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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[X] Annual Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required, Effective October 7, 1996).
For the fiscal year ended December 29, 1996
[ ] Transition Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from _____________ to _______________
Commission file number: 0-26400
LOGAN'S ROADHOUSE, INC.
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(Name of small business issuer in its charter)
<TABLE>
<S> <C>
Tennessee 62-1602074
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
565 Marriott Drive, Suite 490
Nashville, Tennessee 37214
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(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: (615) 885-9056
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Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
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None None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value per share
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
Net restaurant sales for the fiscal year ended December 29, 1996 were
$41,044,121.
The aggregate market value of the shares of Common Stock of the issuer held by
non-affiliates on March 26, 1997 was approximately $116.0 million based upon
the closing sale price of these shares as reported on The Nasdaq Stock Market's
National Market on March 26, 1997.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date:
Class Outstanding at March 26, 1997
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Common Stock, $0.01 par value per share 6,016,659 shares
Transitional Small Business Disclosure Format (check one): Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's Proxy Statement for the Annual Meeting of Shareholders
to be held on May 15, 1997 are incorporated by reference into Part III of this
Form 10-KSB.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Logan's Roadhouse, Inc. ("Logan's Roadhouse" or the "Company") operates 18
Company-owned Logan's Roadhouse restaurants that feature steaks, ribs, chicken
and seafood dishes in a distinctive atmosphere reminiscent of an American
roadhouse. The Logan's Roadhouse concept is designed to appeal to a broad
range of customers by offering generous portions of moderately-priced, high
quality food in a very casual, relaxed dining environment that is lively and
entertaining. The restaurants are open seven days a week for lunch and dinner
and offer full bar service. The Logan's Roadhouse menu is designed to appeal
to a wide variety of tastes, emphasizing extra-aged, hand-cut USDA choice
steaks and signature dishes such as fried green tomatoes, baked sweet potatoes
and made-from-scratch yeast rolls.
The first Logan's Roadhouse restaurant opened in 1991 in Lexington,
Kentucky and was acquired by the Company in 1992. See "-- History and
Reorganization." Since then, the Company has opened 17 additional Logan's
Roadhouse restaurants in Alabama, Georgia, Indiana, Kentucky, Tennessee and
West Virginia and franchised two Logan's Roadhouse restaurants in Oklahoma. In
1996, the average sales per restaurant open for a full year were approximately
$3.6 million.
THE LOGAN'S ROADHOUSE CONCEPT
The Logan's Roadhouse concept is designed to appeal to a broad range of
customers by offering a wide variety of items in a very casual, relaxed dining
atmosphere that is also lively and entertaining. The key elements of the
Logan's Roadhouse concept include the following:
Atmosphere. The lively, country "honky-tonk" atmosphere of Logan's
Roadhouse restaurants seeks to appeal to families, couples, single adults and
business persons. The Company's spacious restaurants are constructed of
rough-hewn cedar siding in combination with bands of corrugated metal outlined
in double-striped, red neon. The interiors are decorated with hand-painted
murals depicting typical scenes from American roadhouses of the 1940s and
1950s, concrete and wooden planked floors and neon signs and feature
Wurlitzer(TM) jukeboxes playing contemporary country hits. The restaurants
also feature a display cooking grill and an old-fashioned meat counter
displaying steaks, ribs, seafood and salads, and include a spacious,
comfortable bar area with a large-screen television. While dining or waiting
for a table, guests may eat roasted in-shell peanuts and toss the shells on the
floor, and watch as cooks prepare steaks and other entrees on gas-fired
mesquite grills.
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Menu and Pricing. The Company's restaurants offer a wide variety of items
designed to appeal to a broad range of consumer tastes. Specialty appetizers
include Logan's Fried Green Tomatoes, Hot Wings Roadhouse Style, Baby Back Rib
Basket and Roadhouse Nachos. The Company's dinner menu features an assortment of
specially seasoned, choice USDA steaks, including 6 and 9 oz. Filets, 6, 9 and
12 oz. Sirloins, 12 and 16 oz. Rib-Eyes, a 12 oz. New York Strip, a 16 oz.
T-Bone, and a 22 oz. Porterhouse, which are all extra-aged, cut by hand on the
premises and prepared over an open gas-fired mesquite grill. Guests also may
choose from baby back ribs, fresh seafood, mesquite grilled shrimp, grilled and
barbecue chicken and an assortment of hamburgers, salads and sandwiches. All
dinner entrees include dinner salad, made-from-scratch yeast rolls and a choice
of brown sugar and cinnamon sweet potato, baked potato, fries or rice pilaf at
no additional cost. The Company's express lunch menu provides specially priced
items guaranteed to be served in less than 15 minutes, including a variety of
hamburgers, salads and sandwiches. All lunch salads are served with
made-from-scratch yeast rolls, and all lunch sandwiches are served with
homestyle potato chips at no additional cost.
While management believes that the food quality and service at the
Company's restaurants is comparable or superior to that of other casual dining
restaurants, the Logan's Roadhouse menu offers more dishes at lower price
points than many of its competitors. This broadens the Company's target market
to include value-driven customers as well as traditional casual dining
customers. Management believes that this pricing approach creates a high
price-to-value perception, increases customer volume and generates more
frequent repeat visits. Prices range from $3.95 to $7.50 for lunch items and
from $7.50 to $16.95 for dinner entrees. The average check per customer,
including beverages, was $8.64 for lunch and $11.69 for dinner in 1996.
GROWTH STRATEGY
The following are the key elements of the Company's growth strategy:
Opening Restaurants in Target Markets. The Company targets mid-sized
metropolitan markets of approximately 500,000 or more in population primarily
in the Southeast and southern Midwest that management believes include
significant opportunities for potential customers because of the population,
income levels, presence of shopping and entertainment centers, offices and
colleges and universities. The Company also targets smaller markets of
approximately 150,000 or more in population where the appeal of the Company's
concept, together with fewer competing casual dining restaurants, provides an
attractive opportunity for the Company. Management believes that its target
markets are less competitive than major metropolitan markets on the basis of
both site acquisition and number of casual dining restaurant options. Because
the market selection criteria of the Company is within the discretion of
management, such selection criteria may be altered if necessary to effectuate
the Company's growth strategy.
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Selecting and Developing High Quality Restaurant Sites. Management
devotes significant time and resources to analyzing each prospective site,
considering local market demographics, population density, average household
income levels and site specific characteristics such as visibility,
accessibility, traffic counts and parking. The Company also considers existing
local competition and, to the extent such information is available, the
revenues of other comparably priced restaurants operating in the market. The
Company's Chief Executive Officer, Edwin W. Moats, Jr., and Vice President of
Development, Ralph W. McCracken, together with other members of management,
work actively with real estate brokers in target markets to select high quality
sites and maintain and regularly update a broad database of possible sites.
Typically, management requires four to eight months to locate, approve and
close on a restaurant site and four to five additional months to obtain
necessary permits, construct, equip and open a restaurant.
Utilizing the Company's Prototype Restaurant. Management has designed the
prototype Logan's Roadhouse restaurant to be larger than many casual dining
restaurants as part of its strategy to provide a relaxed atmosphere and
maximize sales volumes. Of the 18 Logan's Roadhouse restaurants, 13 are
prototypes, and the remaining five operate in renovated buildings which
are generally comparable in seating capacity to the prototype restaurants. The
prototype Logan's Roadhouse restaurants operate in new, freestanding buildings,
with approximately 7,800 square feet of space situated on a 1.7 acre site, with
seating for approximately 290 guests, including 45 bar seats, and parking for
150 automobiles.
Seeking Remodeling Opportunities. In addition to developing prototype
restaurants, the Company plans to consider developing additional Logan's
Roadhouse restaurants in existing buildings. Management believes that its
ability to remodel an existing facility into a Logan's Roadhouse permits
greater accessibility to quality sites in more developed markets. The
conversion and remodeling of an existing restaurant building into a Logan's
Roadhouse restaurant generally takes three to four months, depending on the
nature and extent of such renovation.
RESTAURANT OPERATIONS
Management and Employees. The Company has six area supervisors who are
responsible for supervising the Company's restaurants and the continuing
development of a restaurant's management team. Through regular visits to the
restaurants, the area supervisors ensure that the Company's concept, strategy
and standards of quality are being adhered to in all aspects of restaurant
operations. Each of the Company's restaurants has one general manager, one
kitchen manager and four assistant managers. The general manager of each
restaurant has primary responsibility for the day-to-day operations of the
entire restaurant and is responsible for maintaining the standards of quality
and performance established by the Company. Management believes that guests
benefit from the attentive service and high quality food which results from
having six managers in every restaurant. The Company generally seeks as
managers for each Logan's Roadhouse restaurant two non-management employees
promoted into
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management positions who fully understand the Logan's Roadhouse concept and four
managers with high levels of previous management experience.
The Company seeks to attract and retain high caliber managers and hourly
employees by providing them with attractive financial incentives and flexible
working schedules. Financial incentives provided to attract high caliber
managers include competitive salaries, cash bonuses and stock options based on
position, seniority and performance criteria. Also, management believes that
the Company attracts qualified managers by providing a better overall quality
of life characterized by a five-day work schedule involving fewer hours than
are typically required in the restaurant industry. The average number of
hourly employees in each of the Logan's Roadhouse restaurants is approximately
100. Management believes the Company attracts high quality hourly employees by
providing a casual, high energy and entertaining atmosphere in which to work.
Training and Development. The Company requires its restaurant managers to
have significant experience in the full-service restaurant industry. In
addition, the Company has developed a comprehensive ten week training course
which all managers are required to complete. The program emphasizes the
Company's operating strategy, procedures and standards and is conducted at a
Logan's Roadhouse restaurant.
The general managers, together with the area supervisor, are responsible
for selecting the hourly employees for each new restaurant. Prior to the
opening of each new restaurant, the Company's director of human resources and
training assembles a team of experienced employees to train and educate the new
employees. The training period for new employees lasts approximately two weeks
and includes one week of general training prior to opening and one week of
on-the-job supervision at the new Logan's Roadhouse restaurant. Ongoing
employee training remains the responsibility of the restaurant general manager
under the supervision of an area supervisor.
Customer Satisfaction. The Company is committed to providing its
customers prompt, friendly, efficient service, keeping table-to-server ratios
low and staffing each restaurant with an experienced management team to ensure
attentive customer service and consistent food quality. Through the use of
customer surveys, management receives valuable feedback from customers and
through prompt responses demonstrates a continuing interest in customer
satisfaction.
Advertising and Marketing. The Company employs an advertising and
marketing strategy designed to establish and maintain a high level of name
recognition and to attract new customers. The Company uses radio and outdoor
advertising in selected markets and print and radio advertising in certain
smaller markets. The Company's goal is to develop a sufficient number of
restaurants in certain markets to permit the continued cost-efficient use of
radio and outdoor advertising. The Company currently spends approximately
2.0% of its annual sales on advertising and public relations. The Company
also engages in a variety of promotional
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activities, such as contributing time, money and complementary meals to
charitable, civic and cultural programs, in order to increase public awareness
of the Company's restaurants.
Restaurant Reporting. The Company closely monitors sales, costs of food
and beverage and labor at each of its restaurants. Weekly restaurant operating
results are used by management to detect trends at each location, and negative
trends are promptly remedied where possible. Financial controls are maintained
through management of an accounting and management information system that is
implemented at the restaurant level. Administrative and management staff
prepare daily reports of sales, labor and customer counts. On a weekly basis,
condensed profit and loss statements are compiled by the Company's accounting
department that provide to management detailed analysis of sales and product
and labor costs, with a comparison to budgets and prior period performance.
Purchasing. The Company strives to obtain consistent quality items at
competitive prices from reliable sources. The Company tests various new
products in an effort to obtain the highest quality products possible and to be
responsive to changing customer tastes. In order to maximize operating
efficiencies and to provide the freshest ingredients for its food products,
purchasing decisions are made by corporate management. To date, the Company
has not experienced any significant delays in receiving its food and beverage
inventories, restaurant supplies or equipment.
HISTORY AND REORGANIZATION
The Company was incorporated in Tennessee in March 1995 in connection with
its initial public offering, which occurred on July 26, 1995 (the "IPO").
Prior to the IPO, the Company's operations were conducted through Logan's
Partnership (the "Predecessor"), a Tennessee general partnership formed to
acquire the original Logan's Roadhouse restaurant in Lexington, Kentucky. The
general partners of the Predecessor were O'Charley's Inc. ("O'Charley's"),
a publicly held company operating casual dining restaurants under a different
concept than that of the Company, and Logan's Management Group, Inc., a
Tennessee corporation which was merged into the Company immediately prior to
the IPO ("LMG"). The Company acquired the partnership interests of the
Predecessor immediately prior to the IPO (the "Reorganization") pursuant to an
Exchange Agreement (the "Exchange Agreement"), dated July 25, 1995, among the
Company, O'Charley's and the former shareholders of LMG, who were Edwin W.
Moats, Jr., the Chairman of the Board, President and Chief Executive Officer of
the Company, and Charles F. McWhorter, Jr. and David K. Wachtel, Jr., each a
principal shareholder of the Company. Under the terms of the Exchange
Agreement, O'Charley's contributed to the Company all of its interest in the
Predecessor in exchange for shares of Common Stock, and the individual
shareholders of LMG exchanged, pursuant to the merger of LMG into the Company,
all of their shares of common stock of LMG for shares of Common Stock.
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FRANCHISING
In connection with the franchising of Logan's Roadhouse restaurants in
select market areas not in the Company's immediate expansion plans for owned
restaurants, the Company has entered into Area Development Agreements (each, a
"Development Agreement") and Franchise Agreements (each, a "Franchise
Agreement") with each of L.W. Group, Inc., a corporation controlled by Mr.
Wachtel ("L.W. Group"), and CMAC Incorporated, a corporation controlled by Mr.
McWhorter ("CMAC"), in January 1996 and March 1997, respectively. L.W. Group
currently operates two Logan's Roadhouse restaurants in Edmond and Oklahoma
City, Oklahoma. CMAC plans to open its first franchised restaurant in
Greenville, South Carolina in August 1997.
Each Development Agreement requires the franchisees to locate sites for
and develop a specified number of Logan's Roadhouse restaurants within
specified geographic areas. Under the terms of each Development Agreement, the
franchisees are required to open a specified number of restaurants during
scheduled intervals, and management of the Company has the right to approve
each restaurant site. Franchisees are required to enter into individual
franchise agreements for each Logan's Roadhouse restaurant it develops. Each
Development Agreement prohibits the franchisees and their principals from
owning, operating or assisting other restaurants with menus or methods of
operation similar to those of Logan's Roadhouse restaurants that are located
within the geographic area covered by the Development Agreement. The initial
terms of the Development Agreements with L.W. Group and CMAC expire on December
31, 2000 and March 31, 2002, respectively, subject to automatic renewal for an
additional five years following such initial term, provided the franchisees
have satisfied the development schedule specified in their respective
Development Agreements. The Company has the right to purchase all of the
outstanding stock of L.W. Group and CMAC beginning in January 2001 and April
2002, respectively, upon the occurrence of specified events on the terms and
conditions as set forth in their respective Development Agreements. The
franchisees could lose their exclusive development rights under their
respective Development Agreements if they fail to meet the performance and
other requirements specified in the Development Agreements or the Franchise
Agreements.
Each Franchise Agreement grants to the franchisees the right to operate a
Logan's Roadhouse restaurant in a specified location for a period of 20 years,
with two additional five-year renewal options. Each Franchise Agreement
licenses the right to use the Company's trademarks and service marks with
respect to this specific restaurant site, subject to appropriate oversight by
the Company. In developing a Logan's Roadhouse restaurant, the franchisees are
required to comply with the Company's general construction specifications,
designs, color schemes, signs and equipment, formulas for preparation of food
and beverage products, operations and financial control methods, and management
training plans. The Company is obligated to provide a three week training
program for a fee ranging from $45,000 to $55,000 per restaurant during which
certain of the franchisees' personnel are educated and instructed at the
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franchisees' restaurant in all aspects of the Company's system of operations.
The course will begin approximately one week prior to the opening of the
franchisees' restaurant and will end approximately two weeks after such
opening. Pursuant to the terms of the Franchise Agreement, additional training
by the Company's training crew may be conducted at the franchisees' restaurant
upon request. The franchisee is responsible for all expenses incurred by its
personnel while in training, including travel and living expenses. Each
Franchise Agreement prohibits the franchisee from transferring ownership of the
franchise without the prior approval of the Company, and provides the Company a
right of first refusal to purchase the franchise on the same terms and
conditions as any proposed transfer by the franchisee. For a period of 24
months following the date of termination or expiration of the Franchise
Agreement, the franchisees and certain of their principals may not compete with
the Company within a 50-mile radius of any existing or planned Company owned or
franchised restaurant, subject to certain exceptions. Additionally, the
franchisees may not solicit any previously serviced accounts, groups or
clientele for or on behalf of any casual dining restaurant for one year
following the termination or expiration of the Franchise Agreement.
The Franchise Agreements require the franchisee to pay an initial $30,000
franchise fee and a monthly royalty fee of 3.0% of gross sales. In addition,
the Company may require the franchisees to contribute up to 1.0% of gross sales
to the Company's general advertising account and expend on an annual basis up
to 3.0% of gross sales for local promotional activities, subject to the
approval of the Company. In 1996, L.W. Group paid the Company $60,000 for the
initial franchise fees in connection with the two restaurants opened in
Oklahoma and total royalty fees of approximately $65,000.
Management is considering other future franchising opportunities in areas
which are not in the Company's immediate expansion plans for owned restaurants,
and has had preliminary discussions with third parties that could result in the
franchising of additional Logan's Roadhouse restaurants on similar terms as the
Company's agreements with its franchisees.
COMPETITION
Competition in the restaurant industry is intense. Logan's Roadhouse
restaurants compete with mid-priced, full-service, casual dining restaurants
primarily on the basis of quality, atmosphere, location and value. Moreover,
other restaurants operate with concepts that compete for the same casual dining
customers as the Company, with the number of casual dining restaurants
emphasizing steaks substantially increasing in recent years. The Company also
competes with other restaurants and retail establishments for quality sites.
Many of the Company's competitors are well established and have
substantially greater financial, marketing and other resources than the
Company. Regional and national restaurant
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companies recently have expanded their operations in the current and anticipated
market areas of the Company. There can be no assurance that the expansion of
these well-financed chains in these market areas will not adversely affect the
Company's profitability.
EMPLOYEES
As of March 1, 1997, the Company employed approximately 1,900 people, of
whom 22 are executive and administrative personnel, 114 are restaurant
management personnel and the remainder are hourly restaurant personnel. Many
of the Company's hourly restaurant employees work part-time. None of the
Company's employees are covered by a collective bargaining agreement. The
Company considers its employee relations to be good.
SERVICE MARKS
Logan's Roadhouse is registered as a federal service mark on the Principal
Register of the United States Patent and Trademark Office. The Company regards
its service mark as having significant value and being an important factor in
the development and marketing of its restaurants. The Company's policy is to
pursue registration of its service marks and trademarks whenever possible and
to oppose vigorously any infringement of its service marks and trademarks.
GOVERNMENT REGULATION
The Company is subject to a variety of federal, state and local laws.
Each of the Company's restaurants is subject to permitting, licensing and
regulation by a number of government authorities, including alcoholic beverage
control, health, safety, sanitation, building and fire agencies in the state or
municipality in which the restaurant is located. Difficulties in obtaining or
failure to obtain required licenses or approvals could delay or prevent the
development of a new restaurant in a particular area.
Approximately 12% of the Company's net restaurant sales were attributable
to the sale of alcoholic beverages in 1996. See "Management's Discussion and
Analysis or Plan of Operation." Alcoholic beverage control regulations require
each of the Company's restaurants to apply to a state authority and, in certain
locations, county or municipal authorities for a license or permit to sell
alcoholic beverages on the premises. Typically, licenses must be renewed
annually and may be revoked or suspended for cause at any time. Alcoholic
beverage control regulations relate to numerous aspects of restaurant
operations, including minimum age of patrons and employees, hours of operation,
advertising, wholesale purchasing, inventory control and handling, storage and
dispensing of alcoholic beverages.
The failure of a restaurant to obtain or retain liquor or food service
licenses would have a material adverse effect on the restaurant's operations.
To reduce this risk, each Company
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restaurant is operated in accordance with procedures intended to assure
compliance with applicable codes and regulations.
The Company is subject in certain states to "dram shop" statutes, which
generally provide a person injured by an intoxicated person the right to
recover damages from an establishment that wrongfully served alcoholic
beverages to the intoxicated person. The Company carries liquor liability
coverage as part of its existing $1,000,000 comprehensive general liability
insurance, as well as excess liability coverage of $20,000,000 per occurrence,
with no deductible.
The Company's restaurant operations are also subject to federal and state
laws governing such matters as the minimum hourly wage, unemployment tax rates,
sales tax and similar matters, over which the Company has no control.
Significant numbers of the Company's service, food preparation and other
personnel are paid at rates related to the federal minimum wage, and increases
in the minimum wage could increase the Company's labor costs.
The development and construction of additional restaurants also are
subject to compliance with applicable zoning, land use and environmental laws
and regulations.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently operates 18 restaurants, all of which are
freestanding facilities. The following table sets forth certain information
with respect to the Company's existing Logan's Roadhouse restaurants and
restaurants under construction:
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SEATING RESTAURANT SIZE PROTOTYPE
OPENING DATE LOCATION CAPACITY APPROX. SQ. FT. OR RENOVATED
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August 1991 Lexington, Kentucky 257 6,800 Renovated
August 1992 Nashville, Tennessee 272 7,100 Renovated
(Hickory Hollow)
July 1993 Nashville, Tennessee (Rivergate) 290 7,350 Renovated
May 1994 Clarksville, Tennessee 292 7,800 Prototype
July 1994 Jackson, Tennessee 292 7,800 Prototype
January 1995 Murfreesboro, Tennessee 292 7,800 Prototype
May 1995 Brentwood/Franklin, Tennessee 292 7,800 Prototype
(Cool Springs)
June 1995 Paducah, Kentucky 286 8,300 Renovated
November 1995 Chattanooga, Tennessee 292 7,800 Prototype
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
January 1996 Clarksville, Indiana 292 7,800 Prototype
June 1996 Johnson City, Tennessee 292 7,800 Prototype
June 1996 Florence, Alabama 292 7,800 Prototype
August 1996 Columbus, Georgia 299 8,400 Renovated
October 1996 Knoxville, Tennessee 292 7,800 Prototype
December 1996 Barboursville, West Virginia 292 7,800 Prototype
January 1997 Evansville, Indiana 292 7,800 Prototype
February 1997 Tuscaloosa, Alabama 292 7,800 Prototype
February 1997 Memphis, Tennessee 292 7,800 Prototype
April 1997 Athens, Georgia 292 7,800 Prototype
(Projected) (Under Construction)
April 1997 Macon, Georgia 292 7,800 Prototype
(Projected) (Under Construction)
June 1997 Louisville, Kentucky 292 7,800 Prototype
(Projected) (Under Construction)
July 1997 Cookeville, Tennessee 292 7,800 Prototype
(Projected) (Under Construction)
</TABLE>
The cost of developing the Company's prototype Logan's Roadhouse
restaurant is estimated to range from $1.9 to $2.5 million, including $875,000
for building costs, $375,000 for equipment costs and $175,000 for preopening
costs. Land acquisition costs, including site preparation, are the most
variable development costs and are estimated to range between $500,000 and $1.1
million. The cost of development for a new restaurant will not include land
acquisition costs if the property is leased rather than purchased. Although the
Company plans to focus its growth and expansion strategy on purchasing real
property on which to develop its restaurants, the Company will continue to lease
properties in certain locations. Management believes the Company's restaurant
facilities are adequately covered by insurance.
The Company's executive offices are located in approximately 6,700 square
feet of space in Nashville, Tennessee, under a lease expiring in 1999.
Management believes that these facilities are adequate for the Company's
current needs and the rent payable for this space does not exceed the fair
market value of comparable properties. Management believes that should the
need to secure additional space arise, it will be able to obtain additional
space on acceptable terms.
ITEM 3. LEGAL PROCEEDINGS
On June 11, 1996, Joseph H. Cook filed a lawsuit against the Company in
the Circuit Court of Davidson County, Tennessee. Mr. Cook claims that the
Company terminated his employment because he refused to participate in, or
remain silent about, certain improper or inappropriate activities allegedly
engaged in by the Company. Mr. Cook seeks an injunction enjoining the Company
from any further acts of retaliatory discharge, pay and benefits and punitive
damages of $5,000,000 arising from the Company's termination of his employment.
The Company denies Mr. Cook's allegations and contends that his termination
was based upon legitimate business reasons and that it has not engaged in any
improper activities. The Company believes the case has no merit and will
vigorously defend itself. At this time, the Company believes that the lawsuit
will not have a material adverse effect on the Company's financial position or
results of operations.
On July 19, 1996, Robert Olmstead filed a lawsuit in the United States
Bankruptcy Court, Eastern District of Kentucky, Lexington Division, naming as
defendants Bluegrass Steaks, Inc., a Kentucky corporation ("Bluegrass"), David
K. Wachtel, Jr., Logan's Partnership and the Company. Mr. Olmstead was a
creditor of Bluegrass when Bluegrass sold substantially all of
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its assets to Logan's Partnership in August 1992. Mr. Olmstead claims that as a
result of the sale of assets, he has suffered damages which he believes total
$7,450,000. The Company believes the claims against the Company have no merit,
will vigorously defend itself and that it is fully indemnified against such
claims. At this time, the Company believes that the lawsuit will not have a
material adverse effect on the Company's financial position or results of
operations.
On February 11, 1997, Kenneth F. Payne filed a lawsuit against the Company
in the United States District Court for the Middle District of Tennessee,
Nashville Division. Mr. Payne claims that the Company terminated his employment
because he refused to participate in, or remain silent about, and reported
certain improper or inappropriate activities allegedly engaged in by the
Company. Mr Payne claims compensatory, liquidated and punitive damages in
excess of $50,000 as a result of the Company's termination of his employment.
The Company denies Mr. Payne's allegations and contends that his termination
was based upon legitimate business reasons and that it has not engaged in any
improper activities. The Company believes the case has no merit and will
vigorously defend itself. At this time, the Company believes that the lawsuit
will not have a material adverse effect on the Company's financial position or
results of operations.
The Company's forward-looking statements relating to the above-described
litigation reflect management's best judgment based on the status of the
litigation to date and facts currently known to the Company and, as a result,
involve a number of risks and uncertainties, including the possible disclosure
of new facts and information adverse to the Company in the discovery process and
the inherent uncertainties associated with litigation.
Except as set forth above, the Company is not currently involved in any
litigation nor, to management's knowledge, is any litigation threatened against
the Company, except for routine litigation arising in the ordinary course of
business. In the judgment of management of the Company, no material adverse
effect on the Company's financial position or results of operations would
result if any such litigation were not resolved in the Company's favor.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders during the fourth
quarter ended December 29, 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The Company completed its IPO on July 26, 1995 at a price per share of
$9.00. Since such time, the Common Stock has traded on The Nasdaq Stock
Market's National Market (the "Nasdaq National Market") under the symbol
"RDHS." The following table sets forth the range of high and low sales prices
for the Common Stock for the periods indicated, as reported by the Nasdaq
National Market. The price quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
12
<PAGE> 13
<TABLE>
<CAPTION>
1995 HIGH LOW
- ---- ------ ------
<S> <C> <C>
Third Quarter (beginning July 26, 1995) $12.17 $10.33
Fourth Quarter......................... 12.50 9.50
1996
- ----
First Quarter.......................... 19.00 11.17
Second Quarter......................... 23.50 17.00
Third Quarter.......................... 23.00 15.50
Fourth Quarter......................... 23.50 17.50
1997
- ----
First Quarter (through March 26, 1997). 27.50 19.88
</TABLE>
Except as otherwise specified, all share amounts and share price
information in this report reflect the three-for-two stock split effected as a
stock dividend on June 5, 1996.
On March 26, 1997, the last reported sale price for the Common Stock on
the Nasdaq National Market was $20.50 per share. The Company estimates that
as of March 20, 1997, there were approximately 115 holders of record of its
Common Stock.
The Company has not paid any cash dividends on its Common Stock. The
Company intends to retain its earnings to finance the growth and development of
its business and does not expect to declare or pay any cash dividends in the
foreseeable future. The declaration of dividends is within the discretion of
the Company's Board of Directors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The following discussion includes comments and data relating to the Companys
financial condition and results of operations for the three-year period ended
December 29, 1996. As of this date, the Company had 15 Logans Roadhouse
restaurants in operation and has subsequently opened three new units. The
following table reflects the growth in number of restaurants over the three
year period.
<TABLE>
<CAPTION>
Restaurants 1994 1995 1996
- ----------- ---- ---- ----
<S> <C> <C> <C>
In operation, beginning of year 3 5 9
Newly opened 2 4 6
---- ---- ----
In operation, end of year 5 9 15
==== ==== ====
Under construction, end of year 2 2 4
==== ==== ====
</TABLE>
13
<PAGE> 14
Net restaurant sales includes a combination of food and beverage sales and are
net of applicable state and city sales taxes. For restaurants open the full
fiscal year of 1996, approximately 31% of net restaurant sales occurred in the
first quarter (16 weeks) compared to a range of 22% to 23% of net restaurant
sales in each of the other three quarters consisting of 12 weeks each.
Cost of restaurant sales includes expenses occurring at the unit level that are
directly associated with restaurant activities such as food and beverage costs,
labor and benefits, occupancy costs, and depreciation and amortization.
Food and beverage costs primarily consist of the costs of beef, chicken, ribs,
seafood, produce and beverages, including alcoholic and non-alcoholic
beverages. In addition, the cost of roasted peanuts, which are complimentary to
all customers, are included in this category. Various factors beyond the
Companys control, including adverse weather and natural disasters, may cause
periodic fluctuations in food costs. Generally, these temporary increases are
absorbed by the Company and not passed on to customers; however, management has
previously adjusted menu prices to compensate for increased costs of a more
permanent nature. There were no menu price increases implemented during 1996.
Labor and benefits include restaurant management salaries, bonuses, hourly
wages for unit level employees, payroll taxes, workers compensation, various
health, life and dental programs, vacations, and sick pay. Generally, when a
new restaurant opens, the Company incurs labor costs approximately 15% higher
than normal to accommodate the initial increased business and to ensure a high
level of food quality and service to its customers. As the new staff gains
experience over a 30 to 60 day post-opening period, hourly labor schedules are
gradually adjusted according to sales volume to provide maximum efficiency.
Occupancy and other costs and expenses at the restaurant level are primarily
fixed in nature and generally do not vary with unit sales volume. Rent,
insurance, property taxes, utilities, maintenance and advertising account for
the major expenditures in this category.
14
<PAGE> 15
Depreciation and amortization expense includes depreciation on property and
equipment recorded on a straight-line basis over an estimated useful life and
amortization of a new restaurants preopening costs, which include costs of
hiring and training the initial staff and certain other costs. The preopening
costs are amortized over 12 months commencing with a restaurants opening. As of
December 29, 1996, the amount of preopening costs, net of amortization, on the
Companys balance sheet was $831,563.
General and administrative expenses include all corporate and administrative
functions that serve to support the existing restaurant base and provide the
infrastructure for future growth. Management, supervisory and staff salaries,
employee benefits, data processing, training, rent and office supplies are the
major items of expense in this category.
Net interest expense includes costs and expenses associated with various
debt-financed capital expenditures and the capitalization of financing leases.
Interest income is derived from excess funds invested in short-term
interest-bearing taxable and non-taxable securities.
From inception through July 25, 1995, the Company was a partnership and,
accordingly, incurred no federal or state income tax liability. The discussion
of financial condition and results of operations included in the paragraphs
that follow reflect a pro forma adjustment for federal and state taxes that
would have been recorded during these periods if the Company had been subject
to corporate income taxes for the periods presented.
The following section should be read in conjunction with Selected Financial
Data and the Companys Financial Statements and Notes thereto included elsewhere
herein.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net restaurant
sales of certain income statement data, for the years indicated.
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net restaurant sales 100.0% 100.0% 100.0%
Costs and expenses:
Food and beverage 35.6 35.7 33.3
Labor and benefits 27.1 26.8 27.3
Occupancy and other 17.9 16.5 14.6
Depreciation and amortization 2.5 3.6 4.6
General and administrative 5.2 6.2 6.0
----- ----- -----
Total operating costs and expenses 88.3 88.8 85.7
----- ----- -----
Operating income 11.7 11.2 14.3
Interest income (expense), net (0.9) (0.6) 1.1
----- ----- -----
Earnings before income taxes 10.8 10.6 15.4
Income taxes 3.8 3.8 5.3
----- ----- -----
Net earnings 7.0% 6.8% 10.1%
===== ===== =====
</TABLE>
15
<PAGE> 16
FISCAL YEAR ENDED DECEMBER 29, 1996 COMPARED TO
FISCAL YEAR ENDED DECEMBER 31, 1995
Net restaurant sales increased $13.1 million or 47.1% to $41.0 million in 1996
from $27.9 million in 1995. The Company had 15 restaurants in operation during
1996 compared to nine in 1995. The 47.1% growth in sales is attributable to the
opening of six new restaurants in 1996. Same store sales declined slightly by
0.4% during 1996, primarily as a result of one unit experiencing increased
competition. There were no menu price increases implemented during 1996.
Alcoholic beverage sales accounted for 11.9% and 12.9% of net restaurant sales
for 1996 and 1995, respectively. Management attributes the decrease in
alcoholic beverage sales as a percentage of net restaurant sales to an increase
in the Companys lunch sales and a relative decrease in liquor sales.
Food and beverage costs as a percentage of net restaurant sales decreased to
33.3% in 1996 from 35.7% in 1995. Management attributes the overall 2.4%
decline to lower beef and produce prices and the switch to a new food
distributor in late November 1995. In addition, increases in other food and
beverage items were partially offset by a 3.0% menu price increase in November
1995. The prices of the Companys commodities (beef, pork, chicken, seafood,
and produce) are subject to seasonal fluctuations. Accordingly, food cost
results for 1996 may not be indicative of results to be expected in future
years.
Labor and benefits increased $3.7 million or 49.4% to $11.2 million in 1996
from $7.5 million in 1995, primarily as a result of having 15 restaurants in
operation in 1996 compared to nine in 1995. Labor and benefits, expressed as a
percentage of net restaurant sales, increased to 27.3% in 1996 from 26.8% in
1995. This increase is primarily attributable to the opening of six new
restaurants during 1996 and the associated high labor costs normally incurred.
Generally, when a new restaurant opens, management budgets and incurs labor
costs approximately 15% higher than normal to accommodate the initial increased
business and to ensure a high level of food quality and service to its
customers. As the new staff gains experience over a 30 to 60 day post-opening
period, labor schedules are gradually adjusted to provide maximum efficiency
with existing sales volume.
Occupancy and other costs increased $1.4 million or 30.1% to $6.0 million in
1996 from $4.6 million in 1995, primarily as a result of operating with a
larger restaurant base in 1996. As a percentage of net sales, occupancy and
other costs declined 1.9% to 14.6% in 1996 from 16.5% in 1995. In connection
with the Companys initial public offering of common stock in July 1995, the
Company purchased for $6.1 million all of the real property and improvements on
three of its restaurant sites and all of the improvements on two of its
restaurant sites. Such real property and improvements previously had been
leased. Accordingly, rent expense has significantly declined since July 1995.
16
<PAGE> 17
Depreciation and amortization expense increased $879,000 or 88.7% to $1.9
million in 1996 from $990,000 in 1995. As a percentage of net sales,
depreciation and amortization expense represented 4.6% and 3.6%, respectively,
for 1996 and 1995. The increase is primarily the result of the aforementioned
purchase of five leased facilities and of increased depreciation and
amortization resulting from the opening of six new restaurants during 1996.
General and administrative expenses increased $721,000 or 41.8% to $2.4 million
in 1996 from $1.7 million in 1995. As a percentage of net restaurant sales,
general and administrative expenses declined slightly to 6.0% in 1996 from 6.2%
in 1995. Because of the Companys expansion plans, management expects these
expenses to continue to increase during 1997 in absolute dollars, but to
decline slightly as a percentage of net restaurant sales.
Net interest income (interest income minus interest expense) from cash and cash
equivalents amounted to $308,491 in 1996 as compared to $177,960 of net
interest expense in 1995. On April 10, 1996, the Company completed a secondary
offering whereby 1,293,750 shares of Common Stock were sold, with net proceeds
amounting to approximately $20.8 million. From the net proceeds, the Company
repaid all of the then outstanding debt. Accordingly, since the latter date,
the Company has incurred no interest expense and generated interest income from
its various taxable and non-taxable investments.
The Companys first two franchised restaurants were opened in Edmond and
Oklahoma City, Oklahoma in May and November, 1996, respectively. In connection
with both openings, the Company recognized as income the initial non-refundable
$30,000 franchise fee collected. In addition, total royalty fees of $64,742
were received during the year from both franchised restaurants.
The effective tax rates for 1996 and 1995 (on a pro forma basis) were 34.3% and
35.4%, respectively. The reduction in the 1996 tax rate to 34.3% is
attributable to the impact of tax-free interest income being generated from
certain non-taxable investments.
From inception through July 25, 1995, the Company was a partnership and
accordingly incurred no federal or state income tax liability. Included in
operating results for 1995 is a pro forma adjustment that provides for
statutory federal and state tax rates then in effect as though the Company had
been subject to corporate income taxes for the period indicated.
As a result of the factors discussed above, net earnings in 1996 increased
117.8% to $4,148,561 or 10.1% of net sales from $1,905,144 or 6.8% of net sales
in 1995. Earnings per share increased $0.21 or 42.0% in 1996 to $.71 from $.50
in 1995 with a 52.0% increase in weighted average shares of Common Stock
outstanding.
17
<PAGE> 18
Fiscal Year Ended December 31, 1995 Compared to Fiscal Year Ended December 25,
1994
Net restaurant sales increased $12.9 million or 85.9% from $15.0 million
in 1994 to $27.9 million in 1995. The Company had nine restaurants in operation
during 1995 compared to five in 1994. The 85.9% growth in sales is primarily
attributable to the opening of four new restaurants and to a 3.8% increase in
same store sales in 1995 over the comparable period in 1994. This increase
resulted from higher customer counts and menu price increases of 2.2% and 3.0%
in April 1994 and late November 1995, respectively. Alcoholic beverage sales
accounted for 13.8% and 12.9% of net restaurant sales for 1994 and 1995,
respectively. Management attributes the decrease in alcoholic beverage sales as
a percentage of net restaurant sales to an increase in the Company's lunch sales
and a relative decrease in liquor sales.
Food and beverage costs as a percentage of net restaurant sales increased
slightly from 35.6% in 1994 to 35.7% in 1995. Although the prices of the
Company's commodities (beef, pork, chicken, seafood and produce) are subject to
seasonal fluctuations, these prices have remained fairly stable during 1994 and
1995. Increases in costs were partially offset by menu price increases of 2.2%
in April 1994 and 3.0% in late November 1995.
Labor and benefits increased $3.4 million or 84.9% from $4.1 million in
1994 to $7.5 million in 1995, primarily as a result of having nine restaurants
in operation in 1995 compared to five in 1994. Labor and benefits, expressed as
a percentage of net restaurant sales, declined from 27.1% in 1994 to 26.8% in
1995. This decline is primarily the result of improved operating efficiency
resulting from operating with higher average unit sales volume.
Occupancy and other costs increased $1.9 million or 70.7% from $2.7
million in 1994 to $4.6 million in 1995, primarily as a result of operating
with a larger restaurant base in 1995. As a percentage of net sales, occupancy
and other costs declined 1.4% from 17.9% in 1994 to 16.5% in 1995. In
connection with the IPO in July 1995, the Company purchased for $6.1 million
all of the real property and improvements on three of its restaurant sites and
all of the improvements on two of its restaurant sites. Such real property and
improvements previously had been leased. Accordingly, rent expense has
significantly declined since July 1995. The decline of 1.4% is primarily the
result of increased average unit sales volume on relatively fixed expenses
which generally do not vary with sales.
Depreciation and amortization expense increased $606,000 or 157.8% from
$384,000 in 1994 to $990,000 in 1995. As a percentage of net sales,
depreciation and amortization expense represented 2.5% and 3.6%, respectively,
for 1994 and 1995. The increase is primarily the result of the aforementioned
purchase of five leased facilities and of increased depreciation and
amortization resulting from the opening of four new restaurants during 1995.
General and administrative expenses increased $951,000 or 122.4% from
$777,000 in 1994 to $1.7 million in 1995. As a percentage of net restaurant
sales, general and administrative expenses increased from 5.2% in 1994 to 6.2%
in 1995. This increase is primarily attributable to the Company significantly
expanding its management and staff personnel in the areas of finance,
accounting, human resources, operations, training and real estate during the
latter part of 1994 and in 1995 reflecting the increased level of
organizational support necessary to support the Company's growing restaurant
base. In addition, in 1995 the Company incurred certain additional costs
associated with operating as a public company. Because of the Company's
expansion plans, management expects these expenses to continue to increase
during 1996 in absolute dollars, but to decline slightly as a percentage of net
restaurant sales.
Net interest expense increased $36,000 or 25.4% from $142,000 in 1994 to
$178,000 in 1995. This increase is primarily the result of growth in the number
of restaurants in operation and the incremental financing costs associated with
such growth. The Company also generated
18
<PAGE> 19
$76,000 of interest income from short-term investments of the net proceeds from
the IPO to offset this increase. As a percentage of sales, this category has
remained approximately the same for the comparable periods, amounting to 0.9%
and 0.6% in 1994 and 1995, respectively.
Pro forma income taxes reflect statutory federal and state tax rates then
in effect as though the Company had been subject to corporate income taxes for
the entire periods indicated. The effective tax rates were 35.4% for both 1994
and 1995.
Pro forma net earnings increased from $1.0 million in 1994 to $1.9 million
in 1995, an increase of 82.7%.
IMPACT OF INFLATION
The impact of inflation on the cost of food, labor, equipment, land and
construction costs could affect the Companys operations. A majority of the
Companys employees are paid hourly rates related to federal and state minimum
wage laws. In addition, the Company is required to pay property taxes,
insurance, maintenance, repairs and utility costs, and these costs are subject
to inflationary pressures. The Company may attempt to offset the effect of
inflation through periodic menu price increases, economies of scale in
purchasing and cost controls and efficiencies at existing restaurants.
Management believes that inflation has had no significant impact on costs
during the last two years, primarily because the largest single item of
expense, food costs, has remained relatively stable during this period.
QUARTERLY FINANCIAL AND RESTAURANT
OPERATING DATA
The following is a summary of certain unaudited quarterly results of operations
for each of the last three fiscal years. For financial reporting purposes, the
first quarter consists of 16 weeks, with the second, third and fourth quarters
each consisting of 12 weeks (13 weeks in the fourth quarter of 1995 because it
was a 53 week year):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED DECEMBER 29, 1996:
Net restaurant sales $10,905 $9,077 $10,139 $10,923 $41,044
Net earnings $ 858 $ 981 $ 1,091 $ 1,219 $ 4,149
Restaurants in operation, end
of quarter 10 12 14 15 15
FISCAL YEAR ENDED DECEMBER 31, 1995:
Net restaurant sales $ 6,857 $6,400 $ 6,891 $ 7,752 $27,900
Pro forma net earnings (1) $ 420 $ 350 $ 530 $ 605 $ 1,905
Restaurants in operation, end
of quarter 6 8 8 9 9
FISCAL YEAR ENDED DECEMBER 25, 1994:
Net restaurant sales $ 3,172 $ 3,441 $ 4,218 $ 4,174 $15,005
Pro forma net earnings (1) $ 206 $ 257 $ 344 $ 236 $ 1,043
Restaurants in operation, end
of quarter 3 4 5 5 5
</TABLE>
(1) Reflects pro forma adjustments for income taxes as if the Company had
been a corporation prior to July 26, 1995, instead of a partnership
that was not subject to federal and state income taxes.
Management believes there is a small degree of seasonality to the business,
with average weekly sales being slightly lower in the winter months. Because
the Companys first fiscal quarter consists of 16 weeks, however, the effect of
such seasonality is not necessarily reflected in the Companys quarterly
financial results of operations.
19
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
On April 10, 1996, the Company completed a secondary offering whereby 1,293,750
shares (giving effect to a three-for-two stock split) of Common Stock were sold
in a registered offering. Proceeds to the Company (after underwriting
discounts and expenses) amounted to approximately $20.8 million. From the net
proceeds, the Company repaid approximately $2.3 million of outstanding
indebtedness and plans to use the remaining proceeds, together with cash on
hand, cash flow from operations and lease financing, to open eight or nine
additional restaurants during 1997 of which three have been opened subsequent
to December 29, 1996. The Companys ability to expand the number of its
restaurants will depend on a number of factors, including the selection and
availability of quality restaurant sites, the negotiation of acceptable lease
or purchase terms, the securing of required governmental permits and approvals,
the adequate supervision of construction, the hiring, training and retaining of
skilled management and other personnel, the availability of adequate financing
and other factors, many of which are beyond the control of the Company. The
hiring and retention of management and other personnel may be difficult given
the low unemployment rates in the areas in which the Company intends to
operate. There can be no assurance that the Company will be successful in
opening the number of restaurants anticipated in a timely manner. Furthermore,
there can be no assurance that the Companys new restaurants will generate sales
revenue or profit margins consistent with those of the Companys existing
restaurants, or that these new restaurants will be operated profitably.
The Companys principal capital needs arise from the development of new
restaurant facilities and, to a lesser extent, maintenance and improvement of
its existing facilities. Prior to the Companys initial public offering in late
July 1995, the principal sources of capital to fund the aforementioned
expenditures were operating cash flow, bank borrowings and lease financing.
The following table provides certain information regarding the Companys sources
and uses of capital for the periods presented.
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
(in thousands)
Cash flows from operations $ 2,195 $ 3,011 $ 7,302
Net proceeds from public offering - 13,048 20,773
Capital expenditures (2,047) (13,886) (18,146)
Net borrowings (repayments) 806 529 (2,579)
</TABLE>
Since inception, the Companys single largest use of funds has been for capital
expenditures consisting of land, building, equipment and preopening costs
associated with its restaurant expansion program. The substantial growth of
the Company over the period has not required significant additional working
capital. Sales are predominately cash, and the business does not require
significant receivables or inventories. In addition, it is typical to receive
trade credit for the purchase of food, beverage and supplies, thereby reducing
the need for incremental working capital to support sales increases.
The Company prefers to own its restaurant facilities when possible rather than
lease. The cost of developing the Company's prototype Logans Roadhouse
restaurant is estimated to range from $1.9 to $2.5 million, including $875,000
for building costs, $375,000 for equipment costs and $175,000 for preopening
costs. Land acquisition costs, including site preparation, are the most
variable development costs and are estimated to range between $500,000 and
$1.1 million. The cost of development of a new restaurant will not include
land acquisition costs if the property is leased rather than purchased.
Capital expenditures and preopening costs planned for 1997 are estimated to
range from approximately $14.3 million to $16.5 million for the development of
11 or 12 new restaurants of which eight or nine are expected to be opened
in 1997. In addition, the Company plans to spend $200,000 in 1997 to renovate
and replace equipment in existing restaurants.
Management believes that the net proceeds of the secondary offering, together
with available cash reserves (including an unused $2.5 million bank line of
credit) and cash provided from operations, will be sufficient to fund the
Companys expansion plans through 1997. Should the Companys actual results of
operations fall short of, or its rate of expansion significantly exceed its
plans, or should its costs or capital expenditures exceed expectations, the
Company may need to seek additional financing in the future. In negotiating
such financing, there can be no assurance that the Company will be able to
raise additional capital on terms satisfactory to the Company.
In order to provide any additional funds necessary to pursue the Companys
growth strategy, the Company may incur, from time to time, additional short and
long-term bank indebtedness and may issue, in public or private transactions,
its equity and debt securities, the availability and terms of which will depend
upon market and other conditions. There can be no assurance that such
additional financing will be available on terms acceptable to the Company.
20
<PAGE> 21
This report contains certain forward-looking statements, including those
relating to the opening of additional restaurants and planned capital
expenditures, each of which is affected by the specific, cautionary language
appearing in the first paragraph of Liquidity and Capital Resources.
ITEM 7. FINANCIAL STATEMENTS
See Appendix A.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS
The information regarding the directors of the Company is incorporated by
reference to the information contained under the caption "Proposal 1: Election
of Directors" included in the Company's Proxy Statement relating to the Annual
Meeting of Shareholders to be held on May 15, 1997.
EXECUTIVE OFFICERS
The information regarding the executive officers of the Company is
incorporated by reference to the information contained under the caption
"Executive Compensation - Executive Officers of the Company" included in the
Company's Proxy Statement relating to the Annual Meeting of Shareholders to be
held on May 15, 1997.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
21
<PAGE> 22
This information is incorporated by reference to the information contained
under the caption "Compliance with Reporting Requirements of the Exchange Act"
included in the Company's Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 15, 1997.
ITEM 10. EXECUTIVE COMPENSATION
This information is incorporated by reference to the information contained
under the caption "Executive Compensation" included in the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 15,
1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference to the information contained
under the caption "Voting Securities and Principal Holders Thereof" included in
the Company's Proxy Statement relating to the Annual Meeting of Shareholders to
be held on May 15, 1997.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the IPO, the Company's operations were conducted through the
Predecessor, of which O'Charley's and LMG were the general partners. Prior to
the IPO and the Reorganization, the Predecessor made periodic distributions to
LMG and O'Charley's in accordance with their respective ownership interests in
the Predecessor. In 1994, the Predecessor distributed approximately $574,000
to LMG and approximately $144,000 to O'Charley's, and in 1995, the Predecessor
distributed approximately $402,000 to LMG and $101,000 to O'Charley's.
Pursuant to the Reorganization, the Company distributed approximately $203,000
to LMG and $51,000 to O'Charley's, such amounts equaling the estimated income
taxes payable on the Predecessor's earnings through July 9, 1995. After the
IPO, the Company paid approximately $43,000 directly to a state taxing
authority on behalf of LMG, and distributed approximately $42,000 in the
aggregate to the former LMG shareholders and $10,000 to O'Charley's in
accordance with their respective former ownership interests in the Predecessor,
such amounts equaling the estimated income taxes payable on the Predecessor's
earnings in accordance with the Predecessor's final tax return. All
distributions to LMG and O'Charley's were funded by cash provided from
operations.
Pursuant to the Reorganization, O'Charley's contributed to the Company all
of its interest in the Predecessor in exchange for 953,993 shares of Common
Stock, and Messrs. Moats, McWhorter and Wachtel received 396,282, 594,425 and
1,122,801 shares, respectively, of Common Stock in exchange for their shares of
LMG Common Stock. O'Charley's and Messrs. Moats, McWhorter and Wachtel sold
943,493, 65,520, 127,388 and 473,100 shares, respectively, of Common Stock in
the IPO. Based on the IPO price of $9.00 per share, O'Charley's and the former
LMG shareholders exchanged their interests in the Predecessor for
22
<PAGE> 23
shares of Common Stock valued at approximately $8.6 million and $19.0 million,
respectively. The number of shares of Common Stock issued to O'Charley's and the
former LMG shareholders was based on their respective former ownership interests
in the Predecessor and the proposed IPO price. In connection with the
Reorganization, each of O'Charley's and Messrs. McWhorter and Wachtel entered
into a Restrictive Covenant Agreement with the Company, whereby O'Charley's and
Messrs. McWhorter and Wachtel agreed not to solicit or hire certain management
employees of the Company, and the Company agreed not to solicit or hire certain
management employees of O'Charley's or certain restaurants controlled by Mr.
Wachtel. Each Restrictive Covenant Agreement will expire on July 25, 1997.
In connection with the Reorganization, each of O'Charley's and Messrs.
McWhorter, Wachtel and Moats entered into a Registration Rights Agreement with
the Company which gave them certain rights with respect to the registration
under the Securities Act of shares of Common Stock held by them from time to
time, including a single demand registration right and unlimited piggy-back
registration rights. In connection with the Company's secondary offering
completed on April 15, 1996 (the "Offering"), O'Charley's and Messrs. McWhorter
and Wachtel exercised their piggy-back registration rights and sold 10,500,
16,500 and 180,000 shares, respectively, of Common Stock. They received net
proceeds of approximately $171,000, $269,000 and $2.9 million, respectively,
from the Offering.
The Predecessor leased real estate for the operation of five of its restaurants
from O'Charley's prior to the IPO. The Company used approximately $6.1 million
of the net proceeds from the IPO to purchase at the appraised value all of the
real property and improvements on three of its restaurant sites owned by
O'Charley's and all of the improvements on two of its restaurant sites subject
to subleases with the Company, as sublessee, and O'Charley's, as sublessor.
The appraised value of the real property was calculated on the basis of
comparable land values, replacement cost and the assumed net operating income
of each property, discounted by an appropriate capitalization rate. The cost
of such properties to O'Charley's was approximately $5.1 million, and their
sale to the Company resulted in profit to O'Charley's of approximately $1.0
million. The lease agreements between the Company and O'Charley's provided for
annual rental in an aggregate amount equal to the greater of (i) $523,000 or
(ii) 6% of sales up to $2,000,000, 5% of sales in excess of $2,000,000 and less
than $3.0 million and 4% of all sales in excess of $3.0 million for each
respective restaurant. During 1993, 1994 and 1995, the Company paid
O'Charley's aggregate rent of approximately $269,000, $592,000 and $594,000,
respectively. The Company does not currently lease any restaurants or real
property underlying restaurants from O'Charley's. The Company is, however,
obligated to pay an annual fee to O'Charley's in consideration of its guaranty
of one of the Company's restaurant leases equal to 2% of the discounted rent
and expenses to be paid during the term of the lease (discounted at an 8%
rate). The Company paid O'Charley's a total of $29,207 in lease guaranty fees
in 1995 and is obligated to pay an annual fee of $26,942 to O'Charley's for the
duration of the lease or until O'Charley's is released from the guaranty.
23
<PAGE> 24
The Company paid O'Charley's a total of $7,150 and $5,638 in rental
payments for its executive offices in 1993 and 1994, respectively. Management
believes that the rent payable for this space did not exceed the fair market
value of comparable properties. Currently, the Company leases executive office
space from an unaffiliated third party pursuant to a lease agreement dated
September 23, 1994. See "Description of Property."
Prior to the IPO, the Company paid a 2% monthly fee to O'Charley's for
guaranty fees based on the outstanding balance of certain capital leases and
bank debt. The Company paid O'Charley's a total of approximately $16,100,
$9,600 and $27,100 in guaranty fees in 1993, 1994 and 1995, respectively. The
guaranty fees paid by the Company to O'Charley's related to the Company's
indebtedness with a bank under a revolving line of credit and two equipment
leases. Upon completion of the IPO, releases were obtained from certain
lenders thereby eliminating this fee. In connection with the IPO, the Company
caused O'Charley's to be released from all existing guarantees in respect to
indebtedness of the Company. Management does not anticipate that O'Charley's
will guarantee any future debt financing of the Company.
The Company paid O'Charley's a total of $1.7 million, $3.5 million and
$5.7 million for food products and supplies in 1993, 1994 and 1995,
respectively. In general, the amounts paid by the Company to O'Charley's
represented the cost of food products plus an agreed upon mark-up consistent
with industry practice. Management believes the terms of this arrangement were
comparable to those which could be obtained from unaffiliated third parties.
Currently, the Company purchases its food products and supplies from an
unaffiliated third party pursuant to an agreement dated August 9, 1995. See
"Description of Business -- Restaurant Operations" and "Management's Discussion
and Analysis or Plan of Operation."
The Predecessor utilized various accounting and administrative services
provided by O'Charley's prior to April 1995. The Predecessor paid O'Charley's
a total of approximately $44,500, $67,500 and $21,300 in fees for such services
in 1993, 1994 and 1995, respectively. In April 1995, the Company entered into
a computer and software services agreement (the "Software Agreement"), whereby
O'Charley's agreed to provide various computer and software services to the
Company's corporate office and each of the Company's restaurants. Pursuant to
the Software Agreement, the Company paid O'Charley's $1,950 per four-week
accounting period, subject to reasonable adjustments thereafter, plus
additional fees for certain support or installation services. In May 1996, the
Company terminated the Software Agreement and purchased for $20,000 all
software written by O'Charley's personnel for the Company and existing as of
the date of the Software Agreement.
In 1992, the Company entered into an asset purchase agreement and a
sublease agreement with Bluegrass Steaks, Inc., a Tennessee corporation owned by
Mr. Wachtel ("Bluegrass"), for the purpose of obtaining the right to develop and
operate the Logan's
24
<PAGE> 25
Roadhouse restaurant located in Lexington, Kentucky. In connection with the
asset purchase agreement, the Company executed an unsecured installment note
bearing interest at a rate of 9.5% payable in monthly principal installments of
$4,314, plus interest, that was paid in full in August 1995. The Company paid a
total of $51,767 in principal payments to Bluegrass in both 1993 and 1994 and
$34,510 in 1995. The sublease agreement calls for minimum annual lease payments
of approximately $148,000 through September 2002, subject to contingent rentals
based on certain achieved sales levels, and requires Bluegrass to pay all taxes
other than real property taxes and assessments related to the restaurant
property and improvements. The Company paid approximately $148,000 in basic
rentals in each of 1993, 1994, 1995 and 1996, and contingent rentals of
approximately $84,000, $102,000, $107,000 and $85,000 in 1993, 1994, 1995 and
1996, respectively, under this lease.
In connection with the franchising of Logan's Roadhouse restaurants in
select market areas not in the Company's immediate expansion plans for owned
restaurants, the Company entered into Area Development Agreements and Franchise
Agreements with each of L.W. Group, Inc., a corporation controlled by Mr.
Wachtel, and CMAC Incorporated, a corporation controlled by Mr. McWhorter, in
January 1996 and March 1997, respectively. L.W. Group currently operates two
Logan's Roadhouse restaurants in Edmond and Oklahoma City, Oklahoma. CMAC
plans to open its first franchised restaurant in Greenville, South Carolina in
August 1997.
Each Development Agreement requires the franchisees to locate sites for
and develop a specified number of Logan's Roadhouse restaurants within
specified geographic areas. Under the terms of each Development Agreement, the
franchisees are required to open a specified number of restaurants during
scheduled intervals, and management of the Company has the right to approve
each restaurant site. Franchisees are required to enter into individual
franchise agreements for each Logan's Roadhouse restaurant it develops. Each
Development Agreement prohibits the franchisees and their principals from
owning, operating or assisting other restaurants with menus or methods of
operation similar to those of Logan's Roadhouse restaurants that are located
within the geographic area covered by the Development Agreement. The initial
terms of the Development Agreements with L.W. Group and CMAC expire on December
31, 2000 and March 31, 2002, respectively, subject to automatic renewal for an
additional five years following such initial term, provided the franchisees
have satisfied the development schedule specified in their respective
Development Agreements. The Company has the right to purchase all of the
outstanding stock of L.W. Group and CMAC beginning in January 2001 and March
2002, respectively, upon the occurrence of specified events on the terms and
conditions as set forth in their respective Development Agreements. The
franchisees could lose their exclusive development rights under their
respective Development Agreements if they fail to meet the performance and
other requirements specified in the Development Agreements or the Franchise
Agreements.
25
<PAGE> 26
Each Franchise Agreement grants to the franchisees the right to operate a
Logan's Roadhouse restaurant in a specified location for a period of 20 years,
with two additional five-year renewal options. Each Franchise Agreement
licenses the right to use the Company's trademarks and service marks with
respect to this specific restaurant site, subject to appropriate oversight by
the Company. In developing a Logan's Roadhouse restaurant, the franchisees are
required to comply with the Company's general construction specifications,
designs, color schemes, signs and equipment, formulas for preparation of food
and beverage products, operations and financial control methods, and management
training plans. The Company is obligated to provide a three week training
program for a fee ranging from $45,000 to $55,000 per restaurant during which
certain of the franchisees' personnel are educated and instructed at the
franchisees' restaurant in all aspects of the Company's system of operations.
The course will begin approximately one week prior to the opening of the
franchisees' restaurant and will end approximately two weeks after such
opening. Pursuant to the terms of the Franchise Agreement, additional training
by the Company's training crew may be conducted at the franchisees' restaurant
upon request. The franchisee is responsible for all expenses incurred by its
personnel while in training, including travel and living expenses. Each
Franchise Agreement prohibits the franchisee from transferring ownership of the
franchise without the prior approval of the Company, and provides the Company a
right of first refusal to purchase the franchise on the same terms and
conditions as any proposed transfer by the franchisee. For a period of 24
months following the date of termination or expiration of the Franchise
Agreement, the franchisees and certain of their principals may not compete with
the Company within a 50-mile radius of any existing or planned Company owned or
franchised restaurant, subject to certain exceptions. Additionally, the
franchisees may not solicit any previously serviced accounts, groups or
clientele for or on behalf of any casual dining restaurant for one year
following the termination or expiration of the Franchise Agreement.
The Franchise Agreements require the franchisee to pay an initial $30,000
franchise fee and a monthly royalty fee of 3.0% of gross sales. In addition,
the Company may require the franchisees to contribute up to 1.0% of gross sales
to the Company's general advertising account and expend on an annual basis up
to 3.0% of gross sales for local promotional activities, subject to the
approval of the Company. In 1996, L.W. Group paid the Company $60,000 for the
initial franchise fees in connection with the two restaurants opened in
Oklahoma and total royalty fees of approximately $65,000.
Management is considering other future franchising opportunities in areas
which are not in the Company's immediate expansion plans for owned restaurants,
and has had preliminary discussions with third parties that could result in the
franchising of additional Logan's Roadhouse restaurants on similar terms as the
Company's agreements with its franchisees.
The Company's Board of Directors has adopted a policy that all
transactions between the Company and its officers, directors, principal
shareholders and affiliates be on terms no less favorable to the Company than
those obtainable from unrelated third parties. Although all of
26
<PAGE> 27
the above transactions necessarily involved conflicts of interests, management
of the Company believes that all of the above transactions were entered into on
such terms based on (i) a comparison of terms and conditions available from
third parties, (ii) the advice of counsel and other outside experts, (iii) the
use of and reliance on an independent appraisal in connection with the purchase
of real property and (iv) a determination by the Company's board of directors in
certain instances.
27
<PAGE> 28
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
The following is a list of exhibits furnished:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
*2 -- Exchange Agreement, dated May 30, 1995, by and among O'Charley's,
each of the shareholders of LMG and the Registrant
*3.1 -- Amended and Restated Charter of the Registrant
*3.2 -- Bylaws of the Registrant
*4.1 -- Section 8 of the Amended and Restated Charter of the Registrant
(included in Exhibit 3.1)
*4.2 -- Specimen of Common Stock certificate
*10.1 -- Registrant's 1995 Non-Employee Director Stock Option Plan
*10.2 -- Registrant's 1995 Incentive Stock Plan
*10.3 -- Partnership Agreement, dated August 10, 1992, between O'Charley's
and LMG
*10.4 -- Amendment No. 1 to Partnership Agreement, dated November 15, 1994,
between O'Charley's and LMG
**10.5 -- Amendment No. 2 to Partnership Agreement, dated July 25, 1995,
between O'Charley's and LMG
*10.6 -- Lease Agreement, dated September 23, 1994, between the Registrant
and LaSalle Fund III (executive offices)
*10.7 -- Sublease Agreement, dated August 10, 1992, between the Registrant
and Bluegrass Steaks, Inc. (Lexington, Kentucky)
*10.8 -- Sublease Agreement, dated June 1, 1992, between the Registrant and
O'Charley's (Antioch, Tennessee)
*10.9 -- Sublease Agreement, dated January 13, 1993, between the Registrant
and O'Charley's (Madison, Tennessee)
*10.10 -- Lease Agreement, dated July 18, 1994, between the Registrant and
O'Charley's (Jackson, Tennessee)
*10.11 -- Lease Agreement, dated January 10, 1995, between the Registrant and
O'Charley's (Murfreesboro, Tennessee)
*10.12 -- Lease Agreement, dated November 9, 1994, between the Registrant and
S&G Marketplace, Inc. (Paducah, Kentucky)
*10.13 -- Lease Agreement, dated April 30, 1994, between the Registrant and
O'Charley's (Clarksville, Tennessee)
*10.14 -- Computer and Software Services Agreement, dated April 17, 1995,
between the Registrant and O'Charley's
</TABLE>
28
<PAGE> 29
*10.15 -- Revolving Master Promissory Note, dated November 16, 1994, between
the Registrant and First American National Bank
*10.16 -- Revolving Master Promissory Note, dated July 1, 1995, between the
Registrant and First American National Bank
*10.17 -- Continuing Guaranty, dated November 16, 1994, by LMG in favor of
First American National Bank
*10.18 -- Continuing Guaranty, dated November 16, 1994, by O'Charley's in
favor of First American National Bank
**10.19 -- Promissory Note, dated August 11, 1995, of the Registrant to
Citizens Bank and Trust Company of Paducah
**10.20 -- Master Note for Business and Commercial Loans, dated November 10,
1995, of the Registrant to AmSouth Bank of Tennessee
**10.21 -- Note for Business and Commercial Loans, dated December 15, 1995, of
the Registrant to AmSouth Bank of Tennessee
**10.22 -- Loan Agreement, dated February 16, 1996, between the Registrant and
First American National Bank
**10.23 -- Master Secured Promissory Note, dated February 16, 1996, of the
Registrant to First American National Bank
**10.24 -- Lease Guaranty Agreement, dated July 25, 1995, between the
Registrant and O'Charley's
**10.25 -- Restrictive Covenant Agreement, dated July 25, 1995, between the
Registrant and O'Charley's
**10.26 -- Restrictive Covenant Agreement, dated July 25, 1995, between the
Registrant and Charles F. McWhorter, Jr.
**10.27 -- Restrictive Covenant Agreement, dated July 25, 1995, between the
Registrant and David K. Wachtel, Jr.
**10.28 -- Registration Rights Agreement, dated July 25, 1995, by and among
O'Charley's, each of the shareholders of LMG and the Registrant
**10.29 -- Letter Agreement, dated August 9, 1995, between the Registrant and
Kraft Foodservice, Inc.
**10.30 -- Letter Agreement, dated January 9, 1996, between the Registrant and
Coca-Cola Fountain
**10.31 -- Area Development Agreement, dated January 12, 1996, between the
Registrant, L.W. Group, Inc. and David K. Wachtel, Jr.
**10.32 -- Form of Franchise Agreement between the Registrant, L.W. Group,
Inc. and David K. Wachtel, Jr.
10.33 -- Area Development Agreement, dated March 17, 1997, between the
Registrant, CMAC Incorporated and Charles F. McWhorter, Jr.
29
<PAGE> 30
<TABLE>
<S> <C>
10.34 -- Form of Franchise Agreement between the Registrant, CMAC
Incorporated and Charles F. McWhorter, Jr.
10.35 -- Employment Agreement, dated August 1, 1996, between Edwin W. Moats,
Jr. and the Registrant
11 -- Statement re computation of per share earnings
27 -- Financial Data Schedule (for SEC use only)
</TABLE>
- -------------
* Incorporated by reference to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-92976-A).
** Incorporated by reference to the Registrant's Registration
Statement on Form SB-2 (Registration No. 333-2570).
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
The following is a list of all executive compensation plans and
arrangements filed as exhibits to this Annual Report on Form 10-KSB:
1. Registrant's 1995 Non-Employee Director Stock
Option Plan (filed as Exhibit 10.1)
2. Registrant's 1995 Incentive Stock Plan (filed as
Exhibit 10.2)
3. Employment Agreement, dated August 1, 1996, between
Edwin W. Moats, Jr. and the Registrant (filed as Exhibit
10.35)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
reporting period.
30
<PAGE> 31
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 28, 1997 Logan's Roadhouse, Inc.
By: /s/ Edwin W. Moats, Jr.
----------------------------------
Edwin W. Moats, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
NAME TITLE(S) DATE
- ----------------------- ----------------------------------- ---------------
/s/ Edwin W. Moats, Jr. Chairman of the Board, President March 28, 1997
- -----------------------
Edwin W. Moats, Jr. and Chief Executive Officer
(principal executive officer)
/s/ David J. McDaniel Vice President - Finance, Chief March 28, 1997
- -----------------------
David J. McDaniel Financial Officer (principal
financial and accounting officer),
Secretary, Treasurer and Director
/s/ Ralph W. McCracken Vice President - Development March 28, 1997
- -----------------------
Ralph W. McCracken
/s/ George S. Waltman Vice President - Operations and March 28, 1997
- -----------------------
George S. Waltman Director
/s/ Gary T. Baker Director March 28, 1997
-----------------------
Gary T. Baker
/s/ Jerry O. Bradley Director March 28, 1997
-----------------------
Jerry O. Bradley
/s/ B. Tom Collins Director March 28, 1997
-----------------------
B. Tom Collins
/s/ Thomas E. Ervin Director March 28, 1997
- -------------------
Thomas E. Ervin
/s/ Ted H. Welch Director March 28, 1997
- -------------------
Ted H. Welch
</TABLE>
31
<PAGE> 32
Appendix A
LOGAN'S ROADHOUSE, INC.
(FORMERLY LOGAN'S PARTNERSHIP)
Financial Statements
December 31, 1995 and December 29, 1996
(With Independent Auditors' Report Thereon)
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Logan's Roadhouse, Inc.:
We have audited the accompanying balance sheets of Logan's
Roadhouse, Inc. and its predecessor company, Logan's Partnership, as
of December 29, 1996 and December 31, 1995, and the related
statements of earnings, partners' and shareholders' equity, and cash
flows for each of the years in the three-year period ended December
29, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Logan's
Roadhouse, Inc. and its predecessor company, Logan's Partnership, as
of December 29, 1996 and December 31, 1995, and the results of its
operations and its cash flows for each of the years in the
three-year period ended December 29, 1996, in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Nashville, Tennessee
January 27, 1997
1
<PAGE> 34
LOGAN'S ROADHOUSE, INC.
Balance Sheets
December 29, 1996 and December 31, 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 780,307 $ 2,249,712
Investments, at amortized cost (note 2) 7,807,289 -
Interest receivable 148,661 11,064
Accounts receivable 353,250 184,875
Inventories 250,582 157,938
Preopening costs 831,563 376,014
Prepaid expenses and other current assets 270,356 232,788
----------- -----------
Total current assets 10,442,008 3,212,391
Investments, at amortized cost (note 2) 1,253,444 -
Property and equipment, net (note 3) 33,691,774 16,600,294
Other assets 71,873 56,017
----------- -----------
Total assets $45,459,099 $19,868,702
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable (including amounts due to related parties of approximately
$27,000 in 1995) $ 2,656,152 $ 730,176
Accrued payroll and related expenses 883,675 443,348
Deferred revenue 392,376 239,959
Income taxes payable (note 7) 89,163 49,700
Accrued state and local taxes 488,072 450,475
Current portion of long-term obligations (notes 4 and 5) - 639,439
Deferred income taxes (note 7) 299,800 139,300
----------- -----------
Total current liabilities 4,809,238 2,692,397
Long-term obligations, less current portion (notes 4 and 5) - 1,939,812
Deferred income taxes (note 7) 648,028 181,900
----------- -----------
Total liabilities 5,457,266 4,814,109
Shareholders' equity (note 6):
Common stock, $0.01 par value; 15,000,000 shares authorized; 6,013,784
and 4,717,500 shares issued and 60,138 47,175
outstanding in 1996 and 1995, respectively
Additional paid-in capital 35,072,026 14,286,310
Retained earnings 4,869,669 721,108
----------- -----------
Total shareholders' equity 40,001,833 15,054,593
----------- -----------
Commitments and contingencies (notes 4, 5, 8 and 10)
Total liabilities and shareholders' equity $45,459,099 $19,868,702
=========== ===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 35
LOGAN'S ROADHOUSE, INC.
Statements of Earnings
Years ended December 29, 1996, December 31, 1995, and December 25, 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net restaurant sales $41,044,121 $27,900,234 $15,004,558
Costs and expenses:
Cost of restaurant sales:
Food and beverage (including $5,701,935 and
$3,473,303 in 1995 and 1994, respectively,
paid to a related party) 13,661,800 9,953,495 5,336,393
Labor and benefits 11,211,976 7,506,094 4,059,472
Occupancy and other (including $849,139 and
$841,048 in 1995 and 1994, respectively, paid
to related parties) 5,974,489 4,593,580 2,690,927
Depreciation and amortization 1,869,502 990,479 384,189
General and administrative expenses
(including $40,800 and $73,138 in 1995 and 1994,
respectively, paid to a related party) 2,449,029 1,727,660 776,829
----------- ----------- -----------
35,166,796 24,771,308 13,247,810
----------- ----------- -----------
Income from operations 5,877,325 3,128,926 1,756,748
Other expense (income):
Interest expense (including $40,814 and $15,593 in
1995 and 1994, respectively, paid to related parties) 69,606 254,411 142,322
Interest income (378,097) (76,451) -
Franchise income (note 9) (124,742) - -
----------- ----------- -----------
(433,233) 177,960 142,322
----------- ----------- -----------
Earnings before income taxes 6,310,558 2,950,966 1,614,426
Income tax expense (note 7) 2,161,997 909,300 -
----------- ----------- -----------
Net earnings $ 4,148,561 $ 2,041,666 $ 1,614,426
=========== =========== ===========
Pro forma earnings data (note 1(k)):
Earnings before income taxes, as reported $ 2,950,966 $1,614,426
Pro forma income taxes 1,045,822 571,870
----------- -----------
Pro forma net earnings $ 1,905,144 $1,042,556
----------- -----------
Net earnings per share (pro forma data for 1995 and 1994) $ 0.71 $ 0.50 $ 0.34
=========== =========== ===========
Weighted average shares outstanding (pro forma data
for 1995 and 1994) 5,825,769 3,833,501 3,067,500
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 36
LOGAN'S ROADHOUSE, INC.
Statements of Partners' and Shareholders' Equity
Years ended December 29, 1996, December 31, 1995, and December 25, 1994
<TABLE>
<CAPTION>
ADDITIONAL
PARTNERS' COMMON PAID-IN RETAINED
EQUITY STOCK CAPITAL EARNINGS TOTAL
------ ----- ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 26, 1993 $ (79,067) $ - $ - $ - $ (79,067)
Net earnings 1,614,426 - - - 1,614,426
Partner distributions (717,926) - - - (717,926)
---------- -------- ---------- ---------- -----------
Balance at December 25, 1994 817,433 - - - 817,433
Net earnings 1,320,558 - - 721,108 2,041,666
Partner distributions (852,141) - - - (852,141)
Transfer of partnership equity
for 3,067,500 shares of
common stock (1,285,850) 30,675 1,255,175 - -
Net proceeds from issuance of
1,650,000 shares of
common stock - 16,500 13,031,135 - 13,047,635
---------- -------- ----------- ---------- -----------
Balance at December 31, 1995 - 47,175 14,286,310 721,108 15,054,593
Net earnings - - - 4,148,561 4,148,561
Net proceeds from issuance of
1,293,750 shares of common
stock - 12,937 20,760,086 - 20,773,023
Net proceeds from exercise of
2,555 stock options and
related tax benefits - 26 25,630 - 25,656
---------- -------- ----------- ---------- -----------
Balance at December 29, 1996 $ - $ 60,138 $35,072,026 $4,869,669 $40,001,833
========== ======== =========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 37
LOGAN'S ROADHOUSE, INC.
Statements of Cash Flows
Years ended December 29, 1996, December 31, 1995, and December 25, 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $4,148,561 $ 2,041,666 $1,614,426
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization of property
and equipment 1,054,031 510,800 186,117
Amortization of preopening costs 815,471 479,679 198,072
Net amortization and accretion of premiums and
discounts on short-term investments (232,352) - -
Deferred income taxes 626,628 321,200 -
Change in assets and liabilities:
Interest receivable (137,597) (11,064) -
Accounts receivable (168,375) (122,784) (24,559)
Inventories (92,644) (33,133) (37,619)
Preopening costs (1,271,020) (724,914) (270,683)
Prepaid expenses and
other current assets (37,568) (184,500) (16,418)
Other assets (15,856) (23,272) (15,333)
Due from related parties - 12,117 (12,117)
Accounts payable and accrued payroll and
related expenses 2,366,303 321,165 413,272
Deferred revenue 152,417 89,859 97,415
Income taxes payable 56,117 49,700 -
Accrued state and local taxes 37,597 284,623 62,491
------------ ----------- ----------
Net cash provided by operating activities 7,301,713 3,011,142 2,195,064
------------ ----------- ----------
Cash used by investing activities:
Additions to property and equipment (18,145,511) (13,885,816) (2,047,065)
Purchases of investments (19,000,000) - -
Proceeds from maturities of investments 10,171,619 - -
------------ ----------- ----------
Net cash used by investing activities (26,973,892) (13,885,816) (2,047,065)
------------ ----------- ----------
Cash flows from financing activities:
Net proceeds from issuance of common stock 20,773,023 13,047,635 -
Net proceeds from exercise of stock options 9,002 - -
Proceeds from long-term obligations - 2,693,173 1,221,000
Payments on long-term obligations (2,579,251) (2,164,404) (415,410)
Partner distributions - (852,141) (717,926)
------------ ----------- ----------
Net cash provided by financing activities 18,202,774 12,724,263 87,664
------------ ----------- ----------
Net increase (decrease) in cash and cash equivalents (1,469,405) 1,849,589 235,663
Cash and cash equivalents at beginning of year 2,249,712 400,123 164,460
------------ ----------- ----------
Cash and cash equivalents at end of year $ 780,307 $ 2,249,712 $ 400,123
============ =========== ==========
</TABLE>
5
(Continued)
<PAGE> 38
LOGAN'S ROADHOUSE, INC.
Statements of Cash Flows, Continued
<TABLE>
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 69,606 $ 254,411 $ 142,322
Cash paid for income taxes 1,416,000 538,400 -
============ =========== ==========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Capitalized obligations for restaurant equipment $ - $ - $ 411,156
============ =========== ==========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 39
LOGAN'S ROADHOUSE, INC.
Notes to Financial Statements
December 29, 1996 and December 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION
Logan's Roadhouse, Inc. (the Company), was formed on March 30, 1995
for the purpose of acquiring the partnership interests of Logan's
Partnership (the Predecessor) pursuant to an exchange agreement
between the Company and the partners of the Predecessor. Such
exchange took place immediately prior to the initial public offering
of the Company's common stock on July 26, 1995. The Predecessor
commenced operations on August 10, 1992 to own, develop and manage
an existing Logan's Roadhouse restaurant and to acquire and develop
additional restaurant locations. At December 29, 1996, the Company
owned and operated fifteen casual dining restaurant facilities in
Alabama, Georgia, Indiana, Kentucky, Tennessee, and West Virginia
and franchised two casual dining restaurant facilities in Oklahoma.
The financial statements for fiscal year 1994 included herein are
those of the Predecessor, and the financial statements for fiscal
years 1995 and 1996 include the operations of the Predecessor for
the period December 26, 1994 through July 25, 1995 and the
operations of the Company for the period July 26, 1995 through
December 29, 1996. The assets and liabilities transferred from the
Predecessor to the Company were at the amounts recorded in the
accounts of the Predecessor.
The Company's and the Predecessor's fiscal year ends on the last
Sunday in December. Fiscal year 1995 was comprised of 53 weeks, and
fiscal years 1996 and 1994 were comprised of 52 weeks.
(B) USE OF ESTIMATES
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 those estimates.
(C) CASH AND CASH EQUIVALENTS
Cash and cash equivalents at December 29, 1996 consisted of
noninterest and interest-bearing demand deposits and a money market
fund.
Cash and cash equivalents at December 31, 1995 consisted of
noninterest and interest-bearing demand deposits and commercial
paper with original terms of less than three months at the time of
purchase.
7
<PAGE> 40
LOGAN'S ROADHOUSE, INC.
Notes to Financial Statements
(D) INVESTMENTS
Investments at December 29, 1996 consisted of municipal and
corporate debt securities. The Company classifies its debt and
equity securities in one of three categories: trading,
available-for-sale, or held-to-maturity. Trading securities are
bought and held principally for the purpose of selling them in the
near term. Held-to-maturity securities are those securities in
which the Company has the ability and intent to hold the security
until maturity. All other securities not included in trading or
held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair
value. Held-to-maturity securities are recorded at amortized cost,
adjusted for the amortization or accretion of premiums or discounts.
Unrealized holding gains and losses on trading securities are
included in earnings. Unrealized holding gains and losses, net of
the related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of
shareholders' equity until realized. Realized gains and losses from
the sale of available-for-sale securities are determined on a
specific identification basis.
A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed other than
temporary results in a reduction in carrying amount to fair value.
The impairment is charged to earnings and a new cost basis for the
security is established. Premiums and discounts are amortized or
accreted over the life of the related held-to-maturity security as
an adjustment to yield using the effective interest method.
Dividend and interest income are recognized when earned.
(E) INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out
method) or market and consist primarily of food, beverages and
supplies.
(F) PREOPENING COSTS
Preopening costs represent costs incurred prior to a restaurant
opening. These costs are capitalized and amortized over a 12-month
period commencing the date the restaurant opens.
(G) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a
straight-line method over the following estimated useful lives:
building and building improvements - 30 years, and furniture,
fixtures and equipment--three to ten years. Leasehold improvements
are amortized over the lesser of the asset's estimated useful life
or the lease term. Equipment under capitalized leases is amortized
to its expected value to the Company at the end of the lease term.
Gains or losses are recognized upon the disposal of property and
equipment and the asset and related accumulated depreciation and
amortization are removed from the accounts. Maintenance and repairs
are charged to costs and expenses as incurred.
(Continued)
8
<PAGE> 41
LOGAN'S ROADHOUSE, INC.
Notes to Financial Statements
(H) DEFERRED REVENUE
Deferred revenue consists of gift certificates sold, but unredeemed.
(I) FRANCHISE INCOME
Franchise fees are recognized when the Company's obligated services
are substantially performed and the franchisee's restaurant has
opened for business. Monthly franchise royalties are recognized on
an accrual basis and related costs are expensed when incurred.
(J) INCOME TAXES
Prior to July 26, 1995, no provision for income taxes has been made
in the accompanying financial statements, as the liability for any
such taxes is that of the partners. The Company provides for income
taxes in accordance with the asset and liability method of
accounting for income taxes. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date.
(K) EARNINGS PER SHARE DATA
Earnings per share data has been computed on the basis of the
weighted average number of shares outstanding, including stock
equivalents, which consist of stock options. Fully diluted earnings
per share data is not presented since it approximates earnings per
common share. The earnings per share data presented in these
financial statements for 1995 and 1994 is pro forma data since it
bases the number of shares outstanding for 1994 and through July 25,
1995 as the shares received by the partners of the Predecessor
pursuant to an exchange agreement and income taxes have been
calculated for the same periods assuming the Predecessor was subject
to income taxes.
(L) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the financial instruments are estimates based
upon current market conditions and quoted market prices for the same
or similar instruments as of December 29, 1996 and December 31,
1995. Book value approximates fair value for substantially all of
the Company's assets and liabilities which fall under the definition
of financial instruments.
(M) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
(Continued)
9
<PAGE> 42
LOGAN'S ROADHOUSE, INC.
Notes to Financial Statements
(2) INVESTMENTS
The Company classifies all securities held at December 29, 1996 as
held-to-maturity. The amortized cost, gross unrealized holding gains,
gross unrealized holding losses, and approximate fair values for
held-to-maturity securities by major security type and class at December
29, 1996 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
Held to maturity:
Municipal securities $6,558,712 $ 27,128 $ - $6,585,840
Corporate securities 2,502,021 - (5,071) 2,496,950
---------- -------- --------- ----------
$9,060,733 $ 27,128 $ (5,071) $9,082,790
========== ======== ========= ==========
</TABLE>
Maturities of debt securities classified as held-to-maturity at December 29,
1996 were as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---- -----
<S> <C> <C>
Held-to-maturity:
Due within one year $7,807,289 $7,823,725
Due after one year through five years 1,253,444 1,259,065
---------- ----------
$9,060,733 $9,082,790
========== ==========
</TABLE>
(Continued)
10
<PAGE> 43
LOGAN'S ROADHOUSE, INC.
Notes to Financial Statements
(3) PROPERTY AND EQUIPMENT
Property and equipment at December 29, 1996 and December 31, 1995,
consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $10,126,022 $ 5,145,648
Building and building improvements 12,260,592 5,841,467
Furniture, fixtures and equipment 7,096,536 3,037,207
Leasehold improvements 6,070,252 2,367,577
----------- -----------
35,553,402 16,391,899
Less accumulated depreciation (1,861,628) (590,653)
----------- -----------
33,691,774 15,801,246
Capitalized equipment leases - 1,017,749
Less accumulated amortization - (218,701)
----------- -----------
- 799,048
----------- -----------
$33,691,774 $16,600,294
=========== ===========
</TABLE>
(Continued)
11
<PAGE> 44
LOGAN'S ROADHOUSE, INC.
Notes to Financial Statements
(4) LONG-TERM OBLIGATIONS
Long-term debt at December 29, 1996 and December 31, 1995, include the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Installment note payable to a bank bearing
interest at prime rate (8.5% at
December 31, 1995). The note was fully
paid during April 1996 from the
proceeds of the secondary public
offering (see note 6). $ - $1,109,988
Installment note payable to a bank, bearing
interest at prime rate (8.5% at
December 31, 1995). The note was fully
paid during April 1996 from the
proceeds of the secondary public
offering (see note 6). - 550,000
Unsecured installment notes payable to a
financing company, bearing interest at
8.4%. The note was fully paid during
April 1996 from the proceeds of the
secondary public offering (see note 6).
- 270,353
Capital lease obligations with interest
rates ranging from 10.08% to 12.84%
(see note 3). The lease obligations
were fully paid from the proceeds of
the secondary public offering (see note
6). - 648,910
----------- ----------
- 2,579,251
Less current installments - (639,439)
----------- ----------
$ - $1,939,812
=========== ==========
</TABLE>
At December 29, 1996, the Company has a line of credit of $2,500,000 of
which the total amount is available and unused.
(5) LEASE COMMITMENTS
The Company has various leases for its corporate offices and certain
restaurant land and buildings under operating lease agreements. One of
these leases is with a shareholder (see note 8). Under these leases,
the Company pays taxes, insurance and maintenance costs in addition to
the lease payments. Certain of these leases (only one at December 29,
1996) provide for additional contingent rentals based on a percentage of
sales in excess of a minimum rent.
(Continued)
12
<PAGE> 45
LOGAN'S ROADHOUSE, INC.
Notes to Financial Statements
In previous years, the Company leased certain equipment and fixtures
under capital lease agreements having original lease terms of five to
seven years. During April 1996, the Company exercised its options under
these agreements to purchase the equipment in accordance with the
provisions of the lease agreements with the proceeds of the secondary
public offering.
Future minimum lease payments at December 29, 1996, are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
------
<S> <C>
1997 $ 682,910
1998 704,607
1999 683,135
2000 610,400
2001 610,400
Thereafter 4,417,373
-----------
Total minimum rentals $ 7,708,825
===========
</TABLE>
Rent expense for the fiscal years ending December 29, 1996, December 31,
1995, and December 25, 1994, for operating leases is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Minimum rentals $561,469 $ 705,220 $616,010
Contingent rentals 102,846 357,417 254,692
-------- ---------- --------
$664,315 $1,062,637 $870,702
======== ========== ========
</TABLE>
(6) SHAREHOLDERS' EQUITY
(A) PUBLIC OFFERINGS
On July 26, 1995, the Company completed the initial public offering
of its common stock in which 1,650,000 shares were sold by the
Company for net proceeds of $13,047,635. In addition, 1,609,500
shares were sold by certain shareholders of the Company. Net
proceeds from the offering were used to purchase at appraised value
of approximately $6,100,000 all the real property and improvements
of three of its restaurant sites which had previously been owned by
a partner of the Predecessor and all the improvements on two of its
restaurant sites subject to subleases between the Company, as
sublessee, and the partner of the Predecessor, as sublessor,
pursuant to the terms of the Company's Partnership Agreement.
Approximately $1,700,000 of the net proceeds were used to repay the
Company's outstanding bank debt and the remaining net proceeds were
used to help fund the development of additional Logan's Roadhouse
restaurants.
(Continued)
13
<PAGE> 46
LOGAN'S ROADHOUSE, INC.
Notes to Financial Statements
On April 10, 1996, the Company completed a secondary public offering
of its common stock in which 1,293,750 shares were sold by the
Company for net proceeds of $20,773,023. In addition, 207,000
shares were sold by certain shareholders of the Company.
Approximately $2,250,000 of the net proceeds from the offering were
used to repay the Company's outstanding bank debt and capital lease
obligations. A portion of the net proceeds were used to help fund
the development of additional Logan's Roadhouse restaurants during
1996 and the remaining proceeds were invested in various investments
consisting of municipal and corporate debt securities. The proceeds
from the maturities of the investments are expected to help fund the
development of future restaurants.
On May 10, 1996, the Company declared a three-for-two stock split
effected in the form of a 50% stock dividend on outstanding shares
distributed June 5, 1996 to shareholders of record on May 20, 1996.
All common shares and per share data included in the financial
statements and footnotes thereto have been restated to reflect the
stock split.
(B) STOCK OPTIONS
In May 1995, the Company adopted the Logan's Roadhouse, Inc. 1995
Incentive Stock Plan and the 1995 Non-Employee Director Stock Option
Plan. The Company has reserved 570,000 shares of common stock for
issuance pursuant to options to be granted under the Plans at a
price not less than fair market value at the date of grant.
Non-employee director stock options vest immediately upon grant, and
employee options vest ratably per year over a four-year period from
date of grant.
At December 29, 1996, there were 77,750 additional shares available
for grant under the Plans. The per share weighted-average fair
value of stock options granted during 1996 and 1995 was $8.24 and
$4.72, respectively, on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions
for both 1996 and 1995: expected dividend yield 0%, risk-free
interest rate of 6.0%, an expected life of five years, an expected
volatility of 52.3%.
The Company applies APB Opinion No. 25 in accounting for its Plans
and, accordingly, no compensation cost has been recognized for its
stock options in the financial statements. Had the Company
determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, the Company's net
income would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Pro forma net earnings as reported $4,148,561 $1,905,144
========== ===========
Pro forma net earnings adjusted for SFAS No. 123 $3,816,704 $ 1,805,618
========== ===========
Pro forma net earnings per share as adjusted $ 0.66 $ 0.47
========== ===========
</TABLE>
14
(Continued)
<PAGE> 47
LOGAN'S ROADHOUSE, INC.
Notes to Financial Statements
The following table summarizes the transactions pursuant to the Plan
for the years ended December 29, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------- ---------------
<S> <C> <C>
Outstanding at December 25, 1994 - $ -
Granted 328,200 $ 9.05
Exercised - $ -
Canceled 750 $ 9.00
--------
Outstanding at December 31, 1995 327,450 $ 9.05
Granted 182,500 $15.76
Exercised 3,748 $ 9.00
Canceled 17,700 $ 9.00
--------
Outstanding at December 29, 1996 488,502 $11.50
======== ======
</TABLE>
At December 29, 1996, the range of exercise prices and
weighted-average remaining contractual life of outstanding options
was $9.00 - $19.50 and approximately three years, respectively. At
December 29, 1996 and December 31, 1995 the number of options
exercisable was 112,163 and 37,500, respectively, and the
weighted-average exercise price of those options was $9.04 and
$9.00, respectively.
(C) PREFERRED STOCK
The Company's charter authorizes 5,000,000 shares of preferred
stock. At December 29, 1996, no preferred shares have been issued.
(7) INCOME TAXES
No income tax expense is recorded in these financial statements for
operations prior to July 26, 1995 since taxes of the Predecessor were
the responsibility of the partners.
15
(Continued)
<PAGE> 48
LOGAN'S ROADHOUSE, INC.
Notes to Financial Statements
Income tax expense for the years ended December 29, 1996 and December
31, 1995 consists of the following:
<TABLE>
<CAPTION>
STATE AND
FEDERAL LOCAL TOTAL
------- --------- -----
<S> <C> <C> <C>
1996:
Current $1,231,168 $304,201 $1,535,369
Deferred 468,355 158,273 626,628
---------- -------- ----------
Total income tax expense from earnings $1,699,523 $462,474 $2,161,997
========== ======== ==========
1995:
Current $ 476,800 $111,300 $ 588,100
Deferred 315,400 5,800 321,200
---------- -------- ----------
Total income tax expense from earnings $ 792,200 $117,100 $ 909,300
========== ======== ==========
</TABLE>
Total income taxes for the years ended December 29, 1996, and December
31, 1995, are allocated as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Income tax expense from earnings $2,161,997 $909,300
Shareholders equity, tax benefit derived from
stock options exercised (16,654) -
---------- --------
Total income taxes $2,145,343 $909,300
========== ========
</TABLE>
Pro forma income tax expense based on earnings before taxes, adjusted
for permanent non-deductible amounts, for the years ended December 31,
1995 and December 25, 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Federal $ 834,244 $456,150
State 211,578 115,720
---------- --------
$1,045,822 $571,870
========== ========
</TABLE>
16
(Continued)
<PAGE> 49
LOGAN'S ROADHOUSE, INC.
Notes to Financial Statements
The effective rate of income tax expense is 34.3% in 1996 and 30.8% in
1995. The actual income tax expense differs from the "expected" tax
expense (computed by applying U.S. Federal corporate income tax rate of
34% to earnings before taxes) as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Computed "expected" tax expense $2,145,590 $1,003,300
Increase (deduction) in income tax resulting from:
Earnings attributable to the partnership - (449,000)
Adjustment to deferred tax assets and liabilities for change
in tax status - 290,000
State and local income taxes, net of federal income tax benefit 305,233 77,300
Tax exempt interest income (105,591) -
Utilization of tax credits (103,031) (37,400)
Other (80,204) 25,100
---------- ----------
Income tax expense $2,161,997 $ 909,300
========== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liability at
December 29, 1996 and December 31, 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Insurance reserve, not yet deductible for tax purposes $24,754 $6,500
-------- --------
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation and capitalized lease amortization 648,017 181,900
Preopening costs, due to costs in excess of amortization 324,565 145,800
-------- --------
Total gross deferred tax liability 972,582 327,700
-------- --------
Net deferred tax liability $947,828 $321,200
======== ========
</TABLE>
The net deferred tax liability is presented in the December 29, 1996 and
December 31, 1995 balance sheets as follows:
<TABLE>
<S> <C> <C>
Current deferred tax liability $299,800 $139,300
Noncurrent deferred tax liability 648,028 181,900
-------- --------
Net deferred tax liability $947,828 $321,200
======== ========
</TABLE>
17
(Continued)
<PAGE> 50
LOGAN'S ROADHOUSE, INC.
Notes to Financial Statements
(8) RELATED PARTY TRANSACTIONS
During 1995 and 1994, the Company and Predecessor were involved in
certain transactions with a partner of the Predecessor. The partner
sold substantially all its stock in the Company in conjunction with the
initial public offering. Such transactions included the following:
(i) Purchase of certain food products and supplies. This
agreement was terminated during the fourth quarter of 1995. These
purchases totaled $5,701,935 in 1995 and $3,473,303 in 1994.
(ii) Rent of office space until October 1994. The rent totaled
$5,638 in 1994.
(iii) Purchase of accounting and administrative services through
March 1995. The amount paid for these services totaled
approximately $21,300 in 1995 and $67,500 in 1994.
(iv) Use of various computer and software services in 1995. The
cost of these services was $19,500 in 1995.
(v) A 2% monthly guaranty fee based on the outstanding balances of
certain capital leases and bank debt. Amounts incurred totaled
$27,091 in 1995 and $9,600 in 1994.
(vi) Leased real estate for the operation of five of its
restaurants through July 1995. The leases provided for minimum
lease payments and were subject to contingent rentals based on
certain achieved sales levels. Basic rentals under these leases
totaled approximately $353,000 and $438,000 in 1995 and 1994,
respectively, and contingent rentals totaled approximately $241,000
and $154,000 in 1995 and 1994, respectively. In July 1995, as part
of the exchange agreement when the Company completed the initial
public offering of its common stock, the Company purchased the
properties being leased from the related party. Such purchases
totaled approximately $6,100,000 and were based on the fair market
value of the properties as determined by an independent appraisal.
At December 29, 1996, there are no continuing activities between the
Company and the former related party.
The Company has an operating lease agreement with an entity owned by a
shareholder. The agreement calls for minimum annual lease payments of
$148,000 through September 2002, subject to contingent rentals based on
certain achieved sales levels. The Company paid approximately $85,000,
$107,000, and $102,000 in contingent rentals in 1996, 1995 and 1994,
respectively, under this lease.
18
(Continued)
<PAGE> 51
LOGAN'S ROADHOUSE, INC.
Notes to Financial Statements
(9) FRANCHISING
In January 1996, the Company entered into a franchise agreement with an
entity controlled by a significant shareholder. The franchisee
constructed and operates two Logan's Roadhouse restaurants in Oklahoma,
which is a market area not in the Company's immediate expansion plans
for owned restaurants. The agreement granted the franchisee the
exclusive right to develop Logan's Roadhouse restaurants within certain
counties of Arkansas, Oklahoma and Texas until December 31, 2000,
subject to automatic renewal for an additional five-year term upon the
satisfaction of certain conditions. The agreement requires the
franchisee to pay an initial $30,000 franchise fee and a monthly royalty
fee of 3% of gross sales. In addition, the Company may require the
franchisee to contribute up to 1% of gross sales to the Company's
general advertising account and expend on an annual basis up to 3% of
gross sales for local promotional activities, subject to the approval of
the Company. Beginning in January, 2002, the Company has the option to
acquire the facilities pursuant to the terms and conditions set forth in
the franchise agreement. Income relating to the franchise agreement for
the fiscal year ending December 29, 1996 was $124,742.
Management is also considering other franchising opportunities on a
limited basis in areas which are not in the Company's immediate
expansion plans, and has had preliminary discussions with third parties.
(10) COMMITMENTS AND CONTINGENCIES
At December 29, 1996, the Company has four restaurants under
construction. The remaining costs to complete the construction,
including furniture, fixtures, and equipment, are approximately
$4,397,000.
The Company is subject to various legal proceedings and claims which
arise in the ordinary course of its business. In the opinion of
management, the ultimate liability with respect to those claims will not
materially affect the financial position or results of the Company's
operations.
19
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
*2 -- Exchange Agreement, dated May 30, 1995, by and among O'Charley's, each
of the shareholders of LMG and the Registrant
*3.1 -- Amended and Restated Charter of the Registrant
*3.2 -- Bylaws of the Registrant
*4.1 -- Section 8 of the Amended and Restated Charter of the Registrant
(included in Exhibit 3.1)
*4.2 -- Specimen of Common Stock certificate
*10.1 -- Registrant's 1995 Non-Employee Director Stock Option Plan
*10.2 -- Registrant's 1995 Incentive Stock Plan
*10.3 -- Partnership Agreement, dated August 10, 1992, between O'Charley's and
LMG
*10.4 -- Amendment No. 1 to Partnership Agreement, dated November 15, 1994,
between O'Charley's and LMG
**10.5 -- Amendment No. 2 to Partnership Agreement, dated July 25, 1995, between
O'Charley's and LMG
*10.6 -- Lease Agreement, dated September 23, 1994, between the Registrant and
LaSalle Fund III (executive offices)
*10.7 -- Sublease Agreement, dated August 10, 1992, between the Registrant and
Bluegrass Steaks, Inc. (Lexington, Kentucky)
*10.8 -- Sublease Agreement, dated June 1, 1992, between the Registrant and
O'Charley's (Antioch, Tennessee)
*10.9 -- Sublease Agreement, dated January 13, 1993, between the Registrant and
O'Charley's (Madison, Tennessee)
*10.10 -- Lease Agreement, dated July 18, 1994, between the Registrant and
O'Charley's (Jackson, Tennessee)
*10.11 -- Lease Agreement, dated January 10, 1995, between the Registrant and
O'Charley's (Murfreesboro, Tennessee)
*10.12 -- Lease Agreement, dated November 9, 1994, between the Registrant and S&G
Marketplace, Inc. (Paducah, Kentucky)
*10.13 -- Lease Agreement, dated April 30, 1994, between the Registrant and
O'Charley's (Clarksville, Tennessee)
*10.14 -- Computer and Software Services Agreement, dated April 17, 1995, between
the Registrant and O'Charley's
*10.15 -- Revolving Master Promissory Note, dated November 16, 1994, between the
Registrant and First American National Bank
*10.16 -- Revolving Master Promissory Note, dated July 1, 1995, between the
Registrant and First American National Bank
*10.17 -- Continuing Guaranty, dated November 16, 1994, by LMG in favor of First
American National Bank
*10.18 -- Continuing Guaranty, dated November 16, 1994, by O'Charley's in favor
of First American National Bank
**10.19 -- Promissory Note, dated August 11, 1995, of the Registrant to Citizens
Bank and Trust Company of Paducah
</TABLE>
26
<PAGE> 53
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
**10.20 -- Master Note for Business and Commercial Loans, dated November 10, 1995,
of the Registrant to AmSouth Bank of Tennessee
**10.21 -- Note for Business and Commercial Loans, dated December 15, 1995, of the
Registrant to AmSouth Bank of Tennessee
**10.22 -- Loan Agreement, dated February 16, 1996, between the Registrant and
First American National Bank
**10.23 -- Master Secured Promissory Note, dated February 16, 1996, of the
Registrant to First American National Bank
**10.24 -- Lease Guaranty Agreement, dated July 25, 1995, between the Registrant
and O'Charley's
**10.25 -- Restrictive Covenant Agreement, dated July 25, 1995, between the
Registrant and O'Charley's
**10.26 -- Restrictive Covenant Agreement, dated July 25, 1995, between the
Registrant and Charles F. McWhorter, Jr.
**10.27 -- Restrictive Covenant Agreement, dated July 25, 1995, between the
Registrant and David K. Wachtel, Jr.
**10.28 -- Registration Rights Agreement, dated July 25, 1995, by and among
O'Charley's, each of the shareholders of LMG and the Registrant
**10.29 -- Letter Agreement, dated August 9, 1995, between the Registrant and
Kraft Foodservice, Inc.
**10.30 -- Letter Agreement, dated January 9, 1996, between the Registrant and
Coca-Cola Fountain
**10.31 -- Area Development Agreement, dated January 12, 1996, between the
Registrant, L.W. Group, Inc. and David K. Wachtel, Jr.
**10.32 -- Form of Franchise Agreement between the Registrant, L.W. Group,
Inc. and David K. Wachtel, Jr.
10.33 -- Area Development Agreement, dated March 17, 1997, between the
Registrant, CMAC Incorporated and Charles F. McWhorter, Jr.
10.34 -- Form of Franchise Agreement between the Registrant, CMAC
Incorporated and Charles F. McWhorter, Jr.
10.35 -- Employment Agreement, dated August 1, 1996, between Edwin W. Moats, Jr.
and the Registrant
11 -- Statement re computation of per share earnings
27 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* Incorporated by reference to the Registrant's Registration Statement on
Form SB-2 (Registration No. 33-92976-A).
** Incorporated by reference to the Registrant's Registration Statement on
Form SB-2 (Registration No. 333-2570).
27
<PAGE> 1
EXHIBIT 10.33
LOGAN'S ROADHOUSE, INC.
AREA DEVELOPMENT AGREEMENT
This Agreement is made this 17th day of March, 1997, by and among LOGAN'S
ROADHOUSE, INC., a Tennessee corporation ("Franchisor"), CMAC INCORPORATED, a
Tennessee corporation ("Developer"), and CHARLES F. McWHORTER, JR. ("Principal
Shareholder").
WITNESSETH:
RECITALS
A. Franchisor is engaged in the business of owning, operating, and
granting franchises with respect to certain restaurants serving meat products
and other dishes, which restaurants do business under the trade name "Logan's
Roadhouse."
B. In connection with its business, Franchisor has developed certain
recipes and seasonings for meats with distinctive flavor and unique quality and
consumer recognition, and is the owner of good and valuable trademarks, trade
names, service marks, certification marks, insignia, signs, designs, emblems,
color and patterns, and other distinctive features that identify the Logan's
Roadhouse outlets (such items, together with all of Franchisor's other trade
secrets and tangible and intangible property rights relating to the
development, ownership, and operation of a Logan's Roadhouse outlet, are
hereinafter referred to as the "Logan's Roadhouse System"); and
C. Developer desires to obtain the exclusive right to develop Logan's
Roadhouse outlets franchised by Franchisor within the geographic areas
specified in Appendix A attached hereto and made a part hereof (collectively,
the "Territory"), for the period specified in subsection 1.1, and Franchisor is
willing to grant the same to Developer, on and subject to the terms, conditions
and provisions which are set forth in this Agreement.
NOW, THEREFORE, in consideration of Franchisor granting to Developer the
exclusive right to develop Logan's Roadhouse outlets franchised by Franchisor
which employ the Logan's Roadhouse System ("Restaurants") in the Territory for
such period, and in consideration of the mutual obligations which are provided
for herein, it is hereby agreed as follows:
1. GRANT OF DEVELOPMENT RIGHTS.
1.1 Franchisor grants Developer the exclusive right to develop between
eight (8) and fifteen (15) Restaurants in the Territory for a period commencing
on the date hereof and ending on March 31, 2002, unless sooner terminated as
hereinafter provided.
<PAGE> 2
1.2 During the term of this Agreement as extended pursuant to Section 3,
Franchisor shall not (a) license any other person to operate a Logan's
Roadhouse Restaurant in the Territory, or (b) operate any Franchisor-owned
Logan's Roadhouse Restaurant in the Territory.
1.3 After this Agreement expires or is terminated, Franchisor shall have
the complete and unrestricted right to (a) license other persons to operate
Restaurants in the Territory, and (b) operate Franchisor-owned Restaurants in
the Territory, subject only to the provisions of any franchise agreement then
in effect between Franchisor and Developer; provided, however, that no such
Logan's Roadhouse Restaurants operated by Franchisor or any third-party
licensee shall be located within a five (5) mile radius of any existing
Restaurant owned and operated by Developer.
2. DEVELOPMENT SCHEDULE.
2.1 On or before March 31, 2002, Developer agrees to develop and open for
business, and have in operation, a total of up to fifteen (15) Restaurants
franchised by Franchisor in the Territory in compliance with the following:
(a) at least one (1) Restaurant within the Territory, to be located
in the "Greenville, South Carolina ADI" (as defined and described in
subsection 2.2) and to be open for operation and doing business during
calendar year 1997.
(b) one (1) to two (2) additional Restaurants within the Territory,
each to be open for operation and doing business during calendar year
1998. Such Restaurant(s) may be located in any ADI.
(c) two (2) to four (4) additional Restaurants within the Territory,
each to be open for operation and doing business during calendar year
1999, and at least one of such Restaurants to be located in an ADI listed
in subsection 2.2 other than the Greenville, South Carolina ADI.
(d) two (2) to four (4) additional Restaurants within the Territory,
each to be open for operation and doing business during calendar year
2000, and at least one of such Restaurants to be located in an ADI, if
any, listed in subsection 2.2 in which Developer did not develop a
Restaurant which was open for operation and doing business in calendar
years 1997, 1998, or 1999.
(e) two (2) to four (4) additional Restaurants within the Territory,
each to be open for operation and doing business during calendar year
2001, and one of such Restaurants to be located in an ADI, if any, listed
in subsection 2.2 in which Developer did not develop a Restaurant which
was open for operation and doing business in calendar years 1997, 1998,
1999 or 2000.
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<PAGE> 3
Developer's obligations to develop, open and operate Restaurants as set
forth in this subsection 2.1 are sometimes hereinafter referred to collectively
as the "Development Schedule." Each of the periods specified in clauses (a)
through (e) of this subsection 2.1 is sometimes hereinafter referred to as an
"Initial Development Period." During the period beginning March 1, 1997, and
ending March 31, 2002, Developer shall not be permitted to develop or open for
business or operate more than fifteen (15) Restaurants in the Territory without
the prior written consent of Franchisor, which consent may not be unreasonably
withheld.
2.2 In addition, on or before March 31, 2002, Developer shall develop,
open for business and have in operation the following number of Restaurants in
the following Areas of Dominant Influence ("ADIs") within the Territory: (a)
Greenville, South Carolina, one (1) Restaurant; (b) Charleston, South Carolina,
one (1) Restaurant; (c) Charlotte, North Carolina, one (1) Restaurant; and (d)
Raleigh-Durham, North Carolina, one (1) Restaurant.
2.3 The provisions set forth in subsection 2.1 above shall not relieve
Developer of its obligation to develop, open for business and have in
operation, by March 31, 2002, (a) a total of not less than eight (8)
Restaurants in the Territory, and (b) the number of Restaurants in the ADIs as
specified in subsection 2.2. Except as set forth in subsection 2.1, strict
compliance with the Development Schedule is of the essence of this Agreement.
If Developer opens more Restaurants within the Territory during any calendar
year than the maximum number of Restaurants required by the Development
Schedule in such calendar year, the additional Restaurant(s) shall be credited
in the following calendar year of the Development Schedule. If Developer fails
to meet the Development Schedule with respect to any of the Initial Development
Periods as set forth in subsection 2.1 hereof, this Agreement shall terminate
ninety (90) days after the end of the Initial Development Period in question,
unless by the end of such ninety (90) day period Developer has fulfilled the
development obligation required under subsection 2.1 relating to such
Development Period. If Developer fails to develop, open and operate
Restaurants as set forth in subsection 2.2 hereof, this Agreement shall
terminate on March 31, 2002, unless by March 31, 2002, Developer has fulfilled
the development obligation required under subsection 2.2.
3. SUBSEQUENT DEVELOPMENT SCHEDULE.
3.1 Unless this Agreement is terminated pursuant to the provisions of
subsection 2.3 or 3.3, or Section 9, during each calendar year during the
period commencing March 31, 2002, and expiring on March 31, 2007, Developer
shall develop, open for business and have in operation in the Territory, the
number of additional Restaurants determined in accordance with the formula set
forth in subsection 3.2(b), or the number of Restaurants otherwise agreed to by
the parties in accordance with a written development schedule prepared in
accordance with subsection 3.2(c).
3.2 (a) Each consecutive twelve (12) month period beginning on March 31,
2002, and ending on March 31, 2007, is hereinafter referred to as a "Subsequent
Development Period."
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<PAGE> 4
(b) Developer hereby agrees to develop, open for business and have in
operation in the Territory during each of the Subsequent Development Periods,
that number of Restaurants equal to twenty-five (25%) of the total number of
Restaurants developed by Developer during all Initial Development Periods and
all prior Subsequent Development Periods. For example, assuming the Developer
has developed, opened and was operating 14 Restaurants at the end of the last
Initial Development Period, in the first Subsequent Development Period,
Developer shall be required to develop and open for business a total of three
(3) Restaurants (14 x 0.25 = 3.5). In the second Subsequent Development
Period, Developer shall be required to develop and open for business a total of
five (5) Restaurants (14 + 6 = 20 x 0.25 = 5.0). (For the purpose of this
subsection 3.2(b), fractions are rounded down to the nearest whole number.)
(c) At any time during any Subsequent Development Period, Developer may
prepare and submit to Franchisor in writing an alternate development schedule
(the "Alternate Schedule") which, if approved by Franchisor in writing, will
modify Developer's obligations with regard to the development and opening for
business of Restaurants in the Territory as set forth in subsection 3.2(b)
above. The Alternate Schedule submitted by Developer may reduce or increase
the number of Restaurants to be developed and opened for business by Developer
during any one or more Subsequent Development Periods. Within thirty (30) days
of receipt of Developer's Alternate Schedule, Franchisor shall notify Developer
in writing whether Franchisor elects to approve or disapprove the terms of the
Alternate Schedule. In the event Franchisor does not approve Developer's
Alternate Schedule for any Subsequent Development Period, Developer's
obligation to develop additional Restaurants during each such Subsequent
Development Period, in accordance with the formula set forth in subsection
3.2(b), shall remain in effect.
3.3 If during any Subsequent Development Period Developer does not
develop, open for business and have in operation all Restaurants that are
specified in the development schedule described in subsection 3.2(b) or any
applicable Alternate Schedule that has been approved by Franchisor as provided
in subsection 3.2(c), and the number of Restaurants not developed and open for
business as specified is not more than two (2) (such number of Restaurants
herein referred to as the "Shortfall"), Developer shall not be deemed to be in
default of its development schedule for such Subsequent Development Period, so
long as in the next succeeding Subsequent Development Period, Developer
develops, opens for business and has in operation the number of Restaurants
equal to (a) the number which Developer is required to develop, open for
business and have in operation during that Subsequent Development Period, plus
(b) the Shortfall from the previous Subsequent Development Period. The
additional Restaurant(s) which Developer is required to develop and open for
business during that next succeeding Subsequent Development Period shall be
part of Developer's development schedule as established under subsection 3.2
for that Subsequent Development Period. Except as set forth in the preceding
sentences of this subsection 3.3, strict compliance with the development
schedules established for the Subsequent Development Periods in accordance with
subsection 3.2 hereof is of the essence of this Agreement. If Developer fails
to fulfill its development obligation as set forth in subsection 3.2 (as
modified by this subsection 3.3) with respect to any Subsequent Development
Period, this Agreement shall automatically terminate ninety (90) days after the
end of the
4
<PAGE> 5
Subsequent Development Period in question, unless by the end of such ninety
(90) day period Developer has fulfilled the development obligation relating to
such Subsequent Development Period.
3A. LIMITATION
3A.1. Notwithstanding anything provided for herein to the contrary,
Developer's failure to develop, open and operate Restaurants as required in
Sections 2 and 3 hereof shall not subject Developer to liability for damages or
injunctive relief requiring performance of such obligations; provided, however,
in the event Developer fails to perform any of such obligations, (i) the
automatic termination provisions of subsections 2.3 and 3.3 hereof and the
optional termination provisions of subsections 9.3 and 9.5 hereof shall apply
and (ii) Franchisor may exercise its rights to exercise the Acquisition Option
pursuant to Section 8 hereof as provided in subsection 9.5 hereof.
4. SITE APPROVALS; PLANS AND SPECIFICATIONS.
4.1 Developer assumes all cost, liability, expense and responsibility for
locating, obtaining and developing sites for Restaurants, and for constructing
and equipping Restaurants at such sites. The development of a Restaurant at
any site and any related contract of sale or lease agreement entered into by
Developer must be approved by Franchisor in accordance with its then-existing
site approval procedure, including submission by Developer of a franchise
application in the form then being required by Franchisor. Notwithstanding the
foregoing, Developer may enter into any contract not inconsistent herewith
relating to the development or operation of a Restaurant subject to
Franchisor's approval. Franchisor shall notify Developer whether it approves a
proposed site and the related contract of sale or lease agreement within
forty-five (45) days of receiving Developer's request for approval. Failure of
Franchisor to so notify Developer within such forty-five (45) day period shall
be deemed to be an approval of such site and the related contract of sale or
lease agreement. Developer acknowledges that Franchisor's approval of a
prospective site for a Restaurant does not constitute a representation, promise
or guarantee by franchisor that a Restaurant operated at that site will be
profitable or otherwise successful. Developer shall not make any binding
commitment to a prospective vendor or lessor of real estate with respect to a
site for a Restaurant unless Franchisor has approved that site in accordance
with Franchisor's then-existing site approval procedure.
4.2 For each Restaurant which Developer develops pursuant to this
Agreement, Franchisor will make available to Developer Franchisor's
specifications for a typical Restaurant. Developer will obtain architectural
and engineering services independently and at its own expense. Developer shall
submit to Franchisor all architectural and/or engineering plans (the "Plans")
which Developer obtains for the development of each Restaurant site, and
Franchisor shall have the right to review and approve the Plans and to prohibit
the implementation of any aspect of the Plans which Franchisor, in its sole and
absolute discretion, believes is not consistent with the best interests of the
Logan's Roadhouse System. In the event that Franchisor objects to any aspect
of
5
<PAGE> 6
the Plans or desires to prohibit the implementation of any such aspect of the
Plans, Franchisor shall so notify Developer within thirty (30) days of receiving
the Plans for review. Failure of Franchisor to so notify Developer within such
thirty (30) day period shall be deemed to be an approval of the Plans. In the
event Franchisor does object to any aspect of the Plans, Franchisor shall
provide Developer with a reasonably detailed list of changes necessary to make
the Plans acceptable to Franchisor. Franchisor shall, upon a resubmission of
the Plans, with such changes as Developer has prepared, notify Developer within
fifteen (15) days of receiving the revised Plans whether they are acceptable.
Failure to so notify Developer within such fifteen (15) day period shall be
deemed to be an approval of the revised Plans.
4.3 If Developer acquires a leasehold interest in a site, that leasehold
interest shall be for a term which is at least as long as the term of the form
of Franchise Agreement (including renewal or extension options exercisable at
the option of the Developer) which is attached hereto as Appendix B and made a
part hereof (the "Franchise Agreement") (i.e. at least twenty (20) years), and
the lease shall provide that at any time during the term of the lease Developer
may assign all of its interest under the lease to Franchisor without the lessor
having any right to impose conditions on such assignment or to obtain any
payment in connection therewith. Prior to entering into any such lease,
Developer shall furnish Franchisor with a copy thereof and shall not execute
said lease unless and until Franchisor notifies Developer that the lease
complies with the provisions of this Agreement and of the applicable Franchise
Agreement and is otherwise acceptable to Franchisor. Franchisor shall notify
Developer whether the lease meets the requirements of the preceding sentence
within forty-five (45) days of receiving Developer's request for approval.
Failure of Franchisor to so notify Developer within such forty-five (45) day
period shall be deemed to constitute an approval of such lease.
5. FEES AND FRANCHISE AGREEMENTS.
Developer shall notify Franchisor in writing promptly after closing on the
acquisition of a leasehold or fee interest in a Restaurant site. Provided
Franchisor has granted site, operational, financial and legal approval in
accordance with the terms of subsections 4.1 and 10.2 hereof, then Franchisor
shall deliver to Developer a Franchise Agreement substantially in the form
which is attached hereto as Appendix B; provided however that the Franchise
Agreement which Franchisor delivers to Developer shall require Developer to
make advertising expenditures at the rates then established by Franchisor with
respect to new Restaurants, except that in no event shall such rates exceed
three percent (3%) of a Restaurant's gross sales (as defined in Part III(A) of
the form Franchise Agreement which is attached hereto as Appendix B).
Developer shall execute the Franchise Agreement and return same to Franchisor
with payment of the initial franchise fee within ten (10) days following
receipt by Developer; and Franchisor will execute and return the same to
Developer, so long as none of the events of default described in subsections
9.2 and 9.3 shall have occurred.
6. DEVELOPER ORGANIZATION, AUTHORITY, FINANCIAL CONDITION AND
SHAREHOLDERS.
6.1 Developer and Principal Shareholder represent and warrant that: (a)
Developer is a corporation duly incorporated, validly existing and in good
standing under the laws of the state of its incorporation; (b) Developer is
duly qualified and is authorized to do business and is in good standing as a
foreign corporation in each jurisdiction in which its business activities
6
<PAGE> 7
or the nature of the properties owned by it requires such qualification; (c) the
execution and delivery of this Agreement and the transactions contemplated
hereby are within Developer's corporate power; (d) the execution and delivery of
this Agreement have been duly authorized by the Developer; (e) the charter and
by-laws of Developer delivered to Franchisor are correct and complete and there
have been no changes therein since the date thereof; (f) the specimen stock
certificate delivered to Franchisor is a true specimen of Developer's stock
certificate; (g) the balance sheet of Principal Shareholder, heretofore
delivered to Franchisor, is complete and correct and fairly presents the
financial position of Principal Shareholder as of the date thereof; and (h)
there have been no materially adverse changes in the condition, assets or
liabilities of Principal Shareholder since the date thereof.
6.2 Developer and Principal Shareholder covenant that during the term of
this Agreement: (a) Developer shall do or cause to be done all things
necessary to preserve and keep in full force its corporate existence and shall
be in good standing as a foreign corporation in each jurisdiction in which its
business activities or the nature of the properties owned by it requires such
qualification; (b) Developer shall have the corporate authority to carry out
the terms of this Agreement; and (c) Developer shall print, in a conspicuous
fashion on all certificates representing shares of its stock when issued, a
legend referring to this Agreement and the restrictions on and obligations of
Developer and Principal Shareholder hereunder, including the restrictions on
transfer of Developer's shares.
6.3 In addition to its obligations pursuant to subsection 6.2 hereof,
Developer and Principal Shareholder shall provide Franchisor with such
financial information as Franchisor may reasonably request from time to time.
6.4 Developer and Principal Shareholder represent, warrant and covenant
that all Interests (as defined in subsection 7.3 hereto) in Developer are owned
as set forth on Appendix C hereto, that no Interest has been pledged or
hypothecated (except in accordance with Section 7 of this Agreement), and that
no change will be made in the ownership of any such Interest other than as
permitted by this Agreement, or otherwise consented to in writing by
Franchisor. Developer and Principal Shareholder agree to furnish Franchisor
with such evidence as Franchisor may reasonably request, from time to time, for
the purpose of assuring Franchisor that the Interests of Developer and
Principal Shareholder remain as represented herein.
6.5 Principal Shareholder hereby personally and unconditionally guarantees
each of Developer's financial obligations to Franchisor as set forth in Part
III, Section A of the form of Franchise Agreement which is attached hereto as
Appendix B and made a part hereof. Principal Shareholder agrees that Franchisor
may resort to such Principal Shareholder for payment of any such financial
obligations, whether or not Franchisor shall have proceeded against Developer,
any other Principal Shareholder or any other obligor primarily or secondarily
obligated to Franchisor with respect to such financial obligation. Principal
Shareholder hereby expressly waives presentment, demand, notice of dishonor,
protest and all other notices whatsoever with respect to Franchisor's
enforcement of this guaranty.
7
<PAGE> 8
7. TRANSFER.
7.1 There shall be no "Transfer" (as defined in subsection 7.2 below) of
any "Interest" (as defined in subsection 7.3 below) of Developer or of
Principal Shareholder in Developer in whole or in part (whether voluntarily or
by operation of law) directly, indirectly or contingently, except in accordance
with the provisions of this Section 7.
7.2 (a) Except as provided hereinbelow, "Transfer" shall mean any
assignment, sale, pledge, hypothecation, gift or other transfer of any Interest
or any other event which would change ownership of any Interest in violation of
the provisions of this Section 7 or change or create a new Interest in
violation of the provisions of this Section 7, including but not limited to:
(i) any change in the ownership of or rights in or to any shares of
stock or other equity interest in Developer which would result from the
act of any shareholder of Developer ("Shareholder"), such as a sale,
exchange, pledge or hypothecation of shares, or any interest in or rights
to any of Developer's profits, revenues or assets, or any such change
which would result by operation of law; and
(ii) any change in the percentage interest owned by any Shareholder
in the shares of stock of Developer, or interests in its profits,
revenues or assets which would result from any act of Developer such as a
sale, pledge or hypothecation of any Restaurant assets (other than as
provided for in subsection 7.2(b) below); any sale or issuance of any
shares of Developer's stock; or any sale or grant to any person of any
right to participate in or otherwise to share or become entitled to any
part of Developer's profits, revenues, assets or equity.
(b) Notwithstanding anything provided herein to the contrary, "Transfer"
shall not mean:
(i) any change in the ownership of or rights in or to any shares of
stock or other equity interest in Developer, constituting less than a
majority of the outstanding shares of stock of any class of Developer,
resulting from the divorce of Principal Shareholder; and
(ii) any grant to Developer's employees of options to purchase
Developer's stock which in the aggregate does not exceed twenty-five
percent (25%) of Developer's issued and outstanding stock; and
(iii) any grant to Developer's employees of a right to participate
in any profit-sharing, bonus or retirement plans offered by Developer
which are based on Developer's profits; and
8
<PAGE> 9
(iv) any pledge by Developer of Developer's stock to a financial
institution for the purpose of obtaining or restructuring any financing
necessary for Developer to develop, open and operate its franchised
Logan's Roadhouse Restaurants; and
(v) any pledge by Principal or any other shareholder of Developer of
Developer's assets to secure bona fide loans or credit necessary for
Developer to develop, open and operate its franchised Logan's Roadhouse
Restaurants; and
(vi) any grant or authorization by Developer of any mortgage or
security interest and any lien or security interest arising by operation
of law, including but not limited to any materialmen's or landlord's
lien, with respect to any "Interest" (as defined in subsection 7.3
below); and
(vii) any grant or authorization by Developer to a lessor of a
percentage of Developer's sales for a particular Restaurant pursuant to a
lease arrangement relating to such Restaurant.
7.3 "Interest" shall mean, in reference to interests or rights in
Developer, any shares of Developer's stock and any other equitable or legal
right in or to any of Developer's stock, revenues, profits or assets; and in
reference to rights or assets of Developer, "Interest" shall mean any of
Developer's rights under and interest in this Agreement, any Restaurant and its
revenues, profits and assets.
7.4 (a) The Interest of the Principal Shareholder may be transferred to
such Principal Shareholder's spouse or children or to a person designated in
such Principal Shareholder's will or trust (individually and collectively
referred to as "Successor"), without Franchisor's approval, provided that such
Successor shall agree to be bound by the restrictions contained in this Section
7, the purchase option described in Section 8 and all other covenants of
Principal Shareholder contained in this Agreement.
(b) The Interest of a Successor may only be transferred in accordance with
subsection 7.7, regardless of whether such Transfer is for consideration or by
gift or will or other device.
7.5 If at any time the Principal Shareholder desires to dispose of all or
substantially all of the Interest of the Principal Shareholder in Developer, or
the Principal Shareholder (or Developer) desires to dispose of all or
substantially all of Developer's Interest in this Agreement or in the assets
which Developer has acquired pursuant to this Agreement, the principal
Shareholder or Developer, as the case may be, shall notify Franchisor of that
desire, in writing, thirty (30) days before announcing that fact publicly or
engaging the services of a broker or sales agent.
7.6 (a) If at any time the Principal Shareholder or Developer, as the
case may be, obtains from a third party or third parties a bona fide offer (the
"Offer") in writing for the
9
<PAGE> 10
purchase of all or substantially all of the Interest of the Principal
Shareholder in Developer or of all or substantially all of Developer's Interest
in this Agreement or in the assets which Developer has acquired pursuant to this
Agreement, the Principal Shareholder or Developer shall not accept such Offer
without first giving notice (the "Selling Notice") to Franchisor stating that
the Principal Shareholder or Developer, as the case may be, has received the
Offer, identifying the prospective purchaser by name and address, specifying the
proposed purchase price and attaching a true and complete copy of the Offer.
(b) Franchisor shall have the option (the "Option"), exercisable within a
period of forty-five (45) days after receipt of the Selling Notice (the "Option
Period"), to purchase such Interest(s) at the price and on the same terms and
conditions set forth in the Offer except that Franchisor shall not be obligated
to pay any finder's or broker's fee, and if the Offer provides for payment of
consideration other than cash, or if the Offer involves certain intangible
benefits, Franchisor may elect to purchase such Interest(s) by offering a
reasonable cash substitute for the non-cash part of the Offer.
(c) The Option shall be exercisable by Franchisor delivering to the
Principal Shareholder or Developer, as the case may be, within the Option
Period, a notice (i) stating that the Option is being exercised and (ii)
specifying the time, date and place at which the closing of such purchase and
sale will take place, which date shall be not later than one hundred twenty
(120) days from the date Franchisor exercises its Option. Notwithstanding the
foregoing, if Franchisor exercises the Option, its obligation to close the
purchase shall be subject to its ability to obtain all necessary approvals,
including but not limited to, any necessary approvals of its shareholders and
any governmental or regulatory authority. If any such approvals are not
obtained, Franchisor may terminate its obligation to purchase the Interest(s)
by giving Developer written notice, and in such event, Franchisor shall be
released of all obligations to purchase such Interest(s).
(d) If the Option is not exercised, the Principal Shareholder or
Developer, as the case may be, may sell the Interests in or of Developer to the
third party which made the Offer, on conditions no more favorable to the third
party offerer than those set forth in the Offer, provided that Franchisor
approves the proposed transferee and provided further that such sale takes
place within one hundred twenty (120) days after the expiration of the Option
Period.
(e) If the Option is not exercised, the Principal Shareholder or
Developer, as the case may be, shall immediately notify Franchisor in writing
of any change in the terms of an Offer. Any material change in the terms of an
Offer shall cause it to be deemed a new Offer, conferring upon Franchisor a new
Option pursuant to this subsection 7.6; the Option Period with respect to the
new Option shall be deemed to commence on the day on which Franchisor receives
written notice of a material change in the terms of the original Offer.
7.7 (a) Developer understands and acknowledges that the rights and duties
set forth in this Agreement are personal to Developer and that Franchisor has
entered into this Agreement in reliance on the business skill and financial
capacity of Developer, and the business skill,
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financial capability and personal character of Principal Shareholder. Except as
otherwise provided in this Section 7, the Principal Shareholder shall at all
times retain control of Developer. Except as otherwise provided in this Section
7, no Transfer of any part of Developer's Interest in this Agreement, and no
Transfer of any interest of Principal Shareholder shall be completed except in
accordance with this subsection 7.7. In the event of such a proposed Transfer
of any part of Developer's interest in this Agreement, or of any Interest of
Principal Shareholder, the party or parties desiring to effect such Transfer
shall give Franchisor notice in writing of the proposed Transfer, which notice
shall set forth the name and address of the proposed transferee and all the
terms and conditions of the proposed Transfer. Upon receiving such notice,
Franchisor may (i) approve the Transfer, or (ii) withhold its consent to the
Transfer. Franchisor shall, within thirty (30) days of receiving such notice,
advise the party or parties desiring to effect the Transfer whether it (1)
approves the Transfer, or (2) withholds its consent to the Transfer, giving the
reasons for such disapproval. Franchisor shall not unreasonably withhold its
consent to a Transfer; provided, however, that Franchisor shall not be deemed to
have unreasonably withheld consent if Franchisor determines, in its reasonable
discretion, that the proposed transferee (i) does not have a net worth at least
that of Developer, or does not have a sound financial condition satisfactory to
Franchisor, in its reasonable discretion or (ii) does not have adequate
experience in the operation and marketing of food service establishments
reasonably similar to the Restaurants within the Logan's Roadhouse System. Upon
request by Franchisor, Developer shall provide to Franchisor any and all
information pertaining to the Transfer and/or the proposed transferee as
Franchisor may reasonably request, and the thirty (30) day time period
referenced above shall be extended until the date that is thirty (30) days from
the date Franchisor receives the requested information from Developer.
(b) In the event that Franchisor approves the Transfer, and the Transfer
is not completed within ninety (90) days of the later of (i) expiration of the
thirty (30) day notice period, or (ii) delivery of notice of Franchisor's
approval of the proposed Transfer, Franchisor's approval of the proposed
Transfer shall automatically be revoked. The ninety (90) day limitation
described in the preceding sentence shall not apply if at the end of said
ninety (90) day period the only issue which prevents completion of the Transfer
is the need to effect transfers of the applicable liquor licenses. Any
subsequent proposal to complete the proposed Transfer shall be subject to
Franchisor's right of approval as provided herein. The party which desires to
effect the proposed Transfer shall immediately notify Franchisor in writing of
any change in the terms of a Transfer. Any material change in the terms of a
Transfer prior to closing shall cause it to be deemed a new Transfer, revoking
any approval previously given by Franchisor and conferring upon Franchisor a
new right to approve such transfer, which shall be deemed to commence on the
day on which Franchisor receives written notice of such changes in terms.
7.8 In connection with any request for Franchisor's approval of a proposed
Transfer pursuant to this Section 7, the parties to the proposed Transfer shall
pay Franchisor a fee to defray the actual cost of review and the administrative
and professional expenses related to the proposed Transfer and the preparation
and execution of documents and agreements, up to a maximum of Ten Thousand
Dollars ($10,000).
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8. ACQUISITION OPTION.
8.1 Developer hereby grants to Franchisor the right to acquire, by merger
of Developer with and into Franchisor (the "Acquisition Option"), all of the
outstanding capital stock of Developer, for the consideration and on the terms
set forth below in subsection 8.2 at any time during the term of this Agreement
upon the occurrence of any of the following events:
(a) The expiration of five (5) years from the date of the later to
occur of the following: (i) the execution of this Agreement or (ii) the
execution by Developer and Franchisor of a Franchise Agreement for
Developer's first Restaurant (the "First Franchise Agreement").
Franchisor may exercise the Acquisition Option during a period of five
(5) years after it becomes effective under this subsection 8.1(a); or
(b) The death or disability of Principal Shareholder during the
time period set forth in subsection 8.1(a) above, disability being
defined as the inability to perform his duties as an officer and/or
director of Developer for six (6) consecutive months. Franchisor may
exercise the Acquisition Option during a period of nine (9) months after
it becomes effective under this subsection 8.1(b); or
(c) Developer's default, with such default continuing without cure
for a period of thirty (30) days after written notice to Developer
specifying such default or if Developer is notified of more than two
events of default in one year with respect to any of its obligations
under either (i) this Agreement or (ii) any of the individual Franchise
Agreements executed and in effect between Franchisor and Developer.
Franchisor may exercise the Acquisition Option at any time during a
period of twelve (12) months after the occurrence of such an event of
default;
8.2 (a) The consideration (the "Consideration") for all of the
outstanding capital stock of Developer shall be equal to the product of (a)
fifty percent (50%) of the average trailing price/earnings ratio of Franchisor's
Common Stock, par value, $.01 per share (the "Common Stock"), as published in
The Wall Street Journal for the thirty (30) trading day period immediately prior
to the date of notice of exercise of the Acquisition Option, multiplied by (b)
the net income of Developer calculated for the most recently completed twelve
(12) month period immediately prior to the date of notice of exercise of the
Acquisition Option ("Developer's Trailing Net Income") with respect to which
Franchisor shall have received audited financial statements, if available. If
audited financial statements for such period are not then available, Franchisor
and Developer will share equally in the cost of obtaining audited financial
statements for such period. For the purposes of this subsection 8.2, Developer's
Trailing Net Income shall be computed in accordance with generally accepted
accounting principles and adjusted, if necessary, to correspond in accounting
policy with Franchisor's financial statements and: (a) to substitute for
Developer's actual supervisory, general and administrative expense an amount
equal to three percent (3%) of Developer's monthly gross sales, (b) to limit
Developer's advertising expense to three percent (3%)
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of Developer's monthly gross sales (which shall include up to one percent (1%)
as contributed by Franchisee pursuant to Part II, Section G(2) of the form of
Franchise Agreement which is attached hereto as Appendix B and made a part
hereof) and (c) to provide for federal income taxes at the then-current tax
rate applicable to Franchisor. Developer's net income statement shall reflect
Developer's royalty fee of three percent (3%) of Developer's monthly gross
sales as a separate line item.
(b) For purposes of subsection 8.2(a), the Consideration shall be
adjusted, if necessary, to include compensation to Developer for its reasonable
and documentable pre-opening costs expended for Restaurants under development
but not yet open through and including the date of the Exercise Notice (as
defined in subsection 8.7 below)
(c) For purposes of subsection 8.2(a), each Shareholder shall be entitled
to elect the percentage of the Consideration to be paid by certified or
official bank check, in next day funds, or in such other form and manner as may
be mutually satisfactory up to an aggregate for all Shareholders of 25% of the
Consideration, except as provided in subsection 8.6(b).
8.3 In no event shall the Consideration be either (i) less than the
product of ten (10) times Developer's Trailing Net Income or (ii) more than the
product of fifteen (15) times Developer's Trailing Net Income. The
Consideration shall be adjusted, if necessary, to the extent necessary so that
the amount is within the range specified herein.
8.4 Upon the closing of the Acquisition Option and for a period of twelve
(12) months thereafter, Franchisor shall pay ten percent (10%) of the
Consideration into escrow (the "Escrowed Consideration"). In the event that
any of the Escrowed Consideration is in the form of Franchisor's Common Stock,
then Franchisor shall establish an escrow account in the name of Franchisor and
Developer for such Common Stock and Developer shall be entitled to all rights
and privileges arising from such Common Stock during the duration of the escrow
of the portion of the Escrowed Consideration comprised of Franchisor Common
Stock. In the event that any of the Escrowed Consideration is in the form of
cash pursuant to Developer's election in subsection 8.6 hereof, then Franchisor
shall establish an escrow account in the name of Franchisor and Developer for
such cash amount bearing interest at a commercially reasonable annual rate,
which interest shall be the property of Developer. Franchisor shall pay
Developer the entire Escrowed Consideration if Developer is in compliance with
all of the terms and provisions of the Merger Agreement, all representations
and warranties contained therein were true and correct when made and all
covenants therein had been performed. The Merger Agreement shall be
substantially in the form attached hereto as Appendix D and executed in
connection with the exercise of the Acquisition Option, it being understood
that the covenants, representations and warranties contained therein may
require modifications at the time the Acquisition Option is exercised to
reflect any changes in facts, circumstances or controlling law, which
modifications shall be reasonably agreed upon by Developer and Franchisor.
8.5 Franchisor shall make payment of the full Consideration to Developer's
shareholders by delivering to such shareholders and the escrow agent the checks
and certificates
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representing shares of Franchisor's Common Stock in exchange for certificates
for shares of Developer's Common Stock. The value of Franchisor's Common Stock
shall be determined as follows: the price per share of Franchisor's Common Stock
to be delivered upon exercise of the Acquisition Option shall equal the average
of the closing prices of Franchisor's Common Stock as published in The Wall
Street Journal for the most recent thirty (30) trading day period immediately
prior to the date of notice of exercise of the Acquisition Option.
8.6 (a) It is intended by the parties hereto that the merger transaction
shall qualify for federal income tax purposes as a reorganization within the
meaning of Section 368 of the Internal Revenue Code of 1986, as amended.
(b) Notwithstanding the foregoing, in the event that the merger
transaction shall not qualify for federal income tax purposes as a
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended, (i) Developer shall have the right to receive up to fifty
percent (50%) of the Consideration in cash by providing written notice to
Franchisor of such election; provided, however, that Franchisor may, upon
receipt of Developer's notice of such election, rescind its own exercise of the
Acquisition Option, with the effect of reserving its Acquisition Option right
for a later date and (ii) Franchisor shall have the right, in lieu of acquiring
all of the outstanding capital stock of Developer, to acquire for the
Consideration all of Developer's assets and assume all its liabilities,
including all corporate and administrative assets and liabilities, necessary
for or directly related to the operation of its franchised Logan's Roadhouse
Restaurants, but excluding any operating assets and related liabilities
relating to the operation of any business other than its franchised Logan's
Roadhouse Restaurants, subject to all the terms and conditions of this section
8. In the event Franchisor chooses to acquire assets rather than stock, the
Merger Agreement attached as Appendix D shall be modified by the parties hereto
to the extent necessary to conform to the provisions of this subsection 8.6.
8.7 Franchisor may exercise the Acquisition Option by delivering written
notice to Developer of such election (the "Exercise Notice"). The Exercise
Notice shall specify the closing date, which shall take place on a date and at
the time designated by Franchisor in the Exercise Notice, which date shall not
be earlier than sixty (60) days and not later than one hundred twenty (120) days
after the date on which the Exercise Notice is delivered; provided, however,
that Franchisor may require that the closing occur later than one hundred twenty
(120) days after the date on which the Exercise Notice is delivered if an
extension is necessary for Developer to complete the audit required by
Subsection 8.2 or for Franchisor to obtain necessary approvals of its
shareholders or of governmental or regulatory authorities; and provided,
further, that in the event Developer requests cash in excess of 10% of the
Consideration as part of the Consideration, Franchisor may require that the
closing occur not later than two hundred ten (210) days after the date on which
the Exercise Notice is delivered for the purpose of arranging financing of the
cash portion of the Consideration. Upon delivery of the Exercise Notice,
Developer's obligations pursuant to Sections 2 and 3 hereof shall immediately
cease, Developer shall immediately cease all development activities in
undeveloped markets, and Franchisor and Developer shall execute a definitive
Merger Agreement, substantially in the form attached hereto
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as Appendix D, with such changes, if any, as may be reasonably acceptable to
Franchisor and Developer. Notwithstanding the foregoing, if Franchisor exercises
the Acquisition Option, its obligation to execute the Merger Agreement and close
the Acquisition Option shall be subject to its ability to obtain all necessary
approvals, including but not limited to, the approvals of its shareholders and
any governmental or regulatory authority. If any such approvals are not
obtained within one hundred eighty (180) days after the date on which the
Exercise Notice is delivered, either Franchisor or Developer may rescind the
exercise of the Acquisition Option at such time by giving the other party
written notice within ten (10) days after expiration of such one hundred eighty
(180) day period, and in such event, both parties shall be released of all
obligations pursuant to the Acquisition Option as previously exercised and
Developer's obligations pursuant to Sections 2 and 3 shall thereupon be
reinstated with an additional period equal to the amount of days during which
such obligations were suspended (not to exceed one hundred eighty (180) days)
added to each of the Development Schedule and the Subsequent Development
Schedule.
8.8 Upon closing of the Acquisition Option, all stock certificates held by
shareholders of Developer shall be delivered to Franchisor in exchange for
payment of the Consideration. Each of Franchisor and Developer hereby
acknowledge the following:
(a) The issuance of Franchisor Common Stock will not be registered
under the Securities Act of 1933, as amended (the "Securities Act"), in
reliance upon exemptions from registration contained in the Securities
Act, and Franchisor's reliance upon such exemptions is based in part upon
Developer's representations, warranties and agreements contained in this
Agreement.
(b) The following legend shall appear on the certificates for the
shares of Franchisor Common Stock issued pursuant to the exercise of the
Acquisition Option. Franchisor and Developer agree that the shares of
Franchisor Common Stock received by Developer will be restricted and may
not be freely sold, Franchisor may refuse to permit transfer or limit the
transfer of the shares and that the shares must be held indefinitely in
the absence of compliance with the terms of the following legend. For a
period of one (1) year subsequent to the closing of the Acquisition
Option, to the extent that Franchisor permits Developer to transfer the
shares and such transfer complies with the terms of the following legend,
in no event (unless expressly waived by Franchisor) may Developer
transfer (except pursuant to an effective registration statement or a
sale under Rule 144) more than ten percent (10%) of the total number of
shares received by Developer pursuant hereto in any twelve (12) month
period:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ISSUED AND SOLD IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND MAY NOT BE SOLD,
OFFERED FOR SALE OR OTHERWISE DISPOSED OF OTHER THAN
(i) PURSUANT TO
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AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OR (ii) AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY REGARDING
COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE
SECURITIES LAWS OF ANY OTHER JURISDICTION. THE
COMPANY SHALL BE ENTITLED TO REQUIRE AN OPINION OF
COUNSEL SATISFACTORY TO IT WITH RESPECT TO COMPLIANCE
WITH THE ABOVE LAWS.
(c) Upon the written request of the shareholders of Developer who
receive shares of Franchisor's Common Stock pursuant to the exercise of
the Acquisition Option (the "Developer Shareholders"), Franchisor shall,
at the Developer Shareholders' cost and expense (including, but not
limited to, the fees and expenses of Franchisor's and Developer
Shareholders' counsel and underwriting discounts, commissions and filing
fees attributable to the Common Stock to be registered), register for
resale pursuant to an effective registration statement such number of the
shares of Franchisor's Common Stock received by the Developer
Shareholders pursuant to the exercise of the Acquisition Option which
such Developer Shareholders are otherwise then unable to sell pursuant to
Rule 144 or another exemption from registration under the Securities Act
of 1933, as amended.
8.9 Upon closing of the Acquisition Option, all employment agreements
among Developer or Principal Shareholder and any employee relating to the
operation of Restaurants shall immediately become null and void unless
otherwise preapproved to continue by Franchisor.
9. TERMINATION.
9.1 This Agreement shall expire on March 31, 2007, unless sooner
terminated pursuant to the terms hereof.
9.2 Franchisor shall have the right to terminate this Agreement
immediately upon written notice to Developer stating the reason for such
termination, and Developer shall no longer have any of the rights created by
this Agreement, in the event of:
(a) development by Developer of a Restaurant without first obtaining
approval from Franchisor of the Restaurant site, the proposed form of
lease for a Restaurant site, and of Developer's Plans in accordance with
Section 4 hereof;
(b) any breach or default of any of the provisions of Section 7
hereof;
(c) the filing by Developer of a petition in bankruptcy, an
arrangement for the benefit of creditors, or a petition for
reorganization; the filing against Developer of a
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petition in bankruptcy, an arrangement for the benefit of creditors, or
petition for reorganization, not dismissed within sixty (60) days of the
filing thereof; the making of an assignment by Developer for the benefit of
creditors; or the appointment of a receiver or trustee for Developer, which
receiver or trustee shall not have been dismissed within sixty (60) days of
such appointment;
(d) the discovery by Franchisor that Developer made a material
misrepresentation or omitted a material fact in the information which was
furnished to Franchisor in connection with this Agreement;
(e) failure by Developer to locate a replacement to the "Director of
Operations" (as defined in subsection 12.2 below) who is approved by
Franchisor in accordance with subsection 12.2 within one hundred twenty
(120) days of the date on which the last Director of Operations who was
approved by Franchisor ceased to be employed by Developer in that
capacity; or
(f) any part of this Agreement relating to the payment of fees to
Franchisor, or the preservation of any of Franchisor's trade names,
service marks, trademarks, trade secrets or secret formulae licensed or
disclosed hereunder or under any Franchise Agreement between Franchisor
and Developer, is for any reason declared invalid or unenforceable and
such declaration materially adversely affects Franchisor.
(g) notwithstanding anything provided herein to the contrary, any
person or group (as such terms are defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) other than Principal
Shareholder becomes the holder of 50% or more of all of the outstanding
shares of Developer's stock.
9.3 If Developer defaults in the performance or observance of any of its
obligations hereunder or under any Franchise Agreement between Developer and
Franchisor, if no other curative period applies pursuant to the provisions of
this Agreement, and if any such default continues for a period of thirty (30)
days after written notice to Developer specifying such default, Franchisor
shall have the right to terminate this Agreement upon written notice to
Developer. If Developer defaults in the performance or observance of any
obligation two or more times within a twelve (12) month period, Franchisor
shall have the right to terminate this Agreement immediately upon commission of
the second act of default, upon written notice to Developer stating the reason
for such termination, without allowance for any curative period.
9.4 This Agreement shall automatically terminate under the conditions and
at the times specified in Sections 2 and 3.
9.5 Notwithstanding anything to the contrary explicitly set forth or
implicitly contained in this Agreement, no termination or expiration of this
Agreement pursuant to any term or provision of this Agreement shall result in
the termination of the Acquisition Option provided in Section 8 of this
Agreement prior to the last date on which it would expire or
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terminate in accordance with the provisions of Section 8; provided, however,
that (i) if the Franchisor terminates the Agreement pursuant to Section 9.2 or
9.3 or if the Agreement terminates pursuant to Section 9.4, the Acquisition
Option shall become immediately exercisable and shall remain for one (1) year
after termination of this Agreement.
10. PREREQUISITES TO OBTAINING FRANCHISES FOR INDIVIDUAL RESTAURANT UNITS.
10.1 Developer understands and agrees that this Agreement does not confer
upon Developer a right to obtain a franchise for any Restaurant but is intended
by the parties to set forth the terms and conditions which, if fully satisfied,
shall entitle Developer to obtain such a franchise.
10.2 In the event that Developer shall have obtained Franchisor's approval
of a particular proposed site for a Restaurant, and if Franchisor, in the
exercise of its sole discretion, has granted Developer operational, financial
and legal approval, then Franchisor will grant Developer a franchise for a
Restaurant at the site in question. As used herein, Franchisor will grant
Developer "operational", "financial" and "legal" approval under the following
circumstances:
"Operational" approval will be granted if Franchisor has
determined, in the exercise of its sole discretion, that Developer
is conducting the operation of each of its Restaurants, and is
capable of conducting the operation of the proposed Restaurant,
including physical aspects thereof, (a) in accordance with the
terms and conditions of this Agreement, (b) in accordance with the
provisions of the respective Franchise Agreements, and (c) in
accordance with the standards, specifications and procedures set
forth and described in the Franchise Operations Manual, as it may
be amended from time to time. Developer understands that changes
in said standards, specifications and procedures may become
necessary from time to time. Developer agrees to accept said
changes, and Developer further agrees that it is within the sole
discretion of Franchisor to make said changes.
"Financial" approval will be granted if (a) Developer is not in
breach of its obligations under this Agreement and has been and is
faithfully performing all terms and conditions under each of its
existing Franchise Agreements with Franchisor, (b) Developer or
its affiliates is not in default of any monetary obligations owed
to Franchisor, and (c) Developer is not in default of any
financial obligation to any of its suppliers unless any such
obligation is being disputed in good faith by the Developer.
Developer acknowledges and agrees that it is vital to Franchisor's
interest that each of its franchisees be financially sound to
avoid failure of a franchised business (which would adversely
affect the reputation and good name of Franchisor and the Logan's
Roadhouse System).
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Developer acknowledges and agrees that it is vital to Franchisor's
interest and to the interests of the Logan's Roadhouse System that
Developer (in its capacity as franchisee) remain current in satisfying its
financial obligations to its suppliers.
"Legal" approval will be granted if Franchisor has determined, in the
exercise of its sole discretion, that Developer has submitted to
Franchisor, in a timely manner as requested, all information and documents
requested by Franchisor, prior to and as a basis for the issuance of
individual franchises or pursuant to any right granted to Franchisor by
this Agreement or by any Franchise Agreement between Developer and
Franchisor.
10.3 It is understood and agreed that the foregoing criteria apply to the
operational, financial and legal aspects of any Restaurant franchised by
Franchisor in which Developer or Principal Shareholder has any legal or
equitable interest. It is further understood and agreed that Developer and
Principal Shareholder have an ongoing responsibility to operate each Restaurant
in which Developer or Principal Shareholder has any legal or equitable interest
in a manner which satisfies the foregoing requirements for operational,
financial and legal approval.
11. RESTRICTIONS.
11.1 Developer and Principal Shareholder acknowledge that protection of
Franchisor's trade secrets and confidential information, and protection against
unfair competition from others who enjoy or who recently have had access to
Franchisor's trade secrets and confidential information, are essential for the
maintenance of the goodwill and value of the Logan's Roadhouse System and the
rights of Franchisor's other franchisees. Developer and Principal Shareholder
recognize that they will acquire access to confidential information and other
information relating to the development and operation of Restaurants, which may
or may not be "trade secrets" under prevailing judicial interpretations of that
term but which nevertheless are private and confidential and are not generally
available to persons not in close privity with Franchisor; and which, to
preserve the goodwill and special value of the System for Franchisor and all of
its franchisees, should not be available to any actual or potential direct or
indirect competitor of Franchisor or any of its franchisees. Accordingly,
Developer and Principal Shareholder agree as follows:
(a) During the term of this Agreement, neither Developer nor
Principal Shareholder for so long as such Principal Shareholder owns an
Interest in Developer, may without the prior written consent of Franchisor,
directly or indirectly engage in or acquire any financial or beneficial
interest (including interests in corporations, partnerships, trusts,
unincorporated associations or joint ventures) in, advise, help or make
loans to, any entity engaged in the business of preparing and serving or
preparing for service of steaks, ribs, chicken and seafood dishes in a
distinctive atmosphere reminiscent of an American roadhouse which is
located either (i) in the Territory, (ii) in the Area of Dominant Influence
(as defined and established from time to time by Arbitron Ratings Company)
of any Restaurant developed pursuant to this Agreement, or
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(iii) within a fifty (50) mile radius of any Franchisor owned or
operated unit or any franchisee owned or operated unit within the
Logan's Roadhouse System.
(b) Neither Developer, for two (2) years following the termination
of this Agreement, nor Principal Shareholder, for two (2) years following
termination of all of his Interest in Developer, may directly or
indirectly engage in or acquire any financial or beneficial interest
(including any interest in corporations, partnerships, trusts,
unincorporated associations or joint ventures) in, advise, help or make
loans to, any entity engaged in the business of preparing and serving or
preparing for service of steaks, ribs, chicken and seafood dishes in a
distinctive atmosphere reminiscent of an American roadhouse which is
located either (i) in the Territory, (ii) in the Area of Dominant
Influence (as defined and established from time to time by Arbitron
Ratings Company) of any Restaurant developed pursuant to this Agreement,
or (iii) within a fifty (50) mile radius of any Franchisor owned or
operated unit or any franchisee owned or operated unit within the Logan's
Roadhouse System.
11.2 Neither Developer nor any Shareholder shall (a) appropriate, use, or
duplicate the Logan's Roadhouse System, or any portion thereof, for use in any
other restaurant business which is not within the Logan's Roadhouse System, (b)
disclose or reveal any portion of the Logan's Roadhouse System to any other
person other than to Developer's employees as an incident of their training, or
(c) acquire any right to use, or to license or franchise the use of, any name,
mark or other intellectual property right which may be granted pursuant to any
agreement between Franchisor and Developer, except in connection with the
operation of a Restaurant.
11.3 Developer and Principal Shareholder agree that the provisions of this
Section 11 are and have been a primary inducement to Franchisor to enter into
this Agreement and that in the event of breach thereof Franchisor would be
irreparably injured and would be without an adequate remedy at law. Therefore,
in the event of a breach of any of such provisions Franchisor shall be
entitled, in addition to any other remedies which it may have hereunder or in
law or in equity (including the right to terminate this Agreement), to a
preliminary and/or permanent injunction and decree for specific performance of
the terms hereof without the necessity of showing actual or threatened damage,
and without being required to furnish a bond or other security.
11.4 If any court or other tribunal having jurisdiction to determine the
validity or enforceability of this Section 11 determines that it would be
invalid or unenforceable as written, then the provisions hereof shall be deemed
to be modified or limited to such extent or in such manner as necessary for
such provisions to be valid and enforceable to the greatest extent possible.
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12. DEVELOPMENT PROCEDURES.
12.1 Franchisor will use its best efforts to furnish Developer with advice
and assistance in developing Restaurants and in selecting sites therefor.
12.2 Developer shall designate an individual who shall be personally
responsible for Developer's development activities during the term of this
Agreement, and who shall devote his or her full-time, best efforts and personal
attention, on a day-to-day basis, to Developer's development activities in the
Territory (the "Director of Operations"). Franchisor acknowledges and accepts
Developer's designation of Principal Shareholder as the first Director of
Operations. Developer shall require that the Director of Operations maintain
his or her principal personal residence in the Territory; provided, that
Principal Shareholder shall be permitted ninety (90) days after the opening of
the first franchised Restaurant hereunder to relocate his principal residence
in the Territory. Developer's designation of any subsequent Director of
Operations shall be subject to the written approval of Franchisor (which
approval shall not be arbitrarily withheld), and shall also be subject to the
time limitations described in subsection 9.2(e) hereof. Franchisor shall
notify Developer in writing within fourteen (14) days of receipt of Developer's
request whether Franchisor disapproves such person. Failure by Franchisor to
so notify Developer within that period shall be deemed to constitute
Franchisor's approval of such person.
12.3 Developer shall require the Director of Operations and each of its
area supervisors to execute a confidentiality agreement and covenant not to
compete in form and substance satisfactory to Franchisor. Developer shall use
its best efforts to obtain from each other employee of Developer, including but
not limited to each Restaurant general manager, who will have supervisory
authority over the development or operation of more than one Restaurant execute
a confidentiality agreement in form and substance satisfactory to Franchisor
and to the extent required by Franchisor of its own employees at similar
levels. Developer shall be responsible for compliance by its employees with
the agreements identified in this subsection.
12.4 (a) Developer shall require its Director of Operations to attend, and
to complete to Franchisor's reasonable satisfaction, an operations training
course provided by Franchisor. If the Director of Operations or any such
supervisory employee fails to complete Franchisor's operations training course
successfully, Franchisor may require designation of a new Director of
Operations or replacement supervisory employee, as the case may be, and
Developer shall designate a new Director of Operations or replacement
supervisory employee who shall be required to complete successfully such
training course.
(b) The Director of Operations shall, from time to time as reasonably
requested by Franchisor, attend and complete to Franchisor's reasonable
satisfaction a Franchisor-provided refresher course in restaurant operations.
12.5 With respect to each Restaurant within the Territory developed by
Developer, Developer's employees must satisfy the training requirements
described in Part I, Section E of Appendix B hereto. After Developer opens its
first Restaurant pursuant to this Agreement,
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Franchisor may, but shall not be obligated to, permit Developer (at Developer's
own expense) to conduct a portion of the required training at one of Developer's
existing Restaurants. In such event Developer
will be required to provide qualified personnel to administer training tests
and to maintain records relating to the training and performance employees.
13. NO WAIVER OF DEFAULT.
13.1 The waiver by either party to this Agreement of any breach or
default, or series of breaches or defaults, of any term, covenant or condition
herein or of any same or similar term, covenant or condition contained in any
other agreement between Franchisor and any other person, shall not be deemed a
waiver of any subsequent or continuing breach or default of the same or any
other term, covenant or condition contained in this Agreement, or in any other
agreement between Franchisor and any other person.
13.2 Unless otherwise specified herein, all rights and remedies of
Franchisor shall be cumulative and not alternative, in addition to and not
exclusive of any other rights or remedies which are provided for herein or
which may be available at law or in equity in case of any breach, failure or
default or threatened breach, failure or default of any term, provision or
condition of this Agreement. Franchisor's rights and remedies shall be
continuing and shall not be exhausted by any one or more uses thereof, and may
be exercised at any time or from time to time as often as may be expedient; and
any option or election to enforce any such right or remedy may be exercised or
taken at any time and from time to time. The expiration or earlier termination
of this Agreement shall not discharge or release Developer or Principal
Shareholder from any liability or obligation then accrued, or any liability or
obligation continuing beyond, or arising out of, the expiration or earlier
termination of this Agreement.
14. FORCE MAJEURE.
14.1 As used in this Agreement, the term "Force Majeure" shall mean any
act of god, strike, lock-out or other industrial disturbance, war (declared or
undeclared), riot, epidemic, fire or other catastrophe, act of any government,
material defaults by unaffiliated third parties under agreements with Developer
relating to the development of franchised Restaurants and any other similar
cause not within the control of the party affected thereby.
14.2 If the performance of any obligation by any party under this
Agreement is prevented, hindered or delayed by reason of Force Majeure, which
cannot be overcome by use of normal commercial measures, the parties shall be
relieved of their respective obligations to the extent the parties are
respectively necessarily prevented, hindered or delayed in such performance
during the period of such Force Majeure. The party whose performance is
affected by an event of Force Majeure shall give prompt notice of such Force
Majeure event to the other party by telephone or telegram (in each case to be
confirmed in writing), setting forth the nature thereof and an estimate as to
its duration, and shall be liable for failure to give such timely notice only
to the extent of damage actually caused.
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15. CONSTRUCTION, SEVERABILITY, GOVERNING LAW AND
JURISDICTION.
15.1 If any part of this Agreement shall for any reason be declared
invalid, unenforceable or impaired in any way, the validity of the remaining
portions shall remain in full force and effect as if this Agreement had been
executed with such invalid portion eliminated, and it is hereby declared the
intention of the parties that they would have executed the remaining portion of
this Agreement without including therein any such portions which might be
declared invalid; provided, however, that in the event any part hereof relating
to the payment of fees to Franchisor, or the preservation of any of
Franchisor's trade names, service marks, trademarks, trade secrets or secret
formulae licensed or disclosed hereunder or pursuant to any Franchise Agreement
between Franchisor and Developer is for any reason declared invalid or
unenforceable, then Franchiser shall have the option of terminating this
Agreement upon written notice to Developer. If any clause or provision herein
would be deemed invalid or unenforceable as written, it shall be deemed to be
modified or limited to such extent or in such manner as may be necessary to
render the clause or provision valid and enforceable to the greatest extent
possible in light of the interest of the parties expressed in that clause or
provision.
15.2 Developer and Principal Shareholder acknowledge that Franchisor may
enter into other Development Agreements throughout the United States on terms
and conditions similar to those set forth in this Agreement, and that it is of
mutual benefit to Developer and Principal Shareholder and to Franchisor that
these terms and conditions be uniformly interpreted. Therefore, the parties
agree that to the extent that the laws of the State of Tennessee do not
conflict with local franchise investment statutes, rules and regulations,
Tennessee law shall apply to the construction and enforcement of this Agreement
and shall govern all questions which arise with reference hereto.
15.3 The parties agree that any claim, controversy or dispute arising out
of or relating to this Agreement or the performance thereof which cannot be
amicably settled, except as otherwise provided herein, may, at the option of
the claimant, be resolved by a proceeding in a court in Tennessee, and
Developer and the Principal Shareholder each irrevocably accept the
jurisdiction of the courts of the State of Tennessee and the federal courts
located in such State for such claims, controversies, or disputes.
The parties agree that service of process in any proceeding arising out of
or relating to this Agreement or the performance thereof may be made by serving
a person of suitable age and discretion (such as the person in charge of the
office) as to Franchisor, at the address of Franchisor; and as to Developer and
Principal Shareholder, at the address of Developer specified in this Agreement.
16. MISCELLANEOUS.
16.1 All notices and other communications required or permitted to be
given hereunder shall be deemed given when delivered in person or via
nationally recognized overnight air
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courier service or mailed by registered or certified mail addressed to the
recipient at the address set forth below, unless that party shall have given
written notice of change of address to the sending party, in which event the new
address so specified shall be used.
FRANCHISOR:
Logan's Roadhouse, Inc.
565 Marriott Drive, Suite 490
Nashville, Tennessee 37214
Attention: Chief Executive Officer
cc: Waller Lansden Dortch & Davis,
A Professional Limited Liability Company
Nashville City Center
511 Union Street, Suite 2100
Post Office Box 198966
Nashville, Tennessee 37219-8966
Attention: J. Chase Cole, Esq.
DEVELOPER:
CMAC Incorporated
Logan's Roadhouse, Inc.
565 Marriott Drive, Suite 490
Nashville, TN 37214
cc: Thomas B. Clark, Esq.
8220 Wikle Road East
Brentwood, Tennessee 37027
PRINCIPAL SHAREHOLDER:
Charles F. McWhorter, Jr.
Logan's Roadhouse, Inc.
565 Marriott Drive, Suite 490
Nashville, TN 37214
cc: Thomas B. Clark, Esq.
8220 Wikle Road East
Brentwood, Tennessee 37027
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16.2 All terms used in this Agreement, regardless of the number and gender
in which they are used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine feminine or neuter,
as the context or sense of this Agreement may require, the same as if such
words had been written in this Agreement themselves. The headings inserted in
this Agreement are for reference purposes only and shall not affect the
construction of this Agreement or limit the generality of any of its
provisions.
16.3 This Agreement and the documents referred to herein constitute the
entire agreement between the parties, superseding and cancelling any and all
prior and contemporaneous agreements, understandings, representations,
inducements and statements, oral or written, of the parties in connection with
the subject matter hereof.
16.4 Except as expressly authorized herein, no amendment or modification
of this Agreement shall be binding unless executed in writing both by
Franchisor and by Developer and Principal Shareholder.
16.5 In the event that any party to this Agreement initiates any legal
proceeding to construe or enforce any of the terms, conditions and/or
provisions of this Agreement, including but not limited to its termination
provisions, or to obtain damages or other relief to which any party may be
entitled by virtue of this Agreement, the prevailing party or parties shall be
paid its reasonable attorneys' fees and expenses by the other party or parties.
16.6 It is the intention of the parties to this Agreement that this
Agreement shall not violate the Rule Against Perpetuities or any statute, rule
or regulation similar thereto (the "Rule"); and in the event anything in this
Agreement violates the Rule, this Agreement shall be construed, to the extent
permitted by law, in a manner that will not cause the violation of the Rule.
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IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of
the date first above written.
FRANCHISOR:
ATTEST: LOGAN'S ROADHOUSE, INC.
____________________________ By:____________________________________
Name:_______________________ Name:__________________________________
Title:______________________ Title:_________________________________
DEVELOPER:
ATTEST: CMAC INCORPORATED
____________________________ By:____________________________________
Name:_______________________ Name:__________________________________
Title:______________________ Title:_________________________________
WITNESS: PRINCIPAL SHAREHOLDER:
____________________________ _______________________________________
Name:_______________________ Charles F. McWhorter, Jr.
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<PAGE> 1
EXHIBIT 10.34
LOGAN'S ROADHOUSE, INC.
[FORM OF FRANCHISE AGREEMENT]
THIS AGREEMENT made and entered into by and among LOGAN'S ROADHOUSE, INC.,
a Tennessee corporation, having its principal office at Nashville, Tennessee,
hereinafter referred to as Franchisor, CMAC Incorporated, a Tennessee
corporation, hereinafter referred to as Franchisee, and Charles F. McWhorter,
Jr., hereinafter referred to as McWhorter or as Principal.
W I T N E S S E T H
WHEREAS, Franchisor is engaged in the business of owning, operating, and
granting franchises with respect to certain restaurants serving meat products
and other dishes, which restaurants do business under the trade name "Logan's
Roadhouse" (each such restaurant, a "Logan's Roadhouse Outlet" or "Outlet");
WHEREAS, in connection with its business, Franchisor has developed certain
recipes and seasonings for meats with distinctive flavor and unsurpassed
quality and consumer recognition, and is the owner of good and valuable
trademarks, trade names, service marks, certification marks, insignia, signs,
designs, emblems, color and patterns, and other distinctive features that
identify the Logan's Roadhouse Outlets (such items, together with all of
Franchisor's other trade secrets and tangible and intangible property rights
relating to the development, ownership, and operation of a Logan's Roadhouse
Outlet, are hereinafter referred to as the "Logan's Roadhouse System" or as
"System");
WHEREAS, Franchisor, Franchisee and McWhorter have entered into an Area
Development Agreement dated March 17, 1997, (the "Area Development Agreement"),
relating to the development by Franchisee of Logan's Roadhouse Outlets;
WHEREAS, Franchisor and Franchisee desire to enter into this Agreement to
set forth Franchisee's rights to own and operate a Logan's Roadhouse Outlet in
that certain location specified herein;
NOW THEREFORE, in consideration of the agreements and covenants set forth
herein, and Franchisee's initial payment of the sum of $30,000.00 to Franchisor
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, it is hereby agreed as follows:
<PAGE> 2
PART I
SERVICES PROVIDED BY FRANCHISOR
A. GRANT OF FRANCHISE: Franchisor hereby grants to Franchisee, for the
term stated below and subject to the covenants and conditions herein, a
franchise to use the Logan's Roadhouse System incident to the operation of a
Logan's Roadhouse Outlet at the premises to be located on Beacon Drive,
Greenville, South Carolina.
B. FRANCHISOR'S RIGHT TO RETAIL SYSTEM: Franchisee does acknowledge and
recognize, and Franchisor does represent and warrant, Franchisor's interest in
and exclusive right, subject to the terms of this Agreement: (i) to the Logan's
Roadhouse System and to its distinguishing characteristics now and from time to
time hereinafter used as a part of or in conjunction with, or application to
said System, and in all word marks, slogans, copyrighted materials, designs,
name and matter now or hereafter displayed thereon or used as part thereof,
service mark or trademark registration, trade names and patents now or
hereafter applied for or granted in connection therewith; and (ii) to grant
this franchise and to grant franchises to others to use said System and the
conduct of Logan's Roadhouse Outlets under said System. Franchisee agrees that
no expressed or implied right is conferred hereby or herein upon Franchisee to
sub-license or to franchise or in any other fashion convey a complete or
partial interest in the Logan's Roadhouse System. Franchisor agrees to take
all action necessary to maintain, preserve, and protect Franchisor's rights
that are subject to this Agreement, including without limitation, the Logan's
Roadhouse System and any related rights, privileges, or licenses.
C. CONSULTATION: Franchisor shall advise and consult with Franchisee
periodically in connection with the operation of the Outlet, and at other
reasonable times upon Franchisee's request. Franchisee may contact Franchisor
by telephone to request consultation about Franchisee's business without any
expense to Franchisee. If Franchisee shall request consultation of a nature
which Franchisor deems to require the travel or on-site assistance of
Franchisor or its agents or authorized employees, Franchisee shall assume the
reasonable costs associated with travel, research and other support for
Franchisor or its agents or authorized employees.
D. OPENING ASSISTANCE: Franchisor will assist Franchisee in coordinating
the Outlet's pre-opening activities. For approximately eight (8) days prior to
the opening of the Logan's Roadhouse Outlet operated by Franchisee and for the
first two (2) weeks that such Outlet is open for business, Franchisor shall
provide Franchisee, at Franchisee's expense, with the
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<PAGE> 3
services of certain of Franchisor's personnel to facilitate proper operation of
the kitchen, bar and dining room areas during that period and to assist,
as more fully described and defined in the Logan's Operations Manual prepared
and provided by Franchisor (the "Operations Manual"), in correcting any
operational problems which may arise.
E. TRAINING:
1. TRAINING COURSE: Franchisor shall make its operations training course
available, at a minimum, to the Franchisee's General Manager (defined below)
and the Kitchen Manager (defined below). Before the Outlet opens for business,
and thereafter as replacement personnel are employed by Franchisee, the General
Manager and the Kitchen Manager shall attend Franchisor's operations training
course for such period of time as Franchisor shall deem reasonably necessary,
and shall complete that course to Franchisor's reasonable satisfaction. If the
General Manager and/or Kitchen Manager fails to complete Franchisor's
operations training course successfully, Franchisor may require designation of
a new General Manager and/or Kitchen Manager, as the case may be, and
Franchisee shall designate a new General Manager and/or Kitchen Manager, who
shall be required to complete successfully such training course. Additional
training involving Franchisor's training crew at Franchisee's Outlet shall be
conducted in accordance with the provisions of the Operations Manual.
2. EXPENSES: Franchisee shall pay all costs and expenses relating to the
attendance of Franchisee's personnel at any of Franchisor's training courses,
including, without limitation, the cost of travel, lodging, meals, uniforms and
other related and incidental expenses.
3. INADEQUATE TRAINING: Franchisee shall be responsible for the Logan's
Roadhouse Outlet's compliance with the operating standards, methods, techniques
and material taught at Franchisor's training course, and shall cause the
employees of the Logan's Roadhouse Outlet to be trained in such standards,
methods and techniques as are relevant to the performance of their respective
duties. In the event that Franchisee fails to provide reasonably adequate
training of its Logan's Roadhouse Outlet employees, Franchisor shall have the
right to require such training and may insert qualified personnel. Such
assistance shall be provided at the sole cost of the Franchisee.
F. PURCHASING: The significant market impact associated with the
purchases made collectively by the Logan's Roadhouse System are of substantial
benefit and assistance to the Franchisee both from a cost standpoint as well as
the availability and delivery of products. In the event that Franchisor
undertakes to serve as a supplier for Logan's Roadhouse Outlets, Franchisee
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<PAGE> 4
may elect, but shall not be obligated to purchase any goods available
through the Franchisor. It is expressly understood and agreed that Franchisee
shall purchase and utilize all products and ingredients used in the Logan's
Roadhouse System, only from Franchisor or those manufacturers or distributors
and other sources approved by Franchisor. All items purchased from or through
Franchisor shall be made available to the Franchisee at a reasonable cost which
shall include a profit for Franchisor.
PART II
RIGHTS AND DUTIES OF FRANCHISEE AND PRINCIPAL
A. PROVIDE MANAGEMENT: The Franchisee or its designees shall have sole
managerial control and authority with respect to the Logan's Roadhouse Outlet
franchise which is granted under the terms of this Agreement.
B. COMPLIANCE WITH THE SYSTEM:
1. Franchisee shall designate an individual who will supervise the Logan's
Roadhouse Outlet, and devote his or her full time, best efforts and constant
personal attention to the day-to-day operation of Logan's Roadhouse Outlet (the
"General Manager"). Franchisor also shall designate an individual who will
supervise Logan's Roadhouse Outlet kitchen, and devote his or her full time,
best efforts and constant personal attention to the day-to-day operation of
Logan's Roadhouse Outlet kitchen (the "Kitchen Manager").
2. Franchisee expressly agrees to:
(a) operate Logan's Roadhouse Outlet in a clean, safe
and orderly manner, providing courteous, first-class service
to the public;
(b) diligently promote and make every reasonable effort to
increase the business of Logan's Roadhouse Outlet;
(c) advertise the business of Logan's Roadhouse Outlet by the
use of Franchisor's trade names, service marks and trademarks and
such other insignia, slogans, emblems, symbols, designs and other
identifying characteristics as may be developed or established from
time to time by Franchisor;
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(d) prohibit and, to the best of Franchisee's ability, prevent
the use of Logan's Roadhouse Outlet for any immoral or illegal
purpose, or for any other purpose, business activity, use of
function which is not expressly authorized hereunder or in the
Operations Manual.
3. Franchisee hereby acknowledges receipt and loan of a copy of the
Operations Manual, and agrees to faithfully, completely and continuously
perform, fulfill, observe and follow all instructions, requirements, standards,
specifications, systems and procedures contained therein, including (a) those
relating to the selection, purchase, storage, preparation, packaging, service
and sale of all products being sold at Logan's Roadhouse Outlet, (b) those
relating to the maintenance and repair of Logan's Roadhouse Outlet buildings,
grounds, equipment, signs, interior and exterior decor items, fixtures and
furnishings, and (c) those relating to employee uniforms and dress, accounting,
bookkeeping, record retention and other business systems, procedures and
operations. The Operations Manual is incorporated herein by reference and
hereby made part of this Agreement. Franchisee acknowledges that the materials
contained in the Operations Manual are integral, necessary and material
elements of the System. Franchisee acknowledges receipt herewith of a copy of
Franchisor's Operations Manual, which must be returned on expiration or
termination of this Agreement.
4. Franchisee understands, acknowledges and agrees that strict conformity
with the System, including the standards, specifications, systems, procedures,
requirements and instructions contained in this Agreement and in the Operations
Manual, is vitally important not only to the success of Franchisor, but to the
collective success of all of Franchisor's other franchisees, by reason of the
benefits which Franchisor and all of its franchisees will derive from
uniformity in products sold, identity, quality, appearance, facilities and
service among all restaurant units which are part of the System.
5. Franchisor shall have the right at any time and from time to time, in
the good faith exercise of its reasonable business judgment, consistent with
the overall best interests of the System generally, to revise, amend, delete
from and add to the System and the material contained in the Operations Manual.
Franchisee expressly agrees to comply with all such revisions, amendments,
deletions and additions.
6. Franchisee shall offer for sale from Logan's Roadhouse Outlet, at all
times when Logan's Roadhouse Outlet is open for business, only the products
which are expressly designated in the Operations Manual, except to the extent
that Franchisee has obtained Franchisor's prior written consent to a
modification of that requirement. No product shall be offered or sold at or
from Logan's Roadhouse Outlet under, or in connection with, any trademark or
service mark other than Franchisor's designated
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trademarks and service marks without Franchisor's prior written consent.
7. No food or beverage product, interior or exterior decor item, sign,
item of equipment, fixtures, furnishings or supplies, or other product or
material required for the operation of Logan's Roadhouse Outlet, which bears
any of Franchisor's trade names, service marks or trademarks, shall be used or
sold in or upon Logan's Roadhouse Outlet premises unless the same shall have
been first submitted to and approved in writing by Franchisor.
8. Franchisee acknowledges that every component of the System is
important to Franchisor, to all franchisees and to the operation of each
Logan's Roadhouse Outlet, including the requirements (a) that only those
products designated and approved by the Franchisor are sold at the Outlet, and
(b) that there is uniformity of food and beverage specifications, preparation
methods, quality, appearance, facilities and service among all Outlets in the
System. Accordingly, Franchisee agrees to and shall comply with all aspects of
the System (as it now exists and as it may be modified from time to time).
C. RELATIONSHIP OF PARTIES: Franchisee is not, and shall not represent or
hold itself out as, an agent, legal representative, joint venturer, partner,
employee or servant of Franchisor for any purpose whatsoever and, where
permitted by law to do so, shall file a business certificate to such effect
with the proper recording authorities. Franchisee is an independent contractor
and is not authorized to make any contract, agreement, warranty or
representation on behalf of Franchisor. Franchisee agrees that Franchisor does
not have any fiduciary obligation to Franchisee. Franchisee shall not use the
name Logan's or Logan's Roadhouse or any similar words as part of or in
association with any trade name of any business entity which is directly or
indirectly associated with Franchisee, except for the Outlet.
D. USE OF INTELLECTUAL PROPERTY:
1. Trademark License. Franchisee shall use the trademarks, trade names,
and other commercial symbols ("the Marks") that are part of the Logan's
Roadhouse System only in connection with the operation of a Logan's Roadhouse
Outlet under this Agreement and Franchisor agrees to license such uses.
Franchisee shall not use or permit to be used any other name or names alone or
in connection with a Logan's Roadhouse Outlet during the term of this
Agreement without the prior consent of Franchisor. All trademarks, tradenames,
and other identifying marks of the Logan's Roadhouse System shall be used by
Franchisee only in such fashion as shall not adversely affect the validity or
value thereof. Franchisee agrees that it will cause to appear on or within
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materials created or used under this trademark license and on or within all
advertising, promotional or display material bearing the Marks, the designation
(TM) or (R) as directed by Franchisor.
2. Copyright License. Franchisor hereby provides a license for Franchisee
to use certain copyrighted materials belonging to Franchisor. Franchisee
agrees to use the copyrighted materials provided under this license solely for
the operation of a Logan's Roadhouse Outlet under this Agreement. Franchisee
shall not use or permit to be used the copyrighted materials outside the
operation of the Logan's Roadhouse Outlet under this Agreement. Franchisee
agrees that it will cause to appear on or within materials created or used
under this copyright license and on or within all advertising, promotional or
display materials containing the copyrighted materials, designations showing
copyright ownership as directed by Franchisor.
E. ENGAGEMENT IN BUSINESS: Franchisee shall commence the operation of its
Logan's Roadhouse Outlet promptly after a certificate of occupancy (temporary
or permanent) or the local equivalent thereof, is issued for the Logan's
Roadhouse Outlet, and shall continue to operate same at all times during the
term of this Agreement. Franchisee agrees to keep its Logan's Roadhouse Outlet
open during such hours as are specified by Franchisor in its Operations Manual,
to include both lunch and dinner every day except for Thanksgiving and
Christmas, unless Franchisor agrees otherwise in writing or unless operation is
made impossible because of Acts of God or similar circumstances wholly beyond
Franchisee's control as more fully set forth in Section VIII (H).
F. NO OTHER BUSINESS OPERATED ON PREMISES: No business other than the
operation of a Logan's Roadhouse Outlet shall be conducted upon the premises
approved for such operation.
G. LOCAL LAWS AND ORDINANCES: Franchisee shall comply with all laws,
regulations, ordinances, or similar governmental restrictions, applicable to
the Logan's Roadhouse Outlet. It is the duty and obligation to ascertain the
terms and provisions of all such laws, regulations, ordinances and restrictions
and inform its employees thereof so as to avoid any violation thereof. Should
any provisions of this Agreement or any aspect of the Logan's Roadhouse System
be in conflict with the provisions of any laws, regulations, ordinances, or
similar governmental restrictions, Franchisee is absolved from compliance with
said provisions to the extent necessary to avoid such conflict.
H. TAXES: Franchisee shall pay or cause to be paid promptly when due all
obligations incurred directly or indirectly in connection with the Logan's
Roadhouse Outlet and its operation, including without limitation, all taxes and
assessments that may be assessed and all liens and encumbrances of every kind
and character
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created or placed upon or against any of the equipment, fixtures,
signs, furnishings and other property, and all accounts and other indebtedness
of every kind and character incurred by or on behalf of Franchisee in the
conduct of the business.
I. SUBMISSION OF OPERATING REPORTS: Franchisee shall submit to Franchisor
a year end operating statement, sales tax reports, income tax returns, and
other operational reports and supporting data, including any information
necessary for Franchisor to verify the amount of fees properly due to
Franchisor under Part III paragraph A of this Agreement.
J. INSURANCE AND INDEMNIFICATION:
1. Franchisee shall indemnify and hold harmless Franchisor and its
officers, directors, employees, agents, affiliates, successors and assigns from
and against: (a) any and all claims based upon, arising out of, or in any way
related to the operation or condition of any part of the Logan's Roadhouse
Outlet or its premises, the conduct of business thereat, the ownership or
possession of real or personal property, and any negligent act, misfeasance or
nonfeasance by Franchisee or any of its agents, contractors, servants,
employees or licensees (including without limitation, the performance by
Franchisee of any act required by, or performed pursuant to, any provision of
this Agreement); (b) any and all fees (including reasonable attorneys' fees),
costs and other expenses incurred by or on behalf of Franchisor in the
investigation of or defense against any and all such claims; and (c) any
accident, incident or occurrence of any kind whatsoever which happens on, in or
about the premises of the Logan's Roadhouse Outlet.
2. Without limiting the generality of the foregoing Subsection (J)(1),
Franchisee shall procure before the commencement of operations of the Logan's
Roadhouse Outlet, and shall maintain in full force and effect during the entire
term of this Agreement, at its sole cost and expense, an insurance policy or
policies protecting Franchisee and Franchisor and their respective officers,
directors and employees against any and all claims, loss, liability, or expense
whatsoever, arising out of or in connection with the condition, operation, use
or occupancy of the Outlet or Outlet premises. Franchisee shall insure the
Outlet building and other improvements, equipment, signs, interior and exterior
decor items, furnishings, fixtures, and any additions thereto, against fire and
other casualties insured against in an "all risk" of physical loss insurance
policy. Franchisor shall be named as an additional insured in all such
policies, workers' compensation excepted, and the certificate or certificates
of insurance shall state that the policy or policies shall not be subject to
cancellation or alteration without at least thirty (30) days' prior written
notice to Franchisor.
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Such policy or policies shall be written by a responsible insurance company or
companies satisfactory to Franchisor, and shall be in such form and contain
such limits of liability as shall be satisfactory to Franchisor from time to
time. In any event, such policy or policies shall include at least the
following:
<TABLE>
<S> <C>
KIND OF INSURANCE MINIMUM LIMITS OF LIABILITY
Workers' Compensation Statutory
Comprehensive General Public
Liability including Product $1,000,000 each person,
Liability, Injury and Host $1,000,000 each
Liquor Liability occurrence
Fire and Extended Coverage Full replacement value/
All risk coverage including
flood and earthquake
Umbrella Liability Insurance $3,000,000
</TABLE>
Franchisee shall deliver certificates of such insurance to Franchisor. The
insurance afforded by the policy or policies respecting public liability shall
be primary and shall not be limited in any way by reason of any insurance which
may be maintained by Franchisor.
3. Within sixty (60) days after the execution of this Agreement, but in no
event later than the day before the Outlet opens for business, Franchisee shall
submit to Franchisor for approval certificates of insurance showing compliance
with the requirements of Subsection J(2) above. Maintenance of such insurance
and the performance by Franchisee of its obligations under this Section J shall
not relieve Franchisee of liability under the indemnity provisions of this
Agreement, and shall not limit such liability.
4. Should Franchisee, for any reason, fail to procure or maintain the
insurance coverage required by this Section, then Franchisor shall have the
right and authority to immediately procure such insurance coverage and to
charge the cost thereof to Franchisee, which amounts shall be paid immediately
upon notice and shall be subject to charges for late payments as provided in
Paragraph III(A).
5. No later than thirty (30) days following Franchisee's receipt of same,
Franchisee shall submit to Franchisor a copy of any written report relating to
the condition of the Outlet premises, or any aspect thereof, prepared by an
insurer or prospective insurer or by a representative of a federal, state or
local government agency, provided that if any such report contains
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comments or information which could materially and detrimentally affect the
Outlet, such report shall be submitted to Franchisor within three (3) days
following Franchisee's receipt thereof.
K. STATEMENT OF LEGAL COMPOSITION:
Franchisee and Principal represent and warrant that: (a) Franchisee is a
corporation validly existing; (b) Franchisee is duly qualified and is
authorized to do business in the jurisdiction in which its business activities
or the nature of the properties owned by it requires such qualification; (c)
the execution and delivery of this Agreement and the transactions contemplated
hereby are within Franchisee's power; (d) the execution and delivery of this
Agreement has been duly authorized by the Franchisee; (e) the balance sheet for
the most recent date for which such statement is available, heretofore
delivered to Franchisor, is complete and correct, has been prepared in
accordance with sound accounting principles and fairly presents the financial
position of Franchisee, as of the date thereof; and (f) there have been no
materially adverse changes in the condition, assets of liabilities of
Franchisee or Principal since the date of the most recent balance sheet
heretofore delivered to Franchisor. In addition to the financial information
which Franchisee is required to provide to Franchisor under this Section,
Franchisee and Principal shall provide Franchisor with such other financial
information as Franchisor may reasonably request from time to time, including,
but not limited to, an audited balance sheet and income statement of Franchisee
when such statements become available.
L. OUTLET SPECIFICATIONS: It is understood and agreed that the aesthetic
appeal and efficiency of each Logan's Roadhouse Outlet plays a vital and
integral role in the combined marketing efforts of Franchisor and Franchisee.
Franchisee shall update the signs, furnishings, fixtures and all other aspects
of its Outlet's external and internal design and decor so as to stay current
with the decor of other prudently-operated Outlets. Specifically, Franchisee
shall, at a minimum, comply with all standards set forth in the Operations
Manual.
M. RENOVATION: Franchisee shall periodically renovate and maintain the
furnishings, fixtures and any other aspect of the Logan's Roadhouse Outlet that
would otherwise materially adversely affect the public image of Logan's
Roadhouse Outlets generally or of Franchisor. In the event that Franchisee
shall fail to do so, Franchisor may by written notice require Franchisee to
make any alterations that the management of Franchisor reasonably deems
necessary to maintain such image.
N. QUALITY: The quality of products sold through the Logan's Roadhouse
Outlet of Franchisee shall be maintained at all times consistent with the
standards in the Operations Manual. In
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the event of a substantial erosion in quality at the Franchisee's Logan's
Roadhouse Outlet, Franchisor may by written notice require Franchisee to make
any changes that the management of Franchisor reasonably deems necessary to
restore acceptable product quality.
O. MODERNIZATION OF PREMISES: In order to assure the continued success of
the Outlet, Franchisee shall at any time and from time to time after ten (10)
years after the date of this Agreement as reasonably required by Franchisor
(taking into consideration the cost and then-remaining term of this Agreement),
modernize the Outlet premises to Franchisor's then-current standards and
specifications, provided that at the time Franchisor requires Franchisee to so
modernize the Outlet premises at least twenty-five percent (25%) of
Franchisor-owned Outlets meet such standards and specifications.
P. EMPLOYEES: The employees of a Logan's Roadhouse Outlet are to be
adequately trained in personal appearance, neat, polite and in general keeping
with the employees of other Logan's Roadhouse Outlets. Should substantial
complaint or rebuke be brought to the Franchisor's attention with regard to
Franchisee's employees, Franchisor may file a written request for disciplinary
action against the employee involved, and Franchisee shall take reasonable
steps to remedy, correct, remove or in any other fashion eliminate such
detrimental conduct on the part of the employee.
Q. ADVERTISING:
1. ADVERTISING FUND: Franchisee, as its contribution towards an
advertising fund, shall pay Franchisor up to one (1%) percent of Franchisee's
gross sales per month, calculated as set forth in this Agreement at Part III
(A). Such funds shall become the property of Franchisor, to be maintained in a
separate "advertising account" established by Franchisor. Franchisor shall use
such funds for marketing studies or services, the payroll expenses related to
any employee of Franchisor responsible for coordination of Franchisee's
advertising and for the purchase of advertising time, space, or materials in
national, regional or other advertising media, in a manner determined by
Franchisor in its sole discretion.
2. LOCAL ADVERTISING: Franchisor may require, at its sole discretion,
Franchisee to expend on an annual basis an amount up to three percent (3%) of
Franchisee's total gross sales, calculated as set forth in this Agreement at
Part III (A), for local promotional activities. All of the Franchisee's local
promotional activities shall utilize approved advertising media. "Approved
advertising media" are limited to the following:
(a) Newspapers, magazines and other such periodicals;
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(b) Radio and television;
(c) Outdoor advertising by signs displayed on billboards or buildings;
and
(d) Handbills, flyers and direct mail.
3. ADVERTISING CAMPAIGN PLAN: Franchisee shall submit to Franchisor for
Franchisor's approval an advertising campaign plan relating to the promotion of
the opening of the Outlet.
R. LEASE PROVISIONS REGARDING TERMINATION: If the premises are leased by
Franchisee from a third party, the lease (the "Lease") must allow Franchisee to
assign the Lease to Franchisor without the consent or approval of the lessor
under the Lease. Upon termination of this Agreement for any reason, Franchisor
has the right, exercisable upon written notice to Franchisee within 30 days
after termination is effective, to require Franchisee to assign all
Franchisee's rights under the Lease to Franchisor and to immediately surrender
possession of the premises, including all fixtures and leasehold improvements,
to Franchisor under the terms of the Lease. The lessor may not impose any
assignment fee or other similar charge on Franchisor in connection with such
assignment. If Franchisor exercises that right, (i) it will, within 30 days
after taking possession of the premises, purchase the leasehold improvements
thereon at their depreciated book value as determined in accordance with
generally accepted accounting principles, and (ii) it has an additional right,
to be exercised within 30 days after taking possession of the premises, to
purchase all of Franchisee's equipment, signs, decor items, furnishings,
supplies and other products and materials at their then fair market value. If
Franchisor elects not to purchase the items mentioned above (except for capital
leasehold improvements), Franchisee shall, at Franchisee's own expense and
under Franchisor's supervision remove those items (except for capital leasehold
improvements) from the premises within 10 days after such final election or 10
days after expiration of the option period, whichever is earlier. If
Franchisee fails to remove all such property (except for capital leasehold
improvements) from the premises within such period, Franchisor shall be
entitled to do so, or to authorize a third part to do so, all at Franchisee's
expense. If Franchisee is or becomes a lessee of the premises, Franchisee
shall have included in the Lease a provision expressly permitting both
Franchisee and Franchisor to take all actions and make all alterations referred
to in this Part, requiring the lessor thereunder to give Franchisor reasonable
notice of any contemplated termination and providing that any assignment of the
lease to Franchisor shall occur without the lessor having any right to impose
conditions on such assignment or to obtain any payment in connection
therewith. Franchisee shall not, without the prior
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written consent of Franchisor, execute any lease or other agreement
which imposes, or purports to impose, any limitations on the ability of
Franchisee and/or Franchisor to operate additional restaurants at any
particular location or any lease the term of which is shorter than the term of
this Agreement (including any renewal and extension option periods).
S. COLLATERALIZATION OF PREMISES: Franchisee shall seek prior approval
from Franchisor of any and all plans or attempts to use any tangible or
intangible asset of the premises as collateral, including but not limited to
the premises, fixtures, furnishings, merchandise or income stream.
T. PERSONAL GUARANTY OF PRINCIPAL: Principal personally and
unconditionally guarantees Franchisee's financial obligations to Franchisor as
set forth in Part III, Section A hereof. Principal agrees that Franchisor may
resort to such Principal for payment of such financial obligation, whether or
not Franchisor shall have proceeded against Franchisee, any other Principal or
any other obligor primarily or secondarily obligated to Franchisor with respect
to such financial obligation. Principal hereby expressly waives presentment,
demand, notice of dishonor, protest and all other notices whatsoever with
respect to Franchisor's enforcement of this guaranty.
PART III
TERMS
A. CONSIDERATION: Franchisee shall pay Franchisor the initial sum of
$30,000 upon signing this Agreement and, after Franchisee opens its Outlet,
shall also pay no later than ten (10) days from the end of each calendar month
a sum equal to three percent (3%) of "Gross Sales" as hereinafter defined as
royalties from the Logan's Roadhouse Outlet operated under the franchise
granted by or under this Agreement. For the purposes of this Agreement, the
term "Gross Sales" shall be defined as all receipts (cash, cash equivalents or
credit) or revenues from sales from all business conducted upon or from the
Logan's Roadhouse premises, whether evidenced by check, cash, credit, charge
account, exchange, or otherwise, including, but not limited to, amounts
received from the sale of goods, wares and merchandise (including sales of
food, beverages and tangible property of every kind and nature, promotional or
otherwise), from all services performed from or at the Logan's Roadhouse
Outlet, regardless of where such orders are filled. Gross sales shall not be
reduced by any deductions for cash shortages incurred in connection with the
transaction of business with customers. Each charge or sale upon installment
or credit shall be treated as a sale for the full price in the month during
which such charge or sale shall first be made, irrespective
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of the time when Franchisee shall receive payment (whether full or partial)
therefor. Gross Sales shall not include the amount of any sales tax imposed by
any federal, state, municipal or other governmental authority directly on sales
and intended to be collected from customers, provided that the amount thereof
is added to the selling price and actually paid by the Franchisee to such
governmental authority. Income, property, and other like taxes paid by
Franchisee shall not be excluded from Gross Sales. In addition Franchisor
shall have the right to assess Franchisee an automatic penalty of one and
one-half percent (1 1/2%) per month or the highest amount permitted by law,
whichever is less, for any unpaid balance of fees or any other sums which have
become known to Franchisor are due and payable under the terms of this
Agreement.
B. DEFAULT: Franchisee shall be deemed to be in default of this
provision when royalties remain unpaid for a period of thirty (30) days past
the due date specified in Section A above, or if Franchisee is found to have
understated its gross sales by an amount equal to or greater than two percent
(2%) of the gross sales set forth in its monthly report to Franchisor. In the
event of default, Franchisor will have, without limitation, the rights and
remedies set out in Part V of this Agreement and any other rights and remedies
available to it in law or equity.
C. METHOD OF PAYMENT: Franchisee shall make all payments required under
the terms of this Agreement to Logan's Roadhouse, Inc. located at 565 Marriott
Drive, Suite 490, Nashville, Tennessee 37214, by check or by wire transfer in
United States dollars from a U.S. bank to such account(s) as may be designated
by Franchisor from time to time or on other terms as specifically requested in
writing by Franchisor. Such other terms shall include, but are not limited to
checks, certified bank drafts or any other reasonable form of payment so
designated by Franchisor.
D. TERM: The term of the franchise shall commence on the date hereof, and
shall end twenty (20) years thereafter unless this Agreement is terminated
prior to that date in accordance with its provisions or unless renewed as
provided in the following paragraph (E).
E. RENEWAL: At the expiration of the term hereof, Franchisee shall have
an option to operate the Logan's Roadhouse Outlet for up to two additional
terms of five (5) years each (unless this Agreement is sooner terminated in
accordance with its provisions), provided that (a) Franchisee satisfies the
requirements which Franchisor then imposes on its new franchisees, (b) all
other units within the System which Franchisee then operates comply with
Franchisor's then current standards, specifications, requirements and
instructions, and (c) Franchisee
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executes the form of franchise agreement which Franchisor is then using with
respect to new franchises, with the specified franchise, royalty, and
advertising fees payable up to, but not to exceed, the rates then prevailing
under the franchise agreements which Franchisor is then using for new Logan's
Roadhouse outlets. Franchisee shall give Franchisor written notice of its
desire to exercise its option no earlier than twelve (12) months, and no later
than seven (7) months, prior to expiration of the initial term. If Franchisee
gives that notice, Logan's in its sole discretion shall determine whether
Franchisee has satisfied the foregoing requirements. Within thirty (30) days
of receiving the notice described above, Logan's shall notify Franchisee in
writing whether or not Franchisee is eligible to exercise the option described
in this section.
PART IV
CONTROLS
A. RIGHT OF INSPECTION: Franchisor or its authorized representatives
shall have the right to inspect Franchisee's Logan's Roadhouse Outlet,
equipment and operations, and have access to the premises whereon the Logan's
Roadhouse Outlet are operated to insure the adherence to the high quality
standards of a Logan's Roadhouse Outlet and to further insure the compliance
with the terms of this Agreement. Such inspections shall be made during normal
business hours, and Franchisor may conduct the inspections with or without
notice. In no event shall the Franchisor conduct any inspection in a manner
that would impede or unduly hamper the operation of the Franchisee's Logan's
Roadhouse Outlet or the activities of the Franchisee or its agents.
B. AUDIT: Franchisor shall have the right to request Franchisee to
present at the corporate offices of Franchisee a complete copy of all
bookkeeping material, journals and other methods or ledgers employed for such
purposes, and Franchisor or his authorized agent shall have the right to an
on-premises inspection during normal business hours of the foregoing material.
In no event shall the Franchisor conduct any audit in a manner that would
impede or unduly hamper the operation of the Franchisee's Logan's Roadhouse
Outlet or the activities of the Franchisee or its agents. Franchisor may
conduct audits with or without notice to Franchisee.
C. RULES OF OPERATION: To enable Franchisee and Franchisor to develop,
maintain and exchange cost and expense information to assure the maintenance of
economical and efficient and profitable operations, Franchisee shall adopt
prudent accounting and record keeping procedures, and shall keep complete and
accurate financial books and records of the operation of its
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Logan's Roadhouse Outlet, adjusted, if necessary, to correspond in accounting
policy with Logan's financial books and records.
PART V
TERMINATION
A. BY MUTUAL AGREEMENT: The parties to this Agreement may agree in
writing at any time to terminate the franchise prior to the stated expiration
date.
B. OTHERWISE: Franchisor shall have the right to terminate this Agreement
immediately upon written notice to Franchisee stating the reason for such
termination if any of the following events ("Events of Default") occur:
(1) Franchisee's default in the performance or observance of any of its
other obligations hereunder, with such default continuing for a period of
thirty (30) days after written notice to Franchisee specifying such default or
if Franchisee is notified of more than two Events of Default in one year;
(2) Franchisee's filing of a petition in bankruptcy, an arrangement for
the benefit of creditors, or a petition for reorganization, or the filing by
any third party of such petition or arrangement, if not dismissed within sixty
(60) days from the filing thereof, or Franchisee's making of any assignment for
the benefit of creditors, or the appointment of a receiver or trustee for
Franchisee and the non-dismissal of such receiver or trustee within sixty (60)
days of such appointment;
(3) Franchisee's voluntary cessation of operation of the Outlet without
the prior written consent of Franchisor or Franchisee's loss of right to
possess the Outlet premises for any reason;
(4) Franchisor's discovery that Franchisee has made any material
misrepresentation or omitted any material fact in the information supplied to
Franchisor in connection with this Agreement;
(5) the declaration by any court of competent jurisdiction that any part
of this Agreement relating to the payment of fees to Franchisor or the
preservation of any of Franchisor's trade names, service marks, trademarks,
trade secrets or secret formulae licensed or disclosed hereunder is invalid or
unenforceable;
(6) Franchisee's default in the payment to Franchisor of any sums due
Franchisor, whether characterized as
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consideration/Franchise fee, advertising fund contribution, or otherwise, with
such default continuing for a period of thirty (30) days after written notice
to Franchisee specifying such default; or
(7) any person or group (as such term is defined in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended) other than Principal becomes
holder of 50% or more of all of the outstanding shares of Franchisee's Stock.
C. TERMINATION SUBJECT TO LOCAL LAW: The foregoing provisions of Part V,
section B are subject to the provisions of any local statutes or regulations
which limit the grounds upon which Franchisor may terminate this Agreement or
which require that Franchisor give Franchisee additional prior written notice
of termination and opportunity to cure any default.
D. STATUS OF PROPERTY: Upon the termination of this Agreement by
Franchisor, Franchisee may not remove any property from the Outlet premises for
thirty (30) days after the termination. Upon expiration or termination of this
Agreement for any reason, and if Franchisor chooses not to exercise its options
to purchase the Outlet as contained herein, Franchisee shall immediately
discontinue its use of the System and its use of Franchisor tradenames, service
marks, trademarks, logos, insignia, slogans, emblems, symbols, designs and
other identifying characteristics (including but not limited to, the immediate
removal of all signs) and paint all premises and other improvements maintained
pursuant to this Agreement a design and color which is basically different from
Franchisor authorized designs and colors. If Franchisee shall fail to make or
cause to be made any such removal or repainting within thirty (30) days after
written notice, then Franchisor shall have the right to enter upon the
premises, without being deemed guilty of trespass or any tort, and make or
cause to be made such removal, alterations and repainting at the reasonable
expense of Franchisee, which expense Franchisee shall pay to Franchisor
immediately on demand. Franchisee shall not thereafter use any of the items
referred to in this paragraph or in any way associated with Franchisor to
operate or do business under any name or in any manner that might tend to give
the public the impression that Franchisee is or was a licensee or franchisee
of Franchisor.
E. TERMINATION OF FRANCHISE: Should an event of Default occur, then in
addition to its other rights and remedies hereunder, the Franchisor may,
without further demand or notice, immediately declare this Agreement and the
license included herein, and all rights and privileges of this Agreement, to be
terminated with respect to the affected Logan's Roadhouse Outlet in accordance
with this Part. In the event of any termination, Franchisee shall be liable
for damages to Franchisor for any and all amounts due to Franchisor on the
effective date of such termination.
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F. NONCOMPETITION FOLLOWING TERMINATION OF FRANCHISE: For a period of
two (2) years following the date of termination or expiration of this
Agreement, each of Franchisee and Principal agree not to compete, either as an
individual, employee, officer or in any other capacity, in any entity engaged
in the business of preparing and serving or preparing for service of steaks,
ribs, chicken and seafood dishes in a distinctive atmosphere reminiscent of an
American roadhouse anywhere within a fifty (50) mile radius of any existing or
planned Company or franchised Outlet. Franchisee further agrees that for a
period of one (1) year following termination, it will not solicit any
previously serviced accounts, groups or other commercial customers (not
including retail customers) for or on behalf of any competitive casual dining
restaurant whether such food is served on the premises or delivered off
premises to the ultimate consumer.
G. RIGHTS OF FRANCHISOR POST-TERMINATION:
1. RIGHT TO TERMINATE FRANCHISEE'S USE OF TRADENAMES, SIGNS, AND THE
LIKE: In the event of termination of this Agreement, Franchisor shall have the
right as set forth above in Part V(B), and shall require Franchisee to
immediately thereafter cease to use, by advertising or otherwise, directly or
indirectly, the name "Logan's Roadhouse" or any combination of words similar
thereto, or suggestive thereof, the trade names, copyrighted materials,
trademarks, service marks, certification marks, color schemes and patterns,
slogans, designs, signs, emblems provided by Franchisor or in any way similar
thereto or suggestive thereof, and Franchisee agrees upon any such termination
to cease and refrain from holding Franchisee out to the public in any way as a
Franchisee or licensee or operator of a Logan's Roadhouse Outlet.
Notwithstanding the foregoing, upon termination of this Agreement, Franchisee
shall retain the right to continue in the business of developing, owning,
operating, and franchising restaurant businesses, including restaurant
businesses specializing in meat products; provided, that in such endeavors
Franchisee shall differentiate its retail food establishments so clearly from
those of the Franchisor as to avoid all reasonable possibility of any
confusion by the public.
2. FRANCHISOR'S REMEDIES: Franchisee agrees that Franchisor has no
adequate remedy at law and shall be entitled to injunctive and equitable relief
for any violation of paragraph 1 above and any and all other or further relief
that a court of competent jurisdiction shall see fit to render for the
violation of this paragraph, and Franchisee agrees to pay all Franchisor's
costs and expenses, including a reasonable attorney's fee in enforcing the
terms of paragraph 1 or any other part of this Agreement as a result of
Franchisee's violation of or default in performing the terms of paragraph 1.
Franchisor shall have the right, in addition to any and all other rights
guaranteed by law or this Agreement, to
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enter Franchisee's property, forcibly if necessary without being guilty of
trespass or any other tort, to make or cause changes required by this paragraph
to be made at Franchisee's expense and to remove items belonging to Franchisor
or containing Franchisor's trademarks, copyrighted materials or other
proprietary items.
3. PURCHASE OF PREMISES:
a. With respect to premises owned by Franchisee, in the event of
termination or expiration of this Agreement, Franchisor shall have, for 30 days
after the termination or expiration is effective, an option, exercisable upon
written notice, to Franchisee within such 30 day period, to elect to purchase
the premises from Franchisee for the appraised market value of the land and
buildings, furnishings and equipment located therein. If the parties cannot
agree on the purchase price or other terms of purchase within 30 days following
Franchisor's exercise of its option pursuant to this section, the price or
disputed terms of purchase shall be determined by two appraisers, with each
party selecting one appraiser. The purchase price shall be the average of the
appraised market value of the land and building if the two appraisals do not
differ by more than ten percent (10%). If the two appraisals differ by more
than ten percent (10%), then the two appraisers so chosen shall select a third
appraiser, and the purchase price shall be the average of the appraisals of all
three appraisers. In the event of such an appraisal, each party shall bear its
own legal and other costs and shall split the appraisal fees. The appraisers'
determination of the price and other disputed terms of purchase shall be final
and binding.
b. If Franchisor elects to exercise its option to purchase upon
expiration of this Agreement, the purchase price shall be determined within
ninety (90) days and paid within thirty (30) days of such determination of the
purchase price and other terms of purchase. If the Franchisor does not elect to
exercise its option to purchase the premises, the Franchisee may sell such
premises to a third party, provided that Franchisee's agreement with the
purchase includes a covenant by the purchaser which is expressly enforceable by
Franchisor as a third party beneficiary thereof, pursuant to which the
purchaser agrees that it will not use such premises for the operation of a
restaurant business which, in the reasonable determination of the Franchisor,
utilizes a menu or method of operation which is similar to that employed by
restaurant units within the System for a period of twelve (12) months after the
termination or expiration of this Agreement.
H. FRANCHISOR PRE-TERMINATION OPTIONS: At any time prior to the
termination of this Agreement, an Event of Default shall occur and be
continuing, then during the continuance of such Event of Default, Franchisor
may at its option, cause the
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electrical power service to any external sign containing the words
Logan's Roadhouse or any other facsimile thereof to be disconnected at the
Logan's Roadhouse Outlet in respect of which such Event of Default then exists,
and further, Franchisor may take any other such similar action until such time
as Franchisee has cured such Event of Default.
I. NOTICE: Should under the terms of this agreement, notice be required,
the same shall be given in writing and delivered personally, by certified mail
(postage pre-paid and return receipt requested), or by nationally recognized
overnight courier service, in each case addressed to the party for whom
intended. All such notices intended for Franchisee shall be addressed to
Franchisee at 565 Marriott Drive, Suite 490, Nashville, Tennessee 37214,
Attention: Charles F. McWhorter, Jr., or such other address or addresses as
may hereafter be designated in writing by the Franchisee. All such notices
intended for Franchisor shall be addressed to Logan's Roadhouse, Inc., 565
Marriott Drive, Suite 490, Nashville, Tennessee 37214, Attn: Chief Executive
Officer, or such other address or addresses as hereafter may be designated in
writing by the Franchisor. Any notice so mailed shall for all purposes, be
deemed to have been given when delivered. Any refusal to accept delivery or to
acknowledge an attempted delivery shall be deemed to be a delivery.
PART VI
ASSIGNMENT, SALE, AND TRANSFER
A. ASSIGNMENT OR SALE BY FRANCHISEE:
1. Franchisor agrees to permit the transfer and assignment of the
Franchise to a purchaser or transferee of Franchisee's choosing for the
remaining term of this Agreement, only with the prior written consent of
Franchisor, not to be unreasonably withheld, provided that:
(a) The assignee executes a current Logan's Roadhouse, Inc. franchise
agreement prior to taking possession or control of Franchisee's business;
(b) Franchisor reserves the right of first refusal for thirty (30) days
to match any offer of any bona fide purchaser under the same terms, conditions
and financing as those offered by and intended for potential transferee or
assignee; and
(c) Franchisee reimburses Franchisor for all costs and attorney's fees
incurred in connection with such transfer and assignment, in an amount not to
exceed $10,000.
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2. Notwithstanding any of the foregoing provisions of this paragraph,
Logan's Roadhouse, Inc. retains the right to veto any proposed assignment if
Logan's Roadhouse, Inc., in its sole discretion, deems the proposed assignee
financially or otherwise unfit, and even if Logan's Roadhouse, Inc. does not
choose to exercise its right of first refusal to purchase the Outlet.
B. RESTRICTIONS ON TRANSFER OF STOCK: Any shares of stock, partnership
interest or beneficial interest of Franchisee may be transferred to members of
Franchisee's immediate family or to Franchisee's controlled
enterprises/affiliates at any time without Franchisor's consent upon written
notice to Franchisor.
C. ASSIGNMENT BY FRANCHISOR: Subject to the Franchisee's rights under the
Area Development Agreement, it is expressly understood and agreed that
Franchisor maintains full and exclusive right of assignment of this Agreement
to any party it designates, including the right to sell, convey, assign, grant
and in any other fashion delegate its duties and/or assign its obligations
under this Agreement.
PART VII
GENERAL PROVISIONS
A. FRANCHISEE'S STATUS: Franchisee is an independent contractor and
neither Franchisee nor any of Franchisee's employees, agents, or
representatives shall be deemed expressly or by implication to be an employee,
agent or representative of Franchisor.
B. RESTRICTIVE COVENANT: During the period from the date of this
Agreement to the expiration or earlier termination of this Agreement,
Franchisor shall not establish an Outlet utilizing the System, or license
another franchisee to establish an Outlet utilizing the System, at any location
within the Franchisee's exclusive territory as designated in the Area
Development Agreement.
C. UNFAIR EMPLOYMENT COMPETITION PROHIBITED: Upon execution of this
Agreement and for a period of three (3) years after the end of Franchisee's
relationship with Logan's Roadhouse, Inc., the Franchisee shall not directly or
indirectly solicit, induce, or attempt to induce any employee of Logan's
Roadhouse, Inc. or any other Outlet to leave their employment, nor shall the
Franchisee in any way interfere with the relationship between Logan's
Roadhouse, Inc. or any other Outlet and any employee thereof; or hire or
attempt to hire any individual who was an employee of the Logan's Roadhouse,
Inc. or any other Outlet at any
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time during the six-month period preceding the termination of any such
employee's relations with Logan's Roadhouse, Inc. or any other Outlet.
D. AMENDMENT AND RIGHT TO REVISE RETAIL SYSTEM: Franchisee shall timely
incorporate into its operations at the Outlet any and all modifications and
refinements which Franchisor may elect to make in the Logan's Roadhouse System.
In furtherance of the foregoing, Franchisee and Franchisor shall share without
compensation all recipes, methods of operation, trademarks, tradenames,
copyrighted materials, patents, and other improvements or additions to the
Logan's Roadhouse System, and shall allow the same to be used without
additional compensation by their respective franchisees.
E. CONFIDENTIALITY:
1. The parties acknowledge that the System includes trade secrets and
confidential information which Logan's Roadhouse, Inc. has revealed to
Franchisee in confidence, and that protection of said trade secrets and
confidential information and protection of Logan's Roadhouse, Inc. against
unfair competition from others who enjoy or who have had access to said trade
secrets and confidential information are essential for the maintenance of
goodwill and special value of the System.
2. Supervisory and managerial employees have access to information and
materials which constitute trade secrets and confidential and proprietary
information. Any actual or potential direct or indirect competitor of Logan's
Roadhouse or of any of its franchisees shall not have access to such trade
secrets and confidential information.
3. Franchisee agrees that neither it nor its employees shall (a)
appropriate, use, or duplicate the System, or any portion thereof, for use in
any business which is not within the System; (b) disclose or reveal any
portion of the System to any person other than to Franchisee's employees as an
incident of their training; (c) acquire any right to use, or to license or
franchise the use of any name, mark or other intellectual property right which
is or may be granted by any Franchise Agreement between Logan's Roadhouse, Inc.
and Franchisee; or (d) communicate, divulge, or use for the benefit of any
other person, partnership, association, or corporation any confidential
information, knowledge, or know-how concerning the methods of development or
operation of an Outlet. Any and all information, knowledge, and know-how,
including, without limitation, drawings, materials, equipment, specifications,
techniques, and other data, which Logan's Roadhouse, Inc. designates as
confidential shall be deemed confidential for purposes of this Agreement.
22
<PAGE> 23
4. Franchisee shall require its Director of Operations (as defined in
Section 12.2 of the Area Development Agreement) and each of its area
supervisors to execute a confidentiality agreement in the form attached hereto
as Appendix A ("Confidentiality Agreement"). Franchisee shall use its best
efforts to obtain from each other employee of Franchisee, including but not
limited to, each General Manager, who will have supervisory authority over the
development or operations of more than one Outlet, execute a Confidentiality
Agreement to the extent required by Franchisor of its own employees at similar
levels. Franchisee shall be responsible for compliance of its employees with
the agreements identified in this paragraph.
PART VIII
MISCELLANEOUS
A. WAIVER: The failure of Franchisor to insist upon strict performance of
any provision of this agreement, or failure of the Franchisor to exercise any
right, remedy or option hereby reserved shall not be construed as a waiver from
any such provision, right, option or remedy in the future or as a waiver of a
subsequent breach thereof. The agreement or consent and approval by the
Franchisor of any act by the Franchisee requiring Franchisor's consent or
approval shall not be construed to waive or render unnecessary the requirements
for Franchisor's consent or approval of any subsequent similar act by
Franchisee. Any delay, omission, waiver or forbearance on the part of the
Franchisor to exercise any right, option, duty or power arising out of any
breach or default by any other licensee of the terms, provisions and covenants
contained herein or to enforce any such right, option or power against any
other Franchisee or any subsequent breach or default by any other Franchisee
shall not constitute a waiver by Franchisor thereof.
B. ENTIRE CONTRACT: This Franchise Agreement contains the entire
agreement of the parties with respect to the subject matter hereof, and there
are no representations, warranties, covenants, inducements, promises,
agreements, arrangements or undertakings, oral or written, expressed, or
implied between the parties hereto other than those expressly set forth herein,
with the exception of the Operations Manual and the Area Development Agreement,
which shall control in the event of conflict between this Agreement and the
Area Development Agreement. Further, no agreement or any kind of modification
or waiver of any of the terms, covenants or conditions of this Agreement shall
be binding upon either party unless and until the same has been made in writing
and duly executed by both parties.
23
<PAGE> 24
C. SEVERABILITY: If any term or condition hereof would otherwise be
deemed to violate any provision of law limiting the terms of a contractual
obligation of a party, such term or condition or provision hereof respecting
same shall not be void or voidable, but rather shall be deemed to mean, and
shall be construed so as to mean that its duration or term may not extend
beyond the maximum period allowed by law. Should any other provision of this
Agreement be prohibited by law or by any court decree, in any locality or
state, it shall be ineffective to the extent of such prohibition without in any
way invalidating or affecting the remaining provisions of this Agreement, or
without invalidating or affecting the provisions of this Agreement within the
state and localities where not prohibited by law or any decree of the court.
D. GOVERNING LAW; CONSTRUCTION: This Agreement has been negotiated in and
fully executed within the State of Tennessee and shall be construed according
to the laws of that state and the United States. The language in all parts of
this Agreement shall in all cases be construed as a whole according to its fair
meaning, and neither strictly for nor against either Franchisor or Franchisee.
All terms and words used in said Agreement regardless of the gender and number
in which they are used shall be construed and deemed to include any other
number, singular or plural, and any other gender, masculine, feminine or,
neuter, as the context or sense of this Agreement or any paragraph or clause
herein may require as if such words had been fully and properly written in the
appropriate gender.
E. HEADINGS; APPROVALS: Headings provided herein are for convenience
only, and are not to be construed as a part of this Agreement or in any way
defining, amplifying or limiting the provisions hereof. The Franchisor agrees
not to unreasonably withhold its approval of or consent to any act of the
Franchisee where such approval or consent is required by the terms of this
agreement.
F. ASSIGNMENTS: This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto, and their respective heirs, transferees,
successors, and assigns; provided that this Agreement may only be assigned in
accordance with the provisions for assignment set forth herein at Part VI.
G. FORCE MAJEURE: As used in this Agreement, the term "Force Majeure" or
"Act of God" shall mean any act of God, strike, lockout or other labor
disturbance, war, riot, epidemic, fire or other catastrophe, act of any
government, material defaults by unaffiliated third parties under agreements
with either party hereto relating to the development of franchised Outlets or
other similar cause not within the control of the party affected thereby.
24
<PAGE> 25
H. ATTORNEY'S FEES: In the event that any party to this Agreement
initiates any legal proceeding to construe or enforce any of the terms,
conditions and/or provisions of this Agreement, including but not limited to
its termination provisions, or to obtain damages or other relief to which any
party may be entitled by virtue of this Agreement, the prevailing party or
parties shall be paid its reasonable attorneys' fees and expenses by the other
party or parties.
G. RULE AGAINST PERPETUITIES: It is the intention of the parties to this
Agreement that this Agreement shall not violate the Rule Against Perpetuities
or any statute, rule or regulation similar thereto (the "Rule"); and in the
event anything in this Agreement violates the Rule, this Agreement shall be
construed, to the extent permitted by law, in a manner that will not cause the
violation of the Rule.
IN WITNESS WHEREOF, the parties hereto, having duly executed this
Agreement as of the ____ day of __________, 1997.
LOGAN'S ROADHOUSE, INC.
By:____________________________
Its:___________________________
CMAC INCORPORATED
By:____________________________
Its:___________________________
PRINCIPAL
_______________________________
Charles F. McWhorter, Jr.
(Individually)
25
<PAGE> 1
EXHIBIT 10.35
EMPLOYMENT AGREEMENT
This Agreement is made as of the first day of August, 1996, between
Logan's Roadhouse, Inc., a Tennessee corporation (the "Company"), and Edwin W.
Moats, Jr. ("Employee").
W I T N E S S E T H:
WHEREAS, the Company, which maintains its principal executive offices at
565 Marriott Drive, Suite 490, Nashville, Tennessee 37214, owns and operates
casual dining restaurants under the name "Logan's Roadhouse;"
WHEREAS, the Company desires to employ Employee and Employee desires to
accept such employment by the Company subject to the terms and conditions
contained herein; and
WHEREAS, in serving as an employee of the Company, Employee will
participate in the use and development of confidential proprietary information
about the Company, its customers and suppliers, and the methods used by the
Company and its employees in competition with other companies, as to which the
Company desires to protect fully its rights;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the parties hereto agree as follows:
1. Employment. The Company hereby employs Employee and Employee accepts
such employment with the Company, subject to the terms and conditions set forth
herein. Employee shall be employed as President and Chief Executive Officer of
the Company, shall perform all duties and services incident to such position,
and such other duties and services as may be prescribed by the Bylaws of the
Company or established by the Board of Directors of the Company from time to
time; provided, however, that without Employee's written consent, the duties
and services of Employee hereunder shall not be materially increased or altered
in a manner inconsistent with Employee's position and original duties
hereunder. During his employment hereunder, Employee shall devote his best
efforts and attention, on a full-time basis, to the performance of the duties
required of him as an employee of the Company.
2. Compensation. As compensation for services rendered by Employee
hereunder, Employee shall receive:
(a) An annual salary of $150,000, or such higher salary as
shall be approved unanimously by the Compensation Committee of the
Board of Directors, which salary shall be payable in arrears in
equal monthly installments, plus
<PAGE> 2
insurance and other benefits equivalent to the benefits provided
other executives of the Company, which are set forth in Appendix I
hereto;
(b) Three (3) weeks of compensated vacation time, to be taken
at any time during each year of the term of this Agreement;
(c) Bonus compensation to be determined in accordance with the
terms and conditions of the Company's Executive Bonus Plan; and
(d) Reimbursement for all reasonable expenses incurred by
Employee in the performance of his duties under this Agreement,
provided that Employee submits verification of such expenses in
accordance with the policies of the Company.
Prior to the end of each fiscal year of the Company, the Compensation
Committee or Board of Directors shall review with Employee his salary and
benefits payable hereunder. Any increases in salary or changes in fringe
benefits agreed upon by Employee and the Compensation Committee or the Board of
Directors at such annual review shall become effective the following month
unless otherwise agreed to by the Company and Employee.
3. Confidential Information and Trade Secrets.
3.1 Employee recognizes that Employee's position with the Company requires
considerable responsibility and trust, and, in reliance on Employee's loyalty,
the Company may entrust Employee with highly sensitive confidential, restricted
and proprietary information involving Trade Secrets and Confidential
Information.
3.2 For purposes of this Agreement, a "Trade Secret" is any scientific or
technical information, design, process, procedure, formula or improvement that
is valuable and not generally known to competitors of the Company.
"Confidential Information" is any data or information, other than Trade
Secrets, that is important, competitively sensitive, and not generally known by
the public, including, but not limited to, the Company's business plan,
training manuals, product development plans, pricing procedures, market
strategies, internal performance statistics, financial data, confidential
personnel information concerning employees of the Company, supplier data,
operational or administrative plans, policy manuals, and terms and conditions
of contracts and agreements. The terms "Trade Secret" and "Confidential
Information" shall not apply to information which is (i) made available to the
general public without restriction by the Company, (ii) obtained from a
third party by Employee in the ordinary course of Employee's employment by the
Company, or (iii) required to be disclosed by Employee pursuant to subpoena or
other lawful process, provided that Employee notifies the Company in a timely
manner to allow the Company to appear to protect its interests.
3.3 Except as required to perform Employee's duties hereunder, Employee
will not use or disclose any Trade Secrets or Confidential Information of the
Company during
2
<PAGE> 3
employment, at any time after termination of employment and prior to such time
as they cease to be Trade Secrets or Confidential Information through no act
of Employee in violation of this Agreement.
3.4 Upon the request of the Company and, in any event, upon the
termination of employment hereunder, Employee will surrender to the Company all
memoranda, notes, records, manuals or other documents pertaining to the
Company's business or Employee's employment (including all copies thereof).
Employee will also leave with the Company all materials involving any Trade
Secrets or Confidential Information of the Company. All such information and
materials, whether or not made or developed by Employee, shall be the sole and
exclusive property of the Company, and Employee hereby assigns to the Company
all of Employee's right, title and interest in and to any and all of such
information and materials.
4. Covenant Not to Compete.
4.1 Employee hereby covenants and agrees with the Company that during the
term hereof and for a period expiring 12 months after the termination or
expiration of this Agreement, Employee will not directly or indirectly (i)
operate, develop or own any interest (other than the ownership of less than 5%
of the equity securities of a publicly traded company other than the Company or
any entity controlling the Company) in any business which has significant
(viewed in relation to the business of the Company) activities relating to the
ownership, management or operation of, or consultation regarding a casual
dining restaurant of which steak sales constitute 35% or more of total
restaurant sales (a "Restaurant"); (ii) compete with the Company or its
subsidiaries and affiliates in the operation or development of any Restaurant
within the 48 contiguous states of the United States of America; (iii) be
employed by or consult with any business which owns, manages or operates a
Restaurant; (iv) interfere with, solicit, disrupt or attempt to disrupt any
past, present or prospective relationship, contractual or otherwise, between
the Company, or its subsidiaries or affiliates, and any customer, client,
supplier or employee of the Company, or its subsidiaries or affiliates; or (v)
solicit any present or known prospective management employee (including all
corporate officers and managers, all area or divisional directors and all
restaurant general managers) of the Company, or its subsidiaries or affiliates,
to leave their employment with the Company or its subsidiaries or affiliates,
or hire any management employee who was employed by the Company within six
months prior to the date of such hiring to work in any capacity; provided,
however, that this Section 4.1 shall not apply if Employee's employment
hereunder is terminated without cause prior to the expiration of the Agreement.
4.2 If a judicial determination is made that any of the provisions of this
Section 4 constitutes an unreasonable or otherwise unenforceable restriction
against Employee, the provisions of this Section 4 shall be rendered void only
to the extent that such judicial determination finds such provisions to be
unreasonable or otherwise unenforceable. In this regard, the parties hereto
hereby agree that any judicial authority construing this Agreement shall be
empowered to sever any portion of the territory or prohibited business activity
from the coverage of this Section 4 and to apply the provisions of this Section
4 to the remaining portion
3
<PAGE> 4
of the territory or the remaining business activities not so severed by such
judicial authority. Moreover, notwithstanding the fact that any provisions of
this Section 4 are determined not to be specifically enforceable, the Company
shall nevertheless be entitled to recover monetary damages as a result of the
breach of such provision by Employee. The time period during which the
prohibitions set forth in this Section 4 shall apply shall be tolled and
suspended as to Employee for a period equal to the aggregate quantity of time
during which Employee violates such prohibitions in any respect.
5. Specific Enforcement. Employee specifically acknowledges and agrees
that the restrictions set forth in Sections 3 and 4 hereof are reasonable and
necessary to protect the legitimate interests of the Company and that the
Company would not have entered into this Agreement in the absence of such
restrictions. Employee further acknowledges and agrees that any violation of
the provisions of Sections 3 or 4 hereof will result in irreparable injury to
the Company, that the remedy at law for any violation or threatened violation
of such Sections will be inadequate and that in the event of any such breach,
the Company, in addition to any other remedies or damages available to it at
law or in equity, shall be entitled to temporary injunctive relief before trial
from any court of competent jurisdiction as a matter of course and to permanent
injunctive relief without the necessity of proving actual damages.
6. Term. This Agreement shall continue for an initial period of three (3)
years from the date hereof, unless sooner terminated by either party in the
manner set forth herein. The date upon which this Agreement and Employee's
employment hereunder shall terminate, whether pursuant to the terms of this
Section or pursuant to any other provision of this Agreement shall hereafter be
referred to as the "Termination Date."
7. Termination Upon Cessation of Company's Operations or Death of the
Employee. In the event the Company ceases its operations (other than pursuant
to a Change in Control (as defined in Section 11.1)) or the Employee dies
during the term of this Agreement, this Agreement shall immediately terminate
and neither the Employee nor the Company shall have any further obligations
hereunder, except that (a) the Company shall continue to be obligated under
Section 2(a) hereof for any unpaid salary, bonus, unreimbursed expenses or
payments pursuant to Section 10 hereof owed to Employee or his estate that have
accrued but not been paid as of the Termination Date and (b) in the event of
death of the Employee during the term of this Agreement, the Company shall pay
to Employee's estate an amount equal to six months salary and all unvested
stock options shall become fully vested and immediately exercisable for a
period of nine months from the date of the death of Employee.
8. Termination by Employee. Employee may at any time terminate his
employment by giving the Company 90 days prior written notice of his intent to
terminate the Agreement. At the Termination Date, the Company shall have no
further obligation to Employee and Employee shall have no further rights or
obligations hereunder, except as set forth in Sections 3 and 4 above, and
except for the Company's obligation under Section 2(a) hereof for unpaid
salary, bonus or unreimbursed expenses that have accrued but have not been paid
as of the Termination Date.
4
<PAGE> 5
9. Termination for Cause. The Company shall have the right at any time to
terminate Employee's employment immediately for cause, which shall include any
of the following reasons:
(a) If Employee shall violate the provisions of Sections 3 or
4 of this Agreement, or shall fail to comply with any other
material term or condition of this Agreement or shall engage in any
material misconduct, neglect of duties or failure to act which
materially and adversely affects the business or affairs of the
Company; or
(b) If Employee shall commit (i) a felony or (ii) an act of
dishonesty, willful mismanagement, fraud or embezzlement against
the Company.
Employee's obligations under Sections 3 and 4 hereof shall survive the
termination of the Agreement pursuant to this Section 9. In the event
Employee's employment hereunder is terminated in accordance with this Section,
the Company shall have no further obligation to make any payments to Employee
hereunder except for unpaid salary, bonus or unreimbursed expenses that have
accrued but have not been paid as of the Termination Date.
10. Termination Without Cause. In the event that Company breaches this
Agreement or Employee is terminated without cause during the term hereof (which
shall not include a termination pursuant to Sections 7, 8, 9, 11 or 12), the
Company shall (a) pay Employee all bonuses and unreimbursed expenses owed to
Employee that have accrued but have not been paid as of the Termination Date;
(b) continue to pay to Employee, as severance compensation, his salary set
forth in Section 2(a) hereof for the greater of 12 months or the remaining term
of this Agreement; (c) continue to provide the insurance and other benefits
provided for in Section 2(a) hereof for the greater of 12 months or the
remaining term of this Agreement; and (d) pay Employee an amount which equals
the average monthly bonus earned by Employee in the two years immediately
preceding the Termination Date (as if such bonus was earned and paid on a
monthly basis) for the number of months for which severance compensation will
be paid pursuant to clause (b) above. In addition, in such event Employee's
unvested stock options shall become fully vested and immediately exercisable
for a period of 90 days from the Termination Date. If Employee is terminated
without cause, the provisions of Section 4 will be void and of no effect.
11. Termination Upon a Change in Control.
11.1 For purposes of this Agreement, a "Change in Control" shall mean (i)
the time that the Company first determines that any person and all other
persons who constitute a group (within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), have
acquired direct or indirect beneficial ownership (within the meaning of Section
13(d)(3) under the Exchange Act) of twenty percent (20%) or more of the
Company's outstanding securities, unless a majority of the Continuing
Directors, as hereinafter defined, approves the acquisition not later than ten
(10) business days after the
5
<PAGE> 6
Company makes that determination or (ii) the first day on which a majority of
the members of the Company's Board of Directors are not Continuing Directors.
11.2 For purposes of this Agreement, "Continuing Directors" shall mean, as
of any date of determination, any member of the Board of Directors of the
Company who (i) was a member of the Board of Directors on August 1, 1996, (ii)
has been a member of the Board of Directors for the two years immediately
preceding such date of determination or (iii) was nominated for election or
elected to the Board of Directors with the affirmative vote of a majority of
Continuing Directors who were members of the Board at the time of such
nomination or election.
11.3 In the event of a termination upon a Change in Control, Employee
shall immediately be paid all accrued salary, bonus compensation to the extent
earned, vested deferred compensation (other than plan benefits which will be
paid in accordance with the applicable plan), any benefits under any plans of
the Company in which Employee is a participant to the full extent of Employee's
rights under such plans (including accelerated vesting of any awards granted to
Employee under the Company's 1995 Incentive Stock Plan), accrued vacation pay
and any appropriate business expenses incurred by Employee in connection with
his duties hereunder, all to the Termination Date,
and all severance compensation provided in Section 11.4, but no other
compensation or reimbursement of any kind.
11.4 In addition, Employee shall be paid as severance compensation his
base salary in monthly installments (at the rate payable at the time of such
termination) for the greater of 12 months or the remaining term of this
Agreement and any extensions hereof; provided, however, that if Employee is
employed by a new employer during such period, the severance compensation
payable to Employee during such period will be reduced by the amount of
compensation that Employee is receiving from the new employer. Employee is
under no obligation to mitigate the amount owed Employee pursuant to this
Section 11.4 by seeking other employment or otherwise. Notwithstanding
anything in this Section 11.4 to the contrary, Employee may in Employee's sole
discretion, by delivery of a notice to the Company within thirty (30) days
following a termination upon a Change in Control, elect to receive from the
Company a lump sum severance payment by bank cashier's check equal to the
present value of the flow of cash payments that would otherwise be paid to
Employee pursuant to this Section 11.4. Such present value shall be determined
as of the date of delivery of the notice of election by Employee and shall be
based on a discount rate equal to the interest rate on 90-day U.S. Treasury
bills, as reported in the Wall Street Journal (or similar publication), on the
date of delivery of the election notice. If Employee elects to receive a lump
sum severance payment, the Company shall make such payment to Employee within
ten (10) days following the date on which Employee notifies the Company of
Employee's election. In addition to the severance payment payable under this
Section 11.4, Employee shall be paid an amount which equals the average monthly
bonus earned by Employee in the two years immediately preceding the Termination
Date (as if such bonus was earned and paid on a monthly basis) for the number
of months for which severance compensation will be paid pursuant to the first
sentence of this Section 11.4. Employee shall also be entitled to an
accelerated vesting of any awards granted
6
<PAGE> 7
to Employee under the Company's 1995 Incentive Stock Plan. Employee shall
continue to accrue retirement benefits and shall continue to enjoy any benefits
under any plans of the Company in which Employee is a participant to the full
extent of Employee's rights under such plans, including any perquisites
provided under this Agreement, through the remaining term of this Agreement;
provided, however, that the benefits under any such plans of the Company in
which Employee is a participant, including any such perquisites, shall cease
upon re-employment by a new employer.
11.5 Notwithstanding anything else in this Agreement and solely in the
event of a termination upon a Change in Control, the amount of severance
compensation paid to Employee under this Section 11, but exclusive of any
payments to Employee in respect of any stock options then held by Employee (or
any compensation deemed to be received by Employee in connection with the
exercise of any stock options at any time), shall not include any amount the
Company is prohibited from deducting for federal income tax purposes by virtue
of Section 280G of the Internal Revenue Code or any successor provision.
12. Disability of Employee. If, on account of physical or mental
disability, Employee shall fail or be unable to perform his assigned duties in
any material respect for a period of 60 consecutive days, the Company shall pay
Employee his full salary as set forth in Section 2(a) hereof and shall provide
the insurance, bonus and other benefits of Section 2(a) for a period of six
months from the date such disability began or for such shorter period as
Employee is unable to perform his duties hereunder; provided, however, that
Employee's salary shall be reduced by any disability income paid to him
pursuant to any disability insurance policy maintained under this Agreement.
In the event Employee is unable to perform his duties hereunder after the
expiration of the six-month period, this Agreement shall automatically
terminate. Employee shall not be required to perform his obligations under
Section 1 hereof during any period of disability.
13. Assignment.
(a) The rights and benefits of Employee under this Agreement,
other than accrued and unpaid amounts due under Section 2(a)
hereof, are personal to him and shall not be assignable. Discharge
of Employee's undertakings in Sections 3 and 4 hereof shall be an
obligation of Employee's executors, administrators, or other legal
representatives or heirs.
(b) This Agreement may not be assigned by the Company except
to an affiliate of the Company, provided, however, that if the
Company shall merge or effect a share exchange with or into, or
sell or otherwise transfer substantially all its assets to, another
corporation, the Company shall assign its rights hereunder to that
corporation and cause such corporation to assume the Company's
obligations under this Agreement.
7
<PAGE> 8
14. Notices. Any notice or other communications under this Agreement
shall be in writing, signed by the party making the same, and shall be
delivered personally or sent by certified or registered mail, postage prepaid,
addressed as follows:
<TABLE>
<S> <C>
If to Employee: Edwin W. Moats, Jr.
801 Foster Hill
Nashville, Tennessee 37215
If to the Company: Logan's Roadhouse, Inc.
565 Marriott Drive, Suite 490
Nashville, Tennessee 37214
Attention: Chairman of the Compensation
Committee of the Board of Directors
With a copy to: J. Chase Cole, Esq.
Waller Lansden Dortch & Davis
2100 Nashville City Center
511 Union Street
Nashville, Tennessee 37219
</TABLE>
or to such other address as may hereafter be designated by either party hereto.
All such notices shall be deemed given on the date personally delivered or
mailed.
15. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Tennessee.
16. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid, but if any
one or more of the provisions contained in this Agreement shall be invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability for any such provisions in every other respect and of the
remaining provisions of this Agreement shall not be in any way impaired.
17. Modification. No waiver of modification of this Agreement or of any
covenant, condition, or limitation herein contained shall be valid unless in
writing and duly executed by the party to be charged therewith and no evidence
of any waiver or modification shall be offered or received in evidence of any
proceeding, arbitration or litigation between the parties hereunder, unless
such waiver or modification is in writing, duly executed as aforesaid and the
parties further agree that the provisions of this section may not be waived
except as herein set forth.
18. Entire Agreement. This Agreement contains the entire agreement of the
parties hereto with respect to the subject matter contained herein. There are
no restrictions, promises, covenants or undertakings, other than those
expressly set forth herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect
8
<PAGE> 9
to such subject matter. This Agreement may not be changed except by a writing
executed by the parties.
IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement on the day and year first above written.
LOGAN'S ROADHOUSE, INC.
By: _____________________________
Title: Chairman of the Compensation
Committee of the Board of Directors
EMPLOYEE
_________________________________
Edwin W. Moats, Jr.
9
<PAGE> 1
EXHIBIT 11
LOGAN'S ROADHOUSE, INC.
Computation of Net Earnings Per Share (Pro Forma Data for 1995 and 1994)
(in thousands, except for per share data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29,
1994 1995 1996
----- ----- ------
<S> <C> <C> <C>
Average shares outstanding(1)(2) 3,068 3,776 5,652
Common stock equivalents - stock options(2) - 58 174
------ ------ ------
Weighted average number of shares outstanding(2) 3,068 3,834 5,826
====== ====== ======
Net earnings (pro forma data for 1994 and 1995)(2) $1,043 $1,905 $4,149
====== ====== ======
Net earnings per share (pro forma data for 1994 and
1995)(2) $ 0.34 $ 0.50 $ 0.71
====== ====== ======
</TABLE>
(1) The shares outstanding for 1994 and through July 25, 1995 represent the
number of shares received by the partners of Logan's Partnership pursuant
to an exchange agreement.
(2) Restated to reflect the three-for-two stock split effected in June 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LOGAN'S ROADHOUSE, INC. FOR THE FISCAL YEAR ENDED
DECEMBER 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS INCLUDED IN LOGAN'S ROADHOUSE, INC'S. ANNUAL REPORT ON
FORM 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 780,307
<SECURITIES> 9,060,733
<RECEIVABLES> 353,250
<ALLOWANCES> 0
<INVENTORY> 250,582
<CURRENT-ASSETS> 10,442,008
<PP&E> 35,553,402
<DEPRECIATION> 1,861,628
<TOTAL-ASSETS> 45,459,099
<CURRENT-LIABILITIES> 4,809,238
<BONDS> 0
0
0
<COMMON> 60,138
<OTHER-SE> 39,941,695
<TOTAL-LIABILITY-AND-EQUITY> 45,459,099
<SALES> 41,044,121
<TOTAL-REVENUES> 41,044,121
<CGS> 32,717,767
<TOTAL-COSTS> 32,717,767
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 69,606
<INCOME-PRETAX> 6,310,558
<INCOME-TAX> 2,161,997
<INCOME-CONTINUING> 4,148,561
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,148,561
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.71
</TABLE>
