UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
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Quarterly Report Pursuant to Section 13 of 15(d) of
The Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1996
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Commission File Number 0-19924
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Bugaboo Creek Steak House, Inc.
Incorporated pursuant to the Laws of the state of Delaware
Employer Identification Number 05-0475499
1275 Wampanoag Trail, East Providence, RI 02915
(401) 433-5500
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No | |
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
DATE: May 9, 1996
CLASS: Common Stock, $.01 per share
OUTSTANDING SHARES: 5,225,000
<PAGE>
BUGABOO CREEK STEAK HOUSE, INC.
AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets as of March 31, 1996
and June 25, 1995 ..................................... 2
Consolidated Statements of Income: sixteen and
forty weeks ended March 31, 1996
and April 2, 1995 ..................................... 3
Condensed Consolidated Statements of Cash Flows:
forty weeks ended March 31, 1996
and April 2, 1995 ..................................... 4
Notes to Consolidated Financial Statements .............. 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................... 6
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS........................................ 11
ITEM 2. CHANGES IN SECURITIES.................................... 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.......................... 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...... 11
ITEM 5. OTHER INFORMATION........................................ 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................... 11
SIGNATURES................................................................. 12
1
<PAGE>
<TABLE>
<CAPTION>
BUGABOO CREEK STEAK HOUSE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, June 25,
1996 1995
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ......................................... $ 965,536 $ 727,922
Marketable securities - available for sale ........................ 520,705 1,644,985
Accounts receivable, trade, less allowance for doubtful accounts of
$15,000 at March 31, 1996 and $10,000 at June 25, 1995 .......... 305,328 261,584
Construction allowance receivable from landlord ................... -- 475,000
Interest & dividends receivable ................................... 37,264 43,955
Accounts receivable, affiliates ................................... 110,058 114,815
Inventories ....................................................... 1,818,629 1,203,946
Prepaid expenses .................................................. 631,492 476,390
Pre-opening costs (net of amortization) ........................... 682,282 714,693
Deferred income taxes ............................................. 511,529 197,346
------------ ------------
Total current assets ............................................ 5,582,823 5,860,636
Net property and equipment ........................................... 33,571,558 23,411,455
Other assets:
Note receivable ................................................... 40,794 41,391
Intangible assets (net of amortization) ........................... 431,666 178,542
------------ ------------
Total other assets .............................................. 472,460 219,933
------------ ------------
Total assets .................................................... $ 39,626,841 $ 29,492,024
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Current installments of long-term debt ............................ $ -$13,000
Accounts payable .................................................. 2,472,466 3,791,655
Accrued expenses .................................................. 921,375 439,049
Accrued and withheld taxes ........................................ 308,569 30,023
Unredeemed gift certificates ...................................... 1,042,353 718,074
------------ ------------
Total current liabilities ....................................... 4,744,763 4,991,801
Long-term debt, excluding current installments ....................... 9,600,000 787,000
Deferred rent ........................................................ 599,122 604,140
Deferred income taxes ................................................ 155,546 112,528
------------ ------------
Total liabilities ............................................... 15,099,431 6,495,469
Stockholders' equity
Common stock ...................................................... 52,250 52,250
Additional paid-in capital ........................................ 20,034,603 20,034,603
Retained earnings ................................................. 4,441,832 2,906,240
Net unrealized gain (loss) on marketable securities ............... (1,275) 3,462
------------ ------------
Total stockholders' equity ...................................... 24,527,410 22,996,555
Commitments and contingencies
------------ ------------
Total liabilities and stockholders' equity ........................... $ 39,626,841 $ 29,492,024
============ ============
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
BUGABOO CREEK STEAK HOUSE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Sixteen weeks ended Forty weeks ended
----------------------------- -----------------------------
March 31, April 2, March 31, April 2,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net restaurant sales ........................... $ 16,491,323 $ 10,283,447 $ 37,920,589 $ 21,522,184
Restaurant costs and operating expenses:
Food and beverage costs ..................... 6,079,118 3,769,174 14,041,662 7,860,743
Restaurant operating expenses ............... 7,111,239 4,116,824 16,304,724 8,594,411
Depreciation and amortization ............... 1,141,142 531,504 2,467,545 1,078,663
------------ ------------ ------------ ------------
Total restaurant costs and operating expenses 14,331,499 8,417,502 32,813,931 17,533,817
------------ ------------ ------------ ------------
Earnings from restaurant operations ............ 2,159,824 1,865,945 5,106,658 3,988,367
Other (income) expense:
General and administrative expense .......... 1,160,974 807,374 2,664,750 1,792,340
Other (income) expense, net ................. (460) 7,001 (32,789) (70,755)
Interest and dividend income ................ (16,226) (53,569) (75,756) (362,640)
Interest expense ............................ 134,099 -- 188,003 --
------------ ------------ ------------ ------------
Earnings before taxes .......................... 881,437 1,105,139 2,362,450 2,629,422
Income taxes ................................... 308,503 384,822 826,858 910,215
------------ ------------ ------------ ------------
Net income ..................................... $ 572,934 $ 720,317 $ 1,535,592 $ 1,719,207
============ ============ ============ ============
Weighted average shares outstanding ............ 5,225,000 5,226,250 5,225,000 5,225,713
Earnings per share ............................. $ 0.11 $ 0.14 $ 0.29 $ 0.33
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
BUGABOO CREEK STEAK HOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Forty weeks ended
----------------------------
March 31, April 2,
1996 1995
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<S> <C> <C>
Net cash provided by operating activities ........ $ 973,133 $ 3,878,082
Cash flows from investing activities:
Purchase of marketable securities ............. (487,663) --
Proceeds from sale of marketable securities ... 511,345 6,529,654
Proceeds from maturity of marketable securities 1,095,861 --
Decrease in interest and dividends receivable . 6,691 --
Purchase of property and equipment ............ (11,851,248) (10,327,158)
Proceeds from sale of property and equipment .. -- --
Decrease in construction allowance receivable . 475,000 --
------------ ------------
Net cash used in investing activities ............ (10,250,014) (3,797,504)
Cash flows from financing activities:
Proceeds from common stock issuance ........... -- --
Dividends and distributions to stockholders ... -- --
Proceeds from notes payable ................... -- --
Repayments of notes payable ................... -- --
Proceeds from notes payable to stockholders ... -- --
Repayments of notes payable to stockholders ... -- --
Proceeds from long-term debt .................. 8,800,000 --
Repayment of long-term debt ................... -- --
Repayments of notes payable to stockholders ... -- (16,795)
Increase in book overdrafts ................... 714,495 --
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Net cash provided by financing activities ... 9,514,495 (16,795)
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Net increase in cash ............................. 237,614 63,783
Cash and cash equivalents at beginning of year ... 727,922 733,713
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Cash and cash equivalents at end of quarter ...... $ 965,536 $ 797,496
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest ........................ $ 253,626 $ --
Cash paid for income taxes .................... $ 897,656 $ 1,056,031
</TABLE>
4
<PAGE>
BUGABOO CREEK STEAK HOUSE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. The accompanying interim consolidated financial statements of Bugaboo Creek
Steak House, Inc., and subsidiaries (the "Company") for the sixteen and forty
week periods ended March 31, 1996 and April 2, 1995 have been prepared in
accordance with generally accepted accounting principles, and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. These financial
statements have not been audited by independent public accountants, but include
all adjustments (consisting of only normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
condition, results of operations and cash flows for such periods.
The results of operations for the interim periods shown in this report are not
necessarily indicative of results for any future interim period or for the
entire year. These consolidated financial statements do not include all
disclosures associated with annual financial statements and accordingly should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission (file number 0-19924).
B. The Company's fiscal year consists of thirteen periods of 28 days each, and
ends on the last Sunday in June. Interim reporting periods within each fiscal
year consist of four quarters containing three, three, four and three 28-day
periods each. Fiscal 1996, which ends on June 30, 1996, will contain one
additional week in the last period of the year, resulting in a total of 53 weeks
in the fiscal year. Fiscal 1997 will return to a total of 52 weeks.
C. Prior to June 25, 1995, the Company recorded a receivable from the landlord
of a Bugaboo Creek Steak House restaurant in the amount of $475,000. This
receivable arose in the ordinary course of business and related to terms in the
lease. This receivable was collected during the first quarter of fiscal 1996.
D. On January 2, 1996, the Company entered into a purchasing agreement with
Monfort FoodService for the purchase of beef. The agreement requires the Company
to purchase quantities of beef at fixed prices between January 1, 1996 and
December 31, 1996. The quantities contracted for are based on what management
believes to be conservative estimates of actual supplies that will be required
during such period.
E. The Company has entered into a $20 million credit facility with Citizens Bank
and Fleet National Bank, both of Providence, RI, the proceeds of which were used
to repay advances outstanding on the existing $10 million facility and to fund
further development of new units. At March 31, 1996 the Company had outstanding
long-term debt of $9,600,000 under this line of credit.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company owns and operates restaurants featuring two distinctive concepts --
Bugaboo Creek Steak House and The Capital Grille. The Bugaboo Creek Steak House
concept appeals to the casual dining guest by creating an entertaining
restaurant experience for families and couples alike in the setting of a lively
Canadian Rocky Mountain lodge. The Capital Grille concept is an upscale
restaurant featuring dry-aged steaks, seafood and fine wines in a highly
sophisticated setting that appeals to affluent dining guests and business
executives.
The first Capital Grille opened in July 1990, in Providence, Rhode Island. The
first Bugaboo Creek Steak House opened in October 1992, in Warwick, Rhode
Island. As of the end of the third quarter, the Company owned and operated
sixteen restaurants (thirteen Bugaboo Creek Steak House restaurants and three
Capital Grille restaurants). In addition, the Company manages three dinner house
restaurants under management contracts.
The Company's expansion strategy is based upon three principles which build on
its commitment to consistently high quality food and attentive service:
1. Invest in architectural, decorative, and entertainment features to
create stimulating environments for its guests;
2. Build a broad customer base by appealing to families as well as
couples in Bugaboo Creek Steak House and to affluent guests and
business executives in The Capital Grille;
3. The development of Bugaboo Creek units will be focused primarily on
metropolitan areas in the Northeast and Mid-Atlantic states. Capital
Grille units will be located in major markets across the country.
To fund this expansion strategy, the Company completed its initial public stock
offering on April 13, 1994, raising $20.5 million (including $2.5 million from
the underwriters' over allotment option which closed on May 10, 1994) before
offering expenses and the repayment of bank and stockholder notes payable. The
Company currently has an unsecured $20 million revolving credit line to be used
in conjunction with operating cash flows for the continued development of
restaurant properties.
6
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages which
the items in the Company's Consolidated Statements of Income (unaudited) bear to
total revenues:
<TABLE>
<CAPTION>
Sixteen weeks ended Forty weeks ended
------------------- ------------------
March 31, April 2, March 31, April 2,
1996 1995 1996 1995
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net restaurant sales ........................... 100.0% 100.0% 100.0% 100.0%
Restaurant costs and operating expenses:
Food and beverage costs ..................... 36.9% 36.7% 37.0% 36.5%
Restaurant operating expenses ............... 43.1% 40.0% 43.0% 40.0%
Depreciation and amortization ............... 6.9% 5.2% 6.5% 5.0%
----- ----- ----- -----
Total restaurant costs and operating expenses 86.9% 81.9% 86.5% 81.5%
----- ----- ----- -----
Earnings from restaurant operations ............ 13.1% 18.1% 13.5% 18.5%
Other (income) expense:
General and administrative expense .......... 7.0% 7.8% 7.0% 8.3%
Other (income) expense, net ................. 0.0% 0.1% (0.1%) (0.3%)
Interest and dividend income ................ (0.1%) (0.5%) (0.2%) (1.7%)
Interest expense ............................ 0.8% -- 0.5% --
----- ----- ----- -----
Earnings before taxes .......................... 5.4% 10.7% 6.3% 12.2%
Income taxes ................................... 1.9% 3.7% 2.2% 4.2%
----- ----- ----- -----
Net income ..................................... 3.5% 7.0% 4.1% 8.0%
===== ===== ===== =====
</TABLE>
Restaurants in Operation: During the most recent quarter, the Company opened two
new Bugaboo Creek Steak House restaurants, one on January 15, 1996 in
Framingham, MA, and one on March 25, 1996 in Poughkeepsie, NY. As of March 31,
1996 the Company owned and operated sixteen restaurants (thirteen Bugaboo Creek
Steak House restaurants and three Capital Grille restaurants). In addition, the
Company manages three dinner house restaurants under management contracts. As of
April 2, 1995 there were six Bugaboo Creek Steak House units and three Capital
Grille units in operation.
Certain operating expenses were affected by the relative youth of units that
have been open for less than one year (see Restaurant Costs and Operating
Expenses, below). During the quarter ended March 31, 1996 a total of eight of
the Company's units had been open for less than one year, and thus were
incurring amortization charges for pre-opening costs.
One new unit was opened in the same period for the prior year. During the
quarter ended April 2, 1995 a total of four units had been open for less than
one year, and thus were incurring amortization charges for pre-opening costs.
A new, smaller Bugaboo Creek Steak House prototype is currently under
development. This 7,200 square foot building, which is 2,000 square feet smaller
in size than the Company's previous prototype, has 265 dining seats configured
to increase seating efficiency. Management is pleased with the initial sales
results at the recently opened Poughkeepsie unit, which also has 265 seats, and
anticipates that the new prototype design will enable the Company to generate
strong returns on lower sales volumes, thereby opening many smaller markets for
Bugaboo Creek Steak House development.
7
<PAGE>
Net Restaurant Sales: For the sixteen week period ending March 31, 1996 (the
third quarter of fiscal 1996) net restaurant sales were $16,491,323, an increase
of 60.4% over net restaurant sales of $10,283,447 for the sixteen week period
ended April 2, 1995. The increase reflects the addition of 102 restaurant-weeks,
76% over the previous year, resulting from seven new Bugaboo Creek Steak House
restaurants, offset by a decline in comparable restaurant sales of 6.8%. (A
"restaurant-week" is one week during which a single restaurant is open, so that
two restaurants open during the same week constitutes two restaurant-weeks.
"Comparable restaurant sales" growth is the percentage increase in current year
sales over the same period in the prior year. A restaurant is included in
"comparable restaurant sales" commencing with the first quarter following the
week in which it has been open for 18 months. This excludes the first six months
of operations during which a new unit typically benefits from a high level of
initial customer trial.) Average weekly sales were $69,900, an 8.9% decrease
versus the same period last year. Net restaurant sales for the quarter were
severely impacted by record setting winter storms in the Northeast and
Mid-Atlantic regions, as well as the federal government shut down and the
lobbyist gift ban. Management does not expect comparable restaurant sales growth
in the current quarter to be indicative of comparable restaurant sales growth in
future quarters. Year-to-date net restaurant sales of $37,920,589 for the year
ending June 30, 1996 (fiscal 1996) were 76.2% above the prior year sales of
$21,522,184, reflecting the addition of 247 restaurant weeks.
Restaurant costs and operating expenses: Food and beverage costs increased to
$6,079,118 in the third quarter of fiscal 1996 from $3,769,174 in the prior year
period, and as a percentage of net restaurant sales increased slightly to 36.9%
from 36.7% in the prior year period. Year-to-date food and beverage costs of
$14,041,662 and $7,860,743 for fiscal years 1996 and 1995, respectively, were
37.0% and 36.5% as a percent of net restaurant sales. The increase in fiscal
1996 was the result of higher beef costs experienced in the first quarter. These
costs returned to more normal levels during the second and third quarters.
Operating expenses for the third quarter of fiscal 1996 increased to $7,111,239
versus $4,116,824 in the prior year and as a percentage of net restaurant sales
increased 3.1 percentage points versus the prior year to 43.1%. The increase was
due primarily to higher advertising expenditures, operating inefficiencies in
the newer units, snow removal and repair expenses and the impact of lower
average weekly sales in Bugaboo Creek Steak House units during the quarter
versus the same period in the prior year. Year-to-date operating expenses were
$16,304,724 and $8,594,411 in fiscal years 1996 and 1995, or 43.0% and 40.0% of
net restaurant sales, respectively.
Depreciation and amortization expenses for the third quarter of fiscal year 1996
increased to $1,141,142 from $531,504 in the prior year, and as a percentage of
net restaurant sales were 1.7 percentage points higher than the prior year, due
principally to increased amortization of new unit pre-opening costs and lower
average unit sales. Pre-opening costs of new units are amortized over the first
year of a restaurant's operation. Year-to-date depreciation and amortization
expenses were $2,467,545 and $1,078,663 in fiscal years 1996 and 1995,
respectively, or 6.5% and 5.0% of respective net restaurant sales.
Earnings from restaurant operations: As a result of the above factors, earnings
from restaurant operations for the third quarter of fiscal 1996 grew 15.7% to
$2,159,824 from $1,865,945 in the prior year. Restaurant operating profit
margins for the third quarter were 13.1% and 18.1% of net restaurant sales for
fiscal years 1996 and 1995, respectively. The decline in operating profit
margins was largely due to the weather impact on total sales as well as an
increase in Bugaboo Creek weeks as a percentage of total restaurant weeks.
Year-to-date earnings from restaurant operations of $5,106,658 and $3,988,367
for fiscal years 1996 and 1995, respectively, were 13.5% and 18.5% of respective
net restaurant sales.
8
<PAGE>
General and Administrative Expenses: G&A expenses for the third quarter of
fiscal 1996 increased to $1,160,974 from $807,374 in the prior year. As a
percentage of net restaurant sales, G&A expenses for the quarter declined to
7.0% from 7.8% in the prior year. Year-to-date G&A expenses of $2,664,750 and
$1,792,340 for fiscal years 1996 and 1995, respectively, declined as a percent
of respective net restaurant sales to 7.0% from 8.3%. G&A expenses for the
current fiscal year, which are now being spread over a larger sales base, have
been affected by investments the Company has made in systems and staff in order
to achieve an 85% expansion in year-to-date restaurant-weeks and to prepare for
further expansion.
Other (income) expense, net: Other income consists primarily of management fees,
net of allocated overhead expenses, collected from the three non-Company
restaurants under management contracts, as well as miscellaneous receipts from
vending machines and recycling collections. For the sixteen week periods ended
March 31, 1996 and April 2, 1995 other income (expense), net, was $460 and
($7,001), respectively. Year-to-date other income, net, was $32,789 and $70,755,
respectively. The reduced income in the current quarter and year-to-date
resulted primarily from lower sales in the managed restaurants, and a
corresponding reduction in management fees received.
Interest and dividend income and expense: Interest and dividend income is
derived from investments in marketable securities and the short term investment
of excess cash balances. The marketable securities, purchased with the proceeds
of the initial public stock offering in April 1994, have been substantially
liquidated to fund the development of new restaurants. Thus, in the sixteen week
periods ending March 31, 1996 and April 2, 1995, the Company had interest and
dividend income of $16,226 and $53,569, respectively, and $75,756 and $362,640
for the forty weeks then ended. Of the total interest costs of $353,436, paid
and accrued, during the forty weeks ended March 31, 1996, $165,433 related
solely to the construction of new units and has been capitalized as part of
construction in progress.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the Company's cash flows for the forty
weeks ended March 31, 1996:
Net cash provided by operating activities .................... $ 973,133
Cash flows from investing activities:
Purchase of marketable securities ................... (487,633)
Proceeds from sale of marketable securities ......... 511,345
Proceeds from maturity of marketable securities ..... 1,095,861
Decrease in interest and dividends receivable ....... 6,691
Purchase of property and equipment .................. (11,851,248)
Decrease in construction allowance receivable ....... 475,000
------------
Total ............................................... $(10,250,014)
Proceeds from long-term debt ................................. 8,800,000
Increase in book overdrafts .................................. 714,495
------------
Net increase in cash ......................................... $ 237,614
============
At March 31, 1996 the Company held approximately $1.5 million in cash and
marketable securities. An unrealized loss, net of taxes, on marketable
securities classified as available-for-sale of $1,275 was recorded as a separate
component of Stockholders' Equity as of that date.
9
<PAGE>
Cash used in investing activities was applied almost entirely to the
construction of new restaurants. The Company has opened five Bugaboo Creek Steak
House restaurants in the current fiscal year, and expects to open its fourteenth
Bugaboo Creek Steak House unit in June 1996. In addition, two Capital Grille
units are under construction and two others are under lease. The Company is
currently in negotiation on several additional locations. The investing
activities during the quarter were financed substantially from bank debt and
operating cash flows. The Company has an unsecured $20 million revolving credit
line to be used in conjunction with operating cash flows for the continued
development of restaurant properties. At March 31, 1996 the Company had
outstanding long-term debt of $9,600,000 under this line of credit. Expenditures
for inventories, pre-opening costs and other costs associated new unit
development were financed substantially from operating cash flows.
On August 30, 1995 the Board of Directors of the Company authorized the
repurchase of up to 200,000 shares of the Company's common stock. As of the date
of this filing no shares have been acquired.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10.3(i): Employment Agreement between the
Company and Edward P. Grace, III
Exhibit 10.3(ii): First Amendment to Employment
Agreement between the Company and
Edward P. Grace, III
Exhibit 11: Computation of earnings per share
Exhibit 27: Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter for
which this report was filed.
11
<PAGE>
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.
Bugaboo Creek Steak House, Inc.
/s/ Edward P. Grace, III
- - ------------------------
Edward P. Grace, III
Chairman of the Board, Chief
Executive Officer and President
May 10, 1996
/s/ Mark A. Peterson
- - --------------------
Mark A. Peterson
Senior Vice President and
Chief Financial Officer
May 10, 1996
/s/ Michael D. Warren
- - ---------------------
Michael D. Warren
Controller and Principal
Accounting Officer
May 10, 1996
12
EXHIBIT 10.3(i)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of the
1st day of January, 1994, by and between BUGABOO CREEK STEAK HOUSE, INC., a
Delaware corporation with a mailing address of P.O. Box 276, Seekonk,
Massachusetts 02771 (the "Company"), and EDWARD P. GRACE, III, an individual
with a residence address of 125 Poppasquash Road, Bristol, RI 02809
("Executive").
INTRODUCTION
1. The Company is in the business of operating and managing restaurants.
Executive conceived and developed the restaurant concepts currently used in the
Company's operations and possesses other skills and knowledge advantageous to
the Company.
2. The Company desires to employ Executive and Executive desires to accept
such employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. Employment Period. The term of this Agreement (the "Employment Period")
shall commence on the date hereof and, subject to earlier termination as
hereinafter provided, shall terminate three (3) years from the date hereof.
2. Employment; Duties. Subject to the terms and conditions set forth
herein, the Company hereby employs Executive, on a full-time basis, to act as
President and Chief Executive Officer of the Company during the Employment
Period, and Executive hereby accepts such employment. The duties assigned and
authority granted to Executive shall be as set forth in the By-laws of the
Company and as determined by its Board of Directors from time to time. Executive
agrees to perform his duties for the Company diligently, competently, and in a
good faith manner.
3. Salary and Bonus.
(a) Base Salary. During the first year of the Employment Period, the
Company agrees to pay Executive $150,000.00 per year, payable weekly
in arrears. If on the anniversary date of this Agreement the Consumer
Price Index for the Rhode Island area published by the Bureau of Labor
Statistics of the United States Department of Labor ("Index") shows an
increase in the cost of living for the Rhode Island area, the
Executive's annual base salary for the ensuing 12 months shall be
increased by the same percentage that the Index shall have increased
from the base date of January 1, 1994. In addition, after the first
year of the Employment Period, the Board of Directors of the the
Company (or any appropriate committee thereof) shall review and may
increase the Executive's annual base salary in its discretion, based
upon the Company's performance and the Executive's particular
contributions.
(b) Bonus. Executive shall be eligible for and shall receive an annual
cash bonus under the Company's Executive Cash Bonus Plan and subject
to the discretion of the Company's Board of Directors.
4. Other Benefits.
(a) Insurance and Other Benefits. The Executive shall be entitled to
participate in, and shall receive the maximum benefits available
under, the Company's insurance programs (including health and life
insurance) and any ERISA benefit plans, as the same may be adopted
and/or amended from time to time, and shall receive all other fringe
benefits that are provided by the Company to other senior executives.
The Company shall purchase a disability insurance policy which shall
provide Executive with a minimum monthly benefit equal to 65% of
Executive's monthly base salary after a six-month period of
disability.
13
<PAGE>
(b) Vacation. Executive shall be entitled to an annual vacation of such
duration as may be determined by the Board of Directors but not less
than that generally established for other executives of Company and in
no event less than four (4) weeks, without interruption of salary,
provided that Executive will not receive pay in addition to salary in
the event that he does not take his full vacation in a given year,
unless such is foregone with the approval of the Board of Directors.
(c) Automobile Allowance. The Company shall provide Executive with an
automobile allowance of $1,000 per month.
(d) Reimbursement of Expenses. The Company shall reimburse Executive for
all reasonable travel, entertainment and other expenses incurred or
paid by the Executive in connection with, or related to, the
performance of his duties or responsibilities under this Agreement,
provided that Executive submits to the Company substantiation of such
expenses sufficient to satisfy the record keeping guidelines
promulgated from time to time by the Internal Revenue Service.
(e) Membership and Service Fees. The Company shall pay the professional
and other fees reasonably incurred by Executive in connection with (i)
the preparation and negotiation of this Agreement, (ii) an annual
medical examination of Executive, (iii) the annual planning for and
preparation of Executive's personal income tax returns, (iv) annual
review of and planning Executive's financial situation by a financial
planner, (v) annual membership in an airline travel club, and (vi)
annual membership in a social or health club of Executive's choice.
5. Termination by the Company With Cause. Upon prior written notice to
Executive, the Company may terminate this Agreement if any of the following
events shall occur: (i) the conviction of Executive for a crime involving fraud
or moral turpitude; (ii) deliberate dishonesty of the Executive with respect to
the Company or any of its subsidiaries; or (iii) the refusal of the Executive to
follow the reasonable and lawful written instructions of the Board of Directors
of the Company with respect to the services to be rendered and the manner of
rendering such services by Executive, provided such refusal is material and
repetitive and is not justified or excused either by the terms of this Agreement
or by actions taken by the Company in violation of this Agreement, and with
respect to the first two refusals Executive has been given reasonable written
notice and explanation thereof and reasonable opportunity to cure and no cure
has been effected within a reasonable time after such notice.
6. Termination by the Executive; Termination by the Company Without Cause.
6.1 Notice/Events. The Executive may terminate this Agreement at any time
by providing written notice to the Company. The Company may terminate this
Agreement at any time without cause upon six (6) months prior written notice to
Executive.
6.2 Severance. If the Company terminates this Agreement without cause, the
Company shall provide Executive with a severance package which shall consist of
the following: (i) payment on the first business day of each month of an amount
equal to one-twelfth of the Executive's then current annual salary under Section
3(a), less required payroll taxes; and (ii) continuation of all benefits under
Section 4. The Company's obligation to make the payments and provide the
benefits required by this Section 6.2 shall commence on the date of termination
and continue until the later of (x) the third anniversary date of this Agreement
and (y) one (1) year after the date of termination of this Agreement.
7. Death or Disability. In the event of the Executive's death or
disability, employment will automatically terminate effective as of the date of
such death or disability. As used in this Agreement, the term "disability" shall
mean inability on the part of Executive for a period of more than six (6) months
in the aggregate during any twelve (12) month period to perform the services
contemplated under this Agreement. A determination of disability shall be made
by a physician satisfactory to both the Executive and the Company, provided that
if the Executive and the Company do not agree on a physician, the Executive and
the Company shall each select a physician and these two physicians together
14
<PAGE>
shall select a third physician, whose determination as to disability shall be
binding on all parties.
8. Non-Competition. During the Employment Period and after termination of
this Agreement by the Executive under Section6.1 or by the Company under Section
5 or Section 6.2, the Company may restrict the Executive's subsequent business
activities as provided for below, for the period (the "Non-compete Period")
ending upon the later of (x) the third anniversary date of this Agreement and
(y) one (1) year after the date of termination of this Agreement. During the
Non-compete Period, if the Company requests such restriction on Executive's
business activities, Executive shall not, without the written approval of the
Company, directly or indirectly, either as an individual, partner, joint
venturer, employee or agent for any person, company, corporation or association
or as an officer, director or stockholder of a corporation or otherwise, enter
into or engage in or have a proprietary interest in any restaurant business
other than the ownership of (a) no more than five per cent (5%) of the common
stock of Stacey's Buffet, Inc. currently held by Executive, (b) no more than two
percent (2%) of the securities of any other publicly-held company and (c)
Executive's interests in three privately-held restaurant businesses currently
known as The Old Grist Mill Tavern, Hemenway's Sea Food Grill & Oyster Bar and
Monterey Restaurant, each of which may operate a single restaurant.
Before commencing any business activity within the Non-compete Period, the
Executive shall notify the Company of the nature of such business activity,
including the identity of the entity or entities which the Executive intends to
become affiliated with in connection with such activity. The Company may
exercise its option to restrict the Executive's employment pursuant to this
Section 8 for the balance of the Non-compete Period by providing written notice
thereof to the Executive within thirty (30) days after its receipt of the
Executive's notice. If the Company does not exercise its right to restrict the
Executive's employment by giving such notice, the Executive shall remain under a
continuing obligation to notify the Company of any change in (a) the business
activities of the entity or entities with which the Executive has become
affiliated, (b) the Executive's employment or (c) the duties or position of the
Executive; provided, however, that the Executive shall be under a continuing
obligation to notify the Company only if, as a result of a change in (a) the
business activities of the entity or entities with which the Executive has
become affiliated or (b) the Executive's employment, duties or position, the
Executive or the entity or entities employing the Executive is in competition,
directly or indirectly, with the business of the Company. Within thirty (30)
days of receipt by the Company of such notification, the Company may exercise
its option to restrict the Executive's business activities by providing the
Executive with written notice thereof. If the Company exercises its right to
restrict the Executive's business activities as provided above, it shall, from
the date of its notice until the expiration of the Non-compete Period, pay to
the Executive a monthly amount due in advance on the first business day of each
month equal to one-twelfth of the Executive's then current annual salary under
Section 3(a), less required payroll taxes (the "Non-Compete Fee") and provide
Executive with the same benefits as Executive was entitled to receive pursuant
to Section 4 immediately prior to his termination of employment with the Company
(the "Benefits"). If the Company fails either to make a monthly Non-compete Fee
payment within five (5) days after the Executive provides notice that payment is
overdue or to continue Executive's Benefits as required hereunder and the
Executive is in compliance with his obligations under this Agreement, the
Company's right to restrict the Executive's business activities pursuant to this
Section 8 shall cease and terminate, but the Company shall have no additional
liability or obligation to the Executive under this Section 8. If the Company
has terminated this Agreement without cause under Section 6.2 and exercises its
rights under this Section 8, the payments and benefits to be provided as
Executive's severance package under Section 6.2 shall be credited toward the
Company's obligation to pay the Non-Compete Fee and provide Benefits under this
Section 8.
The Executive recognizes and agrees that because a violation by him of his
obligations under this Section 8 will cause irreparable harm to the Company that
would be difficult to quantify and for which money damages would be inadequate,
the Company shall have the right to injunctive relief to prevent or restrain any
such violation, without the necessity of posting a bond.
Executive expressly agrees that the character, duration and geographical
scope of this covenant not to compete are reasonable in light of the
circumstances as they exist at the date upon which this Agreement has been
executed. However, should a determination nonetheless be made by a court of
15
<PAGE>
competent jurisdiction at a later date that the character, duration or
geographical scope of this covenant not to compete is unreasonable in light of
the circumstances as they then exist, then it is the intention of both Executive
and the Company that this covenant not to compete shall be construed by the
court in such a manner as to impose only those restrictions on the conduct of
Executive which are reasonable in light of the circumstances as they then exist
and necessary to assure the Company of the intended benefit of this covenant to
compete.
9. Confidentiality. Executive agrees to accept, perform and abide by the
confidentiality covenants set forth on Exhibit 9.
10. Governing Law/Jurisdiction. This Agreement shall be governed by and
interpreted and governed in accordance with the laws of the State of Rhode
Island. The parties agree that this Agreement was made and entered into in Rhode
Island and each party hereby consents to the jurisdiction of a competent court
in Rhode Island to hear any dispute arising out of this Agreement.
11. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and thereof
and supercedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall not be
changed, altered, modified or amended, except by a written agreement signed by
both parties hereto.
12. Notices. All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be deemed to have been given if delivered by hand, sent by
generally recognized overnight courier service, telex or telecopy, or certified
mail, return receipt requested.
(a) to the the Company at:
P.O. Box 276
Seekonk, Massachusetts 02771
(b) to the Executive at:
125 Poppasquash Road
Bristol, RI 02809
Any such notice or other communication will be considered to have been
given (i) on the date of delivery in person, (ii) on the third day after mailing
by certified mail, provided that receipt of delivery is confirmed in writing,
(iii) on the first business day following delivery to a commercial overnight
courier or (iv) on the date of facsimile transmission (telecopy) provided that
the giver of the notice obtains telephone confirmation of receipt.
Either party may, by notice given to the other party in accordance with
this Section, designate another address or person for receipt of notices
hereunder.
13. Severability. If any term or provision of this Agreement, or the
application thereof to any person or under any circumstance, shall to any extent
be invalid or unenforceable, the remainder of this Agreement, or the application
of such terms to the persons or under circumstances other than those as to which
it is invalid or unenforceable, shall be considered severable and shall not be
affected thereby, and each term of this Agreement shall be valid and enforceable
to the fullest extent permitted by law. The invalid or unenforceable provisions
shall, to the extent permitted by law, be deemed amended and given such
interpretation as to achieve the economic intent of this Agreement.
14. Waiver. The failure of any party to insist in any one instance or more
upon strict performance of any of the terms and conditions hereof, or to
exercise any right or privilege herein conferred, shall not be construed as a
waiver of such terms, conditions, rights or privileges, but same shall continue
to remain in full force and effect. Any waiver by any party of any violation of,
breach of or default under any provision of this Agreement by the other party
shall not be construed as, or constitute, a continuing waiver of such provision,
or waiver of any other violation of, breach of or default under any other
provision of this Agreement.
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
BUGABOO CREEK STEAK HOUSE, INC.
By:/s/ Corinna A. Sylvia
Title: Secretary
EXECUTIVE:
/s/ Edward P. Grace, III
EXHIBIT 9 (Employment Agreement)
9.1 Confidentiality Covenants. In accepting employment with Bugaboo Creek
Steak House, Inc. and/or its affiliates (collectively, the "Company"), I
understand that Company may impart to me confidential business information
including, without limitation, recipes, designs, financial information,
personnel information, real estate information, and the like (collectively
"confidential information"). I hereby acknowledge Company's exclusive ownership
of such confidential information.
I agree: (1) only to use the confidential business information to provide
services or goods to Company; (2) only to communicate the confidential
information to fellow employees on a need-to-know basis; and (3) not otherwise
disclose or use, at any time, any confidential information. Upon demand by
Company or upon termination of my employment, I will deliver to Company all
blueprints, manuals, recipes, photographs, recordings, and any other instrument
or device by which, through which, or on which confidential information has been
recorded and/or preserved, which are in my possession, custody or control.
I further agree that the disclosure or use of any confidential information
in breach of this understanding would cause irreparable harm to Company and
accordingly, not only may Company seek damages but I agree to the issuance of a
permanent injunction against me restraining such disclosure and use, and I agree
that any court of competent jurisdiction selected by Company shall have personal
jurisdiction over me.
17
EXHIBIT 10.3(ii)
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement is entered into as of the 1st
day of January, 1996 by and between Bugaboo Creek Steak House, Inc., a
Delaware corporation with a mailing address of P.O. Box 276, Seekonk,
Massachusetts 02771 (the "Company"), and Edward P. Grace, III, an individual
with a residence address of 6224 Masters Blvd., Unit B-104, Orlando, Florida
32819 ("Executive").
INTRODUCTION
1. The Company and Executive entered into that certain Employment Agreement
dated as of January 1, 1994 (the "Employment Agreement"), pursuant to which the
Company employed Executive as its President and Chief Executive Officer.
2. The Company and Executive now wish to amend said Employment Agreement as
hereinafter set forth to revise the description of Executive's employment and
duties and to reflect a change in the Executive's residence address.
AGREEMENT
NOW, THEREFORE, in consideration of the respective premises and mutual
promises herein below set forth, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. All capitalized terms used herein shall have the meanings set forth in
the Employment Agreement unless the context clearly requires otherwise.
2. Section 2 of the Employment Agreement is hereby replaced in its entirety
by the following:
"2. Employment; Duties. Subject to the terms and conditions set
forth herein, the Company hereby employs Executive to act as President
and Chief Executive Officer of the Company during the Employment Period,
and Executive hereby accepts such employment. The Company acknowledges
that Executive has relocated his permanent residence to the State of
Florida for family and other considerations, and does not expect
Executive to be personally present at the Company's headquarters in East
Providence, Rhode Island for the majority of time remaining in the
Employment Period. Nevertheless, Executive's duties and authority shall
be as set forth in the By-laws of the Company and as determined by the
Company's Board of Directors from time to time, and Executive agrees to
perform his duties for the Company diligently, competently, and in a
good faith manner."
3. The address for delivery of notices to the Executive set forth at
Section 12(b) of the Employment Agreement is hereby replaced in its entirety by
the following:
"(b) to the Executive at:
6224 Masters Boulevard
Unit B-104
Orlando, Florida 32819"
4. Except as modified herein, the Employment Agreement is hereby ratified,
confirmed and approved in all respects.
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Employment Agreement as of the date first written above.
BUGABOO CREEK STEAK HOUSE, INC.
By: /s/ Mark A. Peterson
Title: Chief Financial Officer
EXECUTIVE:
/s/ Edward P. Grace, III
<TABLE>
<CAPTION>
EXHIBIT 11
BUGABOO CREEK STEAK HOUSE, INC.
COMPUTATION OF EARNINGS PER SHARE
(unaudited)
SIXTEEN WEEKS ENDED MARCH 31, 1996 AND APRIL 2, 1995:
1996 1995
----------------------------- -----------------------------
Fully Fully
Primary Diluted Primary Diluted
-------------- ------------- ------------- -------------
Net earnings applicable to common shares:
<S> <C> <C> <C> <C>
Earnings before taxes $881,437 $881,437 $1,105,139 $1,105,139
Taxes on income (308,503) (308,503) (384,822) (384,822)
-------------- ------------- ------------- -------------
Total $572,934 $572,934 $720,317 $720,317
============== ============= ============= =============
Weighted average number of shares outstanding:
Outstanding at beginning of period 5,225,000 5,225,000 5,225,000 5,225,000
Assumed exercise of stock options * * 1,250 8,800
-------------- ------------- ------------- -------------
Total 5,225,000 5,225,000 5,226,250 5,233,800
============== ============= ============= =============
Earnings per share $0.11 $0.11 $0.14 $0.14
============== ============= ============= =============
FORTY WEEKS ENDED MARCH 31, 1996 AND APRIL 2, 1995:
1996 1995
----------------------------- -----------------------------
Fully Fully
Primary Diluted Primary Diluted
-------------- ------------- ------------- -------------
Net earnings applicable to common shares:
Earnings before taxes $2,362,450 $2,362,450 $2,629,422 $2,629,422
Taxes on income (826,858) (826,858) (910,215) (910,215)
-------------- ------------- ------------- -------------
Total $1,535,592 $1,535,592 $1,719,207 $1,719,207
============== ============= ============= =============
Weighted average number of shares outstanding:
Outstanding at beginning of period 5,225,000 5,225,000 5,225,000 5,225,000
Assumed exercise of stock options * * 713 6,013
-------------- ------------- ------------- -------------
Total 5,225,000 5,225,000 5,225,713 5,231,013
============== ============= ============= =============
Earnings per share $0.29 $0.29 $0.33 $0.33
============== ============= ============= =============
* Stock options were antidilutive for these periods.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 965,536
<SECURITIES> 520,705
<RECEIVABLES> 452,650
<ALLOWANCES> 0
<INVENTORY> 1,818,629
<CURRENT-ASSETS> 5,582,823
<PP&E> 37,557,987
<DEPRECIATION> 3,986,429
<TOTAL-ASSETS> 39,626,841
<CURRENT-LIABILITIES> 4,744,763
<BONDS> 0
0
0
<COMMON> 52,250
<OTHER-SE> 24,475,160
<TOTAL-LIABILITY-AND-EQUITY> 39,626,841
<SALES> 37,920,589
<TOTAL-REVENUES> 37,920,589
<CGS> 14,041,662
<TOTAL-COSTS> 32,813,931
<OTHER-EXPENSES> 2,631,961
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 188,003
<INCOME-PRETAX> 2,362,450
<INCOME-TAX> 826,858
<INCOME-CONTINUING> 1,535,592
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,535,592
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
