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 May 14, 2000
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. Employer Identification No.)
incorporation or organization)
4220 Edison Lakes Parkway, Mishawaka, Indiana 46545
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(Address of principal executive offices and zip code)
(219) 271-4600
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(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
June 20, 2000 was 12,287,103.
QUALITY DINING, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MAY 14, 2000
INDEX
Page
PART I. - Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Statements of Operations....................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...........17
Part II - Other Information
Item 1. Legal Proceedings.......................................23
Item 2. Changes in Securities.................................. 23
Item 3. Defaults upon Senior Securities.........................23
Item 4. Submission of Matters to a Vote of Security Holders.....23
Item 5. Other Information.......................................23
Item 6. Exhibits and Reports on Form 8-K........................23
Signatures........................................................23
Part I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Twelve Weeks Ended Twenty-Eight Weeks Ended
May 14, May 9, May 14, May 9,
2000 1999 2000 1999
------- ------- ------- -------
Revenues:
Burger King $ 18,536 $ 18,040 $ 43,048 $ 41,394
Grady's American Grill 16,857 18,803 38,614 42,478
Chili's Grill & Bar 14,259 13,185 31,772 29,567
Italian Dining Division 3,937 3,681 8,923 8,328
------- ------- ------- -------
Total revenues 53,589 53,709 122,357 121,767
------- ------- ------- -------
Operating expenses:
Restaurant operating expenses:
Food and beverage 15,260 15,669 34,752 35,950
Payroll and benefits 15,500 15,516 35,792 35,212
Depreciation and
amortization 2,604 2,554 6,012 5,932
Other operating expenses 12,610 13,145 28,921 29,346
Total restaurant operating ------- ------- ------- -------
expenses 45,974 46,884 105,477 106,440
------- ------- ------- -------
Income from restaurant
operations 7,615 6,825 16,880 15,327
General and administrative 4,016 3,625 9,193 8,388
Amortization of intangibles 211 246 487 573
------- ------- ------- -------
Operating income 3,388 2,954 7,200 6,366
------- ------- ------- -------
Other income (expense):
Interest expense (2,618) (2,397) (6,044) (5,704)
Loss on sale of property
and equipment (163) (99) (151) (164)
Interest income 6 32 23 74
Other income (expense), net 322 (124) 440 12
------- ------- ------- -------
Total other expense, net (2,453) (2,588) (5,732) (5,782)
------- ------- ------- -------
Income before income taxes 935 366 1,468 584
Income tax provision 468 220 776 350
------- ------- ------- -------
Net income $ 467 $ 146 $ 692 $ 234
======= ======= ======= =======
Basic net income
per share $ 0.04 $ 0.01 $ 0.06 $ 0.02
======= ======= ======= =======
Diluted net income
per share $ 0.04 $ 0.01 $ 0.06 $ 0.02
======= ======= ======= =======
Weighted average shares
outstanding:
Basic 12,287 12,599 12,409 12,599
======= ======= ======= =======
Diluted 12,305 12,603 12,421 12,616
======= ======= ======= =======
See Accompanying Notes to Consolidated Financial Statements.
QUALITY DINING, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
May 14, October 31,
2000 1999
ASSETS -------- ---------
Current assets:
Cash and cash equivalents $ 1,254 $ 1,019
Accounts receivable 2,499 1,946
Inventories 1,824 1,876
Deferred income taxes 2,397 2,630
Other current assets 2,297 1,787
------- -------
Total current assets 10,271 9,258
------- -------
Property and equipment, net 127,454 128,349
------- -------
Other assets:
Deferred income taxes 7,603 7,370
Trademarks, net 11,810 11,988
Franchise fees and development costs, net 8,541 8,748
Goodwill, net 7,762 8,053
Notes receivable, less allowance 10,294 10,294
Liquor licenses, net 2,645 2,686
Other 2,359 2,291
------- -------
Total other assets 51,014 51,430
------- -------
Total assets $ 188,739 $ 189,037
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capitalized leases
and long-term debt $ 1,562 $ 1,471
Accounts payable 9,687 8,673
Accrued liabilities 18,454 17,076
------- -------
Total current liabilities 29,703 27,220
Long-term debt 105,364 107,384
Capitalized leases principally to related
parties, less current portion 5,176 5,431
------- -------
Total liabilities 140,243 140,035
------- -------
Stockholders' equity:
Preferred stock, without par value:
5,000,000 shares authorized; none issued
Common stock, without par value: 50,000,000
shares authorized; 12,869,603 and 12,773,849
shares issued, respectively 28 28
Additional paid-in capital 237,069 236,881
Accumulated deficit (186,537) (187,229)
Unearned compensation (507) (428)
------- -------
50,053 49,252
Less treasury stock, at cost, 582,500
and 20,000 shares, respectively 1,557 250
------- -------
Total stockholders' equity 48,496 49,002
------- -------
Total liabilities and stockholders' equity $ 188,739 $ 189,037
======= =======
See Accompanying Notes to Consolidated Financial Statement
QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Twenty-Eight Weeks Ended
May 14, May 9,
2000 1999
------- -------
Cash flows from operating activities:
Net income $ 692 $ 234
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of
property and equipment 6,162 6,109
Amortization of other assets 998 1,305
Loss on sale of property and equipment 151 164
Amortization of unearned compensation 109 -
Changes in current assets and current liabilities:
Net increase in current assets (1,011) (1,293)
Net increase (decrease) current liabilities 2,392 (1,962)
------- -------
Net cash provided by operating activities 9,493 4,557
------- -------
Cash flows from investing activities:
Purchase of note receivable - (4,294)
Proceeds from sales of property and equipment 28 1,449
Purchase of property and equipment (5,446) (2,195)
Purchase of other assets (349) (319)
------- -------
Net cash used in investing activities (5,767) (5,359)
------- -------
Cash flows from financing activities:
Borrowings of long-term debt 22,150 4,300
Repayment of long-term debt (24,079) (6,300)
Purchase of treasury stock (1,307) -
Repayment of capitalized lease obligations (255) (197)
------- -------
Net cash used by financing activities (3,491) (2,197)
------- -------
Net increase (decrease) in cash and cash equivalents 235 (2,999)
Cash and cash equivalents, beginning of period 1,019 3,351
------- -------
Cash and cash equivalents, end of period $ 1,254 $ 352
======= =======
See Accompanying Notes to Consolidated Financial Statements.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 14, 2000
(Unaudited)
Note 1: Description of Business.
Nature of Business Quality Dining, Inc. (the "Company") operates four distinct
restaurant concepts. It owns the Grady's American Grill(r) and two Italian
Dining concepts and operates Burger King(r) restaurants and Chili's Grill & Bar
(tm) ("Chili's"(r)) as a franchisee of Burger King Corporation and Brinker
International, Inc. ("Brinker"), respectively. The Company operates its
Italian Dining restaurants under the tradenames of Papa Vino's(r) Italian
Kitchen ("Papa Vino's"(r)) and Spageddies Italian Kitchen(r) ("Spageddies"(r)).
As of May 14, 2000, the Company operated 144 restaurants, including 71 Burger
King restaurants, 29 Chili's, 36 Grady's, three Spageddies and five Papa Vino's.
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 twenty-
eight week period ended May 14, 2000 are not necessarily indicative of the
results that may be expected for the 52-week year ending October 29, 2000.
These financial statements should be read in conjunction with the Company's
audited financial statements for the fiscal year ended October 31, 1999
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
Note 3: Disposition of Bagel-Related Businesses
On October 20, 1997, the Company sold its bagel-related businesses to Mr.
Nordahl L. Brue, Mr. Michael J. Dressell and an entity controlled by them and
their affiliates. The Company's board of directors determined to sell the
bagel-related businesses after a careful evaluation of the future prospects for
the bagel business, the competitive environment that then existed in the bagel
segment, and the historical performance of the Company's bagel-related
businesses. The sale included the stock of Bruegger's Corporation and the
stock of all of the other bagel-related businesses. The total proceeds from
the sale were $45,164,000. The consideration included the issuance by
Bruegger's Corporation of a junior subordinated note in the amount of
$10,000,000 (the "Subordinated Note"), which was recorded as $6,000,000 due to
a $4,000,000 reserve for legal indemnification, the transfer of 4,310,740
shares of the Company's common stock valued at $21,823,000, owned by Messrs.
Brue and Dressell, which were retired, a receivable for purchase price
adjustment of $500,000, and $16,841,000 in cash. The Subordinated Note has an
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 14, 2000
(Unaudited)
annual interest rate of 12% and matures in October 2004. Interest will be
accrued and added to the principal amount of the Subordinated Note through
October 2000 and will be paid in cash for the remaining life of the
Subordinated Note. The Subordinated Note is guaranteed by certain affiliates of
Bruegger's Corporation (the "Affiliate Guarantors"). The Company has not
recognized any interest income from this note. The cash component of the
proceeds included an adjustment for the calculation of the net working capital
deficit. The calculation used was subject to final adjustment and is being
disputed by Messrs. Brue and Dressell. See Note 8 - Contingencies. Bruegger's
Corporation has advised the Company that the Affiliate Guarantors are in
default of their senior secured loan and the Affiliate Guarantors are in
discussions with their senior secured lender to restructure their senior
secured loan. The Company is in discussions with Bruegger's Corporation and
the Affiliate Guarantors to restructure the Subordinated Note and, in
connection therewith, to settle the Company's existing disputes with Bruegger's
Corporation. The Affiliate Guarantors own and operate Bruegger's Bagel Bakeries
as franchisees of Bruegger's Franchise Corporation, a subsidiary of Bruegger's
Corporation. The Company believes that the Bruegger's Bagel Bakeries operated
by the Affiliate Guarantors constitute a majority of the Bruegger's Bagel
Bakery System and therefore account for a majority of Bruegger's Franchise
Corporation revenues. The Company has been advised that Bruegger's Franchise
Corporation has subordinated its right to receive royalty payments from the
Affiliate Guarantors to the Affiliate Guarantors' senior secured
lender. Consequently, there can be no assurance when, if ever, the Company might
receive any principal or interest payments in respect of the Subordinated Note.
The Company will continue to review the financial condition of the Affiliate
Guarantors and Bruegger's Corporation based upon available information to
assess the collectability of the Subordinated Note. The Company anticipates
that it should be better able to assess the collectability of the Subordinated
Note by the end of the third quarter of fiscal 2000.
Note 4: Commitments.
As of May 14, 2000, the Company had commitments aggregating approximately
$882,000 for restaurant construction and the purchase of new equipment.
Note 5: Long-Term Debt.
On August 3, 1999 the Company completed the refinancing of its existing debt
with a financing package totaling $125,066,000, consisting of a $76,000,000
revolving credit agreement and a $49,066,000 mortgage facility, as described
below. The revolving credit agreement was executed with Chase Bank of Texas,
as agent for a group of six banks, providing for borrowings of up to
$76,000,000 with interest payable at the adjusted LIBOR rate plus a
contractual spread. The Company had $16,932,000 available under its revolving
credit agreement as of May 14, 2000. The revolving credit agreement is
collateralized by the stock of certain subsidiaries of the Company, the junior
subordinated note issued by Bruegger's Corporation, certain interests in the
Company's franchise agreements with Brinker and Burger King Corporation and
substantially all of the Company's personal property not pledged in the
mortgage financing. The revolving credit agreement will mature on October 31,
2002, at which time all amounts outstanding thereunder are due.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 14, 2000
(Unaudited)
The revolving credit agreement contains, among other provisions, certain
restrictive covenants including maintenance of certain prescribed debt and
fixed charge coverage ratios, limitations on the incurrence of additional
indebtedness, limitations on consolidated capital expenditures, restrictions
on the payment of dividends (other than stock dividends) and limitations on
the purchase or redemption of shares of the Company's capital stock.
The $49,066,000 mortgage facility has 34 separate mortgage notes and the term
of each mortgage note is either 15 or 20 years. The notes have fixed rates of
interest of either 9.79% or 9.94%. The notes require equal monthly interest
and principal payments. The Company used the proceeds of the mortgage facility
to repay indebtedness under its existing revolving credit agreement. The
mortgage notes are collateralized by a first mortgage/deed of trust and
security agreement on the real estate, improvements and equipment on 19 of the
Company's Chili's restaurants and 15 of the Company's Burger King restaurants.
The mortgage notes contain, among other provisions, certain restrictive
covenants including maintenance of a consolidated fixed charge coverage ratio
for the financed properties.
Note 6: Earnings Per Share
During the first twenty-eight weeks of fiscal 2000 the Company acquired 562,500
shares of common stock for $1,307,488. During the first twenty eight weeks of
fiscal 2000 the Company issued 104,360 shares of restricted stock and
accelerated the vesting of 32,769 shares due to the price of the Company's
stock achieving certain price targets. The Company has recorded $61,217 of
expense relating to the accelerated vesting of the restricted stock during
fiscal 2000.
The Company had outstanding at May 14, 2000 common shares totaling 12,287,103.
The Company has also granted options to purchase common shares to its employees
and outside directors. These options have a dilutive effect on the calculation
of earnings per share. The following is a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computation as
required by SFAS 128.
Twelve weeks ended Twenty-eight weeks ended
May 14, May 9, May 14, May 9,
2000 1999 2000 1999
------- ------- ------- --------
(In thousands, except per share amounts)
Basic net income per share:
Net income available to
common shareholders (numerator) $ 467 $ 146 $ 692 $ 234
====== ====== ====== ======
Weighted average common shares
outstanding (denominator) 12,287 12,599 12,409 12,599
====== ====== ====== ======
Basic net income per share $ 0.04 $ 0.01 $ 0.06 $ 0.02
====== ====== ====== ======
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 14, 2000
(Unaudited)
Twelve weeks ended Twenty-eight weeks ended
May 14, May 9, May 14, May 9,
2000 1999 2000 1999
------- ------- -------- -------
(In thousands, except per share amounts)
Diluted net income per share:
Net income available to
common shareholders (numerator) $ 467 $ 146 $ 692 $ 234
====== ====== ====== ======
Weighted average common shares
outstanding 12,287 12,599 12,409 12,599
Effect of dilutive securities:
Options on common stock 18 4 12 17
Total common shares and dilutive ------ ------ ------ ------
securities(denominator) 12,305 12,603 12,421 12,616
====== ====== ====== ======
Diluted net income per share $ 0.04 $ 0.01 $ 0.06 $ 0.02
====== ====== ====== ======
Note 7 Segment Reporting:
The Company operates four distinct restaurant concepts in the food-service
industry. It owns the Grady's American Grill and two Italian Dining concepts
and operates Burger King restaurants and Chili's Grill & Bar restaurants as a
franchisee of Burger King Corporation and Brinker International, Inc.,
respectively. The Company has identified each restaurant concept as an
operating segment based on management structure and internal reporting. For
purposes of applying SFAS 131, the Company considers the Grady's American
Grill, the two Italian concepts and Chili's Grill & Bar to be similar and have
aggregated them into a single reportable operating segment (Full Service). The
Company considers the Burger King restaurants as a separate reportable segment
(Quick Service). Summarized financial information concerning the Company's
reportable segments is shown in the following table. The "other" column
includes corporate related items and income and expense not allocated to
reportable segments.
Full Quick
(Dollars in thousands) Service Service Other Total
------- ------- ------- --------
Second quarter fiscal 2000
--------------------------
Revenues $ 35,053 $ 18,536 $ - $ 53,589
Income from restaurant
Operations 4,363 3,222 30 7,615
Operating income 2,422 1,379 (413) $ 3,388
Interest expense (2,618)
Other income 165
Income before income ------
Taxes $ 935
======
Depreciation and
amortization 2,031 711 363 3,105
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 14, 2000
(Unaudited)
Full Quick
(Dollars in thousands) Service Service Other Total
------- ------- ------- --------
Second quarter fiscal 1999
--------------------------
Revenues $ 35,669 $ 18,040 $ - $ 53,709
Income from restaurant
Operations 3,904 2,891 30 6,825
Operating income 2,086 1,337 (469) $ 2,954
Interest expense (2,397)
Other income (191)
Income before income -------
Taxes $ 366
=======
Depreciation and
amortization 1,962 647 588 3,197
First twenty-eight weeks of fiscal 2000
---------------------------------------
Revenues $ 79,309 $ 43,048 $ - $ 122,357
Income from restaurant
Operations 9,370 7,440 70 16,880
Operating income 4,910 3,253 (963) $ 7,200
Interest expense (6,044)
Other income 312
-------
Income before income
Taxes $ 1,468
=======
Depreciation and
amortization 4,698 1,631 831 7,160
First twenty-eight weeks of fiscal 1999
---------------------------------------
Revenues $ 80,372 $ 41,395 $ - $ 121,767
Income from restaurant
Operations 8,503 6,754 70 15,327
Operating income 4,304 3,189 (1,127) $ 6,366
Interest expense (5,704)
Other income (78)
Income before income -------
Taxes $ 584
=======
Depreciation and
amortization 4,600 1,634 1,180 7,414
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 14, 2000
(Unaudited)
Note 8: Contingencies.
The Company and certain of its officers and directors are parties to various
legal proceedings relating to the Company's purchase, operation and financing
of the Company's bagel-related businesses.
Quality Baking, LLC, a franchisee of Bruegger's Franchise Corporation, and Mark
Ratterman, Chris Galloway and Peter Shipman, principals of Quality Baking, LLC,
commenced an action on July 9, 1997 filed in the United States District Court,
for the Eastern District of Missouri, Eastern Division, against the Company,
Bruegger's Corporation, Bruegger's Franchise Corporation, Nordahl L. Brue,
Michael J. Dressell, Daniel B. Fitzpatrick and John C. Firth.
On April 22, 1998, the Court granted the defendants' Motion to Transfer this
matter to the United States District Court for the Northern District of
Indiana. The complaint alleged that the plaintiffs purchased their franchises
based upon financial representations that did not materialize, that they
purchased preferred stock in Bruegger's Corporation based upon false
representations, that the defendants falsely represented their intentions with
respect to repurchasing bakeries from the plaintiffs, and that the defendants
violated implied covenants of good faith and fair dealing. On July 28, 1999,
the court dismissed all counts against all of the individual defendants,
dismissed the count alleging violations of implied covenants of good faith and
fair dealing and dismissed all fraud claims against the Company. On February
22, 2000, the Court granted the defendants' motions for summary judgment on all
remaining counts of the plaintiffs' complaint.
D & K Foods, Inc., Pacific Capital Ventures, Inc., and PLB Enterprises, Inc.,
franchisees of Bruegger's Franchise Corporation, and Ken Wagnon, Dan Carney,
Jay Wagnon and Patrick Beatty, principals of the foregoing franchisees,
commenced an action on July 16, 1997 in the United States District Court for
the District of Maryland, against Bruegger's Corporation, Bruegger's Franchise
Corporation, Quality Dining, Inc., Daniel B. Fitzpatrick, Michael J. Dressell
and Nordahl L. Brue, alleging that the plaintiffs purchased their franchises
based upon financial representations that did not materialize, that they
purchased preferred stock in Bruegger's Corporation based upon false
representations, that Bruegger's Corporation falsely represented its intentions
with respect to purchasing bakeries from the plaintiffs or providing financing
to the plaintiffs, and that the defendants violated implied covenants of good
faith and fair dealing.
On or about April 15, 1997, Texas Commerce Bank National Association ("Texas
Commerce") made a loan of $4,200,000 (the "Loan") to BFBC Ltd., a Florida
limited partnership ("BFBC"). At the time of the Loan, BFBC was a franchisee
under franchise agreements with Bruegger's Franchise Corporation (the
"Franchisor"). The Company at that time was an affiliate of the Franchisor. In
connection with the Loan and as an accommodation of BFBC, the Company executed
to Texas Commerce a "Guaranty". By the terms of the Guaranty the Company
agreed that upon maturity of the Loan by default or otherwise that it would
either (1) pay the Loan obligations or (2) buy the Loan and all of the related
loan documents (the "Loan Documents") from Texas Commerce or its successors.
In addition several principals of BFBC (the "Principal Guarantors") guaranteed
repayment of the Loan by each executing a "Principal Guaranty". On November
10, 1998, Texas Commerce (1) declared that the Loan was in default,
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 14, 2000
(Unaudited)
(2) notified BFBC, the Principal Guarantors and the Company that all of the
Loan obligations were due and payable, and (3) demanded payment.
The Company elected to satisfy its obligations under the Guaranty by purchasing
the Loan from Texas Commerce. On November 24, 1998, the Company bought the
Loan for $4,294,000. Thereafter, the Company sold the Loan to its Texas
affiliate Grady's American Grill, L.P. ("Grady's"). On November 30, 1998
Grady's commenced an action seeking to recover the amount of the Loan from one
of the Principal Guarantors, Michael K. Reilly ("Reilly"). As part of this
action Grady's also seeks to enforce a Subordination Agreement that was one of
the Loan Documents against MKR Investments, L.P., a partnership ("MKR"). Reilly
is the general partner of MKR. This action is pending in the United States
District Court for the Southern District of Texas Houston Division as Case No.
H-98-4015. Reilly has denied liability and filed a counterclaim against Grady's
alleging that Grady's engaged in unfair trade practices, violated Florida's
"Rico" statute, engaged in a civil conspiracy and violated state and federal
securities laws in connection with the Principal Guaranty (the
"Counterclaims"). Reilly also filed a third party complaint against Quality
Dining, Inc., Grady's American Grill Restaurant Corporation, David M. Findlay,
Daniel B. Fitzpatrick, Bruegger's Corporation, Bruegger's Franchise
Corporation, Champlain Management Services, Inc., Nordahl L. Brue, Michael J.
Dressell and Ed Davis ("Third Party Defendants") alleging that Reilly invested
in BFBC based upon false representations, that the Third Party Defendants
violated state franchise statutes, committed unfair trade practices, violated
covenants of good faith and fair dealing, violated the state "Rico" statute and
violated state and federal securities laws in connection with the Principal
Guaranty. In addition, BFBC and certain of its affiliates, including the
Principal Guarantors ("Intervenors") have intervened and asserted claims
against Grady's and the Third Party Defendants that are similar to those
asserted in the counter claims and the third party complaint. In addition, the
Company and Bruegger's Corporation are currently disputing the nature and
extent of their indemnity obligations, if any, to the other with respect to
this litigation. Based upon the currently available information, the Company
does not believe that these matters will have a materially adverse effect on
the Company's financial position or results of operations. However, there can
be no assurance that the Company will be able to realize sufficient value from
Reilly to satisfy the amount of the Loan or that the Company will not incur any
liability as a result of the Counterclaims or third party complaints filed by
Reilly and the Intervenors.
In each of the above cases, one or more present or former officers and
directors of the Company were named as party defendants and the Company has
and/or is advancing defense costs on their behalf. Pursuant to the Share
Exchange Agreement by and among Quality Dining, Inc., Bruegger's Corporation,
Nordahl L. Brue and Michael J. Dressell, ("Share Exchange Agreement") the
Agreement and Plan of Merger by and among Quality Dining, Inc., Bagel
Disposition Corporation and Lethe, LLC, and certain other related agreements
entered into as part of the disposition of the Company's bagel-related
businesses, the Company is responsible for 50% of the first $14 million of
franchise related litigation expenses, inclusive of attorney's fees, costs,
expenses, settlements and judgments (collectively "Franchise Damages").
Bruegger's Corporation and certain of its affiliates are obligated to indemnify
the Company from all other Franchise Damages. The Company is obligated to pay
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 14, 2000
(Unaudited)
the first $3 million of its share of Franchise Damages in cash. As of May 14,
2000, the Company has satisfied this obligation. The remaining $4 million of
the Company's share of Franchise Damages is payable by crediting amounts owed
to the Company pursuant to the $10 million junior subordinated note issued to
the Company by Bruegger's Corporation. However, the Company and Bruegger's
Corporation are currently disputing the nature and extent of their indemnity
obligations under the Share Exchange Agreement. Through October 31, 1999, the
outstanding balance due under the junior subordinated note has been reduced by
$600,000 in respect of Franchise Damages. Based upon the currently available
information, the Company does not believe that these cases individually or in
the aggregate will have a material adverse effect on the Company's financial
position and results of operations but there can be no assurance thereof. Such
assessment is based in part upon an assumption that Bruegger's Corporation has
and will continue to have the ability to perform its indemnity obligations.
However, for the reasons described Note 3 - Disposition of Bagel-Related
Businesses, there can be no assurance that Bruegger's Corporation has now or in
the future will have the ability to perform its indemnity obligations.
On or about September 10, 1999, Bruegger's Corporation, Lethe LLC, Nordahl L.
Brue, and Michael J. Dressel commenced an action against the Company in the
United States District Court for the District of Vermont alleging that the
Company breached various provisions of the Share Exchange Agreement which arise
out of the ongoing dispute concerning the net working capital adjustment
contemplated by the Share Exchange Agreement. On February 1, 2000, the Company
filed counter-claims against Bruegger's Corporation for the working capital
adjustment to which it believes it is entitled. See Note 3-Disposition of
Bagel-Related Businesses. Additionally, on or about September 13, 1999,
Messrs. Brue and Dressell asserted a claim for breach of representations and
warranties under the Share Exchange Agreement. The Company does not expect the
ultimate resolution of these disputes to have a material adverse effect on the
Company's financial position or results of operations but there can be no
assurance thereof.
On April 19, 2000, NBO, LLC ("NBO") filed a Verified Complaint for Injunctive
and Declaratory Relief in the United States District Court for the Northern
District of Indiana, South Bend Division, naming as defendants the Company,
Daniel B. Fitzpatrick, certain other directors of the Company, certain
unidentified associates and affiliates of Daniel B. Fitzpatrick and certain
other unidentified members of management. The Complaint alleged among other
things, that the director defendants' decision to authorize Daniel B.
Fitzpatrick and/or his associates and affiliates and/or other members of
management to acquire up to 1,000,000 additional shares of the Company's common
stock without triggering the Company's Shareholder Rights Agreement would give
management effective control of the Company without the payment of a control
premium and would thwart NBO's tender offer. The Complaint alleged that this
decision was not made in good faith after a reasonable investigation of the
consequences, and was in breach of the director defendants' fiduciary duties.
On May 26, 2000 the Court dismissed these allegations for failure to state a
claim. The Complaint also alleged violations of the federal securities laws and
seeks injunctive and declaratory relief. On June 8, 2000, the Company renewed
its Motion to Dismiss the remaining allegations of NBO's complaint on grounds
that these allegations are moot. On June 9,2000 NBO voluntarily withdrew its
request for a preliminary injunction. The case continues to pend on NBO's
allegations of violations of securities law.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 14, 2000
(Unaudited)
James T. Bies filed a shareholder derivative action in the United States
District Court for the Southern District of Michigan on October 14, 1997. A
derivative action is an action on behalf of the Company in which any recovery
against the defendants would be payable to the Company. The complaint named as
defendants 12 individuals who are current or former directors or officers of
the Company. After conducting discovery, the plaintiff determined that the
conclusions reached by the special committee were correct and that the
allegations of wrongful conduct by the defendants were without merit.
Consequently, the plaintiff withdrew his challenge to the merits of the
determination of the special committee and to the "disinterestedness" of its
members. As a result, on February 29, 2000, the court dismissed the lawsuit.
The Company agreed to reimburse the plaintiff approximately $39,000
representing the costs and attorney's fees he incurred in this matter.
The Company is involved in various other legal proceedings incidental to the
conduct of its business, including employment discrimination claims. Based
upon currently available information, the Company does not expect that any such
proceedings will have a material adverse effect on the Company's financial
position or results of operations but there can be no assurance thereof.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 14, 2000
(Unaudited)
Note 9: Franchisee Commitment
On January 27, 2000 the Company executed a "Franchisee Commitment" in which it
agreed to undertake certain "Transformational Initiatives" including capital
improvements and other routine maintenance in its Burger King restaurants. The
capital improvements include the installation of signage bearing the new Burger
King logo and the installation of a new drive-through ordering system. The
Company is required to complete these capital improvements by December 31,
2001. In addition, the Company agreed to perform, as necessary, certain
routine maintenance such as exterior painting, sealing and striping of parking
lots and upgraded landscaping. The Company is required to complete this
maintenance by September 30, 2000. In consideration for executing the
Franchisee Commitment, the Company is entitled to receive "Transformational
Payments" totaling approximately $3.9 million in two equal installments. The
first installment was received on March 14, 2000 and the Company expects to
receive the second installment prior to the end of the current fiscal year. The
portion of the Transformational Payments that corresponds to the amount
required for the capital improvements will be recognized as income over the
useful life of the capital improvements. The portion of the Transformational
Payments that corresponds to the required routine maintenance will be
recognized as income over the period during which maintenance is performed. The
remaining balance of the Transformational Payments will be recognized as income
ratably over the term of the Franchisee Commitment.
Note 10: Burger King Franchise Agreement
Beginning in July, 2000, Burger King Corporation will increase its royalty and
franchise fees for most new restaurants. At that time, the franchise fee for
new restaurants will increase from $40,000 to $50,000 for a 20 year agreement
and the royalty rate will increase from 31/2% of sales to 41/2% of sales, after
a transitional period. For franchise agreements entered into during the
transitional period, the royalty rate will be 4% of sales for the first 10
years and 41/2% of sales for the balance of the term.
For new restaurants, the transitional period will be from July 1, 2000 to June
30, 2003. As of July 1, 2003, the royalty rate will become 41/2% of sales for
the full term of new restaurant franchise agreements. For renewals of existing
franchise agreements, the transitional period will be from July 1, 2000 through
June 30, 2001. As of July 1, 2001, existing restaurants that renew their
franchise agreements will pay a royalty of 41/2% of sales for the full term of
the renewed agreement. The advertising contribution will remain 4% of sales.
Royalties payable under existing franchise agreements are not affected by these
changes until the time of renewal, at which time the then prevailing rate
structure will apply.
Burger King Corporation is currently offering a voluntary program to incent
franchisees to renew their franchise agreements prior to the scheduled
expiration date ("Early Renewal Program"). Franchisees that elect to
participate in the Early Renewal Program will be required to make capital
investments in their restaurants by, among other things, bringing them up to
Burger King Corporation's current image, and to extend occupancy leases.
Franchise agreements entered into under the Early Renewal Program will have
special provisions regarding the royalty payable during the term, including a
reduction in the royalty to 2.75% over five years beginning April, 2002 and
concluding in April, 2007. The Company is currently evaluating which of its
restaurants would be suitable for the Early Renewal Program. In conducting its
evaluation, the Company is considering, among other things, the applicable
royalty reductions, the nature, extent and resulting impact on sales from the
required capital investment as well as the Company's ability to extend its
occupancy leases, where required. The Company currently intends to include
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 14, 2000
(Unaudited)
approximately 36 restaurants in the Early Renewal Program. The Company expects
to pay franchise fees of approximately $1,000,000, in the third quarter of
fiscal 2000 to extend the franchise agreements of the selected restaurants for
sixteen to twenty years. The Company expects to invest approximately
$7,000,000 to $8,000,000 to remodel the selected restaurants to bring them up
to Burger King Corporation's current image. The remodeling is required to be
completed by December 31, 2001.
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 current fiscal year is 52 weeks long and ends October 29,
2000. The first quarter of the Company's fiscal year consists of 16 weeks with
all subsequent quarters being 12 weeks in duration.
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.
Twelve Weeks Ended Twenty-Eight Weeks Ended
May 14, May 9, May 14, May 9,
2000 1999 2000 1999
------- ------- ------- -------
Total revenues 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Restaurant operating expenses
Food and beverage 28.5 29.2 28.4 29.5
Payroll and benefits 28.9 28.9 29.3 28.9
Depreciation and amortization 4.9 4.8 4.9 4.9
Other operating expenses 23.5 24.5 23.6 24.1
Total restaurant operating ----- ----- ----- -----
expenses 85.8 87.4 86.2 87.4
Income from operations 14.2 12.6 13.8 12.6
General and administrative 7.5 6.7 7.5 6.9
Amortization of intangibles 0.4 0.5 0.4 0.5
----- ----- ----- -----
Operating income 6.3 5.4 5.9 5.2
----- ----- ----- -----
Other income (expense):
Interest expense (4.9) (4.5) (4.9) (4.7)
Interest income - .1 - .1
Other income (expense), net .3 (.4) .2 (.1)
----- ----- ----- -----
Total other expense, net (4.6) (4.8) (4.7) (4.7)
----- ----- ----- -----
Income before income taxes 1.7 0.6 1.2 0.5
Income tax provision 0.9 0.4 0.6 0.3
----- ----- ----- -----
Net income 0.8% 0.2% 0.6% 0.2%
===== ===== ===== =====
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Restaurant sales for the Company were $53,589,000 for the second quarter of
fiscal 2000 versus $53,709,000 for the comparable period in fiscal 1999, a
decrease of $120,000. Restaurant sales for the first twenty-eight weeks of
fiscal 2000 were $122,357,000 versus $121,767,000 for the comparable period in
fiscal 1999, an increase of $590,000.
The Company's Burger King restaurant sales increased $496,000 to $18,536,000
in the second quarter of fiscal 2000 when compared to restaurant sales of
$18,040,000 in the same period of fiscal 1999. The Company had increased
revenue of $688,000 due to additional sales weeks from two new restaurants
opened during fiscal 2000 and one restaurant opened in fiscal 1999 which was
open for its first full year in fiscal 2000. The Company closed two
restaurants with expired leases: one in the fourth quarter of fiscal 1999 and
one in the first quarter of fiscal 2000. The Company's Burger King restaurants
had average weekly sales of $21,833 in the second quarter of fiscal 2000
versus $21,476 in the same period in fiscal 1999. Sales increased $1,654,000
to $43,048,000 for the first twenty-eight weeks of fiscal 2000 compared to
$41,394,000 for the comparable period in fiscal 1999. The Company had
increased revenue of $1,219,000 due to additional sales weeks from two new
restaurants opened during fiscal 2000 and one restaurant opened in fiscal 1999
which was open for its first full year in fiscal 2000. Average weekly sales
were $21,785 in the first twenty-eight weeks of fiscal 2000 versus $21,120 in
the same period in fiscal 1999.
Sales in the Company's Grady's American Grill restaurant division were
$16,857,000 in the second quarter of fiscal 2000 compared to sales of
$18,803,000 in the same period in fiscal 1999, a decrease of $1,946,000. Two
units were disposed in fiscal 1999 which contributed approximately $815,000 to
the sales decrease. The Company's Grady's American Grill restaurants had
average weekly sales of $39,020 in the second quarter of fiscal 2000 versus
$41,235 in the same period in fiscal 1999. The Company's promotional activity
was not as expansive as it was in the second quarter of fiscal 1999, thereby
reducing promotional related sales. Sales for the first twenty-eight weeks of
fiscal 2000 decreased $3,864,000 to $38,614,000 compared to $42,478,000 for
the same period in fiscal 1999. The absence of the restaurants which were sold
contributed approximately $1,975,000 to the sales decrease. Average weekly
sales were $38,307 in the first twenty-eight weeks of fiscal 2000 versus
$39,848 in the same period in fiscal 1999.
The Company's Chili's Grill & Bar restaurant sales increased $1,074,000 to
$14,259,000 in the second quarter of fiscal 2000 compared to $13,185,000 in
the same period in fiscal 1999. The increase was mainly due to average weekly
sales increasing to $41,450 in the second quarter of fiscal 2000 versus
$39,241 in the same period of fiscal 1999. The Company opened one Chili's
restaurant during the second quarter of fiscal 2000 which contributed $509,000
of the sales increase. Sales for the first twenty-eight weeks of fiscal 2000
increased $2,205,000 to $31,772,000 compared to $29,567,000 for the same
period in fiscal 1999. The average weekly sales were $40,116 in the first
twenty-eight weeks of fiscal 2000 versus $37,712 in the same period in fiscal
1999.
The Company's Italian Dining Division restaurant sales increased $256,000 to
$3,937,000 in the second quarter of fiscal 2000 compared to $3,681,000 in the
same period in fiscal 1999. The average weekly sales were $41,016 in the
second quarter of fiscal 2000 versus $38,349 in the same period of fiscal
1999. Sales for the first twenty-eight weeks of fiscal 2000 increased $595,000
to $8,923,000 compared to $8,328,000 for the same period in fiscal 1999. The
average weekly sales were $39,840 in the first twenty-eight weeks of fiscal
2000 versus $37,179 in the same period in fiscal 1999.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Total restaurant operating expenses, as a percentage of restaurant sales,
decreased to 85.8% for the second quarter of fiscal 2000 versus 87.4% in the
second quarter of fiscal 1999 and 86.2% in the first twenty-eight weeks of
fiscal 2000 versus 87.4% in the same period of fiscal 1999. The following
factors influenced the operating margins.
Food and beverage costs improved to 28.5% of total revenues in the second
quarter of fiscal 2000 compared to 29.2% of total revenues in the same period
in fiscal 1999 and 28.4% in the first twenty-eight weeks of fiscal 2000
compared to 29.5% in the same period of fiscal 1999. Food and beverage costs
improved as a percentage of total revenues in the Company's Full Service
segment during the second quarter of fiscal 2000 compared to the same period
in fiscal 1999. Food and beverage costs improved as a percentage of total
revenues in both the Company's Full Service segment and Quick Service segment
for the twenty-eight weeks ended May 14, 2000 when compared to the same period
in fiscal 1999. The improvement in food and beverage costs was mainly due to
increased store level efficiencies and favorable commodity prices.
Payroll and benefits were consistent at 28.9% of total revenues in the second
quarter of fiscal 2000 and fiscal 1999. Payroll and benefits were 29.3% of
total revenues in the first twenty-eight weeks of fiscal 1999 compared to
28.9% in the same period of fiscal 1999. The Company has increased hourly
wages at each of its restaurant concepts due to the high level of competition
to attract qualified employees.
Depreciation and amortization, as a percentage of total revenues, remained
relatively consistent at 4.9% for the second quarter of fiscal 2000 compared
to 4.8% in the same period in fiscal 1999 and at 4.9% in the first twenty-
eight weeks of fiscal 2000 and the same period of fiscal 1999.
Other restaurant operating expenses include rent and utilities, royalties,
promotional expense, repairs and maintenance, property taxes and insurance.
Other restaurant operating expenses as a percentage of total revenues improved
in the second quarter of fiscal 2000 to 23.5% compared to 24.5% in the same
period of fiscal 1999 and improved to 23.6% in the first twenty-eight weeks of
fiscal 2000 compared to 24.1% in the same period of fiscal 1999. The
improvement for the second quarter and the first twenty-eight weeks was
primarily due to the improved sales performance in the Company's Burger King,
Italian Dining and Chili's restaurants and a decrease in promotional expenses
relating to the Company's Grady's restaurants.
Income from restaurant operations increased $790,000 to $7,615,000, or 14.2%
of revenues, in the second quarter of fiscal 2000 compared to $6,825,0000, or
12.6% of revenues, in the comparable period of fiscal 1999. Income from
restaurant operations in the Company's Quick Service segment accounted for
$331,000 of the increase and the Company's Full Service segment accounted for
$459,000. Income from restaurant operations increased $1,553,000 to
$16,880,000, or 13.8% of revenues, in the first twenty-eight weeks of fiscal
2000 compared to $15,327,0000, or 12.6% of revenues, in the comparable period
of fiscal 1999. Income from restaurant operations in the Company's Quick
Service segment accounted for $686,000 of the increase while the Company's
Full Service segment contributed $867,000. The increases were mainly due to
increased sales and lower food and beverage costs as discussed above.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
General and administrative expenses were $4,016,000 in the second quarter of
fiscal 2000 compared to $3,625,000 in the second quarter of fiscal 1999 and
$9,193,000 in the first twenty-eight weeks of fiscal 2000 compared to
$8,388,000 in the same period of fiscal 1999. As a percentage of total
restaurant sales, general and administrative expenses were 7.5% in the second
quarter of fiscal 2000 versus 6.7% in the second quarter of fiscal 1999 and
increased to 7.5% in the first twenty-eight weeks of fiscal 2000 compared to
6.9% in the same period of fiscal 1999. The increase in general and
administrative expenses is primarily attributable to the unanticipated
expenses related NBO, LLC's proxy contest and tender offer. During the second
quarter the Company incurred expenses totaling approximately $255,000 related
to this event and through the first twenty-eight weeks of fiscal 2000 the
Company incurred expenses totaling approximately $605,000.
Amortization of intangibles, as a percentage of total revenues, remained
relatively consistent at 0.4% for the second quarter of fiscal 2000 compared
to 0.5% in the same period in fiscal 1999 and at 0.4% in the first twenty-
eight weeks of fiscal 2000 compared to 0.5% the same period of fiscal 1999.
Total other expenses, as a percentage of revenues, decreased to 4.6% for the
second quarter of fiscal 2000 from 4.8% during the comparable period in fiscal
1999 and remained consistent at 4.7% in the first twenty-eight weeks of fiscal
2000 compared to the same period of fiscal 1999. Increased interest expense
was offset by an increase in other income relating to the Transformational
Payments from Burger King Corporation. See Note 9 Franchisee Commitment.
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 50.1% for second quarter of
fiscal 2000 compared to 60.1% for the same period of fiscal 1999 and 52.9% in
the first twenty-eight weeks of fiscal 2000 compared to 59.9% in the same
period of fiscal 1999. The lower rate for fiscal 2000 is mainly due to the
Company's increased income before income taxes which reduces the effective
rate for the large portion of state taxes which are based on criteria other
than income.
For the second quarter of fiscal 2000, the Company reported net income of
$467,000 compared to net income of $146,000 for the same period of fiscal 1999
and $692,000 in the first twenty-eight weeks of fiscal 2000 compared to
$234,000 in the same period of fiscal 1999.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $1,254,000 at May 20, 2000, an
increase of $235,000 from the $1,019,000 at October 31, 2000. Principal uses
of funds consisted of: (i) expenditures for property and equipment
($5,446,000) (ii) net repayment of long-term debt ($1,929,000) and (iii)
purchase of 562,500 shares of the Company's stock ($1,307,000). Principal
sources of funds consisted of those provided by operations ($9,493,000).
The Company's primary cash requirements in fiscal 2000 will be capital
expenditures in connection with the opening of new restaurants, remodeling of
existing restaurants, maintenance expenditures, purchases of the Company's
stock, payment of franchise fees related to the Early Renewal Program and the
reduction of debt under the Company's debt agreements. The Company's capital
expenditures for fiscal 2000 are expected to range from $10,000,000 to
$13,000,000. The Company expects to incur the majority of the Burger King
Early Renewal Program expenses in fiscal 2001 - See Note 10. During fiscal
2000, the Company anticipates opening three to four Burger King restaurants
and two to three full service restaurants. As of May 14, 2000 the Company has
opened two Burger King restaurants and one Chili's restaurant in fiscal 2000.
The actual amount of the Company's cash requirements for capital expenditures
depends in part on the number of new restaurants opened, whether the Company
owns or leases new units and the actual expense related to remodeling and
maintenance of existing units and the requirements and timing of the Burger
King Early Successor Program.
On August 3, 1999 the Company completed the refinancing of its existing debt
with a financing package totaling $125,066,000, consisting of a $76,000,000
revolving credit agreement and a $49,066,000 mortgage facility, as described
below. The revolving credit agreement was executed with Chase Bank of Texas,
as agent for a group of six banks, providing for borrowings of up to
$76,000,000 with interest payable at the adjusted LIBOR rate plus a
contractual spread. The Company had $16,932,000 available under its revolving
credit agreement as of May 14, 2000. The revolving credit agreement is
collateralized by the stock of certain subsidiaries of the Company, the junior
subordinated note issued by Bruegger's Corporation, certain interests in the
Company's franchise agreements with Brinker and Burger King Corporation and
substantially all of the Company's personal property not pledged in the
mortgage financing. The revolving credit agreement will mature on October 31,
2002, at which time all amounts outstanding thereunder are due.
The revolving credit agreement contains, among other provisions, certain
restrictive covenants including maintenance of certain prescribed debt and
fixed charge coverage ratios, limitations on the incurrence of additional
indebtedness, limitations on consolidated capital expenditures, restrictions
on the payment of dividends (other than stock dividends) and limitations on
the purchase or redemption of shares of the Company's capital stock.
The $49,066,000 mortgage facility has 34 separate mortgage notes and the term
of each mortgage note is either 15 or 20 years. The notes have fixed rates of
interest of either 9.79% or 9.94%. The notes require equal monthly interest
and principal payments. The Company used the proceeds of the mortgage facility
to repay indebtedness under its existing revolving credit agreement.
The mortgage notes are collateralized by a first mortgage/deed of trust and
security agreement on the real estate, improvements and equipment on 19 of the
Company's Chili's restaurants and 15 of the Company's Burger King restaurants.
The mortgage notes contain, among other provisions, certain restrictive
covenants including maintenance of a consolidated fixed charge coverage ratio
for the financed properties.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
The Company anticipates that its cash flows 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 the end of fiscal 2000.
Recently Issued Accounting Standards
-------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for the Company for periods beginning in fiscal year 2001. The
Company is currently not involved in derivative instruments or hedging
activities, and therefore, will measure the impact of this statement as
it becomes necessary.
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 and cost of capital to the Company; the
ability of the Company to develop and operate its restaurants; the hiring,
training and retention of skilled corporate and restaurant management and
other restaurant personnel; the integration and assimilation of acquired
concepts; 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 8 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
None
Items 3. Defaults upon Senior Securities
None
Item 4 Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
None
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: June 28, 2000 By: /s/Jeanne M. Yoder
Vice President & Controller
(Principal accounting officer)
INDEX TO EXHIBITS
Exhibit
No. Description
---------- ------------
Exhibit 4-M Third Amendment to Third Amended and
Restated Revolving Credit Agreement
dated as of April 26, 2000
Exhibit 4-N Reaffirmation of Subsidiary Guaranty
Exhibit 4-M
THIRD AMENDMENT TO THIRD AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
Dated as of April 26, 2000
This Third Amendment to Third Amended and Restated Revolving Credit
Agreement (this "Amendment") dated as of April 26, 2000 by and between
Quality Dining, Inc., an Indiana corporation, and GAGHC, Inc., a
Delaware corporation, as Borrowers, the banks now party to the
hereinafter defined Credit Agreement (the "Banks") and Chase Bank of
Texas, National Association, in its capacity as Administrative Agent
for the Banks (the "Agent"), amends that certain Third Amended and
Restated Revolving Credit Agreement dated as of May 11, 1999, as
previously amended by a First Amendment to Third Amended any Restated
Credit Agreement dated as of July 26, 1999 and a Second Amendment to
Third Amended and Restated Credit Agreement dated as of September 9,
1999, by and between Quality Dining, Inc. and GAGHC, Inc., as
Borrowers, the Banks which are party thereto and Chase Bank of Texas,
National Association, in its individual capacity and as Administrative
Agent (the "Credit Agreement"). Capitalized terms used herein and not
defined herein shall have the meanings assigned thereto in the Credit
Agreement.
WHEREAS, the Borrowers have requested that the Agent and the Banks
agree to amend certain of the provisions of the Credit Agreement to
provide for a swing-line facility; and
WHEREAS, the parties have determined that it is in their best interests
to enter into this Amendment upon the terms set forth herein.
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, the parties hereto agree as follows:
Section 1. Amendments to Article I.
(a) The definition of "Funded Debt" is hereby amended by adding a
new sentence at the end thereof to read as follows:
"Notwithstanding the foregoing, Funded Debt shall not include the
Frozen Coke Deferred Payment, provided that the aggregate principal
amount of the Frozen Coke Deferred Payment does not exceed $700,000 and
provided further that the Frozen Coke Deferred Payment is paid in full
on or before December 31, 2000.
(b) The definition of "Loan" in Article I of the Credit Agreement
is hereby amended in its entirety to read as follows:
"Loan" shall mean, individually or collectively, as the case may be, a
Base Rate Loan, a LIBOR Base Loan or a Swing Loan.
(c) The definition of "Note(s)" in Article I to the Credit
Agreement is hereby amended in its entirety to read as follows:
"Note(s)" shall mean, individually or collectively, as the case may be,
(a) each of the promissory notes, substantially in the form of Exhibit
A attached hereto, made by the Borrowers payable to the order of each
of the Banks to evidence the Advances made by such Bank, (b) the Swing
Line Note and (c) such other promissory notes accepted by the Banks in
exchange for or in substitution of any such Notes.
(d) A new definition of "Frozen Coke Deferred Payment" is hereby
inserted in Article I of the Credit Agreement immediately after the
definition of "Franchise Agreement" to read as follows:
"Frozen Coke Deferred Payment" shall mean Indebtedness in an aggregate
principal amount not to exceed $700,000 payable to Coca Cola Financial
Corporation, incurred in connection with the installation of Frozen
Coke machines in Burger King restaurants.
(e) The following new definitions are hereby inserted in Article I
of the Credit Agreement immediately after the definition of "Subsidiary
Guaranties" to read as follows:
"Swing Line" means the credit facility for making Swing Loans described
in Section 2.15 hereof.
"Swing Line Commitment" means the commitment of LaSalle Bank National
Association to make Swing Loans in the aggregate amount of $3,000,000
at any one time outstanding.
"Swing Loan" is defined in Section 2.15(a) hereof.
"Swing Line Note" is defined in Section 2.15(e) hereof.
Section 2. Amendment to Article II.
(a) Section 2.4 of the Credit Agreement is hereby amended by
inserting the words "or any Swing Loan" immediately after the word
"Advance" in the eighth line of said section.
(b) Article II of the Credit Agreement is hereby amended by
inserting a new Section 2.15 to read as follows:
"Section 2.15. The Swing Line. (a) Swing Loans. Subject to all of
the terms and conditions hereof, LaSalle Bank National Association
("LaSalle") agrees to make loans to the Borrowers ("Swing Loans") which
shall not in the aggregate at any time outstanding exceed the lesser of
(i) the Swing Line Commitment or (ii) the difference between (x) the
Commitments then in effect and (y) the sum of the principal amount of
Advances then outstanding and the aggregate amount of Letters of Credit
issued and outstanding. The Swing Line Commitment shall be available
to the Borrowers and may be availed of by the Borrowers, or either of
them, from time to time and borrowings thereunder may be repaid and
reborrowed during the period ending on the Termination Date.
(b) Payment. Each Swing Loan shall be due and payable on the
Termination Date. The Borrowers may voluntarily prepay any Swing Loan
before its maturity at any time upon notice to LaSalle prior to 2:30
p.m. (Chicago time) on the date fixed for prepayment, each such
prepayment to be made by the payment of the principal amount to be
prepaid, plus accrued interest thereon to the date of prepayment and
any amount due LaSalle under Section 2.15(h) hereof as a result of such
prepayment.
(c) Interest on Swing Loans. Each Swing Loan shall bear interest
(computed on the basis of 360 days and actual days elapsed) at (x) a
fluctuating rate per annum equal to the Base Rate or (y) if the
Borrower so elects in accordance with the following provisions, the
Quoted Rate (as defined below); provided, however, that upon the
occurrence and during the continuance of any Event of Default, such
Swing Loan shall bear interest at a rate per annum equal to the sum of
1.50% per annum plus the Base Rate from time to time in effect.
Interest on each Swing Loan shall be due and payable on each Monthly
Payment Date or, in the event of Swing Loans bearing interest at the
Quoted Rate, the last day of each Quoted Interest Period (as defined
below) applicable thereto, and interest after maturity (whether by
lapse of time, acceleration or otherwise) shall be due and payable upon
demand.
(d) Requests for Swing Loans. The Borrowers, or either of them,
shall give LaSalle prior notice (which may be written or oral) no later
than 12:00 Noon (Chicago time) on the date upon which such Borrower(s)
requests that any Swing Loan be made, of the amount and date of such
Swing Loan and, if applicable, the interest period selected therefor
(the "Quoted Interest Period"). Within thirty (30) minutes after
receiving such notice, LaSalle shall in its discretion quote an
interest rate to the Borrowers at which LaSalle would be willing to
make such Swing Loan available to the Borrowers for the Quoted Interest
Period (the rate so quoted for the Quoted Interest Period being herein
referred to as the "Quoted Rate"). The Borrowers acknowledge and agree
that the interest rate quote is given for immediate and irrevocable
acceptance, and if the Borrowers, or either of them, does not so
immediately accept the Quoted Rate for the full amount requested by the
Borrower for such Swing Loan, the Quoted Rate shall be deemed
immediately withdrawn and such Swing Loan shall bear interest at the
Base Rate from time to time in effect. Subject to all of the terms and
conditions hereof, the proceeds of such Swing Loan shall be made
available to the Borrowers no later than 3:00 p.m. (Chicago time) on
the date so requested in funds immediately available at the principal
office of LaSalle in Chicago, Illinois. Anything contained in the
foregoing to the contrary notwithstanding, (i) the obligation of
LaSalle to make Swing Loans shall be subject to all of the terms and
conditions of this Agreement and (ii) LaSalle shall not be obligated to
make more than one Swing Loan during any one day. LaSalle shall
promptly notify the Administrative Agent, and the Administrative Agent
shall thereafter notify each Bank, of each Swing Loan and the amount of
each Swing Loan made since the last notice. The Borrowers agree that
LaSalle may rely on any such telephonic or telecopy notice given by any
person LaSalle in good faith believes is an authorized representative
of the Borrower without the necessity of independent investigation, and
in the event any such notice by telephone conflicts with any written
confirmation, such telephonic notice shall govern if LaSalle has acted
in reliance thereon.
(e) Swing Line Note. The Swing Loans made to the Borrower by LaSalle
shall be evidenced by a single promissory note of the Borrower issued
to LaSalle in the form of Exhibit F hereto. Such promissory note is
hereinafter referred to as the "Swing Line Note."
(f) Refunding Loans. In its sole and absolute discretion, LaSalle
may at any time, on behalf of the Borrowers (which hereby irrevocably
authorize LaSalle to act on their behalf for such purpose) and with
notice to the Borrowers, request each Bank to make an Advance (without
regard to any requirement of this Agreement that each Advance under
this Agreement be in a minimum amount) constituting a Base Rate Loan in
an amount equal to such Bank's Percentage of the amount of the Swing
Loans outstanding on the date such notice is given. Unless any of the
conditions of Section 3.2 are not fulfilled on such date, each Bank
shall make the proceeds of its requested Advance available to LaSalle,
in immediately available funds, at LaSalle's principal office in
Chicago, Illinois before 12:00 Noon (Chicago time) on the Business Day
following the day such notice is given. The proceeds of such Advances
shall be immediately applied to repay the outstanding Swing Loans;
provided, however, that unless any Default or Event of Default has
occurred and is continuing or the Borrowers otherwise permit, the
proceeds of such Advances shall not be requested if the same would
repay any outstanding Swing Loan bearing interest at the Quoted Rate
prior to the end of the Quoted Interest Period applicable thereto.
(g) Participations. If any Bank refuses or otherwise fails to make
its Advance when requested by LaSalle pursuant to Section 2.15(f) above
(because the conditions in Section 3.2 are not satisfied or otherwise),
such Lender will, at the time and in the manner such Advance was to
have been funded to LaSalle, purchase from LaSalle an undivided
participating interest in the outstanding Swing Loans in an amount
equal to its Percentage of the aggregate principal amount of Swing
Loans that were to have been repaid with such Advances; provided,
however, that unless and until any Default or Event of Default has
occurred and is continuing, no purchase of a participation in a Swing
Loan bearing interest at the Quoted Rate need be made until after
expiration of the Quoted Interest Period applicable thereto. Each Bank
that so purchases a participation in a Swing Loan shall thereafter be
entitled to receive its Percentage of each payment of principal
received on the Swing Loans and of interest received thereon accruing
from the date such Bank funded to LaSalle its participation in such
Swing Loans. The several obligations of the Banks under this Section
2.15(g) shall be absolute, irrevocable and unconditional under any and
all circumstances whatsoever and shall not be subject to any set-off,
counterclaim or defense to payment which any Bank may have or have had
against any one or more of the Borrowers, any other Bank or any other
Person whatsoever. Without limiting the generality of the foregoing,
such obligations shall not be affected by any Default or Event of
Default or by any reduction or termination of the Commitments of any
Banks. In the event that any Bank fails to honor its obligation to pay
LaSalle for such participation in such Swing Loans, then in that event
(i) the defaulting Bank shall have no right to participate in any
recoveries from any one or more of the Borrowers or Subsidiary
Guarantors in respect of such Swing Loans and (ii) all amounts to which
the defaulting Lender would otherwise be entitled under the terms of
this Agreement or any of the other Loan Documents shall first be
applied to reimbursing LaSalle for the defaulting Bank's portion of the
Swing Loans, together with interest thereon as provided for herein.
Upon reimbursement to LaSalle (pursuant to clause (ii) above or
otherwise) of the defaulting Bank's share of the Swing Loans together
with interest thereon, the defaulting Bank shall thereupon be entitled
to its pro rata participation in LaSalle's right of recovery against
any one or more of the Borrowers or Subsidiary Guarantors in respect of
the Swing Loans.
(h) Liquidation Fee. Each of the Borrowers understands that upon the
acceptance by the Borrower of a Quoted Rate in respect of a Swing Loan,
LaSalle intends to enter into funding arrangements with third parties
on terms and conditions which could result in substantial losses to
LaSalle if such Swing Loan is not made at the Quoted Rate or does not
remain outstanding for the entire Quoted Interest Period. Therefore,
if either (a) after a Borrower accepts a Quoted Rate in respect of a
Swing Loan, the Swing Loan is not made on the first day of the
applicable Quoted Interest Period for any reason (including, but not
limited to, the failure of the Borrowers to comply with one or more of
the conditions precedent to any Swing Loan under this Agreement) other
than a wrongful failure by LaSalle to make the Swing Loan, or (b) such
Swing Loan is repaid in whole or in part prior to the last day of its
Interest Period (whether as a result of acceleration, operation of law
or otherwise), the Borrowers agree to indemnify LaSalle for any loss,
cost and expense incurred by it resulting therefrom, including without
limitation any loss of profit and any loss or cost in liquidating or
employing deposits acquired to fund or maintain such Swing Loan."
Section 3. Amendments to Article III.
(a) Section 3.2 of the Credit Agreement is hereby amended (i) by
inserting the words ", of LaSalle to make any Swing Loan hereunder"
immediately following the words "Advance hereunder" in the second line
of the introductory sentence thereof; (ii) by inserting the words "or
Swing Loan" after the word "Advance" in each of the third line of
subsection (b) and the second line of subsection (c); and (iii) by
inserting the words "or the making of such Swing Loan by LaSalle"
immediately after the words "Advance by such Bank" in the first line of
subsection (d).
Section 4. Amendments to Article IV.
(a) The introductory sentence of Article IV of the Credit
Agreement is hereby amended by inserting the words "each Swing Loan"
immediately after the word "Advance" in the second line of said
sentence.
(b) Section 4.1 of the Credit Agreement is hereby amended by
inserting the words "and Swing Loans" immediately after the word
"Advances" in the third sentence of said section.
(c) Section 4.11of the Credit Agreement is hereby amended by
inserting the words "and Swing Loans" immediately after the word
"Advances" in the first line of said section.
(d) Section 4.12 of the Credit Agreement is hereby amended by
inserting the words "or any Swing Loan" immediately after the word
"Advance" in each of the first line and the sixth line of said section.
(e) Section 4.13 of the Credit Agreement is hereby amended by
inserting the words "and Swing Loans" immediately after the word
"Advances" in the second sentence of said section.
(f) Section 4.19 of the Credit Agreement is hereby amended by
inserting the words "and Swing Loans" immediately after the word
"Advances" in the fourth line of said section.
Section 5. Amendments to Article V.
(a) The introductory sentence of Article V of the Credit Agreement
is hereby amended by inserting the words ", any Swing Loan" immediately
after the word "Advance" in the second line of said sentence.
(b) Section 5.11 of the Credit Agreement is hereby amended by
inserting the words "and Swing Loans" immediately after the word
"Advances" in the first line of said section.
Section 6. Amendment to Article VI.
(a) The introductory sentence of Article VI of the Credit
Agreement is hereby amended by inserting the words ", any Swing Loan"
immediately after the word "Advance" in the second line of said
sentence.
(b) Section 6.3 of the Agreement is hereby amended by (i) deleting
the word "and" at the end of clause (e) thereof; (ii) replacing the
period at the end of clause (f) thereof with a semicolon and (iii)
inserting new clauses (g) and (h) to read as follows:
"(g) the Frozen Coke Deferred Payment in an aggregate principal amount
not to exceed $700,000, provided that the Frozen Coke Deferred Payment
shall be paid in full on or before December 31, 2000; and
(h) Indebtedness, in addition to Indebtedness permitted by clauses
(a) through (g) above, in an aggregate principal amount at any one time
outstanding not to exceed $750,000."
(c) Section 6.4 of the Agreement is hereby amended by (i) deleting
the word "and" at the end of the clause (j) thereof; (ii) replacing the
period at the end of clause (k) with a semicolon; and (iii) inserting
new clauses (l) and (m) to read as follows:
"(l) Liens on the real property located at 1275 Hilltop Road, St.
Joseph, Michigan, to secure Indebtedness incurred pursuant to Section
6.3(h) hereof; and
(m) Liens on the Frozen Coke machines to be installed in the Burger
King restaurants, securing the Indebtedness incurred pursuant to
Section 6.3(g) hereof."
Section 7. Amendment to Article VII.
(a) Section 7.2 of the Credit Agreement is hereby amended by (i)
inserting the words "or Swing Loans" immediately following the word
"Advances" in the fifth line of said section and (ii) inserting the
words ", LaSalle's obligation to make Swing Loans" immediately after
the word "Advances" in the seventh line of said section.
Section 8. Amendment to Article IX.
(a) Section 9.4 of the Credit Agreement is hereby amended by
inserting the words "and Swing Loans" immediately after the word
"Advances" in the second line of said section.
Section 9. Amendment to Article X.
(a) Section 10.5(a) is hereby amended by inserting "or any Swing
Loan" immediately after the word "Advance" in the second line of said
subsection.
(b) Section 10.10(b) is hereby amended by (i) deleting the word
"Loans" in the fourth line thereof and replacing it with the word
"Advances"; (ii) inserting the words "all of its participation
interests, if any, in existing Swing Loans, its obligation to
participate in additional Swing Loans hereunder," after the words
"owing to it" in the fourth line of said section; and (iii) inserting
the words "Advances, participations in Swing" immediately before the
word "Loans" in the 27th line of said section.
(c) Section 10.10(c) of the Credit Agreement is hereby amended by
inserting the words "its participation in Swing Loans and its
obligation to participate in additional Swing Loans hereunder"
immediately after the words "with respect to Letters of Credit" in the
fourth line of said section.
Section 10. Addition of Exhibit F. A new Exhibit F is hereby
inserted in the Credit Agreement to read as set forth on Exhibit A
hereto.
Section 11. Consent to Merger of GAGHC. Each of the Banks and
the Administrative Agent hereby consent to the merger of GAGHC with and
into Grady's American Grill Restaurant Corporation ("GAGRC"), a Wholly-
Owned Subsidiary of QDI, with GAGRC as the surviving corporation, at
any time on or before October 31, 2000, provided that:
(i) the obligations of GAGRC under the Subsidiary Guaranty are
expressly assumed in writing by the surviving corporation, in form and
substance reasonably acceptable to the Administrative Agent;
(ii) immediately after the consummation of the merger and after giving
effect thereto, no condition or event shall exist which constitutes a
Default, an Event of Default or a Change of Control; and
(iii) QDI shall have delivered to the Administrative Agent each of the
following documents:
(A) Agreement and Plan of Merger between GAGHC and GAGRC, in form and
substance reasonably acceptable to the Administrative Agent, certified
by the Secretary or an Assistant Secretary of QDI as being a true and
complete copy thereof;
(B) Certificate or Articles of Merger, certified by the Secretary of
State of the States of Delaware and Indiana;
(C) Reaffirmation of Subsidiary Guaranty, duly executed and delivered
by an authorized officer of GAGRC;
(D) Certificate of the Secretary or an Assistant Secretary of GAGRC
certifying that (i) either (A) there has been no amendment to the
articles of incorporation or by-laws of GAGRC since May 11, 1999 or
(B) attached thereto is a true and correct copy of the articles of
incorporation and by-laws of GAGRC and (ii) attached is a true and
correct copy of resolutions of GAGRC's Board of Directors authorizing
the execution and delivery of the Reaffirmation of Subsidiary Guaranty;
(E) Incumbency Certificate of GAGRC, certified by the Secretary or
Assistant Secretary of GAGRC; and
(F) Written opinion of counsel to QDI, in form and substance
reasonably satisfactory to the Administrative Agent, as to the
effectiveness of the merger of GAGHC and GAGRC, with GAGRC as the
surviving corporation, and the enforceability of the Subsidiary
Guaranty against GAGRC.
Upon consummation of the merger of GAGHC with and into GAGRC and
satisfaction of the conditions set forth above in this Section 11,
GAGRC, as the surviving corporation and successor to GAGHC, shall be
released from the obligations of GAGHC as a "Borrower" under the Credit
Agreement for all purposes thereof.
Section 12. Representations and Warranties of Borrowers. In order
to induce the Banks and the Administrative Agent to enter into this
Amendment, each of the Borrowers represents and warrants that:
(a) The execution and delivery by such Borrower of this Amendment
have been duly authorized by proper corporate proceedings and this
Amendment and the Agreement, as amended hereby, constitute the legal,
valid and binding obligations of such Borrower, enforceable against
such Borrower in accordance with their respective terms.
(b) Neither the execution and delivery by such Borrower of this
Amendment nor compliance with the provisions hereof 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.
(c) 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 would
constitute a Material Adverse Occurrence.
(d) 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.
(e) No Default or Event of Default has occurred and is continuing
and, since October 31, 1999, no Material Adverse Occurrence has
occurred.
Section 13. Effective Date. This Amendment shall become effective
as of the date (the "Amendment Effective Date") first above written
upon receipt by the Administrative Agent of each of the following
items:
(a) Counterparts of this Amendment duly executed by each of the
Borrowers, the Administrative Agent and each of the Banks;
(b) Swing Line Note issued to LaSalle, duly executed by each of
the Borrowers;
(c) Reaffirmation of Subsidiary Guaranty, duly executed and
delivered by each of the Wholly-Owned Subsidiaries of the Borrower
(other than GAGHC);
(d) Certificates of the Secretary or an Assistant Secretary of
each of QDI and GAGHC, certifying that (i) either (A) there has been no
amendment to the articles of incorporation or by-laws of such Borrower
since May 11, 1999 or (B) attached thereto is a true and correct copy
of the articles of incorporation and by-laws of such Borrower and (ii)
attached is a true and correct copy of the resolutions of such
Borrower's Board of Directors or Executive Committee thereof (if so
authorized) authorizing the execution, delivery and performance of this
Amendment and any other documents or instruments executed and delivered
in connection herewith and the performance of all the terms and
provisions hereof and thereof;
(e) Incumbency Certificates, certified by the Secretary of each of
the Borrowers;
(f) Certificates of the Secretary or an Assistant Secretary of
each Subsidiary Guarantor certifying that (i) either (A) there has been
no amendment to the articles of incorporation or by-laws of such
Subsidiary Guarantor since May 11, 1999 or (B) attached thereto is a
true and correct copy of the articles of incorporation and by-laws of
such Subsidiary Guarantor and (ii) attached is a true and correct copy
of resolutions of such Subsidiary Guarantor's Board of Directors
authorizing the execution and delivery of the Reaffirmation of
Subsidiary Guaranty;
(g) Incumbency Certificates of each Subsidiary Guarantor,
certified by the Secretary of such Subsidiary Guarantor;
(h) Written opinion of counsel to each of the Borrowers and the
Subsidiary Guarantors, in form and substance reasonably satisfactory to
the Administrative Agent, relating to, among other things,
enforceability of this Amendment, the Swing Line Note and the
Reaffirmation of Subsidiary Guaranty against the Borrowers and the
Subsidiary Guarantors which are party thereto;
(i) Payment by the Borrowers of all costs and expenses of the
Administrative Agent's special counsel (including without limitation
legal fees and expenses) incurred in connection with preparation and
execution of this Amendment and the transactions contemplated hereby;
and
(j) Such other documents and instruments as the Administrative
Agent shall reasonably request.
Section 14. References to Credit Agreement. From and after the
effective date hereof, each reference in the Credit Agreement to "this
Agreement," "hereof," or "hereunder" or words of like import, and all
references to the Credit Agreement in any and all agreements,
instruments, documents, notes, certificates and other writings of every
kind and nature shall be deemed to mean the Credit Agreement, as
modified and amended by this Amendment.
Section 15. Ratification. The Credit Agreement, as amended hereby,
shall remain in full force and effect and is hereby ratified, approved
and confirmed in all respects.
Section 16. Applicable Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Indiana (without
regard to any choice of law provisions thereof).
Section 17. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall constitute an original, but all
of which when taken together shall constitute but one instrument.
Section 18. Expenses. The Borrowers shall pay all reasonable out-
of-pocket expenses incurred by the Administrative Agent in connection
with the preparation of this Amendment, including, but not limited to,
the reasonable fees and disbursements of special counsel for the
Administrative Agent.
[The rest of this page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.
QUALITY DINING, INC.
By:_________________
Its: _________________
GAGHC, INC.
By: _________________
Its: _________________
CHASE BANK OF TEXAS NATIONAL ASSOCIATION, in its individual capacity
and as Agent for the Banks (as that term is defined in the Credit
Agreement).
By: _________________
(Signature
________________________________
(typed or printed name and title)
BANK ONE, INDIANA , N.A.
By: _________________
(Signature)
__________________________________
(typed or printed name and title)
THE NORTHERN TRUST COMPANY
By: _________________
(Signature)
__________________________________
(typed or printed name and title)
LASALLE BANK NATIONAL ASSOCIATION
By: _________________
(Signature)
__________________________________
(typed or printed name and title)
BANK OF AMERICA, NATIONAL ASSOCIATION
By: _________________
(Signature)
__________________________________
(typed or printed name and title)
SUNTRUST BANK
________________
By:
(Signature)
__________________________________
(typed or printed name and title)
Exhibit A to
Amendment
EXHIBIT F
[Form of Note]
PROMISSORY NOTE
$3,000,000.00
April 26, 2000
Mishawaka, Indiana
FOR VALUE RECEIVED, QUALITY DINING, INC., an Indiana corporation, and GAGHC,
Inc., a Delaware corporation (collectively together with their successors and
assigns, the "Borrowers"), hereby promise, jointly and severally, to pay to
LASALLE BANK NATIONAL ASSOCIATION (the "Holder"), the principal sum of THREE
MILLION DOLLARS ($3,000,000), or such lesser amount as shall equal the
aggregate unpaid principal amount of the Swing Loans (as defined in the
hereinafter defined Credit Agreement) made by the Holder to
the Borrowers, or either 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 Swing Loan, for the period commencing
on the date of such Swing Loan until such Swing Loan 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 Holder to such domestic
account as the Holder may designate. The date, amount and type of each Swing
Loan made by the Holder to the Borrowers, or either 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 continuationder'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 the Swing Line Note referred to in the Third Amendment to Third
Amended and Restated Revolving Credit Agreement dated as of April 26, 2000,
amending the Third Amended and Restated Revolving Credit Agreement (as amended
from time to time, the "Credit Agreement") dated as of May 11, 1999 by and
between the Borrowers, the banks party thereto (the "Banks"), Chase Bank of
Texas National Association, as administrative agent (the "Administrative
Agent"), Bank One, Indiana, N.A. (formerly known as NBD Bank, N.A.), as
documentation agent, and Bank of America, National Association (formerly
known as NationsBank, N.A. (South)), as Co-Agent.
The Credit Agreement provides for the acceleration of the maturity of the Swing
Loans evidenced by this Note upon the occurrence of certain events and for
prepayments of Swing Loans 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 Administrative Agent for
the benefit of the Banks, by certain assets of
the Borrowers and their respective Subsidiaries pursuant to the Pledge
Agreement, the Security Agreement and the Note Pledge Agreement and may now
or hereafter be secured by one or more other security agreements, pledge
agreements, assignments, mortgages, guaranties, instruments or agreements of
the Borrowers 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 INDIANA.
QUALITY DINING, INC.
By:_________________
John C. Firth
Executive Vice President, General Counsel
and Secretary
GAGHC, INC.,
By: _________________
David M. Findlay
Vice President
Schedule to Promissory Note
Date of Swing Loan Amount of Swing Loan Date Principal Repaid
------------------ -------------------- ---------------------
Exhibit 4-N
REAFFIRMATION OF SUBSIDIARY GUARANTY
Each of the undersigned (a "Guarantor"), a guarantor of all the
indebtedness outstanding and unpaid at any time of QUALITY DINING,
INC., an Indiana corporation, and GAGHC, Inc., a Delaware corporation
(the "Borrowers"), under that certain Third Amended and Restated
Revolving Credit Agreement dated as of May 11, 1999, as amended by the
First Amendment to Third Amended and Restated Revolving Credit
Agreement dated July 26, 1999, the Second Amendment to Third Amended
and Restated Revolving Credit Agreement dated September 9, 1999 and the
hereinafter defined Third Amendment (said agreement as so amended and
as it may be further amended, modified or supplemented, the "Credit
Agreement") by and between the Borrowers, the Banks party thereto (the
"Banks") and Chase Bank of Texas National Association, as
Administrative Agent (the "Agent"), hereby acknowledges and consents to
the execution and delivery by the Borrowers of that certain Third
Amendment to Third Amended and Restated Revolving Credit Agreement
dated as of April 26, 2000 (the "Third Amendment") amending the Credit
Agreement and all other documents, certificates, agreements and
instruments executed in connection therewith. Each of the undersigned
acknowledges that an executed (or conformed) copy of the Third
Amendment has been made available to its principal executive officers
and such officers are familiar with the contents thereof. Each
Guarantor hereby confirms that the execution by the Borrowers of the
Third Amendment and all other documents, certificates, agreements and
instruments contemplated thereby shall in no way diminish or extinguish
the liability of the Guarantor under that certain Subsidiary Guaranty
(the "Guaranty") dated as of December 21, 1995 executed by the
Guarantor in favor of the Agent, as successor to The Northern Trust
Company (as predecessor agent), for the benefit of the Banks. Each of
the undersigned acknowledges and affirms to the Agent and the Banks
that the undersigned is and shall be primarily liable for the
indebtedness of the Borrowers to the Banks now or hereafter outstanding
and unpaid at any time the Banks seek to recover against such Guarantor
under the Guaranty, including without limitation the liabilities and
obligations of the Borrowers to the Banks under the Credit Agreement
and the Notes pursuant to and in accordance with the terms of the
Guaranty. Each of the undersigned hereby acknowledges and agrees that
the Obligations (as defined in the Credit Agreement), including without
limitation the Notes, all Advances and Swing Loans now outstanding or
hereafter made under the Credit Agreement, and all amounts now or
hereafter owing to the Agent and the Banks under or pursuant to the
Credit Agreement and/or any of the Security Documents and all Rate
Hedging Obligations owing at any time or from time to time by the
Borrowers or any of their Subsidiaries to the Banks or any Bank, shall
be secured under and pursuant to the Note Pledge Agreement, the Pledge
Agreement, the Security Agreement and each and every other Security
Document and that all references therein to the "Credit Agreement"
shall be deemed a reference to the Credit Agreement as amended by the
Third Amendment and all capitalized terms not otherwise defined herein
shall have the meanings ascribed thereto in the Credit Agreement. Each
of the undersigned hereby ratifies and reaffirms the grant of liens and
security interests on its properties pursuant to the Security Documents
as security for the Obligations and confirms and agrees that such liens
and security interests hereafter secure all of the Obligations under
the Credit Agreement and other Loan Documents. To the fullest extent
permitted by law, each of the undersigned does hereby (i) consent to
all extensions and renewals of the Obligations; (ii) consent to the
addition, release or substitution of any person liable on any portion
of the Obligations; (iii) waive all demands, notices and protests of
any action taken by the Agent pursuant to the Loan Documents or in
connection with the Obligations; (iv) waive any indulgence by the Agent
or any Bank; (v) consent to any substitutions for, exchanges of or
releases of the collateral or any portion thereof for the Obligations;
(vi) waive notice prior to taking possession or control of the
collateral or any bond or security which might be required by any court
prior to allowing the Agent to exercise any of its remedies, including
the issuance of an immediate writ of possession, except as expressly
required in any of the Loan Documents; (vii) waive any marshalling of
assets, or any right to compel the Agent to resort first to any
collateral or other persons before pursuing any of the undersigned for
payment of the Obligations; (viii) waive the benefit of all valuation,
appraisement and exemption laws; and (ix) waive notice of acceptance
hereof. Each of the undersigned confirms and agrees that each of the
Loan Documents to which it is a party and each and every covenant,
condition, obligation, representation (except those representations
which relate only to a specific date, which are confirmed as of such
date only), warranty and provisions set forth therein are, and shall
continue to be, in full force and effect and are hereby confirmed,
reaffirmed and ratified in al respects
Each of the Guarantors also hereby acknowledges and agrees that
the Agent and the Banks are relying upon this Reaffirmation of
Subsidiary Guaranty in entering into the Amendment and in extending any
loans or other credit to the Borrowers under the Credit Agreement and
the Notes.
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IN WITNESS WHEREOF, each Guarantor has caused this Reaffirmation
of Subsidiary Guaranty to be executed and delivered as of the 26th day
of April, 2000.
BRAVOKILO, INC. GRADY'S AMERICAN GRILL, LP
SOUTHWEST DINING, INC. 4220 Edison Lakes Parkway
GRAYLING CORPORATION Mishawaka, Indiana 46545
FULL SERVICE DINING, INC.
GRADY'S INC. By: Grady's American Grill Restaurant
4220 Edison Lakes Parkway Corporation, as general partner
Mishawaka, Indiana 46545
By: ____________________ By: ______________________
Name: John C. Firth Name: David M. Findlay
Title: Executive Vice President Title: President
GRADY'S AMERICAN GRILL GAGLC, INC.
RESTAURANT CORPORATION 4220 Edison Lakes Parkway
4220 Edison Lakes Parkway Mishawaka, Indiana 46545
Mishawaka, Indiana 46545
By: ____________________ By: ____________________
Name: David M. Findlay Name: Robert C. Hudson II
Title: President Title: President
