<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-QSB
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 26, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission File Number: 0-22786
TIMBER LODGE STEAKHOUSE, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Minnesota 41-1810126
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4021 Vernon Avenue South
St. Louis Park, Minnesota 55416
(Address of Principal Executive Offices)
(612) 929-9353
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
/ X / Yes / / No
As of March 1, 1997 there were outstanding 3,598,581 shares of the issuer's
Common Stock, $.01 par value per share.
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TABLE OF CONTENTS
Page
----
PART I
ITEM 1. FINANCIAL STATEMENTS.................................... 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........... 5
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................ 7
SIGNATURES............................................................. S-1
i
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TIMBER LODGE STEAKHOUSE, INC.
BALANCE SHEETS
(UNAUDITED)
MARCH 26, JANUARY 1,
1997 1997
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents.............. $ 621,650 $ 1,178,373
Accounts receivable.................... 131,062 136,576
Inventory.............................. 185,613 203,268
Pre-opening costs...................... 223,396 168,933
Deferred tax assets.................... 64,300 64,300
Prepaid expenses and other current assets.. 415,451 366,240
------------- -------------
Total current assets.................. 1,641,472 2,117,690
Property and equipment, net................. 12,115,634 10,970,370
Note receivable, related party.............. 396,000 396,000
Deferred tax assets......................... 23,200 23,200
Other assets................................ 188,312 190,182
------------- -------------
Total assets...................... $ 14,364,618 $ 13,697,442
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 1,263,655 $ 1,127,673
Short-term borrowing................... 938,425 --
Accrued salaries and wages............. 318,175 262,346
Sales tax payable...................... 114,037 136,327
Gift certificates payable.............. 285,346 535,997
Income tax payable..................... 63,208 295,690
Accrued expenses and other liabilities. 34,979 97,569
------------- -------------
Total current liabilities......... 3,017,825 2,455,602
Deferred rent.............................. 1,133,331 1,248,224
------------- -------------
Total liabilities................. 4,151,156 3,703,826
Shareholders' equity:
Common stock, $0.01 par value:
Authorized shares -- 10,000,000
Issued shares -- 3,598,581 at
March 26, 1997 and 3,566,833
at January 1, 1997................ 35,986 35,668
Additional paid-in capital............. 8,811,158 8,793,814
Retained earnings...................... 1,366,318 1,164,134
------------- -------------
Total shareholders' equity........ 10,213,462 9,993,616
------------- -------------
Total liabilities and shareholders' equity. $ 14,364,618 $ 13,697,442
------------- -------------
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See accompanying notes to the financial statements
1
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TIMBER LODGE STEAKHOUSE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
TWELVE WEEKS ENDED
MARCH 26, MARCH 27,
1997 1996
------------- -------------
Net sales................................... $ 5,214,308 $ 4,280,714
Costs and expenses:
Food and beverage costs................ 1,927,169 1,621,055
Labor and benefits costs............... 1,473,588 1,220,268
Restaurant operating expenses.......... 538,430 431,315
Occupancy costs........................ 570,303 413,799
------------- -------------
Restaurant costs and expenses..... 4,509,490 3,686,437
------------- -------------
Restaurant operating income................. 704,818 594,277
General and administrative.................. 339,536 263,876
Amortization of pre-opening costs........... 76,625 58,241
------------- -------------
Operating income ....................... 288,657 272,160
Interest expense 19,341 1,513
Interest and other (income) expense......... (19,568) (23,520)
------------- -------------
Income before income taxes.................. 288,884 294,167
Income taxes .......................... 86,700 58,900
------------- -------------
Net income ................................. $ 202,184 $ 235,267
------------- -------------
------------- -------------
Net income per share........................ $0.06 $0.07
------------- -------------
------------- -------------
Weighted average number of common and
common equivalent shares outstanding... 3,649,514 3,574,927
------------- -------------
------------- -------------
See accompanying notes to the financial statements
2
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TIMBER LODGE STEAKHOUSE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
TWELVE WEEKS ENDED
MARCH 26, MARCH 27,
1997 1996
------------- -------------
OPERATING ACTIVITIES
Net income................................. $ 202,184 $ 235,267
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation...................... 238,350 180,526
Amortization...................... 76,625 59,141
Deferred rent..................... (114,893) 367,227
Changes in operating assets
and liabilities:
Receivables.................. 5,514 (158,532)
Inventories.................. 17,655 (526)
Pre-opening costs............ (130,188) (97,031)
Prepaid expenses and other
current assets... ......... (49,211) (21,877)
Accounts payable............. 135,982 60,611
Accrued salaries and wages... 55,829 51,866
Sales tax payable............ (22,290) (13,646)
Gift certificates payable.... (250,651) (163,229)
Income taxes payable......... (232,482) 56,350
Other accrued expenses....... (62,590) 9,593
------------- -------------
Net cash provided by (used in) operating
activities.................................. (130,166) 565,740
INVESTING ACTIVITIES
Purchases of property and equipment......... (1,383,614) (1,432,652)
Other assets................................ 970 12,648
------------- -------------
Net cash used in investing activities....... (1,382,644) (1,420,004)
FINANCING ACTIVITIES
Proceeds from short-term borrowings......... 938,425 100,000
Exercise of stock options................... 24,975 --
Common stock repurchased.................... (7,313) (10,100)
------------- -------------
Net cash provided by financing activities... 956,087 89,900
Net decrease in cash and cash equivalents... (556,723) (764,364)
Cash and cash equivalents at beginning of
year........................................ 1,178,373 2,020,096
------------- -------------
Cash and cash equivalents at end of period.. $ 621,650 $ 1,255,732
------------- -------------
------------- -------------
See accompanying notes to the financial statements
3
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TIMBER LODGE STEAKHOUSE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 26, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying condensed Financial
Statements contain all normal recurring adjustments necessary for a fair
presentation. The results of operations for the twelve week period ended March
26, 1997 are not necessarily indicative of the results to be expected for the
full year.
The significant accounting policies followed by the Company are set forth
in the Notes to Financial Statements in the Company's 1996 Annual Report and
Form 10-KSB filed with the Securities and Exchange Commission. These
condensed Financial Statements should be read in conjunction with the Financial
Statements in the 1996 Annual Report and Form 10-KSB.
2. NET INCOME PER SHARE
The net income per share is computed using the weighted average number of
shares of common stock equivalents, outstanding during the periods persented.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, EARNINGS PER SHARE, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact of
Statement 128 on the calculation of primary and fully diluted earnings per
share for these quarters is not expected to be material.
3. RECLASSIFICATION
Certain prior year items have been reclassified to conform with the
current year presentation.
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following table sets forth the percentage relationship to net sales of
certain items included in the Company's statements of operations.
TWELVE WEEKS ENDED
----------------------------
MARCH 26, MARCH 27,
1997 1996
------------- -------------
Net sales. . . . . . . . . . . . . . . . . . . 100.0% 100.0%
Costs and expenses:
Food and beverage costs . . . . . . . . . 37.0 37.9
Labor and benefits costs . . . . . . . . 28.3 28.5
Restaurant operating expenses . . . . . . 10.3 10.1
Occupancy costs . . . . . . . . . . . . . 10.9 9.6
------------- -------------
Restaurant costs and expenses. . . . 86.5 86.1
------------- -------------
Restaurant operating income. . . . . . . . . . 13.5 13.9
General and administrative . . . . . . . . . . 6.5 6.2
Amortization of pre-opening costs. . . . . . . 1.5 1.3
------------- -------------
Operating income . . . . . . . . . . . . . 5.5 6.4
Interest expense . . . . . . . . . . . . . . . 0.3 0.0
Interest and other (income)/expense. . . . . . (0.4) (0.5)
------------- -------------
Income before income taxes . . . . . . . . . . 5.6 6.9
Income taxes. . . . . . . . . . . . . . . 1.7 1.4
------------- -------------
Net income . . . . . . . . . . . . . . . . . . 3.9% 5.5%
------------- -------------
------------- -------------
Number of restaurants open at end of period. . 12 10
TWELVE WEEKS ENDED MARCH 26, 1997, COMPARED TO TWELVE WEEKS ENDED MARCH 27,
1996.
NET SALES. The Company's net sales increased 21.8% to $5,214,308
compared to $4,280,714 for the first quarter last year. The increase is
attributable to the three new restaurants opened since the beginning of the
first quarter of fiscal 1996. Same store sales for stores open at least 18
months were up 4.4%. This increase is due in part to the introduction of
television advertising in its core market of Minneapolis/St. Paul and radio
advertising in the outstate markets.
5
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COSTS AND EXPENSES. Cost of restaurant sales, consisting of food and
beverage costs, decreased .9% to 37.0% compared to 37.9% for the same period
last year. This decrease is due in part to the Company experiencing lower
costs of produce than last year and by featuring off-menu entrees with lower
food cost.
Labor and related benefit costs decreased .2% to 28.3% compared to 28.5%
for the same period last year. Labor productivity gains were achieved during
the quarter but were offset by an increase in health insurance costs as more
employees entered the program upon meeting eligibility requirements.
Restaurant operating expenses and occupancy costs include all other
unit-level costs, the major components of which are rents, real estate taxes,
utilities, store supplies, repairs and maintenance and other related
occupancy costs. Restaurant operating costs are semi-variable while most of
the occupancy expenses are fixed. In the aggregate for the first quarter,
restaurant operating expenses and occupancy costs increased 1.5% to 21.2% of
net sales compared to 19.7% for the same period last year. The increase is
attributable to occupancy costs being higher for new stores added in the past
year compared to the mature existing stores operating during the same period.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased .3% to 6.5% of net sales compared to 6.2% for the same
period last year. This increase is due to the first time cost of television
in the Minneapolis/St. Paul market.
AMORTIZATION OF PRE-OPENING COSTS. Amortization of pre-opening costs
increased to 1.5% of net sales compared to 1.3% for the same period last
year. The increase is attributable to the pre-opening costs for the latest
three new stores (two were outstate locations) being higher than the three
new restaurants being amortized for the same period last year. The Company
amortizes pre-opening costs for new restaurants over a twelve month period
commencing with the first full period after the restaurant's opening.
INTEREST AND OTHER INCOME. Interest was paid on short term borrowings
via a line of credit the Company has with a local bank. The increase in
short term borrowings was used to meet the Company's needs in funding new
restaurant construction and to pay income taxes. Income was earned on
marketable securities and a promissory note related to the Q. Cumbers sale.
Interest income combined with other miscellaneous income was $19,568 for the
first quarter compared to $23,520 for the same period last year. The
decrease is due to a reduction of marketable securities used to finance new
restaurant construction.
PROVISION FOR INCOME TAXES. The Company's effective tax rate is
estimated at 30% compared to 20% for the same period last year. The increase
in the effective tax rate is a result of the company receiving refunds of
taxes previously provided for in 1996. The company's tax rate is impacted by
tax credits for FICA tax paid on tips received by restaurant employees.
NET INCOME. The Company's net income was $202,184 in the first fiscal
quarter of 1997 compared to $235,267 for the same period last year. Earnings
per share were $.06 in the first quarter 1997 compared to $.07 for the same
quarter last year.
6
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LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has leased its restaurant sites under
non-cancelable leases for periods of six to twenty years, with renewal
options of between three and ten years. The Company plans to continue
leasing sites for expansion in the foreseeable future.
Cash used in operating activities was $130,166 compared to cash provided
of $565,740 for the same period last year. The Company had net working
capital deficit of ($1,376,353) at March 26, 1997 compared to a deficit of
($337,912) at January 1, 1997. The decrease in working capital is a result
of utilizing existing cash to fund new restaurant development. The Company
has a $500,000 bank line of credit which it has used to fund short-term cash
needs. The Company also has a $1,375,000 construction loan to fund the
construction of a new restaurant. At the end of first quarter 1997 these
lines had an outstanding balance of $938,425. This balance is planned to be
paid down in subsequent quarters. Most of the Company's sales are paid by
cash or credit card and the Company generally receives 30 days credit from
trade suppliers.
The Company's Board of Directors passed a resolution in May 1995
authorizing the purchase of shares of the Company's Common Stock in the open
market as management of the Company deems appropriate. During the first
quarter 1997, the Company purchased 2,000 shares of its Common Stock on the
open market at an average price of $3.66 per share. These repurchases
represent less than .1% of the Company's outstanding stock.
The Company currently intends to focus its expansion on steakhouse
restaurants and estimates that the average costs of developing a new
steakhouse restaurant to be approximately $1,200,000. The actual cost will
vary depending on the size of the restaurant, the amount of landlord
contributions, if any, and whether extensive renovation or remodeling is
required. Pre-opening costs, primarily labor, advertising, travel and other
costs related to the two new steakhouses opened in 1996 were $119,000 per
restaurant. Expenses for new restaurants opening in the future are expected
to be lower as training and general start-up efficiencies are achieved from
the Company opening additional restaurants in markets away from Minnesota.
The Company believes that cash generated from operations and funds
available under its line of credit will be sufficient to fund operations for
at least the next twelve months.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No. Exhibit
----------- -------
10.1 Income Continuance Agreement Dated March 10, 1997 By
and Between The Company and Peter S. Bedzyk.
10.2 Income Continuance Agreement Dated March 10, 1997 By
and Between The Company and Robert G. Cornell
11.1 Statement Regarding Computation of Per Share
Earnings.(1)
(b) No reports on Form 8-K have been filed during the quarter for which
this report was filed.
___________
(1) See Financial Statements -- Statements of Income.
7
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SIGNATURES
Pursuant to the requirements of the Securities exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TIMBER LODGE STEAKHOUSE, INC.
Date: May 8, 1997 By: /s/ DERMOT F. ROWLAND
------------------------------------
Dermot F. Rowland
Its: Chief Executive Officer
Date: May 8, 1997 By: /s/ ROBERT G. CORNELL
--------------------------------------------
Robert G. Cornell
Its: Chief Financial Officer
S-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-02-1997
<PERIOD-END> MAR-26-1997
<CASH> 621,650
<SECURITIES> 0
<RECEIVABLES> 131,062
<ALLOWANCES> 0
<INVENTORY> 185,613
<CURRENT-ASSETS> 1,641,472
<PP&E> 12,115,634
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,364,618
<CURRENT-LIABILITIES> 3,017,825
<BONDS> 0
0
0
<COMMON> 35,986
<OTHER-SE> 10,177,476
<TOTAL-LIABILITY-AND-EQUITY> 14,364,618
<SALES> 5,214,308
<TOTAL-REVENUES> 5,214,308
<CGS> 1,927,169
<TOTAL-COSTS> 4,509,490
<OTHER-EXPENSES> 396,593
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,341
<INCOME-PRETAX> 288,884
<INCOME-TAX> 86,700
<INCOME-CONTINUING> 202,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 202,184
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
<PAGE>
INCOME CONTINUANCE AGREEMENT
This Income Continuance Agreement ("Agreement") is made and entered into
this 10 day of March 1997, by and between Peter S. Bedzyk ("Officer") and
Timber Lodge Steakhouse, Inc., a Minnesota Corporation ("Company").
WHEREAS, the Company is in the business of owning and managing
restaurants including the restaurant chain doing business as Timber Lodge
Steakhouse; and
WHEREAS, the Company may in the future receive offers to purchase its
restaurant chain which does business as Timber Lodge Steakhouse.
WHEREAS, the Company desires to provide Officer with temporary financial
support if his employment is terminated as a result of Company's sale,
exchange or other transfer of all or substantially all of the assets of the
Company's restaurant chain doing business as Timber Lodge Steakhouse.
NOW, THEREFORE, in consideration of the promises and the mutual
agreements, covenants, and provisions contained in this Agreement, the
Company and the Officer agree as follows:
1. DEFINITIONS.
a. CAUSE. "Cause" shall mean any one or more of the following: (i) the
Officer's dishonesty or theft of the Company's property; (ii) the
gross negligence or inefficiency in execution of the Officer's duties;
(iii) the Officer's material violation of the Company's rules,
regulations, instructions or policies; (iv) the Company is adjudicated
bankrupt; or (v) the Officer's commission of an act which is a crime
or which materially damages the reputation of the Company, including
but not limited to fraud.
b. CHANGE IN CONTROL. "Change in Control" is the sale, lease, exchange
or other transfer, directly or indirectly, of all or substantially all
of the assets of the Company's restaurant chain doing business as
Timber Lodge Steakhouse, to any person or entity.
c. CONFIDENTIAL INFORMATION. "Confidential Information" means any
information or compilation of information possessed by the Company
that derives independent economic value, actual or potential, from not
being generally known to, and not being readily ascertainable by
proper means by other persons who can obtain economic value from its
disclosure or use, including but not limited to: (a) any information
not generally known in the restaurant industry regarding the Company's
products, formulas, recipes, pricing of products, research,
development, marketing, servicing, operational methods and
instructions; (b) financial information concerning the Company and its
customers, including, but not limited to, information concerning sales
figures, projections, and estimates; (c) customer lists or identifying
information; and (d) any information that the
<PAGE>
Company may from time designate as "confidential," "proprietary," or
"trade secrets" which is not generally known in the restaurant
industry.
d. GOOD REASON. (A) Subject to Subsection (B), "Good Reason" with
respect to an Officer is any of the following:
(1) An adverse change in the Officer's status or position as a result
of a Change in Control, including, without limitation, any adverse
change in the Officer's status or position as a result of a material
diminution in his duties or responsibilities; however, Good Reason
does not include, without more, the sale of the Company's restaurant
chain doing business as Timber Lodge Steakhouse, nor does Good Reason
including an adverse change in Officer's status or position caused by
an insubstantial or inadvertent action that is remedied by the Company
promptly after receipt of notice of such change is given by the
Officer;
(2) A reduction by the Successor in the Officer's Base Pay, or an
adverse change in the form or timing of the payment thereof, as in
effect immediately prior to the Change in Control;
e. SUCCESSOR. A "Successor" is any person or entity that succeeds to, or
has the practical ability to control the Company's restaurant chain
doing business as Timber Lodge Steakhouse by purchases, merger,
consolidation or other form of business combination.
2. ELIGIBILITY FOR BENEFITS. Officer will become eligible for the benefits
provided in paragraph 3 herein, if (a) there is a Change In Control; if (b)
(i) his employment is terminated for any reason other than his death or
cause or (ii) Officer terminates his employment with the Successor for Good
Reason; (c) such termination occurs within the period beginning on the date
of a Change in Control (subject to such Change in Control occurring prior
to December 31, 2001) and ending on the last day of the twelve month that
begins after the month in which the Change in Control occurs; and (c)
Officer signs the General Release attached hereto as Exhibit A.
3. BENEFITS. The Company will make a cash lump sum payment to Officer in an
amount equal to 24 months of his base pay plus a 20% bonus based upon two
years of his base pay, less applicable, federal state and FICA tax
deductions. The calculation of this amount will be based upon the
compensation schedule attached hereto as Exhibit B. Such benefits will be
paid to Officer provided he has become eligible for benefits as set forth
in paragraph 2 herein, and provided he has not rescinded his General
Release, fifteen days after Officer has signed the General Release in the
form attached hereto as Exhibit A.
4. SUCCESSOR RESPONSIBILITY. The Company will require any Successor to
expressly assume and agree to perform the obligations of this Agreement in
the same manner and to the same extent that the Company would be required
to perform if no such succession had taken place. Failure of the Company
to obtain such assumption by the date the Change in
2
<PAGE>
Control becomes effective will constitute Good Reason for termination of
the Officer's employment. However, in order to receive benefits under
the circumstances set forth in this paragraph, employee must terminate his
employment within thirty days after the Change in Control becomes
effective.
5. NON-COMPETITION AGREEMENT IN EXCHANGE FOR BENEFITS. Officer agrees that
for a period of two (2) years after the termination of his employment, for
any reason which entitles him to receive the benefits set forth at
paragraph 3, he will not directly or indirectly own, manage, operate,
control, consult with, become employed by, or render services to or for any
person, firm, corporation, or other entity which operates a steak
restaurant which has a concept (e.g. price, theme, menu) similar to Timber
Lodge Steakhouse within a radius of 20 miles from any Timber Lodge
Steakhouse. The Company or its Successor may agree to waive these
restrictions in its sole discretion.
Officer further agrees that he will not directly or indirectly disclose any
Confidential Information to any other person, firm or company, or in any
way use for his benefit, or to the detriment of the Company or its
Successor, any information or knowledge obtained during the course of his
employment with the Company or its Successor except as required in the
conduct of the Company's or Successor's business.
6. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Plan is intended to
provide Officer with any right to continue in the employ of the Company for
any period of specific duration or interfere with or otherwise restrict in
any way Officer's rights or the rights of the Company, which rights are
hereby expressly reserved, to terminate Officer's employment at any time
for any reason or no reason whatsoever, with or without cause.
7. INVALIDITY. In case any one or more of the provisions of this Agreement
shall be invalid, illegal, or unenforceable in any respect, the validity,
legality, and enforceability of the remaining provisions contained in this
Agreement will not in any way be affected or impaired thereby.
8. VOLUNTARY AND KNOWING ACTION. Officer acknowledges that he has had twenty-
one days in which to consider this Agreement, that he has been advised of
his right to seek counsel, that he has had an opportunity to review this
Agreement with his own attorney, that he has read and understands the terms
of this Agreement, and that he is voluntarily entering into the Agreement.
9. NOTICES. For the purposes of this Agreement, notices and all other
communications provided for in, or required under, this Agreement must be
in writing and will be deemed to have been duly given when personally
delivered or when mailed by United States registered or certified mail,
return receipt requested, postage prepaid and addressed to Officer or the
Company's (as the case may be) respective address (provided that all
notices to the Company must be directed to the attention of the chair of
the Board). For purposes of any such notice requirement, the Company will
use the Officer's most current address on file in the Company's personnel
records. Any notice of a Officer's change of address will be effective
only upon receipt by the Company.
3
<PAGE>
10. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
between the parties, there being no terms, conditions, warranties, or
representations other than those contained herein, and no amendment hereto
shall be valid unless made in writing and signed by the parties. This
Agreement replaces, supersedes, and nullifies all prior agreements or
arrangements between the parties relating to Officer's employment or
termination from employment with Company or any of its affiliated or
Successor entities.
11. SEVERABILITY. In the event any portion of this Agreement is held to be
invalid, the same shall not affect in any respect whatsoever the validity
of the remainder of this Agreement.
12. GOVERNING LAWS. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Dated: MARCH 10, 1997 /s/ PETER S. BEDZYK
-------------- --------------------
Peter S. Bedzyk
STATE OF MINNESOTA
ss.
COUNTY OF HENNEPIN
The foregoing instrument was acknowledged before me this 10 day of March
1997, by Peter S. Bedzyk.
---------------
/s/ James A. Kelzer
--------------------
Notary Public
4
<PAGE>
TIMBER LODGE STEAKHOUSE, INC.
By: /s/ L. H. LeJeune
------------------
Its: Chairman
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 10 day of
May, by L. F. LeJeune, the Chairman of Timber Lodge Steakhouse, Inc., a
Minnesota corporation, on behalf of the corporation.
/s/ Susan A. Peterson
----------------------
Notary Public
5
<PAGE>
EXHIBIT A TO PETER S. BEDZYK'S INCOME CONTINUANCE AGREEMENT
RELEASE
DEFINITIONS. I intend all words used in this Release to have their plain
meanings in ordinary English. Technical legal words are not needed to describe
what I mean. Specific terms I use in this Release have the following meanings:
A. I, me, and my include both me and anyone who has or obtains any legal
rights or claims through me.
B. Company, as used herein, shall at all times mean Timber Lodge
Steakhouse, Inc. its parent, subsidiaries, successors and assigns, its
affiliated and predecessor companies, their successors and assigns,
their affiliated and predecessor companies and the present or former
officers, employees and agents of any of them, whether in their
individual or official capacities, and the current and former trustees
or administrators of any pension or other benefit plan applicable to
the employees or former employees of the Company, in their official
and individual capacities.
C. MY CLAIMS means all of the rights I have now to any relief of any kind
from the Company, whether or not I now know about those rights,
arising out of my employment with the Company, and my employment
termination, including, but not limited to, claims for breach of
contract; fraud or misrepresentation; violation of the Minnesota Human
Rights Act, or other federal, state, or local civil rights laws based
on age, disability or other protected class status; defamation;
intentional or negligent infliction of emotional distress; breach of
the covenant of good faith and fair dealing; promissory estoppel;
negligence; wrongful termination of employment; and any other claims
for unlawful employment practices. However, this release shall not
affect any claims which could be made under any welfare benefit plan
or any pension or retirement plan through the Company.
AGREEMENT TO RELEASE MY CLAIMS. I am receiving a substantial amount of money
paid by the Company. I agree to give up all My Claims against the Company in
exchange for this payment. I will not bring any lawsuits, file any charges,
complaints, or notices, or make any other demands against the Company based on
My Claims. The money I am receiving is a full and fair payment for the release
of all My Claims. The Company does not owe me anything in addition to what I
will be receiving.
ADDITIONAL AGREEMENTS AND UNDERSTANDINGS. Even though the Company is paying me
to release My Claim, the Company does not admit that it may be responsible or
legally obligated to me. In fact, the Company denies that it is responsible or
legally obligated for My Claims or that it has engaged in any wrongdoing.
I understand that I may rescind (that is, cancel) this Release within seven
(7) calendar days of signing it to reinstate federal claims and within fifteen
(15) calendar days of signing it to reinstate state claims. To be effective, my
rescission must be in writing and delivered to the
<PAGE>
Company in care of, PETER S., BEDZYK, Timber Lodge Steakhouse, Inc. 4021
Vernon Ave. So. (address), either by hand or by mail within the 15-day
period. If sent by mail, the rescission must be:
1. Postmarked within the 15-day period;
2. Properly addressed to the Company; and
3. Sent by certified mail, return receipt requested.
I have read this Release carefully and understand all its terms. I have
had an opportunity to discuss this Release with my own attorney. In agreeing
to sign this Release, I have not relied on any statements or explanations
made by the Company or its attorney.
I understand and agree that this Release, the Separation Agreement to which it
is attached, and the Company employee benefit plans in which I am a participant
contain all the agreements between the Company and me. We have no other written
or oral agreements.
Dated: /s/ March 10, 1997.
--------------------
/s/ Peter S. Bedzyk
--------------------
Peter S. Bedzyk
Subscribed and sworn to before me this
10 day of March 1997.
/s/ James A. Kelzer
- --------------------------------------
Notary
7
<PAGE>
PETER S. BEDZYK
COMPENSATION SCHEDULE
BASE SALARY BONUS TOTAL
----------- ----- -----
1997 $ 87,500 $17,500 $105,000
1998 96,250 19,250 115,500
1999 105,825 21,175 127,050
2000 116,463 23,293 139,756
2001 128,109 25,622 153,731
THE COMPANY: THE OFFICER:
Timber Lodge Steakhouse, Inc. /s/ Peter S. Bedzyk
By: /s/ L. F. LeJeune Chief Operating Officer
------------------- -----------------------
Its: Chairman Title
<PAGE>
INCOME CONTINUANCE AGREEMENT
This Income Continuance Agreement ("Agreement") is made and entered into
this 10 day of March, 1997, by and between Robert G. Cornell ("Officer") and
Timber Lodge Steakhouse, Inc., a Minnesota Corporation ("Company").
WHEREAS, the Company is in the business of owning and managing restaurants
including the restaurant chain doing business as Timber Lodge Steakhouse; and
WHEREAS, the Company may in the future receive offers to purchase its
restaurant chain which does business as Timber Lodge Steakhouse.
WHEREAS, the Company desires to provide Officer with temporary financial
support if his employment is terminated as a result of Company's sale, exchange
or other transfer of all or substantially all of the assets of the Company's
restaurant chain doing business as Timber Lodge Steakhouse.
NOW, THEREFORE, in consideration of the promises and the mutual agreements,
covenants, and provisions contained in this Agreement, the Company and the
Officer agree as follows:
1. DEFINITIONS.
a. CAUSE. "Cause" shall mean any one or more of the following: (i) the
Officer's dishonesty or theft of the Company's property; (ii) the gross
negligence or inefficiency in execution of the Officer's duties;
(iii) the Officer's material violation of the Company's rules,
regulations, instructions or policies; (iv) the Company is adjudicated
bankrupt; or (v) the Officer's commission of an act which is a crime or
which materially damages the reputation of the Company, including but
not limited to fraud.
b. CHANGE IN CONTROL. "Change in Control" is the sale, lease, exchange
or other transfer, directly or indirectly, of all or substantially all
of the assets of the Company's restaurant chain doing business as Timber
Lodge Steakhouse, to any person or entity.
c. CONFIDENTIAL INFORMATION. "Confidential Information" means any
information or compilation of information possessed by the Company that
derives independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means
by other persons who can obtain economic value from its disclosure or
use, including but not limited to: (a) any information not generally
known in the restaurant industry regarding the Company's products,
formulas, recipes, pricing of products, research, development, marketing,
servicing, operational methods and instructions; (b) financial
information concerning the Company and its customers, including, but
not limited to, information concerning sales figures, projections, and
estimates; (c) customer lists or identifying information; and (d) any
information that the Company may from time designate as "confidential,"
"proprietary," or "trade
<PAGE>
secrets" which is not generally known in the restaurant industry.
d. GOOD REASON. (A) Subject to Subsection (B), "Good Reason" with
respect to an Officer is any of the following:
(1) An adverse change in the Officer's status or position as a result
of a Change in Control, including, without limitation, any adverse
change in the Officer's status or position as a result of a
material diminution in his duties or responsibilities; however,
Good Reason does not include, without more, the sale of the
Company's restaurant chain doing business as Timber Lodge
Steakhouse, nor does Good Reason including an adverse change in
Officer's status or position caused by an insubstantial or
inadvertent action that is remedied by the Company promptly
after receipt of notice of such change is given by the Officer;
(2) A reduction by the Successor in the Officer's Base Pay, or an
adverse change in the form or timing of the payment thereof, as in
effect immediately prior to the Change in Control;
e. SUCCESSOR. A "Successor" is any person or entity that succeeds to, or
has the practical ability to control the Company's restaurant chain
doing business as Timber Lodge Steakhouse by purchases, merger,
consolidation or other form of business combination.
2. ELIGIBILITY FOR BENEFITS. Officer will become eligible for the benefits
provided in paragraph 3 herein, if (a) there is a Change In Control; if
(b) (i) his employment is terminated for any reason other than his death
or cause or (ii) Officer terminates his employment with the Successor for
Good Reason; (c) such termination occurs within the period beginning on the
date of a Change in Control (subject to such Change in Control occurring
prior to December 31, 2001) and ending on the last day of the twelve month
that begins after the month in which the Change in Control occurs; and
(c) Officer signs the General Release attached hereto as Exhibit A.
3. BENEFITS. The Company will make a cash lump sum payment to Officer in an
amount equal to 24 months of his base pay plus a 20% bonus based upon two
years of his base pay, less applicable, federal state and FICA tax
deductions. The calculation of this amount will be based upon the
compensation schedule attached hereto as Exhibit B. Such benefits will
be paid to Officer provided he has become eligible for benefits as set
forth in paragraph 2 herein, and provided he has not rescinded his General
Release, fifteen days after Officer has signed the General Release in the
form attached hereto as Exhibit A.
4. SUCCESSOR RESPONSIBILITY. The Company will require any Successor to
expressly assume and agree to perform the obligations of this Agreement in
the same manner and to the same extent that the Company would be required
to perform if no such succession had taken place. Failure of the Company
to obtain suchassumption by the date the Change in Control becomes
effective will constitute Good Reason for termination of the Officer's
2.
<PAGE>
employment. However, in order to receive benefits under the circumstances
set forth in this paragraph, employee must terminate his employment within
thirty days after the Change in Control becomes effective.
5. NON-COMPETITION AGREEMENT IN EXCHANGE FOR BENEFITS. Officer agrees that
for a period of two (2) years after the termination of his employment, for
any reason which entitles him to receive the benefits set forth at
paragraph 3, he will not directly or indirectly own, manage, operate,
control, consult with, become employed by, or render services to or for
any person, firm, corporation, or other entity which operates a steak
restaurant which has a concept (e.g. price, theme, menu) similar to Timber
Lodge Steakhouse within a radius of 20 miles from any Timber Lodge
Steakhouse. The Company or its Successor may agree to waive these
restrictions in its sole discretion.
Officer further agrees that he will not directly or indirectly disclose any
Confidential Information to any other person, firm or company, or in any
way use for his benefit, or to the detriment of the Company or its
Successor, any information or knowledge obtained during the course of his
employment with the Company or its Successor except as required in the
conduct of the Company's or Successor's business.
6. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Plan is intended to
provide Officer with any right to continue in the employ of the Company
for any period of specific duration or interfere with or otherwise restrict
in any way Officer's rights or the rights of the Company, which rights are
hereby expressly reserved, to terminate Officer's employment at any time
for any reason or no reason whatsoever, with or without cause.
7. INVALIDITY. In case any one or more of the provisions of this Agreement
shall be invalid, illegal, or unenforceable in any respect, the validity,
legality, and enforceability of the remaining provisions contained in this
Agreement will not in any way be affected or impaired thereby.
8. VOLUNTARY AND KNOWING ACTION. Officer acknowledges that he has had twenty-
one days in which to consider this Agreement, that he has been advised of
his right to seek counsel, that he has had an opportunity to review this
Agreement with his own attorney, that he has read and understands the terms
of this Agreement, and that he is voluntarily entering into the Agreement.
9. NOTICES. For the purposes of this Agreement, notices and all other
communications provided for in, or required under, this Agreement must be
in writing and will be deemed to have been duly given when personally
delivered or when mailed by United States registered or certified mail,
return receipt requested, postage prepaid and addressed to Officer or the
Company's (as the case may be) respective address (provided that all
notices to the Company must be directed to the attention of the chair of
the Board). For purposes of any such notice requirement, the Company
will use the Officer's most current address on file in the Company's
personnel records. Any notice of a Officer's change of address will
be effective only upon receipt by the Company.
3.
<PAGE>
10. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
between the parties, there being no terms, conditions, warranties, or
representations other than those contained herein, and no amendment
hereto shall be valid unless made in writing and signed by the parties.
This Agreement replaces, supersedes, and nullifies all prior agreements
or arrangements between the parties relating to Officer's employment or
termination from employment with Company or any of its affiliated or
Successor entities.
11. SEVERABILITY. In the event any portion of this Agreement is held to be
invalid, the same shall not affect in any respect whatsoever the validity
of the remainder of this Agreement.
12. GOVERNING LAWS. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Dated: March 10, 1997 /s/ Robert G. Cornell
-------------- ---------------------
Robert G. Cornell
STATE OF MINNESOTA
ss.
COUNTY OF HENNEPIN
The foregoing instrument was acknowledged before me this 10 day of March
1997, by Robert G. Cornell.
/s/ Sally M. Adair
------------------
Notary Public
4.
<PAGE>
TIMBER LODGE STEAKHOUSE, INC.
By /s/ L. F. LeJeune
------------------
Its: Chairman
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 10 day of March
1997 by L. F. LeJeune the Chairman of Timber Lodge Steakhouse, Inc., a
Minnesota corporation, on behalf of the corporation.
/s/ Susan A. Peterson
---------------------
Notary Public
5.
<PAGE>
EXHIBIT A TO ROBERT G. CORNELL'S INCOME CONTINUANCE AGREEMENT
RELEASE
DEFINITIONS. I intend all words used in this Release to have their plain
meanings in ordinary English. Technical legal words are not needed to describe
what I mean. Specific terms I use in this Release have the following meanings:
A. I, me, and my include both me and anyone who has or obtains any legal
rights or claims through me.
B. Company, as used herein, shall at all times mean Timber Lodge
Steakhouse, Inc. its parent, subsidiaries, successors and assigns, its
affiliated and predecessor companies, their successors and assigns,
their affiliated and predecessor companies and the present or former
officers, employees and agents of any of them, whether in their
individual or official capacities, and the current and former trustees
or administrators of any pension or other benefit plan applicable to
the employees or former employees of the Company, in their official
and individual capacities.
C. MY CLAIMS means all of the rights I have now to any relief of any kind
from the Company, whether or not I now know about those rights, arising
out of my employment with the Company, and my employment termination,
including, but not limited to, claims for breach of contract; fraud or
misrepresentation; violation of the Minnesota Human Rights Act, or other
federal, state, or local civil rights laws based on age, disability or
other protected class status; defamation; intentional or negligent
infliction of emotional distress; breach of the covenant of good faith
and fair dealing; promissory estoppel; negligence; wrongful termination
of employment; and any other claims for unlawful employment practices.
However, this release shall not affect any claims which could be made
under any welfare benefit plan or any pension or retirement plan through
the Company.
AGREEMENT TO RELEASE MY CLAIMS. I am receiving a substantial amount of money
paid by the Company. I agree to give up all My Claims against the Company in
exchange for this payment. I will not bring any lawsuits, file any charges,
complaints, or notices, or make any other demands against the Company based
on My Claims. The money I am receiving is a full and fair payment for the
release of all My Claims. The Company does not owe me anything in addition
to what I will be receiving.
ADDITIONAL AGREEMENTS AND UNDERSTANDINGS. Even though the Company is paying
me to release My Claim, the Company does not admit that it may be responsible
or legally obligated to me. In fact, the Company denies that it is
responsible or legally obligated for My Claims or that it has engaged in any
wrongdoing.
I understand that I may rescind (that is, cancel) this Release within
seven (7) calendar days of signing it to reinstate federal claims and within
fifteen (15) calendar days of signing it to reinstate state claims. To be
effective, my rescission must be in writing and delivered to the
<PAGE>
Company in care of, Robert G., Cornell, Timber Lodge Steakhouse, Inc.
4021 Vernon Ave. So. (address), either by hand or by mail within the 15-day
period. If sent by mail, the rescission must be:
1. Postmarked within the 15-day period;
2. Properly addressed to the Company; and
3. Sent by certified mail, return receipt requested.
I have read this Release carefully and understand all its terms. I have
had an opportunity to discuss this Release with my own attorney. In agreeing
to sign this Release, I have not relied on any statements or explanations
made by the Company or its attorney.
I understand and agree that this Release, the Separation Agreement to which
it is attached, and the Company employee benefit plans in which I am a
participant contain all the agreements between the Company and me. We have
no other written or oral agreements.
Dated: /s/ March 10,1997.
--------------------
/s/ Robert G. Cornell
---------------------
Robert G. Cornell
Subscribed and sworn to before me this
10 day of March 1997.
/s/ Sally M. Adair
- ------------------
Notary
7.
<PAGE>
ROBERT CORNELL
COMPENSATION SCHEDULE
BASE SALARY BONUS TOTAL
----------- ----- -----
1997 $ 72,500 $14,500 $ 87,000
1998 79,750 15,950 95,700
1999 87,725 17,545 105,270
2000 96,498 19,300 115,798
2001 106,147 21,229 127,376
THE COMPANY: THE OFFICER:
Timber Lodge Steakhouse, Inc. /s/ Robert G. Cornell
By: /s/ L. F. LeJeune /s/ Chief Financial Officer
------------------------ ----------------------------
Its: Chairman Title
