for all reasonable expenses,
including the reasonable fees and expenses of legal counsel for
the Lender, incurred by the Lender in connection with the
preparation, administration, amendment, modification, or
enforcement of this Agreement and the Loan Documents, and the
collection or attempted collection of any and all Notes. All
reasonable costs, including but not limited to reasonable
attorney's fees of Borrower, Lender, or other interested parties,
other professional fees, appraiser's and surveyor's fees, taxes
and all expenses of all kinds inured in connection with the
Loans, shall be borne by Borrower, and Borrower agrees to
indemnify the Lender and save it harmless from the payment,
defense and/or expense of any claim or demand for such fees,
costs, taxes and expenses.
8.7 Notices. Any notices or consents required or permitted
by this Agreement shall be in writing and shall be deemed given
when delivered in person, or upon deposit in the U.S. Mail, if
sent by certified mail, postage prepaid, return receipt
requested, as follows, unless such address is changed by written
notice hereunder:
a. If to Borrower:
Taco Cabana, Inc.
Texas Taco Cabana, L.P.
T.P. Acquisition Corp.
T.C. Management, Inc.
Taco Cabana Management, Inc.
Taco Cabana Multistate, Inc.
Colorado Cabana, Inc.
8918 Tesoro Drive, Suite 200
San Antonio, Texas 78217
b. If to the Lender:
International Bank of commerce
130 East Travis
San Antonio, Texas 78205
Attention: Mr. Steve E. Edlund
8.8 RELEASE BY THE BORROWER. TO THE MAXIMUM EXTENT
PERMITTED BY APPLICABLE LAWS, BORROWER RELEASES THE LENDER AND
ITS DIRECTORS, OFFICERS, ATTORNEYS, AGENTS, AND EMPLOYEES FROM
ALL CLAIMS, CAUSES, DAMAGES, LIABILITY AND RELATED EXPENSES
ARISING OUT OF ANY ACT OR OMISSION ON THE PART OF ANY OF THEM,
WITH REGARD TO THIS AGREEMENT, WHICH DOES NOT INVOLVE FRAUD BAD
FAITH OR NEGLIGENCE BY LENDER OR ITS DIRECTORS, OFFICERS,
ATTORNEYS, AGENTS OR EMPLOYEES.
8.9 Governing Law. This Agreement is made and accepted,
and the obligations of the parties set forth herein shall be
performable, in the County of Bexar and State of Texas, and this
Agreement and all the Loan Documents shall be governed by, and
construed in accordance with, the laws of the State of Texas
except to the extent that such laws may be preempted by laws of
the United States of America. The parties hereby agree that this
Agreement and the Loans to be made pursuant hereto shall not be
subject to the provisions of Chapter 15 of the Texas Credit Code.
8.10 Lender's Relationship to Other. Lender is not a
partner or joint venturer in any manner whatsoever with any
Borrower.
8.11 Waiver, Modification. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party
against whom enforcement of the change, waiver, discharge or
termination is sought.
8.12 Cumulative Remedies. The right and remedies of the
Lender under the Loan Documents shall be cumulative and the
exercise, or partial exercise, of any such right or remedy shall
not preclude the exercise of any other right or remedy.
8.13 Binding Effect. This Loan Agreement shall be binding
upon and inure to the benefit of Borrower and Lender and their
respective successors and assigns, provided that no Borrower may
assign its rights or obligations hereunder. If more than one
party executes this Agreement a Borrower, the term "Borrower"
shall mean and refer to each such party, jointly and severally.
8.14 Survival of Agreement. The provisions thereof shall
survive the execution of all instruments herein mentioned, and
shall continue in full force until the Secured Indebtedness is
paid in full and shall prevail and control over any conflicting
provision contained elsewhere in the Loan Documents.
8.15 Entire Agreement. The Loan Documents embody the
entire agreement between the parties and supersedes all prior
agreements and understandings, if any, relating to the subject
matter hereof. There are no oral agreements or understandings
between the parties which are not evidenced by the Loan
Documents.
8.16 Subsidiaries. Except where otherwise specified
herein, the term "Subsidiary" shall mean every entity of which
more than fifty percent (50%) of the outstanding voting stock or
other ownership interests shall, at the time of determination, be
owned directly or indirectly by the named Borrower or through one
or more intermediaries of Borrower.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and y ear first above written.
BORROWER: TACO CABANA, INC.
WITNESS:
By:______________________
________________________ Name:____________________
Name:___________________ Title:___________________
TEXAS TACO CABANA, L.P.
By:______________________
________________________ Name:____________________
Name:___________________ Title:___________________
T.P. ACQUISITION CORP.
By:______________________
________________________ Name:____________________
Name:___________________ Title:___________________
T.C. MANAGEMENT, INC.
By:______________________
________________________ Name:____________________
Name:___________________ Title:___________________
TACO CABANA MANAGEMENT, INC.
By:______________________
________________________ Name:____________________
Name:___________________ Title:_____________________
TACO CABANA MULTISTATE, INC.
By:______________________
Name:____________________
Title:_____________________
COLORADO CABANA, INC.
By:_______________________
Name:_____________________
Title:______________________
INTERNATIONAL BANK OF COMMERCE
By:______________________
Name: Steve E. Edlund
Title: Executive Vice President
TACO CABANA, INC. EXHIBIT 11
Information Supporting
Per Share Computations
Years Ended
----------------------------------------
January 1, December 31, December 29,
1995 1995 1996
Net income (loss) $8,520,000 $(3,798,000) $ 704,000
Net income (loss) per share
computation:
Average common shares
outstanding 15,323,480 15,648,624 15,694,757
Common stock equivalents -
dilutive options 320,097 - -
---------- ---------- ----------
Average outstanding common
and common equivalent
shares 15,643,577 15,648,624 15,694,757
========== ========== ==========
Net income (loss) per share $ 0.54 $ (0.24) $ 0.04
========== ========== ==========
Subsidiaries of Registrant Exhibit 21
TP Acquisition Corp, a Texas corporation
Get Real, Inc., a Delaware corporation
Texas Taco Cabana, L.P., a Texas limited partnership
T. C. Management Inc., a Delaware Corporation
T.C Lease Holdings III, V and VI, Inc., a Texas Corporation
Taco Cabana Multistate, Inc., a Delaware Corporation
Colorado Cabana, Inc., a Colorado Corporation
Taco Cabana Atlanta, Inc., a Delaware Corporation
Taco Cabana Investments, Inc., a Delaware Corporation
Taco Cabana Management, Inc. a Texas corporation
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statements No. 33-56438 and No. 33-98124 of Taco Cabana, Inc. on
Form S-8 of our report dated February 4, 1997 appearing in this
Annual Report on Form 10-K of Taco Cabana, Inc. for the year
ended December 29, 1996.
DELOITTE & TOUCHE LLP
San Antonio, Texas
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> DEC-29-1996
<CASH> (1,729,000)
<SECURITIES> 2,477,000
<RECEIVABLES> 2,861,000
<ALLOWANCES> 1,331,000
<INVENTORY> 1,858,000
<CURRENT-ASSETS> 7,070,000
<PP&E> 110,604,000
<DEPRECIATION> 21,641,000
<TOTAL-ASSETS> 142,706,000
<CURRENT-LIABILITIES> 10,386,000
<BONDS> 6,593,000
0
0
<COMMON> 157,000
<OTHER-SE> 113,015,000
<TOTAL-LIABILITY-AND-EQUITY> 142,706,000
<SALES> 131,680,000
<TOTAL-REVENUES> 132,196,000
<CGS> 41,336,000
<TOTAL-COSTS> 75,989,000
<OTHER-EXPENSES> 40,959,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,348,000
<INCOME-PRETAX> 1,558,000
<INCOME-TAX> 854,000
<INCOME-CONTINUING> 704,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 704,000
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
