Item 1. Business
General
Furr's/Bishop's, Incorporated (the "Company") was organized in 1991 and, through its subsidiaries, is one of the largest operators of family-style cafeteria restaurants in the United States. The Company believes that its cafeterias and buffet, which are operated under the "Furr's" and "Bishop's" names, are well recognized in their regional markets for their value, convenience, food quality and friendly service. The Company's 102 cafeterias and one buffet are located in twelve states in the Southwest, West and Midwest. In addition, the Company operates Dynamic Foods, its food preparation, processing and distribution division, in Lubbock, Texas. Dynamic Foods provides in excess of 85% of the food and supply requirements of the Company's cafeteria and buffet restaurants. Dynamic Foods also sells bakery items and various prepared foods to the restaurant, food service and retail markets.
Family Dining Division
The Family Dining Division consists of 102 cafeterias and one pay-at-the-door buffet-style restaurant operated by Cafeteria Operators, L.P., an indirect wholly owned partnership subsidiary of the Company ("Cafeteria Operators").
Cafeterias. Cafeterias occupy a long standing niche in the food service industry, providing the customer with a pleasant, moderately-priced alternative to fast-food chains and conventional full-service restaurants. The Company's cafeterias offer a wide variety of meals appealing to a broad range of personal tastes, including chicken, beef, fish and pasta entrees; soup, salad and vegetable choices; non-alcoholic beverages; and freshly baked pies and cakes. The food is prepared for serving by the individual cafeteria. The Company's cafeterias are generally characterized by quick service and modest prices per guest. Guest tickets for the fiscal years ended December 30, 1997 and December 31, 1996 averaged approximately $5.62 and $5.38, respectively. The Company's cafeterias average approximately 10,000 square feet in size and have average seating capacity for approximately 300 guests. Virtually all of the Company's cafeterias feature "All-You-Can-Eat" at a fixed price all day, every day, as well as the traditional "a la carte" pricing alternative, which allows customers to choose the pricing and dining format which they find the most attractive.
Management believes that the "Furr's" and "Bishop's" names are widely recognized in their regional markets. Management's emphasis on consistent food quality, variety, cleanliness and service has led to a loyal guest base. The Company's customer base consists principally of people over 45 years of age, shoppers, working people and young families.
Buffet. The Company's buffet-style restaurant features traditional American and ethnic foods at a fixed price that entitles each guest to unlimited servings of all menu items and beverages. Food items are served in a "scatter bar" format at buffet islands centrally located in the restaurant's food service area. The "scatter-bar" buffet format emphasizes customer choice by allowing customers to select at their own pace in self selected portions, thereby improving the restaurant experience for the guest. The buffet unit is approximately 10,000 square feet in size and has seating capacity for approximately 300 guests. Guest tickets for the fiscal year ended December 30, 1997 averaged approximately $5.80.
Marketing and Advertising
The Company's marketing program utilizes a variety of media to attract customers to the Company's restaurants and to create a targeted image for the Company's restaurants. The Company utilizes point of sale advertising within its restaurants to focus customers on the various food items and promotions being offered at the restaurant. Television advertisements are used by the Company to enhance its image with respect to food quality and value pricing. Also, billboard advertising, newspaper and direct mail programs within the communities in which the Company has a large presence are used to direct customers to the Company's restaurants and to promote specific programs, including the one-price "All-You-Can-Eat" concept. The Company frequently uses all of its marketing tools together to promote the concept. In addition, store managers and other personnel are encouraged to participate in local public relations and promotional efforts.
Dynamic Foods
The Company operates Dynamic Foods, a food preparation, processing and distribution facility in Lubbock, Texas that supplies in excess of 85% of the food and supply requirements of the Company's family dining restaurants, providing the Company with uniform quality control and the ability to make volume purchases. In addition, management believes that there is significant potential for utilizing the available excess capacity at Dynamic Foods by increasing sales to third parties. In fiscal 1997, third party sales by Dynamic Foods aggregated $1.2 million.
Dynamic Foods has approximately 140 separate food items available under the "Dynamic Foods" label for distribution to the Company's restaurants and for sale to third parties. Currently, approximately 90% of Dynamic Food's manufacturing output is used at the Company's restaurants and the remainder is sold to third parties.
Restaurant Management
The success of each restaurant's operation is largely dependent upon the quality of in-store management and mid-level supervisory management. Experienced and well trained in-store management is important to assure good service, quality food and the cleanliness of each restaurant, to control costs, and to monitor local eating habits and traffic.
Each cafeteria and buffet is operated under the supervision of a general manager, an assistant general manager and one or two assistant managers. Each cafeteria generally employs between 40 and 70 workers of whom approximately 20% are part-time workers. The buffet-style restaurant typically employs fewer persons as the "scatter-bar" concept reduces service staffing requirements.
The general managers of the Company's family dining restaurants report to twelve regional managers who, in turn, report to the Vice President of Field Operations. The general managers have responsibility for day-to-day operations, including food ordering, labor scheduling, menu planning, customer relations and personnel hiring and supervision. The regional managers visit each restaurant regularly and work with the in-store managers to evaluate and maintain overall operating standards. They also make quality control checks, train personnel in operating procedures and evaluate procedures developed by
cafeteria and buffet personnel for possible use in all Company owned family dining units.
Service Marks and Trademarks
The Company utilizes and is dependent upon certain registered service marks, including "Furr's Cafeterias," "Bishop Buffets" and "Dynamic Foods," and a stylized "F" trademarked by the Company. These and other trademarks are current and are renewable on dates ranging from June 1998 to February 2008. The Company is not aware of any party who could prevail in a contest of the validity of such service marks and trademarks.
Seasonality
Customer volume on a Company-wide basis at most established restaurants is generally somewhat lower in the winter months, due primarily to weather conditions in certain of the markets for the Company's restaurants. As a consequence, the first and fourth quarters of the year historically produce lower sales. A harsh winter season has a negative effect on the Company's revenues, results of operations and liquidity.
Working Capital Requirements
The Company's restaurants are a cash business. Funds available from cash sales are not needed to finance receivables and are generally not needed immediately to pay for food, supplies and certain other expenses of the restaurants. Therefore, the business and operations of the Company have not historically required proportionately large amounts of working capital, which is generally common among similar restaurant companies. Should Dynamic Foods expand its sales to third parties, the accounts receivables and inventory related to such sales could require it to maintain additional working capital. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Liquidity and Capital Resources."
Competition
The food service business is highly competitive in each of the markets in which the Company's restaurants operate and is often affected by changes in consumer tastes, economic conditions and demographic and local traffic patterns. In each area in which the Company's restaurants operate, there is a large number of other food service outlets including other cafeterias, buffets and fast-food and limited-menu restaurants which compete directly and vigorously with the Company's restaurants in all aspects, including quality and variety of food, price, customer service, location and the quality of the overall dining experience.
Neither the Company nor any of its competitors has a significant share of the total food service market in any area in which the Company competes. The Company believes that its principal competitors are other cafeterias and buffets, moderately-priced, conventional restaurants, fast-food outlets, and eat-at-home alternatives. Many of the Company's competitors, including its primary cafeteria and buffet competitors, have greater financial resources and lower total debt-to-equity ratios than the Company. The Company competes with
other food service outlets for management personnel based on salary, opportunity for advancement and stability of employment. The Company believes it offers existing and prospective management personnel an attractive compensation and benefits package with opportunity for advancement in a stable segment of the food service industry.
The food manufacturing and distribution business is highly competitive and many of Dynamic Foods' competitors are large regional or national food processors and distributors with significantly greater financial resources than the Company. Accordingly, there can be no assurance that Dynamic Foods will be able to generate significantly higher revenue or increase the profitability of the Company.
Capital Expenditure Program
During the fiscal years ended December 30, 1997, December 31, 1996 and January 2, 1996, the Company expended $5.6 million, $10.1 million and $8.0 million, respectively, principally to maintain and remodel existing cafeterias, upgrade its computer and information systems, construct one new unit and improve the facility operated by Dynamic Foods. The Company believes that the aggregate level of capital expenditures over such period has been below that required to expand the Company's cafeteria operations and to remodel existing cafeterias as required by competitive conditions in the restaurant industry. The Company's capital expenditure program is necessary to enable the Company and its subsidiaries to increase their revenue and profitability.
Subject to its ability to generate necessary funds from operations or to obtain funds from other sources, the Company intends to pursue a program of remodeling existing restaurants and opening new restaurants. The Company anticipates expending approximately $7 to $11 million in fiscal year 1998 to open new restaurants, remodel existing cafeterias and make other capital expenditures. No assurance can be given that the Company will generate sufficient funds from operations or obtain alternative financing to enable it to make the desired capital expenditures. The Company's ability to open new restaurants will also depend, among other things, upon its ability to secure appropriate store locations on favorable terms and to identify, hire and train personnel for expansion. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Liquidity and Capital Resources."
Employees
As of March 3, l998, the Company employed approximately 5,400 persons, of whom approximately 4,300 were employed on a full-time basis. The Company employed approximately 375 persons as managers or assistant managers of its restaurants, twelve persons as regional managers and approximately 80 persons in executive, administrative or clerical positions in the corporate office. None of the Company's employees are covered by collective bargaining agreements. The Company believes that its relations with its employees are satisfactory.
The majority of the Company's restaurants pay average wages in excess of the current minimum wage standards. However, any future increase in the federal minimum wage could have the effect of increasing the Company's labor costs. In recent years, the market for those employees who have traditionally been employed in the restaurant industry has become increasingly competitive due to fewer persons entering this category of wage earner and the increased government regulation of immigrants entering and working in the United States. In response to this decrease in the available labor pool, the Company has increased its average hourly wage and expanded its hiring and training efforts.
Regulation
The Company's restaurants are subject to numerous federal, state and local laws affecting health, sanitation, waste water, fire and safety standards. The Company believes that it is in substantial compliance with applicable laws and regulations governing its operations.
The Federal Americans With Disabilities Act, which became effective as to public accommodations and employment in 1992, prohibits discrimination on the basis of disability. As the Company proceeds with remodeling existing restaurants, it could be required to expend funds to modify its restaurants in order to provide service to, or make reasonable accommodations for the employment of, disabled persons.
Recent Events
Effective January 2, 1996, the Company's stockholders approved a reclassification of all outstanding shares of each class of common stock and convertible preferred stock into the right to receive shares of a new class of common stock, as well as the restructuring of certain financial obligations, as more fully described below in the footnotes to the Company's financial statements. See "Item 8. Financial Statements and Supplemental Data, Note 2 Restructuring and Note 4 Long-term Debt."
Item 2.
Item 2. Properties
Restaurant Locations. The following table sets forth the number of restaurants operated by the Company in certain states as of February 28, 1998.
Site Selection. The Company generally intends to reposition existing restaurants or open new restaurants in markets in which the Company's restaurants are presently located and in adjacent markets, in order to improve the Company's competitive position and increase operating margins by obtaining economies of scale in merchandising, advertising, distribution, purchasing and supervision. The primary criteria considered by the Company in selecting new locations are a high level of customer traffic, convenience to both lunch and
dinner customers in demographic groups that tend to favor the Company's restaurants, and the occupancy cost of the proposed restaurant. The ability of the Company to open new restaurants depends on a number of factors, including its ability to find suitable locations and negotiate acceptable leases, its ability to attract and retain a sufficient number of qualified restaurant managers, and the availability of sufficient financing.
Properties. Forty-seven of the Company's restaurants are leased from third parties, another 34 are subleased under a master sublease agreement, 12 are owned and are situated on land leased from third parties and nine are owned in fee simple. Most of the leases have initial terms of from 10 to 20 years and contain provisions permitting renewal for one or more specified terms at specified rental rates. Some leases provide for fixed annual rent plus rent based on a percentage of sales. The average restaurant contains approximately 10,000 square feet and seats approximately 300 guests.
Dynamic Foods' food manufacturing and distribution facility contains approximately 175,000 square feet and is situated on approximately 24 acres owned in fee simple by the Company in Lubbock, Texas. In addition, a grocery warehouse of approximately 36,000 square feet, a truck terminal of approximately 7,200 square feet and a sales office of approximately 4,000 square feet are located adjacent to the distribution facility.
The Company's executive offices in Lubbock, Texas consist of approximately 34,000 square feet situated on approximately three acres of land owned in fee simple by the Company. The Company believes that its properties will be adequate to conduct its current operations for the foreseeable future.
The Company leases eight properties under a master sublease, owns ten buildings situated on land leased from third parties and owns two buildings on land owned in fee simple, which are not used in the Company's restaurant business and are periodically leased to third parties.
Item 3.
Item 3. Legal Proceedings
(1) The Internal Revenue Service (the "Service") has examined the federal income tax returns of certain subsidiaries of the Company, including (i) Cavalcade Holdings, Inc. ("Holdings") (for each of the tax years ended June 30, 1985 through June 30, 1990), (ii) Cavalcade Foods, Inc. ("Foods") as successor in interest to Bishop Buffets, Inc. (for the tax period ended December 27, 1986), and (iii) Foods as successor in interest to Furr's Cafeterias, Inc. (for the tax period ended December 27, 1986).
The Service has accepted a negotiated settlement with Holdings of $153 thousand in tax, plus interest from the date such amount was deemed payable, and has initiated the collections process. The Service has accepted a negotiated settlement with Foods of $781 thousand in tax, plus interest from the date such amount was deemed payable, and has initiated the collections process. Holdings and Foods have each submitted offers in compromise to the Service and will attempt to negotiate payment of a lesser amount.
(2) On August 11, 1995, a complaint was filed in the District Court of Travis County, Texas by the former Chairman of the Board of the Company, Michael J. Levenson, both individually and on behalf of his minor son Jonathan Jacob Levenson, James Rich Levenson, Benjamin Aaron Levenson, S.D. Levenson, General Consulting Group, Inc. and Cerros Morado. The complaint named as defendants the Company, Cafeteria Operators, Furr's/Bishop's Cafeterias, L.P., Cavalcade &
Co. Inc. ("Cavalcade"), individual members of the Board of Directors, Houlihan, Lokey, Howard & Zukin, Inc., KL Park Associates, L.P. ("KL Park"), KL Group, Inc. ("KL Group"), Skadden, Arps, Slate, Meagher & Flom, certain of the then current and former holders of the 11% Senior Secured Notes ("11% Notes"), Deloitte & Touche LLP, Kmart Corporation ("Kmart") and certain partners and employees of the foregoing, alleging, among other things, that the Company and certain defendants conspired to wrest control of the Company away from the Levensons by fraudulently inducing them to transfer their working control of the Company through a series of transactions in which the Levensons transferred Class B Common Stock and stock options in the Company to KL Park and KL Group. Plaintiffs initially sought actual damages of approximately $16.4 million, as well as punitive damages.
On October 6, 1995, the Levensons filed a Notice of Non-Suit as to certain of the defendants, including the Company, Cafeteria Operators, Furr's/Bishop's Cafeterias, L.P., Cavalcade and the individual members of the Board of Directors (other than William E. Prather and Kevin E. Lewis) and amended their complaint. As a result of such Notice of Non-Suit, the named entities and individuals were no longer defendants in the Levenson litigation. In addition, Deloitte & Touche LLP settled with the plaintiffs and were voluntarily dismissed from the case.
In a Fifth Amended Petition filed on or about February 3, 1997, plaintiffs sought an unspecified amount of actual damages, alleging only that their actual damages claim was "no more than $400 million." In July 1997, the Company reached a settlement of the litigation, in which all settling defendants, including its current and former directors and officers, Cafeteria Operators, Furr's/Bishop's Cafeterias, L.P. and Cavalcade received mutual releases with respect to all matters alleged in the litigation and Cafeteria Operators made a payment to the plaintiffs of a net amount of approximately $275 thousand.
The Company was required to indemnify certain of the defendants originally named in the Levensons' complaint, including the individual members of the Board of Directors and certain of their affiliated entities, pursuant to the Company's Certificate of Incorporation and otherwise, for any and all damages resulting from such complaint. As part of the restructuring of the 11% Notes, the Company also agreed to indemnify certain parties named as defendants in the Levensons' complaint, including the holders of the 11% notes, KL Group, KL Park and Kmart, from and against all claims, actions, suits and other legal proceedings, damages, costs, interest, charges, counsel fees and other expenses and penalties which such entity may sustain or incur to any person whatsoever (excluding judgments in the case of KL Group and KL Park) by reason of or arising out of the Levenson litigation. Under no circumstances was the Company to be obligated to indemnify any party for any liability resulting from such party's willful misconduct or bad faith. During 1997, the Company recorded special charges aggregating $4.9 million against results of operations to recognize the estimated cost of such indemnification. The Company has negotiated agreements with each of the parties whose indemnity claim was outstanding at year end and has either made cash payments or issued 10.5% unsecured notes in settlement of such claims. See "Item 13 Certain Relationships and Related Transactions."
Item 4.
Item 4. Submission of matters to a Vote of Security Holders
None
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Common Stock
The Common Stock, par value $.01 per share ("Common Stock"), is traded on the New York Stock Exchange ("NYSE") under the symbol "CHI." As of March 23, 1998, there were 48,675,168 shares of Common Stock outstanding and approximately 2,000 record holders.
As of March 23, 1998, no cash dividends had been declared on the Common Stock. The terms of the indebtedness of Cafeteria Operators limits its ability to distribute funds to the Company for the payment of dividends on the Common Stock, and accordingly, the Company does not anticipate paying dividends in the foreseeable future.
The following table provides the high and low closing prices for each quarter of the last two fiscal years:
At March 23, 1998, the Company had outstanding an aggregate of 40,134,548 warrants to purchase shares of Common Stock. Following the reverse stock split that became effective on March 22, 1996, and subject to the adjustments thereby, such warrants were adjusted and thereafter evidence the right to purchase one-fifteenth of one share of Common Stock at an exercise price of $1.11 per share, for an aggregate of 2,675,637 shares. Such warrants are exercisable at any time and expire on January 2, 2001. Such warrants are not listed for trading on any public exchange.
Item 6.
Item 6. Selected Financial Data(in thousands, except per share data)
See Chart On Next Page
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The Company's fiscal year is a 52-53 week year. Each of the last three fiscal years included 52 weeks.
The following table sets forth certain statement of operations data and restaurant data for the fiscal years indicated (dollars in thousands, except sales per unit):
Fifty-two Weeks Ended December 30, 1997 Compared To Fifty-two Weeks Ended December 31, 1996
Results of operations. Sales for the fifty-two week fiscal year ended December 30, 1997 were $193.5 million, a decrease of $3.7 million from the fiscal year ended December 31, 1996. The operating loss for the 1997 fiscal year was $5.1 million compared to operating income of $8.6 million in fiscal 1996. The operating results of fiscal 1997 included net special charges of $10.5 million and the results of fiscal 1996 included net special credits of $1.1 million. The net loss for fiscal 1997 was $5.4 million, compared to net income of $8.4 million for fiscal 1996.
Sales. Comparable store sales were 0.31% higher in fiscal 1997 than 1996. Sales in 1997 were lower than the prior year by $4.9 million as a result of nine fewer units being included in the results of operations in the current year. Sales in fiscal 1997 included $1.7 million of Dynamic Foods sales to third parties.
Cost of sales. Excluding depreciation, cost of sales was 30.1% of sales for fiscal year 1997 compared to 31.1% for fiscal year 1996. The decrease in the percentage of sales was primarily the result of higher ticket averages from changes in the menu mix and price increases, combined with flat to slightly lower product costs.
Selling, general and administrative. Selling, General and Administrative ("SG&A") expense was $746 thousand higher than the prior fiscal year. The change over the prior year included increases of $1.4 million in marketing expense, $473 thousand in corporate expense, and $231 thousand in hourly labor, which were partially offset by decreases of $1.1 million in salaries and labor related costs. The remaining change was primarily due to there being nine fewer units included in operating results.
Special credits and charges. The operating results for fiscal 1997 include net special charges aggregating $10.5 million, compared to net special credits of $1.1 million in the prior fiscal year. The charges in the current year were to recognize $6.9 million of property, plant and equipment write downs and closed store reserves and $4.9 million related to the Levenson litigation and related indemnity, which were partially offset by a credit of $1.3 million related to the settlement of a lawsuit. The credits in the prior fiscal year resulted primarily from the sale of certain trademarks and insurance proceeds for a 1994 claim.
Depreciation and amortization. Depreciation and amortization expense was $721 thousand higher than the prior fiscal year, due to depreciation on newly acquired property, plant and equipment, along with the use of shorter depreciation periods.
Interest expense. Interest expense for fiscal year 1997 was $289 thousand, compared to $243 thousand in the prior fiscal year. In accordance with Statement of Financial Accounting Standards No. 15, the restructured debt was recorded at the sum of all future principal and interest payments and there is no recognition of interest expense thereon.
Fifty-two Weeks Ended December 31, 1996 Compared To Fifty-two Weeks Ended January 2, 1996.
Results of operations. Sales for the fifty-two week fiscal year ended December 31, 1996 were $197.2 million, a decrease of $12.6 million from the fiscal year ended January 2, 1996. The operating income for the 1996 fiscal year was $8.6 million compared to a loss of $11.3 million in fiscal year 1995. The operating results of fiscal 1996 included net special credits of $1.1 million compared to special charges of $12.3 million in the prior year. Net income for fiscal 1996 was $8.4 million, compared to a net loss before extraordinary items of $38.9 million for fiscal 1995.
Sales. Restaurant sales in comparable units were 0.04% higher in fiscal 1996 than 1995. Sales in 1996 were lower than the prior year by $10.9 million as a result of sixteen fewer units being included in the results of operations in the current year. Revenues in fiscal year 1996 included $2.9 million of Dynamic Foods sales to third parties and $1.9 million from the two Zoo-Kini's Soups, Salads and Grill restaurants.
Cost of sales. Excluding depreciation, cost of sales was 31.1% of sales for fiscal year 1996 compared to 32.1% for fiscal year 1995. The decrease in the percentage of sales was principally the result of lower product costs that were partially offset by changes in the menu mix.
Selling, general and administrative. Selling, General and Administrative expense was lower in the aggregate by $9.1 million in fiscal year 1996. Of the decrease, $7.6 million was due to operating results including sixteen fewer units. SG&A expense includes decreases of $1.9 million in marketing expense, including discounts, $339 thousand in repair and maintenance, $283 thousand in utility expenses and $234 thousand in supplies expenses. SG&A expense includes an increase of $601 thousand in professional service expenses.
Special credits and charges. The operating results for fiscal 1996 include net special credits aggregating $1.1 million. Included in the total are credits of $699 thousand for the insurance proceeds related to a fire loss, $709 thousand for the termination of a trademark royalty agreement and the modification and extension of a lease related to the Company's former El Paso Bar-B-Que Company restaurants and a charge of $270 thousand related to the search for a new Chief Executive Officer and a consulting agreement with Kevin E. Lewis, Chairman of the Board. The loss from operations for the fiscal year ended January 2, 1996 includes special charges of $12.3 million, which includes charges to reserves of $4.5 million related to the closing of fourteen units, including two units to be closed in future periods, and adjustments to the units previously reserved. Also included is $7.8 million to recognize the write-down of certain assets to estimated fair values in accordance with the adoption of SFAS 121.
Depreciation and amortization. Depreciation and amortization expense was $3.8 million lower than the prior year, due to the reduction of certain depreciable assets in 1995 in accordance with SFAS 121 partially offset by the reduction in the useful lives of certain depreciable assets in the prior year.
Interest expense. Interest expense was lower than the prior year by $27.3 million as a result of the Restructuring. In accordance with SFAS 15, the restructured debt was recorded at the sum of all future principal and interest payments and there is no recognition of interest expense thereon.
Extraordinary credit. The results of fiscal year 1995 include an extraordinary credit of $170.2 million relating to the reduction of debt in a series of financial restructuring transactions.
New Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 125"), which provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities occurring after December 31, 1996. SFAS 125 has been amended by Statement of Financial Accounting Standards No. 127 which amends the effective date of certain provisions for these transactions occurring after December 31, 1997. Management of the Company believes that the impact from adopting the provisions of SFAS 125 in fiscal 1998 will not be material.
In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), effective for periods beginning after December 15, 1997. The purpose of this standard is to disclose disaggregated information which provides information about the operating segments an enterprise engages in consistent with the way management reviews financial information to make decisions about the enterprise's operating matters. The Company will comply with the requirements of SFAS 131 for fiscal year 1998.
LIQUIDITY AND CAPITAL RESOURCES:
During fiscal 1997, cash provided from operating activities of the Company was $10.2 million compared to $17.6 million in 1996. Cash used for the payment of interest was approximately $5.5 million in 1997 compared to $3.8 million during 1996. The Company made capital expenditures of $5.6 million during 1997 compared to $10.1 million during 1996. Cash, temporary investments and marketable securities were $4.5 million at December 30, 1997 compared to $3.7 million at December 31, 1996. The current ratio of the Company was .48:1 at December 30, 1997 compared to .41:1 at December 31, 1996. The Company's total assets at December 30, 1997 aggregated $65.8 million compared to $75.3 million at December 31, 1996.
The Company's restaurants are a cash business. Funds available from cash sales are not needed to finance receivables and are not generally needed immediately to pay for food, supplies and certain other expenses of the restaurants. Therefore, the business and operations of the Company have not historically required proportionately large amounts of working capital, which is generally common among similar restaurant companies. Should Dynamic Foods expand its sales to third parties, the accounts receivable and inventory related to such sales could require the Company to maintain additional working capital.
Cafeteria Operators has outstanding $69.1 million of 12% Notes due December 31, 2001, including $23.4 million of accrued interest. Under the terms of the 12% Notes, a semi-annual cash interest payment of approximately $2.7 million is due on each March 31 and September 30. The obligations of Cafeteria Operators under the 12% Notes are secured by a security interest in and a lien on all of the personal property of Cafeteria Operators and mortgages on all fee and leasehold properties of Cafeteria Operators (to the extent such properties are mortgageable).
Cafeteria Operators has outstanding $2.6 million of 10.5% Notes due December 31, 2001. Under the terms of the 10.5% Notes, a semi-annual cash interest payment of approximately $133 thousand is due on each June 30 and December 31. These notes were issued as payment of a portion of the indemnification obligation related to the Levenson litigation. See "Item 13. Certain Relationships and Related Transactions."
The Company intends to pursue a program of remodeling existing cafeterias and opening new restaurants. The Company anticipates expending approximately $7 to $11 million in fiscal year 1998 to remodel existing cafeterias and open new restaurants and to make other capital expenditures. No assurance can be given that the Company will generate sufficient funds from operations or obtain alternative financing sources to enable it to make the anticipated capital expenditures.
The Company, from time to time, considers whether disposition of certain of its assets, including its food processing and distribution operations, real estate owned in fee simple and leasehold interests, or potential acquisitions of assets would be beneficial or appropriate for the long-term goals of the Company and in order to increase shareholder value.
Cafeteria Operators, the sponsor of the Cavalcade Pension Plan, has agreed to provide for funding at least two-thirds of the $4.6 million of the unfunded current liability which existed at the end of fiscal 1992 by the end of 1998. If the agreed upon funding is not satisfied by the minimum required annual contributions, as adjusted for the deficit reduction contribution and determined under Section 412 of the Internal Revenue Code, the Company intends to make contributions in excess of the minimum annual requirement.
On November 15, 1993, the Company entered into the Amendment to Master Sublease Agreement, dated as of December 1, 1986, with Kmart pursuant to which, among other things, the aggregate monthly rent for the period September 1, 1993 through and including December 31, 1996 was reduced by 25%, or approximately $1.6 million annually, and the aggregate monthly rent for the period January 1, 1997 through and including December 31, 1999 was reduced by 20%, or approximately $1.2 million annually; provided that, during such period, among other things, Kevin E. Lewis remains as Chairman of the Board of the Company. The current one-year term of Mr. Lewis will expire in 1998, and there can be no assurance that Mr. Lewis will be reelected to another term, or if reelected, would serve as Chairman of the Board through December 31, 1999. As a consequence, the Company has entered into negotiations with Kmart to modify the amendment to remove the provisions requiring Mr. Lewis to remain as Chairman of the Board until the end of 1999. To date, Kmart has been unwilling to make such modification.
In February 1998, the Company developed a plan to identify and evaluate year 2000 problems resulting from computer programs being written using two digits to define the applicable year rather than four. The plan provides for the conversion of computer systems or the modification of existing programs to be completed by the end of 1999 at an estimated cost of $350 thousand, which will be funded through operating cash flows.
Item 8.
Item 8. Financial Statements and Supplementary Data
The Company's fiscal year is a 52-53 week year. Each of the 1997, 1996 and 1995 Fiscal years included 52 weeks.
Index to Consolidated Financial Statements and Financial Schedule
Page No. ---- Independent Auditors' Reports
Consolidated Balance Sheets-- December 30, 1997 and December 31,1996
Consolidated Statements of Operations -- Years ended December 30, 1997, December 31, 1996 and January 2, 1996
Consolidated Statements of Changes in Stockholders' Deficit -- Years ended December 30, 1997, December 31, 1996 and January 2, 1996
Consolidated Statements of Cash Flows -- Years ended December 30, 1997, December 31, 1996 and January 2, 1996
Notes to Consolidated Financial Statements -- Years ended December 30, 1997, December 31, 1996 and January 2, 1996
Financial Statement Schedule -- The Financial Statement Schedule filed as a part of this report is listed in "Index to Financial Statement Schedules" at Item 14 S-1
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Comprising Item 8 of the Annual Report on Form 10-K to the
SECURITIES AND EXCHANGE COMMISSION
FURR'S/BISHOP'S, INCORPORATED Fiscal Years Ended December 30, 1997, December 31, 1996, and January 2, 1996
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders Furr's/Bishop's, Incorporated:
We have audited the accompanying consolidated balance sheets of Furr's/Bishop's, Incorporated and subsidiaries as of December 30, 1997 and December 31, 1996, and the related consolidated statements of operations, changes in stockholders' deficit and cash flows for the 52-week years then ended. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule for the 52-week years ended December 30, 1997 and December 31, 1996. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Furr's/Bishop's, Incorporated and subsidiaries as of December 30, 1997 and December 31, 1996 and the results of their operations and their cash flows for the 52-week years then ended, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule for the 52-week years ended December 30, 1997 and December 31, 1996, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.
As discussed in Notes 1 and 12 to the consolidated financial statements, effective January 2, 1996, the Company changed its method of accounting for impairment of long-lived assets and for long-lived assets to be disposed of to conform to Statement of Financial Accounting Standards No. 121.
KPMG Peat Marwick LLP Dallas, Texas February 6, 1998
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders Furr's/Bishop's, Incorporated Lubbock, Texas
We have audited the accompanying consolidated statement of operations, changes in stockholders' deficit and cash flows of Furr's/Bishop's, Incorporated and subsidiaries (the "Company") for the 52-week year ended January 2, 1996. Our audit also included the financial statement schedule for the 52-week year ended January 2, 1996 listed in the Index at Item 14 (a)(2). These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the results of operations, stockholders' deficit and cash flows of Furr's/Bishop's, Incorporated and subsidiaries, for the 52-week year ended January 2, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule for the 52-week year ended January 2, 1996, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, effective January 2, 1996, the Company changed its method of accounting for impairment of long-lived assets and for long-lived assets to be disposed of to conform to Statement of Financial Accounting Standards No. 121.
DELOITTE & TOUCHE LLP
Dallas, Texas March 28, 1996
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES - ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 30, 1997, DECEMBER 31, 1996 AND JANUARY 2, 1996 (Dollars in Thousands, Except Per Share Amounts) - ------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - Furr's/Bishop's, Incorporated (the "Company"), a Delaware corporation, operates cafeterias and a buffet through its subsidiary Cafeteria Operators, L.P., a Delaware limited partnership (together with its subsidiaries, the "Partnership"). The financial statements presented herein are the consolidated financial statements of Furr's/Bishop's, Incorporated and its majority owned subsidiaries. All material intercompany transactions and account balances have been eliminated in consolidation.
The financial statements reflect the results of a series of transactions relating to the financial restructuring of the Company at January 2, 1996, as described in Note 2.
Fiscal Year - The Company operates on a 52-53 week fiscal year ending on the Tuesday nearest December 31. Each of the fiscal years ended December 30, 1997, December 31, 1996 and January 2, 1996 represents a 52-week year.
Business Segments - The Company operates in a single business segment, namely the operation of cafeterias which includes food purchasing, processing, warehousing and distribution of products, real estate and retailing in twelve states in the Southwest, West and Midwest areas of the United States.
Cash and Cash Equivalents - The Company has a cash management program which provides for the investment of excess cash balances in short-term investments. These investments have original or remaining maturities of three months or less at date of acquisition, are highly liquid and are considered to be cash equivalents for purposes of the consolidated balance sheets and consolidated statements of cash flows.
Inventories - Inventories are stated at the lower of cost (first-in, first-out method) or market.
Prepaid Expenses and Other - As of December 30, 1997 and December 31, 1996, this account balance included prepaid rent of $580 and $3, respectively, along with other assets recorded in the ordinary course of business.
Property, Plant and Equipment - Property, plant and equipment is generally recorded at cost, while certain assets considered to be impaired are recorded at the estimated fair value. All property, plant and equipment is depreciated at annual rates based upon the estimated useful lives of the assets using the straight-line method. Restaurant equipment is generally depreciated over a period of 1 to 5 years, while the useful life of manufacturing equipment is considered to be 5 to 10 years. Buildings are depreciated over a 30 year useful life, while improvements to owned buildings have estimated useful lives of 3 to 5 years. Provisions for amortization of leasehold improvements are made at annual rates based upon the estimated useful lives of the assets or terms of the leases, whichever is shorter.
Valuation of Long-Lived Assets - Effective January 2, 1996, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121") and recorded a special charge of $7,772 for the year ended January 2, 1996 and $2,139 for the year ended December 30, 1997 to recognize the write-down of certain assets in property, plant and equipment to estimated fair value, based on expected future cash flows. SFAS 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Other Assets - As of January 2, 1996, a subsidiary of the Company owned a parcel of land held for sale, which was sold during the year ended December 31, 1996.
Start-Up and Closing Costs of Restaurants - Start-up and preopening costs incurred in connection with a new restaurant becoming operational are expensed as incurred.
When the decision to close a restaurant is made, the present value of all fixed and determinable costs to be incurred after operations cease is accrued. These fixed and determinable costs consist primarily of obligations defined in lease agreements such as rent and common area maintenance, reduced by sublease income, if any.
Advertising Costs - Advertising costs are expensed as incurred. Total advertising expense was $3,455, $2,085 and $4,455 for the years ended December 30, 1997, December 31, 1996 and January 2, 1996, respectively.
Stock-Based Compensation - The Company has adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") which permits the recognition as expense over the vesting period the fair value of all stock based awards on the date of grant. Alternatively, under the provisions of SFAS 123, the Company is allowed to continue accounting for such compensation as provided by Accounting Principles Board ("APB") Opinion No. 25. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide proforma disclosure provisions of SFAS 123.
Unfavorable Leases - For leases acquired through purchase, the net excess of future lease payments over the fair value of these payments is being amortized over the lives of the leases to which the differences relate.
Income Taxes - The company recognizes income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Income Per Share - In fiscal year 1997, the Company adopted the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which requires the calculation of basic and diluted earnings per share. Basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the year. Diluted earnings per share is computed by dividing earnings
available to common shareholders by the weighted average number of shares outstanding plus the number of additional shares that would have been outstanding if potentially dilutive securities had been issued. All prior period earnings per share amounts have been restated to reflect the requirements of SFAS 128.
The following table reconciles the denominators of basic and diluted earnings per share for the fiscal years ended December 30, 1997, December 31, 1996 and January 2, 1996.
Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of certain assets, liabilities, revenues and expenses as of and for the reporting periods and actual results may differ from such estimates.
Reclassification - Certain amounts in the prior year financial statements have been reclassified to conform with current year classification.
2. RESTRUCTURING
On January 25, 1995, the Company announced that it had entered into an Agreement in Principle dated as of January 24, 1995 (the "Agreement in Principle") among the Company, its subsidiaries, the holders of the 11% Notes of the Partnership (the "11% Noteholders"), the holder of the 9% Note of Cavalcade Foods (both as defined below), the Trustees of General Electric Pension Trust ("GEPT"), and Kmart Corporation ("Kmart").
The Agreement in Principle provided for (i) the exchange of an aggregate of approximately $249,344 of debt of the Partnership for the issuance of $40,000 principal amount of new senior secured notes of the Partnership due 2001 pursuant to a new indenture and 95% of the limited partner interest of the Partnership, (ii) the exchange of warrants to purchase an aggregate of approximately 21.5% of the Company's common stock for options to acquire an aggregate of 95% of a new class of common stock of the Company ("Common Stock") and new five year warrants to purchase an aggregate of 1% of the fully diluted Common Stock, (iii) the exchange of $6,117 of other obligations of the Partnership for the issuance of $1,700 principal amount of new senior secured notes of the Partnership due 2001 pursuant to a new indenture, (iv) the exchange of $11,737 of debt of Cavalcade Foods, Inc., an indirect subsidiary of the Company ("Foods"), for options to acquire 2.5% of the Common Stock and an
interest in certain land owned by a subsidiary of the Company and (v) the exchange of the Company's outstanding shares of Class A Common, Class B Common and Convertible Preferred Stock for an aggregate of 2.5% of the Common Stock and five year warrants to purchase an aggregate of 4% of the fully diluted Common Stock (together, the "Restructuring").
On March 2, 1995, the Company announced that the Independent Committee of the Board and the full Board of Directors had unanimously determined to recommend the following allocation of the aggregate consideration offered to existing equity holders in the Agreement in Principle: Holders of Convertible Preferred Stock would receive 1.15 shares of Common Stock (representing a 39% premium to the conversion ratio for the Convertible Preferred Stock) and 2.04 warrants to purchase Common Stock for each share of Convertible Preferred Stock held by them; holders of Class A Common Stock would receive 1.00 share of Common Stock and 1.78 warrants to purchase Common Stock for each share of Class A Common Stock held by them; and holders of Class B Common Stock would receive 0.95 shares of Common Stock (representing a 5% discount to the conversion ratio for the Class B Common Stock) and 1.69 warrants to purchase Common Stock for each share of Class B Common Stock held by them. All dividend arrearages on the Convertible Preferred Stock and the self tender offer obligation (as described in Note 5) would be eliminated in the proposed restructuring. The Board members also informed the Company that they intended to vote their shares in favor of the proposed restructuring. The proposed restructuring was subject to, among other things, the approvals of the Company's Board of Directors, shareholders and creditors and the negotiation and execution of definitive documentation.
The Restructuring became effective upon approval of the stockholders at a meeting held January 2, 1996.
The Restructuring has been accounted for in accordance with Statement of Financial Accounting Standards No. 15 "Accounting by Debtors and Creditors for Troubled Debt Restructurings" ("SFAS 15"), under which the transactions include both a partial settlement and modification of terms. The fair value of the Common Stock and warrants issued in connection with the Restructuring was estimated based upon discounted cash flows anticipated from the reorganized business and was recorded as partial settlement of the indebtedness. The remaining indebtedness was recorded at the sum of all future principal and interest payments and, accordingly, interest expense is no longer recognized on the restructured debt. The amounts of indebtedness subject to modification in excess of the amount recorded in accordance with SFAS 15 was recorded as an extraordinary gain, net of all expenses associated with the Restructuring.
The amount of par value that was previously recorded for the Class A Common Stock, Class B Common Stock and Convertible Preferred Stock was reclassified to additional paid-in capital and the Common Stock issued upon conversion of such shares was recorded at their aggregate par value. The Company's obligation to make the $8.0 million self tender offer was eliminated and this amount was reclassified to additional paid-in capital.
As of the consummation of the Restructuring, the Company owned less than 50% of the limited partnership interests of the Partnership at January 2, 1996, and as a result, the Partnership would no longer be included in the Company's consolidated financial statements. However, subsequent to year end, the holders of the limited partnership interests exercised their put option and, on March 28, 1996, exchanged their limited partnership interests for Common Stock of the Company. On March 22, 1996, the Company effected a 15-to-1 reverse
stock split. As a result of the materiality of this series of financial restructuring transactions, the Partnership is included in the consolidated financial statements for all years presented.
The Company recognized a net extraordinary gain of $170,239 in the year ended January 2, 1996, as a result of the above described financial restructuring transactions. The extraordinary item is made up of the following:
3. OTHER PAYABLES AND ACCRUED EXPENSES
Included in other payables and accrued expenses are the following:
4. LONG-TERM DEBT
Effective January 2, 1996, as part of the series of financial restructuring transactions described in Note 2, the Partnership issued $41,700 of 12% Senior Secured Notes, due December 31, 2001 (the "12% Notes"), to replace $40,000 of 11% Senior Secured Notes, due June 30, 1998 (the "11% Notes") and the interest
accrued thereon and to terminate a $5,408 judgment and the interest accrued thereon. In January 1996, the Partnership also issued $4,073 of 12% Notes as payment in kind for all interest accrued as of January 23, 1996. All of the assets of the Partnership are pledged as collateral security on behalf of the holders of the 12% Notes. The Partnership also issued limited partner interests equal to 95% of the outstanding partnership interests in exchange for and in full satisfaction of the remaining $152,854 of 11% Notes, together with all interest accrued thereon.
Payments of interest on the 12% Notes are due each March 31 and September 30. However, for financial accounting reporting purposes, no interest expense will be recorded under SFAS 15, as all of the interest through maturity has been recorded as a liability.
Effective January 2, 1996, as part of the Restructuring, Foods issued a 10% Non-recourse Note in the amount of $2,000, due December 31, 2001 (the "Non-recourse Note"), a $6,100 note payable (the "Option Note") and a $1,500 note payable (the "Remaining Note") to Wells Fargo Bank in exchange for and in full satisfaction of the $9,599 outstanding under the 9% Note, due June 30, 1998 (the "9% Note") together with all interest accrued thereon. Certain land pledged as collateral on the Non-recourse Note was sold during 1996 and the proceeds were used to retire the Non-recourse Note. An option to purchase 2.5% of the Common Stock of the Company was pledged as collateral on the Option Note. Wells Fargo foreclosed on the Option Note and exercised its option to purchase 2.5% of the Common Stock of the Company by transferring the Remaining Note to the Company as payment.
Effective December 30, 1997, as part of the payment of the cost of indemnification related to the litigation described in Note 8, the Partnership issued $2,551 of 10.5% Notes, due December 31, 2001. Payments of interest on these notes are due each June 30 and December 31.
Long-term debt consists of the following:
At December 31, 1996, the scheduled aggregate amount of all maturities of long-term debt and interest classified as long-term debt for the next five years and thereafter is as follows:
5. STOCKHOLDERS' EQUITY
Common Stock Options and Warrants - In 1992, the 11% Noteholders received warrants to purchase an aggregate of 1,400,000 shares of Class B Common Stock at $.75 per share. The fair value of these warrants at the date of grant was estimated to approximate their exercise price. These warrants were terminated in connection with the Restructuring effective January 2, 1996.
On November 15, 1993, in connection with the amendment to the master sublease agreement discussed in Note 8, Kmart received warrants to purchase 1,700,000 shares of Class A Common Stock at $.75 per share. These warrants were terminated in connection with the Restructuring effective January 2, 1996. Kmart received new warrants to purchase 8,108,159 shares of Common Stock at $0.074 per share, and following the reverse stock split, Kmart retained warrants to purchase 540,544 shares at $1.11 per share.
The 1995 Stock Option Plan - The Board of Directors adopted, and on January 2, 1996, the stockholders approved, the 1995 Stock Option Plan authorizing an aggregate of 40,540,795 shares of Common Stock (the "1995 Option Plan"). The number of shares reserved under the 1995 Option Plan, subject to equitable adjustment for the reverse stock split approved by stockholders on March 14, 1996, is 2,702,720. A Committee of the Board of Directors administers the 1995 Option Plan, including determining the employees to whom awards will be made, the size of such awards and the specific terms and conditions applicable to awards, such as vesting periods, circumstances of forfeiture and the form and timing of payment. Grants including stock options, stock appreciation rights and restricted stock may be made to selected employees of the Company and its subsidiaries and non-employee directors of the Company. On November 22, 1996 and May 30, 1997, options to purchase 6,666 shares of Common Stock were issued to each non-employee director of the Company pursuant to the provisions of the 1995 Option Plan. The fair value of the options is not significant and, accordingly, pro forma presentation of operating results required by SFAS 123 has not been presented. On December 30, 1997, a total of 53,328 options were outstanding.
On March 27, 1997, the Company granted 500,000 stock options, pursuant to the 1995 Option Plan, to Theodore J. Papit at an exercise price of $1.375 per share. Such options vested over a period of five years with a scheduled termination after ten years. These options were terminated on December 15, 1997 by agreement between Mr. Papit and the Company.
6. INCOME TAXES
Following is a reconciliation of the expected tax expense (benefit) at the statutory tax rate of 35% to the actual tax expense (benefit) for the fiscal years ended December 30, 1997, December 31, 1996 and January 2, 1996:
Following is a summary of the types and amounts of existing temporary differences and net operating loss carry forwards at the statutory tax rate of 35% and tax credits:
As of December 30, 1997, the Company has consolidated net operating loss carryforwards of $108,902 for income tax reporting purposes that expire from 2000 through 2012. For financial reporting purposes, the income tax benefit associated with the loss carryforwards has not been recognized since, in the opinion of management, the full benefit of these deferred tax assets will likely not be realized. Approximately $3,700 and $8,600 of the operating loss carryforwards for income tax reporting purposes, which are subject to limited use, relate to the subsidiary operations of Cavalcade Holdings, Inc. ("Holdings") and its subsidiary, Cavalcade Foods, Inc. ("Foods"), respectively, for periods prior to their inclusion in this Company-affiliated group.
Current tax laws and regulations relating to specified changes in ownership limit the availability of the Company's utilization of Holdings' and Foods' net operating loss and tax credit carryforwards (collectively, tax attributes). A change in ownership of greater than 50% of a corporation within a three-year period causes such annual limitations to be placed into effect. Such a change in ownership is deemed to have occurred on June 24, 1993, when KL Group acquired 1,119,151 Class B Common shares and an option to purchase nearly all of the remaining Class B Common shares of the Company. This ownership change limits the utilization of the Company-affiliated group tax attributes incurred during the period March 28, 1991 through June 24, 1993 to approximately $1,200 annually. Additionally, a second change of ownership is deemed to have occurred on March 28, 1996, when the holders of 95% of the limited partner
interest of the Partnership exchanged such interest for 95% of the outstanding Common Stock of the Company. As a result, net operating losses of $45,000 incurred during the period June 25, 1993 through March 28, 1996 will be limited to approximately $4,900 annually. As of December 30, 1997, the Company-affiliated group tax attributes not subject to limitation are approximately $14,388.
As of December 30, 1997, the Company has general business credit carryforwards of approximately $1,377 which have expiration dates through 2010. Approximately $74 of the general business credit carryforwards relate to Foods for periods prior to its inclusion in the Company-affiliated group. These credits are subject to limited use.
While the Restructuring transactions were intended to result in no income tax expense to the Company, the transactions result in a substantial restriction on the ability of the Company to utilize certain net operating loss carryforwards. In addition, no assurance can be given that the Internal Revenue Service will not successfully assert that the Recapitalization results in a substantial reduction of certain tax attributes (such as the net operating losses and tax basis of property) of the Company and the other partners of the partnership.
The Internal Revenue Service (the "Service") and the Company settled litigation related to the federal income tax liabilities of certain of the Company's subsidiaries for the years prior to 1990. The Company agreed to total tax deficiencies of approximately $934, plus interest from the date such amounts are deemed payable. The Company had previously accrued liabilities to cover such amounts.
7. EMPLOYEE BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan for which benefit accruals were frozen effective June 30, 1989. The funding policy is to make the minimum annual contribution required by applicable regulations. Pension expense was $250, $590 and $592 for the years ended December 30, 1997, December 31, 1996 and January 2, 1996, respectively.
The Partnership is required to recognize the additional minimum liability aspects of Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions" ("SFAS 87"). SFAS 87 requires the recognition of an additional pension liability in the amount of the Partnership's unfunded accumulated benefit obligation in excess of accrued pension cost with an equal amount to be recognized as either an intangible asset or a reduction of equity. Based upon plan actuarial and asset information as of December 30, 1997 and December 31, 1996, the Company recorded a decrease to the noncurrent pension liability and a corresponding offset to stockholders' deficit of $350 and $2,429, respectively.
The funded status of the plan amounts recognized in the balance sheets and major assumptions used to determine these amounts are as follows:
Effective December 30, 1997, for purposes of calculating benefit obligations, the assumed discount rate decreased from 7.75% to 7.00% to reflect the current financial market for high-quality debt instruments. There have been no other changes in the plan's major actuarial assumptions for the two years ended December 30, 1997.
The Company also has a voluntary savings plan (the "401(k) plan") covering all eligible employees of the Company and its subsidiaries through which it may contribute discretionary amounts as approved by the Board of Directors. Administrative expenses paid by the Company for the years ended December 30, 1997, December 31, 1996, and January 2, 1996 amounted to $8, $7 and $2, respectively.
8. COMMITMENTS AND CONTINGENCIES
The Partnership leases restaurant properties under various noncancelable operating lease agreements which expire between 1997 and 2015 and require various minimum annual rentals. Certain leases contain escalation clauses. Further, many leases have renewal options ranging from one five-year period to ten five-year periods. Certain of the leases also require the payment of property taxes, maintenance charges, advertising charges, insurance and parking lot charges, and additional rentals based on percentages of sales in excess of specified amounts.
On November 15, 1993, the Partnership entered into an amendment of a master sublease agreement pursuant to which it leased 43 properties from Kmart. Pursuant to the amendment and subject to the terms and conditions thereof, two properties were removed from the master sublease, and the aggregate monthly rent for the period January 1, 1997 through and including December 31, 1999 has been reduced by 20%. The reductions in rent are subject to termination by Kmart if Kevin E. Lewis ceases to be Chairman of the Board of Directors of the Company. The one-year term of Mr. Lewis expires in 1998, and there can be no assurance that he will be reelected at that time, or if reelected, would serve as Chairman of the Board through December 31, 1999. As a consequence, the Company has entered into negotiations with Kmart to modify the amendment to remove the provisions requiring Mr. Lewis to remain as Chairman of the Board until the end of 1999. To date, Kmart has been unwilling to make such modification. In consideration for these lease term modifications, the Company granted Kmart warrants to purchase 1.7 million shares of Class A Common Stock of the Company on or before September 1, 2003, at $0.75 per share. As a part of the Restructuring, effective January 2, 1996, these warrants were terminated and replaced with warrants to purchase 8,108,159 shares of Common Stock on or before January 2, 2001, at $0.074 per share, and following the reverse stock split, Kmart retained warrants to purchase 540,544 shares at $1.11 per share.
The total minimum annual rental commitment and future minimum sublease rental income under noncancelable operating leases are as follows as of December 30, 1997:
Total rental expense included in the statements of operations is $11,036, $10,916 and $11,929, which includes $1,029, $1,077 and $1,187 of additional rent based on net sales, for the years ended December 30, 1997, December 31, 1996 and January 2, 1996, respectively. The results of operations include sublease rent income of $800, $760 and $717 for the years ended December 30, 1997, December 31, 1996 and January 2, 1996, respectively.
The Company, in the ordinary course of business, is a party to various legal actions. In the opinion of management, these actions ultimately will be disposed of in a manner which will not have a material adverse effect upon the Company's equity, results of operations, and liquidity and capital resources after consideration of the applicable amounts previously accrued.
On August 11, 1995, a complaint was filed in the District Court of Travis County, Texas by the former Chairman of the Board of the Company, Michael J. Levenson, both individually and on behalf of his minor son Jonathan Jacob Levenson, James Rich Levenson, Benjamin Aaron Levenson, S.D. Levenson, General Consulting Group, Inc. and Cerros Morado. The complaint named as defendants the Company, the Partnership, Furr's/Bishop's Cafeterias, L.P., Cavalcade & Co., Inc. ("Cavalcade"), individual members of the Board of Directors, Houlihan, Lokey, Howard & Zukin, Inc., KL Park Associates, L.P. ("KL Park"), KL Group, Inc. ("KL Group"), Skadden, Arps, Slate, Meagher & Flom, certain of the then current and former 11% Noteholders, Deloitte & Touche LLP, Kmart and certain partners and employees of the foregoing, alleging, among other things, that the Company and certain defendants conspired to wrest control of the Company away from the Levensons by fraudulently inducing them to transfer their working control of the Company through a series of transactions in which the Levensons transferred Class B Common Stock and stock options in the Company to KL Park and KL Group. Plaintiffs initially sought actual damages of approximately $16,425, as well as punitive damages.
On October 6, 1995, the Levensons filed a Notice of Non-Suit as to certain of the defendants, including the Company, the Partnership, Furr's/Bishop's Cafeterias, L.P., Cavalcade, and specific individual members of the Board of Directors (other than William E. Prather and Kevin E. Lewis) and amended their complaint. As a result of such Notice of Non-Suit, the named entities and individuals were no longer defendants in the Levenson litigation. In addition, Deloitte & Touche LLP settled with the plaintiffs and were voluntarily dismissed from the case.
In a Fifth Amended Petition filed on or about February 3, 1997, plaintiffs sought an unspecified amount of actual damages, alleging only that their actual damages claim was "no more than $400 million." In July 1997, the Company reached a settlement of the litigation, in which all settling defendants, including its current and former directors and officers, the Partnership, Furr's/Bishop's Cafeterias, L.P. and Cavalcade, received mutual releases with respect to all matters alleged in the litigation and the Partnership made a payment to the plaintiffs of a net amount of approximately $275.
The Company was required to indemnify certain of the defendants originally named in the Levensons' complaint, including the individual members of the Board of Directors and certain of their affiliated entities pursuant to the Company's Certificate of Incorporation and otherwise, for any and all damages resulting from such complaint. As part of the restructuring of the 11% Notes, the Company also agreed to indemnify certain parties named as defendants in the Levensons' complaint, including the holders of the 11% Notes, KL Group, KL Park and Kmart, from and against all claims, actions, suits and other legal
proceedings, damages, costs, interest, charges, counsel fees and other expenses and penalties which such entity may sustain or incur to any person whatsoever (excluding judgments in the case of KL Group and KL Park) by reason of or arising out of the Levenson litigation. Under no circumstances was the Company to be obligated to indemnify any party for any liability resulting from such party's willful misconduct or bad faith. During 1997, the Company recorded special charges against results of operations aggregating $4.9 million to recognize the estimated cost of such indemnification. The Company has negotiated agreements with each of the parties whose indemnity claim was outstanding at year end and has either made cash payments or issued 10.5% unsecured notes (see Note 4) in satisfaction of such claims.
9. QUARTERLY FINANCIAL DATA (UNAUDITED)
10. OTHER RELATED PARTY TRANSACTIONS
On June 7, 1996, the Company, the Partnership and Kevin E. Lewis entered into the Consulting and Indemnity Agreement and General Release (the "Consulting Agreement") pursuant to which, among other things, Mr. Lewis would resign as President and Chief Executive Officer effective September 30, 1996 and would resign his position as Chairman of the Board on December 31, 1996, unless requested by the Board of Directors to continue until December 31, 1997. On
September 17, 1996, at the request of the Board of Directors, Mr. Lewis agreed to remain President and Chief Executive Officer beyond September 30, 1996 with no change to the financial terms of the Consulting Agreement. On December 24, 1996, Mr. Lewis resigned as President and Chief Executive Officer effective December 31, 1996 and was requested by the Board to continue as Chairman of the Board into 1997. After his resignation as President and Chief Executive Officer, Mr. Lewis served as a consultant to the Company until December 31, 1997. Pursuant to the Consulting Agreement, Mr. Lewis received an annual base salary of $350 pro-rated through the end of 1996 and $250 through the end of 1997. Mr. Lewis received $75 upon the execution of the Consulting Agreement, $75 on September 30, 1996 and $100 on December 31, 1997. Furthermore, the Company agreed to pay, among other things, certain legal expenses of Mr. Lewis incurred in connection with the negotiation of the Consulting Agreement and certain travel and moving related expenses. On October 29, 1997, the Board requested that Mr. Lewis agree to remain Chairman of the Board beyond December 31, 1997, until at least May 31, 1998 (the "Chairman Extension Request") and on November 12, 1997, Mr. Lewis received $50 in consideration for his agreement to remain Chairman of the Board through at least May 31, 1998 at the pleasure of the Board. Also, effective as of December 31, 1997, Mr. Lewis, the Company and Cafeteria Operators entered into a general release that effected the mutual releases contemplated by the Consulting Agreement.
Effective January 1, 1997, Kenneth Reimer assumed the duties of President and Chief Executive Officer of the Company on an interim basis. Mr. Reimer received $100 for serving in this capacity until March 27, 1997, at which time the Board named Theodore J. Papit as his permanent replacement.
Since February 1996, Cactus Enterprises, Inc., a company wholly owned by Kenneth Reimer, has performed certain management consulting services for the Board. Compensation for such services has been paid by the Company at a rate of $2 per day. Total fees and expenses paid were approximately $4 and $68 in 1997 and 1996, respectively.
Pursuant to a President and Chief Executive Officer Agreement (the "CEO Agreement") effective as of December 15, 1997, between Theodore J. Papit and the Company, Mr. Papit agreed to remain as President and Chief Executive Officer through the first quarter of 1998. Mr. Papit had previously announced his resignation from these positions, effective October 29, 1997, but, at the request of the Board of Directors of the Company, agreed to remain through December 15, 1997. In connection with the CEO Agreement, Mr. Papit agreed to terminate, effective December 15, 1997, all then existing compensation and contractual obligations of the Company regarding his employment, including termination of all stock options. Pursuant to the CEO Agreement, the Company has compensated Mr. Papit at a flat rate of $50 per month and reimbursed Mr. Papit for normal out-of-pocket expenses. On March 23, 1998, the Board voted to retain Mr. Papit as President and Chief Executive Officer, and Mr. Papit agreed to continue in those positions.
In settlement of the Company's indemnification obligations to the persons listed below (the "Affiliated Indemnitees") with respect to the Affiliated Indemnitees' Levenson litigation expenses, the Company has entered into release agreements with, and made the additional payments noted below to, each of the Affiliated Indemnities. The Company (i) delivered to Teachers Insurance and Annuity Association of America as payee a promissory note dated January 14, 1998 in the principal sum of $756, (ii) delivered to The Northwestern Mutual Life Insurance Company as payee a promissory note dated February 24, 1998 in the principal sum of $488 and made a cash payment to The Northwestern Mutual
Life Insurance Company of $6, (iii) delivered to John Hancock Mutual Life Insurance Company as payee a promissory note dated March 4, 1998 in the principal sum of $476, (iv) made a cash payment to the Mutual Life Insurance Company of New York of $218, (v) made a cash payment to Principal Mutual Life Insurance Company of $175 and (vi) delivered to the Equitable Life Assurance Society of the United States ("Equitable") as payee a promissory note dated March 23, 1998 in the principal sum of $830. Each of the promissory notes is due on December 31, 2001 and bears interest at the rate of 10.5% per annum. Except for Equitable, each of the Affiliated Indemnitees owns more than five percent of the Common Stock. Equitable is an affiliate of EQ Asset Trust 1993, a business trust that owns more than five percent of the outstanding Common Stock.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments" ("SFAS 107"). The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
At December 30, 1997 and December 31, 1996, the carrying amount and the fair value of the Company's financial instruments, as determined under SFAS 107, were as follows:
The Company's long-term debt is held by a limited number of holders and is not actively traded, and as a result, market quotes are not readily available. The fair value of the long-term debt at December 30, 1997 and December 31, 1996 is based upon the face amount of the debt resulting from the Restructuring described in Note 2, as management believes that this is most indicative of the fair value. The carrying values of accounts receivable and accounts payable approximate fair value due to the short maturity of these financial instruments.
12. SPECIAL CHARGES AND CREDITS
Operating income for the thirteen week period ended December 30, 1997 includes special charges aggregating $486, which includes $376 of charges related to
closed stores and $110 of charges related to the indemnification of legal expenses related to the Levenson litigation.
Operating loss for the thirteen week period ended September 30, 1997 includes special charges aggregating $7,560, including $4,800 related to the indemnification of legal expenses related to the Levenson litigation and $2,760 of charges related to closed stores and the write-down of property, plant and equipment.
Operating loss for the thirteen week period ended April 1, 1997 includes net special charges of $2,431, including $3,723 of charges related to closed stores and the write-down of property, plant and equipment, which was partially offset by credits of $1,292 related to the settlement of a lawsuit.
Operating income for the thirteen week period ended October 1, 1996 includes a special credit of $709 for the proceeds received from the sale of certain trademarks and the termination of a trademark royalty agreement and the modification and extension of a lease related to the Company's former El Paso Bar-B-Que Company restaurants. In addition, the Company recognized $174 of charges related to the Consulting Agreement and the search for a new President and Chief Executive Officer for the thirteen week period ended October 1, 1996 and $96 for the thirteen week period ended July 2, 1996. Operating income for the thirteen week period ended July 2, 1996 includes a special credit of $699 for insurance proceeds received related to a fire loss incurred in 1994.
* * * * * *
Item 9.
Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure
None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The names and ages of all current directors and executive officers of the Company are set forth below. The Board of Directors (the "Board") currently consists of six persons, each with one-year terms and has been expanded to eight persons effective April 1, 1998. The business address of each of the directors and executive officers listed below is c/o Furr's/Bishop's, Incorporated, 6901 Quaker Avenue, Lubbock, Texas 79413.
E.W. Williams, Jr. has been a member of the Board of Directors since 1991; Kevin E. Lewis was elected to the Board of Directors and appointed Chairman in June 1993; Theodore J. Papit was elected to the Board of Directors in May 1997; Suzanne Hopgood, Gilbert C. Osnos and Kenneth F. Reimer were elected to the Board of Directors in January 1996 and William C. Hale and Arnold Sheiffer were appointed to the Board of Directors, effective April 1998.
The business experience during the past five years of each director, and each person appointed to be a director as of March 23, 1998, is summarized below.
William C. Hale has served as President of The Hale Group, Ltd. since founding the company in 1986. The company provides consulting services to the chain restaurant and multi-unit food service industry. Prior to founding The Hale Group, he provided consulting services through Arthur D. Little and Technomic Consultants.
Suzanne Hopgood has served as President of the Hopgood Group since founding the company in 1985. The company provides consulting, development and brokerage services to clients interested in hotel investments. Prior to founding the Hopgood Group, she served as Second Vice President at Aetna Realty Investors where she oversaw one-third of the corporation's multi-billion dollar real estate equity portfolio. Before joining Aetna, she was Vice President and Senior Loan Officer of the Lowell Institution for Savings in Lowell, Massachusetts. Ms. Hopgood serves on the board of directors of the Greater Hartford Arts Council and The Hartford Ballet, and is a director emerita of the Connecticut Business & Industry Association. She holds memberships in the Real Estate Exchange, Real Estate Finance Association and the Urban Land Institute. She is a senior fellow of the American Leadership Forum and a recognized speaker at Pension Real Estate Association and Commercial Real Estate Finance & Securitization conferences.
Kevin E. Lewis was elected Chairman of the Board of the Company on June 24, 1993 and served as President and Chief Executive Officer of the Company from July 1994 to December 1996. Prior to serving as Chairman of the Board of the Company, Mr. Lewis was a Managing Director in the New York office of Houlihan, Lokey, Howard & Zukin, Inc., a specialty investment banking firm, where he had previously served as a Senior Vice President (January 1992 - March 1993), Vice President (January 1990 - December 1991) and Associate (June 1988 -December 1989). Mr. Lewis was a director of the LVI Group, Inc. from December 1991 to May 1993 and was a director of Robertson-Ceco Corporation from July 1993 to May 1997. Mr. Lewis has been a director of Norton Drilling Services, Inc. since April 1997.
Gilbert C. Osnos has been Chief Executive Officer of the consulting firm Osnos & Company, Inc. since 1983 and a partner in Grisanti Galef & Osnos Associates since 1981, providing consulting and interim management services. Gilbert C. Osnos & Co., Inc. was formed in 1981 and the name changed to Osnos & Company, Inc. in 1994. Mr. Osnos is a founder of the Turnaround Management Association and served as a director from 1988 to 1993 and Chairman in 1990-1991. Mr. Osnos has served on the Board of Directors of American Mirrex Corp. from 1996 to 1997, Mrs. Fields, Inc. from 1993 to 1998, Mrs. Fields Original Cookie Company since 1996, and Dunham's Athleisure Corp. since 1997. He serves on the New York Advisory committee of Business Executives for National Security.
Theodore J. Papit has served as President and Chief Executive Officer of the Company since March 1997. Prior to joining the Company, Mr. Papit served as President and Chief Executive Officer of Black-Eyed Pea Restaurants, Inc. from 1988 to 1996. Prior to that, Mr. Papit served with Jerrico, Inc., an operator of over 1,400 Long John Silver's Seafood Restaurants and 79 Jerry's Coffee Shops, from 1975 to 1988 where his most recent position was that of Senior Executive Vice President and Chief Operating Officer.
Kenneth F. Reimer, Ph.D. has been Chairman and Chief Executive Officer of Reimer Enterprises, Inc. and Cactus Enterprises, Inc. engaging in management consulting activities and investment in child care centers since 1993. Mr. Reimer was President and Chief Executive Officer of the Company from January 1997 until March 1997. Mr. Reimer was a director of S. A. Telecommunications,
Inc. from 1993 to 1995. Prior to that, Mr. Reimer was Chief Executive Officer, President and a director of Roma Corporation from 1984 to 1993. Mr. Reimer is past Chairman of the Board of Trustees of St. Edward's University.
Arnold Sheiffer is a Managing Director of Shenkman Capital Management, High Yield Money Managers, and has held this position since 1995. Prior to that, he served as Chief Operating Officer and Director of Katz Media Corporation from 1991 to 1994 and as Chief Financial Officer from 1990 to 1991. Mr. Sheiffer currently serves on the Board of Directors of Spanish Broadcasting Systems and North Atlantic Trading Company.
E.W. Williams, Jr. is Chairman of the Board of the Citizens Bank in Slaton, Texas and Bank of Commerce in McLean, Texas; Chairman of the Executive Committee of the Hale County State Bank, Plainview, Texas and First National Bank in Clayton, New Mexico. Mr. Williams is also Chairman of LubCo BancShares, Inc., HaleCo BancShares, Inc., GrayCo BancShares, Inc. and Union BancShares, Inc. and is Chairman of the Board of Coyote Lake Feedyard, Inc., Muleshoe, Texas. Mr. Williams has held each of these positions for longer than five years. Mr. Williams was previously a director and executive committee member of the Texas Tech University President's Council; founder of the West Texas A&M University President's Council, and was previous director of the Southern Methodist University Foundation and Alumni Association. Mr. Williams also served as Chairman of the Amarillo Hospital District. Mr. Williams currently has farming and ranching interests in Garza County and Bailey County, Texas.
The business experience during the past five years of each executive officer not outlined above is summarized below.
Donald M. Dodson has been Vice President of Operations Services since 1993 and was formerly Vice President Food and Beverage from 1990 until 1993. He was Vice President of Operations from 1987 to 1990. Mr. Dodson joined the Company in 1958 and managed several cafeterias before becoming a District Manager in 1968.
Jim H. Hale has been Vice President of Field Operations since April 1996 and was formerly a Regional Vice President since 1975. Mr. Hale joined the Company in 1964 and managed several cafeterias before being promoted to regional management.
Danny K. Meisenheimer has been Vice President of Marketing since January 1995. Prior to this, he held various positions with the Company, including Director of Marketing in 1994 and Senior Marketing Manager from 1991 to 1993. Mr. Meisenheimer joined the Company in 1991.
Alton R. Smith has been Executive Vice President of the Company since 1993, Secretary since 1995 and was formerly Executive Vice President and Chief Financial Officer from 1989 until 1993. He was Vice President and Controller of the Company between 1986 and 1989. Prior to 1986, Mr. Smith held various positions with the Company, including Controller and Assistant Secretary from 1985 until 1986, Assistant Controller and Assistant Secretary from 1982 to 1985, Director of Taxation from 1978 to 1982 and Tax Manager from 1974 to 1978. He is a certified public accountant and joined the Company in 1974.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the "SEC") and the NYSE. Officers, directors and greater than ten-percent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no Forms 5 were required for those persons, the Company believes that during fiscal 1997 all filing requirements were complied with by its officers, directors, and greater than ten-percent beneficial owners, except that the Form 3 that Theodore J. Papit, President and Chief Executive Officer of the Company, filed with the Securities and Exchange Commission on April 10, 1998, to report the event by which Mr. Papit became an officer of the Company, was not filed in a timely manner.
Item 11.
Item 11. Executive Compensation
There is shown below information concerning the annual and long-term compensation for services in all capacities to the Company and its subsidiaries for the fiscal years ended December 30, 1997, December 31, 1996 and January 2, 1996 of those persons who were, at December 30, 1997 (i) the chief executive officer, (ii) the former interim chief executive officer, (iii) the four other most highly compensated executive officers of the Company and its subsidiaries serving as executive officers at the end of the 1997 fiscal year and (iv) a person for whom disclosure would have been provided but for the fact he was not serving as an executive officer of the Company at December 30, 1997 fiscal year (the "Named Officers"):
None of the Named Officers had any stock options outstanding as of the end of the 1997 fiscal year. None of the Named Officers exercised any stock options or stock appreciation rights during fiscal 1997. No stock appreciation rights were granted during fiscal 1997.
Option Exercises and Fiscal Year-End Values
At December 30, 1997, there were no options outstanding to the Named Officers. All options that had been granted to executive officers had terminated either by the termination of the employee or by agreement between the Company and the holders of the options.
Certain Compensation Plans
The Company has a qualified defined benefit pension plan (the "Pension Plan") covering employees and former employees of the Partnership and its affiliates, including those who were participants in the Kmart Corporation Employees' Retirement Pension Plan (the "Kmart Pension Plan"). The Pension Plan assumed all of the obligations of the Kmart Pension Plan relating to benefits that accrued for employees and former employees of certain of the Company's subsidiaries before the consummation of the acquisition of such subsidiaries from Kmart. Kmart agreed to transfer an amount of plan assets equal to the actuarially computed accumulated benefits applicable to the Furr's and Bishop's employees in the Kmart Pension Plan.
Benefits for service prior to 1987 were based on the provisions of the Kmart Pension Plan and are frozen for such service. Effective December 31, 1988, benefit accruals were frozen for highly compensated participants in the Pension Plan and effective June 30, 1989 benefit accruals of all participants in the Pension Plan were frozen indefinitely.
The Pension Plan covers all employees who are at least 21 years old and have one year or more of participation service and is integrated with Social Security. A participant's benefit under the Pension Plan will be the greater of (i) a benefit provided by the participant's "cash balance account" defined below, or (ii) the sum of (x) the participant's accrued benefit under the Kmart Pension Plan plus (y) for each year of service after 1986, 0.75% of the
participant's "considered pay" for the year plus (z) 0.75% of considered pay exceeding the Social Security integration level for the year. "Considered pay" is comprised of total W-2 compensation, excluding extraordinary items, such as moving expenses and imputed income, and including pre-tax amounts deferred under the Employees' Savings Plan described below. The Social Security integration level is one-half of the Social Security Taxable Wage Base for the year, rounded to the next highest $1,000. A participant's cash balance account will contain an amount equal to the sum of (i) 2% of 1986 considered pay multiplied by the number of years of benefit service prior to 1987, plus (ii) 2% of considered pay for each year thereafter, plus (iii) 6% interest per annum. The normal form of benefit under the Pension Plan will be a life annuity for an unmarried participant and a 50% joint and survivor annuity in the case of a married participant. Alternatively, participants may elect an optional form of payment which is the actuarial equivalent of the life annuity. Participants are fully vested in accrued benefits under the Pension Plan after five years of vesting service. Unreduced benefits are payable at age 65, or, if earlier, when age plus years of service equals ninety.
The following table shows the amounts payable using the pension plan formula and the benefits accrued under the predecessor plans.
Approximate Annual Pension at Age 65* - -------------------------------------
The total plan years of service at June 30, 1989 (the date benefit accruals were frozen) of the seven Named Officers of the Company and its subsidiaries are Theodore J. Papit 0, Kevin E. Lewis 0, Kenneth F. Reimer 0, Alton R. Smith 15, Donald M. Dodson 31, Jim H. Hale 26 and Danny Meisenheimer 0. If Mr. Smith, Mr. Dodson, and Mr. Hale were to retire on their respective retirement dates, they would receive monthly payments of $832, $3,265 and $2,027, respectively. The Pension Plan does not cover any compensation reported in the Summary Compensation Table.
Cafeteria Operators established an Employees 401(k) Plan which is qualified under Sections 401(a) and 401(k) of the Code (the "401(k) Plan"). Under the 401(k) Plan, participants may elect to make pre-tax contributions, in an amount equal to from 1% to 12% of "considered pay", which consists of total W-2 compensation for personal services, excluding extraordinary pay, such as moving
expenses and imputed income. Pre-tax contributions were limited to $9,500 in 1997. Additionally, Cafeteria Operators may make discretionary contributions to the 401(k) Plan. Employees are eligible to participate in the 401(k) Plan at age 21 with one year of participation service.
Participants' contributions are always fully vested. The Board of Directors of the Company will either designate Cafeteria Operators and the Company contributions as fully vested when made, or Cafeteria Operators and the Company contributions will be subject to a vesting schedule under which 100% of the Cafeteria Operators and the Company contributions are vested after seven years. Employee contributions may be invested either in a fixed income fund, consisting of guaranteed interest contracts and government securities, or five different equity funds with various growth and income objectives. Loans from participants' pre-tax accounts are permitted after two years of participation.
Participants may generally receive their vested account balances at the earlier of retirement or separation from service.
Non-employee directors of the Company receive a fee of $1,500 per month and $1,000 per board meeting attended as compensation for their services. In addition, non-employee directors who are members of any Committee of the Board receive $500 for each meeting attended. In addition to these fees, effective January 1, 1998, the Chairman of the Board received $7,500 per month (the "Chairman Stipend"). Effective April 1, 1998, the Chairman Stipend will be reduced to $2,500 per month.
The Board of Directors adopted, and on January 2, 1996 the stockholders approved, the 1995 Stock Option Plan authorizing an aggregate of 40,540,795 shares of Common Stock (the "1995 Option Plan"). After giving effect to the reverse stock split, there are 2,702,720 shares of Common Stock reserved for issuance pursuant to the 1995 Option Plan. A Committee of the Board of Directors administers the 1995 Option Plan, including determining the employees to whom awards will be made, the size of such awards and the specific terms and conditions applicable to awards, such as vesting periods, circumstances of forfeiture and the form and timing of payment. Grants including stock options, stock appreciation rights and restricted stock may be made to selected employees of the Company and its subsidiaries and non-employee directors of the Company. On November 22, 1996 and May 30, 1997, options to purchase 6,666 shares of Common Stock were issued to each non-employee director of the Company pursuant to the provisions of the 1995 Option Plan. On March 27, 1997, the Company granted 500,000 stock options, pursuant to the 1995 Option Plan, to Theodore J. Papit at an exercise price of $1.375 per share. Mr. Papit's options were terminated on December 15, 1997 by agreement between Mr. Papit and the Company. On December 30, 1997, a total of 53,328 options were outstanding.
On June 7, 1996, the Company, Cafeteria Operators and Kevin E. Lewis entered into the Consulting and Indemnity Agreement and General Release (the "Consulting Agreement") pursuant to which, among other things, Mr. Lewis would resign as President and Chief Executive Officer effective September 30, 1996 and would resign his position as Chairman of the Board on December 31, 1996, unless requested by the Board of Directors to continue until December 31, 1997. On September 17, 1996, at the request of the Board of Directors, Mr. Lewis agreed to remain President and Chief Executive Officer beyond September 30, 1996 with no change to the financial terms of the Consulting Agreement. On December 24, 1996, Mr. Lewis resigned as President and Chief Executive Officer effective December 31, 1996 and was requested by the Board to continue as Chairman of the Board into 1997. After his
resignation as President and Chief Executive Officer, Mr. Lewis served as a consultant to the Company until December 31, 1997. Pursuant to the Consulting Agreement, Mr. Lewis received an annual base salary of $350,000, pro-rated through the end of 1996 and $250,000 through the end of 1997. Mr. Lewis received $75,000 upon the execution of the Consulting Agreement, $75,000 on September 30, 1996 and $100,000 on December 31, 1997. Furthermore, the Company agreed to pay, among other things, certain legal expenses of Mr. Lewis incurred in connection with the negotiation of the Consulting Agreement and certain travel and moving related expenses. On October 29, 1997, the Board requested that Mr. Lewis agree to remain Chairman of the Board beyond December 31, 1997, until at least May 31, 1998 (the "Chairman Extension Request") and on November 12, 1997, Mr. Lewis received $50,000 in consideration for his agreement to remain Chairman of the Board through at least May 31, 1998 at the pleasure of the Board. Also, effective as of December 31, 1997, Mr. Lewis, the Company and Cafeteria Operators entered into a general release that effected the mutual releases contemplated by the Consulting Agreement.
Pursuant to a president and Chief Executive Officer Agreement (the "CEO Agreement") effective as of December 15, 1997, between Theodore J. Papit and the Company, Mr. Papit agreed to remain as President and Chief Executive Officer through the first quarter of 1998. Mr. Papit had previously announced his resignation from these positions, effective October 29, 1997, but, at the request of the Board of Directors of the Company, agreed to remain through December 15, 1997. In connection with the CEO Agreement, Mr. Papit agreed to terminate, effective December 15, 1997, all then existing compensation and contractual obligations of the Company regarding his employment, including termination of all stock options. Pursuant to the CEO Agreement, the Company has compensated Mr. Papit at a flat rate of $50,000 per month and reimbursed Mr. Papit for normal out-of-pocket expenses. On March 23, 1998, the Board voted to retain Mr. Papit as President and Chief Executive Officer, and Mr. Papit agreed to continue in those positions. Mr. Papit's compensation will include a base salary of $30,000 per month, participation in the Company's executive bonus plan and other executive benefit programs and stock options to purchase 500,000 shares of the Company's common stock. He will also be entitled to eighteen months of base salary in the event he is terminated without cause or in the event he is terminated or resigns after a change of control of the Company.
Kenneth Reimer served as interim President and Chief Executive Officer of the Company from January through March 1997 and received $100,000. Cactus Enterprises, Inc., a company owned by Mr. Reimer, has performed certain management consulting services for the Company and received payment for total fees and expenses of $4,000 and $68,000 in 1997 and 1996, respectively.
Compensation Committee Interlocks and Insider Participation in Compensation Decisions
Gilbert C. Osnos and E.W. Williams, Jr. served on the Compensation Committee throughout the 1997 fiscal year. Kevin E. Lewis has served on the Compensation Committee of the Board of Directors since September 2, 1997. Mr. Lewis had previously served as President and Chief Executive Officer of the Company, until his resignation effective December 31, 1996.
On June 7, 1996, the Company, Cafeteria Operators and Kevin E. Lewis entered into the Consulting and Indemnity Agreement and General Release (the "Consulting Agreement") pursuant to which, among other things, Mr. Lewis would
resign as President and Chief Executive Officer effective September 30, 1996 and would resign his position as Chairman of the Board on December 31, 1996, unless requested by the Board of Directors to continue until December 31, 1997. On September 17, 1996, at the request of the Board of Directors, Mr. Lewis agreed to remain President and Chief Executive Officer beyond September 30, 1996 with no change to the financial terms of the Consulting Agreement. On December 24, 1996, Mr. Lewis resigned as President and Chief Executive Officer effective December 31, 1996 and was requested by the Board to continue as Chairman of the Board into 1997. After his resignation as President and Chief Executive Officer, Mr. Lewis served as a consultant to the Company until December 31, 1997. Pursuant to the Consulting Agreement, Mr. Lewis received an annual base salary of $350,000, pro-rated through the end of 1996 and $250,000 through the end of 1997. Mr. Lewis received $75,000 upon the execution of the Consulting Agreement, $75,000 on September 30, 1996 and $100,000 on December 31, 1997. Furthermore, the Company agreed to pay, among other things, certain legal expenses of Mr. Lewis incurred in connection with the negotiation of the Consulting Agreement and certain travel and moving related expenses. On October 29, 1997, the Board requested that Mr. Lewis agree to remain Chairman of the Board beyond December 31, 1997, until at least May 31, 1998 (the "Chairman Extension Request") and on November 12, 1997, Mr. Lewis received $50,000 in consideration for his agreement to remain Chairman of the Board through at least May 31, 1998 at the pleasure of the Board. Also, effective as of December 31, 1997, Mr. Lewis, the Company and Cafeteria Operators entered into a general release that effected the mutual releases contemplated by the Consulting Agreement.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Principal Stockholders
To the best knowledge of management of the Company, no person owned beneficially, as of March 23, 1998 more than five percent of the outstanding shares of the Company's Common Stock, except as follows:
As a part of the Restructuring, certain holders of the Old Class A Common Stock, Old Class B Common Stock and Old Convertible Preferred Stock received warrants to purchase an aggregate of 32,419,774 shares of Common Stock at a purchase price of $0.074 per share and Kmart received warrants to purchase an aggregate of 8,108,159 shares of Common Stock at a purchase price of $0.074 per share. Such warrants are exercisable at any time and expire on January 2, 2001. Following the reverse stock split that became effective on March 22, 1996, and subject to the adjustments thereby, such warrants were adjusted and thereafter evidence the right to purchase one-fifteenth of one share of Common Stock at an exercise price of $1.11 per share, for an aggregate of 2,161,318 and 540,544 shares, respectively.
Management Stock Ownership
As of February 28, 1998, according to information furnished to the Company, each director, the Named Officers and all officers and directors as a group, owned beneficially the indicated number and percentage of outstanding Common Stock, after giving effect to the reverse stock split.
Item 13.
Item 13.Certain Relationships and Related Transactions
Transactions with Management and Others
Since February 1996, Cactus Enterprises, Inc., a company wholly owned by Kenneth Reimer, has performed certain management consulting services for the Board. Compensation for such services has been paid by the Company at a rate of $2,000 per day. Total fees and expenses paid in 1996 and 1997 were approximately $68,000 and $4,000, respectively. Mr. Reimer served as the interim President and Chief Executive Officer of the Company from January 1997 to March 1997, and received compensation of $100,000 for such service.
On June 7, 1996, the Company, Cafeteria Operators and Kevin E. Lewis entered into the Consulting Agreement pursuant to which, among other things, Mr. Lewis would resign as President and Chief Executive Officer effective September 30, 1996 and would resign his position as Chairman of the Board on December 31, 1996, unless requested by the Board of Directors to continue until December 31, 1997. On September 17, 1996 at the request of the Board of Directors, Mr.
Lewis agreed to remain President and Chief Executive Officer beyond September 30, 1996 with no change to the financial terms of the Consulting Agreement. On December 24, 1996, Mr. Lewis resigned as President and Chief Executive Officer effective December 31, 1996 and was requested to remain as Chairman of the Board into 1997. After his resignation as President and Chief Executive Officer, Mr. Lewis served as a consultant to the Company until December 31, 1997. Pursuant to the Consulting Agreement, Mr. Lewis received an annual base salary of $350,000, pro-rated through the end of 1996 and $250,000 through the end of 1997. Mr. Lewis received $75,000 upon the execution of the Consulting Agreement, $75,000 on September 30, 1996 and $100,000 on December 31, 1997. Furthermore, the Company agreed to pay, among other things, certain legal expenses of Mr. Lewis incurred in connection with the negotiation of the Consulting Agreement and certain travel and moving related expenses. On October 29, 1997, the Board requested that Mr. Lewis agree to remain Chairman of the Board beyond December 31, 1997, until at least May 31, 1998 (the "Chairman Extension Request") and on November 12, 1997, Mr. Lewis received $50,000 in consideration for his agreement to remain Chairman of the Board through at least May 31, 1998 at the pleasure of the Board. Also, effective as of December 31, 1997, Mr. Lewis, the Company and Cafeteria Operators entered into a general release that effected the mutual releases contemplated by the Consulting Agreement.
Pursuant to the CEO Agreement effective as of December 15, 1997, between Theodore J. Papit and the Company, Mr. Papit agreed to remain as President and Chief Executive Officer through the first quarter of 1998. Mr. Papit had previously announced his resignation from these positions, effective October 29, 1997, but, at the request of the Board of Directors of the Company, agreed to remain through December 15, 1997. In connection with the CEO Agreement, Mr. Papit agreed to terminate, effective December 15, 1997, all then existing compensation and contractual obligations of the Company regarding his employment, including termination of all stock options. Pursuant to the CEO Agreement, the Company has compensated Mr. Papit at a flat rate of $50,000 per month and reimbursed Mr. Papit for normal out-of-pocket expenses. On March 23, 1998, the Board voted to retain Mr. Papit as President and Chief Executive Officer, and Mr. Papit agreed to continue in those positions. Mr. Papit's compensation will include a base salary of $30,000 per month, participation in the Company's executive bonus plan and other executive benefit programs and stock options to purchase 500,000 shares of the Company's common stock. He will also be entitled to eighteen months of base salary in the event he is terminated without cause or in the event he is terminated or resigns after a change of control of the Company
In settlement of the Company's indemnification obligations to the persons listed below (the "Affiliated Indemnitees") with respect to the Affiliated Indemnitees' Levenson litigation expenses, the Company has entered into release agreements with, and made the additional payments noted below to, each of the Affiliated Indemnities. The Company (i) delivered to Teachers Insurance and Annuity Association of America as payee a promissory note dated January 14, 1998 in the principal sum of $756,392, (ii) delivered to The Northwestern Mutual Life Insurance Company as payee a promissory note dated February 24, 1998 in the principal sum of $488,195 and made a cash payment to The Northwestern Mutual Life Insurance Company of $5,838, (iii) delivered to John Hancock Mutual Life Insurance Company as payee a promissory note dated March 4, 1998 in the principal sum of $476,176, (iv) made a cash payment to the Mutual Life Insurance Company of New York of $217,519, (v) made a cash payment to Principal Mutual Life Insurance Company of $174,729 and (vi) delivered to the Equitable Life Assurance Society of the United States ("Equitable") as payee a
promissory note dated March 23, 1998 in the principal sum of $829,687. Each of the promissory notes is due on December 31, 2001 and bears interest at the rate of 10.5% per annum. Except for Equitable, each of the Affiliated Indemnitees owns more than five percent of the Common Stock. Equitable is an affiliate of EQ Asset Trust 1993, a business trust that owns more than five percent of the outstanding Common Stock.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
(1) Financial Statements
The financial statements filed as part of this report are listed in the "Index to Consolidated Financial Statements" at Item 8.
(2) Financial Statement Schedule Furr's/Bishop's, Incorporated
Page Schedule Description No. -------- ----------- ---- II- Consolidated Valuation and Qualifying Accounts S-1
Schedules not listed above have been omitted because they are either not applicable, not material or the required information has been given in the financial statements or in notes to the financial statements.
(b) Reports on Form 8-K
During the fourth quarter of 1997, the Company filed no reports on Form 8-K.
(c) Exhibits
Exhibit No. Description
3.1 Amended and Restated Certificate of Incorporation of Furr's/Bishop's, Incorporated, incorporated by reference from the Registrant's Registration Statement on Form S-4 (File No. 33-38978).
3.2 By-laws of Furr's/Bishop's, Incorporated, as amended December 3, 1997, incorporated by reference from the Registrant's Registration Statement on Form S-1 (amended on Form S-3) (File No. 333-4576).
3.3 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Furr's/Bishop's, Incorporated, incorporated by reference from the Registrant's Registration Statement on Form S-4 (File No. 33-92236).
3.4 Second Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Furr's/Bishop's, Incorporated, incorporated by reference from the Registrant's Form 10-K for the year ended January 2, 1996.
4.1 Amended and Restated Indenture, dated as of November 15, 1995, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.), incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.2 First Supplemental Indenture, dated as of January 24, 1996, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.), incorporated by reference from the Registrant's Form 10-K for the year ended January 2, 1996.
4.3 General Security Agreement, dated as of March 27, 1992, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.), incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.4 Security Agreement, dated as of March 27, 1992, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.), incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.5 Form of Assignment and Security Agreements relating to deposits at Amarillo National Bank and Carlsbad National Bank, dated as of March 27, 1992, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.), incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.6 General Security Agreement, dated as of March 27, 1992, between Furr's/Bishop's Specialty Group, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.), incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.7 Assignment for Security (Trademarks), dated as of March 27, 1992, by Cafeteria Operators, L.P., filed with the Patent and Trademark Office, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.8 Assignment for Security (Trademarks), dated as of December 28, 1995, by Cafeteria Operators, L.P., filed with the Patent and Trademark Office, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.9 Assignment for Security (Trademarks), dated as of December 28, 1995, by Furr's/Bishop's Specialty Group, L.P., filed with the Patent and Trademark Office, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.10 Amended and Restated Security Agreement and Mortgage-Trademarks and Patents, dated as of December 31, 1995, among Cafeteria Operators, L.P., Furr's/Bishop's Specialty Group, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.), incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.11 Special Power of Attorney, dated as of March 27, 1992, by Cafeteria Operators, L.P., incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.12 Special Power of Attorney, dated as of December 28, 1995, by Cafeteria Operators, L.P., incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.13 Special Power of Attorney, dated as of December 28, 1995, by Furr's/Bishop's Specialty Group, L.P., incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.14 Omnibus Agreement, dated as of November 15, 1995, among Cafeteria Operators, L.P., Furr's Specialty Group, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) (included as Exhibit E to the Exchange Agreement filed as Exhibit 10.1) and incorporate by reference from the Registrant's Registration Statement on Form S-4 (File No. 33-92236)).
4.15 First Amendment to Deed of Trust, dated as of November 15, 1995, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at Pima County, Arizona, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.16 First Amendment to Deed of Trust, dated as of November 15, 1995, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at Jefferson County, Colorado, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.17 First Amendment to Deed of Trust, dated as of November 15, 1995, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) for premises locate at Clark County, Nevada, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.18 First Amendment to Deed of Trust, Security Agreement, Financing Statement, Fixture Filing and Assignment of Rents and Leases, dated as of November 15, 1995, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at San Bernardino County, California, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.19 First Amendment to Mortgage, Security Agreement and Assignment of Leases and Rents, dated as of November 15, 1995, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at Johnson County, Kansas, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.20 First Amendment to Deed of Trust, Security Agreement and Assignment of Leases and Rents, dated as of November 15, 1995, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at St. Louis County, Missouri, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.21 First Amendment to New Mexico Deed of Trust, dated as of November 15, 1995, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.). for premises located at Bernalillo County, New Mexico, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.22 First Amendment to Mortgage with Power of Sale, dated as of November 15, 1995, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at Tulsa County, Oklahoma, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.23 First Amendment to Deed of Trust, Security Agreement and Assignment of Leases, dated as of November 15, 1995, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank,N.A.) for premises located at Taylor County, Texas, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.24 First Amendment to Deed of Trust, Security Agreement and Assignment of Leases, dated as of November 15, 1995, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at Cameron County, Texas, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.25 First Amendment to Deed of Trust, Security Agreement and Assignment of Leases, dated as of November 15, 1995, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at Dallas County, Texas, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.26 First Amendment to Deed of Trust, Security Agreement and Assignment of Leases, dated as of November 15, 1995, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at Lubbock County, Texas, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.27 First Amendment to Deed of Trust, Security Agreement and Assignment of Leases, dated as of November 15,1995, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at Grayson County, Texas, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.28 First Amendment to Deed of Trust, Security Agreement and Assignment of Leases, dated as of November 15, 1995, between Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at Hopkins County, Texas, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
10.1 Exchange Agreement, dated as of November 15, 1995, among Furr's/Bishop's, Incorporated, Cafeteria Operators, L.P. and holders of 11% Senior Secured Notes, incorporated by reference from the Registrant's Registration Statement on Form S-4 (File No. 33-92236).
10.2 Warrant Agreement dated as of July 10, 1995, between Furr's/Bishop's, Incorporated and Chemical Bank, incorporated by reference from the Registrant's Registration Statement on Form S-4 (File No. 33-92236).
10.3 Consulting and Indemnity Agreement and General Release, dated as of June 7, 1996, among Kevin E. Lewis, Furr'/Bishop's, Incorporated and Cafeteria Operators, L.P., incorporated by reference from the Registrant's Registration Statement on Form S-1 (File No. 333-4576).
10.4 First Amendment to Consulting and Indemnity Agreement and General Release, dated as of September 17, 1996, among Kevin E. Lewis, Furr's/Bishop's, Incorporated and Cafeteria Operators, L.P., incorporated by reference from Cafeteria Operators, L.P.'s Form 10-K for the fiscal year ended December 31, 1996.
10.5 General Release, entered into as of December 31, 1997, among Kevin E. Lewis, Cafeteria Operators, L.P. and Furr's/Bishop's, Incorporated, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
10.6 Master Sublease Agreement, dated as of December 1, 1986, between Kmart Corporation and Cafeteria Operators, L.P. (as successor in interest to Furr's Cafeterias, Inc.), incorporated by reference from the Registration Statement on Form S-1 of Cavalcade Foods, Inc., Furr's Cafeterias, Inc. and Bishop Buffets, Inc. (File No. 33-11842).
10.7 Amendment, with respect to the Master Sublease Agreement, dated as of December 1, 1993, between Kmart Corporation and Cafeteria Operators, L.P., incorporated by reference from the Registrant's Form 8-K dated November 15, 1993.
10.8 1995 Stock Option Plan of Furr's/Bishop's, Incorporated, incorporated by reference from Annex B of the Prospectus included in the Registrant's Registration Statement on Form S-4 (File No. 33-92236).
10.9 President and Chief Executive Officer Agreement, effective as of December 15, 1997, between Theodore J. Papit and Furr's/Bishop's, Incorporated.
10.10 Chairman of the Board Extension Agreement, effective January 1, 1998, among Kevin E. Lewis, Cafeteria Operators, L.P. and Furr's/Bishop's, Incorporated, incorporated by reference from the Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
21.0 Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP, as independent certified public accountants.
23.2 Consent of Deloitte & Touche LLP, as independent certified public accountants.
27.0 Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
FURR'S/BISHOP'S, INCORPORATED
DATE: March 27, 1998 /s/Theodore J. Papit ------------------------- Theodore J. Papit President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Furr's/Bishop's, Incorporated and on the dates indicated.
DATE: March 27, 1998 /s/ Suzanne Hopgood ------------------------- Suzanne Hopgood Director
DATE: March 27, 1998 /s/ Kevin E. Lewis ------------------------- Kevin E. Lewis Director, Chairman of the Board
DATE: March 27, 1998 /s/ Gilbert C. Osnos ------------------------- Gilbert C. Osnos Director
DATE: March 27, 1998 /s/ Theodore J. Papit -------------------------- Theodore J. Papit Director
DATE: March 27, 1998 /s/ Kenneth F. Reimer -------------------------- Kenneth F. Reimer Director
DATE: March 27, 1998 /s/ Alton R. Smith -------------------------- Alton R. Smith Principal Accounting Officer
DATE: March 27, 1998 /s/ E. W. Williams, Jr. -------------------------- E. W. Williams, Jr. Director
EXHIBIT 10.9
PRESIDENT AND CHIEF EXECUTIVE OFFICER AGREEMENT
This President and Chief Executive Officer Agreement (the "Agreement") is entered into effective as of December 15, 1997, by and between Theodore J. Papit ("Papit") and Furr's/Bishop's, Incorporated, a Delaware corporation ("Furr's").
WHEREAS, before December 15, 1997, Papit served as President and Chief Executive Officer of Furr's as contemplated by the Employment Letter Agreement dated March 24, 1997, and agreed to by Papit on March 25, 1997 (the "Employment Letter"); and
WHEREAS, Papit previously announced his resignation, effective October 29, 1997, from his positions as President and Chief Executive Officer of Furr's, but at the request of the Board of Directors of Furr's, agreed to remain through December 15, 1997; and
WHEREAS, Papit has agreed to continue to serve as President and Chief Executive Officer of Furr's after December 15, 1997, on and subject to the terms and conditions as set forth in this Agreement; and
WHEREAS, the parties hereto desire to terminate the prior arrangements regarding Papit's employment by Furr's;
NOW, THEREFORE, in consideration of the above premises, the mutual covenants and agreements contained herein and other good and valuable consideration, the adequacy and sufficiency of which hereby are acknowledged, the parties hereto agree as follows:
(1) President and Chief Executive Officer. Notwithstanding Papit's previous announcement of his intention to resign his positions with Furr's, Papit agrees to continue to serve Furr's by acting as President and Chief Executive Officer of Furr's and to perform the duties and responsibilities appurtenant thereto as described in the bylaws of Furr's from and after December 15, 1997, through March 31, 1998, or until his earlier removal from such position by the Board of Directors of Furr's.
(2) Compensation. From and after December 15, 1997, for each month or partial month during which Papit serves as President and Chief Executive Officer of Furr's, Papit shall be paid at a rate of $50,000 per month, payable at the times and in accordance with the normal procedures for Furr's executive payroll.
(3) Termination of Furr's and Papit's Prior Contractual Obligations. Effective December 15, 1997, all contractual and compensation obligations and agreements between Furr's and Papit regarding Papit's employment by Furr's or its affiliates that were in existence prior to such date are terminated, including, but not limited to, all obligations and agreements listed in the Employment Letter and under any stock option agreements between Furr's and Papit.
(4) Expenses. Papit will be reimbursed by Furr's for his reasonable out-of-pocket expenses incurred by him in fulfilling his duties under this Agreement, such reimbursement to be in accordance with Furr's normal policies and procedures for reimbursement of executive expenses.
(5) Governing Law; Venue. This Agreement shall be governed and construed in accordance with the laws of the State of Texas. In the event that any judicial proceedings are instituted concerning the interpretation or enforcement of this Agreement, exclusive venue over such proceedings shall be vested in the courts sitting in Lubbock County, Texas.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date set forth below, to be effective as of December 15, 1997.
February 3, 1998 /s/Theodore J. Papit - ---------------- ------------------------ Date Theodore J. Papit
FURR'S/BISHOP'S, INCORPORATED
February 3, 1998 By: /s/Kevin E. Lewis - ---------------- ----------------- Date Name: Kevin E. Lewis Title: Chairman
EXHIBIT 21 ----------
SUBSIDIARIES OF FURR'S/BISHOP'S, INCORPORATED
Furr's/Bishop's Cafeterias, L.P. and Subsidiaries Cafeteria Operators, L.P. A Delaware limited partnership Doing business as Furr's Cafeterias and Bishop's Buffets
Cavalcade Holdings, Inc. and Subsidiaries Cavalcade Foods, Inc. A Delaware corporation
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT -----------------------------
The Board of Directors Furr's/Bishop's, Incorporated:
We consent to incorporation by reference in the registration statement (No. 333-11291) on Form S-8 of Furr's/Bishop's, Incorporated of our report dated February 6, 1998, relating to the consolidated balance sheets of Furr's/Bishop's, Incorporated and subsidiaries as of December 30, 1997 and December 31, 1996, and the related consolidated statements of operations, stockholders' deficit, and cash flows for the years then ended and the related schedule for the years ended December 30, 1997 and December 31, 1996, which report appears in the December 30, 1997 annual report on Form 10-K of Furr's/Bishop's, Incorporated. Our report refers to a change in accounting for impairment of long-lived assets and for long-lived assets to be disposed of to conform to Statement of Fianancial Accounting Standards No. 121.
/s/KPMG Peat Marwick LLP ------------------------ KPMG Peat Marwick LLP
Dallas, Texas March 30, 1998
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT -----------------------------
We consent to the incorporation by reference in the Registration Statements of Furr's/Bishop's, Incorporated on Form S-1 (amended on Form S-3)(File No. 333-4576)and on Form S-8 (File No. 333-11291) of our report dated March 28, 1996, regarding our audit of the consolidated statements of operations, stockholders' deficit and cash flows of Furr's/Bishop's, Incorporated and subsidiaries and the financial statement schedule for the 52-week year ended January 2, 1996, which report is included in the Annual Report on Form 10-K of Furr's/Bishop's, Incorporated for the fiscal year ended December 30, 1997.
/s/Deloitte & Touche LLP - --------------------------- Deloitte & Touche LLP
Dallas, Texas March 27, 1998
S-1