UNITED STATES
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
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EXCHANGE ACT OF 1934 |
For the fiscal year ended January 28, 2008 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
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EXCHANGE ACT OF 1934 |
Commission file number: 0-6054
STAR BUFFET, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware |
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84-1430786 |
(State or Other Jurisdiction of |
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(I.R.S. Employer |
Incorporation or Organization) |
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Identification No.) |
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1312 N. Scottsdale Rd. |
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Scottsdale, Arizona |
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85257 |
(Address of Principal Executive Offices) |
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(Zip Code) |
Registrants Telephone Number, Including Area Code: (480) 425-0397
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
(Title of Each Class): |
Common Stock |
$.001 par value |
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes
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No
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Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
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No
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x .
Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of Large Accelerated Filer, Accelerated Filer and Smaller Reporting Company in Rule 12b-2 of the Exchange Act. Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer o (Do not check if smaller reporting company) Smaller Reporting Company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No x
At August 13, 2007, the last business day of the registrants second fiscal quarter, there were outstanding 3,170,675 shares of the registrants common stock, $.001 par value. The aggregate market value of common stock held by non-affiliates of the registrant based on the last reported sale price of the common stock as reported on the NASDAQ Small Cap Market on August 13, 2007, ($7.95 per share) was $9,282,110. For purposes of this computation, all executive officers, directors, and 10% beneficial owners of the registrant were deemed to be affiliates. Such determination should not be deemed an admission that such executive officers, directors, or 10% beneficial owners are, in fact, affiliates of the registrant.
As of April 14, 2008, the registrant had 3,213,075 shares of common stock outstanding.
Documents incorporated by reference: Portions of the registrants Proxy Statement for the 2008 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days after January 28, 2008, are incorporated by reference into Part III of this Form 10-K.
STAR BUFFET, INC., AND SUBSIDIARIES
Index to Annual Report on Form 10-K
For the Fiscal Year Ended January 28, 2008
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
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FINANCIAL STATEMENTS |
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Cautionary Statements Regarding Forward-Looking Statements
This annual report on Form 10-K contains forward-looking statements, within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, which are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. In some cases, forward-looking statements are identified by words such as believe, anticipate, expect, intend, plan, will, may and similar expressions. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this annual report on Form 10-K. All these forward-looking statements are based on information available to the Company at this time, and the Company assumes no obligation to update any of these statements. Actual results could differ from those projected in these forward-looking statements as a result of many factors, including those identified in the section titled Risk Factors under Item 1A and elsewhere. You should review and consider the various disclosures made by the Company in this report, and those detailed from time to time in the Companys filings with the Securities and Exchange Commission, that attempt to advise you of the risks and factors that may affect the Companys future results.
Overview
Star Buffet, Inc., a Delaware corporation (Star and collectively with its subsidiaries, the Company), is a multi-concept restaurant holding company. As of January 28, 2008, the Company owned and operated 12 franchised HomeTown Buffets, seven JBs restaurants, five Whistle Junction restaurants, three 4BS restaurants, three Holiday House restaurants, three Western Sizzlin restaurants, two BuddyFreddys restaurants, two BuddyFreddys Country Buffets, two JJ Norths Grand Buffets, two K-BOBS Steakhouses, one Pecos Diamond Steakhouse, one Bar-H Steakhouse and one Casa Bonita Mexican theme restaurant. The Company also had five restaurants currently closed for remodeling and repositioning, three restaurants leased to third-party operators and the net assets of another closed restaurant reported as property held for sale. The Companys restaurants are located in Arkansas, Arizona, Colorado, Florida, Georgia, Idaho, Mississippi, Montana, New Mexico, Oklahoma, Oregon, Texas, Utah, Washington and Wyoming.
Recent Developments
On March 12, 2008, the Board of Directors approved the Companys fifth consecutive annual dividend. This year the dividend is $0.60 per common share and is payable on June 4, 2008 to shareholders of record on May 6, 2008.
On February 29, 2008, Starlite Holdings, Inc. (Starlite), a newly formed, wholly-owned, independently capitalized subsidiary of Star Buffet, Inc. acquired certain assets and facility leases for four Barnhills Buffet restaurants from Barnhills Buffet, Inc. (Barnhills) for a purchase price of approximately $1,075,000. Barnhills was in a Chapter 11 bankruptcy proceeding in the U.S. Bankruptcy Court of the Middle District of Tennessee and the acquisition was approved by the court. The acquired restaurants are located in Florida (2) and Mississippi (2) and as part of the acquisition the Company acquired perpetual rights to use the Barnhills name and related intellectual property.
On February 29, 2008 the Company amended its Senior Secured Credit Facility (Credit Facility) dated January 31, 2008 with Wells Fargo Bank N.A., increasing the term loan principal from $7,000,000 to $8,000,000. The Credit Facility was issued on January 31, 2008.The increase in the Credit Facility was used to fund the acquisition of the four Barnhills Buffet restaurants as described above. The Credit Facility is guaranteed by Star Buffets subsidiaries and bears interest, at the Companys option, at Wells Fargos base rate plus 0.25% or at LIBOR plus 2.00%. The Credit Facility is secured by a first priority perfected lien on all of the Companys assets, except for those assets that are currently pledged as security for existing obligations, in which case Wells Fargo will have a second lien. The term loan matures on January 31, 2012 and provides for principal to be amortized at $175,000 per quarter for the initial six quarters; $225,000 for the next nine quarters; with any remaining balance due at maturity. Interest is payable monthly. A $2,000,000 revolving line of credit matures on January 31, 2012. Interest on the revolver is payable monthly. As of April 14, 2008, no balance was outstanding on the revolving line of credit. There is a 0.50% fee for the unused portion of the revolving line of credit. In connection with the Credit Facility, Wells Fargo was granted 42,440 shares of the Companys restricted common stock. The shares were valued at $252,094 and will be amortized over the life of the loan. The Credit Facility can be prepaid in whole or part without penalty.
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The Credit Facility contains a number of covenants and restrictions, including requirements to meet certain financial ratios and limitations with respect to the Companys use of cash. The Companys quarterly financial covenants associated with this debt start May 19, 2008, the end our first quarter in fiscal 2009. The Company is required to obtain interest rate protection through an interest rate swap or cap arrangement with respect to not less than 50% of the term loan amount. Furthermore, certain provisions of the Credit Facility require the Company to remit proceeds from asset dispositions, issuance of debt or equity, insurance proceeds, tax refunds and fifty percent (50%) of excess cashflow (as defined) to reduce the principal amount of the term loan and, thereafter, the revolving line of credit. Under terms of the Credit Facility, the Company is permitted to pay an annual dividend. However, restrictions imposed under terms of the Credit Facility may adversely impact the Companys ability to pay an annual dividend as the Company has historically relied on multiple sources of cash to fund the dividend. As of the date of this report, the Company was in compliance with all of such requirements.
On January 31, 2008, Star Buffet Management, Inc., a wholly-owned subsidiary of Star Buffet, Inc. acquired the assets and facility leases for sixteen (16) Barnhills Buffet restaurants from Barnhills for a purchase price of approximately $5 million. The acquisition was approved by the court. The acquired restaurants are located in the following states: Alabama (1), Arkansas (1), Florida (4), Louisiana (3), Mississippi (4), and Tennessee (3) and as part of the acquisition the Company acquired perpetual rights to the use of the Barnhills name and related intellectual property. This acquisition was funded through the Companys Credit Facility dated January 31, 2008.
Business
The Companys objective is to operate a portfolio of well-established, family-oriented restaurant brands primarily throughout the southeastern and western United States. The Company believes that certain management practices, when applied uniformly across a diversified base of restaurants concepts, will result in consistently profitable financial performance. Key elements of the Companys management practices are:
· Pay for Performance. The Company has developed food, labor and customer service performance measurements and reporting mechanisms that allow management to effectively monitor restaurant-level operations, benchmark restaurant performance and communicate best-practices across its restaurant operations. Through the use of brand specific bonus programs the Company seeks to motivate its employees, minimize turnover and foster an environment where employees are encouraged to maximize restaurant level profitability.
· Low Overhead. The Company has been able to maintain a minimal corporate management structure by expanding the number of restaurants supervised by field managers, having corporate personnel oversee multiple administrative functions and by appropriate outsourcing of certain functions when cost effective. The Companys corporate management provides purchasing, information systems, insurance, finance, accounting and payroll services directly to all restaurants so that managers can focus on restaurant operations and guest satisfaction.
· Brand Management/Marketing Economies. The Companys strategy is to separately manage each of its restaurant brands. And, although each brand is positioned somewhat differently in the market, the Company seeks to achieve scale by utilizing marketing techniques, such as local store marketing, radio advertising and promotional mailers, across a spectrum of similar brands.
Segment and Related Reporting
The Company has four reporting segments: HomeTown Buffet, Norths Star, Florida Buffets Division and Summit Restaurant Division. The Companys reportable segments are based on brand similarities and certain contractual requirements. The HomeTown Buffet segment includes the Companys 12 franchised HomeTown Buffet restaurants. The HomeTown Buffet segment also includes one restaurant closed for repositioning. In addition, another HomeTown Buffet restaurant was closed during the year. The Norths Star segment includes three Western Sizzlin restaurants and two JJ Norths Grand Buffet restaurants. The Norths Star segment also includes two non-operating restaurants, a Norths Star Buffet and an Oklahoma Steakhouse restaurant. The Norths Star Buffet restaurant is leased to a third party. The Florida Buffets Division includes two BuddyFreddys restaurants, two BuddyFreddys Country Buffet restaurants, three Holiday House restaurants and five Whistle Junction buffet restaurants. Results for fiscal 2008 also include 16 weeks of operations for one Whistle Junction restaurant that was closed
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when the management contract was not renewed. In addition, another four restaurants in Florida Buffet Division are currently non-operating with two leased to third parties. The Summit Restaurants Division includes the Companys seven JBs Restaurants. The Summit Restaurants Division also includes three 4BS restaurants, the Casa Bonita restaurant, two K-BOBS Steakhouses, one Pecos Diamond Steakhouse and one Bar-H Steakhouse. The Summit Restaurant Division also includes two temporarily closed K-BOBS Steakhouse restaurants. With the acquisition of 20 Barnhills Buffet restaurants in fiscal 2009, the Company will change its reporting segments to the Buffet Division and Non-Buffet Division. (See Item 15, Financial Statements, Note 8.)
Growth Strategy
The Company seeks growth primarily through the acquisition of existing restaurants which can benefit from the Companys management practices. The Company supplements its program of acquisitions with the purchase of restaurant properties that can be converted to the Companys existing brands and minority investments in, or strategic alliances with, other restaurant chains.
· Acquisitions. The Company believes that a number of acquisition opportunities exist in restaurant segments that include buffets, cafeterias, family dining and steakhouses. The Company believes that many restaurants in these segments are privately owned and may be available for acquisition particularly when the owners decide to retire. Other restaurants may become available for purchase when corporate owners decide to convert from a company store to a franchisor business model or when a company is faced with a financial reorganization.
· Restaurant Conversions. In recent years, a number of chains in the family dining and budget steakhouse segments of the restaurant industry have experienced operational difficulties and declining performance. The Company believes that these difficulties are the result of increasing competition from national casual dining and steakhouse chains which offer superior product quality and service at competitive prices. Many of these restaurants and steakhouses occupy desirable locations that the Company believes can be acquired and converted to one of its concepts at lower prices or leased at lower rates when compared to the cost of new construction.
· Minority Investments and Strategic Alliances. The Company intends to seek minority investments in, or strategic alliances with, other restaurant chains. The Company believes that these investments can provide an attractive, lower risk opportunity for the Company and may facilitate the acquisition of such chains at a later date.
Restaurant Concepts
HomeTown Buffet Division
General. The Company, through its wholly-owned, independently capitalized HTB Restaurants, Inc. (HTB) subsidiary, has a franchise agreement with HomeTown Buffet, Inc., a wholly-owned subsidiary of Buffets Holdings, Inc. HTB entered into a franchise agreement for each location which requires among other items, the payment of a continuing royalty fee to HomeTown Buffet, Inc. The royalty fee is based on 2% of the aggregate gross sales of each HomeTown Buffet restaurant. Each of the franchise agreements has a 20-year term (with two five-year renewal options). The franchisor requires HTB to operate each restaurant in conformity with franchise operating manuals, recipe manuals and menus. The franchise agreement restricts the Company from operating other buffet restaurant brands within a geographic radius of the Companys or the franchisors HomeTown Buffet restaurants. The HomeTown franchisor may terminate a franchise agreement for a number of reasons, including HTBs failure to pay royalty fees when due, failure to comply with applicable laws or repeated failure to comply with one or more requirements of the franchise agreement.
HTB operates 12 HomeTown Buffet restaurants in Arizona (8), New Mexico (2), Utah (1) and Wyoming (1). The restaurants are approximately 10,000 square feet and seat approximately 375 customers. HTB also has one restaurant closed for repositioning in Colorado.
General. The Norths Star Division consists of three Western Sizzlin restaurants in Arkansas, Georgia and Mississippi, two JJ Norths Grand Buffet restaurants and one Norths Star Buffet restaurant. The Companys two JJ Norths Grand Buffet restaurants are
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located in Oregon and Washington. The JJ Norths Country Buffet restaurant located in Boise, Idaho was closed and the lease expired March 31, 2008. The Norths Star Buffet restaurant located in Arizona is leased to a third party. The Norths Star Division also has a Oklahoma Steakhouse in Weatherford, Oklahoma closed for repositioning. The restaurants range from 4,000 to 10,000 square feet and seat approximately 125 to 325 customers.
General. The Company, through several transactions, acquired 16 properties in Florida which currently operate under the brand names BuddyFreddys Country Buffet (6), Whistle Junctions (5), BuddyFreddys (2) and Holiday House (3). The Whistle Junction restaurants were acquired by the Company on November 28, 2006. Two of the six BuddyFreddys Country Buffet restaurants have been closed for repositioning; two of these closed restaurants have been leased to third-party operators and the net assets of one former BuddyFreddys Country Buffet closed restaurant are classified as property held for sale. BuddyFreddys restaurants and Whistle Junction restaurants average approximately 10,000 square feet with seating for approximately 325 guests. Holiday House restaurants average approximately 5,500 square feet with seating for approximately 170 guests.
General . The Company, through its wholly-owned, independently capitalized Summit Family Restaurants, Inc., (Summit) subsidiary, operates six JBs restaurants in Montana (2), Utah (3) and Idaho (1) and one Casa Bonita restaurant located in Denver, Colorado, four K-BOBS restaurants located in Texas (3), New Mexico (1) and a Pecos Diamond Steakhouse in Artesia, New Mexico. On May 29, 2007, Summit acquired a Bar-H Steakhouse in Dalhart, Texas. Summit also acquired three 4BS restaurants in Montana, two on July 31, 2007 and one on October 16, 2007. Two of the four K-BOBS Steakhouse restaurants were temporarily closed at the end of fiscal 2008. The JBs and 4BS restaurants are approximately 4,000 to 5,500 square feet in size and seat approximately 110 to 175 customers. The Casa Bonita facility is approximately 52,000 square feet with seating capacity for approximately 4,000 customers. K-BOBS Steakhouses, Pecos Diamond Steakhouse and Bar-H Steakhouse are approximately 5,000 square feet with seating capacity for 150 customers.
Subsequent to the acquisition of certain JBs Family Restaurants in 1998 from JBs Family Restaurants, Inc. (JBs), a wholly-owned subsidiary of CKE Restaurants, Inc., the Company entered into a License Agreement for each newly acquired JBs Family Restaurant. In November 2002, the Company renewed the JBs license agreement for $773,000. The license agreement is being amortized as an intangible asset. Amortization expense for fiscal 2008, 2007 and 2006 was $78,000 each year.
Licenses, Trademarks and Service Marks
The Company owns the trademarks and service marks for BuddyFreddys, Casa Bonita, Holiday House, Pecos Diamond Steakhouse, Bar-H Steakhouse, 4BS restaurants and Whistle Junction and has a license agreement with CKE Restaurants, Inc. for use of the Star name and design. The Company has an agreement with Norths Restaurants, Inc. for a perpetual, royalty-free, transferable license to use the intangible property of JJ Norths Grand Buffet. The Company utilizes the HomeTown Buffet and Western Sizzlin marks pursuant to various franchise and license agreements. The Company has a license agreement and, if exercised, one ten year option to use the JBS trademark through August 31, 2022. The Company has a perpetual license agreement to utilize, under certain circumstances, the K-BOBS Steakhouse brand. The company has perpetual rights to the use of the Barnhills name and logo as part of its acquisition of 20 Barnhills Restaurants in January and February 2008.
The Company competes on the basis of the quality and value of food products offered, price, service, location, ambiance and overall dining experience. The Companys competitors include a large and diverse group of restaurant chains and individually owned restaurants. The number of restaurants with operations similar to those of the Company has grown considerably in recent years. As the Company and its principal competitors expand operations in various geographic areas, competition can be expected to increase.
Seasonality
The Companys business is moderately seasonal in nature. For the majority of the Companys restaurants, the highest volume periods are in the first and second fiscal quarters.
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Employees
As of April 14, 2008, the Company employed approximately 2,800 persons, of whom approximately 2,790 were restaurant employees. Restaurant employees include salaried management and both full-time and part-time workers paid on an hourly basis. No Company employees are covered by collective bargaining agreements. The Company believes that its relations with its employees are generally good.
Directors and Executive Officers
The following table sets forth certain information regarding the Companys directors and executive officers:
Name |
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Age |
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Position |
Robert E. Wheaton |
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56 |
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Chief Executive Officer, President and Chairman |
Ronald E. Dowdy |
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51 |
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Group Controller, Treasurer and Secretary |
Thomas G. Schadt |
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66 |
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Director |
Phillip Buddy Johnson |
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56 |
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Director |
Craig B. Wheaton |
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51 |
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Director |
B. Thomas M. Smith, Jr. |
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73 |
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Director |
Todd S. Brown |
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51 |
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Director |
Robert E. Wheaton has served as the Chief Executive Officer and President and as a director of the Company since its formation in July 1997. Mr. Wheaton has been Chairman of the Board since September 1998. Mr. Wheaton served as Executive Vice President of CKE Restaurants, Inc. from January 1996 through January 1999. From April 1995 to January 1996, he served as Vice President and Chief Financial Officer of Dennys Inc., a subsidiary of Flagstar Corporation. From 1991 to 1995, Mr. Wheaton served as President and Chief Executive Officer, and from 1989 to 1991 as Vice President and Chief Financial Officer of The Bekins Company. Mr. Wheaton is the brother of Craig B. Wheaton, a director of the Company.
Ronald E. Dowdy has served as the Group Controller since June 1998 and as Treasurer and Secretary since February 1999. Mr. Dowdy served as Controller to Holiday House Corporation for 19 years prior to joining the Company.
Thomas G. Schadt has served as a director of the Company since the completion of the Companys initial public offering in September 1997. Mr. Schadt has been the Chief Executive Officer of a privately-held beverage distribution company, Bear Creek, L.L.C., since 1995. From 1976 to 1994, he held several positions with PepsiCo, Inc., most recently, Vice President of Food Service.
Phillip Buddy Johnson has served as a director of the Company since February 1999. Mr. Johnson has served as the Supervisor of Elections of Hillsborough County since March 2003. From March 2001 until March 2003, he served as the Director of the Division of Real Estate in the Florida Department of Business and Professional Regulations. Mr. Johnson served as President of the BuddyFreddys Division from April 1998 until March 2001. From 1980 until 1998, he was the founding Chairman and CEO of BuddyFreddys Enterprises. From 1991 to 1996, Mr. Johnson served as Republican floor leader in the Florida House of Representatives. Mr. Johnson also served on the executive committee of The Foundation for Floridas Future, a non-profit corporation established in 1995 by former governor, Jeb Bush.
Craig B. Wheaton has served as a director of the Company since February 1999. Mr. Wheaton is a partner in the law firm Kilpatrick Stockton LLP. His main areas of practice include employee benefits, executive compensation and general corporate law. Mr. Wheaton received his B.A. degree, with honors, from the University of Virginia and his J.D. degree from Wake Forest University. From 1993 to 1998, Mr. Wheaton was a member of the Tax Council of the North Carolina Bar Association Section on Taxation and chair of its Employee Benefits Committee from 1995 to 1997. He is a member and former president of the Triangle Benefits Forum. He is a member of the Southern Employee Benefits Conference, the Employee Benefits Committee of the American Bar Associations Section of Taxation, the National Pension Assistance Projects National Lawyers Network, and the National Association of Stock Plan Professionals.
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B. Thomas M. Smith, Jr. has served as a director of the Company since June 2002. Mr. Smith was a consultant with ITT Corp. from January 1996 to December 1996 and is now retired. From 1988 until 1995, he was Vice President and Director of Corporate Purchasing for ITT Corp. Mr. Smith served as director of Republic Bancorp from June 1999 until April 2005.
Todd S. Brown has served as a director of the Company since June 2004. Mr. Brown has served Brown Capital Advisors, Inc. as the President since November 1999. From 1994 to November 1999, Mr. Brown served as Senior Vice President, Chief Financial Officer and Director of Phoenix Restaurant Group, Inc. (formerly DenAmerica Corp.). Mr. Brown served as Senior Manager in Audit and Consulting at Deloitte Touche LLP from 1980 to 1994. Mr. Brown received an MBA from the University of Missouri in 1980 and a BA from Southern Methodist University in 1978.
The audit committee is comprised of Todd S. Brown, Thomas G. Schadt and B. Thomas M. Smith, Jr., of which Todd S. Brown is the audit committee financial expert and chairman. All three members of the audit committee are independent as determined in accordance with the NASDAQ listing standards.
Our Growth Strategy Depends Upon our Ability to Acquire and Successfully Integrate Additional Restaurants. During fiscal 2008 and subsequent to January 28, 2008 the Company acquired a total of 29 restaurants. These acquisitions represent a significant increase in the number of restaurants operated by the Company and involve risks that could adversely affect the Companys business, results of operations and financial condition, including the diversion of managements attention, the assimilation of the operations and personnel of the acquired restaurants and the potential loss of key employees. In particular, the failure to maintain adequate operating and financial control systems or unexpected difficulties encountered during assimilation of the acquired restaurants could materially and adversely affect the Companys business financial condition and results of operations.
The Company intends continue to pursue a strategy of moderate growth, primarily through acquisitions. The success of this strategy will depend in part on the ability of the Company to acquire additional restaurants or to convert acquired sites into restaurants. The success of the Companys growth strategy is dependent upon numerous factors, including the availability of suitable acquisition opportunities, the availability of appropriate financing, and general economic conditions. The Company must compete with other restaurant operators for acquisitions and with other restaurant operators, retail stores, companies and developers for desirable sites. Many of these entities have substantially greater financial and other resources than the Company. Many of its acquired restaurants may be located in geographic markets in which the Company has limited or no operating experience. There can be no assurance that the Company will be able to identify, negotiate and consummate acquisitions or that acquired restaurants or converted restaurants can be operated profitably and successfully integrated into the Companys operations.
Acquisitions involve a number of special risks that could adversely affect the Companys business, results of operations and financial condition, including the diversion of managements attention, the assimilation of the operations and personnel of the acquired restaurants and the potential loss of key employees. In particular, the failure to maintain adequate operating and financial control systems or unexpected difficulties encountered during expansion could materially and adversely affect the Companys business, financial condition and results of operations. There can be no assurance that any acquisition will not materially and adversely affect the Company or that any such acquisition will enhance the Companys business. Furthermore, the Company is unable to predict the likelihood of any additional acquisitions being proposed or completed in the near future.
A strategy of growth through acquisitions requires access to significant capital resources. If the Company determines to make a sizeable acquisition, the Company may be required to obtain approval of creditors, or to sell additional equity or debt securities, or to obtain additional credit facilities. The sale of additional equity or convertible debt securities could result in additional dilution to the Companys stockholders. At present, the Company has only limited availability under its Credit Facility which expires on January 31, 2012.
Loans to third parties involve risk of non-payment. Since inception, the Companys acquisition strategy has, in certain circumstances, incorporated loans to sellers to facilitate certain transactions. In most cases, these loans are secured and include, as part of terms and conditions, the Companys right to convert the loan into ownership of the restaurants. Also, certain of these loans contain favorable interest rates and repayment terms if the loans are not converted to ownership for one or more reasons. This financing strategy entails significant risk. Currently, the Company has two loans receivable outstanding and both are in default. However, because the Company anticipates full recovery of amounts outstanding through either repayment or conversion to ownership, historically no provision for doubtful accounts has been established. While estimates to date have been within our expectations, a change in the financial condition of specific restaurant companies or in overall industry trends may result in future adjustments to Company estimates of recoverability of these receivables.
Operating Results can be Adversely Impacted by the Failure to Renew Facility Leases. The majority of the Companys facilities are leased. Certain of these leases contain limited or no renewal options and other leases contain escalating or fair market renewal clauses. There can be no assurance that these facility leases can renewed or if they are renewed, can be done so at lease rates that permit the restaurant to be operated at a profit.
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Dependence Upon and Restrictions Resulting from HomeTown Franchise Agreements. The Company operates its 12 HomeTown Buffet Restaurants through its wholly-owned, independently capitalized HTB Restaurants, Inc. (HTB) subsidiary. This subsidiary is party to franchise agreements with the franchisor, HomeTown Buffet.
The performance of HTBs HomeTown Buffet restaurants is directly related to the success of the HomeTown Buffet restaurant system and restrictions the franchiser imposes on the franchisee. The success of HTBs HomeTown Buffet restaurants depends in part on the effectiveness of the HomeTown franchisors marketing efforts, new product development initiatives, building retrofit designs, quality assurance and other operational programs over which HTB has little or no control. Futhermore, HTB cannot open new HomeTown Buffets without the permission of the franchisor.
In recent years HTBs HomeTown Buffet restaurants have not performed well. The Companys management believes this is due to the franchisor financial difficulties and because the franchisor has not permitted HTB to develop new restaurants. The lack of investment in the brand on the part of the franchisor and the franchisors unwillingness to permit HTB to develop new locations has contributed to significant declines in restaurant level revenue and profitability. As a result of these declines, HTB has closed a number of HomeTown Buffet restaurants and additional closures are possible. On January 22, 2008 Buffets Holdings, Inc., parent of HTBs franchisor, filed for Chapter 11 reorganization. As a result the Company determined that it would make no further capital contributions to the HTB subsidiary at this time. It is uncertain at this time what impact, if any, Buffet Holdings, Inc.s filing will have on HTB.
The Companys Quarterly Results are Likely to Fluctuate. The Company has in the past experienced, and expects to continue to experience, significant fluctuations in restaurant revenues and results of operations from quarter to quarter. In particular, the Companys quarterly results can vary as a result of acquisitions and costs incurred to integrate newly acquired entities. Conversely, the Companys restaurant revenue and results of operations can vary due to restaurant closures and associated costs connected with these closures. A number of the Companys restaurants are located in areas which are susceptible to severe winter weather conditions or tropical storm patterns which may have a negative impact on customer traffic and restaurant revenues. Accordingly, the Company believes that period-to-period comparisons of its operating results are not necessarily meaningful and that such comparisons cannot be relied upon as indicators of future performance. Seasonal and quarterly fluctuations can have a material adverse effect on the Companys business, results of operation and financial condition.
The Restaurant Industry is Highly Competitive. The Company competes on the basis of the quality and value of food products offered, price, service, location, ambiance and overall dining experience. As the Company and its principal competitors expand operations in various geographic areas, competition can be expected to intensify. Such intensified competition could increase the Companys operating costs or adversely affect its revenues or operating margins. A number of competitors have been in existence longer than the Company and have substantially greater financial, marketing and other resources and wider geographical diversity than does the Company. In addition, the restaurant industry has few non-economic barriers to entry and is affected by changes in consumer tastes, national, regional and local economic conditions and market trends. The Companys significant investment in, and long term commitment to, each of its restaurant sites limits its ability to respond quickly or effectively to changes in local competitive conditions or other changes that could affect the Companys operations.
The Restaurant Industry is Complex and Volatile. Food service businesses are often affected by changes in consumer tastes, national, regional and local economic conditions and demographic trends. The performance of individual restaurants may be adversely affected by factors such as traffic patterns, demographic considerations and the type, number and location of competing restaurants. Multi-unit food service businesses such as the Companys can also be materially and adversely affected by publicity resulting from poor food quality, illness, injury or other health concerns or operating issues stemming from one restaurant or a limited number of restaurants. The Companys business could be adversely affected by terrorist attacks directed toward the food supply chain or public concerns about the safety of the food supply chain. Dependence on frequent deliveries of fresh produce and groceries subjects food service businesses such as the Companys to the risk that shortages or interruptions in supply, caused by adverse weather or other conditions, could adversely affect the availability, quality and cost of ingredients. The Companys profitability is highly sensitive to increases in food, labor and other operating costs that cannot always be passed on to its guests in the form of higher prices or otherwise compensated for. In addition, unfavorable trends or developments concerning factors such as inflation, increased food, labor, employee benefits, including increases in hourly wage and unemployment tax rates utility and transportation costs, increases in the number and locations of competing buffet-style restaurants, regional weather conditions and the availability of experienced management and hourly employees may also adversely affect the food service industry in general and the Companys business, financial condition and results of operations in particular. Changes in economic conditions affecting the Companys guests could reduce traffic in some or all of the Companys restaurants or impose practical limits on pricing, either of which could have a material adverse effect on the Companys business, financial condition and results of operations.
7
The Company is Dependent on Its Key Personnel. The Company believes that its success will depend in part on the services of its key executives, including Robert E. Wheaton, Chairman of the Board, Chief Executive Officer and President. The Company does not maintain key man life insurance. The loss of the services of Mr. Wheaton could have a material adverse effect upon the Companys business, financial condition and results of operations, as there can be no assurances that a qualified replacement would be available in a timely manner if at all.
The Restaurant Industry is Subject to Substantial Government Regulation. The restaurant industry is subject to federal, state and local government regulations, including those relating to the preparation and sale of food as well as building and zoning requirements. In addition, the Company is subject to laws governing its relationship with employees, including minimum wage requirements, overtime, working and safety conditions and citizenship requirements. The failure to obtain or retain food licenses or an increase in the minimum wage rate, employee benefit costs or other costs associated with employees, could have a material adverse effect on the Companys business, financial condition and results of operations.
Effect of Certain Charter and Bylaw Provisions. Certain provisions of the Companys Certificate of Incorporation and Bylaws may have the effect of making it more difficult for a third party to acquire, or discourage a third party from attempting to acquire, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of the Companys Common Stock. The Companys Certificate of Incorporation allows the Company to issue up to 1,500,000 shares of currently undesignated preferred stock, to determine the powers, preferences, rights, qualifications and limitations or restrictions granted to or imposed on any un-issued series of that preferred stock, and to fix the number of shares constituting any such series and the designation of such series, without any vote or future action by the stockholders. The preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of the common stock. The Certificate of Incorporation also prohibits the ability of stockholders to call special meetings. The Companys Bylaws require advance notice to nominate a director or take certain other actions. Such provisions may make it more difficult for stockholders to take certain corporate actions and could have the effect of delaying or preventing a change in control of the Company. In addition, the Company has not elected to be excluded from the provisions of Section 203 of the Delaware General Corporation Law, which imposes certain limitations on transactions between a corporation and interested stockholders, as defined in such provisions.
Possible Volatility of Stock Price. The stock market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. The volume of trading in the market for the Companys common stock is limited, which may make it difficult to liquidate an investment and can increase price volatility. Due to changes in the balance of buy and sell orders and other factors, the price of the Companys common stock can change for reasons unrelated to the performance of the business of the Company. Fluctuations in the Companys operating results, failure of such operating results to meet the expectations of stock market analysts and investors, changes in stock market analyst recommendation regarding the Company, the success or perceived success of competitors of the Company, as well as changes in general economic or market conditions and changes in the restaurant industry may also have a significant adverse affect on the market price of the Common Stock.
Sale of a Substantial Number of Shares of Our Common Stock Could Cause the Market Price to Decline. Sales of a substantial number of shares of our common stock in the public market could substantially reduce the prevailing market price of our common stock. As of April 14, 2008, 3,213,075 shares of common stock were outstanding and 40,000 shares were issuable upon exercise of outstanding options at exercise prices of $5.00 and $6.70. The Company cannot predict the effect, if any, that sales of shares of the Companys common stock or the availability of such shares for sale will have on prevailing market prices. However, substantial amounts of the Companys common stock could be sold in the public market, which may adversely affect prevailing market prices for the common stock.
Control by One Principal Stockholder. Robert E. Wheaton, Chairman of the Board, Chief Executive Officer and President, currently beneficially owns approximately 44% of our total equity securities, assuming exercise of vested employee stock options, and possesses approximately 44% of the total voting power. Thus Mr. Wheaton has the ability to control or significantly influence all matters requiring the approval of our stockholders, including the election of our directors. Sales of a substantial number of shares of our common stock by Mr. Wheaton or other principal shareholders in the public market could substantially reduce the prevailing market price of our common stock.
Item 1B. Unresolved Staff Comments
The Company is not an accelerated filer, a large accelerated filer, or a well known seasoned issuer and consequently is not subject to the requirements of this item 1B.
8
The Companys corporate headquarters is in Scottsdale, Arizona. A regional administrative office is located in Salt Lake City, Utah.
The Companys restaurants are primarily freestanding locations. As of January 28, 2008, 36 of 53 of the Companys restaurant facilities were leased. The leases expire on dates ranging from 2008 to 2013 with the majority of the leases providing for renewal options. All leases provide for specified periodic rental payments and many call for additional rent based upon revenue volume. Most leases provide for periodic rent increases and require the Company to maintain the property, carry property and general liability insurance and pay associated taxes and expenses.
The following is a summary of the Companys restaurant properties as of January 28, 2008:
|
|
HomeTown
|
|
Norths
|
|
Florida
|
|
|
|
|
|
Owned |
|
3 |
|
3 |
|
5 |
|
6 |
|
17 |
|
Leased |
|
10 |
|
4 |
|
11 |
|
11 |
|
36 |
|
Total |
|
13 |
|
7 |
|
16 |
|
17 |
|
53 |
|
As of January 28, 2008, the Companys restaurants are located in the following states:
As of January 28, 2008, the Companys non-operating restaurants are located in the following states:
9
Three of the nine non-operating restaurants have been leased to third-party operators; five are closed for remodeling and/or repositioning; one is closed and classified as property held for sale.
In conjunction with the acquisition of certain JJ Norths restaurants from Norths Restaurants, Inc. (Norths) in 1997, the Company provided a credit facility to Norths and when Norths defaulted the Company sued for enforcement. In 1998, the Companys suit with Norths resulted in a negotiated settlement in favor of the Company represented by an Amended and Restated Promissory Note (the Star Buffet Promissory Note). In a related proceeding, Norths other secured creditor, Pacific Mezzanine, initiated litigation against Norths seeking a monetary judgment and the appointment of a receiver. In April, 2006 the Company noticed all relevant parties of its intent to foreclose to seek expedited liquidation of Norths assets and repay amounts owed to the Company. Subsequent to the notice, the receiver moved to have the Companys foreclosure of Norths assets set aside so that certain of Norths assets could be sold to a third party. The motion was approved. On August 7, 2006, the receiver paid the Company approximately $1,291,000 from a partial sale of the assets. In August 2007, the receiver notified the Company that he planned to turn control of the JJ Norths restaurant in Grants Pass, Oregon and associated assets over to the Company. On September 22, 2007, the Company hired Norths employees, notified Norths creditors of its intent to operate the business and negotiated a facility lease with Norths previous landlord. The transfer of assets from Norths to Star Buffet Management, Inc. was approved by the court. The Companys note, together with the obligation to the other significant creditor of Norths, is secured by the real and personal property, trademarks and all other intellectual property owned by Norths. The Company believes current and future cash flows including asset sales are adequate for recovery of the remaining principal amount of the note receivable. The Company has not provided an allowance for bad debts for the note as of January 28, 2008.
The Company is from time to time the subject of complaints or litigation from customers alleging injury on properties operated by the Company, illness or other food quality, health or operational concerns. Adverse publicity resulting from such allegations may materially adversely affect the Company and its restaurants, regardless of whether such allegations are valid or whether the Company is liable. The Company also is the subject of complaints or allegations from employees from time to time. The Company believes that the lawsuits, claims and other legal matters to which it has become subject in the course of its business are not material to the Companys business, financial condition or results of operations, but an existing or future lawsuit or claim could result in an adverse decision against the Company that could have a material adverse effect on the Companys business, financial condition and results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the shareholders of the Company during the fourth quarter of fiscal 2008.
10
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Holders. The Companys Common Stock is listed on the NASDAQ Capital Market under the symbol STRZ. As of April 14, 2008, there were approximately 500 holders of record. The following table sets forth the high and low bid quotations for the Common Stock, as reported by NASDAQ.
|
|
2008 |
|
2007 |
|
||||||||
Fiscal Year |
|
High |
|
Low |
|
High |
|
Low |
|
||||
First Quarter |
|
$ |
9.23 |
|
$ |
7.80 |
|
$ |
9.46 |
|
$ |
6.98 |
|
Second Quarter |
|
8.60 |
|
7.56 |
|
8.39 |
|
7.02 |
|
||||
Third Quarter |
|
8.08 |
|
6.50 |
|
8.85 |
|
7.80 |
|
||||
Fourth Quarter |
|
6.96 |
|
5.14 |
|
9.97 |
|
8.01 |
|
||||
Dividends. On March 12, 2008, the Board of Directors approved the Companys fifth consecutive annual dividend. The dividend this year is $0.60 per common share and is payable on June 4, 2008 to shareholders of record on May 6, 2008.
Equity Compensation Plan Information.
The following table gives information about our shares of Common Stock that may be issued under our equity compensation plans.
|
|
(a) |
|
(b) |
|
(c) |
|
|
|
|
Number of securities to
|
|
Weighted-average
|
|
Number of securities
|
|
|
Equity compensation plans approved by security holders |
|
40,000 |
|
$ |
6.20 |
|
450,000 |
|
Equity compensation plans not approved by security holders |
|
|
|
|
|
|
|
|
Total |
|
40,000 |
|
$ |
6.20 |
|
450,000 |
|
The exercise price of the options granted and exercisable at January 28, 2008 is $5.00 for 12,000 options and $6.70 for 28,000 options.
11
Item 6. Selected Financial Data
The following paragraphs set forth selected consolidated financial data for the periods indicated. The selected consolidated financial data for each of the five fiscal years in the period ended January 28, 2008, has been derived from our consolidated financial statements for those years.
The selected and other data presented below should be read in conjunction with the Consolidated Financial Statements, and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K.
The operating results for the 52-week period ended January 28, 2008 included 52 weeks of operations for the Companys 12 franchised HomeTown Buffet restaurants, six JBs restaurants, five Whistle Junction restaurants, two BuddyFreddys restaurants, two BuddyFreddys Country Buffet restaurants, two Western Sizzlin restaurants, two K-BOBS Steakhouses, two Holiday House restaurants, one JJ Norths Grand Buffet restaurant one Pecos Diamond Steakhouse and one Casa Bonita Mexican theme restaurant. The results also included the following, one Western Sizzlin restaurant for 32 weeks, one Holiday House restaurant for 40 weeks, one Bar-H Steakhouse for 35 weeks, one JBS restaurant for 35 weeks, two 4BS restaurants for 26 weeks, one 4BS restaurant for 15 weeks and one JJ Norths Grand Buffet for 18 weeks. In addition, operating results include 39 weeks for one K-BOBS Steakhouse, 36 weeks for one K-BOBS Steakhouse, 36 weeks for one HomeTown Buffet restaurant, 27 weeks for one HomeTown Buffet restaurant, 27 weeks for one Oklahoma Steakhouse restaurant and 16 weeks for one Whistle Junction restaurant closed during the fiscal year 2008. Nine restaurants were closed at the end of the 2008 fiscal year for repositioning. Three of the nine closed restaurants have been leased to third-property operators, five restaurants remain closed for remodeling and repositioning and another closed restaurant was reported as property held for sale.
The operating results for the 52-week period ended January 29, 2007 included 52 weeks of operations for the Companys 14 franchised HomeTown Buffet restaurants, six JBs restaurants, three K-BOBS Steakhouses, two BuddyFreddys restaurants, two BuddyFreddys Country Buffet restaurants, two Holiday House restaurants, one JJ Norths Country Buffet restaurant, and one Casa Bonita Mexican theme restaurant. The results also included the following, one K-BOBS Steakhouse for 48 weeks, one Pecos Diamond Steakhouse for 29 weeks, one Western Sizzlin restaurant for 16 weeks and five Whistle Junction restaurants for 9 weeks. In addition, operating results include 19 weeks for one Buddy Freddys Country Buffet and 33 weeks for one JJ Norths Country Buffet restaurant closed during the fiscal year 2007. Eight restaurants were closed at the end of the 2007 fiscal year for repositioning. Four of the eight closed restaurants have been leased to third-property operators, three restaurants remain closed for remodeling and repositioning and another closed restaurant was reported as property held for sale.
The operating results for the 52-week period ended January 30, 2006 included 52 weeks of operations for the Companys 14 franchised HomeTown Buffet restaurants, six JBs restaurants, three BuddyFreddys Country Buffet restaurants, two BuddyFreddys restaurants, two JJ Norths Country Buffet restaurants, two Holiday House restaurants and one Casa Bonita Mexican theme restaurant. In addition, operating results included 10 weeks for one JBs restaurant and one Casa Bonita restaurant closed during the fiscal year 2006. In addition to the above, the Company purchased in September 2005 a restaurant facility in Rexburg, Idaho. The Company leases the restaurant facility to a JBs franchisee. Eight restaurants were closed at the end of the 2006 fiscal year for repositioning. Three of the eight closed restaurants were leased to third-property operators, four restaurants were held for remodeling and repositioning and another closed restaurant was reported as property held for sale. One of the four restaurants closed for remodeling and repositioning located in Laramie, Wyoming was sold in March 2006.
The operating results for the 53-week period ended January 31, 2005 included 53 weeks of operations for the Companys 14 franchised HomeTown Buffet restaurants, seven JBs restaurants, three BuddyFreddys Country Buffet restaurants, two BuddyFreddys restaurants, two JJ Norths Country Buffet restaurants, two Casa Bonita Mexican theme restaurants, and two Holiday House restaurants. In addition, operating results included 30, 34 and 52 weeks for three JJ Norths Country Buffet restaurants closed during fiscal year 2005 and 35 and 51 weeks for two HomeTown Buffet restaurants. Results for 2005 also included 34 weeks of operations for one Norths Star Buffet restaurant and 39 weeks of operations for one JBs Restaurant . Eight restaurants were closed at the end of the 2005 fiscal year for repositioning. Four of the eight closed restaurants were leased to third-property operators, three restaurants were held for remodeling and repositioning and one closed restaurant was property held for sale.
The operating results for the 52-week period ended January 26, 2004 included 52 weeks of operations for 16 franchised HomeTown Buffet restaurants, eight JBs restaurants, five JJ Norths Country Buffet restaurants, three BuddyFreddys Country Buffet restaurants, two BuddyFreddys restaurants, two Casa Bonita Mexican theme restaurants, two Holiday House restaurants and one Norths Star Buffet restaurant. In addition, operating results included 19 and 2 weeks for two BuddyFreddys Country Buffet restaurants closed during fiscal year 2004 and 12 weeks of operations for one JJ Norths Country
12
Buffet restaurant and 5 weeks of operations for one JBs Restaurant. Five restaurants were closed at the end of the 2004 fiscal year for repositioning. Three of the five closed restaurants were leased to third-property operators and one closed restaurant was property held for sale. One property was sold during fiscal 2004.
SELECTED FINANCIAL DATA
(In thousands except per share amounts and restaurant unit data)
|
|
Fifty-Two |
|
Fifty-Two |
|
Fifty-Two |
|
Fifty-Three |
|
Fifty-Two |
|
|||||
|
|
Weeks |
|
Weeks |
|
Weeks |
|
Weeks |
|
Weeks |
|
|||||
|
|
Ended |
|
Ended |
|
Ended |
|
Ended |
|
Ended |
|
|||||
|
|
Jan. 28, 2008 |
|
Jan. 29, 2007 |
|
Jan. 30, 2006 |
|
Jan. 31, 2005 |
|
Jan. 26, 2004 |
|
|||||
Consolidated Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Total revenues |
|
$ |
68,732 |
|
$ |
58,648 |
|
$ |
56,305 |
|
$ |
64,856 |
|
$ |
68,090 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|||||
Food costs |
|
25,356 |
|
20,789 |
|
19,429 |
|
22,336 |
|
23,275 |
|
|||||
Labor costs |
|
23,913 |
|
19,674 |
|
18,260 |
|
21,712 |
|
23,015 |
|
|||||
Occupancy and other expenses |
|
15,187 |
|
12,772 |
|
11,763 |
|
12,963 |
|
14,042 |
|
|||||
General and administrative expenses |
|
3,549 |
|
2,426 |
|
2,179 |
|
2,694 |
|
2,433 |
|
|||||
Depreciation and amortization |
|
2,098 |
|
2,069 |
|
2,120 |
|
2,440 |
|
2,670 |
|
|||||
Impairment of long-lived assets |
|
1,401 |
|
|
|
369 |
|
2,838 |
|
1,083 |
|
|||||
Total costs and expenses |
|
71,504 |
|
57,730 |
|
54,120 |
|
64,983 |
|
66,518 |
|
|||||
(Loss) income from operations |
|
(2,772 |
) |
918 |
|
2,185 |
|
(127 |
) |
1,572 |
|
|||||
Interest expense |
|
(858 |
) |
(616 |
) |
(648 |
) |
(640 |
) |
(569 |
) |
|||||
Gain on sale of assets |
|
31 |
|
230 |
|
|
|
|
|
|
|
|||||
Reversal of litigation accrual |
|
|
|
|
|
|
|
|
|
400 |
|
|||||
Other income, net |
|
283 |
|
422 |
|
680 |
|
427 |
|
319 |
|
|||||
(Loss) income before income taxes (benefit) |
|
(3,316 |
) |
954 |
|
2,217 |
|
(340 |
) |
1,722 |
|
|||||
Income taxes (benefit) |
|
(1,315 |
) |
238 |
|
420 |
|
(168 |
) |
609 |
|
|||||
Net income (loss) |
|
$ |
(2,001 |
) |
$ |
716 |
|
$ |
1797 |
|
$ |
(172 |
) |
$ |
1,113 |
|
Net (loss) income per common share basic |
|
$ |
(0.63 |
) |
$ |
0.23 |
|
$ |
0.60 |
|
$ |
(0.06 |
) |
$ |
0.38 |
|
Net (loss) income per common share diluted |
|
$ |
(0.63 |
) |
$ |
0.23 |
|
$ |
0.56 |
|
$ |
(0.06 |
) |
$ |
0.38 |
|
Weighted average shares outstanding basic |
|
3,171 |
|
3,147 |
|
2,990 |
|
2,950 |
|
2,950 |
|
|||||
Weighted average shares outstanding diluted |
|
3,171 |
|
3,164 |
|
3,209 |
|
2,950 |
|
2,950 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance sheet data: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Total assets |
|
$ |
35,702 |
|
$ |
34,168 |
|
$ |
34,824 |
|
$ |
34,880 |
|
$ |
35,954 |
|
Total debt and capital lease obligations including current portion |
|
9,447 |
|
7,621 |
|
7,815 |
|
8,207 |
|
7,967 |
|
|||||
Stockholders equity |
|
$ |
15,275 |
|
$ |
19,178 |
|
$ |
20,284 |
|
$ |
19,775 |
|
$ |
20,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating units (1) HomeTown Buffet |
|
12 |
|
14 |
|
14 |
|
14 |
|
16 |
|
|||||
Norths Star |
|
5 |
|
2 |
|
2 |
|
2 |
|
6 |
|
|||||
Florida Buffets |
|
12 |
|
11 |
|
7 |
|
7 |
|
7 |
|
|||||
Summit Restaurants |
|
15 |
|
12 |
|
7 |
|
9 |
|
10 |
|
|||||
Non-Operating |
|
9 |
|
8 |
|
8 |
|
8 |
|
5 |
|
|||||
Total |
|
53 |
|
47 |
|
38 |
|
40 |
|
44 |
|
(1) At the end of the respective periods.
13
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following Managements Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements, and the notes thereto, presented elsewhere in this Form 10-K. The operating results for the 52-week period ended January 28, 2008 and for the 52-week period ended January 29, 2007 are based on the composition of restaurant operations as discussed in Item 6 Selected Financial Data.
The Companys sales were $68.7 million in fiscal 2008, a 17.2 percent increase from $58.6 million in fiscal 2007. Sales from the Companys nine new store openings in fiscal 2008 and the seven new store openings in fiscal 2007 that operated for only part of fiscal 2007 were a net increase of approximately $12.7 million. Sales lost from closed stores represented a net decrease of approximately $1.3 million. Same store sales decreased approximately 2.5% due primarily to increased competition in some markets. The net loss for fiscal 2008 was $2,001,000 (($0.63) per diluted share) compared with net income for fiscal 2007 of $716,000 ($0.23 per diluted share). Fiscal 2008 was impacted by higher general and administrative expenses, higher interest expense and $1,401,000 in impairment expense. In addition the Company had a lower gain on sale of assets when compared to fiscal 2007 and lower other income when compared to fiscal 2007, which is primarily rental income.
Results of Operations
The following table summarizes the Companys results of operations as a percentage of total revenues for the fifty-two weeks ended January 28, 2008 (fiscal 2008), and for the fifty-two weeks ended January 29, 2007 (fiscal 2007).
|
|
Fifty-Two
|
|
Fifty-Two
|
|
Total revenues |
|
100.0 |
% |
100.0 |
% |
Costs and expenses: |
|
|
|
|
|
Food costs |
|
36.9 |
|
35.5 |
|
Labor costs |
|
34.8 |
|
33.6 |
|
Occupancy and other expenses |
|
22.1 |
|
21.8 |
|
General and administrative expenses |
|
5.2 |
|
4.1 |
|
Depreciation and amortization |
|
3.0 |
|
3.5 |
|
Impairment of long-lived assets |
|
2.0 |
|
0.0 |
|
Total costs and expenses |
|
104.0 |
|
98.4 |
|
Income (loss) from operations |
|
(4.0 |
) |
1.6 |
|
|
|
|
|
|
|
Interest expense |
|
(1.2 |
) |
(1.1 |
) |
Other income, net |
|
0.4 |
|
0.6 |
|
Net (loss) income |
|
(4.8 |
) |
1.6 |
|
Income taxes (benefit) |
|
(1.9 |
) |
0.4 |
|
(Loss) income before income taxes (benefit) |
|
(2.9 |
)% |
1.2 |
% |
Summarized financial information concerning the Companys reportable segments is shown in the following table. The other assets presented in the consolidated balance sheet and not in the reportable segments relate to the Company as a whole, and not individual segments. Also certain corporate overhead income and expenses in the consolidated statements of operations are not included in the reportable segments. With the acquisition of 20 Barnhills Buffet restaurants in fiscal 2009, the Company will change its reporting segments to the Buffet Division and Non-Buffet Division.
14
(Dollars in Thousands)
52 Weeks Ended
|
|
HomeTown
|
|
Norths
|
|
Florida
|
|
|
|
|
|
|
|
||||||
Revenues |
|
$ |
24,367 |
|
$ |
5,348 |
|
$ |
18,032 |
|
$ |
20,985 |
|
$ |
|
|
$ |
68,732 |
|
Food cost |
|
9,276 |
|
2,248 |
|
7,161 |
|
6,671 |
|
|
|
25,356 |
|
||||||
Labor cost |
|
8,088 |
|
1,999 |
|
6,443 |
|
7,383 |
|
|
|
23,913 |
|
||||||
Interest income |
|
|
|
|
|
|
|
|
|
24 |
|
24 |
|
||||||
Interest expense |
|
(151 |
) |
|
|
|
|
|
|
(707 |
) |
(858 |
) |
||||||
Depreciation & amortization |
|
960 |
|
170 |
|
341 |
|
557 |
|
70 |
|
2,098 |
|
||||||
Impairment of long-lived assets |
|
275 |
|
|
|
1,034 |
|
92 |
|
|
|
1,401 |
|
||||||
Income (loss) before income taxes |
|
(789 |
) |
(382 |
) |
(1,431 |
) |
2,443 |
|
(3,157 |
) |
(3,316 |
) |
||||||
52 Weeks
Ended
|
|
HomeTown
|
|
Norths
|
|
Florida
|
|
Summit (4) |
|
Other |
|
Total |
|
||||||
Revenues |
|
$ |
27,258 |
|
$ |
2,301 |
|
$ |
11,642 |
|
$ |
17,447 |
|
$ |
|
|
$ |
58,648 |
|
Food cost |
|
10,302 |
|
970 |
|
4,312 |
|
5,205 |
|
|
|
20,789 |
|
||||||
Labor cost |
|
8,797 |
|
876 |
|
3,913 |
|
6,088 |
|
|
|
19,674 |
|
||||||
Interest income |
|
|
|
|
|
|
|
|
|
93 |
|
93 |
|
||||||
Interest expense |
|
(167 |
) |
|
|
|
|
|
|
(448 |
) |
(615 |
) |
||||||
Depreciation & amortization |
|
989 |
|
88 |
|
419 |
|
509 |
|
64 |
|
2,069 |
|
||||||
Impairment of long-lived assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income (loss) before income taxes |
|
117 |
|
(364 |
) |
510 |
|
2,627 |
|
(1,936 |
) |
954 |
|
||||||
(1) The same store sales declined this year resulting in higher labor costs for HomeTown Buffet as a percentage of sales. Food costs were higher as a percentage of sales this year primarily attributable to higher protein and grain prices in the current year. Management believes sales decreased because of general economic conditions and increased competition in certain areas. HomeTown Buffet also had higher labor costs as a percentage of sales compared to the prior year primarily from higher starting wages and higher minimum wages in certain markets. The decline in income loss before income taxes in the current year which was primarily the result of higher food, labor and $275,000 in impairment expenses and lower sales.
(2) The same store sales increased this year resulting in lower food and labor cost for Norths Star as a percentage of sales. The Norths Star division had three new Western Sizzlin restaurants, one new Oklahoma Steakhouse and one new JJ Norths restaurant which more than offset the one closed JJ Norths Country Buffet restaurant and contributed to higher sales. The Oklahoma Steakhouse closed on December 8, 2007. The losses in the Oklahoma Steakhouse increased the loss for the year compared to the prior year.
(3) The decline in income (loss) before income taxes in the current year in the Florida Buffet segment was primarily impairment expense of $1,034,000 in the current year compared to none in the prior year. In addition the decline was the result of higher food costs, labor costs and higher occupancy and other expenses in the five new Whistle Junction restaurants and the one new Holiday House restaurant as compared to the existing restaurants in the same segment. The increase in revenues was the result of six new restaurants. These new restaurants contributed approximately $6.4 million more in sales compared to the prior year.
(4) The increase in sales from the six new restaurants contributed approximately $3.2 million in sales including the Pecos Diamond Steakhouse contribution of approximately $684,000 more than last year when Pecos opened during the second quarter. The decrease in income before income taxes was primarily due to the $234,000 gain on selling the restaurant facility in Laramie, Wyoming in the prior year.
15
Comparison of Fiscal 2008 to Fiscal 2007
Total revenues increased $10.1 million or 17.2% from $58.6 million in fiscal 2007 to $68.7 million in fiscal 2008. Sales from the Companys 16 new store openings in fiscal 2008 and fiscal 2007 were a net increase of approximately $12.7 million. Sales lost from closed stores represented a net decrease of approximately $1.3 million. Same store sales decreased approximately 2.5% primarily due to increased competition in certain markets.
Food costs as a percentage of total revenues increased from 35.5% during in fiscal 2007 to 36.9% in fiscal 2008. The increase in food costs as a percentage of total revenue was primarily attributable to the higher protein and grain prices in the current year.
Labor costs as a percentage of total revenues increased from 33.6% in fiscal 2007 to 34.8% in fiscal 2008 and actual labor costs increased by $4.2 million. The increase in labor cost and as a percentage of revenue resulted primarily from higher starting wages in certain markets in fiscal 2008 as compared to the fiscal year 2007 and higher minimum wages in certain states in the current year. In the fiscal year 2008 approximately 700 employees have had minimum wage increases from $0.10 to $0.70 per hour.
Occupancy and other expenses as a percent of total revenues increased from 21.8% in fiscal 2007 to 22.1% in fiscal 2008. The increase as a percentage of revenues for the 52-week period ended January 28, 2008 was primarily attributable to decreased revenues in the stores opened during both years and increased variable expenses. The fixed portion of occupancy costs is primarily fixed costs for property leases and related common area maintenance and property taxes. Increases in variable costs were attributable to an increase of 0.5% in utility costs as a percentage of revenue in the current year compared to the prior year.
General and administrative expenses as a percentage of total revenues increased from 4.1% in fiscal 2007 to 5.2% in fiscal 2008 and actual costs increased by $1,123,000. The increase for the 52-week period ended January 28, 2008 was primarily attributable to higher contingency expenses and higher field costs associated with acquisitions as compared to the prior fiscal year.
Depreciation and amortization as a percent of total revenues decreased from 3.5% in fiscal 2007 to 3.0% in fiscal 2008. The decrease as a percentage of revenue is primarily attributable to certain equipment and impaired assets being fully depreciated for the 52-week period ended January 28, 2008 as compared to the 52-week period ended January 29, 2007 and our depreciation per revenue for the new stores compared to existing stores. The acquisition costs in certain new stores were on the average lower than existing stores resulting in lower depreciation expense in these new stores
Impairment of long-lived assets increased from 0.0% in fiscal 2007 to 2.0% in fiscal 2008. The impairment in fiscal 2008 totaled $238,000 for the impairment of one restaurants leasehold improvements and $8,000 for franchise costs where projected undiscounted cash flows were less than the net book value of the assets and approximately $29,000 of impairment to equipment held for future use and approximately $1,126,000 for the impairment of goodwill.
Interest expense as a percent of total revenues increased from 1.1% in fiscal 2007 to 1.3% in fiscal 2008. The increase as a percentage of total revenue was primarily attributable to higher debt balances in fiscal 2008 compared to fiscal 2007. The higher debt balances resulted from the acquisitions in fiscal 2008 using real estate mortgages and a higher average revolving credit balance.
The income tax provision (benefit) totaled $(1,315,000) or (39.7%) of pre-tax income in fiscal 2008 as compared to $238,000 or 25% of pre-tax income in fiscal 2007.
Liquidity and Capital Resources
The Company has historically financed operations through a combination of cash on hand, cash provided from operations and available borrowings under bank lines of credit.
As of January 28, 2008, the Company had $736,000 in cash. Cash and cash equivalents increased by $318,000 during the fiscal year ended January 28, 2008. The net working capital deficit was $(8,348,000) and $(4,913,000) at January 28, 2008 and January 29, 2007, respectively. The Company spent approximately $4,400,000 on capital expenditures in fiscal 2008 to, among other things, acquire the equipment, building and land for the Western Sizzlin Restaurant in Magee, Mississippi, the equipment, building and land for the Bar H Steakhouse in Dalhart, Texas and the equipment, building and land for the Western Sizzlin Restaurant in Magnolia, Arkansas. In connection with these acquisitions, the Company incurred a total of approximately $2,300,000 in new restaurant specific debt secured by the acquired assets. The Company received net proceeds of approximately $746,000 in September 2007 when it sold its equipment, building and land in Spanish Fork, Utah. The facility had been a non-operating unit leased to a third party.
16
Cash provided by operations was $3.0 million for fiscal 2008 and $2.7 million for fiscal 2007.
The Company had a $3,000,000 unsecured revolving line of credit with M&I Marshall & Ilsley Bank which provided working capital. The M&I revolving line of credit bore interest at LIBOR plus two percent per annum. The Company replaced the M&I revolving line of credit on January 31, 2008 with a Credit Facility with Wells Fargo Bank, N.A. The Credit Facility included a $7,000,000 term loan and a $2,000,000 revolving line of credit. The Credit Facility was utilized to retire the Companys unsecured revolving line of credit with M&I Marshall & Ilsley Bank; to fund the acquisition of assets associated with sixteen (16) Barnhills Buffet restaurants; and to provide additional working capital. On February 29, 2008 the Company amended its Credit Facility with Wells Fargo Bank N.A., increasing the term loan principal from $7,000,000 to $8,000,000. The increase in the Credit Facility was used to fund the acquisition of four Barnhills Buffet by its newly formed, wholly-owned, independently capitalized subsidiary, Starlite Holdings, Inc. The Credit Facility is guaranteed by Star Buffets subsidiaries and bears interest, at the Companys option, at Wells Fargos base rate plus 0.25% or at LIBOR plus 2.00%. The Credit Facility is secured by a first priority lien on all of the Companys assets, except for those assets that are currently pledged as security for existing obligations, in which case Wells Fargo will have a second lien. The term loan matures on January 31, 2012 and provides for principal to be amortized at $175,000 per quarter for the initial six quarters; $225,000 for the next nine quarters; with any remaining balance due at maturity. Interest is payable monthly. The term loan balance was $6,825,000 on April 14, 2008. A $2,000,000 revolving line of credit matures on January 31, 2012. Interest on the revolver is payable monthly. As of April 14, 2008, no balance was outstanding on the revolving line of credit.
On February 1, 2001, the Company entered into a $460,000 15 year fixed rate first real estate mortgage with Victorium Corporation. The mortgage has monthly payments including interest of $6,319. The interest rate is 7.5%. The mortgage is secured the Companys restaurant in Ocala, Florida. The balance at January 28, 2008 and January 29, 2007 was $311,000 and $325,000, respectively.
On May 2, 2002, the Company entered into a $1,500,000 ten year fixed rate first real estate mortgage with M&I Marshall & Ilsley Bank. The mortgage has monthly payments including interest of $17,894. The interest rate is7.5% for the first five years with interest for years six to ten calculated at the five year LIBOR rate plus 250 basis points with a floor of 7.5%. The mortgage is secured by the Companys HomeTown Buffet restaurant in Scottsdale, Arizona. The balance at January 28, 2008 and January 29, 2007 was $624,000 and $877,000, respectively.
On December 19, 2003, the Company entered into a $1,470,000 six year fixed rate first real estate mortgage with Platinum Bank. The mortgage has monthly payments including interest of $12,678 with a balloon payment of $475,000 due on December 19, 2009. The interest rate is 7.25%. The mortgage is secured by the Companys BuddyFreddys restaurant in Plant City, Florida. The balance at January 28, 2008 and January 29, 2007 was $1,115,000 and $1,237,000, respectively.
On February 25, 2004, the Company entered into a $1,250,000 seven year fixed rate first real estate mortgage with M&I Marshall & Ilsley Bank. The mortgage has monthly payments including interest of $18,396. The interest rate is 6.1%. The mortgage is secured by the Companys HomeTown Buffet restaurant in Yuma, Arizona. The balance at January 28, 2008 and January 29, 2007 was $404,000 and $721,000, respectively.
On July 29, 2004, the Company entered into a $550,000 ten year fixed rate first real estate mortgage with Heritage Bank. The mortgage has monthly payments including interest of $6,319. The interest rate is 6.75%. The mortgage is secured by the Companys JBs Family Restaurant in Great Falls, Montana. The balance at January 28, 2008 and January 29, 2007 was $391,000 and $430,000, respectively.
On October 27, 2004, the Company entered into a $1,275,000 five year fixed rate first real estate mortgage with Bank of Utah. The mortgage has monthly payments including interest of $14,371 with a balloon payment of $752,000 due on October 26, 2009. The interest rate is 6.25%. The mortgage requires the Company to maintain specified minimum levels of net worth, limits the amount of capital expenditures and requires the maintenance of certain fixed charge coverage ratios. The mortgage is secured by the Companys HomeTown Buffet restaurant in Layton, Utah. The balance at January 28, 2008 and January 29, 2007 was $840,000 and $1,008,000, respectively.
On September 16, 2005, the Company entered into a $300,000 five year fixed rate real estate mortgage with Naisbitt Investment Company. The mortgage has monthly payments including interest of $5,870. The interest rate is 6.5%. The mortgage is secured by the Companys JBs Restaurant in Rexburg, Idaho. The balance at January 28, 2008 and January 29, 2007 was $169,000 and $206,000, respectively.
17
On June 1, 2006, the Company entered into a $564,000 five year fixed rate first real estate mortgage with Dalhart Federal Savings and Loans. The mortgage has monthly payments including interest of $6,731. The interest rate is 7.63%. The mortgage is secured by the Companys K-BOBS Steakhouse in Dumas, Texas. The balance at January 28, 2008 and January 29, 2007 was $497,000 and $525,000, respectively.
On November 8, 2006, the Company entered into a $595,000 five year fixed rate first real estate mortgage with Wells Fargo Bank. The mortgage has monthly payments including interest of $8,055. The interest rate is 7.5%. The mortgage is secured by the Companys Pecos Diamond Steakhouse in Artesia, New Mexico. The balance at January 28, 2008 and January 29, 2007 was $461,000 and $560,000, respectively.
On January 30, 2007, the Company entered into a $900,000 five year fixed rate real estate mortgage with Fortenberrys Beef of Magee, Inc. The mortgage has monthly payments including interest of $17,821. The interest rate is 7%. The mortgage is secured by the Companys Western Sizzlin restaurant in Magee, Mississippi. The balance at January 28, 2008 was $740,000.
On May 29, 2007, the Company entered into a $500,000 five year fixed rate real estate mortgage with Dalhart Federal Savings and Loan Association. The mortgage has monthly payments including interest of 5,903 with a balloon payment of $301,345 due on June 1, 2012. The interest rate is 7.38%. The mortgage is secured by the Companys Bar H Steakhouse restaurant in Dalhart, Texas. The balance at January 28, 2008 was $477,000.
On June 19, 2007, the Company entered into a $520,000 five year fixed rate real estate mortgage with Farmers Bank and Trust. The mortgage has monthly payments including interest of $4,676 with a balloon payment of $407,313 due on June 19, 2012. The interest rate is 7%. The mortgage is secured by the Companys Western Sizzlin restaurant in Magnolia, Arkansas. The balance at January 28, 2008 was $508,000.
During fiscal 2008, the Company borrowed approximately $1,400,000 from Mr. Robert E. Wheaton, a principal shareholder, officer and director of the Company. This loan dated June 15, 2007 is subordinated to the obligation to Wells Fargo Bank, N.A. bears interest at 8.5%. The Company expensed and paid $78,458 to Mr. Wheaton for interest during the fiscal year. The principal balance and any unpaid interest is due and payable in full on June 5, 2012. The Company used the funds to acquire restaurants and provide working capital.
The Company believes that available cash, availability under the revolving line of credit and cash flow from operations will be sufficient to satisfy its working capital and capital expenditure requirements during the next 12 months. Management does not believe the net working capital deficit will have any effect on the Companys ability to operate the business and meet obligations as they come due in the next 12 months. The Company projects that operating cash flows will exceed planned capital expenditures in the next 12 months and that funds will be available to return capital to stockholders in the form of dividends, share repurchases or both. There can be no assurance, however, that cash and cash flow from operations will be sufficient to satisfy its working capital and capital requirements for the next 12 months or beyond.
It is possible that changes in the Companys operating results, unavailable loan capacity from the existing credit facility, acceleration of the Companys capital expenditure plans, potential acquisitions or other events may cause the Company to seek additional financing. Additional financing may be raised through public or private equity and/or debt financing or from other sources.
As of January 28, 2008, the Company did not have any off-balance sheet arrangements as defined in Item 303(a) (4) (ii) of Regulation S-K.
Commitments and Contractual Obligations
The Companys contractual obligations and commitments principally include obligations associated with our outstanding indebtedness and future minimum operating and capital lease obligations as set forth in the following table:
18
Contractual Obligations: |
|
Total |
|
Less than
|
|
One to
|
|
Three to
|
|
Greater than
|
|
|||||
|
|
(Dollars in thousands) |
|
|||||||||||||
Long-term debt (1)(2) |
|
$ |
7,995 |
|
$ |
1,038 |
|
$ |
3,412 |
|
$ |
2,699 |
|
$ |
846 |
|
Operating leases (3) |
|
11,079 |
|
2,691 |
|
3,197 |
|
2,224 |
|
2,967 |
|
|||||
Capital leases (3) |
|
110 |
|
55 |
|
55 |
|
|
|
|
|
|||||
Purchase commitments |
|
|
|
|
|
|
|
|
|
|
|
|||||
Total contractual cash obligations |
|
$ |
19,184 |
|
$ |
3,784 |
|
$ |
6,664 |
|
$ |
4,923 |
|
$ |
3813 |
|
(1) See Note 5 to the consolidated financial statements for additional information.
(2) Long-term debt includes note payable to officer.
(3) See Note 6 to the consolidated financial statements for additional information.
Impact of Inflation
Management recognizes that inflation has an impact on food, construction, labor and benefit costs, all of which can significantly affect the Companys operations. Historically, the Company has been able to pass on certain associated costs due to these inflationary factors along to its customers because those factors have impacted nearly all restaurant companies.
The Company prepares its condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. The Companys condensed consolidated financial statements are based on the application of certain accounting policies, the most significant of which are described in Note 1Summary of Significant Accounting Policies to the audited consolidated financial statements for the year ended January 28, 2008, included in the Companys Annual Report filed on Form 10-K. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variations and may significantly affect the Companys reported results and financial position for the current period or future periods. Changes in the underlying factors, assumptions or estimates in any of these areas could have a material impact on the Companys future financial condition and results of operations. The Company considers the following policies to be the most critical in understanding the judgments that are involved in preparing its consolidated financial statements.
Receivables
Receivables are stated at an amount management expects to collect and provides for an adequate reserve for probable uncollectible amounts. Amounts deemed to be uncollectible are written off through a charge to earnings and a credit to a valuation allowance based on managements assessment of the current status of individual balances. A receivable is written off when it is determined that all collection efforts have been exhausted. The Company did not have any reserves for the fiscal year ending January 28, 2008 and January 29, 2007.
Notes Receivable
Notes receivable are stated at an amount management expects to collect and provides for an adequate reserve for probable uncollectible amounts. Amounts deemed to be uncollectible are written off through a charge to earnings and a credit to a valuation allowance based on managements assessment of the current status of individual balances. A note receivable is written off when it is determined that all collection efforts have been exhausted. The Company did not have any reserves for the fiscal year ending January 28, 2008 and January 29, 2007.
Income Taxes
Periodically, the Company records (or reduces) the valuation allowance against deferred tax assets to the amount that is more likely than not to be realized based upon recent past financial performance, tax reporting positions, and expectations of future taxable income. The Company expects to continue to record a valuation allowance on certain future tax benefits as required under SFAS 109.
19
The assets are evaluated each period under the requirements of SFAS 109. Currently, the Company does not have a valuation allowance against deferred tax assets since the Company expects to utilize all deferred tax assets. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires the recognition, in the financial statements, of the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Company does not have any tax positions that require recognition under Fin 48 as of April 14, 2008.
Property, Buildings and Equipment
Property and equipment and real property under capitalized leases are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over the following useful lives:
|
|
Years |
Buildings |
|
40 |
Building and leasehold improvements |
|
15 20 |
Furniture, fixtures and equipment |
|
5 8 |
Building and leasehold improvements are amortized over the lesser of the life of the lease or estimated economic life of the assets. The life of the lease includes renewal options determined by management at lease inception. If a previously scheduled lease option is not exercised, any remaining unamortized leasehold improvements may be required to be recognized immediately which could result in a significant charge adversely affecting the operating results of that period.
Repairs and maintenance are charged to operations as incurred. Remodeling costs are generally capitalized.
The Companys accounting policies regarding buildings and equipment include certain management judgments regarding the estimated useful lives of such assets, the residual values to which the assets are depreciated and the determination as to what constitutes increasing the life of existing assets. These judgments and estimates may produce materially different amounts of depreciation and amortization expense than would be reported if different assumptions were used. As discussed further below, these judgments may also impact the Companys need to recognize an impairment charge on the carrying amount of these assets as the cash flows associated with the assets are realized.
Impairment of Goodwill
Goodwill and other intangible assets primarily represent the excess of the purchase price paid over the fair value of the net assets acquired in connection with business acquisitions. As of January 29, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). In accordance with SFAS 142, the Company has ceased amortizing goodwill recorded in past business combinations effective as of January 29, 2002. As a result, there is no charge for goodwill amortization expense contained in the Companys statements of operations for the year ended January 29, 2007. The Company recorded impairment expense of $1,401,000 for goodwill in fiscal year ended January 28, 2008.
SFAS 142 requires that goodwill be tested for impairment by comparing the fair value of each reporting unit that included goodwill to the carrying amount of the reporting unit. The Company performed the transitional impairment test and determined that the carrying amount of relevant reporting units was in excess of the fair value of those units. This resulted in a transitional impairment loss of $849,000 which was reported as a cumulative effect of a change in accounting principle, net of a tax benefit of $289,000 in the first quarter of fiscal 2003. Subsequent to the adoption of SFAS 142, the Company evaluates goodwill for impairment annually or when a triggering event occurs that indicates a potential impairment may have occurred in accordance with SFAS 142. Future impairments of goodwill, if any, will adversely affect the results of operations in the periods recognized.
Impairment of Long-Lived Assets
The Company determines that an impairment write-down is necessary for locations whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. As of January 29, 2002, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). In accordance with SFAS 144, recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the
20
amount by which the carrying amount of the assets exceed the fair value of the assets. Any impairment which would adversely affect operating results in the affected period.
Judgments made by the Company related to the expected useful lives of long-lived assets and the ability of the Company to realize undiscounted net cash flows in excess of the carrying amounts of such assets are affected by factors such as the ongoing maintenance and improvements of the assets, changes in economic conditions, and changes in operating performance. As the Company assesses the ongoing expected net cash flows and carrying amounts of its long-lived assets, these factors could cause the Company to realize a material impairment charge and could adversely affect operating results in any period.
Historically, the Company was self-insured for casualty claims, retaining commercial insurance for casualty claims in excess of $2 million per claim and $3 million per year as a risk reduction strategy. Effective January 1, 2008 the company purchased commercial insurance for casualty claims in excess of $100,000 per claim. Accruals for self-insured losses include estimates based on historical information and expected future developments. Differences in estimates and assumptions could result in actual liabilities that are materially different from the calculated accruals.
Recently Adopted Accounting Pronouncements
In February 2006, the FASB issued SFAS 155, Accounting for Certain Hybrid Financial Instruments an amendment of FASB Statements No. 133 and 140. SFAS 155 allows financial instruments that contain an embedded derivative and that otherwise would require bifurcation to be accounted for as a whole on a fair value basis, at the holders election. SFAS 155 also clarifies and amends certain other provisions of SFAS 133, Accounting for Derivative Instruments and Hedging Activities , and SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities a replacement of FASB Statement 125. Our adoption of SFAS 155 at the beginning of fiscal 2008 had no impact on our consolidated financial position or results of operations.
In March 2006, the FASB issued SFAS 156, Accounting for Servicing of Financial Assets an amendment of FASB Statement No. 140. SFAS 156 provides guidance on the accounting for servicing assets and liabilities when an entity undertakes an obligation to service a financial asset by entering into a servicing contract. Our adoption of SFAS 156 at the beginning of fiscal 2008 had no impact on our consolidated financial position or results of operations.
In June 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 , which clarifies the accounting for uncertainty in income taxes recognized in financial statements. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires the recognition, in the financial statements, of the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. We adopted FIN 48 at the beginning of fiscal 2008 and it has had no impact on our consolidated financial position or results of operation.
In June 2006, the FASB ratified EITF consensus 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation). This EITF addresses the presentation of taxes in the income statement. Gross or net presentation may be elected for each different type of tax, but similar taxes should be presented consistently. Taxes within the scope of this EITF would include taxes that are imposed on a revenue transaction between a seller and a customer, for example, sales taxes, use taxes, value-added taxes, and some types of excise taxes. Our accounting policy is to present the taxes within the scope of EITF 06-3 on a net basis. EITF 06-3 is effective for interim and annual periods beginning after December 15, 2006, which for us is the first quarter of fiscal 2008. EITF 06-3 has not had an impact on our consolidated financial position or results of operations in fiscal 2008.
In September 2006, the FASB issued SFAS 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS 158 requires the balance sheet recognition of the funded status of defined benefit pension and other postretirement plans, along with a corresponding after-tax adjustment to stockholders equity. Our adoption of SFAS 158 at the end of fiscal 2007 did not have a material impact on our consolidated financial position or results of operations.
21
In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement for the purpose of the materiality assessment. Our adoption of SAB 108 at the end of fiscal 2007 did not have a material impact on our consolidated financial position or results of operations.
New Accounting Pronouncements Not Yet Adopted
In December 2007, the FASB issued FAS 141 (revised 2007), Business Combinations . This standard requires the new acquiring entity to recognize all assets acquired and liabilities assumed in the transactions; establishes an acquisition-date fair value for said assets and liabilities; and fully discloses to investors the financial effect the acquisition will have. FAS 141 (R) is effective for fiscal years beginning after December 15, 2008, which for us is fiscal 2010. We are currently evaluating the impact of FAS 141 (R) on our consolidated financial position and results of operations.
In December 2007, the FASB issued FAS 160, Noncontrolling Interests in Consolidated Financial Statements, and amendment of ARB No. 51 (FAS 160) . This standard requires all entities to report minority interests in subsidiaries as equity in the consolidated financial statements, and requires that transactions between entities and noncontrolling interests be treated as equity. FAS 160 is effective for fiscal years beginning after December 15, 2008, which for us is fiscal 2010. We are currently evaluating the impact of FAS 160 on our consolidated financial position and results of operations.
In September 2006, the FASB issued SFAS 157, Fair Value Measurements. SFAS 157 establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurement. SFAS 157 also creates consistency and comparability in fair value measurements among the many accounting pronouncements that require fair value measurements but does not require any new fair value measurements. SFAS 157 is effective for fiscal years (including interim periods) beginning after November 15, 2007, which for us is the first quarter of fiscal 2009. We are currently evaluating the impact of SFAS 157 on our consolidated financial position and results of operations.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115 . This standard amends SFAS 115, Accounting for Certain Investment in Debt and Equity Securities , with respect to accounting for a transfer to the trading category for all entities with available-for-sale and trading securities electing the fair value option. This standard allows companies to elect fair value accounting for many financial instruments and other items that currently are not required to be accounted as such, allows different applications for electing the option for a single item or groups of items, and requires disclosures to facilitate comparisons of similar assets and liabilities that are accounted for differently in relation to the fair value option. SFAS 159 is effective for fiscal years beginning after November 15, 2007, which for us is fiscal 2009. We are currently evaluating the impact of SFAS 159 on our consolidated financial position and results of operations.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
The Companys principal exposure to financial market risks relates to interest rate changes on the Revolving Line of Credit, of which $1,349,000 and $0 was outstanding as of January 28, 2008 and April 14, 2008, respectively. The current Revolving Line of Credit interest rate is LIBOR plus two percent or approximately 5.3% on January 28, 2008. A hypothetical increase of 100 basis points in short-term interest rates would result in a reduction of pre-tax earnings, the amount of which would depend on the amount outstanding on the line of credit. All of our business is transacted in U.S. dollars. Accordingly, foreign exchange rate fluctuations have never had a significant impact on the Company and are not expected to in the foreseeable future.
Commodity Price Risk
The Company purchases a number of food items and utilizes utilities, most of which are influenced by the associated commodity prices. Although many of the products and utilities purchased are subject to changes in the associated commodity prices, certain purchasing contract arrangements containing risk management techniques designed to minimize price volatility in the short-term are
22
available to the Company. Typically the Company uses these types of purchasing techniques to minimize price volatility. The Company does not utilize financial instruments to hedge commodity price. The Company believes it will be able to address significant commodity cost increases by adjusting its menu pricing, menu mix or changing our product delivery strategy. However, rapid increases in commodity prices would likely result in lower operating margins for our restaurant concepts, particularly in the short-term.
Item 8. Financial Statements and Supplementary Data
See the Index to Consolidated Financial Statements included at Item 15. Exhibits and Financial Statement Schedules
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A (T). Controls and Procedures
Management is responsible for the preparation, integrity and fair presentation of the consolidated financial statements and Notes to the consolidated financial statements. The financial statements were prepared in accordance with the accounting principles generally accepted in the U.S. and include certain amounts based on managements judgment and best estimates. Other financial information presented is consistent with the financial statements.
Management is also responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Companys internal control over financial reporting is designed under the supervision of the Companys principal executive and financial officers in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Companys internal control over financial reporting includes those policies and procedures that:
(i) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company;
(ii) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(iii) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our principal executive officer and principal financial officer assessed the effectiveness of the Companys internal control over financial reporting as of January 28, 2008. In making this assessment, management used the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, our principal executive officer and principal financial officers have concluded that the internal controls over financial reporting were not effective as of January 28, 2008 and that certain significant deficiencies and material weaknesses existed for the period covered by this Annual Report on Form 10-K. The one significant deficiency and two material weaknesses identified included:
· Inadequate segregation of duties (significant deficiency);
· Untimely account reconciliations (material weakness); and an
· Inadequate documentation of cash disbursements (material weakness).
A significant deficiency is a deficiency, or combination of deficiencies in internal control over financial reporting, that adversely affects the entitys ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entitys financial statements that is more than inconsequential will not be prevented or detected by the entitys internal control. A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
23
This is a small public company. Effective internal control contemplates segregation of duties so that no one individual handles a transaction from inception to completion. Currently, there are not enough accounting personnel to permit an adequate segregation of duties in all respects and thus a significant deficiency in our internal control exists. Management has commenced an evaluation of staffing levels and responsibilities so as to comply with the segregation of duties requirements.
With respect to account reconciliation and cash disbursements, management has instituted additional internal control procedures to insure that: a) account reconciliations are completed earlier in the accounting cycle; and b) disbursements are not made prior to submission and approval of adequate supporting documentation.
The annual report on internal control over financial reporting does not include an attestation report of our independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only managements report in our annual report on Form 10-K for the fiscal year ended January 28, 2008.
24
None.
Item 10. Director, Executive Officers and Corporate Governance
Certain information concerning the current directors and executive officers of the Company is contained in Item 1 of Part I of this Annual Report on Form 10-K.
The remaining information is hereby incorporated by reference to the Companys definitive Proxy Statement for our 2008 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 28, 2008.
Item 11. Executive Compensation
The information pertaining to executive compensation is hereby incorporated by reference to the Companys definitive Proxy Statement for our 2008 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 28, 2008.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information pertaining to security ownership of certain beneficial owners and management and equity compensation plan information is hereby incorporated by reference to the Companys definitive Proxy Statement for our 2008 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 28, 2008.
Item 13. Certain Relationships and Related Transaction, and Director Independence
The information pertaining to certain relationships and related transactions is hereby incorporated by reference to the Companys definitive Proxy Statement to for our 2008 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 28, 2008.
Item 14. Principal Accountant Fees and Services
The information with respect to principal accountant fees and services is hereby incorporated by reference to the Companys definitive Proxy Statement for our 2008 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 28, 2008.
25
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Index to Consolidated Financial Statements:
(a)(2) Index to Financial Statement Schedules:
All schedules are omitted since the required information is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto.
(a)(3) Exhibits:
An Exhibit Index has been filed as a part of this Form 10-K beginning on Page E-1 hereof and is incorporated herein by reference.
26
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
STAR BUFFET, INC. |
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(Registrant) |
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April 24, 2008 |
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By: |
/s/ |
ROBERT E. WHEATON |
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Robert E. Wheaton |
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Chief Executive Officer and President |
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(principal executive officer) |
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April 24, 2008 |
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By: |
/s/ |
RONALD E. DOWDY |
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Ronald E. Dowdy |
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Group Controller, Treasurer and Secretary |
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(principal financial 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.
Signature |
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Title |
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Date |
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|
/s/ |
ROBERT E. WHEATON |
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Chief Executive Officer, |
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April 24, 2008 |
|
|
Robert E. Wheaton |
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President and Director |
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/s/ |
RONALD E. DOWDY |
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Group Controller, Treasurer |
|
April 24, 2008 |
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Ronald E. Dowdy |
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and Secretary |
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/s/ |
THOMAS G. SCHADT |
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Director |
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April 14, 2008 |
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Thomas G. Schadt |
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/s/ |
PHILLIP BUDDY JOHNSON |
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Director |
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April 14, 2008 |
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Phillip Buddy Johnson |
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/s/ |
CRAIG B. WHEATON |
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Director |
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April 14, 2008 |
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Craig B. Wheaton |
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/s/ |
B. THOMAS M. SMITH, JR. |
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Director |
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April 14, 2008 |
|
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B. Thomas M. Smith, Jr. |
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/s/ |
TODD S. BROWN |
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Director |
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April 14, 2008 |
|
|
Todd S. Brown |
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27
REPORT OF MANAGEMENT RESPONSIBILITIES
The management of Star Buffet, Inc. is responsible for the fairness and accuracy of the consolidated financial statements. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, using managements best estimates and judgments where appropriate. The financial information throughout this report is consistent with our consolidated financial statements.
Management has established a system of internal controls that provides reasonable assurance that assets are adequately safeguarded, and transactions are recorded accurately, in all material respects, in accordance with managements authorization. We maintain a strong audit program that independently evaluates the adequacy and effectiveness of internal controls. Our internal controls provide for appropriate separation of duties and responsibilities, and there are documented policies regarding utilization of Company assets and proper financial reporting. These formally stated and regularly communicated policies set high standards of ethical conduct for all employees.
This annual report does not include an attestation report of the Companys registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Companys registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only managements report in this annual report.
The Audit Committee of the Board of Directors meets regularly to determine that management and independent auditors are properly discharging their duties regarding internal control and financial reporting. The independent auditors and employees have full and free access to the Audit Committee at any time.
Mayer Hoffman McCann P.C. , independent registered public accountants, are retained to audit the Companys consolidated financial statements.
/s/ Robert E. Wheaton |
|
Robert E. Wheaton, Chairman of the Board and Chief Executive Officer |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders
STAR BUFFET, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of Star Buffet, Inc. and Subsidiaries (a Delaware Corporation) as of January 28, 2008 and January 29, 2007, and the related consolidated statements of operations, stockholders equity and cash flows for each of the three fiscal years in the period ended January 28, 2008. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Star Buffet, Inc. and Subsidiaries as of January 28, 2008 and January 29, 2007, and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 28, 2008, in conformity with U.S. generally accepted accounting principles.
/s/ Mayer Hoffman McCann P.C. |
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MAYER HOFFMAN MCCANN P.C. |
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Phoenix, Arizona |
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April 24, 2008 |
F-2
STAR BUFFET, INC. AND SUBSIDIARIES
|
|
January 28,
|
|
January 29,
|
|
||
ASSETS |
|
|
|
|
|
||
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
736,000 |
|
$ |
418,000 |
|
Current portion of notes receivable |
|
|
|
58,000 |
|
||
Receivables, net |
|
431,000 |
|
435,000 |
|
||
Income tax receivables |
|
665,000 |
|
|
|
||
Inventories |
|
412,000 |
|
548,000 |
|
||
Deferred income taxes |
|
319,000 |
|
310,000 |
|
||
Prepaid expenses |
|
166,000 |
|
320,000 |
|
||
Total current assets |
|
2,729,000 |
|
2,089,000 |
|
||
|
|
|
|
|
|
||
Property, buildings and equipment: |
|
|
|
|
|
||
Property, buildings and equipment, net |
|
20,816,000 |
|
17,479,000 |
|
||
Property and equipment under capitalized leases, net |
|
71,000 |
|
751,000 |
|
||
Property and equipment leased to third parties, net |
|
3,126,000 |
|
4,291,000 |
|
||
Property, buildings and equipment held for future use |
|
2,547,000 |
|
1,892,000 |
|
||
Property held for sale |
|
931,000 |
|
931,000 |
|
||
Total property, buildings and equipment |
|
27,491,000 |
|
25,344,000 |
|
||
|
|
|
|
|
|
||
Other Assets: |
|
|
|
|
|
||
Notes receivable, net of current portion |
|
704,000 |
|
1,873,000 |
|
||
Deposits and other |
|
623,000 |
|
245,000 |
|
||
Total other assets |
|
1,327,000 |
|
2,118,000 |
|
||
|
|
|
|
|
|
||
Deferred income taxes |
|
2,765,000 |
|
2,097,000 |
|
||
|
|
|
|
|
|
||
Intangible assets: |
|
|
|
|
|
||
Goodwill |
|
551,000 |
|
1,677,000 |
|
||
Other intangible assets, net |
|
839,000 |
|
843,000 |
|
||
Total intangible assets |
|
1,390,000 |
|
2,520,000 |
|
||
|
|
|
|
|
|
||
Total assets |
|
$ |
35,702,000 |
|
$ |
34,168,000 |
|
The accompanying notes are an integral part of the consolidated financial statements.
F- 3
|
|
January 28,
|
|
January 29,
|
|
||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
||
Accounts payable-trade |
|
$ |
4,959,000 |
|
$ |
2,657,000 |
|
Payroll and related taxes |
|
1,401,000 |
|
1,281,000 |
|
||
Sales and property taxes |
|
1,297,000 |
|
901,000 |
|
||
Rent, licenses and other |
|
808,000 |
|
608,000 |
|
||
Income taxes payable |
|
176,000 |
|
628,000 |
|
||
Revolving line of credit |
|
1,349,000 |
|
336,000 |
|
||
Current maturities of obligations under long-term debt |
|
1,038,000 |
|
434,000 |
|
||
Current maturities of obligations under capital leases |
|
49,000 |
|
157,000 |
|
||
Total current liabilities |
|
11,077,000 |
|
7,002,000 |
|
||
|
|
|
|
|
|
||
Deferred rent payable |
|
1,846,000 |
|
1,294,000 |
|
||
Other long-term liability |
|
493,000 |
|
|
|
||
Note payable to officer |
|
1,400,000 |
|
|
|
||
Capitalized lease obligations, net of current maturities |
|
54,000 |
|
1,239,000 |
|
||
Long-term debt, net of current maturities |
|
5,557,000 |
|
5,455,000 |
|
||
Total liabilities |
|
20,427,000 |
|
14,990,000 |
|
||
|
|
|
|
|
|
||
Stockholders equity: |
|
|
|
|
|
||
Preferred stock, $.001 par value; authorized 1,500,000 shares; none issued or outstanding |
|
|
|
|
|
||
Common stock, $.001 par value; authorized 8,000,000 shares; issued and outstanding 3,170,675 and 3,170,675 shares |
|
3,000 |
|
3,000 |
|
||
Additional paid-in capital |
|
17,491,000 |
|
17,491,000 |
|
||
(Accumulated deficit) Retained earnings |
|
(2,219,000 |
) |
1,684,000 |
|
||
Total stockholders equity |
|
15,275,000 |
|
19,178,000 |
|
||
|
|
|
|
|
|
||
Total liabilities and stockholders equity |
|
$ |
35,702,000 |
|
$ |
34,168,000 |
|
The accompanying notes are an integral part of the consolidated financial statements.
F-4
STAR BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
Fifty-Two |
|
Fifty-Two |
|
Fifty-Two |
|
|||
|
|
Weeks |
|
Weeks |
|
Weeks |
|
|||
|
|
Ended |
|
Ended |
|
Ended |
|
|||
|
|
January 28, 2008 |
|
January 29, 2007 |
|
January 30, 2006 |
|
|||
|
|
|
|
|
|
|
|
|||
Total revenues |
|
$ |
68,732,000 |
|
$ |
58,648,000 |
|
$ |
56,305,000 |
|
Costs and expenses |
|
|
|
|
|
|
|
|||
Food costs |
|
25,356,000 |
|
20,789,000 |
|
19,429,000 |
|
|||
Labor costs |
|
23,913,000 |
|
19,674,000 |
|
18,260,000 |
|
|||
Occupancy and other expenses |
|
15,187,000 |
|
12,772,000 |
|
11,763,000 |
|
|||
General and administrative expenses |
|
3,549,000 |
|
2,426,000 |
|
2,179,000 |
|
|||
Depreciation and amortization |
|
2,098,000 |
|
2,069,000 |
|
2,120,000 |
|
|||
Impairment of long-lived assets |
|
1,401,000 |
|
|
|
369,000 |
|
|||
Total costs and expenses |
|
71,504,000 |
|
57,730,000 |
|
54,120,000 |
|
|||
(Loss) income from operations |
|
(2,772,000 |
) |
918,000 |
|
2,185,000 |
|
|||
|
|
|
|
|
|
|
|
|||
Interest expense |
|
(858,000 |
) |
(616,000 |
) |
(648,000 |
) |
|||
Interest income |
|
24,000 |
|
93,000 |
|
361,000 |
|
|||
Gain on sale of assets |
|
31,000 |
|
230,000 |
|
|
|
|||
Other income |
|
259,000 |
|
329,000 |
|
319,000 |
|
|||
(Loss) income before income taxes (benefit) |
|
(3,316,000 |
) |
954,000 |
|
2,217,000 |
|
|||
|
|
|
|
|
|
|
|
|||
Income tax provision (benefit) |
|
(1,315,000 |
) |
238,000 |
|
420,000 |
|
|||
|
|
|
|
|
|
|
|
|||
Net (loss) income |
|
$ |
(2,001,000 |
) |
$ |
716,000 |
|
$ |
1,797,000 |
|
|
|
|
|
|
|
|
|
|||
Net (loss) income per common share basic |
|
$ |
(0.63 |
) |
$ |
0.23 |
|
$ |
0.60 |
|
Net (loss) income per common share diluted |
|
$ |
(0.63 |
) |
$ |
0.23 |
|
$ |
0.56 |
|
Weighted average shares outstanding basic |
|
3,171,000 |
|
3,147,000 |
|
2,990,000 |
|
|||
Weighted average shares outstanding diluted |
|
3,171,000 |
|
3,164,000 |
|
3,209,000 |
|
The accompanying notes are an integral part of the consolidated financial statements.
F-5
STAR BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
|
|
|
||||||
|
|
|
|
|
|
Additional |
|
Officers |
|
Earnings |
|
|
|
Total |
|
||||||
|
|
Common Stock |
|
Paid-In |
|
Notes |
|
(Accumulated) |
|
Treasury |
|
Stockholders |
|
||||||||
|
|
Shares |
|
Amount |
|
Capital |
|
Receivable |
|
Deficit) |
|
Stock |
|
Equity |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance at January 31, 2005 |
|
2,950,000 |
|
3,000 |
|
16,351,000 |
|
(698,000 |
) |
4,119,000 |
|
|
|
19,775,000 |
|
||||||
Exercised stock options |
|
53,000 |
|
|
|
267,000 |
|
|
|
|
|
|
|
267,000 |
|
||||||
Dividend |
|
|
|
|
|
|
|
|
|
(2,253,000 |
) |
|
|
(2,253,000 |
) |
||||||
Payment by officer |
|
|
|
|
|
|
|
698,000 |
|
|
|
|
|
698,000 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
|
|
|
|
|
|
|
|
|
1,797,000 |
|
|
|
1,797,000 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance at January 30, 2006 |
|
3,003,000 |
|
3,000 |
|
16,618,000 |
|
|
|
3,663,000 |
|
|
|
20,284,000 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Exercised stock options |
|
168,000 |
|
|
|
873,000 |
|
|
|
|
|
|
|
873,000 |
|
||||||
Dividend |
|
|
|
|
|
|
|
|
|
(2,695,000 |
) |
|
|
(2,695,000 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
|
|
|
|
|
|
|
|
|
716,000 |
|
|
|
716,000 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance at January 29, 2007 |
|
3,171,000 |
|
$ |
3,000 |
|
$ |
17,491,000 |
|
$ |
|
|
$ |
1,684,000 |
|
$ |
|
|
$ |
19,178,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Dividend |
|
|
|
|
|
|
|
|
|
(1,902,000 |
) |
|
|
(1,902,000 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
|
|
|
|
|
|
|
|
|
(2,001,000 |
) |
|
|
(1,302,000 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance at January 28, 2008 |
|
3,171,000 |
|
$ |
3,000 |
|
$ |
17,491,000 |
|
$ |
|
|
$ |
(2,219,000 |
) |
$ |
|
|
$ |
15,275,000 |
|
The accompanying notes are an integral part of the consolidated financial statements.
F-6
STAR BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Fifty-Two
|
|
Fifty-Two
|
|
Fifty-Two
|
|
|||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|||
Net (loss) income |
|
$ |
(2,001,000 |
) |
$ |
716,000 |
|
$ |
1,797,000 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|||
Depreciation |
|
1,980,000 |
|
1,956,000 |
|
2,003,000 |
|
|||
Amortization of franchise and licenses |
|
95,000 |
|
91,000 |
|
94,000 |
|
|||
Amortization of loan costs |
|
23,000 |
|
22,000 |
|
23,000 |
|
|||
Gain on sale of assets |
|
(31,000 |
) |
(230,000 |
) |
|
|
|||
Impairment of long-lived assets |
|
1,401,000 |
|
|
|
369,000 |
|
|||
Deferred income taxes, net |
|
(677,000 |
) |
41,000 |
|
(439,000 |
) |
|||
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|||
Receivables |
|
(51,000 |
) |
(138,000 |
) |
123,000 |
|
|||
Inventories |
|
136,000 |
|
(119,000 |
) |
36,000 |
|
|||
Prepaid expenses |
|
154,000 |
|
(188,000 |
) |
(58,000 |
) |
|||
Deposits and other |
|
(378,000 |
) |
(112,000 |
) |
91 ,000 |
|
|||
Deferred rent payable |
|
(38,000 |
) |
(23,000 |
) |
(3,000 |
) |
|||
Accounts payable-trade |
|
2,302,000 |
|
479,000 |
|
441,000 |
|
|||
Income taxes receivable |
|
(665,000 |
) |
|
|
|
|
|||
Income taxes payable |
|
(452,000 |
) |
(263,000 |
) |
170,000 |
|
|||
Other accrued liabilities |
|
1,210,000 |
|
451,000 |
|
(781,000 |
) |
|||
Total adjustments |
|
5,009,000 |
|
1,967,000 |
|
2,069,000 |
|
|||
Net cash provided by operating activities |
|
3,008,000 |
|
2,683,000 |
|
3,866,000 |
|
|||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|||
Payments on notes receivable |
|
20,000 |
|
1,323,000 |
|
82,000 |
|
|||
Acquisition of property, buildings and equipment |
|
(4,392,000 |
) |
(2,505,000 |
) |
(493,000 |
) |
|||
Interest income |
|
(1,000 |
) |
(2,000 |
) |
(1,000 |
) |
|||
Issuance of note receivable |
|
|
|
(100,000 |
) |
(1,640,000 |
) |
|||
Proceeds from the sale of assets |
|
746,000 |
|
171,000 |
|
|
|
|||
Purchase of license and trademarks |
|
(35,000 |
) |
(230,000 |
) |
(25,000 |
) |
|||
Payments by officer |
|
|
|
|
|
698,000 |
|
|||
Net cash used in investing activities |
|
(3,662,000 |
) |
(1,343,000 |
) |
(1,379,000 |
) |
|||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|||
Proceeds from issuance of long-term debt |
|
1,988,000 |
|
1,159,000 |
|
|
|
|||
Payments on long-term debt |
|
(1,282,000 |
) |
(929,000 |
) |
(577,000 |
) |
|||
Proceeds from stock options exercised |
|
|
|
873,000 |
|
267,000 |
|
|||
Loan from officer |
|
1,400,000 |
|
|
|
698,000 |
|
|||
Proceeds from line of credit, net |
|
1,013,000 |
|
336,000 |
|
|
|
|||
Capitalized loan costs |
|
(87,000 |
) |
(14,000 |
) |
(10,000 |
) |
|||
Principal payments on capital leases |
|
(158,000 |
) |
(143,000 |
) |
(115,000 |
) |
|||
Dividends paid |
|
(1,902,000 |
) |
(2,695,000 |
) |
(2,253,000 |
) |
|||
Net cash provided by (used) in financing activities |
|
972,000 |
|
(1,413,000 |
) |
(2,688,000 |
) |
|||
|
|
|
|
|
|
|
|
|||
Net increase (decrease) in cash and cash equivalents |
|
318,000 |
|
(73,000 |
) |
(201,000 |
) |
|||
Cash and cash equivalents at beginning of period |
|
418,000 |
|
491,000 |
|
692,000 |
|
|||
Cash and cash equivalents at end of period |
|
$ |
736,000 |
|
$ |
418,000 |
|
$ |
491,000 |
|
The accompanying notes are an integral part of the consolidated financial statements.
F-7
STAR BUFFET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of certain significant accounting policies not disclosed elsewhere in the footnotes to the consolidated financial statements is set forth below.
Basis of Presentation
The accompanying consolidated financial statements include the accounts for Star Buffet, Inc., together with its direct and indirect wholly owned subsidiaries Summit Family Restaurants Inc. (Summit), HTB Restaurants, Inc. (HTB), Northstar Buffet, Inc. (NSBI) and Star Buffet Management, Inc. (SBMI) (collectively the Company). The accompanying consolidated financial statements include the results of operations and assets and liabilities of the Companys operations. Certain estimates, assumptions and allocations were made in preparing such financial statements. Significant intercompany transactions and balances have been eliminated in consolidation.
Organization and Nature of Operations
The Company was formed by CKE Restaurants, Inc. (CKE) in July 1997 in connection with the reorganization of CKEs buffet-style restaurant business. Pursuant to a contribution agreement among the Company and CKE and certain respective subsidiaries, CKE transferred to Summit the net assets of its two Casa Bonita Mexican theme restaurants, and Summit transferred substantially all of its assets and liabilities (primarily those relating to the JBs Restaurant system and Galaxy Diner restaurants, but excluding 16 HomeTown Buffet restaurants operated by HTB) to a newly formed subsidiary of CKE. All of the parties to the foregoing transactions (the Formation Transactions) were, upon completion thereof, direct or indirect wholly owned subsidiaries of CKE, and such Formation Transactions were accounted for as reorganization among companies under common control.
The operating results for the 52-week period ended January 28, 2008 included 52 weeks of operations for the Companys 12 franchised HomeTown Buffets, seven JBs restaurants, five Whistle Junction restaurants, three 4BS restaurants, three Holiday House restaurants, three Western Sizzlin restaurants, two JJ Norths Grand Buffets, two BuddyFreddys restaurants, two BuddyFreddys Country Buffets, two K-BOBS Steakhouses, one Pecos Diamond Steakhouse, one Bar-H Steakhouse and one Casa Bonita Mexican theme restaurant. The Company also had five restaurants currently closed for remodeling and repositioning, three restaurants leased to third-party operators and the net assets of another closed restaurant reported as property held for sale. The Companys restaurants are located in Arkansas, Arizona, Colorado, Florida, Georgia, Idaho, Mississippi, Montana, New Mexico, Oklahoma, Oregon, Texas, Utah, Washington and Wyoming.
The operating results for the 52-week period ended January 29, 2007 included 52 weeks of operations for the Companys 14 franchised HomeTown Buffet restaurants, six JBs restaurants, three K-BOBS Steakhouses, two BuddyFreddys restaurants, two BuddyFreddys Country Buffets, two Holiday House restaurants, one JJ Norths Grand Buffet restaurant, and one Casa Bonita Mexican theme restaurant. The Company also opened the following during the year, one K-BOBS Steakhouse for 48 weeks, one Pecos Diamond Steakhouse for 29 weeks, one Western Sizzlin restaurant for 16 weeks and five Whistle Junction restaurants for 9 weeks. In addition, operating results include 19 weeks for one Buddy Freddys Country Buffet closed during the fiscal year 2007 . Results also include 33 weeks for one JJ Norths Country Buffet restaurant closed during the fiscal year 2007. Eight restaurants were closed at the end of the 2007 fiscal year for repositioning. Four of the eight closed restaurants have been leased to third-property operators, three restaurants remain closed for remodeling and repositioning and another closed restaurant was reported as property held for sale.
Fiscal Year
The Company utilizes a 52/53 week fiscal year which ends on the last Monday in January. The first quarter of each year contains 16 weeks while the other three quarters each contain 12 weeks except in the 53 week fiscal year, when the fourth quarter has 13 weeks.
F-8
Cash Equivalents
Highly liquid investments with original maturities of three months or less when purchased are considered cash equivalents. The carrying amounts reported in the consolidated balance sheets for these instruments approximate their fair value.
Revenue Recognition
The Companys principal source of revenue is from customer dining transactions. Revenue is recognized at the time the meal is purchased, primarily by cash or credit card.
Receivables are stated at an amount management expects to collect and provides for an adequate reserve for probable uncollectible amounts. Amounts deemed to be uncollectible are written off through a charge to earnings and a credit to a valuation allowance based on managements assessment of the current status of individual balances. A receivable is written off when it is determined that all collection efforts have been exhausted. The Company did not have any valuation allowance for the years ending January 28, 2008 and January 29, 2007.
The Company records vendor rebates on products purchased as a reduction of cost of sales. The allowances are recognized as earned in accordance with the written agreements with vendors.
Inventories
Inventories consist of food, beverage, gift shop items and restaurant supplies and are valued at the lower of cost or market, determined by the first-in, first-out method.
Property, Buildings and Equipment
Property and equipment and real property under capitalized leases are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over the following useful lives:
|
|
Years |
|
Buildings |
|
40 |
|
Building and leasehold improvements |
|
15 20 |
|
Furniture, fixtures and equipment |
|
5 8 |
|
Building and leasehold improvements are amortized over the lesser of the life of the lease or estimated economic life of the assets. The life of the lease includes renewal options determined by management at lease inception as reasonably likely to be exercised. If a previously scheduled lease option is not exercised, any remaining unamortized leasehold improvements may be required to be recognized immediately which could result in a significant charge adversely affecting the operating results of that period.
Property and equipment placed on the market for sale is not depreciated and is reclassed on the balance sheet as property held for sale. Property and equipment in non-operating units held for remodeling or repositioning is not depreciated.
Repairs and maintenance are charged to operations as incurred. Remodeling costs are generally capitalized.
Goodwill and other intangible assets primarily represent the excess of the purchase price paid over the fair value of the net assets acquired in connection with business acquisitions.
The Company reviews goodwill for possible impairment on an annual basis or when triggering events occur in accordance with
F-9
SFAS 142. Goodwill is tested for impairment at the reporting unit level. Because SFAS 142 defines a reporting unit as an operating segment or one level below an operating segment, the Company reviews goodwill for possible impairment at the individual restaurant level. Six reporting units (restaurants) had recorded goodwill associated with them for fiscal 2008 and fiscal 2007.
The Company utilizes a two-part impairment test. First, the fair value of the reporting unit is compared to the carrying value (including goodwill). If the carrying value is greater than the fair value, the second step is performed. In the second step, the implied fair value of the reporting unit goodwill is compared to the carrying amount of goodwill. If the carrying value is greater, a loss is recognized. The goodwill impairment test considers the impact of current conditions and the economic outlook for the restaurant industry, the general overall economic outlook including market data, governmental and environmental factors, in establishing the assumptions used to compute the fair value of each reporting unit. We also take into account the historical, current and future (based on probability) operating results of the six reporting units and any other facts and data pertinent to valuing the reporting units in our impairment test. In fiscal 2007 the Company determined that there was no goodwill impairment. In fiscal 2008, the impairment expense for goodwill was $1,126,000.
The Company has an independent evaluation of goodwill conducted every three years. The most recent independent valuation was conducted as of February 1, 2008.
Other Intangible Assets
Other intangible assets are comprised of franchise fees, loan acquisition costs, and the JBs license agreement. Franchise fees are amortized using the straight-line method over the terms of the franchise agreements, which typically range from 8 to 20 years. Loan costs are amortized using the straight-line method over the lesser of the life of the loan or five years (which approximates the effective interest method). The JBs license agreement is being amortized using the straight-line method over 11 years. The Company has the trademarks and intangible assets of Whistle Junction, Holiday House and 4Bs for $230,000, $25,000 and $25,000, respectively. These assets have an indefinite asset life and are subject to possible impairment on an annual basis or when triggering events occur in accordance with SFAS 142.
|
|
Gross |
|
Accumulated |
|
|
|
|||
|
|
Carrying Amt |
|
Amortization |
|
Net |
|
|||
Fiscal 2008 |
|
|
|
|
|
|
|
|
|
|
Franchise and license fees |
|
$ |
1,363,000 |
|
$ |
(631,000 |
) |
$ |
732,000 |
|
Loan acquisition costs |
|
200,000 |
|
(93,000 |
) |
107,000 |
|
|||
Total |
|
$ |
1,563,000 |
|
$ |
(716,000 |
) |
$ |
839,000 |
|
Fiscal 2007 |
|
|
|
|
|
|
|
|||
Franchise and license fees |
|
$ |
1,378,000 |
|
$ |
(578,000 |
) |
$ |
800,000 |
|
Loan acquisition costs |
|
113,000 |
|
(70,000 |
) |
43,000 |
|
|||
Total |
|
$ |
1,491,000 |
|
$ |
(648,000 |
) |
$ |
843,000 |
|
The table below shows expected amortization for purchased finite intangibles as of January 28, 2008 for the next five years:
Fiscal Year |
|
|
|
|
2009 |
|
130,000 |
|
|
2010 |
|
122,000 |
|
|
2011 |
|
117,000 |
|
|
2012 |
|
114,000 |
|
|
2013 |
|
64,000 |
|
|
Thereafter |
|
12,000 |
|
|
Total |
|
$ |
559,000 |
|
The Company acquired the JBs license agreement in November 2002 for $773,000. Amortization expense for the JBs license agreement was $78,000 in fiscal 2008 and 2007. Amortization of franchise and license fees were $95,000 and $91,000 for the fiscal years ending January 28, 2008 and January 29, 2007, respectively. Amortization of loan costs were $23,000 and $22,000 for the fiscal years ending January 28, 2008 and January 29, 2007, respectively.
F-10
Impairment of Long-Lived Assets
The Company determines that an impairment write down is necessary for long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. The impairment expense in fiscal 2008 was for goodwill, leasehold improvement, equipment and franchise fees of $1,126,000, $238,000, $29,000 and $8,000, respectively. Impairment expense charged to operations was $1,401,000 and $0 for the years ended January 28, 2008 and January 29, 2007, respectively.
The carrying amounts of the Companys cash and cash equivalents, receivables, accounts payable and accrued expenses approximates fair value because of the short maturity of these instruments.
The carrying amounts of the Companys notes receivable, long-term debt and capital lease obligations approximate fair value and are based on discounted cash flows using market rates at the balance sheet date. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument.
Pre-Opening Costs
Pre-opening costs are expensed when incurred. The Company incurred and charged to operations approximately $0 of pre-opening costs during fiscal 2008 and 2007.
Income Taxes
The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect during the years in which the differences are expected to reverse. An allowance against deferred tax assets is recorded in whole or in part when it is more likely than not that such tax benefits will not be realized.
Advertising Expenses
Advertising costs are charged to operations as incurred. Amounts charged to operations totaled $916,000 and $670,000, for the years ended January 28, 2008 and January 29, 2007, respectively.
Insurance Programs
Historically, the Company was self-insured for most casualty claims, with commercial insurance for casualty claims in excess of $2 million per claim and $3 million per year as a risk reduction strategy. Effective January 1, 2008 the Company purchased commercial insurance for casualty claims in excess of $100,000 per claim. Accruals for self-insured losses include estimates based on historical information and expected future developments. Differences in estimates and assumptions could result in actual liabilities that are materially different from the calculated accruals. Valuation reserves for the years ended January 28, 2008 and January 29, 2007, consisted of the following:
Insurance and claims reserves |
|
Balance at Beginning
|
|
Expense Recorded |
|
Payments Made |
|
Balance at End of
|
|
||||
Year ended January 28, 2008 |
|
$ |
66,500 |
|
$ |
2,080 |
|
$ |
(14,580 |
) |
$ |
54,000 |
|
Year ended January 29, 2007 |
|
$ |
50,000 |
|
$ |
27,500 |
|
$ |
(11,000 |
) |
$ |
66,500 |
|
F-11
Leases
The Company has various lease commitments on store locations. Expenses of operating leases with escalating payment terms are recognized on a straight-line basis over the lives that conform to the related term used to depreciate leasehold improvements on the leased property. Contingent rental payments are triggered by surpassing annual base revenue levels set forth in certain of our lease agreements. Contingent rental expense is recorded in each month that our revenue exceeds the monthly base revenue levels as set forth in the relevant lease agreement. In situations where the contingent rent is based on annual sales or cumulative sales to date, contingent rental expense is recorded when it is determined probable that we will exceed the established threshold.
Use of Estimates
In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the reporting period. Actual results could differ from those estimates.
Earnings (Loss) per Share
The Company applies Statement of Financial Accounting Standards No. 128 (SFAS No. 128), which requires the calculation of basic and diluted income (loss) per share. Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the fiscal year. Diluted income (loss) per share is computed on the basis of the average number of common shares outstanding plus the dilutive effect of outstanding stock options and warrants using the treasury stock method. The following is a reconciliation of the denominators used to calculate diluted earnings (loss) per share on net income (loss) for the respective fiscal years:
|
|
Fifty-Two |
|
Fifty-Two |
|
|
|
Weeks |
|
Weeks |
|
|
|
Ended |
|
Ended |
|
|
|
January 28, 2008 |
|
January 29, 2007 |
|
|
|
|
|
|
|
Weighted average common shares outstanding basic |
|
3,170,675 |
|
3,146,974 |
|
Dilutive effect of stock options |
|
|
|
17,361 |
|
Anti-dilutive stock options |
|
|
|
|
|
Weighted average common shares outstanding diluted |
|
3,170,675 |
|
3,164,335 |
|
Weighted average common shares used in the year ended January 28, 2008 to calculate diluted loss per share exclude stock options to purchase 40,000 shares of common stock as their effect was anti-dilutive. Weighted average common shares used in the year ended January 29, 2007 to calculate diluted earnings per share exclude stock options to purchase 488,000 shares of common stock due to the market price of the underlying stock being less than the exercise price.
The Companys reportable segments are based on brand similarities. Business results are based on the Companys management accounting practices.
The Company does not have any components of comprehensive income other than net income (loss) and, therefore, comprehensive income equaled net income (loss) for all periods presented.
F-12
Stock-Based Compensation
Periods prior to the adoption of SFAS 123(R)
Prior to January 1, 2006, the Company accounted for stock-based awards under the intrinsic value method, which followed the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employee, and related interpretations. The intrinsic value method of accounting resulted in compensation expense for stock options to the extent option exercise prices were set below market prices on the date of grant. Also, to the extent stock awards were forfeited prior to vesting, any previously recognized expense was reversed as an offset to operating expenses in the period of forfeiture.
The following table illustrates the effects on net loss and net loss per share as if the Company had applied the fair value recognition provisions of SFAS 123, Accounting for Stock Based Compensation , as amended by SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure to options granted under the Companys stock-based compensation plans prior to the adoption. For purposes of this pro forma disclosure, the value of the options was estimated using the Black-Scholes-Merton (BSM) option-pricing formula and amortized on a straight-line basis over the respective vesting periods of the awards. Disclosure for the year ended December 31, 2006 is not presented because stock-based payments were accounted for under SFAS 123 (R)s fair value method during this period.
|
|
Fifty-Two |
|
|
|
|
Weeks Ended |
|
|
|
|
January 30, 2006 |
|
|
|
|
(dollars in thousands except per share amounts) |
|
|
Net income (loss) attributable to common stockholders |
|
|
|
|
As reported |
|
$ |
1,797 |
|
Employee stock compensation expense included in net income (loss) as reported |
|
|
|
|
Pro forma compensation expense |
|
(61 |
) |
|
Pro forma net income (loss) |
|
$ |
1,736 |
|
Per share basic |
|
|
|
|
As reported |
|
$ |
.60 |
|
Pro forma compensation expense |
|
(.02 |
) |
|
Pro forma net income (loss) |
|
$ |
.58 |
|
Per share diluted |
|
|
|
|
As reported |
|
$ |
.56 |
|
Pro forma compensation expense |
|
(.02 |
) |
|
Pro forma net income (loss) |
|
$ |
.54 |
|
Adoption of SFAS 123(R)
As of January 1, 2006, the Company adopted SFAS No. 123(R) using the modified prospective method, which requires measurement of compensation cost for all stock-based awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options is determined using the Black-Scholes-Merton (BSM) valuation model, which is consistent with our valuation techniques previously utilized for options in footnote disclosures required under SFAS No. 123 . Such value is recognized as an expense over the service period, net of estimated forfeitures, using the straight-line method under SFAS 123(R).
The adoption of SFAS 123(R) did not result in a cumulative benefit from accounting change, which reflects the net cumulative impact of estimating future forfeitures in the determination of period expense, rather than recording forfeitures when they occur as previously permitted, as we did not have unvested employee stock awards for which compensation expense was recognized prior to adoption of SFAS No. 123(R).
New Accounting Pronouncements
In February 2006, the FASB issued SFAS 155, Accounting for Certain Hybrid Financial Instruments an amendment of FASB Statements No. 133 and 140. SFAS 155 allows financial instruments that contain an embedded derivative and that otherwise would require bifurcation to be accounted for as a whole on a fair value basis, at the holders election. SFAS 155 also clarifies and amends certain other provisions of SFAS 133, Accounting for Derivative Instruments and Hedging Activities , and SFAS 140, Accounting for
F-13
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities a replacement of FASB Statement 125. Our adoption of SFAS 155 at the beginning of fiscal 2008 had no impact on our consolidated financial position or results of operations.
In March 2006, the FASB issued SFAS 156, Accounting for Servicing of Financial Assets an amendment of FASB Statement No. 140. SFAS 156 provides guidance on the accounting for servicing assets and liabilities when an entity undertakes an obligation to service a financial asset by entering into a servicing contract. Our adoption of SFAS 156 at the beginning of fiscal 2008 had no impact on our consolidated financial position or results of operations.
In June 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 , which clarifies the accounting for uncertainty in income taxes recognized in financial statements. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires the recognition, in the financial statements, of the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. We adopted FIN 48 at the beginning of fiscal 2008 and it has had no impact on our consolidated financial position or results of operation.
In June 2006, the FASB ratified EITF consensus 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation). This EITF addresses the presentation of taxes in the income statement. Gross or net presentation may be elected for each different type of tax, but similar taxes should be presented consistently. Taxes within the scope of this EITF would include taxes that are imposed on a revenue transaction between a seller and a customer, for example, sales taxes, use taxes, value-added taxes, and some types of excise taxes. Our accounting policy is to present the taxes within the scope of EITF 06-3 on a net basis. EITF 06-3 is effective for interim and annual periods beginning after December 15, 2006, which for us is the first quarter of fiscal 2008. EITF 06-3 has not had an impact on our consolidated financial position or results of operations in fiscal 2008.
In September 2006, the FASB issued SFAS 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS 158 requires the balance sheet recognition of the funded status of defined benefit pension and other postretirement plans, along with a corresponding after-tax adjustment to stockholders equity. Our adoption of SFAS 158 at the end of fiscal 2007 did not have a material impact on our consolidated financial position or results of operations.
In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement for the purpose of the materiality assessment. Our adoption of SAB 108 at the end of fiscal 2007 did not have a material impact on our consolidated financial position or results of operations.
Reclassifications
None.
NOTE 2 ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In December 2007, the FASB issued FAS 141 (revised 2007), Business Combinations . This standard requires the new acquiring entity to recognize all assets acquired and liabilities assumed in the transactions; establishes an acquisition-date fair value for said assets and liabilities; and fully discloses to investors the financial effect the acquisition will have. FAS 141 (R) is effective for fiscal years beginning after December 15, 2008, which for us is fiscal 2010. We are currently evaluating the impact of FAS 141 (R) on our consolidated financial position and results of operations.
In December 2007, the FASB issued FAS 160, Noncontrolling Interests in Consolidated Financial Statements, and amendment of ARB No. 51 (FAS 160) . This standard requires all entities to report minority interests in subsidiaries as equity in the consolidated financial statements, and requires that transactions between entities and noncontrolling interests be treated as equity. FAS 160 is effective for fiscal years beginning after December 15, 2008, which for us is fiscal 2010. We are currently evaluating the impact of FAS 160 on our consolidated financial position and results of operations.
F-14
In September 2006, the FASB issued SFAS 157, Fair Value Measurements. SFAS 157 establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurement. SFAS 157 also creates consistency and comparability in fair value measurements among the many accounting pronouncements that require fair value measurements but does not require any new fair value measurements. SFAS 157 is effective for fiscal years (including interim periods) beginning after November 15, 2007, which for us is the first quarter of fiscal 2009. We are currently evaluating the impact of SFAS 157 on our consolidated financial position and results of operations.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115 . This standard amends SFAS 115, Accounting for Certain Investment in Debt and Equity Securities , with respect to accounting for a transfer to the trading category for all entities with available-for-sale and trading securities electing the fair value option. This standard allows companies to elect fair value accounting for many financial instruments and other items that currently are not required to be accounted as such, allows different applications for electing the option for a single item or groups of items, and requires disclosures to facilitate comparisons of similar assets and liabilities that are accounted for differently in relation to the fair value option. SFAS 159 is effective for fiscal years beginning after November 15, 2007, which for us is fiscal 2009. We are currently evaluating the impact of SFAS 159 on our consolidated financial position and results of operations.
NOTE 3 NOTES RECEIVABLE
Notes receivable consist of the following:
|
|
January 28, 2008 |
|
January 29, 2007 |
|
||
Notes receivable from Norths Restaurants, Inc. |
|
$ |
490,000 |
|
$ |
1,475,000 |
|
Notes receivable from strategic partners |
|
214,000 |
|
436,000 |
|
||
Notes receivable from landlord |
|
|
|
20,000 |
|
||
Total notes receivable |
|
704,000 |
|
1,931,000 |
|
||
Less current portion |
|
|
|
58,000 |
|
||
Notes receivable, net of current portion |
|
$ |
704,000 |
|
$ |
1,873,000 |
|
Since inception, the Companys acquisition strategy has incorporated the utilization of loans to sellers to facilitate certain proposed transactions. In most cases, these loans are secured and include, as part of terms and conditions, the Companys right to convert the loan into ownership of the restaurants. Also, certain of these loans contain favorable interest rates and repayment terms if the loans are not converted to ownership for one or more reasons. This financing strategy entails significant risk. Currently, the Company has two loans outstanding and both are in default. However, because the Company anticipates full recovery of amounts outstanding through either repayment or conversion to ownership, historically no provision for doubtful accounts has been established. Management is continually evaluating the collectibility on an ongoing basis. While estimates to date have been within our expectations, a change in the financial condition of specific restaurant companies or in overall industry trends may result in future adjustments to Company estimates of recoverability of receivables.
On February 1, 2005, the Company announced in a press release that it had entered into a strategic alliance with K-BOBS USA Inc. and related affiliates (K-BOBS). In accordance with the terms of the strategic alliance, Star Buffet agreed to lend K-BOBS up to $1.5 million on a long-term basis. The Company loaned K-BOBS $1.5 million and the current balance is $214,500. In exchange, K-BOBS granted Star Buffet an option to purchase as many as five corporate owned and operated K-BOBS restaurants located in New Mexico and Texas, as well as rights to develop K-BOBS in other areas in the United States. On January 31, 2006, the Company exercised its option under the terms of the strategic alliance and purchased three K-BOBS restaurants. In addition, the Company acquired another K-BOBS location in Texas for cash of $700,000 in February 2006.
In conjunction with the acquisition of certain JJ Norths restaurants from Norths Restaurants, Inc. (Norths) in 1997, the Company provided a credit facility to Norths and when Norths defaulted the Company sued for enforcement. In 1998, the Companys suit with Norths resulted in a negotiated settlement in favor of the Company represented by an Amended and Restated
F-15
Promissory Note (the Star Buffet Promissory Note). In a related proceeding, Norths other secured creditor, Pacific Mezzanine, initiated litigation against Norths seeking a monetary judgment and the appointment of a receiver. In April, 2006 the Company noticed all relevant parties of its intent to foreclose to seek expedited liquidation of Norths assets and repay amounts owed to the Company. Subsequent to the notice, the receiver moved to have the Companys foreclosure of Norths assets set aside so that certain of Norths assets could be sold to a third party. The motion was approved. On August 7, 2006, the receiver paid the Company approximately $1,291,000 from a partial sale of the assets. In August 2007, the receiver notified the Company that he planned to turn control of the JJ Norths restaurant in Grants Pass, Oregon and associated assets over to the Company. On September 22, 2007, the Company hired Norths employees, notified Norths creditors of its intent to operate the business and negotiated a facility lease with Norths previous landlord. The transfer of assets from Norths to Star Buffet Management, Inc. was approved by the court. The Companys note, together with the obligation to the other significant creditor of Norths, is secured by the real and personal property, trademarks and all other intellectual property owned by Norths. The Company believes current and future cash flows including asset sales are adequate for recovery of the remaining principal amount of the note receivable. The Company has not provided an allowance for bad debts for the note as of January 28, 2008.
NOTE 4 PROPERTY, BUILDINGS AND EQUIPMENT AND REAL PROPERTY UNDER CAPITALIZED LEASES
The components of property, buildings and equipment used in restaurant operations, not including property under capitalized leases, are as follows:
|
|
January 28,
|
|
January 29,
|
|
||
Property, buildings and equipment: |
|
|
|
|
|
||
Furniture, fixtures and equipment |
|
$ |
13,708,000 |
|
$ |
13,372,000 |
|
Land |
|
4,185,000 |
|
3,410,000 |
|
||
Buildings and leasehold improvements |
|
23,478,000 |
|
21,501,000 |
|
||
|
|
41,371,000 |
|
38,283,000 |
|
||
|
|
|
|
|
|
||
Less accumulated depreciation |
|
(20,555,000 |
) |
(20,804,000 |
) |
||
|
|
$ |
20,816,000 |
|
$ |
17,479,000 |
|
The components of property under capitalized leases are as follows:
Property and equipment under capitalized leases |
|
$ |
706,000 |
|
$ |
3,193,000 |
|
Less accumulated amortization |
|
(635,000 |
) |
(2,442,000 |
) |
||
|
|
$ |
71,000 |
|
$ |
751,000 |
|
In January 2008, the Company modified two existing capital leases. The lease modifications resulted in property and equipment under capitalized leases being reduced approximately $2,500,000 since these leases are now treated as operating leases. Total property, buildings and equipment includes the following land, equipment and buildings and leaseholds currently in nine non-operating units. Three of the nine non-operating restaurants have been leased to third-party operators; five are closed for remodeling and/or repositioning; one is closed and classified as property held for sale at January 28, 2008. The components are as follows:
|
|
January 28,
|
|
January 29,
|
|
||
Property, buildings and equipment leased to third parties: |
|
|
|
|
|
|
|
Equipment |
|
$ |
974,000 |
|
$ |
1,111,000 |
|
Land |
|
1,266,000 |
|
1,594,000 |
|
||
Buildings and leaseholds |
|
2,631,000 |
|
3,752,000 |
|
||
|
|
4,871,000 |
|
6,457,000 |
|
||
|
|
|
|
|
|
||
Less accumulated depreciation |
|
(1,745,000 |
) |
(2,166,000 |
) |
||
|
|
$ |
3,126,000 |
|
$ |
4,291,000 |
|
F-16
|
|
January 28,
|
|
January 29,
|
|
||
Property, buildings and equipment held for future use: |
|
|
|
|
|
||
Equipment |
|
$ |
8,033,000 |
|
$ |
6,398,000 |
|
Land |
|
517,000 |
|
517,000 |
|
||
Buildings and leaseholds |
|
2,066,000 |
|
852,000 |
|
||
|
|
10,616,000 |
|
7,767,000 |
|
||
|
|
|
|
|
|
||
Less accumulated depreciation |
|
(8,069,000 |
) |
(5,875,000 |
) |
||
|
|
$ |
2,547,000 |
|
$ |
1,892,000 |
|
|
|
January 28,
|
|
January 29,
|
|
||
Property and buildings held for sale: |
|
|
|
|
|
|
|
Land |
|
$ |
567,000 |
|
$ |
567,000 |
|
Buildings |
|
364,000 |
|
364,000 |
|
||
|
|
$ |
931,000 |
|
$ |
931,000 |
|
Depreciation expense for fiscal 2008 and 2007 totaled $1,980,000 and $1,956,000, respectively. Impairment expense for fiscal 2008 and 2007 totaled $267,000 and $0, respectively.
NOTE 5 LONG-TERM DEBT
The Company had a $3,000,000 unsecured revolving line of credit with M&I Marshall & Ilsley Bank which provided working capital for the Company. The M&I revolving line of credit bore interest at LIBOR plus two percent per annum. The Company replaced the M&I revolving line of credit on January 31, 2008 with a Credit Facility with Wells Fargo Bank, N.A. The Credit Facility included a $7,000,000 term loan and a $2,000,000 revolving line of credit. The credit facility was utilized to retire the Companys unsecured revolving line of credit with M&I Marshall & Ilsley Bank; to fund the acquisition of assets associated with sixteen (16) Barnhills Buffet restaurants; and to provide additional working capital to the Company. On February 29, 2008 the Company amended the Credit Facility, increasing the term loan principal from $7,000,000 to $8,000,000. The increase in the Credit Facility was used to fund the acquisition of four additional Barnhills Buffet restaurants by a newly formed, wholly-owned, independently capitalized subsidiary, Starlite Holdings, Inc. The Credit Facility is guaranteed by Star Buffets subsidiaries and bears interest, at the Companys option, at Wells Fargos base rate plus 0.25% or at LIBOR plus 2.00%. The Credit Facility is secured by a first priority perfected lien on all of the Companys assets, except for those assets that are currently pledged as security for existing obligations, in which case Wells Fargo will have a second priority lien. The term loan matures on January 31, 2012 and provides for principal to be amortized at $175,000 per quarter for the initial six quarters; $225,000 for the next nine quarters; with any remaining balance due at maturity. Interest is payable monthly. The term loan balance was $6,825,000 on April 14, 2008. A $2,000,000 revolving line of credit matures on January 31, 2012. Interest on the revolver is payable monthly. As of April 14, 2008, no balance was outstanding on the revolving line of credit. The Credit Facility contains a number of covenants and restrictions, including requirements to meet certain financial ratios and limitations with respect to the Companys ability to make capital expenditures or to pay dividends. The Compannys quarterly financial covenants associated with this debt start May 19, 2008 The Company is required to obtain interest rate protection through an interest rate swap or cap arrangement with respect to not less than 50% of the term loan amount. There is a 0.50% fee for the unused portion of the revolving line of credit and the Company has agreed to maintain its principal cash management services with Wells Fargo. In connection with the Credit Facility, Wells Fargo was granted 42,440 shares of the Companys restricted common stock. The shares were valued at $252,094 and will be amortized over the life of the loan. The credit facility can be prepaid in whole or part without penalty. Furthermore, certain provisions of the Credit Facility require the Company to remit proceeds from asset dispositions, issuance of debt or equity, insurance proceeds, tax refunds and fifty percent (50%) of excess cash flow (as defined) to reduce the principal amount of the term loan and, thereafter, the revolving line of
F-17
credit. Under terms of the Credit Facility, the Company is permitted to pay an annual dividend. However, restrictions imposed under terms of the Credit Facility may adversely impact the Companys ability to pay an annual dividend as the Company has historically relied on multiple sources of cash to fund the dividend.
The Company intends to modestly expand operations through the acquisition of restaurants. During fiscal 2008, the Company acquired three 4BS restaurants, two Western Sizzlin restaurants and one Bar-H Steakhouse. In addition, the Company opened one JBS restaurant, one Holiday House restaurant and one one JJ Norths Country Buffet restaurant during the year. The Company has some of this equipment available from stores closed in previous periods. There can be no assurance that the Company will be able to acquire additional restaurants or locations or, if acquired, that these restaurants will have a positive contribution to the Companys results of operations.
The Company believes that available cash, availability under the revolving line of credit and cash flow from operations will be sufficient to satisfy its working capital and capital expenditure requirements during the next 12 months. Management does not believe the net working capital deficit will have any effect on the Companys ability to operate the business and meet obligations as they come due in the next 12 months. The Company projects that operating cash flows will exceed planned capital expenditures in the next 12 months and that funds will be available to return capital to stockholders in the form of dividends, share repurchases or both. There can be no assurance, however, that cash and cashflow from operations will be sufficient to satisfy its working capital and capital requirements for the next 12 months or beyond.
It is possible that changes in the Companys operating results, unavailable loan capacity from the existing credit facility, acceleration of the Companys capital expenditure plans, potential acquisitions or other events may cause the Company to seek additional financing. Additional financing may be raised through public or private equity and/or debt financing or from other sources.
On February 1, 2001, the Company entered into a $460,000 15 year fixed rate first real estate mortgage with Victorium Corporation. The mortgage has monthly payments including interest of $6,319. The interest rate is 7.5%. The mortgage is secured the Companys restaurant in Ocala, Florida. The balance at January 28, 2008 and January 29, 2007 was $311,000 and $325,000, respectively.
On May 2, 2002, the Company entered into a $1,500,000 ten year fixed rate first real estate mortgage with M&I Marshall & Ilsley Bank. The mortgage has monthly payments including interest of $17,894. The interest rate is7.5% for the first five years with interest for years six to ten calculated at the five year LIBOR rate plus 250 basis points with a floor of 7.5%. The mortgage is secured by the Companys HomeTown Buffet restaurant in Scottsdale, Arizona. The balance at January 28, 2008 and January 29, 2007 was $624,000 and $877,000, respectively.
On December 19, 2003, the Company entered into a $1,470,000 six year fixed rate first real estate mortgage with Platinum Bank. The mortgage has monthly payments including interest of $12,678 with a balloon payment of $475,000 due on December 19, 2009. The interest rate is 7.25% . The mortgage is secured by the Companys BuddyFreddys restaurant in Plant City, Florida. The balance at January 28, 2008 and January 29, 2007 was $1,115,000 and $1,237,000, respectively.
On February 25, 2004, the Company entered into a $1,250,000 seven year fixed rate first real estate mortgage with M&I Marshall & Ilsley Bank. The mortgage has monthly payments including interest of $18,396. The interest rate is 6.1%. The mortgage is secured by the Companys HomeTown Buffet restaurant in Yuma, Arizona. The balance at January 28, 2008 and January 29, 2007 was $404,000 and $721,000, respectively.
On July 29, 2004, the Company entered into a $550,000 ten year fixed rate first real estate mortgage with Heritage Bank. The mortgage has monthly payments including interest of $6,319. The interest rate is 6.75%. The mortgage is secured by the Companys JBs Restaurant in Great Falls, Montana. The balance at January 28, 2008 and January 29, 2007 was $391,000 and $430,000, respectively.
On October 27, 2004, the Company entered into a $1,275,000 five year fixed rate first real estate mortgage with Bank of Utah. The mortgage has monthly payments including interest of $14,371 with a balloon payment of $752,000 due on October 26, 2009. The interest rate is 6.25%. The mortgage requires the Company to maintain specified minimum levels of net worth, limits the amount of capital expenditures and requires the maintenance of certain fixed charge coverage ratios. The mortgage is secured by the Companys HomeTown Buffet restaurant in Layton, Utah. The balance at January 28, 2008 and January 29, 2007 was $840,000 and $1,008,000, respectively.
F-18
On September 16, 2005, the Company entered into a $300,000 five year fixed rate real estate mortgage with Naisbitt Investment Company. The mortgage has monthly payments including interest of $5,870. The interest rate is 6.5%. The mortgage is secured by the Companys JBs Restaurant in Rexburg Idaho. The balance at January 28, 2008 and January 29, 2007 was $169,000 and $206,000, respectively.
On June 1, 2006, the Company entered into a $564,000 five year fixed rate first real estate mortgage with Dalhart Federal Savings and Loans. The mortgage has monthly payments including interest of $6,731. The interest rate is 7.63%. The mortgage is secured by the Companys K-BOBS Steakhouse in Dumas, Texas. The balance at January 28, 2008 and January 29, 2007 was $497,000 and $525,000, respectively.
On November 8, 2006, the Company entered into a $595,000 five year fixed rate first real estate mortgage with Wells Fargo Bank. The mortgage has monthly payments including interest of $8,055. The interest rate is 7.5%. The mortgage is secured by the Companys Pecos Diamond Steakhouse in Artesia, New Mexico. The balance at January 28, 2008 and January 29, 2007 was $461,000 and $560,000, respectively.
On January 30, 2007, the Company entered into a $900,000 five year fixed rate real estate mortgage with Fortenberrys Beef of Magee, Inc. The mortgage has monthly payments including interest of $17,821. The interest rate is 7%. The mortgage is secured by the Companys Western Sizzlin restaurant in Magee, Mississippi. The balance at January 28, 2008 was $740,000.
On May 29, 2007, the Company entered into a $500,000 five year fixed rate real estate mortgage with Dalhart Federal Savings and Loan Association. The mortgage has monthly payments including interest of 5,903 with a balloon payment of $301,345 due on June 1, 2012. The interest rate is 7.38%. The mortgage is secured by the Companys Bar H Steakhouse restaurant in Dalhart, Texas. The balance at January 28, 2008 was $477,000.
On June 19, 2007, the Company entered into a $520,000 five year fixed rate real estate mortgage with Farmers Bank and Trust. The mortgage has monthly payments including interest of $4,676 with a balloon payment of $407,313 due on June 19, 2012. The interest rate is 7%. The mortgage is secured by the Companys Western Sizzlin restaurant in Magnolia, Arkansas. The balance at January 28, 2008 was $508,000.
During fiscal 2008, the Company borrowed approximately $1,400,000 from Mr. Robert E. Wheaton, a principal shareholder, officer and director of the Company. The loan dated June 15, 2007 was subordinated to the obligation to M&I Marshall & Ilsley Bank and is now subordinated to Wells Fargo Bank, N.A. and bears interest at 8.5%. The Company expensed and paid $78,458 for interest during the fiscal year. The principal balance and any unpaid interest is due and payable in full on June 5, 2012. The Company used the funds to acquire restaurants and provide working capital.
Long term debt and note payable to officer matures in fiscal years ending after January 28, 2008 as follows:
Fiscal Year |
|
|
|
|
2009 |
|
1,038,000 |
|
|
2010 |
|
2,682,000 |
|
|
2011 |
|
730,000 |
|
|
2012 |
|
572,000 |
|
|
2013 |
|
2,127,000 |
|
|
Thereafter |
|
846,000 |
|
|
Total |
|
$ |
7,995,000 |
|
NOTE 6 LEASES
The Company occupies certain restaurants under long-term capital and operating leases expiring at various dates through 2013. Most restaurant leases have renewal options for terms of 5 to 20 years, and substantially all require payment of real estate taxes and insurance. Certain leases require the rent to be the greater of a stipulated minimum rent or a specified percentage of sales. Certain operating lease agreements contain scheduled rent escalation clauses which are being amortized over the terms of the lease, ranging from 5 to 11 years using the straight line method.
F-19
Minimum lease payments for all leases and the present value of net minimum lease payments for capital leases as of January 28, 2008 are as follows:
Fiscal year |
|
Capital |
|
Operating |
|
||
2009 |
|
55,000 |
|
2,691,000 |
|
||
2010 |
|
55,000 |
|
1,904,000 |
|
||
2011 |
|
|
|
1,293,000 |
|
||
2012 |
|
|
|
1,201,000 |
|
||
2013 |
|
|
|
1,024,000 |
|
||
Thereafter |
|
|
|
2,967,000 |
|
||
Total minimum lease payments: |
|
110,000 |
|
$ |
11,079,000 |
|
|
Less amount representing interest: |
|
7,000 |
|
|
|
||
Present value of minimum lease payments: |
|
103,000 |
|
|
|
||
Less current portion |
|
49,000 |
|
|
|
||
Capital lease obligations excluding current portion |
|
$ |
54,000 |
|
|
|
|
Aggregate rent expense under non-cancelable operating leases during fiscal 2008 and 2007 are as follows:
|
|
Fifty-Two
|
|
Fifty-Two
|
|
||
Minimum rentals |
|
$ |
3,213,000 |
|
$ |
2,778,000 |
|
Straight-line rentals |
|
(38,000 |
) |
(23,000 |
) |
||
Contingent rentals |
|
102,000 |
|
104,000 |
|
||
|
|
$ |
3,277,000 |
|
$ |
2,859,000 |
|
The Company reduces the deferred rent payable for stores in the year that were purchased or closed. The $0 and $0 decrease in rent expense for stores purchased or closed in 2008 and 2007, respectively, is recognized in the straight-line rentals disclosed above.
The Company currently leases three non-operating units to tenants. The rental income for fiscal 2008 and 2007 was $261,000 and $279,000, respectively. Rental income is recognized on a straight-line basis over the term of the lease and is included in other income in the accompanying statements of operations.
Future minimum lease payments receivable in fiscal years ending after January 28, 2008 is as follows:
Fiscal Year |
|
|
|
|
2009 |
|
208,000 |
|
|
2010 |
|
110,000 |
|
|
2011 |
|
60,000 |
|
|
2012 |
|
60,000 |
|
|
2013 |
|
60,000 |
|
|
Thereafter |
|
55,000 |
|
|
Total |
|
$ |
553,000 |
|
NOTE 7 INCOME TAXES
Income tax provision (benefit) is comprised of the following:
F-20
|
|
Fifty-Two |
|
Fifty-Two |
|
||
|
|
Weeks Ended |
|
Weeks Ended |
|
||
|
|
January 28, 2008 |
|
January 29, 2007 |
|
||
Current: |
|
|
|
|
|
||
Federal |
|
$ |
(563,000 |
) |
$ |
144,000 |
|
State |
|
(75,000 |
) |
54,000 |
|
||
|
|
(638,000 |
) |
198,000 |
|
||
Deferred: |
|
|
|
|
|
||
Federal |
|
(609,000 |
) |
36,000 |
|
||
State |
|
(68,000 |
) |
4,000 |
|
||
|
|
(677,000 |
) |
40,000 |
|
||
|
|
$ |
(1,315,000 |
) |
$ |
238,000 |
|
A reconciliation of income tax provision (benefit) at the federal statutory rate of 34% to the Companys provision (benefit) for taxes on income is as follows:
|
|
Fifty-Two |
|
Fifty-Two |
|
||
|
|
Weeks Ended |
|
Weeks Ended |
|
||
|
|
January 28, 2008 |
|
January 29, 2007 |
|
||
Income tax provision (benefit) at statutory rate |
|
$ |
(1,127,000 |
) |
$ |
324,000 |
|
State income taxes |
|
(115,000 |
) |
41,000 |
|
||
Nondeductible expenses |
|
60,000 |
|
60,000 |
|
||
Federal income tax credits |
|
(176,000 |
) |
(175,000 |
) |
||
Adjustment of estimated income tax accruals |
|
43,000 |
|
(12,000 |
) |
||
|
|
$ |
(1,315,000 |
) |
$ |
238,000 |
|
The adjustment of estimated income tax accruals in fiscal 2007 included adjustments from an IRS exam which lowered the income tax expense for the year.
Temporary differences give rise to a significant amount of deferred tax assets and liabilities as set forth below:
.
|
|
January 28, 2008 |
|
January 29, 2007 |
|
||
Current deferred tax assets: |
|
|
|
|
|
||
Accrued vacation |
|
$ |
96,000 |
|
$ |
83,000 |
|
Accrued expenses and reserves |
|
223,000 |
|
227,000 |
|
||
Total deferred tax assets |
|
319,000 |
|
310,000 |
|
||
Long-term deferred tax assets: |
|
|
|
|
|
||
Leases |
|
734,000 |
|
1,000,000 |
|
||
Depreciation, amortization and impairments |
|
1,678,000 |
|
1,084,000 |
|
||
Other |
|
353,000 |
|
13,000 |
|
||
Total deferred tax assets, net |
|
2,765,000 |
|
2,097,000 |
|
||
Valuation allowance |
|
|
|
|
|
||
Net long term asset |
|
2,765,000 |
|
2,097,000 |
|
||
Deferred tax assets |
|
$ |
3,084,000 |
|
$ |
2,407,000 |
|
While there can be no assurance that the Company will generate any earnings or any specific level of earnings in the future years,
F-21
management believes it is more likely than not that the Company will be able to realize the benefit of the deferred tax assets existing at January 28, 2008 based on the Companys expected future pre-tax earnings. The determination of deferred tax assets is subject to estimates and assumptions. We periodically evaluate our deferred tax assets to determine if our assumptions and estimates should change.
NOTE 8 SEGMENT AND RELATED REPORTING
The Company has four reporting segments: HomeTown Buffet, Norths Star, Florida Buffets Division and Summit Restaurant Division. The Companys reportable segments are aggregated based on brand similarities of operating segments. With the acquisition of 20 Barnhills Buffet restaurants in fiscal 2009, the Company will change its reporting segments to the Buffet Division and Non-Buffet Division.
As of January 28, 2008, the Company owned and operated 12 franchised HomeTown Buffets, seven JBs Family restaurants, five Whistle Junction restaurants, four BuddyFreddys restaurants, three 4BS restaurants, three Holiday House Family restaurants, three Western Sizzlin restaurants, two JJ Norths Grand Buffet, two K-BOBS Steakhouses, one Pecos Diamond Steakhouse, one Bar-H Steakhouse and one Casa Bonita Mexican restaurant. The Company also had six restaurants currently closed for remodeling and repositioning, three restaurants leased to third-party operators and the net assets of another closed restaurant reported as property held for sale. The Companys restaurants are located in Arkansas, Arizona, Colorado, Florida, Georgia, Idaho, Mississippi, Montana, New Mexico, Oklahoma, Oregon, Texas, Utah, Washington and Wyoming.
The accounting policies of the reportable segments are the same as those described in Note 1. The Company evaluates the performance of its operating segments based on income before income taxes.
Summarized financial information concerning the Companys reportable segments is shown in the following table. The other assets presented in the consolidated balance sheet and not in the reportable segments relate to the Company as a whole, and not individual segments. Also certain corporate overhead income and expenses in the consolidated statements of operations are not included in the reportable segments.
(Dollars in Thousands)
52 Weeks Ended
|
|
HomeTown
|
|
Norths
|
|
Florida
|
|
Summit |
|
Other |
|
Total |
|
||||||
Revenues |
|
$ |
24,367 |
|
$ |
5,348 |
|
$ |
18,032 |
|
$ |
20,985 |
|
$ |
|
|
$ |
68,732 |
|
Interest income |
|
|
|
|
|
|
|
|
|
24 |
|
24 |
|
||||||
Interest expense |
|
(151 |
) |
|
|
|
|
|
|
(707 |
) |
(858 |
) |
||||||
Depreciation & amortization |
|
960 |
|
170 |
|
341 |
|
557 |
|
70 |
|
2,098 |
|
||||||
Impairment of long-lived assets |
|
275 |
|
|
|
1,034 |
|
92 |
|
|
|
1,401 |
|
||||||
Income (loss) before income taxes |
|
(789 |
) |
(382 |
) |
(1,431 |
) |
2,443 |
|
(3,157 |
) |
(3,316 |
) |
||||||
Total assets |
|
9,727 |
|
5,139 |
|
6,884 |
|
9,291 |
|
4,661 |
|
35,702 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
52 Weeks Ended
|
|
HomeTown
|
|
Norths
|
|
Florida
|
|
Summit |
|
Other |
|
Total |
|
||||||
Revenues |
|
$ |
27,258 |
|
$ |
2,301 |
|
$ |
11,642 |
|
$ |
17,447 |
|
$ |
|
|
$ |
58,648 |
|
Interest income |
|
|
|
|
|
|
|
|
|
93 |
|
93 |
|
||||||
Interest expense |
|
(167 |
) |
|
|
|
|
|
|
(449 |
) |
(616 |
) |
||||||
Depreciation & amortization |
|
989 |
|
88 |
|
419 |
|
509 |
|
64 |
|
2,069 |
|
||||||
Impairment of long-lived assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income (loss) before income taxes |
|
117 |
|
(364 |
) |
510 |
|
2,627 |
|
(1,936 |
) |
954 |
|
||||||
Total assets |
|
11,173 |
|
2,965 |
|
8,201 |
|
8,611 |
|
3,218 |
|
34,168 |
|
F-22
NOTE 9 STOCKHOLDERS EQUITY
Common Stock
Holders of Common Stock are entitled to one vote per share on all matters to be voted upon by the stockholders and do not have cumulative voting rights. Subject to preferences that may be applicable to the holders of outstanding shares of Preferred Stock, if any, at the time, holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefore. In the event of liquidation, dissolution or winding up of the Company, the holders of Common Stock shall be entitled to assets of the Company remaining after payment of the Companys liabilities and the liquidation preference, if any, of any outstanding Preferred Stock. All outstanding shares of Common Stock, are fully paid and non-assessable. Holders of Common Stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of Preferred Stock, which the Company may designate and issue in the future. The Company paid an annual cash dividend of $0.60 for both fiscal 2008 and fiscal 2007, respectively. The Company also paid a special dividend of $0.25 in fiscal 2007.
Preferred Stock
The Board of Directors has the authority, without further vote or action by the stockholders, to provide for the issuance of up to 1,500,000 shares of Preferred Stock from time to time in one or more series with such designations, rights, preferences and privileges and limitations as the Board of Directors may determine, including the consideration received therefore. The Board of Directors also has authority to determine the number of shares comprising each series, dividend rates, redemption provisions, liquidation preferences, sinking fund provisions, conversion rights and voting rights without approval by the holders of Common Stock. Although it is not possible to state the effect that any issuance of Preferred Stock might have on the rights of holders of Common Stock, the issuance of Preferred Stock may have one or more of the following effects: (i) to restrict the payment of dividends on the Common Stock, (ii) to dilute the voting power and equity interests of holders of Common Stock, (iii) to prevent holders of Common Stock from participating in any distribution of the Companys assets upon liquidation until any liquidation preferences granted to holders of Preferred Stock are satisfied, or (iv) to require approval by the holders of Preferred Stock for certain matters such as amendments to the Companys Certificate of Incorporation or any reorganization, consolidation, merger or other similar transaction involving the Company. As a result, the issuance of Preferred Stock may, under certain circumstances, have the effect of delaying, discouraging or preventing bids for the Common Stock at a premium over the market price thereof, or a change in control of the Company, and could have a material adverse effect on the market price for the Common Stock.
Officers Notes Receivable
In connection with the Companys employment contract with Mr. Robert E. Wheaton, the Companys President and Chief Executive Officer, the Company agreed to provide Mr. Wheaton with certain loans solely for the purchase of the Companys common stock prior to the enactment of Sarbanes-Oxley Act of 2002. Mr. Wheaton owns approximately 44% of the Companys outstanding common shares and may have the effective power to elect members of the board of directors and to control the vote on substantially all other matters, without the approval of the other stockholders. The loans were secured by the common stock and bore interest at the prevailing rate set forth in the Companys credit facility with M&I Marshall & Ilsley Bank. Repayment terms stipulate that the president would repay principal and interest on or before the later of the fifth anniversary date of the initial advance under the loan agreement, or the date he received a lump sum payment per a termination clause or six months after the termination of his employment. Management has elected not to record any interest income on the loans until the interest income was paid. Mr. Wheaton paid $698,000 in principal and $250,000 in interest in June 2005. Mr. Wheaton paid the last interest payment of $43,713 on May 22, 2006.
Common Stock Repurchase
On January 4, 2006, the Company announced that it had received necessary approval from its lender to commence with a buyback program to purchase up to 250,000 common shares. As of January 28, 2008, the Company had repurchased 0 shares. The timing and
F-23
amount of shares purchased will be based on prevailing market conditions and other factors. As of April 14, 2008, the Company had 3,213,075 common shares outstanding.
NOTE 10 EMPLOYEE BENEFIT PLANS
401(k) Plan
In May 1998, the Company established a 401(k) plan available to certain employees who have attained age 21, work 30 hours or more per week, and have met certain minimum service requirements. The plan allows participants to allocate up to 15% of their annual compensation before taxes for investment in several investment alternatives. Employer contributions are at the discretion of the Company. The Companys contributions to the plan were approximately $5,000 and $9,000, in administration costs for fiscal 2008 and 2007, respectively. The plan had fewer than 50 participants as of April 18, 2006 and the Board of Directors authorized the termination of the plan. As of April 17, 2007, the plan had 0 participants and had been terminated.
1997 Stock Incentive Plan
In fiscal year 1998, the Company adopted the 1997 Stock Incentive Plan (the 1997 Plan), which authorizes the grant of options to purchase up to 750,000 shares of Common Stock. The 1997 Plan provides for the award of incentive stock options, within the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the Code) and non-statutory options to directors, officers, employees and consultants of the Company, except that incentive stock options may not be granted to non-employee directors or consultants. The 1997 Plan provides participants with incentives which will encourage them to acquire a proprietary interest in, and continue to provide services to, the Company. A special committee appointed by the Board of Directors, has sole discretion and authority, consistent with the provisions of the 1997 Plan, to determine which eligible participants will receive options, the time when options will be granted, the terms of options granted and the number of shares which will be subject to options granted under the 1997 Plan.
On January 31, 2006 we adopted Statement of Financial Accounting Standards No. 123(R), Share Based Payment (SFAS 123(R)). SFAS 123(R) requires the recognition of compensation costs relating to share based payment transactions in the financial statements. We have elected the modified prospective application method of reporting. Prior to the adoption of SFAS 123(R) we elected to account for stock-based compensation plans using the intrinsic value method under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, under which no compensation cost is recognized and the pro forma effects on earnings and earnings per share are disclosed as if the fair value approach had been adopted. Our stock-based compensation plans are summarized in the table below:
|
|
Shares |
|
Shares |
|
Plan |
|
Name of Plan |
|
Authorized |
|
Available |
|
Expiration |
|
|
|
|
|
|
|
|
|
1997 Stock Incentive Plan |
|
750,000 |
|
488,000 |
|
February 2015 |
|
Stock options issued under the terms of the plans have, or will have, an exercise price equal to, or greater than, the fair market value of the common stock at the date of the option grant, and expire no later than ten years from the date of grant, with the most recent grant expiring in 2015.
The stock option transactions and the options outstanding are summarized as follows:
F-24
|
|
52 Weeks Ended |
|
||||||||
|
|
January 28, 2008 |
|
January 29, 2007 |
|
||||||
|
|
Options |
|
Weighted
|
|
Options |
|
Weighted
|
|
||
Outstanding at beginning of period |
|
528,000 |
|
$ |
11.56 |
|
696,000 |
|
$ |
8.90 |
|
Granted |
|
|
|
|
|
|
|
|
|
||
Exercised |
|
|
|
|
|
168,000 |
|
$ |
5.22 |
|
|
Forfeited |
|
488,000 |
|
$ |
12.00 |
|
|
|
|
|
|
Outstanding at end of period |
|
40,000 |
|
$ |
6.20 |
|
528,000 |
|
$ |
11.56 |
|
|
|
|
|
|
|
|
|
|
|
||
Exercisable at end of period |
|
40,000 |
|
$ |
6.20 |
|
528,000 |
|
$ |
11.56 |
|
There were no options granted during the 52 weeks ended January 28, 2008 and January 29, 2007.
The following summarizes information about stock options outstanding at January 28, 2008:
|
|
Options Outstanding |
|
Options Exercisable |
|
|||||||||
Range of
|
|
Number
|
|
Remaining
|
|
Weighted
|
|
Number
|
|
Weighted
|
|
|||
$ |
5.00 |
|
12,000 |
|
1.7 |
|
$ |
5.00 |
|
12,000 |
|
$ |
5.00 |
|
$ |
6.70 |
|
28,000 |
|
7.0 |
|
$ |
6.70 |
|
28,000 |
|
$ |
6.70 |
|
|
|
40,000 |
|
|
|
|
|
40,000 |
|
|
|
|
|
Fifty-Two |
|
Fifty-Two |
|
Fifty-Two |
|
|||
|
|
Weeks |
|
Weeks |
|
Weeks |
|
|||
|
|
Ended |
|
Ended |
|
Ended |
|
|||
|
|
January 28,
|
|
January 29,
|
|
January 30,
|
|
|||
Cash paid for income taxes |
|
$ |
479,000 |
|
$ |
460,000 |
|
$ |
688,000 |
|
Cash paid for interest |
|
687,000 |
|
772,000 |
|
631,000 |
|
|||
Non-cash investing and financing activities are as follows: |
|
|
|
|
|
|
|
|||
Exchange of other receivable for equipment and leaseholds |
|
$ |
55,000 |
|
$ |
|
|
$ |
|
|
Acquisition of property with debt financing |
|
|
|
|
|
300,000 |
|
|||
Exchange of note receivable for equipment and leaseholds |
|
1,207,000 |
|
1,285,000 |
|
|
|
|||
Transfer of debt as a part of the sale of assets |
|
|
|
616,000 |
|
|
|
|||
Adjustment relating to lease modification for capital lease obligation |
|
1,136,000 |
|
|
|
|
|
|||
Adjustment relating to lease modification for deferred taxes |
|
590,000 |
|
|
|
|
|
|||
Adjustment relating to lease modification for fixed assets |
|
546,000 |
|
|
|
|
|
F-25
NOTE 12 RELATED PARTY TRANSACTIONS
In connection with the Companys employment contract with Mr. Robert E. Wheaton, the Companys President and Chief Executive Officer, the Company agreed to provide Mr. Wheaton with certain loans solely for the purchase of the Companys common stock prior to the enactment of Sarbanes-Oxley Act of 2002. Mr. Wheaton owns approximately 44% of the Companys outstanding common shares including exercisable options which have vested and may have the effective power to elect members of the board of directors and to control the vote on substantially all other matters, without the approval of the other stockholders. The loans were secured by the common stock and bore interest at the prevailing rate set forth in the Companys credit facility with M&I Marshall & Ilsley Bank. Repayment terms stipulate that the president would repay principal and interest on or before the later of the fifth anniversary date of the initial advance under the loan agreement, the date he received a lump sum payment per a termination clause or six months after the termination of his employment. Management elected not to record any interest income on the loans until the interest income was paid. Mr. Wheaton paid $698,000 in principal and $250,000 in interest in June 2005. There was no remaining principal balance due at January 30, 2006. Mr. Wheaton paid the final interest payment of $43,713 on May 22, 2006.
During fiscal 2008, the Company borrowed approximately $1,400,000 from Mr. Robert E. Wheaton, a principal shareholder, officer and director of the Company. The loan dated June 15, 2007 was subordinated to the obligation to M&I Marshall & Ilsley Bank and is now subordinated to Wells Fargo Bank, N.A. and bears interest at 8.5%. The Company expensed and paid $78,458 for interest during the fiscal year. The principal balance and any unpaid interest is due and payable in full on June 5, 2012. The Company used the funds to acquire restaurants and provide working capital.
NOTE 13 COMMITMENTS AND CONTINGENCIES
HTB entered into a franchise agreement for each HomeTown Buffet location which requires among other items, the payment of a continuing royalty fee to HomeTown Buffet, Inc. The royalty fee is based on 2% of the aggregate gross sales of all the Companys HomeTown Buffet restaurants. Each of the franchise agreements has a 20-year term (with two five-year renewal options). HTB provides weekly sales reports to the HomeTown franchisor as well as periodic and annual financial statements. HTB is obligated to operate its Hometown Buffet restaurants in compliance with the franchisors requirements. The franchisor requires HTB to operate each restaurant in conformity with Franchise Operating Manuals and Recipe Manuals and Menus and restricts operating restaurants within a geographic radius of the franchisors restaurants. These agreements also require HTB is to use it best efforts to achieve the highest practicable level of sales, and requires HTB to promptly make royalty payments. The HomeTown franchisor may terminate a franchise agreement for a number of reasons, including HTBs failure to pay royalty fees when due, failure to comply with applicable laws or repeated failure to comply with one or more requirements of the franchise agreement. Many state franchise laws limit the ability of a franchisor to terminate or refuse to renew a franchise. Generally, a franchisor may terminate a franchise agreement only if the franchisee violates a material and substantial provision of the agreement and fails to remedy the violation within a specified period.
On February 1, 2005, the Company announced in a press release that it had entered into a strategic alliance with K-BOBS USA Inc. and related affiliates. In accordance with the terms of the strategic alliance, the Company agreed to lend K-BOBS up to $1.5 million on a long-term basis. In exchange, K-BOBS granted the Company an option to purchase as many as five corporate owned and operated K-BOBS restaurants located in New Mexico and Texas. On January 30, 2006, the Company exercised its option under the terms of the strategic alliance and purchased three K-BOBS restaurants. In connection with the purchase, the Company entered into license agreements which require the payment of certain fees to K-BOBS based on the restaurant gross sales.
On April 21, 2006, the Company announced in a press release that it had entered into a strategic alliance with Western Sizzlin Corporation. In connection with the strategic alliance, the Company acquired three Western Sizzlin franchised restaurants and entered into license agreements with Western Sizzlin Corporation for each. The license agreements require the payment of certain fees to Western Sizzlin Corporation based on the restaurant gross sales.
In connection with the Companys employment contract with Robert E. Wheaton, the Companys Chief Executive Officer and President, the Company has agreed to pay Mr. Wheaton six years salary and bonus if he resigns related to a change of control of the Company or is terminated, unless the termination is for cause.
In addition to the foregoing, the Company is engaged in ordinary and routine litigation incidental to its business. Management does not anticipate that the resolution of any of these routine proceedings will require payments that will have a material effect on the Companys consolidated statements of operations or financial position or liquidity.
F-26
NOTE 14 SUBSEQUENT EVENTS
On March 12, 2008, the Board of Directors approved the Companys fifth consecutive annual dividend. This year the dividend is $0.60 per common share and is payable on June 4, 2008 to shareholders of record on May 6, 2008.
On February 29, 2008, Starlite Holdings, Inc. (Starlite), a newly formed, wholly-owned, independently capitalized subsidiary of Star Buffet, Inc. acquired certain assets and facility leases for four Barnhills Buffet restaurants from Barnhills Buffet, Inc. (Barnhills) for a purchase price of approximately $1,075,000. Barnhills was in a Chapter 11 bankruptcy proceeding in the U.S. Bankruptcy Court of the Middle District of Tennessee and the acquisition was approved by the court. The acquired restaurants are located in Florida (2) and Mississippi (2) and as part of the acquisition the Company acquired perpetual rights to use the Barnhills name and related intellectual property.
On February 29, 2008 the Company amended its Senior Secured Credit Facility (Credit Facility) with Wells Fargo Bank N.A., increasing the term loan principal from $7,000,000 to $8,000,000. The Credit Facility was issued on January 31 , 2008.The increase in the Credit Facility was used to fund the acquisition of the four Barnhills Buffet restaurants as described above. The Credit Facility is guaranteed by Star Buffets subsidiaries and bears interest, at the Companys option, at Wells Fargos base rate plus 0.25% or at LIBOR plus 2.00%. The Credit Facility is secured by a first priority perfected lien on all of the Companys assets, except for those assets that are currently pledged as security for existing obligations, in which case Wells Fargo will have a second lien. The term loan matures on January 31, 2012 and provides for principal to be amortized at $175,000 per quarter for the initial six quarters; $225,000 for the next nine quarters; with any remaining balance due at maturity. Interest is payable monthly. A $2,000,000 revolving line of credit matures on January 31, 2012. Interest on the revolver is payable monthly. As of April 11, 2008, no balance was outstanding on the revolving line of credit. There is a 0.50% fee for the unused portion of the revolving line of credit. In connection with the Credit Facility, Wells Fargo was granted 42,440 shares of the Companys restricted common stock. The shares were valued at $252,094 and will be amortized over the life of the loan. The Credit Facility can be prepaid in whole or part without penalty.
The Credit Facility contains a number of covenants and restrictions, including requirements to meet certain financial ratios and limitations with respect to the Companys use of cash. The Companys quarterly financial covenants associated with this debt start May 19, 2008, the end our first quarter in fiscal 2009. The Company is required to obtain interest rate protection through an interest rate swap or cap arrangement with respect to not less than 50% of the term loan amount. The Company has elected to not perform the necessary procedures in order to apply hedge accounting. Therefore, changes in the fair market value of the interest rate swap will be reflected as an adjustment to interest expense within the consolidated statement of operations. Furthermore, certain provisions of the Credit Facility require the Company to remit proceeds from asset dispositions, issuance of debt or equity, insurance proceeds, tax refunds and fifty percent (50%) of excess cash flow (as defined) to reduce the principal amount of the term loan and, thereafter, the revolving line of credit. Under terms of the Credit Facility, the Company is permitted to pay an annual dividend. However, restrictions imposed under terms of the Credit Facility may adversely impact the Companys ability to pay an annual dividend as the Company has historically relied on multiple sources of cash to fund the dividend. As of the date of this report, the Company was in compliance with all of such requirements.
On January 31, 2008, Star Buffet Management, Inc., a wholly-owned subsidiary of Star Buffet, Inc. (collectively, the Company) acquired the assets and facility leases for sixteen (16) Barnhills Buffet restaurants from Barnhills Buffet, Inc. (Barnhills) for a purchase price of approximately $5 million. The acquisition was approved by the court. The acquired restaurants are located in the following states: Alabama (1), Arkansas (1), Florida (4), Louisiana (3), Mississippi (4), and Tennessee (3) and as part of the acquisition, the Company acquired perpetual rights to the use of the Barnhills name and related intellectual property. This acquisition was funded through the Companys Credit Facility dated January 31, 2008.
F-27
Exhibit
|
|
Description |
3.1 |
|
Certificate of Incorporation* |
3.2 |
|
Bylaws, as amended on September 22, 1997* |
4.1 |
|
Form of Common Stock Certificate** |
10.1 |
|
Star Buffet, Inc. 1997 Stock Incentive Plan (the 1997 Plan)** |
10.2 |
|
Form of Stock Option Agreement for the 1997 Plan** |
10.3 |
|
Form of Indemnification Agreement** |
10.4 |
|
Management Services Agreement with CKE Restaurants, Inc.** |
10.5 |
|
Form of Franchise Agreement with HomeTown Buffet, Inc.** |
10.6 |
|
Asset Purchase Agreement with Norths Restaurants, Inc. dated July 24, 1997** |
10.6.1 |
|
Amendment No. 1 to Asset Purchase Agreement dated as of September 30, 1997 (incorporated by reference to the Companys filing on Form 8-K on October 17, 1997) |
10.6.2 |
|
Amended and Restated Credit Agreement dated as of September 30, 1997 between the Company and Norths Restaurants, Inc. (incorporated by reference to the Companys filing on Form 8-K on October 17, 1997) |
10.7 |
|
Form of Contribution Agreement among CKE Restaurants, Inc., Summit Family Restaurants Inc. and the Company* |
10.8 |
|
Form of Bill of Sale and Assumption Agreement between Summit Family Restaurants Inc. and Taco Bueno Restaurants, Inc. (formerly known as Casa Bonita Incorporated)* |
10.9 |
|
Form of Bill of Sale and Assumption Agreement between Summit Family Restaurants Inc. and JBs Restaurants, Inc.* |
10.10 |
|
License Agreement with CKE Restaurants, Inc. (incorporated by reference to the Companys filing on Form 10-K on April 24, 1998) |
10.11 |
|
Settlement Agreement with HomeTown Buffet, Inc. (incorporated by reference to the Companys filing on Form 10-K on April 24, 1998) |
10.12 |
|
Asset Purchase Agreement among Summit Family Restaurants Inc. and JBs Family Restaurants, Inc., dated February 10, 1998 (incorporated by reference to the Companys filing on Form 8-K on March 9, 1998) |
10.13 |
|
Stock Repurchase Agreement between Star Buffet, Inc. and CKE Restaurants, Inc., dated September 10, 1998 (incorporated by reference to the Companys filing on Form 10-K on September 28, 1998) |
10.14 |
|
Credit Agreement dated as of January 31, 2008 with Wells Fargo Bank N. A. including First Amendment |
10.15 |
|
Loan Agreement dated June 15, 2007 with Robert E. Wheaton and Suzanne H. Wheaton |
10.16 |
|
Asset Purchase Agreement dated December 2, 2007 with Barnhills Buffet, Inc. and Star Buffet Management, Inc. including First Amendment |
14.1 |
|
Code of Ethics (incorporated by reference to the Companys filing on Form 10-K on January 31, 2005) |
21.1 |
|
List of Subsidiaries* |
23.1 |
|
Consent of Mayer Hoffman McCann P.C. |
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002 |
31.2 |
|
Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002 |
32.1 |
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002 |
32.2 |
|
Certification of Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002 |
99.1 |
|
Press Release dated April 25, 2008 reporting earnings for fiscal 2008 |
* Previously filed as an exhibit to the Registration Statement on Form S-1, Amendment No. 1 (Registration No. 333- 32249).
** Previously filed as an exhibit to the Registration Statement on Form S-1, Amendment No. 2 (Registration No. 333- 32249).
E-1
Exhibit 10.14
CREDIT AGREEMENT
dated as of
January 31, 2008
among
STAR BUFFET, INC. and its
SUBSIDIARIES PARTY HERETO, as Borrowers,
THE LENDERS PARTY HERETO,
WELLS FARGO BANK, N.A., as Administrative Agent,
WELLS FARGO BANK, N.A., as Syndication Agent
and
WELLS FARGO BANK, N.A., as Lead Arranger
Loan Nos. 93-0908116 and 93-0908117
SECTION I DEFINITIONS |
1 |
1.1 Definitions |
1 |
1.2 Rules of Interpretation |
23 |
SECTION II DESCRIPTION OF CREDIT |
24 |
2.1 Loans |
24 |
2.2 The Notes |
28 |
2.3 Notice and Manner of Borrowing or Conversion of Loans |
28 |
2.4 Funding of Loans |
29 |
2.5 Interest Rates and Payments of Interest |
30 |
2.6 Fees |
31 |
2.7 Repayment of Loans |
32 |
2.8 Prepayments |
32 |
2.9 Method and Allocation of Payments |
34 |
2.10 LIBOR Indemnity |
36 |
2.11 Computation of Interest and Fees |
37 |
2.12 Changed Circumstances; Illegality |
37 |
2.13 Increased Costs |
38 |
2.14 Capital Requirements |
38 |
2.15 Taxes |
39 |
2.16 Parent as Agent for Borrowers; Contribution |
41 |
SECTION III LETTERS OF CREDIT |
42 |
3.1 Issuance |
42 |
3.2 Reimbursement Obligation of the Borrowers |
42 |
3.3 Letter of Credit Payments |
43 |
3.4 Obligations Absolute |
43 |
3.5 Reliance by the LC Issuer and the Administrative Agent |
44 |
SECTION IV CONDITIONS OF LOANS AND LETTERS OF CREDIT |
44 |
4.1 Conditions Precedent to Initial Loans and Letters of Credit |
44 |
4.2 Conditions Precedent to all Revolving Credit Loans and Letters of Credit after the Closing Date |
49 |
SECTION V REPRESENTATIONS AND WARRANTIES |
51 |
5.1 Existence, Qualification and Power |
51 |
5.2 Authorization; No Contravention |
51 |
5.3 Governmental Authorization; Other Consents |
51 |
5.4 Binding Effect |
51 |
5.5 Financial Statements; No Material Adverse Effect |
52 |
5.6 Litigation |
53 |
5.7 No Default |
53 |
5.8 Ownership of Property; Encumbrances; Investments |
53 |
5.9 Environmental Compliance |
54 |
5.10 Insurance |
54 |
5.11 Taxes |
54 |
5.12 ERISA Compliance |
55 |
5.13 Subsidiaries; Equity Interests; Loan Parties |
55 |
5.14 Margin Regulations; Investment Company Act |
56 |
5.15 Disclosure |
56 |
i
5.16 Compliance with Laws |
56 |
5.17 Intellectual Property; Licenses, Etc |
56 |
5.18 Solvency |
56 |
5.19 Casualty, Etc |
57 |
5.20 Labor Matters |
57 |
5.21 Security Documents |
57 |
5.22 Intentionally Deleted |
57 |
5.23 Compliance with OFAC Rules and Regulations |
57 |
5.24 Foreign Assets Control Regulations, Etc |
57 |
5.25 Parent Public Filings |
57 |
SECTION VI AFFIRMATIVE COVENANTS |
58 |
6.1 Financial Statements |
58 |
6.2 Conduct of Business |
59 |
6.3 Maintenance and Insurance |
59 |
6.4 Taxes |
60 |
6.5 Inspection Rights; Lender Meeting |
60 |
6.6 Maintenance of Books and Records |
61 |
6.7 Use of Proceeds |
61 |
6.8 Further Assurances |
61 |
6.9 Notification Requirements |
61 |
6.10 ERISA Reports |
62 |
6.11 Environmental Compliance |
62 |
6.12 Covenant to Guarantee Obligations and Give Security |
63 |
6.13 Interest Rate Protection |
65 |
6.14 Cash Accounts |
65 |
6.15 Post-Closing Deliveries |
65 |
SECTION VII FINANCIAL COVENANTS |
66 |
7.1 Total Lease Adjusted Leverage Ratio |
66 |
7.2 Consolidated Pre-Distribution Fixed Charge Coverage Ratio |
66 |
7.3 Consolidated Post-Distribution Fixed Charge Coverage Ratio |
66 |
7.4 Consolidated EBITDA |
67 |
7.5 Growth Capital Expenditures |
67 |
SECTION VIII NEGATIVE COVENANTS |
67 |
8.1 Indebtedness |
67 |
8.2 Contingent Liabilities |
68 |
8.3 Encumbrances |
68 |
8.4 Merger; Dispositions; Liquidation |
69 |
8.5 Subsidiaries |
69 |
8.6 Restricted Payments |
70 |
8.7 Investments; Purchases of Assets |
70 |
8.8 ERISA Compliance |
71 |
8.9 Transactions with Affiliates |
71 |
8.10 Fiscal Year |
71 |
8.11 Payments on Junior Subordinated Debt |
71 |
SECTION IX DEFAULTS |
71 |
9.1 Events of Default |
71 |
9.2 Remedies upon Event of Default |
74 |
9.3 Application of Funds |
74 |
9.4 Remedies Cumulative |
75 |
SECTION X ASSIGNMENT AND PARTICIPATION |
76 |
10.1 Successors and Assigns |
76 |
10.2 Replacement of Lenders |
79 |
SECTION XI THE ADMINISTRATIVE AGENT |
80 |
11.1 Appointment of Administrative Agent |
80 |
11.2 Exculpatory Provisions |
81 |
11.3 Rights as a Lender |
82 |
11.4 Actions by Administrative Agent |
82 |
11.5 Reliance by Administrative Agent |
82 |
11.6 Delegation of Duties |
82 |
11.7 Indemnification |
83 |
11.8 Reimbursement |
83 |
11.9 Non-Reliance on Administrative Agent and New Lenders |
83 |
11.10 Resignation of Administrative Agent |
84 |
11.11 No Other Duties, etc |
84 |
SECTION XII GENERAL |
84 |
12.1 Notices; Effectiveness of Signatures |
84 |
12.2 Expenses |
86 |
12.3 Indemnification |
86 |
12.4 Survival of Covenants, Etc |
87 |
12.5 Set-Off |
87 |
12.6 No Waivers |
88 |
12.7 Amendments, Waivers, etc. |
88 |
12.8 Treatment of Certain Information; Confidentiality |
90 |
12.9 Lost Note, Etc |
91 |
12.10 Captions; Counterparts |
91 |
12.11 Entire Agreement, Etc |
91 |
12.12 Waiver of Jury Trial |
91 |
12.13 Governing Law |
92 |
12.14 Jurisdiction; Consent to Service of Process |
92 |
12.15 USA PATRIOT Act Notice |
93 |
12.16 Severability |
93 |
EXHIBITS
Form of
A-1 |
|
Revolving Credit Note |
A-2 |
|
Term Note |
B |
|
Notice of Borrowing or Conversion |
C |
|
Commitment Increase Supplement |
D |
|
Additional Lender Supplement |
E |
|
Assignment and Assumption |
F |
|
Compliance Certificate |
G-1 |
|
Security Agreement |
G-2 |
|
Collateral Assignment of Contracts |
G-3 |
|
Fee Property Security Documents |
G-4 |
|
Form of Mortgage/Deed of Trust |
G-5 |
|
Form of Collateral Assignment of Leases and Rents |
G-6 |
|
Intellectual Property Security Agreement |
H |
|
Pledge Agreement by Parent |
I |
|
Opinion Matters Counsel to Loan Parties |
J-1 |
|
Term Loan Payment Request |
J-2 |
|
Revolving Loan Payment Request |
SCHEDULES
1 |
|
Commitments and Applicable Percentages |
4.1(e) |
|
Sources and Uses |
5.3 |
|
Consents |
5.5 |
|
Material Liabilities and Indebtedness |
5.8(b) |
|
Encumbrances |
5.8(c) |
|
Owned Real Property |
5.8(d)(i) |
|
Leased Real Property (Lessee) |
5.8(d)(ii) |
|
Leased Real Property (Lessor) |
5.8(e) |
|
Existing Investments |
5.13 |
|
Subsidiaries and Other Equity Investments; Loan Parties |
5.17 |
|
Intellectual Property Matters |
6.15 |
|
Post-Closing Deliveries |
8.1(e) |
|
Existing Indebtedness |
8.3(h) |
|
Existing Encumbrances |
12.1 |
|
Administrative Agents Office, Certain Addresses for Notices |
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of January 31, 2008, by and among STAR BUFFET, INC., STAR BUFFET MANAGEMENT, INC., SUMMIT FAMILY RESTAURANTS, INC., HTB RESTAURANTS, INC. and NORTHSTAR BUFFET, INC., each a Delaware corporation (each individually, a Borrower , and collectively, the Borrowers ), WELLS FARGO BANK, N.A., a national banking association ( Wells Fargo ), and the other financial institutions from time to time parties hereto as Lenders (together with Wells Fargo, each individually, a Lender , and collectively, the Lenders ), WELLS FARGO BANK, N.A., as administrative agent for the Lenders (in such capacity, the Administrative Agent ) and in its capacity as LC Issuer (as hereinafter defined), WELLS FARGO BANK, N.A., as Syndication Agent (in such capacity, the Syndication Agent ), and WELLS FARGO BANK, N.A., as Lead Arranger (in such capacity, the Lead Arranger ).
WHEREAS, the Borrowers, other than Parent, are direct or indirect wholly owned Subsidiaries of the Parent;
WHEREAS, the relationship of the other Borrowers to the Parent provides numerous benefits, including shared purchasing strength and other economies of scale, which benefits will be increased by the Acquisition;
WHEREAS, the Borrowers have requested that the Lenders provide a term loan facility and a revolving credit facility, and the Lenders have indicated their willingness to lend and the LC Issuer has indicated its willingness to issue Letters of Credit, in each case, on the terms and subject to the conditions set forth herein;
WHEREAS, each Borrower is jointly and severally liable for the Obligations arising hereunder and under the other Loan Documents; and
WHEREAS, by virtue of the foregoing and after giving effect to the probable liability of each Borrower hereunder and under the Loan Documents, each Borrower considers that it is receiving at least fair consideration and reasonably equivalent value from the Lenders for the Obligations.
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
All capitalized terms used in this Agreement or in the Notes or in any certificate, report or other document made or delivered pursuant to this Agreement (unless otherwise defined therein) shall have the meanings assigned to them below:
1
Acquisition . The transactions contemplated by the Asset Purchase Agreement.
Additional Lender . See Section 2.1(a)(iii).
Additional Lender Supplement . See Section 2.1(a)(iii).
Administrative Agent . See Preamble.
Administrative Questionnaire . An administrative questionnaire in a form supplied by the Administrative Agent to any Lender.
Affected Loans . See Section 2.12(a).
Affiliate . With reference to any Person (i) any director or officer of that Person, (ii) any other Person controlling, controlled by or under direct or indirect common control of that Person, (iii) any other Person directly or indirectly holding 5% or more of any class of the capital stock or other equity interests (including options, warrants, convertible securities and similar rights) of that Person and (iv) any other Person 5% or more of any class of whose capital stock or other equity interests (including options, warrants, convertible securities and similar rights) is held directly or indirectly by that Person.
Agreement . This Credit Agreement, including the Exhibits and Schedules hereto, as the same may be supplemented or amended or restated from time to time.
Alternate Base Rate . The greater of (i) the rate of interest announced from time to time by the Administrative Agent at its head office as its Base Rate or Prime Rate, and (ii) the Federal Funds Effective Rate plus 1/2 of 1% per annum (rounded upwards, if necessary, to the next 1/8 of 1%). The Base Rate is a reference rate and does not necessarily represent the lowest or best rate being charged to any customer. Any change in the Base Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change.
Anti-Terrorism Order . The Executive Order 13224 issued on September 24, 2001.
Applicable Percentage . With respect to (a) any Term Lender at any time, the percentage (carried out to the ninth decimal place) of the Total Term Loan Commitment represented by such Term Lenders Term Commitment at such time, and (b) any Revolving Credit Lender at any time, the percentage (carried out to the ninth decimal place) of the Total Revolving Credit Commitment represented by such Revolving Credit Lenders Revolving Credit Commitment at such time. If the commitment of each Revolving Credit Lender to make Revolving Credit Loans and the obligation of the LC Issuer to issue Letters of Credit have been terminated pursuant to Section 9.2, or if the Revolving Credit Commitments have expired, then the Applicable Percentage of each Revolving Credit Lender shall be determined based on the Applicable Percentage of such Revolving Credit Lender most recently in effect, giving effect to any subsequent assignments. The initial Applicable Percentage of each Lender in respect of each credit facility hereunder is set forth opposite the name of such Lender on Schedule 1 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.
2
Approved Fund . Any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
Asset Purchase Agreement . The Asset Purchase Agreement, dated as of December 2, 2007, between the Parent and Barnhills Buffet, Inc., as amended on January 21, 2008.
Assignee Group . Two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.
Assignment and Assumption . An assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.1(b)(iii)), and accepted by the Administrative Agent, in substantially the form of Exhibit E or any other form approved by the Administrative Agent.
Attributable Indebtedness . On any date, (a) in respect of any Capitalized Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease or similar payments under the relevant lease or other applicable agreement or instrument that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease or other agreement or instrument were accounted for as a Capitalized Lease and (c) all Synthetic Debt of such Person.
Bankruptcy Court . The United States Bankruptcy Court for the Middle District of Tennessee, Nashville Division.
Base Rate Loan . Any Loan bearing interest determined with reference to the Alternate Base Rate.
Borrowers . See Preamble.
Borrowers Accountants . Mayer Hoffman McCann P.C., or such other independent certified public accountants as are selected by the Borrowers and are reasonably acceptable to the Administrative Agent.
Business Day . (i) For all purposes other than as covered by clause (ii) below, any day other than a Saturday, Sunday or legal holiday on which banks in Boston, Massachusetts and Los Angeles, California are open for the conduct of a substantial part of their commercial banking business; and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, LIBOR Loans, any day that is a Business Day described in clause (i) and that is also a day on which dealings in U.S. dollar deposits are also carried on in the London interbank market and banks are open for business in London.
Capital Expenditures . With respect to any Person for any period, any expenditure in respect of the purchase or other acquisition of any fixed or capital asset (excluding normal replacements and maintenance which are properly charged to current operations).
3
Capitalized Leases . All leases that have been or should be, in accordance with GAAP, recorded as capitalized leases.
Cash Collateralize . To pledge and deposit with or deliver to the Administrative Agent, for the benefit of the LC Issuer and the Lenders, as collateral for the Maximum Drawing Amount, cash or deposit account balances pursuant to documentation in form and substance reasonably satisfactory to the Administrative Agent and the LC Issuer.
Cash Management Agreement . Any agreement to provide cash management services, including treasury, depository, overdraft, credit or debit card, electronic funds transfer and other cash management arrangements.
Cash Management Bank . Any Person that, at the time it enters into a Cash Management Agreement, is a Lender or an Affiliate of a Lender, in its capacity as a party to such Cash Management Agreement.
CFC . A Person that is a controlled foreign corporation under Section 957 of the Code.
Change of Control . An event or series of events by which: (a) Robert E. Wheaton shall have ceased to hold the office, and engage in the duties and have the responsibilities thereof, in the Parent that he holds as of the Closing Date and a successor reasonably satisfactory to the Majority Lenders shall not have been appointed within 30 days thereafter; (b) Robert E. Wheaton shall have ceased to hold beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of at least 40% of the fully diluted equity interests of the Parent; or (c) any Person or two or more Persons acting in concert (other than Robert E. Wheaton (or Persons of which Robert E. Wheaton would be deemed to have beneficial ownership)) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of more than 10% of the fully diluted equity interests of the Parent outstanding on the date hereof.
Closing Date . The first date on which the conditions set forth in Sections 4.1 have been satisfied and the initial Loans are to be made hereunder.
Code . The Internal Revenue Code of 1986 and the rules and regulations thereunder, collectively, as the same may from time to time be supplemented or amended and remain in effect.
Collateral . All of the property, rights and interests of the Borrowers, their Subsidiaries and any other Person that are or are intended to be subject to the security interests and liens created by the Security Documents.
Communications . See Section 12.1.
Commitment Fee . See Section 2.6(a).
Commitment Increase Supplement . See Section 2.1(a)(iii).
Commitments . In relation to any particular Lender, the Revolving Credit Commitment and/or the Term Loan Commitment of such Lender.
4
Consolidated EBITDA . At any date of determination for any fiscal period, an amount equal to Consolidated Net Income of the Borrowers and their Subsidiaries for such fiscal period plus (a) the following to the extent excluded or deducted in calculating such Consolidated Net Income: (i) Consolidated Interest Charges, (ii) the provision for Federal, state, local and foreign income taxes paid or payable, (iii) depreciation (including, without limitation, depreciation of leasehold improvements) and amortization expense, (iv) other non-recurring expenses reducing such Consolidated Net Income which do not represent a cash item in such period or any future period (in each case of or by the Borrowers and their Subsidiaries for such fiscal period), (v) Consolidated Restaurant Pre-Opening Expenses and (vi) fees and expenses incurred by the Borrowers in connection with the transactions contemplated by this Agreement and the Asset Purchase Agreement, including, without limitation, attorneys fees, minus (b) the following to the extent included in calculating such Consolidated Net Income: (i) Federal, state, local and foreign income tax credits and (ii) all non-recurring items increasing Consolidated Net Income (in each case of or by the Borrowers and their Subsidiaries for such fiscal period).
Consolidated EBITDAR . For any fiscal period, the sum of (i) the Consolidated EBITDA for such fiscal period, plus (ii) the Consolidated Rent Expense for such fiscal period, but only to the extent such Consolidated Rent Expense was excluded or deducted in computing such Consolidated EBITDA.
Consolidated Funded Indebtedness . As of any date of determination, for the Borrowers and their Subsidiaries on a consolidated basis and without duplication, the sum of (a) the outstanding principal amount of all obligations, whether current or long-term, for borrowed money (including Obligations hereunder) and all obligations evidenced by bonds, debentures, notes, loan agreements or other similar instruments, (b) all purchase money Indebtedness, (c) all direct obligations arising under letters of credit, bankers acceptances, bank guaranties, surety bonds and similar instruments, (d) all monetary obligations secured by any mortgage, pledge, security interest or other Encumbrance on property owned or acquired by the Borrowers or any Subsidiary, whether or not the obligations secured thereby shall have been assumed, (e) all obligations in respect of the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business), (f) all Attributable Indebtedness, (g) without duplication, all Guarantees with respect to outstanding Indebtedness of the types specified in clauses (a) through (f) above of Persons other than the Borrowers or any Subsidiary, and (h) all Indebtedness of the types referred to in clauses (a) through (g) above of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which the Borrowers or a Subsidiary is a general partner or joint venturer, unless such Indebtedness is expressly made non-recourse to such Borrower or such Subsidiary.
Consolidated Interest Charges . For any fiscal period, the sum of (a) all interest, premium payments, debt discount, fees, charges and related expenses in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, (b) all interest paid or payable with respect to discontinued operations and (c) the portion of rent expense under Capitalized Leases that is treated as interest in accordance with GAAP, in each case, of or by the Borrowers and their Subsidiaries on a Consolidated basis for such fiscal period.
5
Consolidated Net Income . At any date of determination for any fiscal period, the net income (or loss) of the Borrowers and their Subsidiaries on a Consolidated basis for such fiscal period; provided that Consolidated Net Income shall exclude, without duplication: (a) extraordinary gains and extraordinary losses for such fiscal period; (b) the net income of any Subsidiary during such fiscal period to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of such income is not permitted by operation of the terms of its organization documents or any agreement, instrument or law applicable to such Subsidiary during such fiscal period, except that the Borrowers equity in any net loss of any such Subsidiary for such fiscal period shall be included in determining Consolidated Net Income; (c) any income (or loss) for such Period of any Person if such Person is not a Subsidiary, except that the Borrowers equity in the net income of any such Person for such fiscal period shall be included in Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such Period to the Borrowers or a Subsidiary as a dividend or other distribution (and in the case of a dividend or other distribution to a Subsidiary, such Subsidiary is not precluded from further distributing such amount to the Borrowers as described in clause (b) of this proviso); (d) any gain or loss arising from any write-up of assets, except to the extent inclusion thereof shall be approved in writing by the Administrative Agent; (e) earnings of any Subsidiary accrued prior to the date it became a Subsidiary; (f) any non-cash stock based compensation income or expense related to restricted stock or stock options; (g) any deferred or other credit representing any excess of the equity of any Subsidiary at the date of acquisition thereof over the amount invested in such Subsidiary; and (h) the proceeds of any life insurance policy.
Consolidated Pre-Distribution Fixed Charge Coverage Ratio . At any date of determination for any fiscal period, the ratio of (a) the total of (i) Consolidated EBITDAR for such fiscal period, less (ii) the aggregate amount of Federal, state, local and foreign income taxes paid in cash, in each case, of or by the Borrowers and their Subsidiaries for such fiscal period, and less (iii) the aggregate amount of all Maintenance Capital Expenditures made during such fiscal period to (b) the sum of (i) Consolidated Interest Charges for such fiscal period, plus (ii) the aggregate principal amount of all regularly scheduled principal payments or redemptions or similar acquisitions for value of outstanding debt for borrowed money during such fiscal period (excluding, however, the repayment of the Indebtedness under the Existing Credit Agreement on the Closing Date), plus (iii) the Consolidated Rent Expense for such fiscal period.
Consolidated Post-Distribution Fixed Charge Coverage Ratio . At any date of determination for any fiscal period, the ratio of (a) the total of (i) Consolidated EBITDAR for such fiscal period, less (ii) the aggregate amount of Federal, state, local and foreign income taxes paid in cash, in each case, of or by the Borrowers and their Subsidiaries for such fiscal period, and less (iii) the aggregate amount of all Maintenance Capital Expenditures made during such fiscal period to (b) the sum of (i) Consolidated Interest Charges for such fiscal period, plus (ii) the aggregate principal amount of all regularly scheduled principal payments or redemptions or similar acquisitions for value of outstanding debt for borrowed money during such fiscal period (excluding, however, the repayment of the Indebtedness under the Existing Credit Agreement on the Closing Date), plus (iii) the Consolidated Rent Expense for such fiscal period, and plus (iv) any dividend, distribution, loan, advance, guaranty, extension of credit or other payment, whether in cash or property, made by any Borrower to or for the benefit of any Person (other
6
than another Borrower) who holds an Equity Interest in any Borrower or any of their Subsidiaries, whether or not such interest is evidenced by a security, and any purchase, redemption, retirement or other acquisition for value of any Equity Interest of the Borrower or any of its Subsidiaries, whether now or hereafter outstanding, or of any options, warrants or similar rights to purchase such Equity Interest or any security convertible into or exchangeable for such Equity Interest.
Consolidated Rent Expense . For any fiscal period, the sum of all rental obligations (payable in cash) incurred by the Borrowers or any Subsidiary during such fiscal period with respect to all operating leases (not Capitalized Leases) of real and personal property, calculated in accordance with GAAP on a Consolidated basis.
Consolidated Restaurant Pre-Opening Expenses . Start-up Costs (as defined in SOP 98-5 published by the American Institute of Certified Public Accountants) of the Borrowers related to the acquisition, opening and organizing of New Operating Units, such costs including, without limitation, the cost of feasibility studies, initial marketing costs, construction period rents, staff training, and recruiting and travel costs for employees engaged in such start-up activities.
Default . An Event of Default or event or condition that, but for the requirement that time elapse or notice be given, or both, would constitute an Event of Default.
Defaulting Lender . Any Lender that (a) has failed to fund any portion of the Term Loans, Revolving Credit Loans, participations in LC Disbursements required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute, or (c) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding.
Disposition or Dispose . The sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property by any Person (or the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.
Drawdown Date . The Business Day on which any Loan is made or is to be made.
Eligible Assignee . Any Person that meets the requirements to be an assignee under Section 10.1(b)(iii), (v) and (vi) (subject to such consents, if any, as may be required under Section 10.1(b)(iii)).
Eligible Swap Agreements . Swap Agreements purchased by the Borrowers from a Lender.
Encumbrances . See Section 8.3.
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Environmental Laws . Any and all applicable federal, state and local environmental, health or safety statutes, laws, regulations, rules and ordinances (whether now existing or hereafter enacted or promulgated), and all applicable judicial, administrative and regulatory decrees, judgments, orders and interpretations, including common law rulings and determinations, relating to injury to, or the protection of, human health or the environment, including, without limitation, all requirements pertaining to reporting, licensing, permitting, investigation, remediation and removal of emissions, discharges, releases or threatened releases of Hazardous Materials into the environment or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of such Hazardous Materials.
Equity Interests . With respect to any Person, all of the shares of capital stock of, or membership, partnership or other ownership or profits interest in, such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of, or membership, partnership or other ownership or profits interest in, such Person, all of the securities convertible into or exchangeable for shares of capital stock of, or membership, partnership or other ownership or profits interest in, such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares or such other interests, and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.
ERISA . The Employee Retirement Income Security Act of 1974 and the rules and regulations thereunder, collectively, as the same may from time to time be supplemented or amended and remain in effect.
ERISA Affiliate . Any trade or business, whether or not incorporated, that is treated as a single employer with the Borrowers under Section 414(b), (c), (m) or (o) of the Code and Section 4001(a)(14) of ERISA.
ERISA Event . (a) Any reportable event, as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC; (b) the adoption of any amendment to a Plan that would require the provision of security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) the existence with respect to any Plan of an accumulated funding deficiency (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (d) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (e) the incurrence of any liability under Title IV of ERISA with respect to the termination of any Plan or the withdrawal or partial withdrawal of the Borrowers or any ERISA Affiliate from any Plan or Multiemployer Plan; (f) the receipt by the Borrowers or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to the intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (g) the receipt by the Borrowers or any ERISA Affiliate of any notice concerning the imposition of Withdrawal Liability (as defined in Part I of Subtitle E of Title IV of ERISA) with respect to any Multiemployer Plan or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (h) the occurrence of a Prohibited Acquisition with respect to which the Borrowers or any of their Subsidiaries is a disqualified person (within the meaning of Section
8
4975 of the Code) or with respect to which the Borrowers or any such Subsidiary could otherwise be liable; and (i) any other event or condition with respect to a Plan or Multiemployer Plan that could reasonably be expected to result in material liability of the Borrowers.
Event of Default . Any event described in Section 9.1.
Excess Cash Flow . For any Fiscal Year of the Borrowers, the excess (if any) of (a) the sum of Consolidated EBITDA for such Fiscal Year, over (b) the sum (for such Fiscal Year) of (i) Consolidated Interest Charges actually paid in cash by the Borrowers and their Subsidiaries, (ii) the aggregate principal amount of all principal payments, redemptions and acquisitions for value of Consolidated Funded Indebtedness actually made during such Fiscal Year to the extent permitted by this Agreement, including principal payments of Term Loans, but excluding principal payments of Revolving Loans except to the extent that the Total Revolving Credit Commitment is permanently reduced in connection with any such payment of Revolving Loans, (iii) all income taxes actually paid in cash by the Borrowers and their Subsidiaries, and (iv) Capital Expenditures (including Growth Capital Expenditures) actually made by the Borrowers and their Subsidiaries in such Fiscal Year to the extent permitted by this Agreement (net of the proceeds of Indebtedness other than Loans permitted by this Agreement or of contributions to the capital of the Borrowers, to the extent such proceeds are applied to fund such Capital Expenditures).
Exchange Act . The Securities Exchange Act of 1934, as amended.
Excluded Taxes . With respect to the Administrative Agent, any Lender, the LC Issuer or any other recipient of any payment to be made by or on account of any obligation of the Borrowers hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which the Borrowers are located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrowers under Section 10.2), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new lending office) or is attributable to such Foreign Lenders failure or inability (other than as a result of a change in law) to comply with Section 2.15(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrowers with respect to such withholding tax pursuant to Section 2.15(a).
Existing Credit Agreement . The Credit Agreement dated as of October 28, 2003, as amended, between the Parent and M&I Marshall & Ilsley Bank.
Extraordinary Receipt . Any cash received by or paid to or for the account of any Person not in the ordinary course of business, including tax refunds, pension plan reversions, proceeds of insurance (other than proceeds of business interruption insurance), condemnation and eminent domain awards (and payments in lieu thereof), and indemnity payments.
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Facility . The Term Facility or the Revolving Credit Facility, as the context may require.
Federal Funds Effective Rate . For any day, a fluctuating interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent.
Fee Letter . See Section 12.11.
Fee Property . The properties listed on Schedule 5.8(c) hereto and such other real property assets in which Borrower or a Subsidiary may acquire fee simple title from and after the date hereof .
Fee Property Security Documents . The documents listed on Exhibit G-3 hereto.
Financial Statements . See Section 5.5(b)
Fiscal Month . Any of the thirteen periods of time, having approximately the same number of days, which comprise the Fiscal Year of the Borrowers.
Fiscal Quarter . Any of the four periods of time, three of which consist of three Fiscal Months and one of which consists of four Fiscal Months, which comprise the Fiscal Year of the Borrowers.
Fiscal Year . The 52-53 week fiscal period of the Borrowers ending on the last Monday in January of each calendar year.
Fixed Rate Election . The Interest Period selected for a particular LIBOR Loan pursuant to Section 2.3.
Foreign Lender . Any Lender that is organized under the laws of a jurisdiction other than that in which any Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.
FRB . See Section 2.5(d).
Fund . Any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.
GAAP . Generally accepted accounting principles, consistently applied.
Governmental Authority . The government of the United States of America or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority,
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instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
Growth Capital Expenditures . Capital Expenditures for growth, including, but not limited to, expenditures for remodeling or re-imaging any Operating Unit that is not a New Operating Unit, New Construction and the acquisition of restaurants.
Guarantees . As applied to the Borrowers and their Subsidiaries, all guarantees, endorsements or other contingent or surety obligations with respect to obligations of others whether or not reflected on the consolidated balance sheet of the Borrowers and their Subsidiaries, including any obligation to furnish funds, directly or indirectly (whether by virtue of partnership arrangements, by agreement to keep-well or otherwise), through the purchase of goods, supplies or services, or by way of stock purchase, capital contribution, advance or loan, or to enter into a contract for any of the foregoing, for the purpose of payment of obligations of any other Person.
Hazardous Material . Any substance (i) the presence of which requires or then requires notification, investigation, a removal or remediation under any Environmental Law; (ii) which is or becomes defined as a hazardous waste, hazardous material or hazardous substance or pollutant or contaminant under any present or future Environmental Law or amendments thereto including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.) and any applicable local statutes and the regulations promulgated thereunder; (iii) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and which is or becomes regulated pursuant to any Environmental Law by any Governmental Authority, agency, department, commission, board, agency or instrumentality of the United States, any state of the United States, or any political subdivision thereof; or (iv) without limitation, which contains gasoline, diesel fuel or other petroleum products, asbestos or polychlorinated biphenyls ( PCB s).
Hazardous Materials Indemnity Agreement . The Hazardous Materials Indemnity Agreement, dated as of the date hereof, made by the Borrowers in favor of the Administrative Agent, as amended and in effect from time to time.
Increasing Lender . See Section 2.1(a)(iii).
Indebtedness . As to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP: (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments; (b) the maximum amount of all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers acceptances, bank guaranties, surety bonds and similar instruments; (c) net obligations of such Person under any Swap Agreement; (d) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and not past due for more than 60 days
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after the date on which such trade account was created); (e) indebtedness (excluding prepaid interest thereon) secured by an Encumbrance on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; (f) all Attributable Indebtedness in respect of Capitalized Leases and Synthetic Lease Obligations of such Person and all Synthetic Debt of such Person; (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person or any warrant, right or option to acquire such Equity Interest, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and (h) all Guarantees of such Person in respect of any of the foregoing. For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under any Swap Agreement on any date shall be deemed to be the Swap Termination Value thereof as of such date.
Indemnified Taxes . All Taxes other than Excluded Taxes.
Interest Period . With respect to each LIBOR Loan, the period commencing on the date of the making or continuation of or conversion to such LIBOR Loan and ending one (1) month, two (2) months or three (3) months thereafter, as the Borrowers may elect in the applicable Notice of Borrowing or Conversion; provided that:
(i) any Interest Period (other than an Interest Period determined pursuant to clause (ii) below) that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day;
(ii) any Interest Period that would otherwise end after the Maturity Date, shall end on the Maturity Date;
(iii) notwithstanding clause (ii) above, no Interest Period shall have a duration of less than one (1) month, and if any Interest Period applicable to a Loan would be for a shorter period, such Interest Period shall not be available hereunder; and
(iv) the Borrowers may not select any Interest Period for a Term Loan, if, after giving effect to such selection, the aggregate principal amount of all Term Loans having Interest Periods ending after any date on which an installment of the Term Loans is scheduled to be repaid would exceed the aggregate principal amount of the Term Loans scheduled to be outstanding after giving effect to such repayment.
Investment . As applied to the Borrowers and their Subsidiaries, the purchase or acquisition of any share of capital stock, partnership interest, evidence of indebtedness or other equity security of any other Person (including any Subsidiary), any loan, advance or extension of credit (excluding accounts receivable arising in the ordinary course of business) to, or contribution to the capital of, any other Person (including any Subsidiary), any real estate held
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for sale or investment, any securities or commodities futures contracts held, any other investment in any other Person (including any other Subsidiary of the Borrowers), and the making of any commitment or acquisition of any option to make an Investment.
IP Rights . See Section 5.17.
Junior Subordinated Debt . All Indebtedness and other obligations of the Parent under or in respect of the Junior Subordinated Note and the Junior Subordinated Debt Documents.
Junior Subordinated Debt Documents . The Junior Subordinated Note, the Loan Agreement dated June 15, 2007 between the Parent and the Junior Subordinated Lender, as amended as of the date hereof, and any other agreements evidencing, securing or otherwise made pursuant to or in connection with the Junior Subordinated Note, in each case as in effect on the Closing Date without any amendment to or modification thereof, except as permitted by the Subordination Agreement.
Junior Subordinated Lender . Collectively, Robert E. Wheaton and Suzanne H. Wheaton.
Junior Subordinated Note . That certain Note, dated as of June 15, 2007, in the original principal amount of $1,400,000 made by the Parent payable to the Junior Subordinated Lender.
LC Disbursement . A payment made by the LC Issuer pursuant to a Letter of Credit.
LC Exposure . At any time, the sum of (a) the Maximum Drawing Amount at such time, and (b) the aggregate LC Disbursements that at such time have not been reimbursed by or on behalf of the Borrowers to the LC Issuer. The LC Exposure of any Revolving Credit Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time.
LC Issuer . Wells Fargo.
Landlord Waivers . Landlords consent and estoppel certificates (in form reasonably acceptable to the Administrative Agent) in favor of the Administrative Agent specified therein and covering those leased real properties as specified on Schedule 5.8(d)(i) and any leased real properties that are acquired by the Borrowers or any Subsidiary after the date hereof.
Lead Arranger . See Preamble.
Lenders . Wells Fargo, the other financial institutions parties hereto and listed on Schedule 1 attached hereto and each other Person that may after the date hereof become an assignee of a Lender pursuant to Section 10.1 and, thereby a party to this Agreement as a Lender hereunder, but from and after the effective date that any Person shall have assigned its entire Commitment pursuant to Section 10.1, Lenders shall no longer include such Person.
Letter of Credit Applications . Applications for Letters of Credit in such form as may be required by the LC Issuer from time to time which are executed and delivered by the Borrowers to the LC Issuer pursuant to Section 3.1, as the same may be amended or supplemented from time to time.
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Letter of Credit Fee . See Section 2.6(b).
Letter of Credit Participation . See Section 3.1(b).
Letter of Credit Sublimit . $500,000.
Letters of Credit . See Section 3.1(a).
LIBOR Loan . Any Loan bearing interest at a rate determined with reference to the LIBOR Rate.
LIBOR Rate . With respect to any LIBOR Loan for any Interest Period, the rate per annum as determined by the Administrative Agent on the basis of the offered rates for deposits in U.S. dollars, for a period of time comparable to such Interest Period, which appears on Reuters page LIBOR01 (formerly Telerate page 3750) as of 11:00 a.m. London time on the day that is two Business Days preceding the Drawdown Date of such LIBOR Loan (or, if for any reason such rate is unavailable from Reuters, from any other similar company or service that provides rate quotations comparable to those currently provided by Reuters); provided, however, that if the rate described above is not provided by Reuters or such other similar company or service on any applicable interest determination date, the LIBOR Rate shall be the rate (rounded upward, if necessary, to the nearest one hundred-thousandth of a percentage point) determined on the basis of the offered rates for deposits in U.S. dollars for a period of time comparable to such Interest Period which are offered by four major banks in the London interbank market at approximately 11:00 a.m. London time, on the day that is two (2) Business Days preceding the first day of such Interest Period as selected by the Administrative Agent. The principal London office of each of the four major London banks will be requested to provide a quotation of its U.S. dollar deposit offered rate. If at least two such quotations are provided, the LIBOR Rate for that date will be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate for that date will be determined on the basis of the rates quoted for loans in U.S. dollars to leading European banks for a period of time comparable to such Interest Period offered by major banks in New York City at approximately 11:00 a.m. New York City time, on the day that is two Business Days preceding the first day of such Interest Period.
Loan Documents . This Agreement, the Notes, the Letter of Credit Applications, any Subsidiary Guaranty, the Eligible Swap Agreements, Secured Cash Management Agreements, the Fee Letter and the Security Documents, together with any agreements, instruments or documents executed and delivered pursuant to or in connection with any of the foregoing; provided that for purposes of the definition of Material Adverse Effect and Sections V through IX, Loan Documents shall not include Eligible Swap Agreements or Secured Cash Management Agreements.
Loan Parties . Collectively, the Borrowers and each Subsidiary Guarantor.
Loans . The loans made or to be made by the Lenders to the Borrowers pursuant to this Agreement, including Revolving Credit Loans and Term Loans.
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Maintenance Capital Expenditures . Any Capital Expenditure that is not a Growth Capital Expenditure.
Majority Lenders . As of any date, one (1) or more Lenders (that are not Defaulting Lenders) holding more than fifty percent (50%) of the Total Commitments, or if the Total Revolving Credit Commitments shall have terminated, one (1) or more Lenders (that are not Defaulting Lenders) holding more than fifty percent (50%) of the outstanding principal amount of the Loans and Letter of Credit Participations; provided that the portion of the Total Commitments, or the outstanding principal amount of the Loans and Letter of Credit Participations, as the case may be, that are held or deemed held by, any Defaulting Lender will be excluded for purposes of making a determination of Majority Lenders.
Majority Revolving Credit Lenders . As of any date of determination, one (1) or more Lenders holding more than fifty percent (50%) of the Total Revolving Credit Outstandings; provided that the portion of the Total Revolving Credit Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Majority Revolving Credit Lenders.
Majority Term Lenders . As of any date of determination, one (1) or more Lenders holding more than fifty percent (50%) of the outstanding principal amount of Term Loans on such date; provided that the portion of the outstanding principal amount of Term Loans held by any Defaulting Lender shall be excluded for purposes of making a determination of the Majority Term Lenders.
Material Adverse Effect . Any of (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), condition (financial or otherwise) of the Borrowers and their Subsidiaries taken as a whole; (b) a material impairment of the rights and remedies of the Administrative Agent or any Lender under any Loan Document or of the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document (including with respect to the lien priority of any Security Document), to which it is a party.
Maturity Date . January 31, 2012.
Maximum Drawing Amount . At any time, the aggregate undrawn amount of all then outstanding Letters of Credit.
Measurement Period . At any date of determination, the most recently completed four Fiscal Quarters of the Borrower.
Multiemployer Plan . Any Plan which is a Multiemployer Plan as defined in Section 4001(a)(3) of ERISA.
Net Cash Proceeds . With respect to:
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(a) any Disposition by the Borrowers or any of their Subsidiaries, or any Extraordinary Receipt received or paid to the account of the Borrowers or any of their Subsidiaries, the excess, if any, of (i) the sum of cash and cash equivalents received in connection with such transaction (including any cash or cash equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) over (ii) the sum of (A) the amount of any Indebtedness that is secured by the applicable asset and that is required to be repaid in connection with such transaction (other than Indebtedness under the Loan Documents), (B) the reasonable and customary out-of-pocket expenses incurred by the Borrowers or a Subsidiary in connection with such transaction and (C) income taxes reasonably estimated to be actually payable within two years of the date of the relevant transaction as a result of any gain recognized in connection therewith; provided that, if the amount of any estimated taxes pursuant to subclause (C) exceeds the amount of taxes actually required to be paid in cash in respect of such Disposition, the aggregate amount of such excess shall constitute Net Cash Proceeds; and
(b) the sale or issuance of any Equity Interest by the Borrowers or any of their Subsidiaries, or the incurrence or issuance of any Indebtedness by the Borrower or any of their Subsidiaries, the excess of (i) the sum of the cash and cash equivalents received in connection with such transaction over (ii) the underwriting discounts and commissions, and other reasonable and customary out-of-pocket expenses, incurred by the Borrowers or such Subsidiaries in connection therewith.
New Construction . Construction by the Borrowers or any of their Subsidiaries related to the opening of a New Operating Unit or the meaningful expansion of capacity at an Operating Unit which is not a New Operating Unit.
New Lender . See Section 2.1(a)(ii).
New Operating Unit . A restaurant owned or operated by the Borrowers or any of their Subsidiaries whose ownership or operation by the Borrowers or any of their Subsidiaries starts on a date after the Closing Date.
Note Record . Any internal record, including a computer record, maintained by any Lender with respect to any Loan.
Notes . Collectively, the Revolving Credit Notes and the Term Notes.
Notice of Borrowing or Conversion . The notice, substantially in the form of Exhibit B hereto, to be given by the Borrowers to the Administrative Agent to request a Loan or to convert an outstanding Loan of one Type into a Loan of another Type, in accordance with Section 2.3.
Obligations . The following:
(a) the due and punctual payment by the Borrowers of (i) the principal of and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when and as due, whether at maturity, by acceleration,
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upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by the Borrowers in respect of any Letter of Credit, when and as due, including the unreimbursed amount of any LC Disbursement, interest thereon (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) and obligations to provide cash collateral, and (iii) all other monetary obligations of the Borrowers under this Agreement and under the other Loan Documents (including, without limitation, under each Eligible Swap Agreement and Secured Cash Management Agreement), including obligations to pay fees, expense reimbursement obligations and indemnification obligations, whether primary, secondary, direct, contingent, fixed or otherwise, arising under the Loan Documents (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), and
(b) the due and punctual payment of all the monetary obligations of each other Loan Party under or pursuant to this Agreement and each of the other Loan Documents.
OFAC. The U.S. Department of the Treasurys Office of Foreign Assets Control.
Operating Units . All restaurants operated by the Borrowers or any of their Subsidiaries, which for avoidance of doubt, shall include all New Operating Units.
Other Taxes . All present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.
Overpaying Borrower . See Section 2.16(b).
Parent . Star Buffet, Inc., a Delaware corporation.
Parent Financial Statements . See Section 5.25.
Parent SEC Documents . The Parents (a) Annual Report on Form 10-K for its most recent fiscal year for which such a report has been filed, (b) Quarterly Report on Form 10-Q for its most recent fiscal quarter for which such a report has been filed, (c) most recent Proxy Statement on Schedule 14A, and (d) all Current Reports on Form 8-K filed since the end of the most recent fiscal year for which it has filed its Annual Report on Form 10-K.
Participant . See Section 10.1(d).
Patriot Act . See Section 12.15.
Payment Date . The first Business Day of each calendar quarter.
PBGC . The Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.
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Pension Plan . Any Plan which is an employee pension benefit plan (as defined in ERISA).
Permitted Encumbrances . See Section 8.3.
Person . Any individual, corporation, partnership, trust, unincorporated association, business or other legal entity, and any government or governmental agency or political subdivision thereof.
Plan . Any employee pension benefit plan or employee welfare benefit plan (each as defined in ERISA) maintained by the Borrowers or any Subsidiary of the Borrowers.
Platform . An electronic delivery system (which may be provided by the Administrative Agent, an Affiliate of the Administrative Agent or any Person that is not an Affiliate of the Administrative Agent), such as IntraLinks or a substantially similar electronic system.
Pledge Agreement . See Section 4.1(a)(iii).
Pro Forma Financial Statements . See Section 4.1(h).
Prohibited Acquisition . Any prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code.
Qualified Investments . As applied to the Borrowers and their Subsidiaries, investments in (i) notes, bonds or other obligations of the United States of America or any agency thereof that as to principal and interest constitute direct obligations of or are guaranteed by the United States of America and that have maturity dates not more than one year from the date of acquisition, (ii) certificates of deposit, demand deposit accounts or other deposit instruments or accounts maintained in the ordinary course of business with banks or trust companies organized under the laws of the United States or any state thereof that have capital and surplus of at least $500,000,000 which certificates of deposit and other deposit instruments, if not payable on demand, have maturities of not more than one year from the date of acquisition, (iii) commercial paper that is rated not less than prime-one or A-1 or their equivalents by Moodys Investors Service, Inc. or Standard & Poors Corporation, respectively, or their successors, and in each case maturing not more than one year from the date of acquisition, (iv) any repurchase agreement secured by any one or more of the foregoing.
Register . See Section 10.1(c).
Related Parties . With respect to any Person, such Persons Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Persons Affiliates.
Reserve Percentage . For any Interest Period, the aggregate of the maximum reserve percentages (including all basic, marginal, special, emergency and supplemental reserves), expressed as a decimal, established by the Board of Governors of the Federal Reserve System and any other banking authority, domestic or foreign, to which any Lender is subject with respect to Eurocurrency Liabilities (as defined in regulations issued from time to time by such Board
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of Governors). The Reserve Percentage shall be adjusted automatically on and as of the effective date of any change in any such reserve percentage.
Responsible Officer . The chief executive officer, president, chief financial officer, treasurer or controller of a Loan Party. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.
Restricted Payment . Any of the following: (a) any dividend, distribution, loan, advance, guaranty, extension of credit or other payment, whether in cash or property to or for the benefit of any Person who holds an Equity Interest in the Borrowers or any of their Subsidiaries, whether or not such interest is evidenced by a security, and any purchase, redemption, retirement or other acquisition for value of any Equity Interest of the Borrowers or any of their Subsidiaries, whether now or hereafter outstanding, or of any options, warrants or similar rights to purchase such Equity Interest or any security convertible into or exchangeable for such Equity Interest and (b) any payment or prepayment of any kind, whether in cash or property, to or for the benefit of any Person that is an Affiliate of (i) the Borrowers or any of their Subsidiaries or (ii) any holder of an Equity Interest in or any beneficiary of the Parent.
Revolving Credit Commitment . In relation to any particular Revolving Credit Lender, the maximum dollar amount which such Lender has agreed to loan to the Borrowers as Revolving Credit Loans or to make available to the Borrowers pursuant to Letter of Credit Participations upon the terms and subject to the conditions of this Agreement, initially as set forth on Schedule 1 attached hereto, as such Lenders Revolving Credit Commitment may be modified pursuant hereto and in effect from time to time. Schedule 1 shall be amended from time to time to reflect any changes in the Revolving Credit Commitments of the Revolving Credit Lenders, and the Administrative Agent shall promptly provide copies of revised Schedule 1 to the Lenders.
Revolving Credit Facility . The credit facility provided under Section 2.1(a).
Revolving Credit Lender . Each Lender having a Revolving Credit Commitment.
Revolving Credit Loans . See Section 2.1(a)(i).
Revolving Credit Note . See Section 2.2(a).
Sanctioned Country . A country subject to a sanctions program identified on the list maintained by OFAC and available at http://www.treas.gov/offices/eotffc/ofac/sanctions/ index.html, or as otherwise published from time to time.
Sanctioned Person . Any of the following: (i) a Person named on the list of Specially Designated Nationals and Blocked Persons maintained by OFAC available at http://www.treas.gov/offices/ eotffc/ofac/sdn/index.html, or as otherwise published from time to time, or (ii) (A) an agency of the government of a Sanctioned Country, (B) an organization
19
controlled by a Sanctioned Country, or (C) a person resident in a Sanctioned Country, to the extent subject to a sanctions program administered by OFAC.
SEC . United States Securities and Exchange Commission.
Secured Cash Management Agreement . Any Cash Management Agreement entered into between or among any Borrower and any Cash Management Bank.
Secured Parties . Collectively, the Administrative Agent, the Lenders, the LC Issuer, the Swap Banks, the Cash Management Banks, and the other Persons the Obligations owing to which are or are purported to be secured by the Collateral under the terms of the Security Documents.
Securities Act . The Securities Act of 1933, as amended.
Security Agreement . See Section 4.1(a)(iii).
Security Documents . The Security Agreement, the Hazardous Materials Indemnity Agreement, the Fee Property Security Documents, the Landlord Waivers, and the deposit account control agreements referenced in Section 4.1(a)(iii)(E), each in favor of the Administrative Agent to secure Obligations, in each case as amended and/or restated and in effect from time to time, and any additional documents evidencing or perfecting the Administrative Agents lien on the Collateral.
Solvent and Solvency . With respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities pursuant to GAAP, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Persons ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Persons property would constitute an unreasonably small capital, and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
Subordinated Debt . Indebtedness of the Borrowers or any of their Subsidiaries, including, without limitation, the Junior Subordinated Debt, which is expressly subordinated and made junior to the payment and performance in full of the Obligations on terms and conditions reasonably satisfactory to the Majority Lenders.
Subordination Agreement . The Subordination Agreement, dated the Closing Date, by and among the Administrative Agent, the Junior Subordinated Lender and the Parent, as amended, restated, supplemented or modified from time to time.
Subordination Provisions . See Section 9.1(m).
20
Subsidiary . With respect to any Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a Subsidiary or to Subsidiaries shall refer to a Subsidiary or Subsidiaries of the Borrower.
Subsidiary Guarantor . Each Subsidiary of any Borrower required to execute and deliver a Subsidiary Guaranty pursuant to Section 6.12.
Subsidiary Guaranty . See Section 6.12.
Summary of Sources and Uses . The summary of sources and uses of funds set forth on Schedule 4.1(e) attached hereto.
Swap Agreement . Any and all (a) rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a Master Agreement ), including any such obligations or liabilities under any Master Agreement.
Swap Bank . Any Person that at the time it entered into a Swap Agreement was a Lender, an Affiliate of a Lender, or a bank or trust company organized under the laws of the United States or any state thereof that has capital and surplus of at least $1,000,000,000.
Swap Termination Value . In respect of any one or more Swap Agreements, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Agreements, (a) for any date on or after the date such Swap Agreements have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Agreements, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Agreements (which may include a Lender or any Affiliate of a Lender).
Syndication Agent . See Preamble.
21
Synthetic Debt . With respect to any Person as of any date of determination thereof, all obligations of such Person in respect of transactions entered into by such Person that are intended to function primarily as a borrowing of funds (including any minority interest transactions that function primarily as a borrowing) but are not otherwise included in the definition of Indebtedness or as a liability on the consolidated balance sheet of such Person and its Subsidiaries in accordance with GAAP.
Synthetic Lease Obligation . The monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property (including sale and leaseback transactions), in each case, creating obligations that do not appear on the balance sheet of such Person but which, upon the application of any bankruptcy or similar law to such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).
Taxes All present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
Term Lender . Each Lender having a Term Loan Commitment.
Term Loans . See Section 2.1(b).
Term Loan Commitment . With respect to any Lender, the maximum dollar amount which such Lender has agreed to loan to the Borrower as a Term Loan upon the terms and subject to the conditions of this Agreement, initially as set forth on Schedule 1 attached hereto and as such Lenders Term Loan Commitment may be modified pursuant hereto from time to time. Schedule 1 shall be amended from time to time to reflect any changes in the Term Loan Commitments of the Term Lenders, and the Administrative Agent shall promptly provide copies of revised Schedule 1 to the Lenders.
Term Facility . The credit facility provided under Section 2.1(b).
Term Notes . See Section 2.2(b).
Title Company . LandAmerica Title Insurance Company.
Title Policy . For each Fee Property, an ALTA 1992 loan policy of title insurance providing coverage for each such property at least in the amount set forth on Schedule 5.8(c) hereto, issued by the Title Company to Administrative Agent and its successors and assigns, insuring the Fee Property Security Documents for such Fee Property in accordance with the requirements of Section 4.1(a)(v).
Total Commitment . The sum of the Total Revolving Credit Commitment and the Total Term Loan Commitment.
Total Lease Adjusted Leverage Ratio . As of the end of any fiscal period, the ratio of (a) the sum of (i) Consolidated Funded Indebtedness as of the end of such fiscal period, plus (ii) the
22
product of eight (8) times the Consolidated Rent Expense for such fiscal period, to (b) Consolidated EBITDAR for such fiscal period.
Total Revolving Credit Commitment . The sum of the Revolving Credit Commitments of the Revolving Credit Lenders as in effect from time to time, which as of the Closing Date shall be $2,000,000.
Total Revolving Credit Outstandings . At any time, the sum of (i) the aggregate outstanding principal balance of the Revolving Credit Loans at the time and (ii) the LC Exposure at the time.
Total Term Loan Commitment . The sum of the Term Loan Commitments of the Term Lenders as in effect from time to time, which as of the Closing Date shall be $7,000,000.
Type . A LIBOR Loan or a Base Rate Loan.
Wells Fargo . See Preamble.
Working Capital . As of any date of determination, the excess of consolidated current assets over consolidated current liabilities of the Borrowers and their Subsidiaries.
23
26
28
29
30
31
32
33
34
All such payments shall be made at the Administrative Agents head office or at such other location that the Administrative Agent may from time to time designate, in each case in immediately available funds.
35
36
then, and in any such event, the Administrative Agent shall forthwith so notify the Borrowers thereof. Until the Administrative Agent notifies the Borrowers that the circumstances giving rise to such notice no longer apply, the obligation of the Lenders to allow selection by the Borrowers of the Type of Loan affected by the contingencies described in this Section (herein called Affected Loans ) shall be suspended. If at the time the Administrative Agent so notifies the Borrowers, the Borrowers have previously given the Administrative Agent a Notice of
37
Borrowing or Conversion with respect to one or more Affected Loans but such Loans have not yet gone into effect, such notification shall be deemed to be a request for Base Rate Loans.
(i) subjects any Lender or the LC Issuer to any tax with respect to payments of principal or interest or any other amounts payable hereunder by the Borrowers or otherwise with respect to the transactions contemplated hereby (except for Indemnified Taxes or Other Taxes covered by Section 2.15 and the imposition of, or any change in the rate of, and Excluded Tax payable by such Lender or the LC Issuer), or
(ii) imposes, modifies or deems applicable any deposit insurance, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, or credit extended or participated in by, any Lender (other than such requirements as are already included in the determination of the LIBOR Rate) or the LC Issuer, or
(iii) imposes upon any Lender or the LC Issuer any other condition with respect to its obligations or performance under this Agreement or in respect of any Letter of Credit,
and the result of any of the foregoing is to increase the cost to such Lender or the LC Issuer, reduce the income receivable by such Lender or the LC Issuer or impose any expense upon such Lender or the LC Issuer with respect to any Loans or its obligations under this Agreement or in respect of any Letter of Credit, such Lender or the LC Issuer shall notify the Borrowers and the Administrative Agent thereof. The Borrowers agree to pay to such Lender or the LC Issuer the amount of such increase in cost, reduction in income or additional expense as and when such cost, reduction or expense is incurred or determined, upon presentation by such Lender or the LC Issuer of a statement in the amount and setting forth in reasonable detail such Lenders or the LC Issuers calculation thereof and the assumptions upon which such calculation was based, which statement shall be prima facie evidence of the amounts owing hereunder absent manifest error.
38
39
Without limiting the generality of the foregoing, if any Borrower is resident for tax purposes in the United States, any Foreign Lender shall deliver to the Borrowers and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Borrowers or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:
40
41
42
Each such payment shall be made to the Administrative Agent at its head office in immediately available funds. Interest on any and all amounts remaining unpaid by the Borrowers under this Section 3.2 at any time from the date such amounts become due and payable (whether as stated in this Section 3.2, by acceleration or otherwise) until payment in full (whether before or after judgment) shall be payable to the Administrative Agent, for the account of LC Issuer or (as the case may be) the Lenders, on demand at a rate per annum equal to 2% above the Alternate Base Rate.
43
44
45
46
47
48
49
The making, continuation or conversion of each Loan and the issuance of each Letter of Credit shall be deemed to be a representation and warranty by the Borrowers on the date of the making, continuation or conversion of such Loan as to the accuracy of the facts referred to in subsection (c) of this Section 4.2 and of the satisfaction of all of the conditions set forth in this Section 4.2.
50
The Borrowers, jointly and severally, represent and warrant to the Administrative Agent and the Lenders that:
51
52
53
(ii) Schedule 5.8(d)(ii) sets forth a complete and accurate list of all leases of real property under which any Loan Party or any Subsidiary of a Loan Party is the lessor, showing as of the date hereof the street address, county or other relevant jurisdiction, state, lessor, lessee and expiration date thereof. Each such lease is the legal, valid and binding obligation of the lessee thereof, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors rights generally, and except as the remedy of specific performance of injunctive relief is subject to the discretion of the court before which any proceeding therefore may be brought.
54
55
56
57
The Borrowers covenant that so long as any Loan, Letter of Credit or other Obligation, remains outstanding or the Lenders or the LC Issuer have any obligation to lend or to issue any Letter of Credit hereunder:
58
59
60
61
62
63
64
65
The Borrowers covenant that so long as any Loan, Letter of Credit or other Obligation (other than contingent indemnification obligations) remains outstanding or the Lenders or the LC Issuer have any obligation to make any Loan or issue any Letter of Credit hereunder:
Period |
|
Minimum Consolidated
|
|
|
|
1 st Fiscal Quarter 2009 |
|
1.20:1.00 |
1 st and 2 nd Fiscal Quarters 2009 (taken as a single period) |
|
1.20:1.00 |
1 st , 2 nd and 3 rd Fiscal Quarters 2009 (taken as a single period) |
|
1.20:1.00 |
Fiscal Year 2009 (taken as a single period) |
|
1.20:1.00 |
Period |
|
Minimum Consolidated
|
|
|
|
1 st Fiscal Quarter 2009 |
|
1.05:1.00 |
1 st and 2 nd Fiscal Quarters 2009 (taken as a single period) |
|
0.90:1.00 |
1 st , 2 nd and 3 rd Fiscal Quarters 2009 (taken as a single period) |
|
0.95:1.00 |
Fiscal Year 2009 (taken as a single period) |
|
1.00:1.00 |
66
Fiscal Quarter |
|
Minimum Consolidated
|
|
|
|
|
|
|
|
Q1 2009 |
|
$ |
2,300,000 |
|
Q2 2009 |
|
$ |
1,750,000 |
|
Q3 2009 |
|
$ |
1,300,000 |
|
Q4 2009 |
|
$ |
1,400,000 |
|
The Borrowers covenant that so long as any Loan, Letter of Credit or other Obligation, remains outstanding or the Lenders or the LC Issuer have any obligation to make any Loan or to issue any Letter of Credit hereunder:
67
68
69
70
71
72
73
provided , however , that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrowers under the Bankruptcy Code of the United States, the obligation of each Lender to make Loans and any obligation of the LC Issuer to issue or extend any Letter of Credit shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, and the obligation of the Borrowers to Cash Collateralize the Maximum Drawing Amount as aforesaid shall automatically become effective, in each case without further act of the Administrative Agent or any Lender.
74
First , to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent ) payable to the Administrative Agent in its capacity as such;
Second , to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal, interest and Letter of Credit Fees) payable to the Lenders and the LC Issuer (including fees, charges and disbursements of counsel to the respective Lenders and the LC Issuer, including fees and time charges for attorneys who may be employees of any Lender or the LC Issuer) and amounts payable under Sections 2.10, 2.12, 2.13, 2.14 and 2.15, ratably among them in proportion to the respective amounts described in this clause Second payable to them;
Third , to payment of that portion of the Obligations constituting accrued and unpaid Letter of Credit Fees and interest on the Loans, LC Disbursements and other Obligations, ratably among the Lenders and the LC Issuer in proportion to the respective amounts described in this clause Third payable to them;
Fourth , to payment of that portion of the Obligations constituting unpaid principal of the Loans, LC Disbursements and amounts owing under Eligible Swap Agreements, ratably among the Lenders, the LC Issuer and the Swap Banks in proportion to the respective amounts described in this clause Fourth held by them;
Fifth , to the Administrative Agent for the account of the LC Issuer, to Cash Collateralize the Maximum Drawing Amount;
Sixth , to payment of that portion of the Obligations constituting unpaid amounts owing under Secured Cash Management Agreements, ratably among the Cash Management Banks in proportion to the respective amounts described in this clause Sixth held by them; and
Last , the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrowers or as otherwise required by Law.
Subject to Section 3.2, amounts used to Cash Collateralize the Maximum Drawing Amount pursuant to clause Fifth above shall be applied to satisfy drawings under the then outstanding Letters of Credit as they occur. If any amount remains on deposit as cash collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.
75
76
77
Subject to acceptance and recording thereof by the Administrative Agent pursuant to Section 10.1(c), from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lenders rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.10, 2.12, 2.13, 2.15 and 12.2 with respect to facts and circumstances occurring prior to the effective date of such assignment). Upon request, the Borrowers (at their expense) shall execute and deliver Notes to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 10.1(d).
Notwithstanding anything to the contrary in this Section 10.1(b), each Lender will also have the right, without consent of the Borrowers or the Administrative Agent, to assign as security all or part of its rights under the Loan Documents to any Federal Reserve Bank.
78
79
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrowers to require such assignment and delegation cease to apply.
80
81
82
83
Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telefacsimile in complete and legible form, or three Business Days after depositing it in the United States mail to be sent by certified or registered mail with postage prepaid and properly addressed; provided that notices to the Administrative Agent and the LC Issuer shall not be effective until received. For the purposes hereof, the address of each party hereto shall be as set forth on Schedule 12.1 hereof or
84
(subject to said Schedule) in its Administrative Questionnaire or (i) as to the Borrowers and the Administrative Agent, such other address as shall be designated by such Person in a written notice delivered to the other parties hereto and (ii) as to each other party, such other address as shall be designated by such party in a written notice delivered to the Administrative Agent. The Administrative Agent or the Borrowers may, in their discretion, agree to accept notices and other communications to such parties hereunder by electronic communications pursuant to procedures approved by such parties, provided that approval of such procedures may be limited to particular notices or communications.
Loan Documents and notices under the Loan Documents may be transmitted and/or signed by telefacsimile and by signatures delivered in PDF format by electronic mail. The effectiveness of any such documents and signatures shall, subject to applicable law, have the same force and effect as an original copy with manual signatures and shall be binding on all Loan Parties, the Administrative Agent and the Lenders. The Administrative Agent may also require that any such documents and signature be confirmed by a manually-signed copy thereof; provided , however , that the failure to request or deliver any such manually-signed copy shall not affect the effectiveness of any facsimile document or signature.
Notwithstanding the foregoing, the Borrowers agree that the Administrative Agent may make any material delivered by the Borrowers to the Administrative Agent, as well as any amendments, waivers, consents and other written information, documents, instruments and other materials relating to the Borrowers, any of their Subsidiaries, or any other materials or matters relating to the Loan Documents or any of the transactions contemplated hereby that the Administrative Agent is required or authorized pursuant to the terms hereof or of any Loan Document to provide to the Lenders (collectively, the Communications ) available to the Lenders by posting such notices on a Platform. THE BORROWERS ACKNOWLEDGE THAT (A) THE DISTRIBUTION OF MATERIAL THROUGH AN ELECTRONIC MEDIUM IS NOT NECESSARILY SECURE AND THAT THERE ARE CONFIDENTIALITY AND OTHER RISKS ASSOCIATED WITH SUCH DISTRIBUTION, (B) A PLATFORM IS PROVIDED AS IS AND AS AVAILABLE AND (C) NEITHER THE ADMINISTRATIVE AGENT NOR ANY OF ITS AFFILIATES WARRANTS THE ACCURACY, COMPLETENESS, TIMELINESS, SUFFICIENCY, OR SEQUENCING OF THE COMMUNICATIONS POSTED ON A PLATFORM. THE ADMINISTRATIVE AGENT AND ITS AFFILIATES EXPRESSLY DISCLAIM WITH RESPECT TO A PLATFORM ANY LIABILITY FOR ERRORS IN TRANSMISSION, INCORRECT OR INCOMPLETE DOWNLOADING, DELAYS IN POSTING OR DELIVERY, OR PROBLEMS ACCESSING THE COMMUNICATIONS POSTED ON SUCH PLATFORM AND ANY LIABILITY FOR ANY LOSSES, COSTS, EXPENSES OR LIABILITIES THAT MAY BE SUFFERED OR INCURRED IN CONNECTION WITH SUCH PLATFORM. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE ADMINISTRATIVE AGENT OR ANY OF ITS AFFILIATES IN CONNECTION WITH ANY PLATFORM.
85
Each Lender agrees that notice to it (as provided in the next sentence) specifying that any Communication has been posted to a Platform shall for purposes of this Agreement constitute effective delivery to such Lender of such information, documents or other materials comprising such Communication. Each Lender agrees (1) to notify, on or before the date such Lender becomes a party to this Agreement, the Administrative Agent in writing of such Lenders e-mail address to which a notice may be sent (and from time to time thereafter to ensure that the Administrative Agent has on record an effective e-mail address for such Lender) and (2) that any notice may be sent to such e-mail address.
86
87
88
and provided , further , that (i) no amendment, waiver or consent shall, unless in writing and signed by the LC Issuer in addition to the Lenders required above, affect the rights or duties of the LC Issuer under this Agreement or any Application relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; and (iii) the Fee Letter
89
may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto.
If any Lender does not consent to a proposed amendment, waiver, consent or release with respect to any Loan Document that requires the consent of each Lender and that has been approved by the Majority Lenders, the Borrowers may replace such non-consenting Lender in accordance with Section 10.2; provided that such amendment, waiver, consent or release can be effected as a result of the assignment contemplated by such Section (together with all other such assignments required by the Borrowers to be made pursuant to this paragraph). Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased or extended without the consent of such Lender.
For purposes of this Section, Information means all information received from any Loan Party or any Subsidiary thereof relating to any Loan Party or any Subsidiary thereof or their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or the LC Issuer on a nonconfidential basis prior to disclosure by any Loan Party or any Subsidiary thereof, provided that, in the case of information received from a Loan Party or any such Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
90
Each of the Administrative Agent, the Lenders and the LC Issuer acknowledges that (a) the Information may include material non-public information concerning the Borrowers or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable law, including Federal and state securities laws.
91
EXCEPT AS PROHIBITED BY LAW, THE BORROWERS AND EACH OF THE LENDERS HEREBY WAIVE ANY RIGHT THEY MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES.
THE BORROWERS (a) CERTIFY THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDERS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDERS WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (b) ACKNOWLEDGE THAT THE LENDERS HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH EACH IS A PARTY BECAUSE OF, AMONG OTHER THINGS, THE BORROWERS WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.
92
[ Remainder of page intentionally left blank ]
93
IN WITNESS WHEREOF, the undersigned have duly executed this Credit Agreement under seal as of the date first above written.
|
STAR BUFFET, INC. |
|
|
|
|
|
|
|
|
By: |
/s/ Ron Dowdy |
|
Name: Ron Dowdy |
|
|
Title: Secretary |
|
|
|
|
|
|
|
|
STAR BUFFET MANAGEMENT, INC. |
|
|
|
|
|
|
|
|
By: |
/s/ Ron Dowdy |
|
Name: Ron Dowdy |
|
|
Title: Secretary |
|
|
|
|
|
SUMMIT FAMILY RESTAURANTS, INC. |
|
|
|
|
|
|
|
|
By: |
/s/ Ron Dowdy |
|
Name: Ron Dowdy |
|
|
Title: Secretary |
|
|
|
|
|
|
|
|
HTB RESTAURANTS, INC. |
|
|
|
|
|
|
|
|
By: |
/s/ Ron Dowdy |
|
Name: Ron Dowdy |
|
|
Title: Secretary |
|
|
|
|
|
|
|
|
NORTHSTAR BUFFET, INC. |
|
|
|
|
|
|
|
|
By: |
/s/ Ron Dowdy |
|
Name: Ron Dowdy |
|
|
Title:Secretary |
|
WELLS FARGO BANK, N.A.,
individually and as
|
|
|
|
|
|
|
|
|
By: |
/s/ J. Nicholas Cole |
|
Name: J. Nicholas Cole |
|
|
Title: Managing Director |
Schedule 1
Commitments and Applicable Percentages
Lender |
|
Revolving
|
|
Applicable
|
|
Term
|
|
Applicable
|
|
Total
|
|
Total
|
|
|||
Wells Fargo Bank, N.A. |
|
$ |
2,000,000 |
|
100 |
% |
$ |
7,000,000 |
|
100 |
% |
$ |
9,000,000 |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
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|
|
|
|
|
|
|
|
|
|||
Total: |
|
$ |
2,000,000 |
|
100 |
% |
$ |
7,000,000 |
|
100 |
% |
$ |
9,000,000 |
|
100 |
% |
AGREEMENT AND
AMENDMENT NO. 1 TO CREDIT AGREEMENT
THIS AGREEMENT AND AMENDMENT NO. 1 TO CREDIT AGREEMENT (this Amendment ) is entered into as of February 29, 2008, by and among STAR BUFFET, INC., STAR BUFFET MANAGEMENT, INC., SUMMIT FAMILY RESTAURANTS, INC., HTB RESTAURANTS, INC., NORTHSTAR BUFFET, INC. and STARLITE HOLDINGS, INC. ( Starlite ), each a Delaware corporation (each individually, a Borrower , and collectively, the Borrowers ), and WELLS FARGO BANK, N.A., a national banking association ( Wells Fargo ).
WITNESSETH:
WHEREAS, the Borrowers (other than Starlite) and Wells Fargo are parties to a certain Credit Agreement, dated as of January 31, 2008 (as amended, restated or otherwise modified from time to time, the Credit Agreement ; terms defined in the Credit Agreement are used herein with the same meanings); and
WHEREAS, Starlite wishes to become a party to the Credit Agreement as a Borrower, and the Borrowers and the Administrative Agent wish to amend the Credit Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
Total Term Loan Commitment . The sum of the Term Loan Commitments of the Term Lenders as in effect from time to time, which as of February 29, 2008 shall be $8,000,000.
Term Loans . The Borrowers shall repay the principal amount of the Term Loans in equal quarterly installments of $175,000 for the first six full calendar quarters after the Closing Date and in equal quarterly installments of $225,000 for the next nine full
calendar quarters, payable on each Payment Date commencing April 1, 2008, and the aggregate principal amount of all Term Loans outstanding on the Maturity Date shall be paid on such date.
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3
[Signature page follows.]
4
IN WITNESS WHEREOF, this Agreement and Amendment No. 1 to Credit Agreement has been executed as an instrument under seal as of the date first set forth above.
WELLS FARGO BANK, N.A., individually and as Administrative Agent, LC Issuer, Lead Arranger and Syndication Agent |
STAR BUFFET, INC. |
||||
|
|
||||
|
By: |
/s/ Ron Dowdy |
|||
|
Name: Ron Dowdy |
||||
|
Title: Secretary |
||||
By: |
/s/ Darcy McLaren |
|
|
||
Name: Darcy McLaren |
STAR BUFFET MANAGEMENT, INC. |
||||
Title: Vice President |
|
||||
|
|
||||
|
By: |
/s/ Ron Dowdy |
|||
|
Name: Ron Dowdy |
||||
|
Title: Secretary |
||||
|
|
||||
|
SUMMIT FAMILY RESTAURANTS, INC. |
||||
|
|
||||
|
|
||||
|
By: |
/s/ Ron Dowdy |
|||
|
Name: Ron Dowdy |
||||
|
Title: Secretary |
||||
|
|
||||
|
HTB RESTAURANTS, INC. |
||||
|
|
||||
|
|
||||
|
By: |
/s/ Ron Dowdy |
|||
|
Name: Ron Dowdy |
||||
|
Title: Secretary |
||||
|
|
||||
|
NORTHSTAR BUFFET, INC. |
||||
|
|
||||
|
|
||||
|
By: |
/s/ Ron Dowdy |
|||
|
Name: Ron Dowdy |
||||
|
Title: Secretary |
||||
|
|
||||
|
STARLITE HOLDINGS, INC. |
||||
|
|
||||
|
|
||||
|
By: |
/s/ Ron Dowdy |
|||
|
Name: Ron Dowdy |
||||
|
Title:Secretary |
||||
[Signature Page to Amendment No. 1 to Credit Agreement]
Exhibit 10.15
LOAN AGREEMENT
Senior Subordinated Promissory Note
Series I
$1,400,000.00
MADE BY AND BETWEEN
STAR BUFFET, INC.,
a Delaware corporation
AND
ROBERT E. WHEATON &
SUZANNE H. WHEATON,
Dated as of June 15, 2007
LOAN AGREEMENT
BY THIS AGREEMENT made and entered into as of the 15 th day of June, 2007, STAR BUFFET, INC., a Delaware corporation, whose address is 1312 N. Scottsdale Road, Scottsdale, Arizona 85257 (hereinafter severally and collectively called Borrower ), and ROBERT E. WHEATON & SUZANNE H. WHEATON, whose address is 4716 East Valley Vista Lane, Paradise Valley, Arizona 85253 (hereinafter called Lender ), for and in consideration of the recitals and mutual promises contained herein, confirm and agree as follows:
SECTION 1. RECITALS
1.1 Loan . Borrower has applied to Lender for a term loan in the amount of ONE MILLION FOUR HUNDRED THOUSAND AND NO/100THS DOLLARS ($1,400,000.00), upon the terms, conditions and provisions set forth herein, for the sole purpose of providing working capital for Borrower in the ordinary course of business.
SECTION 2. DEFINITIONS
2.1 Defined Terms . As used herein, the following capitalized terms shall have the meanings specified below, unless the context otherwise requires.
(a) Adjusted Tangible Net Worth . Tangible net worth plus subordinated debt, determined in accordance with GAAP, plus the amount of any reductions in tangible net worth for non-cash charges required under Financial Accounting Standard 144 and reserves for notes receivable.
(b) Advance . Omitted.
(c) Affiliate . Any person or entity (i) that directly or indirectly controls, or is controlled by, or is under common control with, Borrower; (ii) that directly or indirectly beneficially owns or holds five percent (5%) or more of any class of voting stock of or membership in Borrower; (iii) five percent (5%) or more of the voting stock of or membership in which entity is directly or indirectly beneficially owned or held by Borrower; (iv) that is an officer, director or manager of Borrower; (v) of which another Affiliate is an officer, director or manager; or (vi) who is related by blood, adoption, or marriage to another Affiliate. The term control means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract, or otherwise.
(d) Business Day . Any day other than a Saturday, Sunday, public holiday, or other day when commercial banks in Arizona are authorized or required to close.
(e) Capital Expenditures . For a period, any expenditures of money during such period for the lease, purchase or construction of assets that are capitalized on Borrowers balance sheet.
1
(f) Closing . The satisfaction of all of the conditions precedent set forth in SECTION 5 hereof and the consummation of all of the loan transactions contemplated by this Loan Agreement.
(g) Closing Date . The date, on or before June 15, 2007, on which the Closing occurs.
(h) Commitment . As defined in Paragraph 3.1 hereof.
(i) Compliance Certificate . A certification of compliance in the form attached hereto as Exhibit A.
(j) CPLTD . The amount of principal payments on long term debt and the amount of capitalized leases that are to be paid within one year.
(k) Disbursement Account . Omitted.
(l) EBITDA . Pretax earnings from continuing operations plus interest expense, depreciation and amortization, impairment of long-lived assets and reserves for notes receivable, computed and calculated in accordance with GAAP calculated on a rolling four (4) quarter basis.
(m) Environmental Law . Any federal, state or local statute, ordinance, or regulation pertaining to health, industrial hygiene, or the environment, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ( CERCLA ); the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901, et seq. ( RCRA ); and the Arizona Environmental Quality Act, Title 49, Arizona Revised Statutes, and all rules adopted and guidelines promulgated pursuant to the foregoing.
(n) ERISA . The Employee Retirement Income Security Act of 1974, as amended and as in effect from time to time.
(o) Event of Default . As defined in Paragraph 11.1 hereof.
(p) Facility . Any real property and improvements owned or occupied by Borrower in the conduct of its business.
(q) Fixed Charge Coverage . The ratio of (a) EBITDA, less cash taxes and maintenance Capital Expenditures plus rent expense, to (b) CPLTD, plus interest expense plus rent expense calculated on a rolling four (4) quarter basis.
(r) GAAP . Those generally accepted accounting principles and practices that are recognized as such by the American Institute of Certified Public Accountants acting through its Accounting Principles Board or by the Financial Accounting Standards Board or through other appropriate boards or committees thereof and which are consistently applied for all periods after the date thereof so as to properly reflect the financial condition, and the results of operations and changes in the financial position, of Borrower.
2
(s) Hazardous Substance : Includes:
(i) those substances included within the definitions of hazardous substances, hazardous materials, toxic substances, or solid waste in CERCLA, RCRA, and the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq. , and in the regulations promulgated pursuant thereto;
(ii) those substances defined as hazardous substances in A.R.S. Section 49-201 and in rules adopted or guidelines promulgated pursuant thereto;
(iii) those substances listed in the United States Department of Transportation Table (49 CFR 172.101 and amendments thereto) or by the Environmental Protection Agency as hazardous substances (40 CFR Part 302 and amendments thereto); and
(iv) all other substances, materials and wastes that are, or that become, regulated under, or that are classified as hazardous or toxic under, any Environmental Law.
(t) Indebtedness . The total outstanding indebtedness owed Lender by Borrower under or in connection with the Loan, including principal and interest accrued but not previously paid.
(u) Lien . Any lien, mortgage, security interest, tax lien, pledge, encumbrance, conditional sale or title retention arrangement, or any other interest in property designed to secure the payment of any indebtedness or performance of any obligation, whether arising by agreement or under any statute or law, or otherwise.
(v) Loan Documents . This Agreement, the Note and all other documents now or hereafter executed or delivered in connection with the Loan.
(w) Loan . As defined in Paragraph 3.1 hereof.
(x) Long Term Debt . Financing that has a maturity of greater than one year.
(y) Maintenance Capital . Expenditures defined by GAAP to be capitalized that are necessary to maintain the operations of the existing restaurants.
(z) Material Adverse Effect . Any event or condition that either (i) would have a material adverse effect upon the validity, performance or enforceability of this Agreement, or any of the other Loan Documents, (ii) is material and adverse to the properties, financial condition, credit or business operations and prospects of Borrower or any Subsidiary, (iii) would impair the ability of Borrower to fulfill its obligations under this Agreement, or any of the other Loan Documents, or (iv) causes an Event of Default or an event or condition that with notice or lapse of time or both, would become an Event of Default.
3
(aa) Termination Date . Shall mean June 5, 2012; provided, however, upon the request of Borrower, such date may be extended in writing by Lender in its sole and absolute discretion.
(bb) Note . As defined in Paragraph 3.2 hereof.
(cc) Obligations . Any and all of the representations, warranties, covenants and other obligations made or undertaken by Borrower in this Agreement or in any of the other Loan Documents.
(dd) PBGC . The Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.
(ee) Permitted Liens . (i) Liens granted to Lender; (ii) existing Liens approved by Lender and listed on Exhibit B hereto, (iii) future Liens approved in writing by Lender in its sole discretion; (iv) Liens for taxes, assessments and other governmental charges that are not past due or delinquent; (v) Liens imposed by law, such as mechanics liens, arising in the ordinary course of business and that secure payments not yet due; (vi) Mortgage Liens secured by a Facility where Lender has been notified in writing in advance of such lien being recorded; and (vii) Liens on other assets to the extent that such Liens secure financing for the acquisition of that asset.
(ff) Plan . Each pension, profit sharing, stock bonus, thrift, savings, and employee stock ownership plan established or maintained, or to which contributions have been made, by Borrower or any trade or business which together with Borrower would be treated as a single employer under ERISA.
(gg) Primary Lender . M&I Marshall & Ilsley Bank.
(hh) SEC . The United States Security and Exchange Commission.
(ii) Subsidiary . Any corporation fifty percent (50%) or more of which is owned, directly or indirectly, by Borrower.
(jj) Total Funded Debt . All financings, capitalized lease obligations and outstanding letters of credit.
(kk) Total Funded Debt to EBITDA . The ratio Total Funded Debt to EBITDA calculated on a rolling four (4) quarter basis.
2.2 Other Terms . All accounting and financial terms used and not otherwise defined in this Agreement shall have the meanings accorded them under GAAP.
SECTION 3. LOAN
3.1 Loan . Subject to the conditions herein set forth, Lender agrees to loan to or for the benefit of Borrower, and Borrower agrees to borrow, in the manner and upon the terms and conditions herein expressed, amounts that shall not exceed at any time the Commitment (the Loan ). The Commitment shall be the principal sum of $1,400,000.00.
4
3.2 Note . The Loan shall be evidenced by a promissory note of Borrower, executed and delivered simultaneously with the execution of this Agreement, in the amount of the $1,400,000.00 payable to Lender upon the terms and conditions contained therein (the Note ).
3.3 Advances . Omitted.
3.4 Readvances . Omitted.
3.5 Other Disbursements by Lender . Lender, from time to time in its sole discretion, may make disbursements in payment of interest accrued and payable upon the Loan and any charges and expenses that are the obligation of Borrower under this Agreement or any of the other Loan Documents and any charges or matters necessary to cure any Event of Default, all of which shall be added to and be part of the Indebtedness.
3.6 Repayment . Borrower, from time to time, may repay the Loan in whole or in part at any time, without penalty, provided that any repayment complies with terms then in effect between borrow and Primary Lender. Borrower shall immediately repay to Lender, from time to time, an amount equal to any amount by which the outstanding principal balance of the Loan exceeds the Commitment.
3.7 Termination . The entire outstanding principal balance, all accrued and unpaid interest, and all other sums payable in connection with the Loan shall be due and payable on that date.
3.8 Application of Payments . So long as no Event of Default exists, all payments shall be applied first to the payment of any costs, fees and other charges incurred in connection with the Loan, next to the payment of any accrued interest and then to the reduction of the principal balance. Upon the occurrence and during the continuation of any Event of Default, all payments shall be applied by Lender to the Indebtedness and Obligations in such order and manner as Lender shall determine in its sole and absolute discretion. All payments shall be applied to the Indebtedness and Obligations only when received in immediately available funds.
3.9 Prior Performance . Although Lender shall have no obligation to make any Advance unless and until all of the requirements and conditions precedent set forth herein have been satisfied, Lender, at its sole discretion, may make any Advance prior to that time without waiving or releasing any of the requirements or conditions precedent of this Agreement; Borrower shall continue to be strictly obligated to perform, and shall be subject to, all such requirements and conditions notwithstanding any such disbursement.
3.10 Right to Advance . Omitted.
SECTION 4. LOAN FEE
4.1 Loan Fee . Omitted.
4.2 Commitment Fee . Omitted.
5
SECTION 5. CONDITIONS PRECEDENT FOR CLOSING
The obligation of Lender to make the Loan, and to make any Advance at Closing, is subject to the following express conditions precedent, all of which shall have been satisfied prior to Closing:
5.1 Documents Required . Borrower shall have executed (or obtained the execution or issuing of) and delivered to Lender the following documents, all in form satisfactory to Lender:
(a) This Agreement
(b) The Note
5.2 Loan Fee . Omitted.
5.3 Items Required . Borrower, at its expense, shall have obtained and delivered to Lender the following items, all of which shall be in form and content satisfactory to Lender and shall be subject to approval in writing by Lender:
(a) A copy of the articles of incorporation and bylaws of Borrower and each Subsidiary, including all amendment thereto, certified by the secretary of Borrower or each Subsidiary, as appropriate, as being true, complete and correct as of the date of certification.
(b) Certificates of good standing for Borrower and each Subsidiary issued by the Secretary of State of the state of incorporation of that corporation.
(c) Resolutions of Borrower approving the execution, delivery and performance of this Agreement and the other Loan Documents and the transaction contemplated thereby, duly adopted by Borrowers board of directors and accompanied by a certificate of the Secretary of Borrower stating that such resolutions are true and correct and are in full force and effect.
(d) A signed certificate of the secretary of Borrower which shall certify the names of the officers of Borrower authorized to sign each of the Loan Documents, together with the true signature of each such officer.
5.4 Representative and Warranties True . All representations and warranties by Borrower shall remain true and correct in all material respects and all agreements that Borrower is to have performed or complied with by the date hereof shall have been performed or complied with.
5.5 No Default . No Event of Default exists, and no event has occurred and no condition exists that, after notice or lapse of time, or both, would constitute an Event of Default.
SECTION 6. ADDITIONAL CONDITIONS
The obligation of Lender to make the Loan shall be subject to the following additional conditions precedent, all of which shall have been satisfied and remain satisfied at the time of each Advance of the Loan:
6
6.1 Prior Conditions . All of the conditions precedent provided in SECTION 5 hereof shall have been satisfied.
6.2 Request for Advance . Omitted.
6.3 Representatives and Warranties True . All representations and warranties by Borrower shall remain true and correct in all material respects and all agreements that Borrower is to have performed or complied with by the date of the requested Advance shall have been performed or complied with.
6.4 No Default . No Event of Default exists, and no event has occurred and no condition exists that, after notice or lapse of time, or both, would constitute an Event of Default.
SECTION 7. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender as follows:
7.1 Recitals True . The recitals appearing in this Agreement are true and correct.
7.2 Organization and Good Standing . Borrower and each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and is qualified to do business and is in good standing in each state in which the nature of its business and property makes such qualification necessary or appropriate.
7.3 Power and Authority . Borrower and each Subsidiary has full power and authority to own its properties and assets and to carry on its business as now being conducted. Borrower has full power and authority to execute, deliver and perform this Agreement and the other Loan Documents to which Borrower is a party.
7.4 Authorization . Borrower is fully authorized and permitted to enter into this Agreement, to execute any and all documentation required herein, to borrow the amounts contemplated herein upon the terms set forth herein, and to perform the terms of this Agreement.
7.5 No Breach or Default as to Borrower . The execution, delivery and performance by Borrower of this Agreement and the other Loan Documents to which it is a party will not conflict with or result in a default under: (i) any law, rule or regulation applicable to Borrower, (ii) the organizational documents of Borrower, or (iii) the terms, conditions or provisions of any agreement or instrument under which Borrower is a party or is obligated.
7.6 Enforceable Obligations . This Agreement and each of the other Loan Documents to which Borrower is a party are valid and binding legal obligations of Borrower and each is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors rights.
7.7 No Liens . Except for Permitted Liens, all of the properties and assets of Borrower and its Subsidiaries are free and clear of all Liens and other adverse claims of any nature, and such corporations have good and marketable title to such properties and assets.
7
7.8 No Adverse Proceedings . No actions, suits or proceedings are pending or, to the knowledge of Borrower, threatened against Borrower or any Subsidiary that could result in a Material Adverse Effect. Neither Borrower nor any Subsidiary is in default with respect to any order, writ, injunction or decree, of any court, governmental department, commission, board, agency or official, which default could result in a Material Adverse Effect. No actions, suits or proceedings are pending or threatened against Borrower or any Subsidiary other than as set forth in Exhibit C.
7.9 Licenses; Permits; Agreements . Borrower and its Subsidiaries have obtained, and there remains in full force and effect, all licenses, permits, rights, approvals and agreements necessary or appropriate for the operation of their respective businesses. Neither Borrower nor any Subsidiary is in default under any material agreement to which it is a party or by which it or any of its properties is bound.
7.10 Compliance with Laws . Borrower and each of its Subsidiaries are in compliance with all material laws, rules, regulations, orders and decrees that are applicable to Borrower or any Subsidiary, or its or their properties.
7.11 No Violation of Environmental Laws . To the best of their respective knowledge, neither Borrower nor any Subsidiary, nor any Facility owned by them or any Affiliate thereof, is in violation of any Environmental Law and neither Borrower or any Subsidiary, nor any Facility owned by them or any Affiliate thereof is subject to any existing, pending or, to the best of their respective knowledge, threatened investigation by any federal, state or local governmental authority under or in connection with any Environmental Law. Borrower has not obtained as the result of the requirements of any Environmental Law, and is not required by any Environmental Law to obtain, any permit or license to construct or use any improvements, fixtures or equipment that are a part of, or are located on, any Facility or to operate any business that is being conducted or intended to be conducted on any Facility. Borrower has not caused or permitted the Release of, or has any knowledge of the Release or presence of, any Hazardous Substance on any Facility or the migration of any Hazardous Substance from or to any other property adjacent to, or in the vicinity of, any Facility. Borrowers prior and present use of each Facility has not resulted in, and its future use of each Facility will not result in, the Release of any Hazardous Substance on the Facility.
7.12 Statements Correct . All financial statements, profit and loss statements, statements as to ownership and other statements or reports previously or hereafter given to Lender by or on behalf of Borrower and its Subsidiaries are and shall be true, complete and correct in all material respects as of the date thereof. There has been no change since the latest financial statements of Borrower and its Subsidiaries given to Lender that could have a Material Adverse Effect. There is no material fact that Borrower has not disclosed to Lender that would have a Material Adverse Effect.
7.13 Tax Returns Filed . Borrower and its Subsidiaries have properly prepared, executed and filed (unless an extension of time has been granted by the proper authorities) all federal, state and local tax returns required by law and has paid all of its respective current obligations before delinquent, including all federal, state and local taxes and all other payments required under federal, state or local law.
7.14 No Margin Security . Borrower does not own any margin security as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System except
8
amounts thereof that do not and will not in the aggregate constitute a substantial part of Borrowers assets.
7.15 ERISA Compliance . Borrower is in compliance in all material respects with all applicable provisions of ERISA. Neither a reportable event as defined in ERISA nor a prohibited transaction as set forth in ERISA or in the Internal Revenue Code has occurred and is continuing with respect to any Plan. No notice of intent to terminate a Plan has been filed nor has any Plan been terminated; no circumstances exist that constitute grounds under ERISA entitling PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings. Borrower is not a party to, and has no employees who are covered by, a multi-employer pension or benefit plan. Borrower has met its minimum funding requirements under ERISA with respect to each Plan and the present value of all vested benefits under each Plan did not exceed the fair market value of all Plan assets allocable to such benefits, as determined on the most recent valuation date of ERISA for calculating the potential liability of Borrower to the PBGC or the Plan under ERISA. Borrower has not incurred any liability to the PBGC under ERISA.
7.16 Principal Office . The principal office of Borrower is at Borrowers address at 1312 North Scottsdale Road, Scottsdale, Arizona 85257. Borrower maintains its principal books and records at that address.
7.17 Subsidiaries . Borrower does have Subsidiaries.
7.18 Affirmation . Each request by Borrower for an Advance shall constitute an affirmation on the part of Borrower that the representations and warranties contained herein are true and correct in all material respects as of the time of such request and that the conditions precedent for that Advance have been satisfied.
7.19 Survival . All representations and warranties made herein shall survive the execution of this Agreement, all Advances, and the execution and delivery of all other Loan Documents, so long as Lender has any commitment to lend to Borrower hereunder and until the Indebtedness has been fully paid and all of the Obligations have been fully performed.
SECTION 8. AFFIRMATIVE COVENANTS
Until the Indebtedness as been fully paid and all of the Obligations have been fully performed:
8.1 No Change in Documents . Borrower shall, and shall cause each of its Subsidiaries to, maintain its corporate existence with no material amendments or changes in its organizational documents without the prior written approval of the Lender, which consent shall not be unreasonably withheld.
8.2 Licenses, Permits; Agreements . Borrower shall, and shall cause each of its Subsidiaries, to comply with and maintain in full force and effect all licenses, permits, rights, approvals and agreements necessary or desirable to conduct its business and to comply with its obligations under this Agreement and the other Loan Documents.
9
8.3 Maintain Business . Borrower shall, and shall cause each of its Subsidiaries, to act prudently and in accordance with customary industry standards in managing and operating its properties, assets and business. Borrower shall, and shall cause each of its Subsidiaries, to keep all of its properties in good condition and repair (subject to ordinary wear and tear) and shall make all needed and proper repairs and improvements to its properties in order to properly conduct its business.
8.4 Comply With Laws . Borrower shall comply in all material respects with all applicable laws, including without limitation, all applicable Environmental Laws. Borrower will not, and will not permit any third party to, use, generate, manufacture, produce, store, or Release on, under or about any Facility, or transfer to or from any Facility, any Hazardous Substance except in compliance with all applicable Environmental Laws.
8.5 Management . Borrower shall, and shall cause each of its Subsidiaries, to at all times hire and retain executive and management personnel adequate for the proper management, supervision and conduct of its business, operations and properties.
8.6 Maintain Insurance . Borrower shall at all times maintain insurance with responsible and reputable insurers in such amounts and against such risks as may from time to time be required by Lender, but in all events in such amounts and against such risks, including public liability, property damage and workers compensation insurance, as is usually carried by companies engaged in similar business and owning properties in the same general areas in which Borrower operates.
8.7 Loan Payments . Borrower shall make all payments of interest and principal on the Loan and shall keep and comply with all terms, conditions and provisions of the Loan Documents.
8.8 Pay Obligations . Borrower shall pay all of its current obligations before they become delinquent, including all federal, state and local taxes, assessments, levies and governmental charges and all other payments required under any federal, state or local law.
8.9 Statements and Reports . Borrower shall maintain a standard, modern system of accounting that reflects the application of GAAP, consistently applied, and shall furnish to Lender the following:
(a) Omitted.
(b) Omitted.
(c) Omitted.
(d) Omitted.
(e) Omitted.
(f) Omitted.
10
8.10 Records . Borrower shall maintain, in a safe place, proper and accurate books, ledgers, correspondence and other records relating to its operations and business affairs.
8.11 No Margin Security . Borrower shall not use any proceeds of the Loan, or any proceeds of any other or future loan from Lender to Borrower, directly or indirectly, to purchase or carry any margin security as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System or to reduce or retire any indebtedness undertaken for such purposes within the meaning of said Regulation U, and will not use such proceeds in a manner that would cause Borrower to be in violation of Regulation G, T, or X of such Board, nor use such proceeds for any purpose not permitted by Section 7 of the Securities Exchange Act of 1934, as amended, or any of the rules or regulations respecting the extensions of credit promulgated thereunder.
8.12 Further Assurance . Borrower shall execute and deliver such additional documents and do such other acts as Lender may reasonably require in connection with this Loan.
SECTION 9. NEGATIVE COVENANTS
Until the Indebtedness as been fully paid and all of the Obligations have been fully performed, without receiving the prior written consent of Lender, Borrower shall not, and shall not permit any Subsidiary to:
9.1 Incur Debt . Become or remain obligated either directly or as a guarantor or surety for any indebtedness for borrowed money or for any indebtedness incurred in connection with the acquisition of any property, real or personal, tangible or intangible, except:
(a) Indebtedness to Primary Lender;
(b) Indebtedness to Lender;
(c) Indebtedness secured by Permitted Liens;
(d) Current liabilities for taxes and assessments incurred in the ordinary course of business; unsecured trade, utility or non-extraordinary accounts payable arising in the ordinary course of its business;
(e) Real estate debt in connection with the purchase of restaurant properties.
9.2 Negative Pledge . Create or permit to be created or exist any Lien on any of its property or assets which it now owns or hereafter acquires except Permitted Liens.
9.3 Loans . Make any loan, advance, extension of credit, or gift to any person or entity except items not to exceed $10,000.00 in the aggregate for Borrower and all Subsidiaries in any fiscal year.
9.4 Investments . Omitted.
9.5 Dissolution; Management Change . Dissolve or liquidate, or merge or consolidate with or into any other entity; sell, transfer, lease or otherwise dispose of all or any substantial
11
part of its property, assets or business; or, turn over the management or operation of its property, assets or business to any other person, firm or corporation or make any other material change in its management or operations.
9.6 Fiscal Year . Change the times of commencement or termination of its fiscal year or other accounting periods; or change its methods of accounting other than to conform to GAAP.
9.7 Guarantees . Guarantee, directly or indirectly, or otherwise become contingently liable or obligated for, any indebtedness or obligation of any other person or entity except for the endorsement in the ordinary course of business of negotiable instruments for deposit or collection.
9.8 Dividends . Omitted.
9.9 Acquisitions . Omitted.
9.10 Nature of Business . Engage in any line of business materially different from that in which it is presently engaged, or purchase, lease or otherwise acquire assets not related to the operation of its business.
9.11 Capital Expenditures . Omitted.
9.12 Salaries . Pay excessive or unreasonable salaries, bonuses, commissions or other compensation; or increase the salary, bonus, commissions or other compensation of any director, officer, or consultant, or any member of their families, by more than 20% in any one fiscal year, either individually or in the aggregate for all such persons.
9.13 Financial Covenants . For Borrower and its Subsidiaries, on a combined basis, as determined as of end of each fiscal quarter from the financial statements included in Borrowers Form 10K and Form 10-Qs filed with the SEC, permit:
(a) Adjusted Tangible Net Worth to be less than $17,000,000.00.
(b) The ratio of Total Funded Debt to EBITDA to be greater than 2.75 to 1.0.
(c) The Fixed Charge Coverage to exceed 1.00 to 1.00.
All computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with GAAP and shall be certified as true and correct by Borrower.
SECTION 10. WAIVER
10.1 Notice Waivers . Borrower waives presentment, demand, protest and notices of protest, nonpayment, partial payment and all other notices and formalities except as expressly called for in this Agreement or in the Note. Borrower consents to and waives notice of: (i) the granting of indulgences or extensions of time of payment, (ii) the taking or releasing of security, and (iii) the addition or release of persons who may be or become primarily or secondarily liable
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on or with respect to the Indebtedness or any part thereof, and all in such manner and at such time as Lender may deem advisable.
10.2 No Waivers By Lender . No delay or omission by Lender in exercising any right, power or remedy hereunder, and no indulgence given to Borrower, with respect to any term, condition or provision set forth herein, shall impair any right, power or remedy of Lender under this Agreement, or be construed as a waiver by Lender of, or acquiescence in, any Event of Default. Likewise, no such delay, omission or indulgence by Lender shall be construed as a variation or waiver of any of the terms, conditions or provisions of this Agreement. Any actual waiver by Lender of any Event of Default shall not be a waiver of any other prior or subsequent Event of Default or of the same Event of Default after notice to Borrower demanding strict performance.
SECTION 11. DEFAULT
11.1 Events of Default . The occurrence of any of the following events or conditions shall constitute an Event of Default under this Agreement:
(a) Any failure to pay any interest or principal or any other part of the Indebtedness when the same becomes due and payable.
(b) Any failure or neglect to perform or observe any of the terms, provisions, conditions or covenants of this Agreement or any other Loan Document, other than those referred to in the other provisions of this Paragraph 11.1, and such failure or neglect either (i) cannot be remedied, (ii) can be remedied within fifteen (15) days by prompt and diligent action, but it continues unremedied for a period of fifteen (15) days after notice thereof to Borrower, or (iii) can be remedied, although not within fifteen (15) days even by prompt and diligent action, but such remedy is not commenced within fifteen (15) days after notice thereof to Borrower or is not diligently prosecuted to completion within a total of thirty (30) days from the date of such notice.
(c) Any warranty, representation or statement contained in this Agreement, in the Note, in any other Loan Document, or made or furnished to Lender by or on behalf of Borrower that shall be or shall prove to have been false or misleading in any material respect as of the time made or furnished.
(d) The filing by Borrower or any Subsidiary of any proceeding under the federal bankruptcy laws now or hereafter existing or any other similar statute now or hereafter in effect; or the entry of an order for relief under such laws with respect to Borrower or any Subsidiary.
(e) The commencement of any proceeding described in subparagraph (d)above against Borrower or any Subsidiary unless dismissal of such proceeding is promptly sought and diligently prosecuted and such proceeding is in fact dismissed within sixty (60) days from the date of such commencement; the acquiescence by Borrower or such Subsidiary to such proceedings; or the appointment of a receiver, trustee, custodian or conservator for all or any part of the assets of Borrower or any Subsidiary.
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(f) The insolvency of Borrower or any Subsidiary; or the execution by Borrower or any Subsidiary of an assignment for the benefit of creditors; or the convening by Borrower or any Subsidiary of a meeting of its creditors, or any class thereof, for purposes of affecting a moratorium upon or extension or composition of its debts; or the failure of Borrower or any Subsidiary to pay its debts as they mature; or if Borrower or any Subsidiary is generally not paying its debts as they mature.
(g) The admission in writing by Borrower or any Subsidiary that it is unable to pay its debts as they mature or that it is generally not paying its debts as they mature.
(h) The liquidation, termination or dissolution of Borrower or any of its Subsidiaries.
(i) Any final judgment for the payment of money in excess of $500,000.00 (other than a judgment covered by insurance where coverage has been acknowledged by the insurer) is entered against Borrower or any Subsidiary and such judgment is not satisfied or discharged with thirty (30) days after the entry thereof.
(j) The existence or the filing of any Lien, other than Permitted Liens, in excess of $500,000.00 against any property or assets of Borrower or any Subsidiary that is not removed, released, bonded or stayed to the satisfaction of Lender within thirty (30) days after its creation.
(k) Any levy or execution upon, or judicial seizure of, any property of Borrower or any Subsidiary that has a fair market value in excess of $250,000.00.
(l) The entry of any judgment, order or decree, or any other type of adverse ruling, against Borrower or any Subsidiary that could have a Material Adverse Effect.
(m) The abandonment by Borrower or any Subsidiary of all or any material part of its property or assets.
(n) The loss, theft or destruction of, or any substantial damage to, any material part of the property of Borrower or any Subsidiary that is not adequately covered by insurance.
(o) The occurrence of any event or condition, that with the giving of notice or passage of time, or both, could result in a material default by Borrower under any other contract, loan, obligation or agreement of any kind to which Borrower is a party that results in a Material Adverse Effect.
(p) The issuance of any order or decree enjoining or prohibiting Lender or Borrower from performing under this Agreement or any of the other Loan Documents, which order or decree is not vacated within fifteen (15) days after the granting thereof.
(q) The occurrence of any default under any of the other Loan Documents that is not cured within any period for cure set forth therein.
(r) Any failure or neglect to satisfy any of the financial covenants set forth in Paragraph 9.12 hereof which failure or neglect is not fully remedied and cured by the end of the next calendar month.
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(s) The occurrence of any event or condition that Lender, in its reasonably judgment, believes results in a Material Adverse Effect.
11.2 Remedies . Upon the occurrence of any Event of Default, and at any time thereafter while such Event of Default is continuing, Lender may do one or more of the following [except that in the case of an Event of Default described in subparagraphs 11.1(d) through 11.1(g) above relating to Borrower, acceleration shall be automatic]:
(a) Declare the entire Loan and the rest of the Indebtedness immediately due and payable, without notice or demand.
(b) Proceed to protect and enforce its rights under this Agreement, the Note and all other Loan Documents.
(c) Avail itself of any other relief to which Lender may be legally or equitably entitled.
11.3 Payment of Costs . Borrower shall pay all costs and expenses including, without limitation, court costs and reasonable attorneys fees incurred in enforcing payment of the Indebtedness and performance of the Obligation or in exercising the rights and remedies of Lender hereunder. In the event of any court proceedings, court costs and reasonable attorneys fees shall be set by the court and not by jury and shall be included in any judgment obtained by Lender.
11.4 Right to Pay and Perform . If Borrower shall fail to pay any amount as required herein or in any of the other Loan Documents, to satisfy any requirement hereof or of any of the other Loan Documents, or to perform otherwise as required herein or in any of the other Loan Documents, Lender may advance the moneys necessary to pay the same, to satisfy such requirements or to so perform.
11.5 No Prejudice to Lender . No failure on the part of Lender to exercise any of its rights hereunder arising upon any Event of Default shall be construed to prejudice its rights upon the occurrence of any other or subsequent Event of Default. No delay on the part of Lender in exercising any such rights shall be construed to preclude it from the exercise thereof at any time during the continuance of that Event of Default. Lender may enforce any one or more remedies or rights hereunder successively or concurrently. By accepting payment of any of the Indebtedness or performance of any of the Obligation after its due date, Lender shall not thereby waive the agreement contained herein that time is of the essence, nor shall Lender waive either its right to require prompt payment when due of the remainder of the Indebtedness or performance when due of the remainder of the Obligation or its right to consider the failure to so pay or perform an Event of Default.
SECTION 12. ACTION UPON AGREEMENT
12.1 No Third Party Beneficiaries . This Agreement is made for the sole protection and benefit of the parties hereto and no other person or organization shall have any right of action hereon or be a third party beneficiary hereof.
12.2 Entire Agreement . This Agreement, together with the documents and instruments referred to herein, embodies the entire Agreement of the parties with regard to the
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subject matter hereof. There are no representations, promises, warranties, understandings or agreements expressed or implied, oral or otherwise, in relation thereto, except those expressly referred to or set forth herein. Borrower acknowledges that the execution and delivery of this Agreement is its free and voluntary act and deed, and that said execution and delivery have not been induced by, nor done in reliance upon, any representations, promises, warranties, understandings or agreements made by Lender, its agents, officers, employees or representatives, other than as set forth herein.
12.3 Changes in Writing . No promise, representation, warranty or agreement made subsequent to the execution and delivery of this Agreement by either party hereto, and no revocation, partial or otherwise, or change, amendment or addition to, or alteration or modification of, this Agreement shall be valid unless the same shall be in writing signed by all parties hereto.
12.4 Separate Entities . Lender and Borrower have separate and independent rights and obligations under this Agreement. Nothing contained herein shall be construed as creating, forming or constituting any partnership, joint venture, merger or consolidation of Lender and Borrower for any purpose or in any respect.
SECTION 13. GENERAL
13.1 Agreement to Continue . This Agreement, and the representations, warranties, and covenants contained herein shall survive the making of the Loan and shall remain in full force and effect until the Indebtedness as been fully paid and all of the Obligations have been fully performed.
13.2 Lenders Investigations . Borrower shall be solely responsible for all aspects of Borrowers business and activities. Any investigation or review by Lender or its counsel shall be solely for Lenders benefit, including to determine whether Borrower is properly discharging its obligations to Lender, and may not be relied upon by Borrower or any third party. Neither Lender, nor Lenders counsel, owes any duty of care to Borrower or to any third party to protect against, or to inform Borrower or any third party of, any matters disclosed by any investigation or review by Lender or its counsel.
13.3 Rights to Protect Lender . All rights, powers and remedies granted Lender herein, or otherwise available to Lender, are for the sole benefit and protection of Lender, and Lender may exercise any such right, power or remedy at its option and in its sole and absolute discretion without any obligation to do so. In addition, if, under the terms hereof, Lender is given two or more alternative courses of action, Lender may elect any alternative or combination of alternatives, at its option and in its sole and absolute discretion. All monies advanced by Lender under the terms hereof and all amounts paid, suffered or incurred by Lender in exercising any authority granted herein, including reasonable attorneys fees, shall bear interest at the highest rate payable on any of the Indebtedness until paid, and shall be due and payable by Borrower to Lender immediately without demand.
13.4 Indemnity . Borrower shall indemnify and hold Lender harmless from and against all claims, costs, expenses, actions, suits, proceedings, losses, damages and liabilities of any kind whatsoever, including but not limited to reasonable attorneys fees and expenses, arising out of any matter relating, directly or indirectly, to the Loan, whether resulting from internal disputes of the Borrower or whether involving other third persons or entities, or out of any other
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matter whatsoever related to this Agreement, the other Loan Documents, or any Facility, including but not limited to (i) any use, generation, manufacture, production, storage, Release, threatened Release, or presence of a Hazardous Substance; (ii) any violation or claim of violation of any Environmental Law; or (iii) any breach of any of the warranties, representations and covenants contained herein, but excluding any claim or liability which arises as the direct result of the gross negligence or willful misconduct of Lender. This indemnity provision shall continue in full force and effect and shall survive not only the making of the Loan but shall also survive the payment of the Indebtedness and the performance of the Obligations.
13.5 Joint and Several; Context . If Borrower consists of more than one person or entity their liability shall be joint and several. The provisions hereof shall apply to the parties according to the context thereof and without regard to the number or gender of words or expressions used.
13.6 Time of the Essence . Time is expressly made of the essence of this Agreement.
13.7 Notices . All notices required or permitted to be given hereunder shall be in writing and may be given in person or by United States mail, by commercial delivery service or by electronic transmission with verified receipt. Any notice directed to a party to this Agreement shall become effective upon the earliest of the following: (i) actual receipt by that party; (ii) delivery to the designated address of that party, addressed to that party; or (iii) if given by certified or registered United States mail, the earlier of the date of delivery shown on the return receipt or twenty-four (24) hours after deposit with the United States Postal Service, postage prepaid, addressed to that party at its designated address. The designated address of a party shall be the address of the party shown below or such other address within the continental United States as that party, from time to time, may specify by notice to the other parties:
Borrower: |
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Star Buffet, Inc. |
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1312 N. Scottsdale Road |
|
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Scottsdale, AZ 85257 |
|
|
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Lender: |
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Robert E. Wheaton and |
|
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Suzanne H. Wheaton |
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4716 E. Valley Vista Lane |
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Paradise Valley, AZ 85253 |
13.8 Costs and Expenses . Borrower shall pay all costs and expenses arising from the preparation of this Agreement, the closing of the Loan and the making of the Advance, including but not limited to, Lenders attorneys fees, any other charges that may be imposed on Lender as a result of this transaction.
13.9 Choice of Law . This Agreement shall be governed by and construed according to the laws of the State of Arizona.
13.10 Venue . Lender may bring any action or proceeding to enforce or arising out of this Agreement in any court of competent jurisdiction. If Lender commences such an action in a court located in the County of Maricopa, State of Arizona, or the United States District Court for the District of Arizona, Borrower hereby agrees that it will submit and does hereby irrevocably submit to the personal jurisdiction of such courts and will not attempt to have such action dismissed, abated, or transferred on the ground of forum non convenience or similar grounds; provided, however, that nothing contained herein shall prohibit Borrower from seeking, by
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appropriate motion, to remove any action brought in a Arizona state court to the United States District Court for the District of Arizona. If such action is so removed, however, Borrower shall not seek to transfer such action to any other district, nor shall Borrower seek to transfer to any other district any action which Lender originally commences in such federal court. Any action or proceeding brought by Borrower arising out of this Agreement or any of the other Loan Documents shall be brought solely in a court of competent jurisdiction located in the County of Maricopa, State of Arizona, or in the United States District Court for the District of Arizona. Borrower waives any objection which it may now or hereafter have to venue of any such action or proceeding and waives any right to seek removal of any action or proceeding commenced in accordance herewith.
13.11 WAIVER OF TRIAL BY JURY . BORROWER AND LENDER EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT IT MAY HAVE TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE DEALINGS OF THE PARTIES WITH RESPECT THE TRANSACTION THAT IS THE SUBJECT OF THIS AGREEMENT WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. THIS WAIVER HAS BEEN NEGOTIATED BY THE PARTIES AND IS AN ESSENTIAL PART OF THEIR BARGAIN. EITHER PARTY MAY FILE A COPY OF THIS PROVISION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES TO THE WAIVER OF ANY RIGHT THEY MIGHT OTHERWISE HAVE TO TRIAL BY JURY.
13.12 Successors and Assigns . Except as otherwise provided herein, this Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their successors and assigns.
13.13 Headings . The headings or captions of sections and paragraphs in this Agreement are for convenience and reference only, do not define, control or limit the provisions of such sections or paragraphs, and shall not affect the interpretation of this Agreement.
13.14 Participations . Lender, at any time, shall have the right to sell, assign, or grant participations in all or any portion of the Loan and in any of the Loan Documents. Lender is authorized to furnish any purchaser or participant, or prospective purchaser or participant, any documents or information provided to Lender or that Lender may have obtained relating to Borrower or relating to the Loan.
13.15 Loan Agreement to Prevail . In the event of any direct conflict between the provisions of this Agreement and those of the Note or any other Loan Document, the provisions of this Agreement shall prevail.
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IN WITNESS WHEREOF, these presents are executed as of the date indicated above.
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Exhibit 10.16
ASSET PURCHASE AGREEMENT
Dated as of
December 2, 2007,
By and among
Barnhills Buffet, Inc.
as Seller
And
Star Buffet Management, Inc.,
as
Buyer
ASSET PURCHASE AGREEMENT (this Agreement ), dated as of December 2, 2007, is by and among BARNHILLS BUFFET, INC., a Tennessee corporation (the Seller or the Company ) and STAR BUFFET MANAGEMENT, INC., a wholly owned subsidiary of Star Buffet, Inc., a Delaware corporation, (together with any successor and assigns, the Buyer ).
RECITALS
A. The Seller is engaged in the business of operating a chain of restaurants known as Barnhills Buffet that specialize in Southern-style buffet dining and catering.
B. On the terms and subject to the conditions set forth in this Agreement, the Seller desires to sell, and the Buyer desires to acquire certain assets and assume certain liabilities of Sellers restaurants listed on Exhibit A attached hereto (collectively, the Restaurants ), and to assume certain real property and personal property leases as well as certain contracts related thereto necessary for the operation of the Restaurants.
C. In connection with this Agreement, the Seller will commence a proceeding (the Bankruptcy Case ) in the United States Bankruptcy Court for the Middle District of Tennessee (the Bankruptcy Court ) by filing a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code (the Bankruptcy Code ) (the date of such filing being the Petition Date ).
D. The Seller and the Buyer have agreed that the transactions contemplated hereby shall be accomplished through a sale and assignment of assets to the Buyer pursuant to Sections 363 and 365 of the Bankruptcy Code.
E. The Seller and the Buyer contemplate a closing of the transactions on the Target Date (as defined in Section 2.3 herein) following the entry of the Sale Order (as defined in Section 7.2 ), which Sale Order shall not be subject to any stay, as of the Closing Date (as defined in Section 2.3 ).
F. All disclosure schedules and exhibits referred to herein are hereby incorporated by reference and, taken together with this Agreement (including the foregoing Recitals) shall constitute but a single agreement.
ARTICLE 1
PURCHASE AND SALE
1.1 Assets . Subject to the terms of this Agreement and pursuant to Sections 363 and 365 of the Bankruptcy Code, Seller agrees to sell, transfer, convey and/or assign to Buyer, and Buyer agrees to purchase and acquire from Seller at the Closing (as defined in Section 2.3 ), all of Sellers right, title and interest, whatsoever, in and to the assets described below and in the following manner (collectively, the Assets ) free and clear of all Encumbrances (as defined in Article 10 ):
(a) Store Inventory . At the Closing but effective as of the Effective Time (as defined in Section 2.6 ), Seller shall sell, transfer and assign to Buyer all of Sellers right, title and interest in and to all of the inventory on hand (including raw materials, work in process and finished goods) at the Restaurant Sites.
(b) Real Property Lease Assignments . Described in Exhibit A are locations of certain restaurant sites leased by Seller (the Restaurant Sites ) that constitute all of the sites on which the Restaurants are located. Subject to Section 1.6 , at the Closing but effective as of the Effective Time, Seller shall transfer, sell and assign to Buyer all of Sellers right, title and interest in and to the leases for the Restaurant Sites (the Assumed Leases ) free and clear of all Encumbrances.
(c) Tangible Personal Property . At the Closing but effective as of the Effective Time, Seller shall sell, transfer and assign to Buyer, free and clear of all Encumbrances, all of Sellers right, title and interest in and to all tangible personal property owned or leased by Seller and located at the Restaurant Sites, including, without limitation, certain leasehold improvements and fixtures located at the Restaurant Sites and further including, without limitation, the items described on Exhibit B (the Tangible Personal Property ).
(d) Personal Property Leases and Executory Contract Assignments . Described in Exhibit C are certain personal property leases ( Personal Property Leases ) as well as certain licenses (including, without limitation, licenses relating to computer hardware and software), contracts, third-party warranties, arrangements and other agreements that may constitute executory contracts under Section 365 of the Bankruptcy Code ( Executory Contracts and together with the Assumed Leases and the Personal Property Leases, the Assigned Agreements ) to which the Seller is a party, relating to the business conducted at the Restaurant Sites.
(e) Books and Records . At the Closing, Seller shall sell, convey, transfer and assign to Buyer all of Sellers right, title and interest in and to all Books and Records (including the right of possession) located at the Restaurants and/or Sellers corporate headquarters that relate to the business conducted at the Restaurant Sites and/or the ownership of the Assets. Following the Closing, Seller shall have the right to retain copies of any Books and Records transferred to Buyer. Books and Records means all sales records, purchase records, customer lists, supplier lists, advertising and promotional materials, health inspection records including all records regarding the Occupational Safety and Health Act and similar government examinations and clearances , correspondence and other records, real estate and developmental data, blueprints.
(f) Perpetual License of Trade names . At the Closing but effective as of the Effective Time, Seller shall grant to Buyer a perpetual license to use any trade names, trademarked names, or graphics owned by Seller for purposes of operating the Restaurants (the License ).
1.2 Excluded Assets . Except for the Assets set forth in Section 1.1 , all other assets of Seller are excluded from the purchase and sale contemplated by this Agreement. For the avoidance of doubt, subject to Section 9.3 , a ll security deposits, refunds, deposits and prepaid expenses of Seller, whether or not they relate to a property subject to an Assignment Agreement, are not Assets to be transferred to Buyer (the Prepaid Charges ).
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1.3 Assumed Liabilities . On the Closing Date, but effective as of the Effective Time, Buyer shall assume and agree to discharge only the following specifically enumerated obligations and liabilities of Seller (the Assumed Liabilities ):
(a) All liabilities and obligations arising after the Closing Date with respect to or arising under the Assets;
(b) All liabilities, obligations and commitments under the Assigned Agreements accruing with respect to any periods after the Effective Time or requiring payment of an obligation which becomes due and payable after the Effective Time and which, in any event, is attributable to the period after the Effective Time; and
(c) All liabilities, obligations and commitments accruing with respect to any periods after the Effective Time requiring payment of an obligation which, in any event, becomes due and payable after the Effective Time resulting from, caused by or arising out of, directly or indirectly, the conduct by Buyer in operating the business at the Restaurant Sites.
1.4 Retained Liabilities . Notwithstanding anything contained in this Agreement to the contrary, Buyer does not assume or agree to pay, satisfy, discharge or perform, and shall not be deemed by virtue of the execution and delivery of this Agreement or any document delivered at the Closing pursuant to this Agreement, to have assumed, or to have agreed to pay, satisfy, discharge or perform, any liability, obligation or indebtedness of Seller, whether primary or secondary, direct or indirect, other than the Assumed Liabilities. Seller shall retain all liabilities and obligations of Seller other than the Assumed Liabilities to the extent specifically provided in Section 1.3 subject to the prorations set forth in Section 9.3 (all such liabilities and obligations retained by Seller being referred to herein as the Retained Liabilities ). By way of illustration, and not of limitation, Retained Liabilities include:
(a) All liabilities, obligations and commitments of Seller or any predecessor(s) or Affiliate(s) of Seller relating to Taxes (as defined in Article 10 ) with respect to the Assets or otherwise, for all periods, or portions thereof, on or prior to the Closing Date, subject to the prorations set forth in Section 9.4 ;
(b) All liabilities, obligations and commitments for any legal, accounting, investment banking, brokerage or similar fees or expenses incurred by Seller in connection with, resulting from or attributable to the transactions contemplated by this Agreement;
(c) Liabilities, obligations and commitments for which Buyer does not expressly assume an obligation or liability as described in Section 1.3 ;
(d) Liabilities, obligations and commitments for any borrowed money incurred by Seller or any predecessor(s) or Affiliate(s) of Seller; and
(e) All liabilities, obligations and commitments of Seller, whether known or unknown, disclosed or undisclosed, resulting from, caused by or accruing out of, at any time, directly or indirectly, the conduct of its business or ownership or lease of any of its properties or assets or any properties or assets previously used by Seller at any time prior to or on the Closing Date.
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1.5 Sale and Assignment Pursuant to Bankruptcy Code . All the sales, assumptions and assignments contemplated by this Article 1 shall be subject to Bankruptcy Court approval pursuant to, among other things, Sections 363 and 365 of the Bankruptcy Code.
1.6 Assigned Agreements . Seller shall assume and assign to the Buyer all of the Assigned Agreements. Set forth on Exhibits A and C is certain information describing the monetary obligations associated with the Assigned Agreements and any monetary defaults there under as of the Petition Date (the Cure Amounts ). To the extent required by the Bankruptcy Court under the Bankruptcy Code in order to permit the assumption and assignment of the Assigned Agreements to the Buyer pursuant to this Agreement, (i) the Buyer hereby agrees to pay the Cure Amounts listed in Exhibits A and C , (ii) the Buyer shall provide adequate assurances of future performance as required by the Bankruptcy Code with respect to each Assigned Agreement and (iii) at the Closing, any obligations that have accrued but are not yet due for payment under the Assigned Agreements shall be pro-rated between the Seller and Buyer as of the Closing in accordance with Section 9.3 .
ARTICLE 2
CONSIDERATION; ALLOCATION; PAYMENT
2.1 Assumption; Purchase; Consideration . In consideration of the sale, conveyance, transfer and/or assignment of the Assets as provided in Article 1, and subject to the provisions of this Agreement, at the Closing Buyer shall:
(a) assume the Assumed Liabilities; and
(b) purchase the Assets for the Purchase Price (as defined below).
2.2 Purchase Price . The purchase price for the sale of the Assets shall be $7,500,000.00 in cash (the Purchase Price).
2.3 Closing . The Closing of the transactions contemplated herein, including payment of the Purchase Price, shall take place at the offices of the Company or such other location in Nashville, TN as may be agreed upon, no later than five (5) days following the entry of the Sale Order (the Target Date ) (or such earlier date as Buyer and Seller may mutually agree, the Closing Date ); provided, that no stay of the Sale Order shall be in effect and provided, further, that the Sale Order shall contain a waiver of the automatic ten (10) day stay under Rule 6004(h) of the Federal Rules of Bankruptcy Procedure; provided , further , however , that in no event unless otherwise agreed in writing shall the Closing take place on a date which is after February 1, 2008 (the Termination Date ) . At the Closing, Buyer shall pay the Purchase Price to Seller by wire transfer of immediately available funds to one or more bank accounts of Seller, or as directed by Seller in accordance with the terms of the Sale Order approved by the Bankruptcy Court.
2.4 Allocation . On or before the date that is five (5) days before the Closing Date, the Seller and the Buyer will agree upon an allocation of the Purchase Price covering the Assets for federal, state and local Tax purposes. The Seller and the Buyer will implement, report and accept such allocation for federal, state and local Tax purposes. The parties agree that such allocations
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will not in any way limit their respective rights and obligations under the Sale Documents (as defined in Section 3.2 ) in respect of representations, warranties, covenants and agreements and the breach thereof or damages therefore.
2.5 Transfer Taxes . Buyer shall pay all sales, transfer and use taxes, if any, that arise from the Transaction. The parties will reasonably cooperate to minimize any such taxes.
2.6 Effective Time . The effective time of the transactions contemplated hereby shall be 12:01 a.m. (Nashville, Tennessee time) on the first day following the Closing (the Effective Time ), notwithstanding the fact that the actual physical exchange of documents shall take place at the Closing.
2.7 Deposit . Upon the execution of this Agreement, Buyer shall place in escrow with Sellers counsel a refundable purchase price deposit of $100,000 in cash. Two weeks prior to the Sale Hearing, an additional refundable purchase price deposit in an amount such that the total cash deposits placed in escrow with Sellers counsel is equal to five percent (5%) of the Purchase Price (all such cash placed in escrow hereinafter referred to as the Deposit ), all of which shall be placed in an interest-bearing account. Upon Closing, the Deposit will be applied against the Purchase Price. Otherwise, the deposit will either be returned to Buyer or paid to Seller in satisfaction of Buyers obligation to pay the Seller Termination Fee as specified in Section 7.4 .
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Except (i) as set forth in the schedules referenced herein, to the extent (ii) it would not reasonably be expected to result in a Material Adverse Effect, (iii) the Bankruptcy Court determines otherwise, and (iv) the Bankruptcy Code provides otherwise, as an inducement to Buyer to enter into and perform its obligations under this Agreement, Seller hereby represents and warrants to Buyer as follows:
3.1 Organization and Good Standing . Seller is a corporation duly organized, validly existing and in good standing under the laws of the state of Tennessee and has full organizational power and organizational authority to conduct its business as it is now being conducted and to own, operate or lease the properties and assets it currently owns, operates or holds under lease.
3.2 Power and Authorization . Subject to approval by the Bankruptcy Court, Seller has full power and authority to execute and deliver this Agreement and any agreement, document, certificate or instrument being delivered pursuant to or in connection with the transactions contemplated by this Agreement (collectively, the Sale Documents ) to perform its obligations hereunder and there under and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other Sale Documents, and the performance by Seller of its obligations hereunder and there under, and the consummation of the transactions contemplated hereunder and there under, have been duly authorized by Seller. This Agreement and the other Sale Documents upon execution and delivery by Seller and upon approval of the Bankruptcy Court will constitute the legal, valid and binding obligations of Seller, enforceable against Seller in accordance with their respective terms.
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3.3 No Violation . Except as set forth on Schedule 3.3 hereto, the execution, delivery and performance by Seller of this Agreement and the other Sale Documents and the consummation or performance of the transactions contemplated herein and therein do not and will not:
(a) conflict with, result in the breach, modification, termination or violation of, or loss of any benefit under, constitute a default under, accelerate the performance required by, result in or give rise to a right to amend or modify the terms of, result in the creation of any lien upon any assets or properties, or in any manner release any party thereto from any obligation under, any material mortgage, note, bond, indenture, contract, agreement, lease, license or other instrument or obligation of any kind or nature by which Seller, or any of its properties or assets, may be bound or affected;
(b) contravene or conflict with, or result in a violation of, result in any loss of benefit under, or give any Person the right to challenge any of the transactions contemplated by this Agreement and the other Sale Documents or to exercise any remedy or obtain any relief under, any permit, concession, franchise, order, judgment, writ, injunction, law, rule, ordinance, regulation, statute or decree applicable to Seller; or
(c) conflict with or violate any provision of the certificate of incorporation, bylaws or resolutions adopted by the board of directors or stockholders, each as heretofore amended, of Seller.
3.4 No Consent Required . Except for Bankruptcy Court approval or as otherwise contemplated by this Agreement [or as set forth on Schedule 3.4 hereto], no consent, approval, order or authorization of, or declaration, filing or registration with, any Person, entity or governmental authority is required to be made or obtained by Seller in connection with the authorization, execution, delivery or performance of this Agreement, the other Sale Documents or the transactions contemplated hereby and thereby.
3.5 Compliance with Laws; Permits . To the Knowledge of the Seller, Seller is in material compliance with all laws, regulations, rules, ordinances, orders and other requirements applicable to the operation, conduct or ownership of the business conducted at the Restaurant Sites. Seller holds all of the required permits, licenses, approvals and authorizations of any Governmental Unit (as defined in Article 10 ) or third parties (collectively, Permits ) necessary or appropriate for the conduct of its business at the Restaurant Sites. To the Knowledge of the Seller, all such Permits are in full force and effect, and will remain with Seller upon, and will not be affected by, the Closing; there is no condition, nor has any event occurred, which constitutes or with the giving of notice or passage of time or both would constitute a violation of the terms of any Permit and no cancellation, modification or revocation of any of the Permits is pending or threatened.
3.6 Property .
(a) Seller has good and marketable title or rights as lessee to all real, personal, mixed, tangible and intangible property of any kind or nature owned or used by Seller at the Restaurant Sites, constituting the Assets, in each case free and clear of all Encumbrances, except for Encumbrances identified on Schedule 3.6(a) hereto on the date hereof. The Assets located at the Restaurant Sites (a) constitute all the assets, of any nature whatsoever, necessary at the
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Restaurant Sites in order for Seller to operate its business at the Restaurant Sites in the manner such business is presently operated by Seller, and (b) include all of the operating assets of Seller at the Restaurant Sites. Upon the execution of this Agreement, Buyer shall have the right to communicate with landlords (and other parties in the leasehold chain) regarding the leaseholds related to the Restaurant Sites.
(b) Seller has a valid leasehold interest to all of the Assumed Leases. Each of the Assumed Leases is the subject of a written lease agreement and there are no oral terms inconsistent with the written terms thereof. Except as set forth on Schedule 3.6(b) , to the Knowledge of the Seller, no work has been performed on, or materials supplied to, any of the Assumed Leases within the applicable statutory period which would give rise to any mechanics or materialmens liens for any amount in excess of $1,000.
3.7 Condition of Property and Related Matters .
(a) All buildings, machinery, equipment and other tangible assets constituting the Assets and used by Seller in the conduct of its business at the Restaurant Sites, including but not limited to the Tangible Personal Property, are in fair or good operating condition and repair, reasonable wear and tear excepted, are usable in the ordinary course of business and are adequate and suitable for the uses to which they are being put. All such assets and property are located at real property locations constituting the Restaurant Sites.
3.8 Material Contracts . With respect to the business conducted at the Restaurant Sites, Seller has not entered into nor is it bound by any contract, agreement or commitment of an amount or value in excess of $50,000 in the aggregate, written or oral, including without limitation any obligations for money borrowed (the Material Contracts ); true, correct and complete copies of all written Material Contracts previously have been furnished to Buyer. Except as set forth on Schedule 3.8 , to the Knowledge of the Seller, Seller is not in default, and no event has occurred or circumstances exists that, with or without which, the giving of notice or the passage of time or both, may contravene, conflict with, result in a breach of or constitute a default by Seller, or any other party under any Material Contract or any other obligation owed by Seller, and no event has occurred which, with the giving of notice or the passage of time or both, would constitute a default by any other party to any such Material Contract or obligation. The consummation of the transactions contemplated by the Sale Documents will not result in a breach of or constitute a default under, any Material Contract or the right of any other party to the Material Contract to terminate the same and there are no negotiations pending to revise the terms of any such Material Contracts.
3.9 Employee Matters .
(a) Seller is not a party to or bound by any collective bargaining agreement and there are no labor unions or other organizations representing, purporting to represent or, to the Knowledge of Seller, attempting to represent any employees employed in the operation of the business conducted at the Restaurant Sites. Since February 11, 2005, there has not occurred or, to the Knowledge of Seller, been threatened any material strike, slowdown, picketing, work stoppage, concerted refusal to work overtime or other similar labor activity with respect to any employees employed in the operation of the business conducted at the Restaurant Sites. There are
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no labor disputes currently subject to any grievance procedure, arbitration or litigation and there is no representation petition pending or, to the Knowledge of Seller, threatened with respect to any employee employed in the operation of the business conducted at the Restaurant Sites. The Seller has complied with all provisions of all Legal Requirements (as defined in Article 10 ) pertaining to the employment of employees, including, without limitation, all such Legal Requirements relating to labor relations, equal employment, fair employment practices, entitlements, prohibited discrimination or other similar employment practices, entitlements, prohibited discrimination or other similar employment practices or acts, except for any failure so to comply that, individually or together with all such other failures, has not and will not result in a material Liability or obligation on the part of the Buyer, and has not had or resulted in, and is not expected to have or result in, a Material Adverse Effect (as defined in Article 10 ).
(b) Buyer shall have no Liability on account or with respect to any benefits due Sellers employees (including without limitation any Liability arising in connection with or with respect to any of the following: compensation, unemployment insurance contributions, termination payments, severance payments, retirement, pension, profit-sharing, retirement plans, bonus, vacation, disability, health, accrued sick leave or other employee benefit plans, agreements or understandings). The terms and conditions (including the scope and amount of all benefits) under which any employment will be offered to employees of Seller by Buyer shall be determined by Buyer in its sole discretion.
3.10 Books and Records . All the books, records and accounts of Seller relating to the Restaurant Sites, all of which have been made available to Buyer, are in all material respects accurate and complete, accurately reflect all matters normally recorded in the books, records or accounts of Seller in accordance with Sellers historical practices, are in all material respects in compliance with all laws and regulations applicable to Seller as they relate to the business conducted at the Restaurant Sites and accurately present and reflect in all material respects the transactions described therein.
3.11 Taxes . Except as set forth on Schedule 3.11 , all Tax returns, reports and declarations required by any governmental authority to be filed in connection with Sellers ownership or lease of the Assets or the operation of the business conducted at the Restaurant Sites have been timely filed and, to the Knowledge of Seller, are complete and correct in all material respects and all Taxes related thereto have been paid.
3.12 Litigation . Except as set forth in Schedule 3.12 , there is no claim, counter-claim, action, suit, order, proceeding or investigation pending, in law or in equity, or, to the Knowledge of Seller, threatened against or involving Seller, with respect to the business conducted at the Restaurant Sites (or pending or, to the Knowledge of Seller, threatened against any of the officers, directors or key employees of Seller with respect to business activities (including any products sold) at the Restaurant Sites conducted on behalf of Seller) with respect to or affecting Seller, its accounts, business, properties, assets or rights, or relating to the transactions contemplated hereby, before any court, agency, regulatory, administrative or other governmental body or officer or before any arbitrator; nor to the Knowledge of Seller, is there any reasonable basis for any such claim, action, suit, proceeding or governmental, administrative or regulatory investigation that would result in a Material Adverse Effect. Seller is not directly subject to or affected by any order, judgment, decree or ruling of any court or governmental agency relating to affecting the
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Restaurant Sites. Seller has not received any written opinion or memorandum of legal advice from legal counsel to the effect that it is exposed to any liability which may be material to the business, prospects, results of operations, financial condition or assets of Seller at the Restaurant Sites.
3.13 Environmental and Safety Requirements .
(a) To the Knowledge of Seller, Seller is in material compliance with all applicable Environmental and Safety Requirements (as defined below) at the Restaurant Sites and Seller possesses all required permits, licenses and certificates for the Restaurants, and has filed all notices or applications, required thereby. To the Knowledge of Seller, Seller has not received any notice or other communication from any party with respect to Sellers failure to comply with Environmental and Safety Requirements. For purposes of this Agreement, Environmental and Safety Requirements means all federal, state, provincial, foreign and local laws, bylaws, rules, regulations, ordinances, decrees, orders, statutes, actions, guidelines, standards, arrangements, injunctions, policies and requirements relating to public health and safety, worker health and safety, disabilities, pollution and protection of the environment (including without limitation the handling of any polluted, toxic or hazardous materials), all as amended;
(b) To the Knowledge of the Seller, the properties at the Restaurant Sites are not subject to any, nor are there any facts or circumstances which Seller reasonably believes could form the basis for any, Liability, contingent or otherwise arising out of any Environmental and Safety Requirements. There are no pending or, to the Knowledge of Seller, threatened claims or Encumbrances for Sellers failure to comply with any Environmental and Safety requirements. Seller does not have in its possession or under its control at the Restaurant Sites any hazardous substances, except those hazardous substances as are used in the ordinary course of the business of Seller and are used or maintained in compliance with the Environmental and Safety Requirements;
(c) To the Knowledge of the Seller, during the period Seller has occupied the Restaurant Sites, there has been no Release (as defined in Article 10 ) or threat of Release, of any hazardous materials at or from the Restaurant Sites or at any other locations where any hazardous materials were generated, manufactured, refined, transferred, produced, imported, used, or processed from or by the Restaurant Sites, or from any other properties and assets (whether real, personal, or mixed) in which Seller has or had an interest or, to the Knowledge of Seller, any geologically or hydrologically adjoining property, whether by Seller or any other Person; and
(d) Seller has delivered to Buyer true and complete copies and results of any reports, studies, analyses, tests, or monitoring possessed or initiated by Seller pertaining to hazardous materials or hazardous activities in, or, or under the Restaurant Sites, or concerning compliance by Seller or any other Person for whose conduct it is or may be held responsible, with Environmental and Safety Requirements.
3.14 Store Inventory . All of the Store Inventory is located at one or more of the Restaurant Sites.
3.15 No Undisclosed Liabilities . Seller has not incurred any liabilities or obligations of any nature, whether known or unknown, absolute, accrued, contingent or otherwise and whether due or to become due, arising out of or related to the business conducted at the Restaurant Sites,
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except (a) as set forth in Schedule 3.15 , (b) as and to the extent disclosed or reserved against in the most recent balance sheet of Seller provided to Buyer, and (c) for liabilities and obligations that were (i) incurred in the ordinary course of business consistent with past practice and (ii) individually or in the aggregate are not material to the business conducted at the Restaurant Sites and have not had or resulted in, and would not reasonably be expected to result in, a Material Adverse Effect.
3.16 Disclosure . No representation or warranty or other statement made by Seller in this Agreement or in connection with the transactions contemplated hereby omits to state a material fact necessary to make any of them, in light of the circumstances in which it was made, not misleading.
3.17 Brokers, Finders, etc . Other than Brookwood Associates, retained by the Seller as its investment banker in connection with the transactions set forth in this Agreement, all negotiations relating to this Agreement and the transactions contemplated hereby, have been carried on without the participation of any Person acting on behalf of Seller in such manner as to give rise to any valid claim against the Buyer or any of its subsidiaries for any brokerage or finders commission, fee or similar compensation, or for any bonus payable to any officer, director, employee, agent or sale representative of or consultant to Seller upon consummation of the transactions contemplated hereby or thereby. Buyer shall have no obligation to pay the fees and expenses of Brookwood Associates.
3.18 Notice of Sale . Notice of this Agreement and Notice of the Sale Order and the hearings therefore will be duly and properly given to all known creditors and parties in interest in the Bankruptcy Case, including but not limited to, any parties holding consensual or nonconsensual liens on the Assets, the non-Seller parties to the Assigned Agreements being assumed pursuant to this Agreement, the employees at the Restaurant Sites, and applicable taxing and governmental authorities.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller to enter into and perform its respective obligations under this Agreement, Buyer hereby represents and warrants to Seller as follows:
4.1 Organization and Good Standing; Power . Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of [Delaware] and has full power and authority to conduct its business as it is now being conducted and to own, operate or lease the properties and assets it currently owns, operates or holds under lease.
4.2 Authorization . Buyer has full power and authority to execute and deliver this Agreement and any agreement, document, certificate or instrument being delivered pursuant to or in connection with the transactions contemplated by this Agreement, to perform its obligations hereunder and there under and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other Sale Documents, and the performance by Buyer of its obligations hereunder and there under, and the consummation of the transactions
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contemplated hereunder and there under, have been duly authorized by Buyer. This Agreement and the other Sale Documents upon execution and delivery by Buyer shall constitute the legal, valid and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms.
4.3 No Violation . The execution, delivery and performance by Buyer of this Agreement and the other Sale Documents and the consummation of the transactions contemplated herein and therein do not and will not:
(a) conflict with, result in the breach, modification, termination or violation of, or loss of any benefit under, constitute a default under, accelerate the performance required by, result in or give rise to a right to amend or modify the terms of, result in the creation of any Encumbrance upon any assets or properties, or in any manner release any party thereto from any obligation under, any mortgage, note, bond, indenture, contract, agreement, lease, license or other instrument or obligation of any kind or nature by which Buyer or any of its properties or assets may be bound or affected;
(b) conflict with, violate or result in any loss of benefit under, any permit, concession, franchise, order, judgment, writ, injunction, regulation, statute or decree; or
(c) conflict with or violate any provision of the articles of organization or operating agreement, each as heretofore amended, of Buyer.
4.4 No Consent Required . Except as otherwise contemplated by this Agreement, no consent, approval, order or authorization of, or declaration, filing or registration with, any person, entity or governmental authority is required to be made or obtained by Buyer in connection with the authorization, execution, delivery or performance of this Agreement, the other Sale Documents or the transactions contemplated hereby.
4.5 Financing Commitment . Buyer has sufficient funds to pay the Purchase Price or, alternatively, has secured a financing commitment from a third party in an amount sufficient to pay the Purchase Price.
4.6 AS IS Transaction . BUYER HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ARTICLE 3 ABOVE, THE SELLER MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY MATTER RELATING TO THE ASSETS. BUYER FURTHER ACKNOWLEDGES THAT BUYER HAS CONDUCTED AN INDEPENDENT INSPECTION AND INVESTIGATION OF THE PHYSICAL CONDITION OF THE ASSETS AND ALL SUCH OTHER MATTERS RELATING TO OR AFFECTING THE ASSETS AS BUYER DEEMED NECESSARY OR APPROPRIATE AND THAT, EXCEPT FOR ANY REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN ARTICLE 3 AND THE CONDITION OF TITLE TO THE ASSETS CONFERRED BY THE SALE ORDER, BUYER IS PROCEEDING WITH ITS ACQUISITION OF THE ASSETS BASED SOLELY UPON SUCH INDEPENDENT INSPECTIONS AND INVESTIGATIONS. ACCORDINGLY, BUYER WILL ACCEPT THE ASSETS AT THE CLOSING AS IS, WHERE IS, AND WITH ALL FAULTS.
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ARTICLE 5
COVENANTS AND OTHER TERMS
Except (i) to the extent it would not reasonably be expected to result in a Material Adverse Effect, (ii) to the extent the Bankruptcy Court determines otherwise, and (iii) to the extent the Bankruptcy Code provides otherwise, Seller and Buyer covenant and agree as follows:
5.1 Conduct of Business . Seller agrees that from the date of this Agreement through the earlier to occur of (x) the Closing Date, and (y) the date on which this Agreement is terminated in accordance with the provisions of Section 8.1 hereof, the Seller will:
(a) Conduct of Business . Use commercially reasonable efforts to conduct the business at the Restaurant Sites in the ordinary course and in substantially the same manner as such business has previously been carried out, without limiting the foregoing, the Seller will use commercially reasonable efforts to maintain adequate inventory levels and adequate staffing levels, and the Seller will not engage in any transactions not in the ordinary course.
(b) Representations and Warranties; Conditions . Use commercially reasonable efforts not to engage in any practice, take any action, fail to take any action or enter into any transaction that could reasonably be expected to (i) cause any of the representations and warranties herein to be untrue, inaccurate or incorrect at any time, or (ii) result in any of the conditions set forth in Section 6.1 not being satisfied on or prior to the Termination Date.
(c) Sale of Assets; Liens . Not (i) transfer, convey, sell or encumber any of the Assets, except inventory sold in the ordinary course of its business, or Encumbrances granted under the Sellers post-petition financing facility or otherwise authorized by the Bankruptcy Court, or (ii) dispose of, or trade in, any of the Tangible Personal Property.
(d) Maintenance of Relationships . Subject to Sellers responsibilities as a debtor-in-possession under the Bankruptcy Code, use commercially reasonable efforts to preserve its current relationships with its customers, suppliers, vendors and other Persons with which it has significant business relationships. Subject to Bankruptcy Court approval, continue to honor gift certificates / coupons tendered by customers and take all commercially reasonable steps to ensure that the Sellers suppliers and vendors continue to provide product and services to the Seller during the pendency of the Bankruptcy Case and to the Buyer after Closing on ordinary trade and credit terms. The Seller shall notify Buyer in writing within five (5) Business Days of the receipt of any written notice or Knowledge of the Seller (without due inquiry) to the effect that any current material vendor or supplier of the Seller or other party to any Assigned Agreement could reasonably be expected to terminate or materially alter its business relations with the Seller, either as a result of the Bankruptcy Case, the transactions contemplated herein or otherwise.
5.2 Non-Interference . Seller shall not take any actions that impair or interfere with the rights of Buyer hereunder.
5.3 Notices and Consents . Seller shall be responsible for obtaining prior to the Closing all waivers, permits, consents, approvals or other authorizations from third Persons and Governmental Units, if any, and to effect all such registrations, filings with and notices to third
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Persons and Governmental Units, including all local, county, state and federal taxing authorities, as may be necessary in order to permit the consummation of the transactions contemplated by this Agreement free and clear of all Encumbrances. Buyer shall use reasonable efforts to assist Seller in obtaining such waivers, permits, consents, approvals and authorizations and in making such registrations and filings.
5.4 Solicitation of Employees . Upon execution of this Agreement by both Buyer and Seller, Buyer may discuss with any of Sellers employees at the Restaurants their employment by Buyer after the Closing. Buyer may discuss employment with other Seller employees only upon written request and approval. Upon the Closing, Seller shall terminate all of the employees employed by Seller at the Restaurants. Buyer will have the right, but not the obligation, to interview and hire any such employee of Seller, and Seller and Buyer shall cooperate to effect an orderly transition of any present or former employees of Seller to be hired by Buyer, in its sole discretion, upon or after the Closing.
5.5 Reasonable Efforts . Subject to the terms and conditions herein provided, each of the parties hereto agrees to use reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done as promptly as practicable, all things necessary to consummate the transactions contemplated by this Agreement, including, without limitations, the prompt preparation and filing by Seller of all necessary pleadings, motions and notices in connection with the approval by the Bankruptcy Court of this Agreement.
ARTICLE 6
CONDITIONS PRECEDENT TO THE CLOSING
6.1 Conditions Precedent to Obligations of Buyer . The obligations of Buyer under this Agreement to consummate the transactions contemplated hereby shall be subject to the satisfaction, at or prior to the Closing, of all of the following conditions, any one or more of which may be waived at the option of Buyer (provided, however, that (1) the parties acknowledge and agree that any representations and warranties of the Seller contained in Article 3 of this Agreement and referenced in this Section 6.1 are qualified in their entirety by those qualifications set forth in clauses (i) through (iv) of the introductory paragraph to such Article 3, and (2) any covenants of the Seller contained in this Agreement and referenced in this Section 6.1 are qualified in their entirety by those qualifications set forth in clauses (i) through (iii) of the introductory paragraph to Article 5):
(a) Representations and Warranties; Performance of Agreements . Subject to the acknowledgments set forth in Section 4.6 , (i) all of the representations and warranties of the Seller set forth herein and any related Sale Documents shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date (or, if made as of a specified date, as of such date); (ii) the Seller shall have performed and complied in all material respects with all of their covenants and other obligations contained in this Agreement required to be performed or complied with by Seller at or before the Closing; and (iii) the Buyer shall have received a certificate on behalf of the Seller as to the fulfillment of the conditions set forth in clauses (i) and (ii) above, which certificate shall have the effect of a representation and warranty of the Seller as to the matters set forth therein.
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Required Consents . The Buyer shall have received copies of all of the consents, permits, and regulatory approvals necessary to consummate the transactions contemplated by this Agreement; provided the failure to obtain the consent of Spirit Master Funding, LLC to the assumption and/or assignment of the lease(s) for the restaurants in Apopka, Ocala, Columbus, Gulfport and Moss Point shall excuse Buyer from closing under this Agreement but shall not entitle Buyer to a Buyer Termination Fee.
(b) Ancillary Agreements . The Buyer shall have received the following Sale Documents, each dated as of the Closing Date and in full force and effect as of the Closing Date:
(i) one or more Bills of Sale, duly executed by the Seller, the forms of which shall be submitted by Buyer on or before such date that is five (5) Business Days prior to the Sale Hearing (each, a Bill of Sale );
(ii) the License, duly executed by the Seller, the form of which shall be submitted by Buyer on or before such date that is five (5) Business Days prior to the Sale Hearing; and
(iii) all other instruments of transfer, duly executed by the Seller as shall be reasonably necessary or appropriate to vest in the Buyer good and indefeasible title to the Assets and to permit the Buyer to conduct the business at the Restaurant Sites without interruption.
(c) No Legal Obstruction . Except as is otherwise contemplated by the Bankruptcy Case, no suit, action or proceeding not disclosed in the schedules to this Agreement by any Person, entity or governmental agency shall be pending or threatened in writing, which if determined adverse to Seller, or Buyers interests, could reasonably be expected to have a Material Adverse Effect. No injunction, restraining order or order of any nature shall have been issued by or be pending before any court of competent jurisdiction or any governmental agency challenging the validity or legality of the transactions contemplated hereby or restraining or prohibiting the consummation of such transactions or compelling Buyer to dispose of or discontinue or materially restrict the operations of a significant portion of Sellers business conducted at the Restaurants.
(d) Damage or Destruction . From the date hereof until the Closing, there shall have been no loss or destruction of any portion of the properties or assets of Seller at the Restaurants, nor any institution or threat of any condemnation or other proceedings to acquire or limit the use of any of the properties or assets of Seller at the Restaurants, which (in any such case) could reasonably be expected to result in a Material Adverse Effect.
(e) Bankruptcy Court Approval . The Sale Order shall have been entered and shall be in form and substance reasonably satisfactory to Seller and Buyer, and shall have become a Final Order (as defined in Article 10 ); provided , however , that Buyer will use its reasonable efforts to consummate the transactions contemplated hereby under circumstances where an appeal of the Sale Order is pending, no stay has been obtained, and Buyer reasonably believes that closing the transaction will moot any such appeal(s). Any other orders of the Bankruptcy Court with respect to this Agreement shall be in form and substance reasonably satisfactory to Buyer.
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6.2 Conditions Precedent to Obligations of Seller . The obligations of Seller under this Agreement to consummate the transactions contemplated hereby will be subject to the satisfaction, at or prior to the Closing, of all the following conditions, any one or more of which may be waived at the option of Seller:
(a) No Breach of Covenants; True and Correct Representations and Warranties . There shall have been no material breach by Buyer in the performance of any of the covenants herein to be performed by it in whole or in part prior to the Closing, and the representations and warranties of Buyer contained in this Agreement, if specifically qualified by materiality, shall be true and correct in all respects as of the date hereof and as of the Closing Date and, if not so qualified, shall be true and correct in all material respects as of the date hereof and as of the Closing Date, except for representations or warranties that are made by their terms as of a date specified by month, day and year, which shall be true and correct or true and correct in all material respects, as applicable, as of such specified date. Seller shall receive at the Closing a certificate dated as of the Closing and executed on behalf of Buyer, certifying in such detail as Seller may reasonably require, the fulfillment of the foregoing conditions, and restating and reconfirming as of the Closing all of the covenants, representations and warranties of Buyer contained in this Agreement, specifying in detail the extent of any breaches thereof.
(b) No Legal Obstruction . Except as is otherwise contemplated by the Bankruptcy Case, no suit, action or proceeding not disclosed in this Agreement by any person, entity or governmental agency shall be pending or threatened in writing, which could reasonably be expected to have a material adverse effect upon (i) Buyer or (ii) the benefits to Seller of the transactions contemplated hereby. No injunction, restraining order or order of any nature shall have been issued by or be pending before any court of competent jurisdiction or any governmental agency challenging the validity or legality of the transactions contemplated hereby or restraining or prohibiting the consummation of such transactions or compelling the disposition of or discontinue or materially restrict the operations of a significant portion of Buyer.
(c) Cure of Defaults . Buyer shall have satisfied its obligations, if any, under Section 1.6 .
(d) Sale Order . The Sale Order shall have been entered, shall be in form and substance reasonably satisfactory to Buyer, and shall have each become a Final Order; provided , however , that Buyer will use its reasonable efforts to consummate the transactions contemplated hereby under circumstances where an appeal of the Sale Order is pending, no stay has been obtained, and Buyer reasonably believes that closing the transaction will moot any such appeal(s). Any other orders of the Bankruptcy Court with respect to this Agreement shall be in form and substance reasonably satisfactory to Buyer.
6.3 Waiver of Conditions . Buyer may unilaterally waive any of the conditions to closing set forth in Section 6.1 of this Agreement. Seller may unilaterally waive any of the condition to closing set forth in Section 6.2 of this Agreement.
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ARTICLE 7
BANKRUPTCY ACTIONS
7.1 Commencement of the Case. Seller shall file voluntary petitions under chapter 11 of the Bankruptcy Code as soon as practicable after the execution of this Agreement, but no later than five (5) days thereafter.
7.2 Bankruptcy Court Approvals .
(a) As soon as practicable following the Petition Date, Seller shall file with the Bankruptcy Court and serve motions seeking (the Sale Motion ): (i) a hearing before the Bankruptcy Court on an expedited basis (the Initial Hearing ) for an order (the Bid Procedures Order ) approving, among other things, (A) procedural matters related to the transactions contemplated hereby (including the process by which higher and better offers to purchase the Assets may be presented to the Seller), (B) the Sellers obligations with respect to the Buyer protections described in this Article 7, (C) the adequacy of notice to creditors and parties in interest of the final hearing to approve the sale of the Assets and the assumption of the Assumed Liabilities (the Sale Hearing ) and (D) setting a date for the Sale Hearing; and (ii) an order (the Sale Order ) authorizing, among other things, (A) Seller to sell the Assets to Buyer pursuant to this Agreement and Sections 363 and 365 of the Bankruptcy Code, free and clear of all interests in or to the Assets within the meaning of Bankruptcy Code Section 363(f), and otherwise free and clear of all other liens, encumbrances, claims and liabilities, except for the Assumed Liabilities, and (B) Buyer to assume the Assumed Liabilities and Seller to be relieved of liability therefrom.
(b) Seller shall request an expedited hearing on shortened notice to cause the Initial Hearing on the Sale Motion to be held as soon as ten (10) Business Days, but no later than twenty (20) Business Days after the Petition Date, and shall on the Petition Date serve a notice of the Sale Motion, the Sale Motion, the proposed form of the Bid Procedures Order and the request for an expedited hearing date by first-class mail, postage prepaid, upon: all Persons known to have expressed an interest in a transaction with respect to the Assets or a portion thereof during the past six (6) months; all entities known to have asserted any Encumbrance or interest in the Assets or Assigned Agreements; all non-Seller parties to the Assigned Agreements; the United States Trustee; any Governmental Unit that may have a claim in the Bankruptcy Case, and the twenty largest unsecured creditors identified by Seller in its chapter 11 petition. The Seller shall use reasonable efforts to cause the Bankruptcy Court to enter the Bid Procedures Order as promptly as practicable but no later than three (3) Business Days after the commencement of the initial hearing on the Sale Motion.
(c) Bid Procedures Order . The Bid Procedures Order shall provide, among other things, that:
(i) Within two (2) Business Days after the entry of the Bid Procedures Order (the Mailing Date ), the Seller shall serve a copy of the Bid Procedures Order and a notice of sale, approved by the Bankruptcy Court by first-class mail, postage prepaid, upon: all Persons known to have expressed an interest in a transaction with respect to the Assets or a portion thereof during the past six (6) months; all entities known to have asserted any Encumbrance or interest in the Assets; all non-Seller parties to the Assigned Agreements; the United States Trustee; and counsel to an Official Creditors Committee, if one has been appointed (or if no counsel has been
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retained, then on the members of such committee); all other known creditors and equity security holders of the Seller; all Persons that have requested special notice in the Bankruptcy Case; and all other Persons as directed by the Bankruptcy Court;
(ii) On or before the Mailing Date, the Seller shall serve on all non-Seller parties to the Assigned Agreements a notice of cure amount (the Cure Notice ) stating as to each the Cure Amount necessary, if any, to cure defaults and compensate the non-Seller party under Section 365 of the Bankruptcy Code in order for the Seller to assume and assign the Assigned Agreements. The non-Seller party to an Assigned Agreement shall have until 4:00 p.m. Central Time five (5) Business Days prior to the Sale Hearing (the Contract Objection Deadline ) to file with the Bankruptcy Court and serve its objection on any grounds to the assumption or assignment of any Assigned Agreement to which it is a party or to the amount or terms of payment of the Cure Amount, and shall state the grounds for its objection with specificity (with appropriate documentation in support thereof), including what alternative Cure Amount it contends is required. Such objections shall be served so as to be actually received by counsel for the Seller and counsel for the Buyer on or before the Contract Objection Deadline. If no objection is timely received, the Cure Amount set forth in the Cure Notice shall be controlling, notwithstanding anything to the contrary in any Assigned Agreement or any other document, and each non-Seller party to an Assigned Agreement that has received actual or constructive notice of the Cure Objection Deadline shall be deemed (x) to have waived and released any right to assert an objection to the Cure Amount set forth in the Cure Notice and (y) to have consented to the assumption and assignment of such Assigned Agreement to the Buyer, and shall be forever barred from asserting any other claims against the Seller or its bankruptcy estate, the Buyer, or the property of either of them, with respect to such Assigned Agreements as to amounts (other than the Cure Amount set forth in the Cure Notice) that were due or defaults that existed or other performance that was due from the Seller under such Assigned Agreements prior to the Closing. At the Sale Hearing, the Court will consider and resolve any objections to assumption and assignment of the Assigned Agreements, including objections to the Cure Amounts or to the provision of adequate assurance of future performance that were timely raised by the non-Seller party;
(iii) The Buyer Termination Fee (as defined in Section 7.4 ) is approved and shall be afforded administrative expense priority status pursuant to Section 503(b)(1)(A) of the Bankruptcy Code, and shall be authorized and directed to be paid at the time and under the circumstances set forth in this Agreement;
(iv) Each prospective bidder (each a Potential Bidder ) must deliver to the Seller (x) financial statements, financing commitments or other satisfactory evidence which the Seller determines may be necessary to demonstrate the Potential Bidders ability to perform if its bid is accepted and (y) an executed confidentiality agreement in form and substance satisfactory to the Seller and substantially similar to the confidentiality agreement previously entered into between Buyer and the Company. After a Potential Bidder delivers all such materials and the executed confidentiality agreement, the Seller shall determine whether the Potential Bidder has demonstrated the financial capacity to consummate the purchase of the Assets and to be otherwise reasonably likely to be able and willing to consummate the contemplated transactions and, if, so, shall designate the Potential Bidder as a Qualified Bidder . The Seller shall promptly notify the Buyer of the identity of any Qualified Bidder;
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(v) The Seller shall make available to each Qualified Bidder the form of purchase agreement which must be used to make a Qualified Bid (the Form Agreement ), which form shall be substantially similar to and in no material term shall it differ from this Agreement and shall be the template used by such Qualified Bidder in submitting a bid;
(vi) A Qualified Bid is a written contract offer signed by a Qualified Bidder and received by the Seller no later than 4:00 p.m. Central Time on the date that is four (4) Business Days prior to the date of the Sale Hearing (the Qualified Bid Deadline ) and satisfies all of the requirements set forth in this Clause (vi). Such offer must be in the form of and substantially the same in all material respects as the Form Agreement, and accompanied by a black-lined version showing changes from the Form Agreement, which changes must be immaterial and acceptable to the Seller; provided, however, that such offer must require the parties to consummate the transactions on the same timing as set forth in this Agreement, and may not be subject to any representations, warranties, covenants, contingencies or conditions that are not set forth in this Agreement, including any financing, diligence, board approval or similar contingencies or conditions. Such offer shall specify the purchase price that the Qualified Bidder proposes, which shall be payable entirely (x) in cash at least equal to $7,850,000 (the sum of the Purchase Price, the Buyer Termination Fee, and $125,000), and (y) in the assumption of liabilities equal to or greater than those to be undertaken by the Buyer under the Assigned Agreements (the Minimum Overbid ). The Seller shall promptly provide the Buyer and any other Qualified Bidder with copies of all Qualified Bids. In order to be a Qualified Bid, such offer must be accompanied by a cash deposit equal to or greater than 5% of the cash consideration set forth in such bid (such deposited amount, the Bid Deposit ) in immediately available funds as earnest money which shall be deposited in an escrow account under an escrow agreement with an escrow agent, on terms and conditions substantially similar to the terms contained in this Agreement. If such Qualified Bidders bid is not approved as the Successful Bid at the Sale Hearing, the Bid Deposit plus accrued interest will be returned to such Qualified Bidder;
(vii) If the Seller receives at least one (1) Qualified Bid prior to the Qualified Bid Deadline, then the Seller shall notify the Buyer and any Qualified Bidder who has submitted a Qualified Bid prior to the Qualified Bid deadline that the Seller shall consider at an auction to be held at the offices of the Company or such other location in Nashville, TN as may be specified , subject to such reasonable rules and regulations as may be established by Sellers counsel, at 10:00 a.m. Central time two (2) Business Days prior to the Sale Hearing, any bids that may be submitted by the Buyer or a Qualified Bidder. Only the Buyer and Qualified Bidders that have submitted Qualified Bids prior to the Qualified Bid Deadline may participate at the auction. Copies of all Qualified Bids shall be provided to Buyer and any other Qualified Bidder at least two (2) Business Days before the auction. The Seller at the commencement of the auction shall identify the bid that they have deemed the highest and best offer. The Seller shall permit the Buyer and Qualified Bidders to submit subsequent bids, provided that each subsequent bid must exceed the amount of the preceding bid by not less than $125,000. In determining the amount of any subsequent bid by the Buyer, credit in the amount of the Buyer Termination Fee shall be given. The Seller, subject to oversight and approval by the Bankruptcy Court, shall supervise the bidding process and conduct the bidding in such a manner to provide the Buyer and Qualified Bidders fair and equal opportunity to participate in the auction. When the Seller has reasonably determined that the bidding process is concluded, then the Seller shall determine which bid (that is in compliance with the requirements of clause (vi)) is to be recommended to the Bankruptcy Court for approval.
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The Bankruptcy Court shall at the Sale Hearing authorize the Seller to complete a sale to the highest and best bid (the Successful Bid ); and
(viii) If the Seller does not receive at least one (1) Qualified Bid prior to the Qualified Bid Deadline, then no auction shall be scheduled or conducted, and the Bankruptcy Court at the Sale Hearing shall proceed solely to consider approval of this Agreement and the transactions contemplated herein and will not consider any competing or alternative offers or proposals to purchase assets from the Seller, nor shall the Bankruptcy Court consider any objections to the Sale Motion that are based on the existence or potential for other or different offers or proposals to purchase the Sellers assets.
(d) Sale Order . The Seller shall request a Sale Hearing, such hearing to be regularly noticed under applicable rules of procedure, to be held as soon as thirty (30), but no later than ninety (90) days, after the Petition Date, and shall on the Petition Date serve a notice of the Sales Motion, the proposed form of the Sale Order and the date of the Sale Hearing by first-class mail, postage prepaid, upon: all Persons known to have expressed an interest in a transaction with respect to the Purchased Assets or a portion thereof during the past six (6) months; all entities known to have asserted any Encumbrance or interest in or upon the Assets or Assigned Agreements; all non-Seller parties to the Assigned Agreements; the United States Trustee; and the twenty (20) largest unsecured creditors identified by Seller in its chapter 11 petition. The Seller shall use all reasonable efforts to cause the Bankruptcy Court to enter the Sale Order as promptly as practicable, but in no event later than three (3) Business Days after the commencement of the Sale Hearing.
(i) The Sale Order shall provide, among other things, that:
(A) The Sale Motion is granted and the sale of the Assets (including the assumption and assignment of the Assigned Agreements), in accordance with the terms and conditions of this Agreement, is approved. The sale of the Assets is necessary, essential and appropriate under the circumstances of the Sellers bankruptcy estate, which (together with the Sellers creditors) would suffer immediate and irreparable harm if the Seller were not permitted to sell the Assets (including assumption and assignment of the Assigned Agreements) at this time. The transactions contemplated by this Agreement are permissible under Sections 363 and 365 of the Bankruptcy Code, and do not amount to a sub rosa plan of reorganization. The Seller has engaged in fair and reasonable marketing, advertising and other sale efforts and procedures in connection with the transactions, both before and after the Petition Date, and has complied with the Bid Procedures Order.
(B) The Sellers have obtained a fair and reasonable price for the Assets.
(C) Notice of the Sale Motion was appropriate and adequate in the circumstances and complied in all respects with the requirements of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, the Local Bankruptcy Rules for the Bankruptcy Court and the Bid Procedures Order, and is approved. No further notice of, or hearing on the Sale Motion is required. Adequate notice of and an opportunity to be heard with respect to the Sale Motion has been given to all parties in interest, including all Persons claiming any interest in or Lien on the
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Assets, including landlords under any Assumed Leases, non-Seller parties to any Assigned Agreements and governmental taxing authorities that may, as a result of the transactions authorized hereby have claims, whether contingent, unliquidated, unknown or otherwise.
(D) The Assets (including the Assigned Agreements) will be sold to the Purchaser free and clear of all Encumbrances, and of any other interests in the Assets because, in each case as appropriate, the requirements of Section 363(f) of the Bankruptcy Code have been satisfied. The sale free and clear and the assumptions and assignments shall be self-executing and neither the Seller nor the Buyer shall be required to execute or file releases, termination statements, assignments, consents or other instruments in order to effectuate the sale of the Assets free and clear, or to bind the non-Seller parties to the assumption and assignment of the Assigned Agreements. Any Encumbrances and other interests in the Sellers interest in the Assets shall attach to the proceeds from the sale in the order of their priority, with the same validity, force and effect which they now have against the Assets.
(E) The Assigned Agreements to be assumed and assigned under this Agreement and the Sale Order shall be in full force and effect, with no oral or other modifications or waivers thereof, and all payments due there under are current. If the Closing occurs, the Buyer shall pay the portion of the Cure Amounts, if any, due under Section 1.6 of this Agreement. If the Closing occurs, the Seller, not the Buyer, shall be solely responsible for satisfying any other obligations that accrue before the Effective Time under the Assigned Agreements, and the Buyer, not the Sellers, shall be solely responsible for satisfying any obligations accruing there under after the Effective Time. Subject to Section 7.5 herein, no consents are necessary for the assumption and assignment of any of the Assigned Agreements, and the assumption and assignment of each of the Assigned Agreements shall be effective at the Closing notwithstanding any provisions therein or in applicable law that restrict the assignability thereof.
(F) This Agreement was proposed, negotiated and entered into by the Sellers and the Purchaser without collusion, in good faith and from arms-length bargaining positions.
(G) The terms and conditions of the transactions set forth in this Agreement are approved, this Agreement and the other Sale Documents (when executed) will constitute valid and binding agreements of the Seller, enforceable against them in accordance with their terms, and the Seller is authorized, empowered and directed to take all such action as may be necessary or appropriate to consummate the transactions, all without further order of the Bankruptcy Court.
(H) The Bankruptcy Court shall retain jurisdiction to implement and enforce the terms of this Agreement and the Sale Order, including the terms on which the Assigned Agreements are assumed and assigned. The Buyer has furnished adequate assurance of future performance.
(I) No bulk sales law or any similar law of any state or other jurisdiction shall apply in any way to the transactions authorized herein.
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(J) The Sale Order is a final, appealable order, which shall be effective immediately upon entry, except to the extent stayed by its terms. The ten (10) day stay of the Sale Order, as provided in Rule 6004(h) and 6006(d) or any other Rule of the Federal Rules of Bankruptcy Procedure, shall not apply. Absent judicial imposition of a stay of the Sale Order pending appeal, the Seller and the Buyer may immediately consummate the Transactions approved hereby, notwithstanding whether an appeal of the Sale Order is pending at any time.
7.3 Time Periods . Subject to Section 8.1 , any of the time periods set forth in Sections 7.2(b) and (d) may be extended for a period aggregating not more than fifteen (15) calendar days as a result of delays in scheduling or conduct of court hearings that arise, notwithstanding the reasonable efforts of the Seller, due to the lack of availability of a hearing date on the calendar of the Bankruptcy Court or extensions or continuances granted by the Bankruptcy Court at the request of third parties.
7.4 Payment of Termination Fee .
(a) Subject to approval of the Bankruptcy Court, if a Qualified Bid submitted in accordance with the Bid Procedures Order is approved by Order of the Bankruptcy Court and Buyer is not in breach under this Agreement, the Buyer shall be paid a termination fee of Two Hundred Twenty-five Thousand Dollars ($225,000) (the Buyer Termination Fee ). Similarly, Buyer shall pay Seller a termination fee equal to the amount of the Deposit (the Seller Termination Fee ) in the event Seller has satisfied its conditions to closing under the Agreement (or is prevented from doing so by Buyers actions) and Buyer fails to close the transactions contemplated by this Agreement. Payment of the Seller Termination Fee to Seller by Buyer shall constitute liquidated and agreed damages in respect of this Agreement and the transactions contemplated by this Agreement, and Buyer shall have no further liability to Seller. Seller believes that it is impossible to determine accurately the amount of all damages that Seller would incur by virtue of a breach by Buyer of its obligations to proceed with the transactions contemplated by this Agreement, and its sole and exclusive remedy for any such breach shall be to receive payment of the Seller Termination Fee. Buyers obligation to pay the Seller Termination Fee to Seller shall be discharged upon the release to Seller from the escrow described in Section 2.8 of the full amount of the Deposit. If this Agreement is terminated for any reason that does not result in the payment of the Seller Termination Fee, the Deposit shall be released from escrow and refunded to Buyer not later than five (5) business days following such termination.
(b) Payment of the Buyer Termination Fee to Buyer shall (i) be full consideration for the Buyers efforts and expenses in connection with the bidding process, this Agreement and the transactions contemplated hereby, including the due diligence efforts of the Buyer and its professionals and advisors and (ii) constitute liquidated and agreed damages in respect of this Agreement and the transactions contemplated by this Agreement, and Seller shall have no further liability to Buyer. Buyer believes that it is impossible to determine accurately the amount of all damages that Buyer would incur by virtue of a breach by Seller of its obligations to proceed with the transactions contemplated by this Agreement, and its sole and exclusive remedy for any such breach shall be to receive payment of the Buyer Termination Fee. Except as provided in this Section 7.4 , Buyer shall have no right nor remedy against Seller, at law or in equity, by reason of a breach by Seller of its obligation to proceed with the transactions contemplated by this Agreement.
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(c) The Buyer Termination Fee shall be afforded administrative expense priority status pursuant to Section 503(b)(1)(A) of the Bankruptcy Code and shall be paid upon the earlier of (i) the closing of the transactions contemplated by an accepted Qualified Bid and (ii) entry of any Order of the Bankruptcy Court directing payment by Seller of such amounts.
(d) Notwithstanding anything contained in this Agreement to the contrary, no Buyer Termination Fee or Seller Termination Fee shall be payable to any party to this Agreement if such party is in material breach of any provision of this Agreement.
7.5 Adequate Assurance of Future Performance; Cooperation . The Buyer shall be responsible for providing evidence and argument in support of the Sale Motion in order to establish its ability to provide adequate assurance of future performance (within the meaning of Section 365(f)(2)(B) of the Bankruptcy Code) of each Assigned Agreement. The Seller agrees to use commercially reasonable efforts to cooperate with the Buyer in the presentation of such evidence and argument. The Bankruptcy Courts refusal to approve the assumption by the Buyer of any Assigned Agreement on the grounds that adequate assurance of future performance by the Buyer of such Assigned Agreement has not been provided shall not constitute grounds for termination pursuant to Section 8.1 hereof. In addition, the Buyer shall reasonably cooperate with the Seller in the Sellers efforts to obtain the approval of the Sale Motion.
ARTICLE 8
TERMINATION RIGHTS; CLOSING DELIVERIES
8.1 Termination of Agreement . The parties may terminate this Agreement and the transactions contemplated hereby may be abandoned at any time prior to the Closing:
(a) by mutual written consent of each of Seller and Buyer at any time prior to the Closing;
(b) by Seller, if (i) the Bankruptcy Court approves a Qualified Bid (provided, that no termination under this Section 8.1(b) shall be effective unless and until the Buyer Termination Fee shall have been paid to Buyer);
(c) by Seller, if (i) the Closing shall not have occurred on or prior to the Termination Date (as defined in Section 2.3 ), unless such failure to consummate the transactions herein is the result of a material breach of any representation, warranty, covenant or other agreement contained in the Sale Documents by the Seller, or (ii) upon written notice to Buyer at any time prior to the Closing, and following written notice thereof and a cure period of five (5) business days thereafter, if Buyer shall have breached any representation, warranty or covenant contained in this Agreement in any material respect;
(d) by Buyer, if (i) the Closing shall not have occurred on or prior to the Termination Date, unless such failure to consummate the transactions herein is the result of a material breach of any representation, warranty, covenant or other agreement contained in the Sale Documents by the Buyer, or (ii) upon written notice to Seller at any time prior to the Closing, and following written notice thereof and a cure period of five (5) business days thereafter, if Seller shall have breached any representation, warranty or covenant contained in this Agreement in any material respect (provided, however, that (1) for purposes of this Section 8.1(d) , any
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representations and warranties of the Seller contained in Article 3 of this Agreement are qualified in their entirety by those qualifications set forth in clauses (i) through (iv) of the introductory paragraph to such Article 3 , and (2) any covenants of the Seller contained in this Agreement are qualified in their entirety by those qualifications set forth in clauses (i) through (iii) of the introductory paragraph to Article 5 );
(e) by either party, upon written notice to the other and following a cure period of three (3) business days, if the Closing has not occurred by 5:00 p.m. Central Time on the day that is two (2) business days following the entry of the Sale Order; provided, that (i) no stay of the Sale Order shall be in effect, (ii) the Sale Order shall contain a waiver of the automatic ten (10) day stay under Rule 6004(h) of the Federal Rules of Bankruptcy Procedure, and (iii) the terminating party is not then in material breach of this Agreement; and
(f) by either party, upon written notice to the other, if (i) the Bid Procedures Order shall not have been entered by the Bankruptcy Court by 5:00 p.m. Central Time on December 31, 2007, or (ii) the Sale Order shall not have been entered by the Bankruptcy Court on or prior to 5 p.m. Central Time on January 31, 2007.
8.2 Procedure and Effect of Termination . In the event that either Buyer or Seller terminates this Agreement pursuant to Section 8.1 , written notice thereof shall forthwith be given to the other parties to this Agreement, specifying the particular provision of Section 8.1 upon which such termination is based, and this Agreement shall terminate (subject to the payment of any Buyer Termination Fee or Seller Termination Fee in accordance with Section 8.1(b) ) and the transactions contemplated hereby shall be cancelled, without further action by any of the parties hereto. If this Agreement is terminated as provided herein:
(a) upon request therefor, each party shall redeliver (or, at the option of the party holding such documents, destroy the same) all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether obtained before or after the execution hereof, to the party furnishing the same; and
(b) no party hereto shall have any liability or further obligation to any other party to this Agreement resulting from such termination except that the provisions of this Section 8.2 shall remain in full force and effect.
ARTICLE 9
OTHER AGREEMENTS
9.1 Cooperation . Buyer and Seller will, at any time, and from time to time, after the execution of this Agreement, execute and deliver such further instruments of conveyance and transfer and take such additional action as may be reasonably necessary to effect, consummate, confirm or evidence the transactions contemplated by this Agreement and the other Sale Documents (including the exercise of good faith in the Bankruptcy Case and related proceedings).
9.2 Risk of Loss . Seller assumes all risk of loss due to fire or other casualty up to the Effective Time and Buyer shall assumes all risk of loss subsequent to the Effective Time.
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9.3 Apportionment . Any unpaid rents, taxes, assessments, common area maintenance charges, expenses and other charges ( Unpaid Charges ) for which Seller is directly or indirectly responsible and which relate to the Restaurant Sites for periods both before and after the Effective Time shall be prorated between Seller and Buyer on a daily basis, with Seller responsible for payment of all such Unpaid Charges allocable to the time period up to and including the Effective Time and with Buyer responsible for payment of all such Unpaid Charges allocable to the time period thereafter. Seller and Buyer agree that all such Unpaid Charges (except to the extent reasonably disputed) shall be paid in full by either Seller or Buyer, as the case may be, within sufficient time to prevent any taxing agency or other creditor from making any claim. If Seller or Buyer pays any Unpaid Charges in full in accordance with the preceding sentence, the other shall promptly reimburse its pro rata portion to the paying party upon receipt of written notice of the fact and amount of such payment (subject, in Sellers case, to the approval of the Bankruptcy Court). Buyer agrees to reimburse Seller for any Prepaid Charges, including prepayments of rents, security deposits (but only to the extent of the aggregate amount of security deposits with respect to which the estoppel certificates for the lease to which the security deposit relates states that no claim then exists against such deposits), taxes, expenses and other charges made by Seller to the extent and in the proportion that such Prepaid Charges are retained for the benefit of Buyer or relate to periods after the Effective Time.
ARTICLE 10
DEFINITIONS
For purposes of this Agreement, the following terms have the meaning set forth below:
Affiliate has the meaning ascribed to that term in Rule 405 of the Securities Act of 1933, as amended.
Encumbrance means, with regard to any asset, a mortgage, deed of trust, pledge, lien, collateral agreement, security interest, claim (including, without limitation, as that term is defined in Section 101(5) of the Bankruptcy Code), security arrangement, liability, encumbrance, accrued but unpaid taxes, tax liens or any other interest of any nature whatsoever in respect of such asset to the fullest extent any such interest can be eliminated under Section 363(f) of the Bankruptcy Code; provided, however, that the term Encumbrance shall not include the rights pursuant to Section 365(n) of the Bankruptcy Code of any licensee under a license of intellectual property (as such term is defined in Section 101(35A) of the Bankruptcy Code) or fee interests in real property such as easements or rights of way.
Final Order means an order or judgment of the Bankruptcy Court which has not been reversed, stayed, modified or amended and is no longer subject to appeal, certiorari proceeding or other proceeding for review or rehearing (giving effect to any reduction or elimination of the appeal period pursuant to an order of the Bankruptcy Court), and as to which no appeal, certiorari proceeding, other proceeding for review or rehearing shall then be pending.
Governmental Unit means the United States of America; any state; commonwealth; district; territory; municipality or foreign state; and any department, agency or
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instrumentality (including but not limited to any regulatory or administrative authority or agency, court or arbitrational tribunal thereof) of the United States of America (but not a United States Trustee while serving as a trustee in a case under the Bankruptcy Code), or any state, commonwealth, district, territory, municipality or foreign state; or other foreign or domestic government.
Knowledge means the actual knowledge by Craig Barber or Bob Langford in their capacity as officers and directors of Seller.
Legal Requirement means any federal, state, local, municipal, foreign, international, multinational, or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute, or treaty.
Liability means, with respect to any Person, any Liability or obligation of such Person of any kind, character or description, whether known or unknown, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, executory, determined, determinable or otherwise and whether or not the same is required to be accrued on the financial statements of such Person.
Material Adverse Effect means an event, change or occurrence which, individually or together with any other event, change, or occurrence, has a material adverse impact on (i) the business conducted by Seller at the Restaurant Sites (taken as a whole), (ii) the ability of Seller to perform its obligations under this Agreement or to consummate the transactions contemplated by this Agreement, or (iii) the Assets taken as a whole.
Person means any shareholder, individual, corporation, partnership, firm, joint venture, association, joint-stock seller, trust, unincorporated organization, regulatory body or other entity.
Release means any release, spill, emission, leaking, plumbing, pouring, dumping, emptying, injection, deposit, disposal, discharge, dispersal, leaching, or migration on or into the environment or into or out of any property.
Taxes means (whether or not disputed) taxes of any kind, levies or other like assessments, customs, duties, imposts, charges or fees, including, without limitation, income taxes, gross receipts, ad valorem, value added, excise, real property, personal property, occupancy, asset, sales, use, license, payroll, transaction, capital, capital stock, net worth, estimated, withholding, employment, social security, unemployment, unemployment compensation, workers compensation, disability, utility, severance, production, environmental, energy, business, occupation, mercantile, franchise, premium, profits, windfall profits, documentary, stamp, registration, transfer and gains taxes, toll charges (for example, toll charges under Sections 367 and 1492 of the Bankruptcy Code), or other taxes of any kind whatsoever, imposed by or payable to the United States, or any state, country, local or foreign government or subdivision, instrumentality, authority or agency thereof or under any treaty, convention or compact between or among any of them, and in each instance such term shall include any interest (including interest on deferred tax liability under Section 453A(c) of the Bankruptcy Code and look-back interest under Section 460 of the Bankruptcy Code and similar amounts of interest imposed by the
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Bankruptcy Code), penalties, additions to tax or similar charges imposed in lieu of a Tax or attributable to any Tax, other than taxes imposed on or payable by Seller that are, or that are in the nature of taxes that are, based upon, measured by or imposed with respect to capital, net worth, net receipts or net income (including without limitation minimum taxes, tax preference items, alternative minimum taxes, capital gains taxes, excise taxes, personal holding company taxes and excess profits taxes).
ARTICLE 11
MISCELLANEOUS
11.1 Notices, Consents, etc . Any notices, consents or other communication required to be sent or given hereunder by any of the parties shall in every case be in writing and shall be deemed properly served if (a) delivered personally, (b) delivered by registered or certified mail, in all such cases with first class postage prepaid, return receipt requested, (c) delivered by courier, at the addresses as set forth below or at such other addresses as may be furnished in writing, or (d) delivered by facsimile transmission with confirmation of successful transmission, at the numbers as set forth below or at such other numbers as may be furnished in writing. Any notice required herein shall be in writing (to the individuals listed in Section 11.1 , unless specified otherwise pursuant to Section 11.1 ) unless specifically permitted to be given orally. All such notices and communications shall be deemed received upon the actual delivery thereof in accordance with the foregoing.
(a) If to Seller:
Barnhills Buffet, Inc.
1210 Briarville Road
Madison, TN 37115
Attn: W. Craig Barber, President
Facsimile: (615) 277-1220
With a copy to Sellers counsel:
The Hancock Law Firm
102 Woodmont Boulevard, Suite 200
Nashville, TN 37205
Attn: Caldwell Hancock, Esq.
Facsimile: (615) 345-0203
(b) If to Buyer:
Star Buffet Management, Inc.
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Star Buffet Management, Inc.
1312 N. Scottsdale Road
Scottsdale, AZ 85257
Attn: Robert E. Wheaton, Chief Executive Officer
Facsimile: (480) 425-0494
With a copy to:
CRAIG B. WHEATON
Kilpatrick Stockton LLP
3737 Glenwood Ave., # 400
Raleigh, NC 27612
Attn: Craig B. Wheaton, Esq.
Facsimile: (919) 510-6115
11.2 Severability . The unenforceability or invalidity of any provision of this Agreement shall not affect the enforceability or validity of any other provision that shall remain in full force and effect and be enforceable to the fullest extent permitted by law.
11.3 Amendment and Waiver . This Agreement may not be amended, modified or waived except by an instrument in writing signed on behalf of each of the parties hereto.
11.4 Actions Necessary to Complete Transaction . Each party will execute all documents and take such other actions as any other party may reasonably request in order to consummate the transactions provided for herein and to accomplish the purposes of this Agreement, provided that Sellers obligations hereunder shall be subject to any limitations imposed by the Bankruptcy Court or in connection with the Bankruptcy Case.
11.5 Counterparts . For the convenience of the parties, any number of counterparts of this Agreement may be executed by the parties hereto. Each such counterpart shall be, and shall be deemed to be, an original instrument, but all such counterparts taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement by facsimile shall be equally as effective as delivery of the original executed counterpart of this Agreement.
11.6 Expenses . Except as otherwise provided herein, each party to this Agreement agrees to pay its own reasonable costs and expenses incurred or to be incurred in negotiating and preparing this Agreement and in closing and carrying out the transactions contemplated by this Agreement and the other Sale Documents. Each party will be responsible for their respective Taxes, directly or indirectly attributable to the transactions contemplated by the Agreement.
11.7 Governing Law . This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of Tennessee, without giving effect to provisions thereof regarding conflicts of law. Each party and each Person claiming hereunder hereby designates the Bankruptcy Court as the only court of proper jurisdiction and venue for any actions or proceedings relating to this Agreement, hereby irrevocably consents to such designation, jurisdiction and venue; and hereby waives any objections or defenses relating to jurisdiction or venue with respect to any action or proceeding initiated in the Bankruptcy Court;
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and hereby consents to service of process under the statutes and rules applicable to the Bankruptcy Court.
11.8 Headings . The subject headings of Articles and Sections of this Agreement are included for purposes of convenience only and shall not affect the construction or interpretation of any of its provisions.
11.9 Incorporation of Schedules and Exhibits . The Schedules and Exhibits hereto are incorporated into this Agreement and will be deemed a part hereof as if set forth herein in full. References to this Agreement and the words herein, hereof and words of similar import refer to this Agreement (including the Schedules and Exhibits) as an entirety. In the event of any conflict between the provisions of this Agreement and any Schedule or Exhibit, the provisions of this Agreement will control. Capitalized terms used in the Schedules have the meanings assigned to them in this Agreement. The Section references referred to in the Schedules are to Sections of this Agreement, unless otherwise expressly indicated.
11.10 Assignment . This Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned or delegated by Buyer or Seller in any manner whatsoever, whether directly or by operation of law or otherwise, without the prior written consent of the other party. Any assignment or attempted assignment of all or any portion of this Agreement which is not expressly permitted hereby shall be null and void and of no force or effect.
11.11 Entire Agreement . This Agreement, the other Sale Documents, and the documents, schedules and exhibits described herein or attached or delivered pursuant hereto collectively constitute the sole and only agreement among the parties with respect to the subject matter hereof. Any agreements, representations or documentation respecting the transactions contemplated by this Agreement, and any correspondence, discussions or course of dealing which are not expressly set forth in this Agreement, the other Sale Documents, or the documents, schedules and exhibits described herein or attached or delivered pursuant hereto or are null and void, it being understood that no party has relied on any representation not set forth in this Agreement, the other Sale Documents or the documents, schedules and exhibits described herein or attached or delivered pursuant hereto.
11.12 Third Parties . Nothing herein express or implied is intended or shall be construed to confer upon or give to any Person or entity, other than the parties to this Agreement and their respective permitted successors and assigns, any rights or remedies under or by reason of this Agreement.
11.13 Interpretative Matters . Unless the context otherwise requires, (a) all references to Articles, Sections, schedules or exhibits are to Articles, Sections, schedules or exhibits in this Agreement, and (b) words in the singular or plural include the singular and plural, pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter, and (c) the term including shall mean by way of example and not by way of limitation.
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11.14 No Strict Construction . The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto.
11.15 Time of Essence . Time is of the essence with respect to this Agreement.
11.16 Survival of Representations and Warranties . All representations and warranties of the parties set forth herein shall not survive the Closing and shall not be of any force or effect thereafter. Without limiting the foregoing, the parties agree and acknowledge that (a) any representations and warranties of the Seller contained in Article 3 of this Agreement and referenced in this Section 11.16 are qualified in their entirety by those qualifications set forth in clauses (i) through (iv) of the introductory paragraph to such Article 3, and (b) Sellers liability with respect to representations and warranties made by Seller hereunder are subject to the limitations set forth herein and in Section 8.1.
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IN WITNESS WHEREOF , the parties have executed this Agreement as of the date first above written.
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/s/ W. CRAIG BARBER |
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W. CRAIG BARBER |
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PRESIDENT |
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STAR BUFFET MANAGEMENT, INC. |
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/s/ Robert E. Wheaton |
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Robert E. Wheaton |
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PRESIDENT |
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SCHEDULES TO ASSET PURCHASE AGREEMENT
The following schedules (each a Schedule and together the Schedules ) to the Asset Purchase Agreement (the Agreement ), dated as of the 2 nd day of December, 2007, by and among Star Buffet Management, Inc., a Delaware corporation (the Buyer ), and Barnhills Buffet, Inc., a Tennessee corporation (the Seller ), are incorporated by reference in and made a part of the Agreement. Capitalized terms used but not defined in the Schedules have the meanings ascribed thereto in the Agreement.
Each disclosure in a particular Schedule is made specifically, and a disclosure made in any particular Schedule or section thereof shall not be deemed to have been disclosed in any other section of such Schedule or in any other Schedule.
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EXHIBIT A
Restaurant Locations
1. Huntsville, AL
2. Jonesboro, AR
3. Apopka, FL
4. Leesburg, FL
5. New Port Richey, FL
6. Ocala, FL
7. Tallahassee, FL
8. Warrington, FL
9. Bossier City, LA
10. Monroe, LA
11. Shreveport, LA
12. Columbus, MS
13. Gulfport, MS
14. Jackson, MS
15. Meridian, MS
16. Moss Point, MS
17. Starkville, MS
18. Tupelo, MS
19. Barlett, TN
20. Collierville, TN
21. Jackson, TN
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EXHIBIT B
Tangible Personal Property
EXHIBIT C
Personal Property Leases; Executory Contract; Additional Contracts
FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT
This First Amendment to the ASSET PURCHASE AGREEMENT (this Agreement ), dated as of December 2, 2007, is by and among BARNHILLS BUFFET, INC., a Tennessee corporation (the Seller or the Company ) and STAR BUFFET MANAGEMENT, INC., a wholly owned subsidiary of Star Buffet, Inc., a Delaware corporation, (together with any successor and assigns, the Buyer ).
RECITALS
WHEREAS , the Company and the Buyer entered into the Agreement, such agreement being subject to terms and conditions set forth therein; and
WHEREAS , the Company and the Buyer desire to make modifications to certain terms within the Agreement;
NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is agreed as follows:
1. Section 2.2 of the Agreement is hereby deleted in its entirety and replaced with the following:
Purchase Price . The purchase price for the sale of the Assets shall be $5,000,000.00 in cash (the Purchase Price).
2. Section 2.3 of the Agreement is hereby deleted in its entirety and replaced with the following:
Closing . The Closing of the transactions contemplated herein, including payment of the Purchase Price, shall take place at the offices of the Company or such other location in Nashville, TN as may be agreed upon, no later February 5, 2008 (the Target Date ) (or such earlier date as Buyer and Seller may mutually agree, the Closing Date ); provided, that no stay of the Sale Order shall be in effect and provided, further, that the Sale Order shall contain a waiver of the automatic ten (10) day stay under Rule 6004(h) of the Federal Rules of Bankruptcy Procedure; provided , further , however , that in no event unless otherwise agreed in writing shall the Closing take place on a date which is after February 12, 2008 (the Termination Date ) . At the Closing, Buyer shall pay the Purchase Price to Seller by wire transfer of immediately available funds to one or more bank accounts of Seller, or as directed by Seller in accordance with the terms of the Sale Order approved by the Bankruptcy Court.
3. Exhibit A attached to the Agreement is hereby modified to exclude the following Restaurant Locations:
3. Apopka, FL
6. Ocala, FL
12. Columbus, MS
13. Gulfport, MS
16. Moss Point, MS
4. Capitalized terms used in this Amendment which are not defined in this Amendment shall have the meaning assigned to such term or terms in the Agreement.
5. No other term or terms of the Agreement are changed, altered, modified or amended, except as specifically set forth in this Amendment. The Agreement, as amended and modified by this Amendment, is hereby ratified and remains in full force and effect.
IN WITNESS WHEREOF , the parties have executed this Agreement as of January 21, 2008.
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BARNHILLS BUFFET, INC. |
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By: /s/ W. Craig Barber |
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Name: W. Craig Barber |
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Its: President |
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STAR BUFFET MANAGEMENT, INC. |
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By: /s/ Ron Dowdy |
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Name: Ron Dowdy |
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Its: Secretary |
EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
As independent registered public accountants, we hereby consent to the incorporation by reference in Registration Statement Nos. 333-46939 and 333-50767 on Form S-8 of our report dated April 24, 2008, relating to the consolidated financial statements of Star Buffet, Inc. and Subsidiaries as of January 28, 2008 and January 29, 2007 and for each of the three fiscal years in the period ended January 28, 2008, included in the Annual Report on Form 10-K for the year ended January 28, 2008.
/s/ MAYER HOFFMAN MCCANN P.C. |
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Mayer Hoffman McCann P.C. |
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Phoenix, Arizona |
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April 24, 2008 |
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert E. Wheaton, President and Chief Executive Officer of Star Buffet, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Star Buffet, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer (s)and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) design such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted principles;
c) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and
d) disclosed in this annual report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
April 24, 2008 |
/s/ Robert E. Wheaton |
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Robert E. Wheaton |
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President and |
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Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ronald E. Dowdy, Group Controller, Treasurer, Secretary and Principal Financial Officer of Star Buffet, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Star Buffet, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4. The registrants other certifying officer (s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) design such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted principles;;
c) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and
d) disclosed in this annual report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
April 24, 2008 |
/s/ Ronald E. Dowdy |
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Ronald E. Dowdy |
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Group Controller, |
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Treasurer, Secretary and |
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Principal Financial Officer |
EXHIBIT 32.1
The following certification will not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section, nor will the certification be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert E. Wheaton, President and Chief Executive Officer of Star Buffet, Inc. (the Company), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. The accompanying Annual Report on Form 10-K of the Company for the fiscal year ended January 28, 2008 (the Report) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
April 24, 2008 |
/s/ Robert E. Wheaton |
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Robert E. Wheaton |
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President and |
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Chief Executive Officer |
A signed original of the above certification has been provided to Star Buffet, Inc. and will be retained by Star Buffet, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
The following certification will not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section, nor will the certification be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Ronald E. Dowdy, Group Controller, Treasurer, Secretary and Principal Financial Officer of Star Buffet, Inc. (the Company), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. The accompanying Annual Report on Form 10-K of the Company for the fiscal year ended January 28, 2008 (the Report) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
April 24, 2008 |
/s/ Ronald E. Dowdy |
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Ronald E. Dowdy |
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Group Controller, |
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Treasurer, Secretary and |
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Principal Financial Officer |
A signed original of the above certification has been provided to Star Buffet, Inc. and will be retained by Star Buffet, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Contact: |
Robert E. Wheaton |
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President, CEO |
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Star Buffet, Inc. |
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(480) 425-0397 |
FOR IMMEDIATE RELEASE: Friday, April 25, 2008
STAR BUFFET, INC. FILES FORM 10-K FOR FY 2008
SCOTTSDALE, AZ April 25, 2008 Star Buffet, Inc. (NASDAQ: STRZ) today filed a Form 10-K with the Securities and Exchange Commission for its fiscal year ending January 28, 2008. Following are the highlights:
Star Buffet, Inc. had revenues of $68.7 million and net loss of $2,001,000, or $(0.63) per share on a diluted basis, for the fifty-two weeks ended January 28, 2008.
About Star Buffet
Star Buffet is a multi-concept restaurant operator. As of April 25, 2008, Star Buffet, through its subsidiaries, operates 20 Barnhills Buffet restaurants, 12 franchised HomeTown Buffets, six JBs restaurants, five Whistle Junction restaurants, three 4Bs restaurants, three Holiday House restaurants, three Western Sizzlin restaurants, two BuddyFreddys restaurants, two BuddyFreddys Country Buffets, two K-BOBS Steakhouses, two JJ Norths Grand Buffets, one Pecos Diamond Steakhouse, one Bar-H Steakhouse and one Casa Bonita Mexican theme restaurant.