<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
ACT OF 1934
For quarter period ended December 31, 1997,
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _______________.
Commission file number 0-25886
GARDEN FRESH RESTAURANT CORP.
(Exact name of registrant as specified in its charter)
Delaware 33-0028786
(State or other jurisdiction of incorporation (I.R.S. Employee
or organization) Identification No.)
17180 Bernardo Center Drive, San Diego, CA 92128
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (619) 675-1600
Former name, former address and former fiscal year.
If changed since last report.
Indicate by a 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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of Common Stock, $.01 par value, outstanding as of January
8, 1998, was 4,289,621. There are no other classes of common stock.
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GARDEN FRESH RESTAURANT CORP.
FORM 10-Q
INDEX
PAGE
PART I: FINANCIAL INFORMATION
Item 1: Unaudited Condensed Financial Statements
Condensed Balance Sheet at September 30, 1997 and
December 31, 1997 3
Condensed Statement of Income for the three months
ended December 31, 1996 and December 31, 1997 4
Condensed Statement of Cash Flows for the three months
ended December 31, 1996 and December 31, 1997 5
Notes to Unaudited Condensed Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
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
<PAGE> 3
GARDEN FRESH RESTAURANT CORP.
CONDENSED BALANCE SHEET
(Dollars in thousands)
September 30, 1997 December 31, 1997
(Unaudited)
ASSETS
Cash $ 2,345 $ 355
Inventories 2,886 3,112
Other current assets 550 1,008
Deferred income taxes 322 198
---------- ----------
Total current assets 6,103 4,673
Property and equipment, net 54,257 58,127
Intangible and other assets 1,472 1,661
Deferred income taxes 577 416
---------- ----------
Total assets $ 62,409 $ 64,877
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 5,012 $ 3,349
Current portion of long-term debt 4,456 4,451
Accrued liabilities 4,411 5,421
---------- ----------
Total current liabilities 13,879 13,221
Accrued rent 1,397 1,376
Long term debt, net of current portion 12,965 15,317
Shareholders' equity:
Common stock, $.01 par value; 12,000,000
shares authorized at September 30, 1997
and December 31, 1997; 4,264,579 and
4,289,621 issued and outstanding at
September 30, 1997 and December 31, 1997,
respectively 43 43
Paid in capital 38,794 39,003
Accumulated deficit (4,669) (4,083)
---------- ----------
Total shareholders' equity 34,168 34,963
---------- ----------
Total liabilities and shareholders' equity $ 62,409 $ 64,877
========== ==========
See notes to unaudited condensed financial statements.
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GARDEN FRESH RESTAURANT CORP.
CONDENSED STATEMENT OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
December 31, December 31,
1996 1997
NET SALES $ 19,277 $ 23,903
----------- -----------
COST AND EXPENSES:
Cost of sales 5,121 6,281
Restaurant operating expenses:
Labor 5,736 7,187
Occupancy and other 4,712 5,782
General and administrative expenses 1,314 1,582
Depreciation and amortization 1,444 1,684
----------- -----------
Total costs and expenses 18,327 22,516
----------- -----------
OPERATING INCOME 950 1,387
Interest expense, net (304) (419)
Other expense, net (16) (16)
INCOME BEFORE INCOME TAXES 630 952
Provision for income taxes 255 366
----------- -----------
NET INCOME $ 375 $ 586
=========== ===========
Basic net income per share $ .09 $ .14
=========== ===========
Shares used in computing
basic net income per share 4,140 4,277
=========== ===========
Diluted net income per share $ .09 $ .13
=========== ===========
Shares used in computing
diluted net income per share 4,288 4,591
=========== ===========
See notes to unaudited condensed financial statements.
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GARDEN FRESH RESTAURANT CORP.
CONDENSED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
December 31, December 31,
1996 1997
OPERATING ACTIVITIES:
Net income $ 375 $ 586
-------- --------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,444 1,684
Loss on disposal of property 16 16
Deferred income taxes 69 285
Changes in operating assets and liabilities:
Increase in inventories (115) (226)
Increase in other assets (779) (457)
Increase (decrease) in accounts payable 92 (1,663)
Increase (decrease) in accrued liabilities (376) 1,010
Decrease in accrued rent (21) (21)
-------- --------
Net cash provided by operating activities $ 705 $ 1,214
======== ========
INVESTING ACTIVITIES:
Acquisition of property and equipment:
New restaurants (4,453) (4,986)
Existing restaurant additions (296) (262)
Increase in intangible and other assets (376) (512)
-------- --------
Net cash used in investing activities (5,125) (5,760)
-------- --------
FINANCING ACTIVITIES:
Proceeds from long term debt 6,308 3,871
Repayment of long term debt (1,216) (1,524)
Net proceeds from issuance of common stock 216 209
-------- --------
Net cash provided by financing activities 5,308 2,556
-------- --------
Net increase (decrease) in cash 888 (1,990)
Cash at beginning of period 615 2,345
-------- --------
Cash at end of period $ 1,503 $ 355
======== ========
See notes to unaudited condensed financial statements.
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GARDEN FRESH RESTAURANT CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. UNAUDITED CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements have been prepared by the
Company without audit and reflect all adjustments, consisting of normal
recurring adjustments, which are, in the opinion of management, necessary for a
fair statement of financial position and the results of operations for the
interim periods. The statements have been prepared in accordance with the
regulations of the Securities and Exchange Commission and do not necessarily
include certain information and footnote disclosures necessary to present the
statements in accordance with generally accepted accounting principles. For
further information, refer to the financial statements and notes thereto for
the fiscal year ended September 30, 1997 included in the Company's Form 10-K.
2. NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("FAS
128"), which establishes new standards for computing earnings per share and
which became effective for financial statements for periods after December 15,
1997, including interim periods. Under the new requirements, historically
reported "primary" and "fully diluted" earnings per share have been replaced
with "basic" and "diluted" earnings per share.
Basic net income per share is computed based on the weighted average of
common shares outstanding during the period. Diluted net income per share is
computed based on the weighted average number of common shares and common stock
equivalents, using the treasury stock method, outstanding during the period.
Common stock equivalents of 148,000 and 314,000 shares for the three month
periods ended December 31, 1996 and 1997, respectively, were used to calculate
diluted earnings per share. There are no reconciling items in calculating the
numerator for basic and diluted earnings per share for any of the periods
presented.
3. PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
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GARDEN FRESH RESTAURANT CORP.
STATEMENT OF OPERATING DATA
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales of certain items
included in the Company's statement of operating data for the periods
indicated.
3 Months Ended
December 31, December 31,
1996 1997
NET SALES 100.0% 100.0%
----- -----
COST AND EXPENSES:
Cost of sales 26.6% 26.3%
Restaurant operating expenses:
Labor 29.8% 30.1%
Occupancy and other 24.4% 24.2%
General and administrative expenses 6.8% 6.6%
Depreciation and amortization 7.5% 7.0%
----- -----
Total operating expenses 95.1% 94.2%
----- -----
OPERATING INCOME 4.9% 5.8%
Interest expense, net (1.6%) (1.7%)
Other expense, net (.1%) (.1%)
INCOME BEFORE INCOME TAXES 3.2% 4.0%
----- -----
Provision for income taxes 1.3% 1.5%
----- -----
NET INCOME 1.9% 2.5%
===== =====
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RESULTS OF OPERATIONS
Three Months Ended December 31, 1997 Compared to Three Months Ended December
31, 1996
Net Sales. Net sales for the three months ended December 31, 1997
increased 23.8% to $23.9 million from $19.3 million for the comparable 1996
period. This was due to the opening of seven full size restaurants since the
comparable 1996 period, and in part, by a 9.8% increase in comparable
restaurant sales.
Cost of Sales. Cost of sales for the three months ended December 31, 1997
as a percent of sales decreased .3% to 26.3% from the 26.6% since the 1996
period due to higher average meal price per guest.
Labor Expense. Labor expense for the three months ended December 31, 1997
increased 26.3% to $7.2 million from $5.7 million for the comparable 1996
period. This increase was due to the new restaurants opened since the
comparable 1996 period. As a percentage of sales, the labor expense for the
three months ended December 31, 1997 increased to 30.1% from 29.8% in the
comparable 1996 period. This was caused by higher than planned crew labor in
new stores due to greater training requirements and the California minimum wage
which increased effective March 1, 1997.
Occupancy and Other Operating Costs. Occupancy and other operating costs
for the three months ended December 31, 1997 increased 23.4% to $5.8 million
from $4.7 million for the comparable 1996 period. This was due to the addition
of seven full size restaurants since the comparable 1996 period. As a
percentage of net sales, occupancy and other operating costs for the three
months ended December 31, 1997 decreased to 24.2% from 24.4% in the comparable
1996 period. This decrease was due to lower occupancy costs associated with
more favorable rents in newer stores and higher sales volume relative to the
fixed occupancy costs.
General and Administrative Expenses. General and administrative expenses
for the three months ended December 31, 1997 increased 23.1% to $1.6 million
from $1.3 million for the comparable 1996 period. As a percentage of net
sales, general and administrative expenses for the three months ended December
31, 1997 decreased to 6.6% from 6.8% for the comparable 1996 period. This was
due primarily to a greater increase in sales relative to the increase in the
general and administrative expenses.
Depreciation and Amortization Expense. Depreciation and amortization
expense for the three months ended December 31, 1997 increased 21.4% to $1.7
million from $1.4 million for the comparable 1996 period. This increase was
due to depreciation and amortization for the seven new restaurants opened since
the comparable 1996 period. As a percentage of net sales, depreciation and
amortization expenses for the three months ended December 31, 1997 decreased to
7.0% from 7.5% for the comparable 1996 period.
Interest Expense. Interest expense for the three months ended December
31, 1997 increased 33.3% to $.4 million from $.3 million for the comparable
1996 period. Interest expense was increased due to the additional debt
incurred for expansion.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its cash requirements principally from
operating activities, the private placement of preferred stock, external debt
and capital leases and a public stock offering. The Company does not have
significant receivables or inventory, and receives trade credit based upon
negotiated terms when purchasing food and supplies. For the three months ended
December 31, 1997 the Company generated $1.2 million in cash flow from
operating activities. During this period the Company also acquired property
and equipment totalling $5.2 million, borrowed $3.9 million, paid down debt of
$1.5 million, and sold equity for .2 million, which resulted in a net decrease
of $2.0 million in cash.
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The Company's principal capital requirement has been for funding the
development of restaurants. Historically the Company has primarily leased the
land and buildings for its restaurant operations. The Company does purchase
land and/or buildings when favorable conditions are available. The Company
currently owns the land and buildings for sixteen restaurants, including the
land for sites the Company expects to open in fiscal 1998 and 1999. During the
first three months of fiscal 1998, the Company opened two restaurants. Capital
expenditures totalled $5.2 million during the first three months of fiscal 1998
and $4.7 million for the comparable period in fiscal 1997. As of December 31,
1997 the Company operated 51 full sized restaurants and one small quick service
restaurant.
The cash investment to open the two restaurants during the three month
period ending December 31, 1997 was $4.8 million including land and buildings,
and excluding pre-opening costs. The pre-opening costs for the two restaurants
opened in the first quarter of fiscal year 1998 were $422,000. The Company has
signed two leases, and closed five escrows and opened two escrows for sites
expected to open in fiscal 1998. The cash investment to open a new restaurant
typically includes the purchase or installation of furniture, fixtures,
equipment and leasehold improvements, and in the case of an owned site, the
purchase of land and a building. In addition to budgeted capital expenditures
for fiscal 1998 of $20.0 million for new restaurant openings, the Company has
budgeted $2.4 million in expenditures for fiscal 1998 for capital improvements
at existing sites. See "Business Risks - Expansion Risks".
The Company will need to rely on funds generated from operations to
finance a portion of the expansion currently planned for fiscal 1998, as well
as any expansion taking place after fiscal 1998. Should the Company's results
of operations or its rate of growth fail to be adequate to finance expansion or
should costs or capital expenditures rise, the Company may not have the ability
to open new restaurants at its desired pace or at all, and could be required to
seek additional financing in the future. There can be no assurance that the
Company will be able to raise such capital when needed on satisfactory terms or
at all. See "Business Risk - Capital Requirements".
IMPACT OF INFLATION
The primary inflationary factors affecting the Company's operations
include food and beverage and labor costs. The Company does not believe that
inflation has materially affected earnings during the past three years.
Substantial increases in costs and expenses, particularly food, supplies, labor
and operating expenses, could have a significant impact on the Company's
operating results to the extent that such increases cannot be passed along to
guests.
BUSINESS RISKS
The Company's business is subject to a number of risks. A comprehensive
summary of such risks can be found in the Company's Form 10K.
Certain Operating Results and Consideration
In fiscal 1996 and 1997, respectively, the Company experienced an increase
of 2.5% and an increase of 4.7% in comparable restaurant sales. In the first
three months of fiscal 1997 and 1998, respectively, the Company's comparable
restaurant sales increased by 3.7% and 9.8%, respectively. The Company's newer
restaurants have not historically experienced significant increases in guest
volume following their initial opening period. In addition, the Company does
not believe it has significant latitude to achieve comparable restaurant sales
growth through price increases. The Company believes that it may from time to
time in the future experience declines in comparable restaurant sales, and that
any future increases in comparable restaurant sales would be modest.
Expansion Risks
The Company opened seven restaurants in fiscal 1997 and has opened two
restaurants in fiscal 1998 and currently intends to open nine additional
restaurants in fiscal 1998. The Company's ability to achieve its expansion
plans will depend on a variety of factors, many of which may be beyond the
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Company's control, including the Company's ability to locate suitable
restaurant sites, negotiate acceptable lease or purchase terms, obtain required
governmental approvals and construct new restaurants in a timely manner,
attract, train and retain qualified and experienced personnel and management,
operate its restaurants profitably and obtain additional capital, as well as
general economic conditions and the degree of competition in the particular
region of expansion. The Company has experienced, and expects to continue to
experience, delays in restaurant openings from time to time. The Company
incurs substantial costs in opening a new restaurant and, in the Company's
experience, new restaurants experience fluctuating operational levels for some
time after opening. There can be no assurance that the Company will
successfully expand or that the Company's existing or new restaurants will be
profitable. The Company has encountered intense competition for restaurant
sites, and in many cases has had difficulty buying or leasing desirable sites
on terms that are acceptable to the Company. In many cases, the Company's
competitors are willing and able to pay more than the Company for sites. The
Company expects these difficulties in obtaining desirable sites to continue for
the foreseeable future.
Capital Requirements
In addition to funds generated from operations, the Company will need to
obtain external financing to complete its expansion plans for fiscal year 1998
and beyond. There can be no assurance that such funds will be available when
needed. Additionally, should the Company's results of operations decrease or
should costs or capital expenditures rise, the Company may not have the ability
to open new restaurants at its desired pace or at all, because capital may not
be available.
Cost Sensitivity
The Company's profitability is highly sensitive to increases in food,
labor and other operating costs. The Company's dependence on frequent
deliveries of fresh produce and groceries subjects it to the risk that
shortages or interruptions in supply caused by adverse weather or other
conditions could materially adversely affect the availability, quality and cost
of ingredients. In addition, unfavorable trends or developments concerning
factors such as inflation, food, labor and employee benefit costs, rent
increases resulting from the rent escalation provisions in the Company's
leases, and the availability of experienced management and hourly employees may
also adversely affect the Company. The Company believes recent relatively
favorable inflation rates and part-time labor supplies in its principal market
area have contributed to relatively stable food and labor costs in recent
years. However, there can be no assurance that these conditions will continue
or that the Company will have the ability to control costs in the future.
Minimum Wage
The Company has recently experienced increases in the hourly wage rate due
to an increase in the Federal minimum wage on October 1, 1996 and September 30,
1997 and in the California minimum wage on March 1, 1997. The Company also
expects to experience an increase in the future due to an additional increase
in the California minimum wage rate on March 1, 1998. While the Company has
managed to absorb the increase to date without reduction in profitability there
can be no assurance that the Company will be able to do so in the future.
Importance of Key Employees
The Company is heavily dependent upon the services of its officers and key
management personnel involved in restaurant operations, purchasing, expansion
and administration. In particular, the Company is dependent upon the
management and leadership of its three executive officers, Michael P. Mack,
David W. Qualls and R. Gregory Keller. The loss of any of these three
individuals could have a material adverse effect on the Company's business and
its financial results of operations. The success of the Company and its
individual restaurants depends upon the Company's ability to attract and retain
highly motivated, well-qualified restaurant operations and other management
personnel. The Company faces significant competition in the recruitment of
qualified employees.
Seasonality and Quarterly Fluctuations
The Company's business experiences seasonal fluctuations, as a
disproportionate amount of the Company's net income is generally realized in
the second, third and fourth fiscal quarters due to higher average sales and
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lower average costs. Quarterly results have been and are expected to continue
to fluctuate as a result of a number of factors, including the timing of new
restaurant openings. As a result of these factors, net sales and net income on
a quarterly basis may fluctuate and are not necessarily indicative of the
results that may be achieved for a full fiscal year.
Geographic Concentration in California: Restaurant Base
Twenty-nine of the Company's 52 existing restaurants are located in
California. Accordingly, the Company is susceptible to fluctuations in its
business caused by adverse economic or other conditions in this region,
including natural disasters or other acts of God. As a result of the Company's
continued concentration in California, adverse economic or other conditions in
California could have a material adverse effect on the Company's business. The
Company's significant investment in, and long-term commitment to, each of its
restaurant sites limits its ability to respond quickly or effectively to
changes in local competitive conditions or other changes that could affect the
Company's operations. In addition, the Company has a small number of
restaurants relative to some of its competitors. Consequently, a decline in
the profitability of an existing restaurant or the introduction of an
unsuccessful new restaurant could have a more significant effect on the
Company's result of operations than would be the case in a company with a
larger number of restaurants.
Volatility of Stock Price
The market price of the Company's common stock has fluctuated since the
initial public offering of the common stock in May 1995. Quarterly operating
results of the Company and other restaurant companies, daily transactional
volume, changes in general conditions in the economy, the financial markets or
the restaurant industry, natural disasters or other developments affecting the
Company or its competitors could cause the market price of the common stock to
fluctuate substantially. In addition, in recent years the stock market has
experienced extreme price and volume fluctuations. This volatility has had a
significant effect on the market price of securities issued by many companies
for reasons unrelated to the operating performance of these companies.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings Not Applicable
Item 2. Changes in Securities Not Applicable
Item 3. Default upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders Not Applicable
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The Exhibits required by Item 6(a) of this report are listed in
the Exhibit Index on page 13 herewith.
(b) Report on Form 8-K:
No reports on Form 8-K have been filed by the Company during the
quarter ended December 31, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GARDEN FRESH RESTAURANT CORP.
(Registrant)
/s/ Michael P. Mack
Michael P. Mack
Chief Executive Officer/President
(Principal Executive Officer)
/s/ David W. Qualls
David W. Qualls
Chief Financial Officer
(Principal Accounting and Financial
Officer)
DATED: February 13, 1998
<PAGE> 13
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NUMBER
3.1* Restated Certificate of Incorporation of Garden Fresh Restaurant ---
Corp.
3.2** Bylaws of Garden Fresh Restaurant Corp., as amended. ---
10.1** Form of Indemnity Agreement for executive officers and directors. ---
10.2** The Company's Restaurant Management Stock Option Plan, as amended. ---
10.3** The Company's Key Employee Stock Option Plan, as amended. ---
10.4** The Company's 1995 Outside Director Stock Option Plan. ---
10.5** The Company's 1995 Key Employee Stock Option Plan, as amended. ---
10.6 Form of Executive Employment Agreement ---
10.7 Wells Fargo Bank Revolving Line of Credit Note ---
27.1 Financial Data Schedule ---
* Incorporated by reference from Exhibit 4.1 filed with the Company's
Registration Statement on Form S-8 (No. 33-93568) filed June 16, 1995.
** Incorporated by reference from the Exhibits with corresponding numbers
filed with the Company's Registration Statement on Form S-1 (No.
33-90404), as amended by Amendment No. 1 to Form S-1 filed on April 19,
1995, Amendment No. 2 to Form S-1 filed May 8, 1995, Amendment No. 3 to
Form S-1 filed May 15, 1995, Exhibit 10.2 is incorporated by reference
from Exhibits 10.2 and 10.2A, Exhibit 10.3 is incorporated by reference
from Exhibits 10.3 and 10.3A and Exhibit 10.5 is incorporated by reference
from Exhibit 10.5 and 10.5A.
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement") is made effective
as of ____, 1997 (the "Effective Date"), between Garden Fresh Restaurant Corp.,
a Delaware corporation, hereinafter referred to as "Garden Fresh", and _______
_______, hereinafter referred to as "Employee."
In consideration of the promises and of the mutual covenants
contained herein, and for other good and valuable consideration, receipt of
which is hereby acknowledged, the parties hereto do hereby agree as follows:
1. Employment. Garden Fresh hereby affirms its employment of Employee,
and Employee hereby affirms such employment, upon the terms and
conditions set forth below.
2. Duties. Employee is engaged in the position of _______________
_____________________________________. Employee shall faithfully and
diligently perform the duties customarily performed by persons in the
position for which Employee is engaged, together with such other
duties as the Board of Directors (the "Board") of Garden Fresh shall
designate from time to time. As part of Employee's duties, Employee
acknowledges and understands that: (a) Employee will devote utmost
knowledge and best skill to the performance of his duties; (b)
Employee shall devote his full business time to the rendition of such
services, subject to absences for customary vacations and for
temporary illness; and (c) Employee will not engage in any other
gainful occupation which requires his personal attention without
prior consent of the Board with the exception that Employee may
personally trade in publicly traded stocks, bonds, commodities or
real estate investments for his own benefit.
3. Compensation.
3.1 Base Salary. As compensation for the proper and satisfactory
performance of all duties to be performed by Employee hereunder,
Garden Fresh shall pay Employee a base salary as determined by
the Compensation Committee of the Board of Directors from time to
time, but in no event less than $_______ per year (the "Base
Salary").
3.2 Bonus Plan. The Board or Compensation Committee shall adopt an
incentive bonus plan, for which Employee shall be eligible and
the terms of which shall be incorporated herein by reference.
3.3 Salary Increase and Bonus Plan. The Board shall develop and
implement a plan under which it, or the Compensation Committee
thereof, will evaluate Employee's performance on not less than an
annual basis and, if warranted, grant Employee increases in Base
Salary and/or additional bonus compensation based on such
evaluations. Actions of the Compensation Committee with respect
to such increases shall automatically be incorporated by
reference into this Agreement.
3.4 Customary Fringe Benefits. Employee shall be entitled to such
fringe benefits as Garden Fresh customarily makes available to
executive employees of Garden Fresh ("Fringe Benefits"). Such
Fringe Benefits may include vacation leave, sick leave, and
health insurance coverage.
4. Term. The employment term pursuant to this Agreement shall commence
on the Effective Date set forth above, and shall remain in effect
until Employee's employment is terminated in accordance with the
provisions of Section 5 below. It is understood that Employee serves
at the will of the Board of Directors of the Company and that he
shall be considered an "at will" Employee.
5. Termination. This Agreement and the employment of Employee shall
terminate under the following conditions:
5.1 Death. The death of Employee.
5.2 Disability. The permanent disability of Employee (permanent
disability shall exist when Employee suffers from a condition of
mind or body that indefinitely prevents Employee from
satisfactory further performance of his duties, even with
reasonable accommodation, for a cumulative period of 120 business
days in any consecutive 12-month period following the
commencement of employment).
5.3 Termination for Good Cause. Upon receipt by Employee of written
notice from Garden Fresh that Employee's employment is being
terminated for "good cause." Garden Fresh has "good cause" to
terminate Employee's employment if Employee has engaged in one or
more of the following:
5.3.1 Commission of a felony which results in conviction.
5.3.2 Breach of the provisions of Section 8 hereof or of any
material provision of the Employee Inventions and
Proprietary Rights Assignment Agreement entered into
between the Company and Employee ("Proprietary Rights
Agreement").
5.4 Resignation. Employee may resign at any time during the term of
this Agreement provided that Employee is required to provide two
(2) months advance notice of his resignation to Garden Fresh.
Garden Fresh may waive some or all of that notice period at its
sole discretion and must pay Employee only for the time he
actually continues in the employment of Garden Fresh.
5.5 Termination for Other Than Good Cause. Garden Fresh may
terminate Employee's employment at any time without good cause,
upon written notice delivered to Employee that Employee's
employment is being terminated for "other than good cause." It
shall be deemed a termination by Garden Fresh without good cause
under this Section 5.5 if Employee (i) resigns within thirty (30)
days of the date on which, without his consent, he no longer
holds the position of Chief Executive Officer and President of
Garden Fresh, or (ii) resigns due to his being required to
relocate to a workplace outside California.
6. Compensation Upon Termination.
6.1 Payment Upon Death or Disability. In the event this Agreement is
terminated pursuant to Sections 5.1 or 5.2, Employee (or his
estate in the case of death) shall be entitled to a lump-sum
payment equal to two (2) months of Employee's then current Base
Salary.
6.2 Payment of Compensation Upon Termination for Good Cause. In the
event Employee is terminated for good cause, as set forth in
Section 5.3, he shall receive two (2) weeks notice that his
employment is terminated and Employee shall be entitled only to
the compensation set forth as Base Salary herein, prorated
through the date of his termination as set forth in said notice
plus any other benefits required by law. When Employee is
terminated for good cause as defined in Section 5.3, Employee is
entitled to no other severance compensation arising out of this
Agreement and out of his employment relationship with Garden
Fresh, and Employee shall permanently and absolutely forfeit all
rights to all other severance benefits otherwise accruing by
reason of Employee's employment by Garden Fresh.
6.3 Payment of Compensation Upon Termination Other Than for Good
Cause. In the event Employee's employment is terminated for
other than good cause, as set forth in Section 5.5, Employee
shall receive severance compensation pursuant to this Section,
only if Employee executes a general release of claims, releasing
any and all claims Employee has against Garden Fresh arising out
of his employment or the termination of said employment.
Employee is not entitled to any severance compensation pursuant
to this Section unless he signs the general release described
above. The severance compensation provided by this Section shall
be six (6) monthly payments, payable in arrears, commencing one
(1) month after the effective date of the termination in the
amount equal to Employee's then current monthly Base Salary (plus
benefits and 1/12 of Employee's prior year's bonus). Except as
provided in Section 6.3 and, if applicable, Section 6.4, Employee
is entitled to no other severance compensation when his
employment is terminated for other than good cause.
6.4 Payment Upon Change in Control. If within eighteen (18) months
of a Change in Control, as that term is defined herein, (the
"Transition Period") Employee's employment is terminated for
other than good cause, as set forth in Section 5.5, or Employee
refuses to accept or voluntarily resigns from a position other
than a Qualified Position, as that term is defined below, in
addition to any amounts which may be due to Employee pursuant to
Section 6.3, Employee shall receive in one lump sum severance
compensation in an amount equal to two (2) years of his Base
Salary (as of the date of the change of control) plus (two) 2
year's bonus (based on the bonus received for the last full
fiscal year immediately preceding the Change of Control). A
"Change in Control" means the acquisition, directly or indirectly
of more than 50% of the outstanding shares of any class of voting
securities of Garden Fresh by any person or entity or a merger,
consolidation or sale of all or substantially all of the assets
of Garden Fresh, such that the individuals constituting the Board
of Garden Fresh immediately prior to any such occurrence shall
cease during the Transition Period to constitute a majority of
the Board, unless the election of each director who was not a
director prior to the Transition Period was approved by vote of
at least two-thirds of the directors then in office who were
directors prior to the Transition Period. Notwithstanding the
foregoing, an acquisition of the requisite percentage of voting
securities in connection with a public offering of securities by
Garden Fresh for the primary purpose of providing capital
resources to Garden Fresh shall not be considered a "Change in
Control" for purposes of this Section 6.4. A "Qualified
Position" is an executive officer position with the entity
surviving the Change in Control, with substantially the same
responsibilities as those held by the Employee as of the date of
this Agreement, which position reports directly to the Board of
Directors of the "Ultimate Parent Entity," as that term is
defined in the Hart-Scott-Rodino Antitrust Improvements Act of
1976, of the entity surviving the Change in Control. Also
notwithstanding the foregoing, if Garden Fresh determines that
the amounts payable to Employee under this Agreement, when
considered together with any other amounts payable to Employee as
a result of a Change in Control, cause such payments to be
treated as excess parachute payments within the meaning of
Section 280G of the Internal Revenue Code, Garden Fresh shall
reduce the amount payable to Employee under this Section 6.4 to
an amount that will not subject Employee to the imposition of tax
under Section 4999 of the Internal Revenue Code.
7. Arbitration/Sole Remedy for Breach of Agreement. In the event of any
dispute between Garden Fresh and Employee concerning any aspect of
the employment relationship, including any disputes upon termination,
all such disputes shall be resolved by binding arbitration before a
single neutral arbitrator in San Diego. The arbitrator shall be
selected from the American Arbitration Association. The arbitrator
is bound to rule only on whether or not there has been a violation of
the terms of this Agreement and to render an award, if any, that is
consistent with the terms of this Agreement. Neither party to this
Agreement is entitled to any legal recourse or rights or remedies
other than those provided within this Agreement. The Employee's sole
remedies for claims arising out of his employment, with the exception
of workers' compensation remedies, are those set forth in this
Agreement. In the event of a termination of employment, the
arbitrator is limited to a determination of whether or not the
discharge was for good cause or for other than good cause. If an
arbitration is brought for something other than a termination of
employment, the arbitrator is limited to award contract damages.
Garden Fresh shall bear the costs of the arbitration, including
arbitrator's fees and the reasonable fees of one counsel for Employee
if the dispute primarily relates to the applicability of the
provisions set forth in Section 6.4.
8. Covenant Not to Compete. Employee agrees that, during Employee's
employment, and during any period with respect to which payments to
Employee are made pursuant to Section 5.4 or Section 6, Employee will
not directly or indirectly compete with Garden Fresh in any way, or
prepare to compete or assist any other person or entity to compete
with Garden Fresh in any way, and that Employee will not act as an
officer, director, employee, consultant, more than one-percent
shareholder, significant lender, or agent of any other entity which
is engaged in any business of the same nature as, or in competition
with, the business in which Garden Fresh is now engaged or in which
Garden Fresh becomes engaged during the term of Employee's
employment.
9. General Provisions.
9.1 Payments. All payments due pursuant to the terms of this
Agreement shall be delivered in person, or by first-class mail,
postage prepaid to the last known address of the other party.
Payments may be in lawful money of the United States, or may be
made by check, draft or warrant of the paying entity. Any
payments made pursuant to Section 5.4 or Section 6 hereof shall
be made by certified or cashier's check and shall be delivered
pursuant to the terms of Section 9.2.
9.2 Notices and Delivery. Any notices to be given hereunder by
either party to the other may be effected by either personal
delivery in writing, or by mail, registered or certified, postage
prepaid with a return receipt requested. Mailed notices shall be
addressed to the other party to the address appearing beneath the
party's signature on this Agreement, but each party may change
its address by written notice in accordance with this paragraph.
Notices shall be deemed communicated as of the date of delivery.
9.3 Complete Agreement. Employee acknowledges receipt of this
Agreement and agrees that this Agreement, along with the
Proprietary Rights Agreement, represents the entire Agreement
with Employer concerning the subject matter hereof. This
Agreement supersedes any and all other Agreements, either oral or
in writing, between the parties hereto with respect to the
matters discussed herein of Employee and contains all of the
covenants and agreements between the parties with respect to the
terms and conditions of Employee's employment. Each party to
this Agreement acknowledges that no representations, inducements,
promises or agreements, orally or otherwise, have been made by
any party or anyone acting on behalf of any party which are not
embodied herein.
9.4 Severability. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions shall nevertheless
continue in full force without being impaired or invalidated in
any way.
9.5 Other Benefits. Any amounts payable under this Agreement, other
than Base Salary, shall not be deemed salary or other
compensation for the purpose of computing benefits under any
pension plan or other arrangement of Garden Fresh for the benefit
of its employees.
9.6 No Waiver. Either party's failure to enforce any provision of
this Agreement shall not in any way be construed as a waiver of
any such provision, or prevent that party from thereafter
enforcing each and every other provision, or prevent that party
from thereafter enforcing each and every other provision of this
Agreement.
9.7 Successors and Assigns. The rights and obligations of Garden
Fresh under this Agreement shall enure to the benefit of and
shall be binding upon the successors and assigns of Garden Fresh.
Employee shall not be entitled to assign any of his rights or
obligations under this Agreement.
9.8 Applicable Law. This Agreement shall be interpreted, construed,
governed and enforced in accordance with the laws of the State of
California.
9.9 Amendments. No amendment or modification of the terms or
conditions of this Agreement shall be valid unless in subsequent
writing and signed by the parties thereto.
IN WITNESS WHEREOF, the parties hereto execute this Agreement,
effective as of the date first above written.
EMPLOYEE: GARDEN FRESH RESTAURANT CORP.
a Delaware corporation
By:
_______________________ ________________________________
__________________________
Address: ____________________ Address: Garden Fresh Restaurant Corp.
____________________ 17180 Bernardo Center Drive
San Diego, CA 92128
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of November 1, 1997, by and between
GARDEN FRESH RESTAURANT CORP., a California corporation ("Borrower"), and
WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodation described
below, and Bank has agreed to provide said credit accommodation to Borrower on
the terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
THE CREDIT
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time
up to and including November 1, 1999, not to exceed at any time the aggregate
principal amount of Five Million Dollars ($5,000,000.00) ("Line of Credit"),
the proceeds of which shall be used to finance working capital requirements or
fixed assets. Borrower's obligation to repay advances under the Line of
Credit shall be evidenced by a promissory note substantially in the form of
Exhibit A attached hereto ("Line of Credit Note"), all terms of which are
incorporated herein by this reference.
(b) Borrowing and Repayment. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at
any time exceed the maximum principal amount available thereunder, as set
forth above.
SECTION 1.2. INTEREST/FEES.
(a) Interest. The outstanding principal balance of the Line of Credit
shall bear interest at the rate of interest set forth in the Line of Credit
Note.
(b) Computation and Payment. Interest shall be computed on the basis of
a 360-day year, actual days elapsed. Interest shall be payable at the times
and place set forth in the Line of Credit Note.
(c) Commitment Fee. Borrower shall pay to Bank a non- refundable
commitment fee for the Line of Credit equal to Twelve Thousand Five Hundred
Dollars ($12,500.00), which fee shall be due and payable in full on the date
this Agreement is executed by Borrower.
SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to
collect all interest and fees due under the Line of Credit by charging
Borrower's demand deposit account number 4771-108404 with Bank, or any other
demand deposit account maintained by Borrower with Bank, for the full amount
thereof. Should there be insufficient funds in any such demand deposit
account to pay all such sums when due, the full amount of such deficiency
shall be immediately due and payable by Borrower.
SECTION 1.4. COLLATERAL.
As security for all indebtedness of Borrower to Bank subject hereto,
Borrower hereby grants to Bank security interests of first priority in all
Borrower's equipment and fixtures located at the following addresses: (1)
Souplantation restaurant, 9158 Fletcher Parkway, La Mesa, California 91942;
(2) Souplantation restaurant, 17210 Bernardo Center Drive, San Diego,
California 92128; (3) Sweet Tomatoes restaurant, 39370 Paseo Padre Parkway,
Fremont, California 94538; (4) Sweet Tomatoes restaurant, 9029 East Indian
Bend Road, Scottsdale, Arizona 85250.
All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements and other documents as Bank
shall reasonably require, all in form and substance satisfactory to Bank.
Borrower shall reimburse Bank immediately upon demand for all reasonable costs
and expenses incurred by Bank in connection with any of the foregoing
security, including without limitation, filing and recording fees and costs of
appraisals and audits.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to
Bank subject to this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized
and existing and in good standing under the laws of the state of Delaware, and
is qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification
or licensing is required or in which the failure to so qualify or to be so
licensed could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Line of
Credit Note, and each other document, contract and instrument required hereby
or at any time hereafter delivered to Bank in connection herewith
(collectively, the "Loan Documents") have been duly authorized, and upon their
execution and delivery in accordance with the provisions hereof will
constitute legal, valid and binding agreements and obligations of Borrower or
the party which executes the same, enforceable in accordance with their
respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The 10Q financial
statement of Borrower dated June 30, 1997, a true copy of which has been
delivered by Borrower to Bank prior to the date hereof, (a) is complete and
correct and presents fairly the financial condition of Borrower, (b) discloses
all liabilities of Borrower that are required to be reflected or reserved
against under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance
with generally accepted accounting principles consistently applied. Since the
date of such financial statement there has been no material adverse change in
the financial condition of Borrower, nor has Borrower mortgaged, pledged,
granted a security interest in or otherwise encumbered any of its assets or
properties except in favor of Bank or as otherwise permitted by Bank in
writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to
any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may
be bound that requires the subordination in right of payment of any of
Borrower's obligations subject to this Agreement to any other obligation of
Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will
hereafter possess, all permits, consents, approvals, franchises and licenses
required and rights to all trademarks, trade names, patents, and fictitious
names, if any, necessary to enable it to conduct the business in which it is
now engaged in compliance with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended or recodified from time to time ("ERISA"); Borrower has
not violated any provision of any defined employee pension benefit plan (as
defined in ERISA) maintained or contributed to by Borrower (each, a "Plan");
no Reportable Event as defined in ERISA has occurred and is continuing with
respect to any Plan initiated by Borrower; Borrower has met its minimum
funding requirements under ERISA with respect to each Plan; and each Plan will
be able to fulfill its benefit obligations as they come due in accordance with
the Plan documents and under generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable federal or state environmental,
hazardous waste, health and safety statutes, and any rules or regulations
adopted pursuant thereto, which govern or affect any of Borrower's operations
and/or properties, including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act of 1986, the Federal Resource Conservation
and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any
of the same may be amended, modified or supplemented from time to time. None
of the operations of Borrower is the subject of any federal or state
investigation evaluating whether any remedial action involving a material
expenditure is needed to respond to a release of any toxic or hazardous waste
or substance into the environment. Borrower has no material contingent
liability in connection with any release of any toxic or hazardous waste or
substance into the environment.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to extend any credit contemplated by this Agreement is subject to the
fulfillment to Bank's satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the
extension of credit by Bank shall be satisfactory to Bank's counsel. Such
satisfaction shall be deemed to have occurred upon execution of this Agreement
by Bank.
(b) Documentation. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Line of Credit Note.
(ii) Corporate Resolution.
(iii) Certificate of Incumbency.
(iv) Security Agreement: Equipment and Fixtures.
(v) UCC-1 Financing Statements.
(vi) Such other documents as Bank may require under any
other Section of this Agreement.
(c) Financial Condition. There shall have been no material adverse
change, as reasonably determined by Bank, in the financial condition or
business of Borrower, nor any material decline, as reasonably determined by
Bank, in the market value of any collateral required hereunder or a
substantial or material portion of the assets of Borrower.
(d) Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Bank, and where
required by Bank, with loss payable endorsements in favor of Bank. Insurance
companies with a financial rating of at least an A+ VIII status as rated in
the most current edition of Best's Insurance Reports shall be deemed
satisfactory to Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) Compliance. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date,
no Event of Default as defined herein, and no condition, event or act which
with the giving of notice or the passage of time or both would constitute such
an Event of Default, shall have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents
which may be required by this Agreement in connection with such extension of
credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all
obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise
consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal,
interest, fees or other liabilities due under any of the Loan Documents at the
times and place and in the manner specified therein.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records
in accordance with generally accepted accounting principles consistently
applied, and permit any representative of Bank, at any reasonable time, to
inspect, audit and examine such books and records, to make copies of the same,
and to inspect the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:
(a) not later than 90 days after and as of the end of each fiscal year,
an audited financial statement of Borrower, prepared by a certified public
accountant acceptable to Bank, to include a balance sheet and an income
statement, a statement of cash flow and all footnotes;
(b) not later than 45 days after and as of the end of each fiscal
quarter, a financial statement of Borrower, prepared by Borrower, to include a
balance sheet, an income statement and an income statement of restaurants
grouped by year of establishment;
(c) not later than 30 days before the end of each fiscal year, annual
analysts' statement of expected growth and profitability for the upcoming
fiscal year, approved by Borrower.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's
continued existence and with the requirements of all laws, rules, regulations
and orders of any governmental authority applicable to Borrower and/or its
business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that
of Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth
all insurance then in effect. Insurance companies with a financial rating of
at least an A+ VIII status as rated in the most current edition of Best's
Insurance Reports shall be deemed satisfactory to Bank.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due
any and all indebtedness, obligations, assessments and taxes, both real or
personal, including without limitation federal and state income taxes and
state and local property taxes and assessments, except such (a) as Borrower
may in good faith contest or as to which a bona fide dispute may arise, and
(b) for which Borrower has made provision, to Bank's satisfaction, for
eventual payment thereof in the event Borrower is obligated to make such
payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of
any litigation pending or threatened against Borrower with a claim in excess
of $500,000.00.
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles
consistently applied and used consistently with prior practices (except to the
extent modified by the definitions herein):
(a) Tangible Net Worth not at any time less than $29,000,000.00 plus 75%
of quarterly net income (excluding any quarterly losses), with "Tangible Net
Worth" defined as the aggregate of total stockholders' equity plus
subordinated debt less any intangible assets (including any deferred income
tax benefits).
(b) Total Liabilities divided by Tangible Net Worth not at any time
greater than 1.25 to 1.0, with "Total Liabilities" defined as the aggregate of
current liabilities and non-current liabilities less subordinated debt, and
with "Tangible Net Worth" defined above.
(c) Net income after taxes not less than $1,000,000.00 on an annual
basis, determined as of each fiscal year end, and pre-tax profit not less than
$250,000.00 on a quarterly basis, determined as of each fiscal quarter end.
(d) EBITDAR Coverage Ratio not less than 2.0 to 1.0 as of each fiscal
quarter end, with "EBITDAR" defined as net profit before tax plus interest
expense (net of capitalized interest expense), depreciation expense, rent
expense and amortization expense, and with "EBITDAR Coverage Ratio" defined as
EBITDAR divided by the aggregate of total interest expense plus rent expense
plus the prior period current maturity of long-term debt and the prior period
current maturity of subordinated debt.
(e) Total Funded Debt to trailing four quarters EBITDA not to exceed 2.0
to 1.0, with "Total Funded Debt" described as all debt except accounts
payable, accruals, and current liabilities incurred in normal course of
business, and with "EBITDA" defined as net profit before tax plus interest
expense (net of capitalized interest expense), depreciation expense and
amortization expense.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than ten
(10) days after the occurrence of each such event or matter) give written
notice to Bank in reasonable detail of: (a) the occurrence of any Event of
Default, or any condition, event or act which with the giving of notice or the
passage of time or both would constitute an Event of Default; (b) any change
in the name or the organizational structure of Borrower; (c) the occurrence
and nature of any Reportable Event or Prohibited Transaction, each as defined
in ERISA, or any funding deficiency with respect to any Plan; or (d) any
termination or cancellation of any insurance policy which Borrower is required
to maintain, or any uninsured or partially uninsured loss through liability or
property damage, or through fire, theft or any other cause affecting
Borrower's property.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct
or contingent, liquidated or unliquidated) of Borrower to Bank under any of
the Loan Documents remain outstanding, and until payment in full of all
obligations of Borrower subject hereto, Borrower will not without Bank's prior
written consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit
extended hereunder except for the purposes stated in Article I hereof.
SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in
fixed assets in any fiscal year in excess of an aggregate of $20,000,000.00
during 1997, $20,000,000.00 during 1998 or $24,000,000.00 during 1999.
SECTION 5.3. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to
Bank, (b) term loans (but not lines of credit or other revolving credit
facilities) which finance or refinance construction or improvement of
Borrower's restaurants, and (c) any other liabilities of Borrower existing as
of, and disclosed to Bank prior to, the date hereof.
SECTION 5.4. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature
of Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business.
SECTION 5.5. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security
for, any liabilities or obligations of any other person or entity, except any
of the foregoing in favor of Bank.
SECTION 5.6. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances
to or investments in any person or entity, except any of the foregoing
existing as of, and disclosed to Bank prior to, the date hereof.
SECTION 5.7. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock
now or hereafter outstanding, nor redeem, retire, repurchase or otherwise
acquire any shares of any class of Borrower's stock now or hereafter
outstanding , and Borrower shall provide to Bank, upon request, any
documentation required by Bank to substantiate the appropriateness of amounts
paid or to be paid.
SECTION 5.8. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of Borrower's
assets now owned or hereafter acquired, except any of the foregoing in favor
of Bank or which is existing as of, and disclosed to Bank in writing prior to,
the date hereof, and except for security interests in or liens on equipment,
fixtures or real property not encumbered by Bank in favor of lenders providing
term financing as permitted in Section 5.3 (b) above.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay within five (5) calendar days of when due
any principal, interest, fees or other amounts payable under any of the Loan
Documents.
(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by Borrower or any
other party under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default
shall continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower has incurred any
debt or other liability to any person or entity, including Bank.
(e) The filing of a notice of judgment lien against Borrower; or the
recording of any abstract of judgment against Borrower in any county in which
Borrower has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against
the assets of Borrower; or the entry of a judgment against Borrower.
(f) Borrower shall become insolvent, or shall suffer or consent to or
apply for the appointment of a receiver, trustee, custodian or liquidator of
itself or any of its property, or shall generally fail to pay its debts as
they become due, or shall make a general assignment for the benefit of
creditors; Borrower shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors
or any other relief under the Bankruptcy Reform Act, Title 11 of the United
States Code, as amended or recodified from time to time ("Bankruptcy Code"),
or under any state or federal law granting relief to debtors, whether now or
hereafter in effect; or any involuntary petition or proceeding pursuant to the
Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced
against Borrower, or Borrower shall file an answer admitting the jurisdiction
of the court and the material allegations of any involuntary petition; or
Borrower shall be adjudicated a bankrupt, or an order for relief shall be
entered against Borrower by any court of competent jurisdiction under the
Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors.
(g) There shall exist or occur any event or condition which Bank in good
faith believes impairs, or is substantially likely to impair, the prospect of
payment or performance by Borrower of its obligations under any of the Loan
Documents.
(h) The death or incapacity of Borrower. The dissolution or liquidation
of Borrower; or Borrower, or any of its directors, stockholders or members,
shall take action seeking to effect the dissolution or liquidation of
Borrower.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default:
(a) all indebtedness of Borrower under each of the Loan Documents, any term
thereof to the contrary notwithstanding, shall at Bank's option and without
notice become immediately due and payable without presentment, demand, protest
or notice of dishonor, all of which are hereby expressly waived by each
Borrower; (b) the obligation, if any, of Bank to extend any further credit
under any of the Loan Documents shall immediately cease and terminate; and (c)
Bank shall have all rights, powers and remedies available under each of the
Loan Documents, or accorded by law, including without limitation the right to
resort to any or all security for any credit accommodation from Bank subject
hereto and to exercise any or all of the rights of a beneficiary or secured
party pursuant to applicable law. All rights, powers and remedies of Bank may
be exercised at any time by Bank and from time to time after the occurrence of
an Event of Default, are cumulative and not exclusive, and shall be in
addition to any other rights, powers or remedies provided by law or equity.
In addition to the foregoing, Bank shall have no obligation to extend further
credit under any of the Loan Documents during the five (5) day period
described in Section 6.1 (a) above.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive
or otherwise affect any other or further exercise thereof or the exercise of
any other right, power or remedy. Any waiver, permit, consent or approval of
any kind by Bank of any breach of or default under any of the Loan Documents
must be in writing and shall be effective only to the extent set forth in such
writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any
party is required or may desire to give to any other party under any provision
of this Agreement must be in writing delivered to each party at the following
address:
BORROWER: Garden Fresh Restaurant Corp.
17180 Bernardo Center Drive
San Diego, CA 92128
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
San Diego Regional Commercial Banking Office
401 B Street, Suite 2201
San Diego, CA 92101
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit
in the U.S. mail, first class and postage prepaid; and (c) if sent by
telecopy, upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay
to Bank immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Bank's in-house counsel),
expended or incurred by Bank in connection with (a) the negotiation and
preparation of this Agreement and the other Loan Documents to a maximum of
$1,000.00, Bank's continued administration hereof and thereof, and the
preparation of any amendments and waivers hereto and thereto, (b) the
enforcement of Bank's rights and/or the collection of any amounts which become
due to Bank under any of the Loan Documents, and (c) the prosecution or
defense of any action in any way related to any of the Loan Documents,
including without limitation, any action for declaratory relief, whether
incurred at the trial or appellate level, in an arbitration proceeding or
otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to
any Borrower or any other person or entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's
prior written consent. Bank reserves the right upon written notice to
Borrower to sell, assign, transfer, negotiate or grant participations in all
or any part of, or any interest in, Bank's rights and benefits under each of
the Loan Documents. In connection therewith, Bank may disclose all documents
and information which Bank now has or may hereafter acquire relating to any
credit extended by Bank to Borrower, Borrower or its business, or any
collateral required hereunder. In the event of a complete assignment by Bank
of Bank's rights and benefits under each of the Loan Documents, the assignee
shall assume all obligations of Bank under each of the Loan Documents.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to any extension of credit by Bank subject hereto and supersede all
prior negotiations, communications, discussions and correspondence concerning
the subject matter hereof. This Agreement may be amended or modified only in
writing signed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and
their respective permitted successors and assigns, and no other person or
entity shall be a third party beneficiary of, or have any direct or indirect
cause of action or claim in connection with, this Agreement or any other of
the Loan Documents to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision
of this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall
constitute one and the same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 7.11. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Agreement. A "Dispute" shall mean any
action, dispute, claim or controversy of any kind, whether in contract or
tort, statutory or common law, legal or equitable, now existing or hereafter
arising under or in connection with, or in any way pertaining to, any of the
Loan Documents, or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to any of the Loan Documents, including without limitation, any of
the foregoing arising in connection with the exercise of any self-help,
ancillary or other remedies pursuant to any of the Loan Documents. Any party
may by summary proceedings bring an action in court to compel arbitration of a
Dispute. Any party who fails or refuses to submit to arbitration following a
lawful demand by any other party shall bear all costs and expenses incurred by
such other party in compelling arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as
the parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States
Code), notwithstanding any conflicting choice of law provision in any of the
Loan Documents. The arbitration shall be conducted at a location in
California selected by the AAA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly relevant
to the Dispute being arbitrated. Judgment upon any award rendered in an
arbitration may be entered in any court having jurisdiction; provided however,
that nothing contained herein shall be deemed to be a waiver by any party that
is a bank of the protections afforded to it under 12 U.S.C. #91 or any
similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary
remedies, including without limitation injunctive relief, sequestration,
attachment, garnishment or the appointment of a receiver, from a court of
competent jurisdiction before, after or during the pendency of any arbitration
or other proceeding. The exercise of any such remedy shall not waive the
right of any party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to
make effective any award, and (iii) shall have the power to award recovery of
all costs and fees, to impose sanctions and to take such other actions as they
deem necessary to the same extent a judge could pursuant to the Federal Rules
of Civil Procedure, the California Rules of Civil Procedure or other
applicable law. Any Dispute in which the amount in controversy is $5,000,000
or less shall be decided by a single arbitrator who shall not render an award
of greater than $5,000,000 (including damages, costs, fees and expenses). By
submission to a single arbitrator, each party expressly waives any right or
claim to recover more than $5,000,000. Any Dispute in which the amount in
controversy exceeds $5,000,000 shall be decided by majority vote of a panel of
three arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have
the power to make any award which is not supported by substantial evidence or
which is based on legal error, (ii) an award shall not be binding upon the
parties unless the findings of fact are supported by substantial evidence and
the conclusions of law are not erroneous under the substantive law of the
state of California, and (iii) the parties shall have in addition to the
grounds referred to in the Federal Arbitration Act for vacating, modifying or
correcting an award the right to judicial review of (A) whether the findings
of fact rendered by the arbitrators are supported by substantial evidence, and
(B) whether the conclusions of law are erroneous under the substantive law of
the state of California. Judgment confirming an award in such a proceeding
may be entered only if a court determines the award is supported by
substantial evidence and not based on legal error under the substantive law of
the state of California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to arbitration
if the Dispute concerns indebtedness secured directly or indirectly, in whole
or in part, by any real property unless (i) the holder of the mortgage, lien
or security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or
benefits that might accrue to them by virtue of the single action rule statute
of California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If
any such Dispute is not submitted to arbitration, the Dispute shall be
referred to a referee in accordance with California Code of Civil Procedure
Section 638 et seq., and this general reference agreement is intended to be
specifically enforceable in accordance with said Section 638. A referee with
the qualifications required herein for arbitrators shall be selected pursuant
to the AAA's selection procedures. Judgment upon the decision rendered by a
referee shall be entered in the court in which such proceeding was commenced
in accordance with California Code of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose
the existence, content or results thereof, except for disclosures of
information by a party required in the ordinary course of its business, by
applicable law or regulation, or to the extent necessary to exercise any
judicial review rights set forth herein. If more than one agreement for
arbitration by or between the parties potentially applies to a Dispute, the
arbitration provision most directly related to the Loan Documents or the
subject matter of the Dispute shall control. This arbitration provision shall
survive termination, amendment or expiration of any of the Loan Documents or
any relationship between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
WELLS FARGO BANK,
GARDEN FRESH RESTAURANT CORP. NATIONAL ASSOCIATION
By: /s/ Michael P. Mack By: /s/ Alva Diaz
Title: CEO / President Alva Diaz
Vice President
By: /s/ David W. Qualls
Title: CFO / Secretary
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