Page 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended February 16, 1997
OR
( ) 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 0-23420
QUALITY DINING, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1804902
(State or other jurisdiction of (I.R.S. EmployerIdentification No.)
incorporation or organization)
4220 Edison Lakes Parkway, Mishawaka, Indiana 46545
(Address of principal executive offices and zip code)
(219) 271-4600
(Registrant's telephone number, including area code)
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 ________
The number of shares of the registrant's common stock outstanding as of
March 18, 1997 was 16,909,609.
QUALITY DINING, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 16, 1997
INDEX
Page
PART I. - Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Statements of Income........................3
Consolidated Balance Sheets..............................4
Consolidated Statements of Cash Flows....................5
Notes to Consolidated Financial Statements...............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........11
Part II - Other Information
Item 1. Legal Proceedings.......................................14
Item 2. Changes in Securities...................................14
Item 5. Other Information.......................................16
Item 6. Exhibits and Reports on Form 8-K........................16
Signatures........................................................17
QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Sixteen Weeks Ended
February 16, February 18,
1997 1996
___________ ___________
Revenues:
Restaurant sales $ 82,437 $53,645
Franchise related revenue 4,083 -
_______ _______
Total revenues 86,520 53,645
_______ _______
Operating expenses:
Restaurant operating expenses:
Food and beverage 25,398 16,850
Payroll and benefits 24,672 15,324
Depreciation and amortization 4,947 2,388
Other operating expenses 18,926 11,770
_______ _______
Total restaurant operating expenses 73,943 46,332
General and administrative 5,830 2,570
Amortization of intangibles 1,464 299
Restructuring and integration costs - 1,938
_______ _______
Total operating expenses 81,237 51,139
_______ _______
Operating income 5,283 2,506
_______ _______
Other income (expense):
Interest expense (2,371) (1,424)
Gain on sale of property
and equipment - 3
Interest income 61 71
Other income (expense), net 131 (70)
_______ _______
Total other expense, net (2,179) (1,420)
_______ _______
Income before income taxes 3,104 1,086
Income taxes 1,474 397
_______ _______
Net income $ 1,630 $ 689
======= =======
Net income per share $ 0.10 $ 0.08
======= =======
Weighted average shares outstanding 16,909 8,837
======= =======
See Notes to Consolidated Financial Statements.
QUALITY DINING, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
February 16, October 27,
1997 1996
___________ __________
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 4,782 $ 444
Accounts receivable 6,173 4,518
Accounts and note receivable, related parties 27,601 11,651
Notes receivable 8,052 3,585
Inventories 3,094 3,082
Deferred income taxes 1,996 1,996
Other current assets 2,171 3,438
_______ _______
Total current assets 53,869 28,714
_______ _______
Property and equipment, net 191,227 177,044
_______ _______
Other assets:
Franchise fees and development costs, net 10,376 10,406
Goodwill, net 150,921 152,195
Trademarks, net 12,979 13,082
Pre-opening costs and
non-competition agreements, net 2,626 2,463
Liquor licenses, net 3,314 2,876
Other 1,167 1,234
_______ _______
Total other assets 181,383 182,256
_______ _______
Total assets $ 426,479 $ 388,014
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capitalized lease and
non-competition obligations $ 442 $ 451
Accounts payable 11,170 8,531
Accrued restructuring and integration
costs 3,793 8,984
Accrued liabilities 11,581 12,135
________ _______
Total current liabilities 26,986 30,101
Long-term debt 118,610 78,610
Capitalized lease and non-competition
obligations, principally to related parties,
less current portion 6,385 6,436
Deferred income taxes 3,744 3,744
_______ _______
Total liabilities 155,725 118,891
_______ _______
Stockholders' equity:
Preferred stock, without par value:
5,000,000 shares authorized; none issued
Common stock, without par value: 50,000,000
shares authorized; 16,929,609 and 16,929,035
shares issued, respectively 28 28
Additional paid-in capital 258,243 258,242
Retained earnings 12,733 11,103
_______ _______
271,004 269,373
Less treasury stock, at cost, 20,000 shares 250 250
_______ _______
Total stockholders' equity 270,754 269,123
Total liabilities and stockholders' equity $ 426,479 $ 388,014
======= =======
See Notes to Consolidated Financial Statements.
QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Sixteen Weeks Ended
February 16, February 18,
1997 1996
____________ ___________
Cash flows from operating activities:
Net income $ 1,630 $ 689
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of
property and equipment 4,464 1,898
Amortization of other assets 2,631 916
Gain on sale of property and equipment - (3)
Net increase in current assets (1,850) (1,971)
Net increase (decrease) in
current liabilities (3,106) 2,549
Other - 26
Net cash provided by _______ _______
operating activities 3,769 4,104
_______ _______
Cash flows from investing activities:
Acquisition of business, net of cash acquired - (74,764)
Increase in notes receivable (18,967) -
Proceeds from sales of property and equipment - 3
Purchase of property and equipment (18,647) (7,673)
Payment of other assets (1,758) (875)
_______ _______
Net cash (used in) investing activities (39,372) (83,309)
_______ _______
Cash flows from financing activities:
Proceeds from exercise of stock options 1 14
Borrowings of long-term debt 40,000 75,177
Repayment of capitalized lease obligations
and non-competition obligations (60) (65)
Payment of redeemable preferred stock
subscription payable - (250)
_______ _______
Net cash provided by financing activities 39,941 74,876
_______ _______
Net increase (decrease) in cash and cash equivalents 4,338 (4,329)
Cash and cash equivalents, beginning of period 444 5,639
_______ _______
Cash and cash equivalents, end of period $ 4,782 $ 1,310
======= =======
See Notes to Consolidated Financial Statements.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 16, 1997
(Unaudited)
Note 1: Description of Business.
Quality Dining, Inc. and its subsidiaries (the "Company") develop and
operate both quick service and full service restaurants throughout the
United States. The Company owns, operates and franchises Bruegger's
Bagel Bakeries. As of February 16, 1997, there were 457 retail bagel
bakeries, of which 349 were operated by franchisees and 108 were Company-
owned and operated. The Company owns and operates 42 Grady's American
Grill restaurants, five restaurants under the trade name of Spageddies
Italian Kitchen and two restaurants under the trade name Papa Vino's
Italian Kitchen. The Company also operates, as a franchisee, 65 Burger
King restaurants and 24 Chili's Grill & Bar restaurants.
The Company has established a new policy with respect to determining
whether Company-owned and franchised Bruegger's Bagel Bakeries are
"open" at the end of any accounting period. The Company's new policy
requires that Bruegger's units must meet stringent criteria which are
subject to multiple levels of verification in order to be considered
open. Under its former policy, the Company utilized less stringent
procedures and other criteria to determine whether units were open. Of
the 425 retail bagel bakeries units which the Company reported as open
at the end of fiscal year 1996, approximately 23 may not have qualified
as open under the Company's new policy. Had the Company's new policy
been in effect in fiscal year 1996, it would not have had any material
effect on the reported revenues or net income of the Company.
Note 2: Basis of Presentation.
The accompanying consolidated financial statements include the accounts
of Quality Dining, Inc. and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X promulgated by the
Securities and Exchange Commission. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for annual financial statement reporting purposes.
In the opinion of management, all adjustments, consisting only of normal
recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the sixteen- week period ended
February 16, 1997 are not necessarily indicative of the results that may
be expected for the 52-week year ending October 26, 1997.
These financial statements should be read in conjunction with the
Company's audited financial statements for the fiscal year ended October
27, 1996 included in the Company's Annual Report on Form 10-K filed with
the Securities and Exchange Commission.
Note 3: Acquisitions.
On July 15, 1996, the Company acquired all the assets, including
trademarks, of Moe's Broadway Bagel, Inc., operator of three Moe's
Broadway Bagel restaurants ("Moe's"), for $3.6 million in cash. In a
concurrent transaction, the Company sold the operating assets of Moe's
to a third party in exchange for a promissory note in the amount of
$3.5 million and entered intodevelopment and franchise agreements
for which the Company collects franchise related revenues.
The promissory note bears interest at 11%,is due June 15, 1997 and
is collateralized by substantially all assetsof Moe's. The Company
retained the rights to all of Moe's trademarks and other intangible assets.
On June 7, 1996, the Company acquired all of the issued and outstanding
shares of common stock of Bruegger's Corporation. Pursuant to the terms
of the acquisition and related merger agreement, Bruegger's Corporation
became a wholly-owned subsidiary of Quality Dining, Inc. The purchase
price of Bruegger's Corporation consisted of the issuance of 5,127,121
shares of the Company's common stock, valued at $123.1 million, and
direct acquisition and estimated post-merger integration costs
aggregating $6.9 million. The Company also issued 117,800 shares of its
Series A Convertible Cumulative Preferred Stock, without par value (the
"Quality Dining Series A Preferred Stock") in exchange for a like number
of issued and outstanding shares (exclusive of those shares held by the
Company, which were canceled) of Bruegger's Corporation Class A
Cumulative Convertible Preferred Stock, $100 par value per share.
Subsequent to the acquisition, 101,150 shares of the Quality Dining
Series A Preferred Stock were converted into an aggregate of 285,531
shares of the Company's common stock. The acquisition was accounted for
using the purchase method and the operating results of Bruegger's
Corporation have been included in the Company's consolidated financial
statements since the acquisition date. The excess of the purchase price
over the acquired tangible and intangible net assets of approximately
$143.9 million has been allocated to goodwill and is being amortized on
a straight-line basis over 40 years.
In connection with the acquisition, the Company recorded a special pre-
tax charge of $8.0 million for combining and integrating administrative
functions, recruiting and relocating new employees, franchise related
costs, and legal and professional fees. This charge was in addition to
the $6.0 million recorded as part of the cost of the acquisition for
facility closures, restaurant remodeling and relocation and severance
packages for Bruegger's personnel. Through the first quarter of fiscal
1997, approximately $10.2 million of these costs have been incurred
(including $5.2 million incurred during the first quarter of fiscal
1997), of which $8.3 million were cash payments and $1.9 million were
non-cash charges, primarily for the write down of assets. The Company
expects to complete these actions in fiscal 1997.
On December 21, 1995, the Company acquired 42 Grady's American Grill
restaurants and all rights to the Grady's American Grill concept from
Brinker International, Inc. The purchase price aggregated $75.4 million
consisting of $74.4 million in cash and the incurrence of $1.0 million
of liabilities and direct acquisition costs. The cash portion of the
purchase price was funded through borrowings under the Company's
revolving credit facility.
The acquisition was accounted for using the purchase method and the
operating results of the Grady's American Grill restaurants have been
included in the Company's consolidated financial statements since the
acquisition date. The excess of the purchase price over the acquired
tangible and intangible net assets of $13.2 million has been allocated
to trademarks and is being amortized on a straight-line basis over 40
years.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
February 16, 1997
(Unaudited)
In conjunction with the acquisitions of the Grady's American Grill
Restaurants and the rights to the Spageddies restaurant concept in the
United States, which was finalized on October 28, 1995, the Company
recorded a special pre-tax charge of $1.9 million during the sixteen-
week period ended February 18, 1996. The charge reflected the estimated
costs for integration of computer systems, employee transition costs,
recruitment and relocation costs, and legal and professional fees. As
of the end of fiscal 1996, substantially all costs related to these
activities had been incurred.
Note 4: Commitments.
As of February 16, 1997, the Company had commitments aggregating
approximately $4.5 million for the construction of new restaurants.
Note 5: Long-Term Debt.
On January 22, 1997, the Company amended its revolving credit agreement
with Texas Commerce Bank, as agent for a group of seven banks, providing
for borrowings of up to $150 million with interest payable monthly at
the adjusted LIBOR rate plus 1.5%. The revolving credit agreement
expires on April 26, 1999 and is unsecured.
The revolving credit agreement contains, among other provisions, certain
restrictive covenants including maintenance of certain prescribed debt
and fixed charge coverage ratios, minimum levels of tangible net worth,
as defined, limitations on the incurrence of additional indebtedness and
annual limitations on the payment of dividends (other than stock
dividends) on, or the purchase or redemption of, any shares of the
Company's capital stock in aggregate amounts exceeding 40% of the
Company's net income for the immediately preceding fiscal year.
Note 6: Contingencies.
On November 10, 1994, the Company acquired all of the outstanding stock
of Grayling Corporation, Grayling Management Corporation, Chili's of Mt.
Laurel, Inc. ("Mt. Laurel"), and Chili's of Christiana, Inc.
("Christiana"). Prior to entering into negotiations with the Company,
Grayling Corporation and its principal shareholder, T. Garrick Steele
("Steele"), had entered into an agreement (the "Asset Agreement") to
sell substantially all of Grayling Corporation's assets to a third
party, KK&G Enterprises, Inc. ("KK&G"). The Asset Agreement was
terminated by Grayling Corporation and was not consummated. On September
27, 1994, KK&G filed suit in the Court of Common Pleas, Philadelphia
County, Pennsylvania, against Grayling Corporation, Mt. Laurel,
Christiana and Steele seeking damages and specific performance of the
Asset Agreement. Steele is obligated to continue to defend the lawsuit
and indemnify the Company and Grayling Corporation against any loss or
damages resulting from the lawsuit. Management does not expect that the
lawsuit will have a material adverse effect on the Company's financial
position or results of operations. In making such assessment,
management considered the financial ability of Steele to defend the
lawsuit and indemnify the Company against any loss or damages resulting
from the lawsuit.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
February 16, 1997
(Unaudited)
Big D Bagels, Inc. ("Big D"), a wholly-owned subsidiary of Ciatti's,
Inc. ("Ciatti's"), is a franchisee of Bruegger's. Ciatti's is a
publicly-held corporation. Ciatti's filed a Registration Statement with
the Securities and Exchange Commission pursuant to which it proposed to
commence a rights offering to its existing shareholders to raise
approximately $4.4 million in additional equity (the "Proposed
Offering"). When Bruegger's learned of the Proposed Offering, it
notified Ciatti's that the Development and Franchise Agreements existing
between Bruegger's Franchise Corporation and Big D (the "Franchise
Documents") required Big D and Ciatti's to obtain the consent of
Bruegger's Franchise Corporation prior to proceeding with the Proposed
Offering. Ciatti's and Big D maintained that the Franchise Documents
did not require such consent, and they were unwilling to request such
consent. On November 8, 1996, Ciatti's and Big D filed a Complaint for
Declaratory and Injunctive Relief in the United States District Court
for the District of Minnesota, naming Quality Dining, Inc. and
Bruegger's Franchise Corporation as defendants and requesting the Court
to determine that the Franchise Documents do not require them to obtain
consent for the Proposed Offering. The Company and Bruegger's Franchise
Corporation have requested the Court to determine that the Franchise
Documents require Ciatti's and Big D to obtain such consent before
proceeding with the Proposed Offering. On December 20, 1996, Ciatti's
and Big D filed a Motion for Summary Judgment and Declaratory Relief.
Bruegger's Franchise Corporation is conducting certain discovery in
advance of preparing its response to the pending Motion for Summary
Judgment and Declaratory Relief. Currently, neither Ciatti's nor Big D
has sought any damages in this matter. Management does not expect that
the lawsuit will have a material adverse effect on the Company's
financial position or results of operations.
BruWest, L.L.C., a franchisee of Bruegger's Franchise Corporation, and
Timothy Johnson, Gregory LeMond, Michael Snow and Matthew Starr,
principals of BruWest (collectively "BruWest") commenced an action
against Bruegger's Franchise Corporation, Quality Dining, Inc., Daniel
B. Fitzpatrick (the "Bruegger's Defendants") and an investment banking
firm retained by the Company alleging inter alia that the Bruegger's
Defendants breached commitments to provide financing to BruWest,
interfered with the Plaintiffs' efforts to obtain financing from third
parties, violated existing franchise and development agreements between
BruWest and Bruegger's Franchise Corporation, violated certain
provisions of the Minnesota Franchise Act and breached duties and
implied covenants of good faith and fair dealing. The Bruegger's
Defendants denied all allegations in the Complaint. Without admitting
any liability or obligation to do so, on March 11, 1997, Bruegger's
Corporation loaned $1.2 million to the Plaintiffs. The loan is secured
by certain assets of the Plaintiffs and personal guarantees of Mssrs.
LeMond and Snow. The loan provides for monthly interest payments
commencing April 11, 1997 at the rate of nine (9%) percent per annum and
matures on September 11, 1997. On March 14, 1997, the Complaint was
dismissed, without prejudice. There can be no assurance that any or all
of the claims asserted in the Complaint will not be refiled at a later
date.
The Company is involved in various other legal proceedings incidental to
the conduct of its business. Management does not expect that any such
proceedings will have a material adverse effect on the Company's
financial position or results of operations.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Concluded
February 16, 1997
(Unaudited)
Note 7: Related Parties
During the first quarter of fiscal 1997, the Company loaned $14.0
million to a related company ("Bagel Acquisition Corporation") owned by
a director and officer of the Company, which used the funds to acquire a
number of Bruegger's Bagel Bakeries from independent franchisees and for
working capital purposes. The Company had loaned Bagel Acquisition
Corporation an aggregate of $23.9 million as of February 16, 1997. The
$23.9 million promissory note bears interest at 11%, is due June 15,
1997, and is collateralized by substantially all assets of Bagel
Acquisition Corporation. Subsequent to February 16, 1997 and through
March 25, 1997, the Company loaned Bagel Acquisition Corporation an
additional $10.1 million to acquire additional Bruegger's Bagel Bakeries
from an independent franchisee and for working capital purposes. Bagel
Acquisition Corporation was formed to facilitate the acquisition of
bakeries and markets for inclusion in the Company's proposed Franchise
Operating Partner Program. The program is designed to make financing
available to operating partner franchisees who can then focus on
development and operations rather than capital raising. The operating
partners would be funded by outside equity and by loans from the
Company. The Company anticipates that the bakeries owned by Bagel
Acquisition Corporation will be re-franchised to operating partners in
fiscal 1997. If the acquired markets are not re-franchised, the Company
will have to consolidate the stores into its financial statements. The
consolidation would create a substantial book loss for the Company since
the book value of the underlying assets of Bagel Acquisition Corporation
is less than the current balance of the note receivable. The book value
of the assets of Bagel Acquisition Corporation is less than the note
receivable due to the Company's funding of operating losses of Bagel
Acquisition Corporation. If the Company has to consolidate Bagel
Acquisition Corporation, the Company will also have to include the
operating losses of Bagel Acquisition Corporation in the Company's
future results and will experience a decrease in franchise related
revenue. Franchise related revenue recognized by the Company during the
first quarter of fiscal 1997 related to Bagel Acquisition Corporation
aqqregated approximately $1.4 million.
During the first quarter of fiscal 1997, the Company loaned $4.3 million
to a Bruegger's franchisee. The $4.3 million promissory note was paid
in full on February 20, 1997 when the franchisee sold its Bruegger's
Bagel Bakeries to Bagel Acquisition Corporation.
During the first quarter of fiscal 1997, the Company paid a related
party $900,000 to terminate a lease for office space located in Vermont.
The cost for the termination of this lease was accrued as part of the
cost of the purchase of Bruegger's Corporation at the time of the
acquisition.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company has a 52/53-week fiscal year ending on the last Sunday in
October of each year. The first quarter of the Company's fiscal year
consists of 16 weeks with all subsequent quarters being 12 weeks in
duration. The current fiscal year ends October 26, 1997.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentages which certain items of revenue and expense bear to total
revenues, except where otherwise noted.
Sixteen weeks Ended
February 16, February 18,
1997 1996
Revenues: ----------- ----------
Restaurant sales 95.3% 100.0%
Franchise related revenue 4.7 -
------ ------
Total revenues 100.0 100.0
------ ------
Operating expenses:
Restaurant operating expenses
(as % of restaurant sales)
Food and beverage 30.8 31.4
Payroll and benefits 29.9 28.6
Depreciation and amortization 6.0 4.5
Other operating expenses 23.0 21.9
------ ------
Total restaurant
operating expenses 89.7 86.4
General and administrative expenses 6.7 4.8
Amortization of intangibles 1.7 .6
Restructuring and integration costs - 3.6
------ ------
Total operating expenses 93.9 95.3
------ ------
Operating income 6.1 4.7
------ ------
Other income (expense):
Interest expense (2.7) (2.7)
Interest income .1 .1
Other income (expense), net .1 (.1)
------ ------
Total other expense, net (2.5) (2.7)
------ ------
Income before income taxes 3.6 2.0
Income taxes 1.7 .7
------ ------
Net income 1.9% 1.3%
====== ======
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Restaurant sales for the first quarter of fiscal 1997 were $82.4
million, an increase of 53.7% over restaurant sales of $53.6 million for
the comparable period in fiscal 1996. The increase was primarily
attributable to the acquisitions of the Grady's American Grill
restaurants and Bruegger's Corporation and sales generated by other
Company restaurants operating in the first quarter of fiscal 1997 that
were not operating during the first quarter of fiscal 1996. During the
first quarter of fiscal 1997, the Company's Grady's American Grill and
Bruegger's Bagel Bakery restaurants contributed $22.9 million in
increased sales, or 79.5% of the total sales increase of $28.8 million.
Total revenues for the Company were $86.5 million for the first quarter
of the 1997 fiscal year, an increase of 61.4% over $53.6 million for the
comparable period in fiscal 1996. Total revenues for the Company
includes franchise related revenues from Bruegger's Corporation.
Franchise related revenues include royalties on franchised restaurant
sales, franchise and development fees, net commissary revenue, interest
income and other miscellaneous fees from franchised operations.
As a percentage of restaurant sales, total restaurant operating expenses
increased to 89.7% in the first quarter of fiscal 1997 from 86.4% in the
first quarter of fiscal 1996. Contributing to the increase in restaurant
operating expenses for the sixteen weeks were higher payroll and
benefits expense, higher depreciation and amortization expense and
higher other operating expenses. These increases were primarily the
result of the Company operating an increased number of full service and
new Bruegger's restaurants. These units typically have higher costs
than the Company's more mature Bruegger's and Burger King restaurants.
General and administrative expenses, as a percentage of total revenues,
were 6.7% in the first quarter of fiscal 1997 versus 4.8% in the
comparable period of fiscal 1996. The increase was primarily due to an
increase in corporate personnel to support the growth of the Company's
Bruegger's Bagel Bakery business.
Amortization of intangibles, as a percentage of total revenues,
increased to 1.7% for the first quarter of fiscal 1997 compared to 0.6%
for the same period in fiscal 1996. The increase for the quarter was
primarily due to the amortization of intangible assets relating to the
acquisitions of Bruegger's Corporation and Grady's American Grill.
During the first quarter of fiscal 1996, the Company recorded a special
pre-tax charge of $1.9 million for restructuring and integration costs
related to the acquisitions of Grady's American Grill restaurants and
Spageddies Italian Kitchen. No such charges were recorded in the first
quarter of fiscal 1997.
Total other expenses, as a percentage of total revenues, decreased to
2.5% for the first quarter of fiscal 1997 from 2.7% during the
comparable period in fiscal 1996. The decrease was primarily due to an
increase in other income.
The provision for income taxes includes federal and state income taxes
using the Company's estimated effective income tax rate for the
respective fiscal year. The Company's effective income tax rate was
47.5% for the sixteen weeks ended February 16, 1997 compared to 36.6%
for the sixteen weeks ended February 18, 1996. The increase in the
Company's fiscal 1997 effective income tax rate is primarily due to the
tax effect of the non-deductible amortization of goodwill associated
with the acquisition of Bruegger's Corporation.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
For the first quarter of fiscal 1997, the Company reported net income of
$1.6 million compared to net income of $0.7 million for the first
quarter of fiscal 1996. The increase in net income for the quarter ended
February 16, 1997 was primarily due to the increased number of
restaurants in operation compared to the first quarter of 1996 and the
special pre-tax charge of $1.9 million in the first quarter of 1996, as
discussed above, which reduced the fiscal 1996 first quarter earnings.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128") was issued by the Financial
Accounting Standards Board. The Company is required to initially adopt
this pronouncement during its fiscal 1998 first quarter ending February
15, 1998. SFAS No. 128 will require the Company to make a dual
presentation of basic and fully diluted earnings per share on the face
of its consolidated statements of income. The Company does not
presently anticipate that SFAS No. 128 will have a significant impact on
the Company's historically reported earnings per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $4.8 million at February
16, 1997, an increase of $4.3 million from the $0.5 million at October
27, 1996. Principal sources of funds consisted of: (i) those provided by
operations ($3.8 million) and (ii) net proceeds from the Company's
revolving credit facility ($40.0 million). The primary uses of funds
consisted of: (i) expenditures associated with new restaurant
development ($18.6 million), (ii) increase in notes receivable ($19.0
million) and (iii) franchise, liquor license and preopening costs ($1.8
million).
The Company's primary cash requirements for the remainder of fiscal 1997
will be to finance capital expenditures in connection with the opening
of new restaurants and improvements to the Company's management
information reporting systems and for general working capital purposes.
Capital expenditures for fiscal 1997 are projected to be approximately
$35 million to $60 million, of which $18.6 million has been expended
through the first quarter of fiscal 1997. The Company's growth plans
for all of fiscal 1997 include opening three to five Burger King
restaurants, three to five Chili's restaurants, one or two Grady's
American Grill restaurants and one or two Italian Dining restaurants.
If the Company's planned Franchise Operating Partner Program is
implemented, the Company would transfer all or most of its currently
owned Bruegger's bakeries to the operating partners and not build
additional Company-owned bakeries. The Company would, however, be
obligated to fund operating partners through loans. The actual amount of
the Company's cash requirements for capital expenditures or loans
depends in part on the number of new restaurants opened and the land
acquisition costs associated with such restaurants. During the first
sixteen weeks of fiscal 1997, the Company opened eight new Company-
owned Bruegger's Bagel Bakeries, two new Burger King restaurants, two
new Chili's Grill & Bar restaurants and one new Papa Vino's Italian
Kitchen restaurant.
The Company anticipates that its cash flow from operations, together
with amounts available under its revolving credit agreement, will be
sufficient to fund its planned internal expansion and other internal
operating cash requirements through at least fiscal year 1997. Depending
upon the size of the loans to be made under its planned operating
partner program, the Company may need to raise additional funds through
the issuance of debt or equity securities or the disposition of assets.
On January 22, 1997, the Company amended its existing revolving credit
facility with Texas Commerce Bank, as agent for a group of seven banks.
The facility, as amended, provides for borrowings up to a maximum of
$150 million, with interest payable at the adjusted LIBOR rate plus
1.5%. The loan agreement expires on April 26, 1999 and is unsecured.
As of February 16,
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
1997, there was $118.6 million outstanding under this revolving credit
facility. The loan agreement allows for further indebtedness of up to $5
million in addition to the $150 million currently available.
The Company has loaned approximately $34.0 million to Bagel Acquisition
Corporation, an affiliate of the Company, to facilitate the purchase of
over 70 franchised Bruegger's Bagel Bakeries in more than ten markets in
anticipation of these markets being re-franchised pursuant to the
Company's planned operating partner program. The Company is considering
various alternatives to provide necessary financing for the re-
franchising but there is no assurance that the Company will be able to
find financing on acceptable terms. If the Company is unsuccessful in
the re-franchising of these markets, it will have to consolidate these
Bruegger's Bagel Bakeries into its financial statements and recognize
any losses that may result. In the absence of an acceptable re-
franchising program, the continued development of new bakeries by the
Company and its franchisees would be adversely affected.
This report contains certain forward-looking statements, including
statements about the Company's development plans, that involve a number
of risks and uncertainties. Among the factors that could cause actual
results to differ materially are the following: the availability and
cost of suitable locations for new restaurants; the availability of
capital to the Company and its franchisees; the ability of the Company
and its franchisees to develop and operate their restaurants; the
hiring, training and retention of skilled management and other
restaurant personnel; the integration and assimilation of acquired
concepts; the ability to upgrade the Company's infrastructure to support
its operations and development plans; the overall success of the
Company's franchisors; the ability to obtain the necessary government
approvals and third-party consents; and changes in governmental
regulations, including increases in the minimum wage.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Note 6 to the unaudited consolidated financial statements of the Company
included in Part I of this report is incorporated herein by reference.
Item 2. Changes in Securities
On March 27, 1997, the Company adopted a Shareholder Rights Plan. The
Plan is designed to ensure that the Company's shareholders receive fair
treatment in the event of an unsolicited attempt to acquire control of
the Company and to provide the Board with the necessary flexibility and
time to respond to such an attempt.
Under the Shareholder Rights Plan, holders of the Company's common stock
outstanding on April 11, 1997 will receive one Right for each share they
hold. Initially, each Right will represent the right to purchase one one-
hundredth (1/100th) of a share of the Company's Series B Participating
Cumulative Preferred Stock ("Series B Preferred Stock") at an exercise
price of $75.00. The Rights will not be exercisable or separately
transferable (i) unless an acquirer becomes the beneficial owner of more
than 15% of the Company's outstanding common stock; or (ii) until after
such date, if any, as the Board of Directors designates after a person
commences or discloses an intent to commence an offer for more than 15%
or more, of such shares.
PART II - OTHER INFORMATION (continued)
Any person or group that currently beneficially owns 15% or more will
not be deemed an "acquirer" as to shares held as of the effective date
of the Plan; however, any additional acquisition of shares (other than
from the Company or by gift or operation of law) without the prior
approval of the Board will make the person or group an acquirer.
If an acquirer becomes the beneficial owner of 15% or more of the
Company's common stock, or a 15% beneficial owner acquires additional
shares without approval, each Right not owned by such person or related
parties will entitle its holder to purchase at the Right's then-current
exercise price, shares of the Series B Preferred Stock having a value of
twice the Right's exercise price. Similarly, if after the Rights become
exercisable and transferable, an acquirer consummates one of a variety
of business combinations with the Company, each Right will entitle its
holder to purchase, at the Right's then-current exercise price, shares
of the company surviving the business combination that have a book or
market value of twice the Right's exercise price.
The Company may redeem the Rights for $0.01 in cash or securities at any
time prior to the Rights becoming exercisable or the expiration of the
Rights on March 27, 2007.
The Series B Participating Cumulative Preferred Stock will be entitled
to all the rights and privileges set forth in the Articles of
Incorporation of the Company and, in addition, will have the following
features:
1. Dividends. The holders of Series B Preferred Stock will be
entitled to receive (a) quarterly cumulative dividends payable in cash
in an amount per share equal to $0.01 per share less the amount of cash
dividends received pursuant to the following clause (b) (but not less
than zero) and (b) cash and in-kind dividends on each payment date for
similar dividends on the common stock (the "Common Stock") of the
Company, in an amount per whole share of Series B Preferred Stock equal
to 100 (which number is subject to adjustment to reflect stock
dividends, subdivisions or combinations of the outstanding Common Stock)
times the per share amount of all cash dividends then to be paid on each
share of Common Stock.
2. Voting Rights. The holders of Series B Preferred Stock will
be entitled to vote on each matter on which holders of Common Stock are
entitled to vote and will have 100 votes (subject to adjustment as
described above) for each whole share of Series B Preferred Stock held.
Holders of any fraction of a share of Series B Preferred Stock that is
not smaller than 1/100th of a share will be entitled to vote such
fraction. Holders of Series B Preferred Stock have certain special
voting rights in the election of directors when the equivalent of six
quarterly dividends are in default.
3. Certain Restrictions. Whenever quarterly dividends or
distributions on the Series B Preferred Stock are in arrears, the
Company's right to declare or pay dividends or other distributions on,
redeem, or purchase, any shares of stock ranging junior to, or on parity
with, the Series B Preferred Stock will be subject to certain
restrictions.
4. Liquidation Rights. Upon any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the holders
of any shares of Series B Preferred Stock will be entitled to receive,
before any distribution is made to holders of shares of stock ranking
junior to the Series B Preferred Stock or any distribution (other than a
ratable distribution )is made to the holders of stock ranking on a
parity with the Series B Preferred Stock, an amount equal to the accrued
dividends thereon plus the greater of (a) $0.01 per share or (b) an
amount per share equal to 100 (subject to adjustment as described above)
times the amount per share to be distributed to holders of the Common
Stock; provided that in no event will the amount or amounts, if any,
exceed $100 per share plus accrued dividends in
PART II - OTHER INFORMATION (continued)
the case of involuntary liquidation, dissolution or winding up of the
Surviving Company.
5. Redemption. The shares of Series B Preferred Stock will not
be redeemable. The Company may, however, purchase shares of Series B
Preferred Stock in the open market or pursuant to an offer to a
particular holder or holders.
6. Consolidation, Merger and Other Transactions. In the event of
a consolidation, merger or other transaction in which the shares of
Common Stock are exchanged for, or converted into, other securities,
cash or any other property, the shares of Series B Preferred Stock will
be similarly exchanged or converted.
7. Fractional Shares. Shares of the Series B Preferred Stock
will be issuable in whole shares or in any fraction of a share that is
not smaller than 1/100th of a share or any integral multiple of such
fraction, subject to certain adjustments. In lieu of issuing fractional
shares, the Company may issue certificates or depository receipts
evidencing such authorized fraction of shares or, in the case of
fractions other than 1/100th and integral multiples thereof, pay
registered holders cash equal to the same fraction of the current market
value of a share of Series B Preferred Stock (if any are outstanding) or
the equivalent number of shares of Common Stock.
Item 5. Other Information
On March 27, 1997, the Company amended its By-Laws to increase the size
of the Board of Directors to 12 members from 11. The Company also
elected William Moreton to fill the vacancy created on the Board of
Directors effective upon his employment as Executive Vice President,
Treasurer and Chief Financial Officer of the Company which is expected
to be on or about April 14, 1997. Mr. Moreton's term will expire at the
2000 annual meeting of shareholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
A list of exhibits required to be filed as part of this report is
set forth in the Index to Exhibits, which immediately precedes such
exhibits, and is incorporated herein by reference.
(b) Reports on Form 8-K
None
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.
Quality Dining, Inc.
(Registrant)
Date: April 2, 1997 By: /s/Martin Miranda
Vice President & Controller
(Principal accounting officer)
INDEX TO EXHIBITS
Exhibit
No. Description
3-A (1)(i) RestatedArticles of Incorporation of Registrant
(ii) Amendment to Registrant's Restated Articles of
Incorporation establishing the Series A Convertible
Cumulative Preferred Stock of the Registrant
(iii) Amendment to Registrant's Restated Articles of
Incorporation establishing the Series B Participating
Cumulative Preferred Stock of the Registrant
3-B (1) By-Laws of Registrant, as amended to date.
4-B Second Amendment, dated as of January 22, 1997,
between the Registrant, GAGHC, Inc., and BF Holding, inc.,
as borrowers, and Texas Commerce Bank National Association,
as agent, NBD Bank, N.A., LaSalle National Bank, NationsBank,
N.A. (South),SunTrust Bank, Central Florida, N.A.,
The Northern Trust Company and Key Bank.
10-AO (1) Rights Agreement,dated as of March 27, 1997, between
Registrant and KeyCorp Shareholder Services, Inc.
27 Financial Data Schedule
(1) The copy of this exhibit filed as the same exhibit number to the
Registrant's Registration Statement on Form 8-A, dated April 1, 1997, is
incorporated herein by reference.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> OCT-26-1997
<PERIOD-END> FEB-16-1997
<CASH> 4,782
<SECURITIES> 0
<RECEIVABLES> 41,826
<ALLOWANCES> 0
<INVENTORY> 3,094
<CURRENT-ASSETS> 53,869
<PP&E> 225,130
<DEPRECIATION> 33,903
<TOTAL-ASSETS> 426,479
<CURRENT-LIABILITIES> 26,986
<BONDS> 124,995
0
0
<COMMON> 28
<OTHER-SE> 270,976
<TOTAL-LIABILITY-AND-EQUITY> 426,479
<SALES> 82,437
<TOTAL-REVENUES> 86,520
<CGS> 25,398
<TOTAL-COSTS> 81,237
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,371
<INCOME-PRETAX> 3,104
<INCOME-TAX> 1,474
<INCOME-CONTINUING> 1,630
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,630
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
2
FIRST AMENDMENT
TO AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
This First Amendment to Amended and Restated Revolving
Credit Agreement (this "Amendment") dated as of November 7, 1996
by and between Quality Dining, Inc., an Indiana corporation,
GAGHC, Inc., a Delaware corporation, and BF Holding, Inc., a
Delaware corporation, as Borrowers, the banks now or hereafter
parties to the hereinafter defined Agreement (the "Banks") and
Texas Commerce Bank National Association, in its capacity as
Agent for the Banks, amends and restates the Amended and Restated
Revolving Credit Agreement dated as of April 26, 1996 (said
Revolving Credit Agreement, as amended hereby and as it may from
time to time hereafter be amended, the "Agreement") by and
between Quality Dining, Inc., an Indiana corporation, and GAGHC,
Inc., a Delaware corporation, as Borrowers, the Banks and Texas
Commerce Bank National Association, in its capacity as Agent for
the Banks.
W I T N E S S E T H:
WHEREAS, , pursuant to the Agreement, the Banks have agreed
to make certain loans to the Borrowers, which loans are evidenced
by certain promissory notes dated April 26, 1996 in the aggregate
principal amount of $150,000,000 (the "Existing Notes");
WHEREAS, the Borrowers, the Banks and the Agent desire to
amend the Agreement in certain respects, including, among other
things, to add BF Holding, Inc., a Delaware corporation ("BFH")
as a Borrower under the Agreement; and
WHEREAS, in order to evidence the addition of BF Holding,
Inc. as a Borrower, the Borrowers, the Banks and the Agent will
enter into this Amendment and the Borrowers will deliver to each
of the Banks a First Amended and Restated Promissory Note dated
the date hereof in a principal amount equal to the amount of such
Bank's Commitment (individually, an "Amended Note" and
collectively, the "Amended Notes"), in replacement for the
Existing Notes.
NOW, THEREFORE, in consideration of the premises herein
contained, and for other good and valuable consideration the
receipt of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Defined Terms. Capitalized terms used herein and not
otherwise defined herein shall have the meanings attributed to
such terms in the Agreement.
2. Amendments to Article I of Agreement.
2.1. The definition of "Board of Directors" in Article I of
the Agreement is hereby amended in its entirety to read as
follows:
"Board of Directors" shall mean the Board of Directors
of QDI, GAGHC, BFH or any Subsidiary Guarantor, as
applicable.
2.2. The definition of "Borrower" in Article I of the
Agreement is hereby amended in its entirety to read as follows:
"Borrower" shall mean each of QDI, GAGHC and BFH; and
"Borrowers" shall mean QDI, GAGHC and BFH together.
2.3. Article I of the Agreement is hereby amended by
inserting immediately following the definition of "Base Rate
Loan" a new definition of "BFH" to read as follows:
"BFH" shall mean BF Holding, Inc., a Delaware
corporation, and its successors and assigns, and any
surviving, resulting or transferee corporation.
2.4. Article I of the Agreement is hereby amended by
inserting immediately following the definition of "Federal Funds
Rate" a new definition of "FFP Guaranty" to read as follows:
"FFP Guaranty" shall mean the guaranty by QDI of the
obligations of one or more franchisees of Bruegger's
Corporation for the development of Bruegger's Bagel Bakeries
and related commissaries in respect of loans to such
franchisees pursuant to the Franchise Finance Program of
QDI, provided that the aggregate principal amount of such
loans at any time guaranteed by QDI shall not exceed
$35,000,000.
2.5. Article I of the Agreement is hereby amended by
inserting immediately following the definition of "Fixed Charges"
a new definition of "FOPP Investments" to read as follows:
"FOPP Investments" shall mean Investments by BFH in the form
of (i) senior secured convertible loans (the "Convertible Loans")
to entities ("Operating Partners") that will acquire and develop
Bruegger's Bagel Bakeries under agreements with Bruegger's
Corporation or its affiliates, which in each case (A) is in a
principal amount not to exceed 400% of the cash equity investment
in such Operating Partner, (B) bears interest at a rate equal to
1% above the Base Rate, payable monthly, (C) is convertible into
equity interests in the Operating Partner at a conversion price
per unit up to 125% of the price per unit paid by Bakery Capital
Company, L.L.C. and management of the Operating Partner, and
(D) is secured by substantially all of the assets of the
Operating Partner and the equity interests in the Operating
Partner (other than those held by Bakery Capital Company,
L.L.C.), pursuant to and in accordance with the terms of the
Financed Operating Partner Program of Bruegger's Corporation,
(ii) equity interests in Operating Partners acquired by BFH
pursuant to the conversion of Convertible Loans and/or the
exercise of options issued in connection with the Convertible
Loans, in each case at purchase price per unit up to 125% of the
price per unit paid by Bakery Capital Company, L.L.C. and
management of the Operating Partner, (iii) the purchase by
Bruegger's Corporation or QDI of equity interests in an Operating
Partner from Bakery Capital Company, L.L.C., in the event of the
failure of such Operating Partner to redeem such equity interest
pursuant to the operating agreement of such Operating Partner ,
at a purchase price not to exceed seven and one-half times
operating store level cash flow of the Operating Partner, before
general and administrative expenses and certain other adjustments
as specified in such operating agreement and/or (iv) loans to or
equity investments in one or more Operating Partners, other than
any such Investment described in clauses (i) through (iii) above,
provided that the aggregate amount (in the form of cash and other
consideration) paid by BFH in respect of Investments pursuant to
this clause (iv) shall not exceed $50,000,000.
2.6. Article I of the Agreement is hereby amended by
amending the definition of "Permitted Investments" by renumbering
clause (viii) as clause (x) and by inserting after clause (vii) a
new clause (viii) and a new clause (ix) to read as follows:
(viii) loans to Bagel Acquisition Corp. in an aggregate
principal amount outstanding at any time not to exceed
$15,000,000, provided that for a period of not exceeding 180
consecutive calendar days the aggregate principal amount
outstanding of such loans to Bagel Acquisition Corp. may
exceed $15,000,000 so long as the aggregate principal amount
outstanding of such loans does not at any time exceed
$50,000,000; (ix) a loan to Mohold Inc. in the principal
amount of $4,500,000
3. Amendments to Article V of Agreement.
3.1. Section 5.12 is hereby amended by renumbering clause
(ii) as clause (iii) and inserting after "GAGHC" in the second
line thereof a new subsection (ii) to read as follows: ", (ii)
BFH".
4. Amendments to Article VI of Agreement.
4.1. Section 6.1 of the Agreement is hereby amended in its
entirety and replaced with the following language:
6.1. Consolidated Tangible Net Worth. QDI shall
maintain as of the last day of each fiscal quarter a
Consolidated Tangible Net Worth in an amount not less than
$70,000,000, plus (i) for each of the fiscal quarters of QDI
, commencing with the fiscal quarter ended October 27, 1996,
(x) 50% of Consolidated Net Income of QDI for each fiscal
quarter in which Consolidated Net Income is positive, and
(y) zero, for each fiscal quarter in which Consolidated Net
Income of QDI is zero or negative, plus (ii) the proceeds
(net of all reasonable and appropriate commissions, fees and
expenses) paid to or received by QDI in connection with the
sale or other disposition of any shares of the stock of or
other equity interests in QDI.
4.2. Section 6.5 of the Agreement is hereby amended by
deleting "and" at the end of clause (f), by renumbering clause
(g) as clause (h), by replacing the reference to "clauses (a)-
(f)" in the new clause (h) with a reference to "clauses (a)-(g)",
and by inserting a new clause (g) to read as follows:
(g) FFP Guaranties in an aggregate principal amount at
any time outstanding not to exceed $35,000,000; and
4.3. Section 6.7 of the Agreement is hereby amended by
inserting at the end of clause (b) after "or other equity
interests therein", the following words: "(except for any such
purchases, redemptions, retirements or other acquisitions payable
solely in shares of common stock of QDI)".
4.4. Section 6.11 of the Agreement is hereby amended (i) by
inserting in the parenthetical appearing in the third and fourth
lines of subsection (b) of said section after the word "GAGHC"
the following words: "or BFH" and (ii) by replacing in the last
sentence of said section the word "GAGHC" with the following
words: "each of GAGHC and BFH".
4.5. Section 6.12 of the Agreement is hereby amended by
inserting "(i)" before "Permitted Investments" in said section
and by inserting after "Permitted Investments" the following
words: "and (ii) any FOPP Investment, provided that immediately
after the consummation of the FOPP Investment and after giving
effect thereto, no condition or event shall exist which
constitutes a Default or an Event of Default.
5. Amendment to Annex I and Annex II to Agreement.
5.1. Annex I and Annex II to the Agreement are each hereby
deleted in their entirety and replaced with Annex I and Annex II,
respectively, to this Amendment.
6. Amendment to Exhibit A to Agreement.
6.1. Exhibit A to the Agreement is hereby deleted in its
entirety and replaced with Exhibit A to this Amendment.
7. Amendment to Exhibit B to Agreement.
7.1. Exhibit B to the Agreement is hereby deleted in its
entirety and replaced with Exhibit B to this Amendment.
8. Amendment to Exhibit E to Agreement.
8.1. The form of Assignment Agreement attached as Exhibit E
to the Agreement is hereby amended by inserting after "GAGHC,
Inc., a Delaware corporation" in the first paragraph thereof, the
following words: "and BF Holding, Inc., a Delaware corporation".
9. Representations and Warranties of the Company. In order to
induce the Banks and the Agent to enter into this Amendment, each
of the Borrowers represents and warrants that:
9.1. The execution and delivery by such Borrower of this
Amendment and the Amended Notes have been duly authorized by
proper corporate proceedings and this Amendment, the Amended
Notes and the Agreement, as previously amended and as amended
hereby, constitute the legal, valid and binding obligations of
such Borrower, enforceable against such Borrower in accordance
with their respective terms.
9.2. Neither the execution and delivery by such Borrower of
this Amendment or the Amended Notes nor compliance with the
provisions hereof or thereof will violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award
binding on such Borrower or the articles of incorporation or by-
laws of such Borrower or the provisions of any indenture,
instrument or agreement to which such Borrower is a party or is
subject, or by which it or its property is bound, or conflict
with or constitute a default thereunder.
9.3. Such Borrower has not received any notice to the effect
that its operations are not in material compliance with any of
the requirements of applicable federal, state and local
environmental, health and safety statutes and regulations or the
subject of any federal or state investigation evaluating whether
any remedial action is needed to respond to a release of any
toxic or hazardous waste or substance into the environment, which
non-compliance or remedial action might have a material adverse
effect on the business, properties, condition (financial or
otherwise) or results of operations of such Borrower.
9.4. The representations and warranties set forth in Article
IV of the Agreement, as amended hereby, are true and correct on
the date hereof and after giving effect hereto, except that the
representations and warranties set forth in Section 4.5 as to
financial statements of QDI shall be deemed a reference to the
audited and unaudited financial statements of QDI, as the case
may be, most recently delivered to the Banks pursuant to Section
5.1.
9.5. No Default or Event of Default and no Material Adverse
Occurrence has occurred and is continuing.
10. Effective Date. This Amendment shall become effective as of
the date first above written upon receipt by the Agent of each of
the following items:
(a) Counterparts of this Amendment duly executed by each of
the Borrowers and each of the Banks;
(b) Duly executed Amended Notes, payable to the order of
each of the Banks, substantially in the form of Exhibit
A hereto, appropriately completed;
(c) Reaffirmation of Subsidiary Guaranty, duly executed and
delivered by each of the Wholly-Owned Subsidiaries of
the Borrower (other than GAGHC and BFH);
(d) Certificate of the Secretary or an Assistant Secretary
of each of QDI and GAGHC, certifying that (i) there has
been no amendment to the articles of incorporation or
by-laws of such Borrower since April 26, 1996 and (ii)
attached is a true and correct copy of the resolutions
of such Borrower's Board of Directors authorizing the
execution and delivery of this Amendment and the
Amended Notes and any other documents or instruments
executed and delivered in connection herewith and the
performance of all the terms and provisions hereof;
(e) Articles of Incorporation and all amendments thereto of
BFH, certified as of a recent date by the Secretary of
State of the state of its incorporation;
(f) Good standing certificates of BFH, certified as of a
recent date by the Secretary of State of the state of
its incorporation and the Secretaries of the State of
each other state in which BFH is qualified to do
business;
(g) Certificate of the Secretary of BFH, certifying that
(i) there have been no changes to its Articles of
Incorporation since the date of the certification by
the Secretary of State, (ii) a correct and complete
copy of its Bylaws, with all amendments thereto, is
attached to the certificate and (iii) a correct and
complete copy of the resolutions of its Board of
Directors authorizing BFH to become a Borrower under
the Agreement and the execution, delivery and
performance of this Amendment and the Amended Notes and
any other documents or instruments executed and
delivered in connection herewith and the performance of
all terms and provisions herewith and therewith are
attached to the certificate, and such resolutions have
not been subsequently modified or repealed, and
(iv) there are no proceedings pending or contemplated
as to the merger, consolidation, liquidation or
dissolution of such entity.
(h) Incumbency Certificate, certified by the Secretary of
each of the Borrowers;
(i) Certificates of the Secretary or an Assistant Secretary
of each Guarantor certifying that (i) there has been no
amendment to the articles of incorporation or by-laws
of such Guarantor since April 26, 1996 and (ii)
attached is a true and correct copy of resolutions of
such Guarantor's Board of Directors authorizing the
execution and delivery of the Reaffirmation of
Subsidiary Guaranty;
(j) Incumbency Certificate of each Guarantor certified by
the Secretary of such Guarantor;
(k) Closing certificate executed by the president, senior
vice president, chief financial officer or treasurer of
QDI, certifying that the representations and warranties
contained in the Agreement and each other Loan Document
are true and accurate in all material respects and that
no Default or Event of Default has occurred and is
continuing;
(l) Written opinion of counsel to each of the Borrowers and
the Guarantors, in form and substance satisfactory to
the Agent;
(m) Payment by the Borrowers of all costs and expenses of
the Agent's special counsel (including without
limitation legal fees and expenses) incurred in
connection with preparation and execution of this
Amendment and incident to all proceedings in connection
with transactions contemplated hereby and documents
relating to this Amendment, the Amended Notes and the
Agreement; and
(n) Such other documents and instruments as the Agent shall
reasonably request.
11. Assumption by BFH. By executing this Amendment, BFH agrees
to be bound by all of the terms of and to undertake all of the
obligations of a "Borrower" under the Agreement and the Amended
Notes and agrees and confirms that it shall hereafter be a party
to the Agreement and obligor on the Amended Notes and all
references to a "Borrower" or the "Borrowers" in the Agreement
and the Amended Notes shall include BFH. BFH hereby ratifies and
confirms all previous action taken by or directions given by QDI
and/or GAGHC under the Agreement.
12. Ratification. The Agreement, as amended hereby, shall
remain in full force and effect and is hereby ratified, approved
and confirmed in all respects.
13. References to Borrowers. From and after the effective date,
all references to "a Borrower", "each Borrower", "either
Borrower", "each of the Borrowers" or "the Borrowers, or either
of them" or words of like import shall be deemed to be a
reference to each of QDI, GAGHC and BFH or any of them, as the
context requires.
14. References to Agreement. From and after the effective date
hereof, (i) each reference in the Agreement to "this Agreement,"
"hereof," or "hereunder" or words of like import, and all
references to the Agreement in any and all agreements,
instruments, documents, notes, certificates and other writings of
every kind and nature shall be deemed to mean the Agreement, as
modified and amended by this Amendment, and (ii) each reference
in the Agreement to "a Note" or "the Notes" and all references to
the Notes in any and all agreements, instruments, documents,
notes, certificates and other writings of every kind and nature
shall be deemed to be a reference to an Amended Note or the
Amended Notes, as the context requires.
15. CHOICE OF LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.
16. Execution in Counterparts. This Amendment may be executed
in one or more counterparts, each of which when so executed shall
be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
[The rest of this page is intentionally left blank.]
IN WITNESS WHEREOF, the Borrowers, the Banks and the Agent
have executed this Amendment as of the date first above written.
QUALITY DINING, INC.
By:
John C. Firth
Senior Vice President
GAGHC, INC.
By:
David M. Findlay
Vice President
BF HOLDING, INC.
By:
Patrick J. Barry
President
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, in its individual
capacity and
as Agent for the Banks
By:
Name:
Title:
NBD BANK, N.A.
By:
Name:
Title:
THE NORTHERN TRUST COMPANY
By:
Name:
Title:
KEY BANK NATIONAL ASSOCIATION
(Formerly, Society National Bank)
By:
Name:
Title:
LASALLE NATIONAL BANK
By:
Name:
Title:
NATIONSBANK, N.A. (SOUTH)
By:
Name:
Title:
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By:
Name:
Title:
ANNEX I
ANNEX II
EXHIBIT A
[Form of Note]
AMENDED AND RESTATED PROMISSORY NOTE
$__________ __________, 199_
Chicago, Illinois
FOR VALUE RECEIVED, QUALITY DINING, INC., an Indiana
corporation ("QDI") GAGHC, INC., a Delaware corporation
("GAGHC"), and BF HOLDING, INC., a Delaware corporation
(collectively together with their successors and assigns, the
"Borrowers"), hereby promise, jointly and severally, to pay to
____________________ (the "Holder"), the principal sum of
__________ DOLLARS ($__________) or such lesser amount as shall
equal the aggregate unpaid principal amount of the Advances (as
defined in the hereinafter defined Credit Agreement) made by the
Holder to the Borrowers, or any of them, under the Credit
Agreement on the Termination Date (as defined in the Credit
Agreement) and to pay interest on the unpaid principal amount of
each Advance, for the period commencing on the date of such
Advance until such Advance shall be paid in full, at the rates
per annum and on the dates provided in the Credit Agreement.
Both principal and interest are payable in lawful money of
the United States of America and in immediately available funds
to the Agent (as defined in the Credit Agreement) to such
domestic account as the Agent may designate. The date, amount
and type of each Advance made by the Holder to the Borrowers, or
any of them, and each payment made on account of the principal
thereof, shall be recorded by the Holder on its books and, prior
to any transfer of this Note, endorsed by the Holder on the
schedule attached hereto or any continuation thereof; provided
that the Holder's failure to make any such recordation or
notation shall not affect the Obligations of the Borrowers
hereunder or under the Credit Agreement.
This Note is one of the Notes referred to in the Amended and
Restated Revolving Credit Agreement (as amended by the First
Amendment to Amended and Restated Revolving Credit Agreement
dated as of ____________, 1996 and as it may hereafter be amended
from time to time, the "Credit Agreement") dated as of April 26,
1996 by and between the Borrowers, the banks party thereto (the
"Banks") and Texas Commerce Bank National Association, as agent
(the "Agent"), which amends and restates the Revolving Credit
Agreement dated as of April 26, 1996 by and between the
Borrowers, the banks party thereto and Texas Commerce Bank
National Association, as agent (the "Original Credit Agreement").
This Note amends and restates and is issued in substitution for a
Promissory Note dated April 26, 1996 (the "Original Note") issued
by QDI and GAGHC pursuant to the Credit Agreement and evidences
Advances made thereunder. This Note does not constitute a
novation of the obligations under the Original Note. Capitalized
terms used in this Note have the respective meanings assigned to
them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the
maturity of the Advances evidenced by this Note upon the
occurrence of certain events and for prepayments of Advances upon
the terms and conditions specified therein.
This Note is secured by a Subsidiary Guaranty issued by
certain Wholly-Owned Subsidiaries of Quality Dining, Inc. in
favor of the Agent for the benefit of the Banks and may now or
hereafter be secured by one or more other guaranties, instruments
or agreements of the Borrower or any other Person.
The Borrowers hereby waive demand, presentment, protest and
notice of nonpayment and protest.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
QUALITY DINING, INC.
By:
_______________________________________
[Name]
[Title]
GAGHC, INC.,
By:
[Name]
[Title]
BF HOLDING, INC.
By:
[Name]
[Title]
Schedule to Promissory Note
Date
Date of Amount Type Principal of
Advance of Advance of Advance Advance Repaid
EXHIBIT B
NOTICE OF BORROWING
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent
712 Main Street
Houston, Texas 77002-8059
Attention: ____________________
, 19__
(Date of Notice)
Ladies and Gentlemen:
The undersigned, [Quality Dining, Inc., an Indiana
corporation] [GAGHC, Inc., a Delaware corporation][BF Holding,
Inc., a Delaware corporation], refers to the Amended and Restated
Revolving Credit Agreement, dated as of April 26, 1996, (said
Amended and Restated Revolving Credit Agreement, as amended,
modified or supplemented from time to time being the "Agreement")
by and between Quality Dining, Inc., GAGHC, Inc. and BF Holding,
Inc., as borrowers, the banks party thereto and Texas Commerce
Bank National Association, as agent. The terms used herein shall
have the meanings ascribed thereto in the Agreement. Pursuant to
the terms of the Agreement the undersigned hereby requests an
Advance under the Agreement, and in that connection sets forth
below the information relating to such Advance (the "Proposed
Advance"):
(i) The borrowing date (which shall be a Business Day) of
the Proposed Advance is __________, 19__.
(ii) The aggregate amount of the Proposed Advance is
$ .
(iii) The Proposed Advance is to be made as the following
type(s) of Loan:
(A) $ Base Rate Loan; or
(B) $ LIBOR Base Loan.
(iv) If the Proposed Advance is to be made as a LIBOR Base
Loan, the Interest Period applicable thereto is months.
The undersigned confirms that the conditions precedent set
forth in Article III of the Agreement are satisfied as of the
date hereof.
[QUALITY DINING, INC.]
[GAGHC, INC.]
[BF HOLDING, INC.]
By:
______________________________________
Its:
________________________________
