-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WBmzy/q5T7uI43/+RG5YwWMP0NljWai49+dWhKokrvZ6MN5zH4kkAMdf8MniC+qk +ZKzvAqKJj2OZnLU9tMgnA== 0000016099-01-500032.txt : 20020412 0000016099-01-500032.hdr.sgml : 20020412 ACCESSION NUMBER: 0000016099-01-500032 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20010831 FILED AS OF DATE: 20011206 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LUBYS INC CENTRAL INDEX KEY: 0000016099 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 741335253 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08308 FILM NUMBER: 1808097 BUSINESS ADDRESS: STREET 1: 2211 NE LOOP 410 STREET 2: P O BOX 33069 CITY: SAN ANTONIO STATE: TX ZIP: 78265-3069 BUSINESS PHONE: 2106549000 MAIL ADDRESS: STREET 1: P O BOX 33069 CITY: SAN ANTONIO STATE: TX ZIP: 78265-3069 FORMER COMPANY: FORMER CONFORMED NAME: CAFETERIAS INC DATE OF NAME CHANGE: 19810126 FORMER COMPANY: FORMER CONFORMED NAME: LUBYS CAFETERIAS INC DATE OF NAME CHANGE: 19920703 10-K 1 r10k801.txt TEXT OF 10-K FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to ______________________ Commission file number: 1-8308 LUBY'S, INC. ______________________________________________________________________________ (Exact name of registrant as specified in its charter) Delaware 74-1335253 _________________________ ____________________________________ (State of Incorporation) (I.R.S. Employer Identification No.) 2211 Northeast Loop 410 Post Office Box 33069 San Antonio, Texas 78265-3069 Area Code 210 654-9000 _______________________________________ _______________________________ (Address of principal executive office) (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: Name of exchange on Title of Class which registered ______________ ______________________ Common Stock ($.32 par value) New York Stock Exchange Common Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None ____ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the shares of Common Stock of the registrant held by non-affiliates of the registrant as of November 14, 2001, was approximately $133,439,000 (based upon the assumption that directors and officers are the only affiliates). As of November 14, 2001, there were 22,422,943 shares of the registrant's Common Stock outstanding, exclusive of 4,980,124 treasury shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following document are incorporated by reference into the designated parts of this Form 10-K: proxy statement relating to 2002 annual meeting of shareholders (in Part III). Item 1. Business Luby's, Inc. (formerly, Luby's Cafeterias, Inc.) was originally incorporated in Texas in 1959 and was reincorporated in Delaware on December 31, 1991. The Company's executive offices are at 2211 Northeast Loop 410, P. O. Box 33069, San Antonio, Texas 78265-3069. Luby's, Inc. was restructured into a holding company on February 1, 1997, at which time all of the operating assets were transferred to Luby's Restaurants Limited Partnership, a Texas limited partnership composed of two wholly owned indirect corporate subsidiaries of the Company. All restaurant operations are conducted by the partnership. Unless the context indicates otherwise, the word "Company" as used herein includes the partnership and the consolidated corporate subsidiaries of Luby's, Inc. As of December 5, 2001, the Company operates 202 cafeteria-style restaurants under the name "Luby's" located in close proximity to retail centers, business developments, and residential areas in Arizona, Arkansas, Florida, Louisiana, Mississippi, Missouri, New Mexico, Oklahoma, Tennessee, and Texas. Of the 202 restaurants operated by the Company, 125 are at locations owned by the Company and 77 are on leased premises. The Company's restaurants constructed prior to 1999 typically contain 9,000 to 10,500 square feet of floor space and seat 250 to 300 guests. In more recent years, the Company built several more-contemporary units. They contain 6,000 to 8,600 square feet of floor space and seat 170 to 214 guests. Marketing The Company's product strategy is to provide a wide variety of freshly cooked foods in an attractive and informal environment. The Company's research has shown that its products appeal to a broad range of value-oriented consumers with particular success among families with children, seniors, shoppers, and business people looking for a quick, homestyle meal at a reasonable price. During fiscal 2001, the Company spent approximately 1.6% of sales on marketing, including radio and television advertising and product-specific promotions. The marketing budget for fiscal 2002 is approximately 0.7% of sales, with most of the amount allocated to point-of-purchase and local store marketing. Operations The Company's operations provide customers with a wide variety of great tasting food served cafeteria-style at reasonable prices. Food is prepared in small quantities throughout serving hours, and frequent quality checks are made. Toward the end of fiscal year 2001, the Company created a team of chefs focused on recipe enhancement and consistent execution guidelines. Each restaurant offers a broad and varied menu and normally serves 12 to 14 entrees, 12 to 14 vegetable dishes, 15 to 20 salads, and 18 to 20 desserts. The Company's restaurants appeal primarily to shoppers, office or store personnel for lunch, and to families for dinner. The Company's restaurants are open for lunch and dinner seven days a week in most markets. All of the restaurants sell take-out orders, and most of them have separate food-to-go entrances. Take-out orders accounted for approximately 14.6% of sales in fiscal 2001. Each restaurant is operated as a separate unit under the control of a general manager who has responsibility for day-to-day operations, including menu planning and personnel employment and supervision. Each restaurant manager is compensated on the basis of his or her restaurant's profits. Management believes that granting broad authority to its restaurant managers and compensating them on the basis of their performance are significant factors in the profitability of its restaurants. Of the 202 general managers employed by the Company, 155 have been with the Company for more than ten years. Typically, an individual is employed for a period of five to seven years before he or she is considered qualified to become a general manager. In 1999, the Company implemented a centralized purchasing arrangement to obtain the economies of bulk purchasing and volume pricing for substantially all food products used in the Company's restaurants. The arrangement involves a prime vendor for each of the Company's three major regions. The Company believes that alternative sources of supply are readily available in the event the centralized purchasing arrangement is terminated. Each restaurant prepares substantially all of the food served, including breads and pastries. The restaurants follow Company recipes, with minor variations to suit local tastes. Menus vary among the Company's restaurants each day to reflect local and seasonal food preferences. The Company also takes advantage of any special food purchasing opportunities. Quality control teams also help to maintain uniform standards of food preparation. The teams visit each restaurant periodically and work with the staff to check adherence to the Company's recipes, train personnel in new techniques, and evaluate procedures for possible use throughout the Company. As of November 2001, the Company had approximately 11,000 employees, consisting of 10,240 nonmanagement restaurant personnel; 600 restaurant managers, associate managers, and assistant managers; and 160 executive, administrative, and clerical personnel. Employee relations are considered to be good, and the Company has never had a strike or work stoppage. The Company is not subject to any collective bargaining agreements. Restaurant Growth During the fiscal year ended August 31, 2001, the Company opened one new restaurant and closed 19 underperforming units. Since August 31, 2001, the Company has closed 11 underperforming restaurants. During fiscal 2002, the Company expects six others to be closed. Openings of new ground-up stores will not occur in fiscal year 2002. The Company believes its opportunities for growth currently center around improving same-store sales growth at existing locations and changing the concepts in some locations that demographically would support different types of food. Accordingly, the Company has plans to reopen two currently closed stores under new concepts. At least one of the two will serve an appealing variety of seafood. Service Marks The Company uses several service marks, including "Luby's," and believes that such marks are of material importance to its business. The Company has federal service mark registrations for several of such marks. The Company is not the sole user of the name "Luby's" in the cafeteria business. One cafeteria using the name "Luby's" and one cafeteria using the name "Pat Luby's" are being operated in two different cities in Texas by two different owners not affiliated with the Company. The Company's legal counsel is of the opinion that the Company has the paramount right to use the name "Luby's" as a service mark in the cafeteria business in the United States and that such other users can be precluded from expanding their use of the name as a service mark. Competition and Other Factors The foodservice business is highly competitive, and there are numerous restaurants and other foodservice operations in each of the markets where the Company operates. The quality of the food served, in relation to its price, and public reputation are important factors in foodservice competition. Neither the Company nor any of its competitors has a significant share of the total market in any area in which the Company competes. The Company believes that its principal competitors include family-style and casual-dining restaurants, buffets, and quick-service restaurants in the home-meal- replacement category. The Company's facilities and food products are subject to state and local health and sanitation laws. In addition, the Company's operations are subject to federal, state, and local regulations with respect to environmental and safety matters, including regulations concerning air and water pollution and regulations under the Americans with Disabilities Act and the Federal Occupational Safety and Health Act. Such laws and regulations, in the Company's opinion, have not materially affected its operations, although compliance has resulted in some increased costs. The terrorist attacks of September 11, 2001, have had a devastating and immeasurable effect on all Americans and the business climate in general. We are staying focused on all of our original quality and operational improvements as briefly described above. Forward-Looking Statements Certain statements made in this report are forward looking regarding cash flow from operations, restaurant growth, operating margins, capital requirements, the availability of credit, and other matters. In addition, efforts to close, sell, or improve operating results of underperforming stores depend on many factors not within the Company's control, such as the negotiation of settlements of existing lease obligations under acceptable terms, availability of qualified buyers for owned locations, and customer traffic. These forward-looking statements involve risks and uncertainties and, consequently, could be affected by general business conditions, the impact of competition, the success of operating initiatives, changes in cost and supply of food and labor, the seasonality of the Company's business, taxes, inflation, and governmental regulations, which could cause actual results to differ materially from current plans. Item 2. Properties The Company owns the underlying land and buildings in which 125 of its restaurants are located. In addition, the Company owns several restaurant sites being held for possible future development, and several properties are held for sale. Of the 202 restaurants operated by the Company, 77 are at locations held under leases, including 42 in regional shopping malls. Most of the leases provide for a combination of fixed-dollar and percentage rentals. Most of the leases require the lessee to pay additional amounts related to property taxes, hazard insurance, and maintenance of common areas. See Note 6 of Notes to Financial Statements for information concerning the Company's lease rental expenses and lease commitments. Of the 77 restaurant leases, the current terms of 31 expire from 2002 to 2006, 25 from 2007 to 2011, and 21 thereafter. Sixty-seven of the leases can be extended beyond their current terms at the Company's option. Most of the restaurants are located in modern buildings and all are in good condition. It is the Company's policy to refurbish and modernize restaurants as necessary to maintain their appearance and utility. The equipment in all restaurants is well maintained. Several of the Company's restaurant properties contain excess building space, which is rented to tenants unaffiliated with the Company. The Company's restaurants are located in ten states as follows: Eight in Arizona, five in Arkansas, one in Florida, two in Louisiana, two in Mississippi, two in Missouri, three in New Mexico, seven in Oklahoma, eight in Tennessee, and 164 in Texas. The Company's corporate offices are located in a building owned by the Company containing approximately 40,000 square feet of office space. The Company utilizes the space for its executive offices and related facilities. The Company maintains public liability insurance and property damage insurance on its properties in amounts which management believes to be adequate. Item 3. Legal Proceedings The Company is from time to time subject to pending claims and lawsuits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of such claims and lawsuits will not have a material adverse effect on the Company's operations or consolidated financial position. There are no material legal proceedings to which any director, officer, or affiliate of the Company, or any associate of any such director or officer, is a party, or has a material interest, adverse to the Company. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted during the fourth quarter of the fiscal year ended August 31, 2001, to a vote of security holders of the Company. Item 4A. Executive Officers of the Registrant Certain information is set forth below concerning the executive officers of the Company, each of whom has been elected to serve until the 2002 annual meeting of shareholders and until his or her successor is duly elected and qualified. Served as Officer Positions with Company and Name Since Principal Occupation Last Five Years Age ________________________ ________ ____________________________________ ___ Christopher J. Pappas 2001 President and CEO (since March 2001); 54 CEO of Pappas Restaurants, Inc. Harris J. Pappas 2001 Chief Operating Officer (since March 57 2001); President of Pappas Restaurants, Inc. Ernest Pekmezaris 2001 Senior Vice President and CFO (since 57 March 2001); Treasurer and CFO of Pappas Restaurants, Inc. since 1992 S. Darrell Wood 1997 Senior Vice President-Head of Field 39 Operations (since October 2000); Senior Vice President-Operations (April 1999 - October 2000); Vice President- New Concept Development (1998-1999); Area Vice President (1997-1998); Restaurant Manager prior to 1997. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Stock Prices and Dividends The Company's common stock is traded on the New York Stock Exchange under the symbol LUB. The following table sets forth, for the last two fiscal years, the high and low sales prices on the New York Stock Exchange from the consolidated transaction reporting system and the per share cash dividends declared on the common stock. Fiscal Quarter Quarterly Ended High Low Cash Dividend _________________ ______ ______ ______________ November 30, 1999 $14.13 $11.31 $.20 February 29, 2000 11.94 9.69 .20 May 31, 2000 10.69 8.75 .20 August 31, 2000 9.63 5.63 .10 November 30, 2000 5.88 4.25 .00* February 28, 2001 7.99 3.50 .00 May 31, 2001 8.98 6.65 .00 August 31, 2001 10.05 8.40 .00 *Dividend suspended October 26, 2000. As of September 14, 2001, there were approximately 3,939 record holders of the Company's common stock. Item 6. Selected Financial Data. Five-Year Summary of Operations (Thousands of dollars except per share data) Year ended August 31,
2001 2000 1999 1998 1997 _________ ________ ________ ________ ________ Sales $467,161 $493,384 $501,493 $508,871 $495,446 Costs and expenses: Cost of food 117,774 125,167 122,418 129,126 121,287 Payroll and related costs 166,404 155,769 154,817 155,152 146,940 Occupancy and other operating expenses 166,533 159,793 155,828 154,501 150,638 General and administrative expenses 25,355 20,999 22,031 22,061 19,451 Provision for asset impairments and store closings 30,402 14,544 - 36,852 12,432 ________ ________ ________ ________ ________ 506,468 476,272 455,094 497,692 450,748 ________ ________ ________ ________ ________ Income (loss) from Operations (39,307) 17,112 46,399 11,179 44,698 ________ ________ ________ ________ ________ Other income (expenses): Interest expense (11,660) (5,908) (4,761) (5,078) (4,037) Other income, net 2,188 2,217 1,846 1,778 2,001 ________ ________ ________ ________ ________ (9,472) (3,691) (2,915) (3,300) (2,036) ________ ________ ________ ________ ________ Income (loss) before income taxes (48,779) 13,421 43,484 7,879 42,662 Provision (benefit) for income taxes (16,898) 4,296 14,871 2,798 14,215 ________ ________ ________ ________ ________ Net income (loss) $(31,881) $ 9,125 $ 28,613 $ 5,081 $ 28,447 ________ ________ ________ ________ ________ Net income (loss) per common share - basic $ (1.42) $ 0.41 $ 1.27 $ 0.22 $ 1.22 ________ ________ ________ ________ ________ Net income (loss) per common share - assuming dilution $ (1.42) $ 0.41 $ 1.26 $ 0.22 $ 1.21 ________ ________ ________ ________ ________ Cash dividend declared per common share $ 0.00 $ 0.70 $ 0.80 $ 0.80 $ 0.80 ________ ________ ________ ________ ________ At year-end: Total assets $353,462 $370,843 $346,025 $339,041 $368,778 Long-term debt $127,401 $116,000 $ 78,000 $ 73,000 $ 84,000 Number of restaurants 213 231 223 229 229 Note: In fiscal year 2002, the Company will move from 12 calendar months to 13 four-week periods. The first period of fiscal year 2002 will begin September 1, 2001, and will cover 26 days. All subsequent periods will cover 28 days. Fiscal years prior to 2002 were 365 days in length. Fiscal year 2002, the Company's conversion year from months to periods, will be 362 days in length. Fiscal years subsequent to 2002 will be 364 days in length.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources _______________________________ During the last several years, the Company has funded all capital expenditures from internally generated funds, cash equivalents, and credit-facility debt. Capital expenditures for fiscal 2001 were $17,630,000. This 69% decrease from fiscal 2000 was a result of fewer new restaurant openings and relocations in comparison with the previous fiscal year. In fiscal 2001, one restaurant was opened, one was relocated, and no restaurants were under construction at August 31, 2001. In comparison, in fiscal year 2000, 11 restaurants were opened, four were relocated, and two restaurants were under construction at August 31, 2000. Fiscal 2001 capital expenditures included approximately $4.1 million related to remodels in 17 restaurants. Capital expenditures for fiscal 2002 are expected to approximate $15 million. The Company will focus on improving the appearance, functionality, and sales at existing restaurants. These efforts will include changing several locations to other dining concepts, where feasible. As a start, the Company plans to remodel two currently closed units. One will reopen as a new seafood restaurant. The new dining theme for the other restaurant is still under development. At August 31, 2001, the Company had a working capital deficit of $8,975,000, which compares to the prior year's working capital deficit of $31,420,000. The working capital position improved during fiscal 2001 due primarily to expense- control initiatives, price increases in the latter half of the year, and a $10 million loan from the CEO and COO. See Note 5 of the Consolidated Financial Statements for additional information regarding the loan. The Company typically carries current liabilities in excess of current assets because cash generated from operating activities is reinvested in capital expenditures. In the fourth quarter, the Company entered into an amendment of its credit- facility agreement with a syndicate of four banks. Among other things, the amendment provides for a reduction in commitment with each principal payment, securing the credit-facility debt with real property, the modification of financial compliance evaluations from three criteria to one criterion focused on EBITDA, and a change in the interest rate. The Company made a $1 million principal payment on July 6, 2001. At August 31, 2001, the Company had $122,000,000 outstanding under its credit facility. The maturity date of the amended credit facility is April 30, 2003, with a provision for extension to April 30, 2004, given satisfactory conditions. Subsequent to fiscal year-end 2001, the terrorist attacks of September 11 and resulting recessionary trends negatively impacted the Company's ability to meet its first quarterly EBITDA covenant for fiscal year 2002. Accordingly, the Company obtained a waiver and amendment to its credit agreement dated December 5, 2001, which waives its noncompliance with first-quarter EBITDA levels, resets remaining fiscal 2002 quarterly EBITDA targets, and limits capital expenditures for the year to $15 million. The Company expects to be in compliance with its revised covenants for fiscal year 2002. See Note 5 of the Notes to Consolidated Financial Statements. The Company believes that funds generated from operations are adequate for its foreseeable needs. Interest Rate Protection Agreements The Company had two Interest Rate Protection Agreements (Swaps) that effectively fixed the rate on a portion of the floating-rate debt outstanding under its revolving line of credit. The Swaps fixed interest at a rate of 6.50% in the notional amounts of $30 million and $15 million; both were scheduled to terminate as of June 30, 2002. The differential to be paid or received as interest rates changed was accrued and recognized as an adjustment to interest expense related to the debt. Due to declining interest rates and in anticipation of additional future unfavorable interest rate changes, the Company terminated its Swaps effective July 2, 2001, for a cash payment of $1,255,000, including accrued interest of $163,000. Change in Accounting Estimate Throughout the first three quarters of the fiscal year, the Company observed increased costs relative to insurance. The costs primarily escalated in the area of workers' compensation. In the fourth quarter, the Company consulted with an outside actuarial firm that reassessed losses based upon increasing cost trends and other pertinent information. The results indicated that a change in accounting estimate was necessary. The effect of this change in the fourth quarter was a reduction in pretax earnings of $6.6 million. The Company last obtained a similar actuarial report for claim cost estimation purposes as of December 15, 1997. Subsequent to August 31, 2001, the Company launched a new in-house safety and claims program in order to decrease the incidence of accidents and injuries and to better control expenses related to claims costs. Trends and Uncertainties The tragic events of September 11, 2001, increased concerns over national security, fueled the development of recessionary trends, and cast uncertainty on the general economic outlook of the country. The long-term impact of these trends and uncertainties on the Company will ultimately depend on their resulting severity and duration and their effect on consumer spending. The short-term effect on the Company's sales and cash flow was immediate and contributed to its inability to meet its EBITDA covenant for the first quarter of fiscal 2002. In response to these events, the Company obtained a waiver and amendment from its syndicate of banks on December 5, 2001, which waived its noncompliance with the first-quarter EBITDA and reset quarterly EBITDA and capital spending targets for the remainder of fiscal 2002. For further discussion, see Note 5 of the Notes to Consolidated Financial statements. Statement of Financial Accounting Standards No. 121 (SFAS 121) requires the Company to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company considers a history of operating losses or negative cash flows and unfavorable changes in market conditions to be its main indicators of potential impairment. Assets are evaluated for impairment at the restaurant level. As a result of these indicators, impairment or restaurant closure charges may be recognized in future periods. See Note 2 of the Notes to Consolidated Financial Statements for the year ended August 31, 2001, for further discussion of 2001 and 2000 pretax impairment and store closure costs. Reserve for Store Closings As of August 31, 2001, 15 restaurants were designated for closure. The reserve for store closings was increased from $1.8 million at August 31, 2000, to $4.5 million at August 31, 2001, in anticipation of lease settlement costs, legal and professional fees, and other exit costs related to these stores. During fiscal year 2001, the Company had cash outlays related to the reserve, which originally resulted from provisions for closure costs made in fiscal year 2000. See further discussion of the 2001 and 2000 pretax store-closure costs in Note 2 of the Notes to Consolidated Financial Statements for the year ended August 31, 2001. Results of Operations Fiscal 2001 Compared to Fiscal 2000 ___________________________________ Sales decreased $26,223,000, or 5.3%, primarily due to 19 store closures as well as market conditions in the fiscal year. The closing of three restaurants in fiscal 2000 contributed in part to the decrease in sales. This decline was partially offset by a price increase on the Lu Ann platter. Additionally, the heavily discounted Luby's platter and "Big2Do" bundled offerings that were launched in the fourth quarter of 2000 were discontinued in the third quarter of 2001. Cost of food decreased $7,393,000, or 5.9%, due to various factors, including store closures and discontinuing "value-added" products in most restaurants. Value-added products are typically more expensive as they have a built-in labor component. Although sales decreased, payroll and related costs increased by $10,635,000, or 6.8%, in comparison to the prior year. A significant portion of this, $9,222,000, was due to higher claims accruals. The Company incurred higher than average and more frequent workers' compensation claims than were experienced in prior years. To help prevent injuries and better control costs in the future, the Company launched a new in-house safety and claims program effective October 1, 2001. Occupancy and other operating expenses increased $6,740,000, or 4.3%. This increase was due primarily to higher utility costs resulting from increased commodity rates, higher property taxes related to new stores and remodels, and higher repair expenses incurred as part of an initiative by new management to bring all stores up to a higher standard of maintenance and appearance. These increases were partially offset by lower advertising expense due to a new strategic focus. Lower preopening expenses due to opening fewer restaurants in the current fiscal year contributed to the offset of these expenses. General and administrative expenses increased by $4,356,000, or 20.8%, in comparison to the prior year. The increase was due primarily to noncash compensation of $1,942,000 related to stock options granted to the Company's CEO and COO. Other costs that contributed to the increase included legal and consulting fees primarily related to restructuring advice and bank negotiations related to the fourth amendment agreement, the proxy, and the transaction to hire the CEO and COO. As a result of its continuing efforts to redeploy both capital and human resources to improve financial performance and strengthen the organization, the Company recorded a pretax charge of $30.4 million during the year for store closings, associated costs, and asset impairment charges. The principal components of the 2001 charge were as follows: - $11.6 million for the closing of 15 underperforming restaurants. This charge included the cost to write down the properties and equipment to net realizable value and estimated costs for the settlement of lease obligations, legal and professional fees, and other exit costs. Employee severance costs were not accrued. - $17.0 million for asset impairment of 13 restaurants that the Company continues to operate. In accordance with SFAS 121, the properties were written down to the estimated future discounted cash flows or fully written off in the case of negative future cash flows. - $0.8 million primarily for the impairment of one property operated under a joint venture with Waterstreet, Inc. The joint venture, L&W Seafood, Inc., was terminated in 1999. This property was written down to its estimated net realizable value and was sold in fiscal year 2001. - $1.0 million associated with the write-off of assets for two locations that will be remodeled and reopened before the end of fiscal year 2002. Property that cannot be salvaged, transferred, or effectively reused has been written off. At August 31, 2001 and 2000, the Company had a reserve for store closings of $4.5 million and $1.8 million, respectively. Excluding lease settlements, it is anticipated that all material cash outlays required for the store closings planned as of August 31, 2001, will be made prior to August 31, 2002. The following is a summary of the types and amounts recognized as accrued expenses together with cash payments made against such accruals for the three years ended August 31, 2001: Reserve Balance _____________________________________________ Legal and Lease Profes- Other Settlement sional Workforce Exit Total Costs Fees Severance Costs Reserve ______________________________________________ (Thousands of dollars) As of August 31, 1998 $ 4,537 $ 985 $ 260 $ 390 $ 6,172 Additions(reductions) (224) 150 56 (257) (275) Cash payments (406) (135) (244) (45) (830) ______________________________________________ As of August 31, 1999 3,907 1,000 72 88 5,067 Additions(reductions) 675 350 375 300 1,700 Cash payments (3,817) (975) (72) (88) (4,952) ______________________________________________ As of August 31, 2000 765 375 375 300 1,815 Additions(reductions) 4,196 (375) (59) 693 4,455 Cash payments (755) - (316) (693) (1,764) ______________________________________________ As of August 31, 2001 $ 4,206 $ - $ - $ 300 $ 4,506 ______________________________________________ See further discussion in Note 2 of the Consolidated Financial Statements. Interest expense of $11,660,000 for fiscal 2001 was incurred in conjunction with borrowings under the credit facility and is net of $336,000 capitalized on qualifying properties. The increase from fiscal 2000 of $5,752,000, or 97%, was due primarily to higher average borrowings under the credit-facility agreement and less capitalized interest in the current year due to decreased construction. The provision for income taxes decreased $21,194,000, or 493%, due primarily to lower income before income taxes. The Company anticipates that the effective tax rate for fiscal 2002 will be approximately 35%. Fiscal 2000 Compared to Fiscal 1999 ___________________________________ Sales decreased $8,109,000, or 1.6%, primarily due to the decline in sales volumes at restaurants open over 18 months of approximately 3.9%. Part of the decrease was also caused by the closing of ten restaurants in fiscal 1999 and three restaurants in fiscal 2000. This decline was partially offset by the addition of 11 new restaurants in fiscal 2000 and four in fiscal 1999. Cost of food increased $2,749,000, or 2.2%, due to various factors, including efforts to increase dinner sales by offering additional higher-end entrees such as steak, shrimp, and prime rib and efforts to drive customer traffic in various markets by offering discount coupons. Also, higher commodity prices, especially for pork, beef, and vegetables, had a negative impact on food costs. In the second half of the fiscal year, food costs were also impacted by the testing of various "value-added" products in most of the restaurants, which by their nature are more expensive since they have a built-in labor component. In restaurants where the Company was unsuccessful in lowering the labor hours due to minimum production deployments, the usage of these products was cut back beginning in July 2000. Although sales decreased, payroll and related costs increased by $952,000, or 0.6%, in comparison to the prior year. Pressure from higher hourly wage rates was partially offset by the usage of fewer labor hours in the restaurants. Occupancy and other operating expenses increased $3,965,000, or 2.5%, due primarily to higher utility costs resulting from increased rates; higher property taxes related to new stores and remodels; higher preopening expenses associated with more new store openings as compared to the prior year; higher credit card fees due to increased credit card usage versus prior year; higher food-to-go packaging costs related to increased food-to-go sales; and higher depreciation expense associated with the new stores, restaurant remodels, and an increase in technology-related spending. These increases were partially offset by lower uniform expense due to the completion of the rollout of a uniform program and lower management incentive pay as a result of lower sales and profits. General and administrative expenses declined $1,032,000, or 4.7%, primarily because of lower expenses for profit sharing and bonuses. The Company recorded a pretax charge of $14.5 million during the fourth quarter of the fiscal year for store closings, associated costs, asset impairments, and other unusual charges. The principal components of the 2000 charge were as follows: - $7.7 million for the closing of 15 restaurants that did not meet the Company's return on invested capital and sales growth requirements. All were closed by August 31, 2001. This charge included the cost to write down the properties and equipment to net realizable value and estimated costs for the settlement of lease obligations, legal and professional fees, severance costs, and other exit costs. Prior to August 31, 2000, all restaurant employees of the Company were notified of the possibility of their termination due to planned restaurant closures. Approximately 300 employees were terminated. The severance costs for these employees were accrued for and included in the store closing costs. - $3.2 million for asset impairment of six properties that the Company did not plan to close. The carrying value of the assets was written down to estimated future discounted cash flows or fully written off in the case of negative future cash flows. - $1.3 million for the write-down of computer-related equipment and software. The write-down included the abandonment of a payroll-related software package and several point-of-sale (POS) systems. - $1.2 million additional write-down on surplus properties held for sale. These properties were written down to the lower of their historical carrying costs or estimated net realizable values. - $1.1 million related to other unusual charges. The primary component of this charge was the write-off of the remaining asset balance related to L&W Seafood, Inc., a joint venture with Waterstreet, Inc. See Note 2 of the Consolidated Financial Statements. Interest expense of $5,908,000, net of $958,000 capitalized on qualifying properties for fiscal 2000, was incurred in conjunction with borrowings under the credit facility. The increase from fiscal 1999 of $1,147,000, or 24%, was due primarily to higher average borrowings under the credit-facility agreement and a higher weighted average interest rate. Other income increased $371,000 due primarily to recorded gains on the sale of properties that were held for sale and a recorded tenant lease buyout. The provision for income taxes decreased $10,575,000, or 71%, due primarily to lower income before income taxes. In addition, the effective tax rate decreased from 34.2% to 32.0%. This was due to the completion of a federal tax audit covering several periods, which resulted in favorable determinations in several areas. The Company anticipated that the effective tax rate for fiscal 2001 would be approximately 35%. Inflation _________ The Company's policy is to maintain stable menu prices without regard to seasonal variations in food costs. General increases in costs of food, wages, supplies, and services make it necessary for the Company to increase its menu prices from time to time. To the extent prevailing market conditions allow, the Company intends to adjust menu prices to maintain profit margins. Forward-Looking Statements __________________________ Except for the historical information contained in this annual report, certain statements made herein are forward looking regarding cash flow from operations, restaurant openings, operating margins, capital requirements, and other matters. In addition, efforts to close, sell, or improve operating results of underperforming stores depend on many factors not within the Company's control such as the negotiation of settlements of existing lease obligations under acceptable terms, availability of qualified buyers for owned locations, and customer traffic. These forward-looking statements involve risks and uncertainties and, consequently, could be affected by general business conditions, the impact of competition, the success of operating initiatives, changes in cost and supply of food and labor, the seasonality of the Company's business, taxes, inflation, and governmental regulations, which could cause actual results to differ materially from current plans. Management does not expect to update such forward-looking statements continually as conditions change, and readers should consider that such statements pertain only to the date hereof. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company has $122 million outstanding under its credit facility at prime plus an applicable margin. Additionally, the Company has $10 million in notes which bears interest at LIBOR plus 2%. At August 31, 2001, the total amount of debt subject to interest rate fluctuations was $132 million. A 1% change in interest rate would result in an increase or decrease in annual interest expense of $1,320,000. Item 8. Financial Statements and Supplementary Data LUBY'S, INC. FINANCIAL STATEMENTS Years Ended August 31, 2001, 2000, and 1999 with Report of Independent Auditors Report of Independent Auditors The Board of Directors and Shareholders Luby's, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Luby's, Inc. and Subsidiaries at August 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended August 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 consolidated financial position of Luby's, Inc. and Subsidiaries at August 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2001, in conformity with accounting principles generally accepted in the United States. /s/ERNST & YOUNG LLP San Antonio, Texas October 15, 2001, except for the third paragraph of Note 5, as to which the date is December 5, 2001 Luby's, Inc. Consolidated Balance Sheets August 31, 2001 2000 ________ _______ (Thousands of dollars) Assets Current assets: Cash and cash equivalents $ 4,099 $ 679 Short-term investments 19,984 - Trade accounts and other receivables 358 403 Food and supply inventories 2,701 3,853 Income tax receivable 4,468 3,749 Prepaid expenses 2,765 4,481 Deferred income taxes 4,931 1,540 ________ ________ Total current assets 39,306 14,705 ________ ________ Property held for sale 3,047 13,156 Investments and other assets: Land held for future use 5,333 756 Other assets 596 4,102 ________ ________ Total investments and other assets 5,929 4,858 ________ ________ Property, plant, and equipment - at cost, less accumulated depreciation and amortization 305,180 338,124 ________ ________ Total assets $353,462 $370,843 ________ ________ Liabilities and shareholders' equity Current liabilities: Accounts payable $ 13,696 $ 19,843 Dividends payable - 2,242 Accrued expenses and other liabilities 34,585 24,040 ________ ________ Total current liabilities 48,281 46,125 ________ ________ Long-term debt 127,401 116,000 Deferred income taxes and other liabilities 2,271 10,162 Reserve for store closings 4,506 1,815 Commitments and contingencies - - Shareholders' equity: Common stock, $.32 par value; authorized 100,000,000 shares, issued 27,403,067 shares 8,769 8,769 Paid-in capital 33,882 27,202 Accumulated other comprehensive income (loss) (592) - Retained earnings 234,715 266,596 Less cost of treasury stock, 4,980,124 and 4,982,692 shares in 2001 and 2000, respectively (105,771) (105,826) ________ ________ Total shareholders' equity 171,003 196,741 ________ ________ Total liabilities and shareholders' equity $353,462 $370,843 ________ ________ See accompanying notes. Luby's, Inc. Consolidated Statements of Operations Year Ended August 31, 2001 2000 1999 ____ ____ ____ (Thousands of dollars except per share data) Sales $467,161 $493,384 $501,493 Costs and expenses: Cost of food 117,774 125,167 122,418 Payroll and related costs 166,404 155,769 154,817 Occupancy and other operating expenses 166,533 159,793 155,828 General and administrative expenses 25,355 20,999 22,031 Provision for asset impairments and store closings 30,402 14,544 - ________ ________ ________ 506,468 476,272 455,094 _______ ________ Income (loss) from operations (39,307) 17,112 46,399 Interest expense (11,660) (5,908) (4,761) Other income, net 2,188 2,217 1,846 ________ ________ ________ Income (loss) before income taxes (48,779) 13,421 43,484 Provision (benefit) for income taxes: Current (6,276) 4,528 11,558 Deferred (10,622) (232) 3,313 ________ ________ ________ (16,898) 4,296 14,871 ________ ________ ________ Net income (loss) $(31,881) $ 9,125 $ 28,613 ________ ________ ________ Net income (loss) per share - basic $ (1.42) $ 0.41 $ 1.27 ________ ________ ________ Net income (loss) per share - assuming dilution $ (1.42) $ 0.41 $ 1.26 ________ ________ ________ See accompanying notes. Luby's, Inc. Consolidated Statements of Shareholders' Equity
Accumu- lated Compre- Compre- Total hensive Common Stock hensive Share- Income Issued Treasury Paid-In Retained Income holders' (Loss) Shares Amount Shares Amount Capital Earnings (loss) Equity _____________________________________________________________________________________________ (Amounts in thousands except per share data) Balance at August 31, 1998 27,403 $8,769 (4,132) $ (92,907) $27,012 $262,540 $ - $205,414 Net income (loss) for the year $28,613 - - - - - 28,613 - 28,613 Common stock issued under benefit plans, net of shares tendered in partial pay- ment and including tax benefits - - - - 84 - - 84 Cash dividends, $.80 per share - - - - - (17,988) - (17,988) Purchases of treasury stock - - (851) (12,919) - - - (12,919) ______ _______ ______ ______ ________ _______ _______ ____ _______ Balance at August 31, 1999 28,613 27,403 8,769 (4,983) (105,826) 27,096 273,165 - 203,204 _______ Net income (loss) for the year 9,125 - - - - - 9,125 - 9,125 Common stock issued under benefit plans, net of shares tendered in partial pay- ment and including tax benefits - - - - 106 - - 106 Cash dividends, $.70 per share - - - - - (15,694) - (15,694) ______ _______ ______ ______ ________ _______ _______ ____ _______ Balance at August 31, 2000 9,125 27,403 8,769 (4,983) (105,826) 27,202 266,596 - 196,741 ________ Other com- prehensive income (loss), net of taxes: Cumulative effect of a change in accounting for deriva- tive finan- cial instru- ments upon adoption of SFAS 133, net of taxes of $61 114 - - - - - - 114 114 Net deriva- tive loss, net of taxes of $514 (958) - - - - - - (958) (958) Reclassifi- cation ad- justment for loss included in net income (loss), net of taxes of $71 133 - - - - - - 133 133 Reclassifi- cation ad- justment for loss recog- nized on termination of interest rate swaps, net of taxes of $64 119 - - - - - - 119 119 ________ (592) Net income (loss) for the year (31,881) - - - - - (31,881) - (31,881) Common stock issued under benefit plans, net of shares tendered in partial pay- ment and including tax benefits - - 3 55 58 - - 113 Noncash stock compensation expense - - - - 1,942 - - 1,942 Intrinsic value of beneficial conversion feature on convertible subordinated notes - - - - 4,680 - - 4,680 ______ _______ ______ ______ ________ _______ _______ ____ _______ Balance at August 31, 2001 $(32,473) 27,403 $8,769 (4,980) $(105,771) $33,882 $234,715 $(592) $171,003 ______ _______ ______ ______ ________ _______ _______ ____ _______ See accompanying notes.
Luby's, Inc. Consolidated Statements of Cash Flows Year Ended August 31, 2001 2000 1999 _____ _____ _____ (Thousands of dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(31,881) $ 9,125 $28,613 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 23,065 22,784 20,025 Amortization of deferred loss on interest rate swaps 183 - - Amortization of discount on convertible subordinated notes 81 - - Noncash directors' fees 112 - - Noncash compensation expense 1,942 - - Provision for asset impairments and store closings 30,402 14,544 - Gain on disposal of property held for sale (1,741) (397) (382) Loss on disposal of property, plant, and equipment 547 11 84 Settlements associated with store closings - (125) (275) ________ ________ ________ Cash provided by operating activities before changes in operating assets and liabilities 22,710 45,942 48,065 Changes in operating assets and liabilities: (Increase) decrease in trade accounts and other receivables 45 181 120 (Increase) decrease in food and supply inventories 1,152 (167) 1,386 (Increase) decrease in income tax receivable (719) - - (Increase) decrease in prepaid expenses 1,716 71 (177) (Increase) decrease in other assets (117) (232) 912 Increase (decrease) in accounts payable (6,147) (93) 7,204 Increase (decrease) in accrued expenses and other liabilities 10,545 (1,114) (2,887) Increase (decrease) in income taxes payable - (4,131) (1,687) Increase (decrease) in deferred income taxes and other credits (10,964) (364) 3,168 Increase (decrease) in reserve for store closings (1,301) (4,827) (830) ________ ________ ________ Net cash provided by operating activities $ 16,920 $35,266 $55,274 ________ ________ ________ CASH FLOWS FROM INVESTING ACTIVITIES: (Increase) decrease in short-term investments (19,984) - - Proceeds from disposal of property held for sale 7,825 1,861 5,850 Proceeds from disposal of property, plant, and equipment - 74 178 Purchases of land held for future use - (3,378) (6,926) Purchases of property, plant, and equipment (17,630) (53,494) (31,773) ________ ________ ________ Net cash used in investing activities (29,789) (54,937) (32,671) ________ ________ ________ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from convertible subordinated notes 10,000 - - Net borrowings under credit facility 6,000 38,000 5,000 Purchases of treasury stock - - (12,919) Dividends paid (2,242) (17,936) (18,158) Cash paid upon termination of interest rate swaps (1,092) - - Proceeds from borrowing against cash surrender value of officers' life insurance 3,623 - - ________ ________ ________ Net cash provided by (used in) financing activities 16,289 20,064 (26,077) ________ ________ ________ Net increase (decrease) in cash and cash equivalents 3,420 393 (3,474) Cash and cash equivalents at beginning of year 679 286 3,760 ________ ________ ________ Cash and cash equivalents at end of year $ 4,099 $ 679 $ 286 ________ ________ ________ See accompanying notes. Luby's, Inc. Notes to Consolidated Financial Statements August 31, 2001, 2000, and 1999 1. Nature of Operations and Significant Accounting Policies Nature of Operations Luby's, Inc. and Subsidiaries (the Company), based in San Antonio, Texas, owns and operates restaurants in the southern United States. As of August 31, 2001, the Company operated a total of 213 units. The Company locates its restaurants convenient to shopping and business developments as well as to residential areas. Accordingly, the restaurants appeal primarily to shoppers, store and office personnel at lunch, and to families at dinner. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Luby's, Inc. and its wholly owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Inventories The food and supply inventories are stated at the lower of cost (first-in, first-out) or market. Property Held for Sale Property held for sale is stated at the lower of cost or estimated net realizable value. Depreciation and Amortization The Company depreciates the cost of plant and equipment over their estimated useful lives using both straight-line and accelerated methods. Leasehold improvements are amortized over the related lease lives, which are in some cases shorter than the estimated useful lives of the improvements. Long-Lived Assets Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount. The Company evaluates impairments on a restaurant-by-restaurant basis and uses three or more years of negative cash flows and other market conditions as indicators of impairment. Impairment losses are also recorded for long-lived assets that are expected to be disposed of. Statement of Cash Flows For purposes of the statement of cash flows, the Company considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents. Preopening Expenses New store preopening costs are expensed as incurred. Fiscal Year In fiscal year 2002, the Company will move from 12 calendar months to 13 four- week periods. The first period of fiscal year 2002 will begin September 1, 2001, and will cover 26 days. All subsequent period will cover 28 days. Fiscal year 2002 will end on August 28, 2002. Advertising Expenses Advertising costs are expensed as incurred. Advertising expense as a percentage of sales approximates 1.6%, 2.1%, and 2.4% for fiscal years 2001, 2000, and 1999, respectively. Income Taxes Deferred income taxes are computed using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities (temporary differences) and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. Stock-Based Compensation The Company accounts for its stock compensation arrangements under the provisions of Accounting Principles Board (APB) No. 25, "Accounting for Stock Issued to Employees," and makes the pro forma information disclosures required under the provisions of Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." Stock-based compensation expense is recognized as vested on a straight-line basis. Derivative Financial Instruments The Company adopted Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities," and its amendments, Statements No. 137 and 138, on September 1, 2000. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Pursuant to this standard, the Company designated its Interest Rate Protection Agreements (Swaps) as cash flow hedge instruments. Swaps have been used to manage exposure to interest rate movement by effectively changing the variable rate to a fixed rate. The critical terms of the Swaps and the interest-bearing debt associated with the Swaps were the same; therefore, the Company assumed that there was no ineffectiveness in the hedge relationship. Changes in fair value of the Swaps are recognized in other comprehensive income (loss), net of tax effects, until the hedged items are recognized in earnings. Use of Estimates In preparing financial statements in conformity with accounting principles generally accepted in the United States, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from these estimates. New Accounting Pronouncements The Company reviewed recent accounting pronouncements, including SFAS 144, entitled "Accounting for the Impairment or Disposal of Long-Lived Assets." The provisions of SFAS 144 supersede SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and will take effect in fiscal 2003 for the Company. At that time, the Company will ensure existing policies are consistent with the provisions of SFAS 144. Relative to the other recent pronouncements, management does not anticipate that their effect upon adoption, if applicable, will have a significant effect on earnings or the financial position of the Company. 2. Impairment of Long-Lived Assets and Store Closings In 2001 and 2000, the Company recorded a charge to operating costs of $30.4 million and $14.5 million, respectively, for asset impairment and store closure costs. In accordance with Company guidelines, management periodically reviews the financial performance of each store for indicators of impairment or indicators that closure would be appropriate. Where indicators are present, such as three full years of negative cash flows or other unfavorable market conditions, the carrying values of assets are written down to the estimated future discounted cash flows or fully written off in the case of negative cash flows anticipated in the future. Estimated future cash flows are based upon regression analyses generated from similar restaurants, discounted at the Company's weighted average cost of capital. During 2001, the Company recorded a pretax charge of $30.4 million as a result of its reviews for impairments in accordance with SFAS 121 and assessments of closure costs. The principal components of the 2001 charge were as follows: - $11.6 million for the closing of 15 underperforming restaurants. This charge included the cost to write down the properties and equipment to net realizable value and estimated costs for the settlement of lease obligations, legal and professional fees, and other exit costs. Employee severance costs were not accrued. - $17.0 million for asset impairment of 13 restaurants that the Company continues to operate. In accordance with SFAS 121, the properties were written down to the estimated future discounted cash flows or fully written off in the case of negative future cash flows. - $0.8 million primarily for the impairment of one property operated under a joint venture with Waterstreet, Inc. The joint venture, L&W Seafood, Inc., was terminated in 1999. This property was written down to its estimated net realizable value and was sold in fiscal year 2001. - $1.0 million associated with the write-off of assets for two locations that will be remodeled and reopened before the end of fiscal year 2002. The Company closed these units by October 31, 2001. Property that cannot be salvaged, transferred, or effectively reused has been written off. The results of operations for the 15 restaurants designated for closure at August 31, 2001, were as follows: Year Ended August 31, 2001 2000 1999 __________________________ (Thousands of dollars) Sales $19,327 $19,190 $16,669 Operating loss (4,289) (3,145) (1,245) The Company recorded a pretax charge of $14.5 million during the fourth quarter of fiscal year 2000 for store closures, associated costs, asset impairments in accordance with SFAS 121, and other unusual charges. The principal components of the charge were as follows: - $7.7 million for the closing of 15 restaurants that did not meet the Company's return on invested capital and sales growth requirements. All were closed by August 31, 2001. This charge included the cost to write down the properties and equipment to net realizable value and estimated costs for the settlement of lease obligations, legal and professional fees, severance costs, and other exit costs. Prior to August 31, 2000, all restaurant employees of the Company were notified of the possibility of their termination due to planned restaurant closures. Approximately 300 employees were terminated. The severance costs for these employees were accrued for and included in the store closing costs. - $3.2 million for asset impairment of six properties that the Company did not plan to close. The carrying value of the assets was written down to estimated future discounted cash flows or fully written off in the case of negative future cash flows. - $1.3 million for the write-down of computer-related equipment and software. The write-down included the abandonment of a payroll-related software package and several point-of-sale (POS) systems. - $1.2 million additional write-down on surplus properties held for sale. These properties were written down to the lower of their historical carrying costs or estimated net realizable values. - $1.1 million related to other unusual charges. The primary component of this charge was the write-off of the remaining asset balance related to L&W Seafood, Inc. The results of operations for the 15 restaurants designated for closure at August 31, 2000, were as follows: Year Ended August 31, 2001 2000 1999 __________________________ (Thousands of dollars) Sales $2,632 $19,296 $21,244 Operating loss (923) (1,470) (205) At August 31, 2001 and 2000, the Company had a reserve for store closings of $4.5 million and $1.8 million, respectively. All material cash outlays associated with the closures planned as of August 31, 2000, were completed by August 31, 2001. Excluding lease termination settlements, it is anticipated that all material cash outlays required for the store closings planned as of August 31, 2001, will be made prior to August 31, 2002. The following is a summary of the types and amounts recognized as accrued expenses together with cash payments made against such accruals for the three years ended August 31, 2001: Reserve Balance _____________________________________________ Legal and Lease Profes- Other Settlement sional Workforce Exit Total Costs Fees Severance Costs Reserve ______________________________________________ (Thousands of dollars) As of August 31, 1998 $ 4,537 $ 985 $ 260 $ 390 $ 6,172 Additions(reductions) (224) 150 56 (257) (275) Cash payments (406) (135) (244) (45) (830) ______________________________________________ As of August 31, 1999 3,907 1,000 72 88 5,067 Additions(reductions) 675 350 375 300 1,700 Cash payments (3,817) (975) (72) (88) (4,952) ______________________________________________ As of August 31, 2000 765 375 375 300 1,815 Additions(reductions) 4,196 (375) (59) 693 4,455 Cash payments (755) - (316) (693) (1,764) ______________________________________________ As of August 31, 2001 $ 4,206 $ - $ - $ 300 $ 4,506 ______________________________________________ 3. Property, Plant, and Equipment The cost and accumulated depreciation of property, plant, and equipment at August 31, 2001 and 2000, together with the related estimated useful lives used in computing depreciation and amortization, are reflected below: Estimated 2001 2000 Useful Lives ________ ________ _______________ (Thousands of dollars) Land $ 79,977 $ 79,279 - Restaurant equipment and furnishings 135,670 144,160 3 to 15 years Buildings 236,091 251,260 20 to 40 years Leasehold and leasehold improvements 35,582 41,215 Term of leases Office furniture and equipment 11,486 10,504 5 to 10 years Transportation equipment 937 975 5 years Construction in progress 289 3,382 - ________ ________ 500,032 530,775 Less accumulated depreciation and amortization 194,852 192,651 ________ ________ $305,180 $338,124 ________ ________ 4. Change in Accounting Estimate Throughout the first three quarters of fiscal year 2001, the Company observed increased costs relative to insurance. The costs primarily escalated in the area of workers' compensation. In the fourth quarter, the Company consulted with an outside actuarial firm that reassessed losses based upon increasing cost trends and other pertinent information. The results indicated that a change in accounting estimate was necessary. The after-tax effect of this change in the fourth quarter was a reduction in earnings of $4.3 million, or $0.19 per share. The Company last obtained a similar actuarial report for claim cost estimation purposes as of December 15, 1997. Subsequent to August 31, 2001, the Company launched a new in-house safety and claims program in order to decrease the incidence of accidents and injuries and better control expenses related to claims costs. 5. Debt Credit Facility The Company had a $125 million credit facility with a syndicate of four banks. Effective June 29, 2001, the Company amended its credit facility to include a reduction in commitment with each principal payment, securing of the debt with real property, and the modification of financial compliance requirements to one criterion focused on EBITDA levels. The Company made a $1 million principal payment on July 6, 2001, which reduced the balance of the credit facility to $122 million. In cases where the Company's performance exceeds EBITDA levels required in the amended credit facility, a portion of that excess will be paid as additional principal reductions. Per the amendment, the Company is also required to pay the facility down in amounts equal to all proceeds received from the sale of real and personal property. The maturity date of the amended credit facility is April 30, 2003, with an extension provision to April 30, 2004, given satisfaction of certain conditions. The interest rate on the outstanding balance of the credit facility is the prime rate plus an applicable margin as required by the amended credit facility. Subsequent to fiscal year-end 2001, the terrorist attacks of September 11 and increased recessionary trends resulted in the Company's inability to meet its first quarterly EBITDA covenant for fiscal year 2002. Accordingly, the Company obtained a waiver and amendment to its credit agreement dated December 5, 2001, which waives its noncompliance with first-quarter EBITDA levels, resets remaining fiscal 2002 quarterly EBITDA targets, and limits capital expenditures for the year to $15 million. The Company expects to be in compliance with its revised covenants for fiscal year 2002. The credit facility includes a provision for the issuance of letters of credit in the amount of $1,184,000. The credit facility allows the Company to acquire additional letters of credit in the ordinary course of business. The Company had two Swaps, which effectively fixed the rate on a portion of the floating-rate debt outstanding under its line of credit. The Swaps were fixed- rate agreements in the notional amounts of $30 million and $15 million. Both Swaps offered fixed rates, at 6.50%, in exchange for the Company's floating line of credit rate. The original termination date for each Swap was June 30, 2002. At September 1, 2000, the Swaps were in a favorable position by approximately $175,000. In accordance with the transition provisions of SFAS 133, the net-of-tax cumulative effect of an accounting change adjustment on September 1, 2000, was $114,000 in accumulated other comprehensive income (loss), with a deferred income tax liability of $61,000. Due to declining interest rates and in anticipation of additional future unfavorable interest rate changes, the Company terminated its Swaps on July 2, 2001, for a cash payment of $1,255,000, including accrued interest of $163,000. In accordance with SFAS 133, the loss of $1,092,000 is being recognized as interest expense over the original term of the Swaps. At August 31, 2001, $592,000, net of taxes of $318,000, remains in accumulated other comprehensive loss. Convertible Subordinated Notes On March 9, 2001, the Company's newly appointed CEO and COO, Christopher J. Pappas and Harris J. Pappas, respectively, made a commitment to loan the Company $10 million in exchange for convertible subordinated notes that were funded in the fourth quarter of fiscal 2001. The notes bear interest at LIBOR plus 2%, payable quarterly, and have a stated redemption date of March 1, 2011. Interest through September 1, 2003, may be paid in a combination of cash, common stock, or both at the Company's election, subject to certain restrictions on the amount of stock issued. Notwithstanding any accrued interest that may also be converted to options, the notes are convertible into the Company's common stock at $5.00 per share, or 2,000,000 shares, at the option of the holders at any time after January 2, 2003, and prior to the stated redemption date. The conversion price on the notes was less than the market value of the Company's common stock (as determined by the closing price on the New York Stock Exchange on the date of issue). The intrinsic value of this beneficial conversion feature of $4,680,000 has been recorded as a component of paid-in capital and a discount on the notes, which will be amortized to interest expense through the redemption date. The Company has amortized $81,000 of this discount through August 31, 2001. The carrying value of the notes at August 31, 2001, net of the unamortized discount, was approximately $5,401,000. Interest Expense Total interest expense incurred for 2001, 2000, and 1999 was $11,996,000, $6,866,000, and $5,170,000, respectively, which approximated the amount paid in each year. The amounts capitalized on qualifying properties in 2001, 2000, and 1999 were $336,000, $958,000, and $409,000, respectively. 6. Leases The Company conducts part of its operations from facilities that are leased under noncancelable lease agreements. Most of the leases are for periods of ten to twenty-five years and provide for contingent rentals based on sales in excess of a base amount. Approximately 80% of the leases contain renewal options ranging from five to thirty years. Annual future minimum lease payments under noncancelable operating leases as of August 31, 2001, are as follows: Year ending August 31: (Thousands of dollars) 2002 $ 6,502 2003 6,154 2004 5,890 2005 5,472 2006 4,830 Thereafter 29,126 _______ Total minimum lease payments $57,974 _______ Total rent expense for operating leases for the years ended August 31, 2001, 2000, and 1999, was as follows: 2001 2000 1999 ____ ____ _____ (Thousands of dollars) Minimum rentals $6,914 $6,829 $7,052 Contingent rentals 437 660 843 ______ ______ ______ $7,351 $7,489 $7,895 ______ ______ ______ 7. Employee Benefit Plans and Agreements Incentive Compensation The Company has various incentive compensation plans covering officers and other key employees that are based upon the achievement of specified earnings goals and performance factors. Awards under the plans are payable in cash and/or in shares of common stock. Charges to expense for distributions under the plans amounted to $0, $0, and $355,000 in 2001, 2000, and 1999, respectively. Executive Stock Options In conjunction with their employment agreements effective March 9, 2001, the CEO and COO were each granted 1,120,000 stock options with an exercise price of $5.00 per share and a vesting period of three years. As the exercise price was less than market value of the Company's common stock on the date of grant, the Company will recognize $5,242,000 in compensation expense over the vesting period of the options. Vesting was accelerated on 25% of the options in accordance with the agreements when the closing price of the Company's common stock reached and maintained a predetermined price for 20 consecutive trading days. The weighted average exercise price and the Black-Scholes fair value of these options at August 31, 2001, are $5.00 and $4.05, respectively. Approximately $1,942,000 in compensation expense was recognized in fiscal year 2001. Other Stock Options The Company has an Incentive Stock Plan (ISP) to provide for market-based incentive awards, including stock options, stock appreciation rights, and restricted stock. Under this plan, stock options may be granted at prices not less than 100% of fair market value on the date of grant. Options granted to the participants of the plan are exercisable over staggered periods and expire, depending upon the type of grant, in five to ten years. The plan provides for various vesting methods, depending upon the category of personnel. During 1999, the Company authorized 2,000,000 shares of the Company's common stock for the ISP. Under the terms of the ISP, including the 1999 authorization, nonqualified stock options, incentive stock options, and other types of awards for not more than 4,900,000 shares of the Company's common stock may be granted to eligible employees of the Company. Following is a summary of activity in the Company's ISP and the executive stock options for the three years ended August 31, 2001, 2000, and 1999: Weighted Average Exercise Price Per Share-Options Options Options Outstanding Outstanding Exercisable ________________ ___________ ___________ Balances - August 31, 1998 $20.17 764,246 225,704 Granted 15.18 1,532,732 - Became exercisable - - 113,732 Canceled or expired 19.49 (260,350) (161,662) Exercised - - - _________ _________ Balances - August 31, 1999 16.47 2,036,628 177,774 Granted 11.40 622,000 - Became exercisable - - 406,001 Canceled or expired 15.21 (363,087) (58,836) Exercised - - - _________ _________ Balances - August 31, 2000 $15.30 2,295,541 524,939 Granted 5.26 2,958,000 - Became exercisable - - 993,803 Canceled or expired 13.95 (747,300) (77,252) Exercised - - - _________ _________ Balances - August 31, 2001 $ 8.93 4,506,241 1,441,490 _________ _________ Exercise prices for options outstanding as of August 31, 2001, range from $5.00 to $23.13 per share. The weighted average remaining contractual life of these options is 6.74 years. The options exercisable as of August 31, 2001, excluding 560,000 executive stock options, which have an exercise price of $5.00 per share, have a weighted average exercise price of $16.09 per share. At August 31, 2001 and 2000, the number of incentive stock option shares available to be granted under the plans was 874,810 and 845,510 shares, respectively. The Company has elected to follow APB 25, "Accounting for Stock Issued to Employees." Accordingly, since employee stock options, with the exception of the executive stock options discussed above, are granted at market price on the date of grant, no compensation expense is recognized. However, SFAS 123 requires presentation of pro forma net income and earnings per share as if the Company had accounted for its employee stock options granted under the fair value method of that statement. The weighted average fair value of the individual options granted during 2001, 2000, and 1999 is estimated as $3.16, $1.51, and $3.00, respectively, on the date of grant. The impact on net income is minimal; therefore, the pro forma disclosure requirements of SFAS 123 are not significant to the Company. The fair values were determined using a Black-Scholes option pricing model with the following assumptions: 2001 2000 1999 ____ ____ ____ Dividend yield - 6.90% 5.20% Volatility .41 .22 .19 Risk-free interest rate 4.44% 7.00% 7.00% Expected life 8.65 6.11 6.07 Deferred Compensation The Company has a Supplemental Executive Retirement Plan (SERP) for key executives and officers. The SERP is a "target" benefit plan, with the annual lifetime benefit based upon a percentage of average salary during the final five years of service at age 65, offset by several sources of income including benefits payable under deferred compensation agreements, if applicable, the profit sharing plan, and Social Security. SERP benefits will be paid from the Company's assets. The net expense incurred for this plan for the years ended August 31, 2001, 2000, and 1999, was $296,000, $161,000, and $150,000, respectively, and the unfunded accrued pension liability as of August 31, 2001, 2000, and 1999, was approximately $622,000, $692,000, and $564,000, respectively. The current year expense was partially offset by a net curtailment gain of $197,000. The gain was recorded due to forfeited benefits for employees who terminated during the fiscal year. The Company also has a voluntary 401(k) employee savings plan to provide substantially all salaried and hourly employees of the Company an opportunity to accumulate personal funds for their retirement. These contributions may be made on a before-tax basis to the plan. The Company matches 25% of the participant's contributions up to 4% of the participant's salary. During 1999, the Company established a nonqualified deferred compensation plan for highly compensated executives allowing deferral of a portion of their annual salary and up to 100% of bonuses before taxes. The Company does not match any deferral amounts and retains ownership of all assets until distributed. The liability under this deferred compensation plan at August 31, 2001 and 2000, was approximately $70,000 and $287,000, respectively. Profit Sharing The Company has a profit sharing and retirement trust plan (the Plan) covering substantially all employees who have attained the age of 21 years and have completed one year of continuous service. The Plan is administered by a corporate trustee, is a "qualified plan" under Section 401(a) of the Internal Revenue Code, and provides for the payment of the employee's vested portion of the Plan upon retirement, termination, disability, or death. The Plan has been funded by contributions of a portion of the net earnings of the Company. The Plan was amended effective August 31, 2001, to make all contributions discretionary. The Company's annual contribution to the Plan amounted to $0, $700,000, and $1,700,000, for 2001, 2000, and 1999, respectively. 8. Related Parties A director of the Company is also a director of an investment firm that provides investment services for the Company's profit sharing and retirement trust plan (the Plan). During the year ended August 31, 2001, the Plan paid the investment firm approximately $74,000 for its services. The recently hired CEO and COO of the Company own a restaurant company that provides services to the Company. The services include general business consulting, basic equipment maintenance, specialized equipment fabrication, and warehousing support. The total cost of these services for the fiscal year ended August 31, 2001, was $271,000. All costs to date were incurred in the third and fourth quarters after the chief officers were hired. The CEO and the COO loaned the Company a total of $10 million in the form of convertible subordinated notes to support the Company's future daily cash needs. The entire balance was outstanding as of August 31, 2001. The recently hired CFO and the Senior Vice President-Administration provide financial and legal services to the restaurant company owned by the CEO and the COO of the Company; compensation for the services provided by the CFO and the Senior Vice President-Administration to the separate restaurant company are funded by that organization. 9. Income Taxes The tax effect of temporary differences results in deferred income tax assets and liabilities as of August 31 as follows: 2001 2000 ________ _________ (Thousands of dollars) Deferred tax assets: Workers' compensation insurance $ 4,613 $ 1,540 Deferred compensation 1,482 722 Asset impairments and store closure reserves 21,108 14,074 Other 318 - _______ _______ Total deferred tax assets 27,521 16,336 Deferred tax liabilities: Amortization of capitalized interest 484 641 Depreciation and amortization 22,023 20,477 Other 502 1,646 _______ _______ Total deferred tax liabilities 23,009 22,764 _______ _______ Net deferred tax asset (liability) $ 4,512 $(6,428) _______ _______ The reconciliation of the (benefit) provision for income taxes to the expected income tax (benefit) expense (computed using the statutory tax rate) is as follows: 2001 2000 1999 ____ ____ ____ Amount % Amount % Amount % ______ ____ _______ ____ _______ ____ (Thousands of dollars and as a percent of pretax income) Normally expected income tax (benefit) expense $(17,073) (35.0)% $4,697 35.0% $15,219 35.0% State income taxes 125 .3 163 1.2 156 .4 Jobs tax credits (381) (.8) (152) (1.1) (155) (.4) Other differences 431 .9 (412) (3.1) (349) (.8) ______ ____ _______ ____ _______ ____ $(16,898) (34.6)% $4,296 32.0% $14,871 34.2% ______ ____ _______ ____ _______ ____ Cash payments for state and federal income taxes for 2001, 2000, and 1999 were $92,000, $8,659,000 and $13,245,000, respectively. 10. Commitments and Contingencies The Company has guaranteed loan balances outstanding at August 31, 2001, of $1,651,000 relating to purchases of Company stock made by officers of the Company under an officer loan program. Under the program, officers purchased shares; funding, if necessary, was obtained from an unrelated third party. The Company is presently, and from time to time, subject to pending claims and lawsuits arising in the ordinary course of business. In the opinion of management, resolution of these pending legal proceedings will not have a material adverse effect on the Company's operations or consolidated financial position. At August 31, 2001, surety bonds in the amount of $10,115,000 have been issued as security for the payment of insurance obligations classified as accrued expenses on the balance sheet. 11. Common Stock In 1991, the Board of Directors adopted a Shareholder Rights Plan and declared a dividend of one common stock purchase right for each outstanding share of common stock. The rights are not initially exercisable. The Company amended the Shareholder Rights Plan effective March 8, 2001. The rights may become exercisable under circumstances described in the plan if any person or group becomes the beneficial owner of 15% or more of the common stock or announces a tender or exchange offer, the completion of which would result in the ownership by a person or group of 15% or more of the common stock (either, an Acquiring Person). Once the rights become exercisable, each right will be exercisable to purchase, for $27.50 (the Purchase Price), one-half of one share of common stock, par value $.32 per share, of the Company. If any person becomes an Acquiring Person, each right will entitle the holder, other than the Acquiring Person, to purchase for the Purchase Price a number of shares of the Company's common stock having a market value of four times the Purchase Price. In connection with the employment of Christopher J. Pappas, the Company's President and Chief Executive Officer, and Harris J. Pappas, the Company's Chief Operating Officer, the Shareholder Rights Plan was amended to exempt from the operation of the plan Messrs. Pappas' ownership of the Company, which was acquired prior to March 8, 2001 (and certain additional shares permitted to be acquired) and certain shares of common stock which may be acquired in connection with options issued on the date of their employment and the convertible notes subsequently purchased from the Company. The Board of Directors periodically authorizes the purchase in the open market of shares of the Company's outstanding common stock. Under such authorizations, the Company purchased 850,300 shares of its common stock at a cost of $12,919,000 in 1999, which are being held as treasury stock. Common stock is reserved for approximately 4,506,000 shares for issuance upon the exercise of outstanding stock options and 2,000,000 shares for issuance upon the conversion of subordinated notes. In the second quarter of fiscal year 2001, in accordance with the nonemployee director phantom stock plan, the Company distributed 2,568 shares of treasury stock to a retiring Board member. 12. Per Share Information A reconciliation of the numerators and denominators of basic earnings per share and earnings per share assuming dilution is shown in the table below: August 31, 2001 2000 1999 ____ ____ ____ (Thousands of dollars except per share data) Numerator: Net income (loss) $(31,881) $ 9,125 $28,613 ________ _______ _______ Effect of dilutive securities: Interest on convertible subordinated notes 194 - - ________ _______ _______ Numerator for net income (loss) per common share - diluted $(31,687) $ 9,125 $28,613 Denominator for basic earnings per share - weighted average shares 22,422 22,420 22,614 Effect of dilutive securities: Employee stock options 96 2 23 Convertible subordinated notes 312 - - ________ _______ _______ Denominator for earnings per share - assuming dilution - adjusted weighted average shares 22,830 22,422 22,637 ________ _______ _______ Net income (loss) per share - basic $ (1.42) $ 0.41 $ 1.27 ________ _______ _______ Net income (loss) per share - assuming dilution(a) $ (1.42) $ 0.41 $ 1.26 ________ _______ _______ (a) As the Company had a net loss for the year ended August 31, 2001, earnings per share assuming dilution equals basic earnings per share as potentially dilutive securities are antidilutive in loss periods. 13. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities at August 31 consist of: 2001 2000 _______ _______ (Thousands of dollars) Salaries and bonuses $ 6,017 $ 7,467 Rent 453 537 Taxes, other than income 10,124 6,115 Profit sharing plan - 702 Workers' compensation and general liability insurance 16,199 7,112 Other 1,792 2,107 _______ _______ $34,585 $24,040 _______ _______ 14. Quarterly Financial Information (Unaudited) The following is a summary of quarterly unaudited financial information for 2001 and 2000: Three Months Ended __________________ November 30, February 28, May 31, August 31, 2000 2001 2001 2001 ________ ________ ________ _________ (Thousands of dollars except per share data) Sales $113,900 $112,219 $121,677 $119,365 Gross profit 45,330 45,859 50,118 41,676 Net income (loss) (2,008) (9,424)* (1,066) (19,383)* Net income (loss) per share (.09) (.42)* (.05) (.86)* Three Months Ended __________________ November 30, February 29, May 31, August 31, 1999 2000 2000 2000 ________ ________ ________ _________ (Thousands of dollars except per share data) Sales $123,144 $121,924 $126,281 $122,035 Gross profit 54,219 54,417 54,071 49,741 Net income (loss) 6,171 5,617 5,835 (8,498)* Net income (loss) per share .28 .25 .26 (.38)* *See Notes 2 and 4 for discussion of charges recorded during the second quarter of 2001 and the fourth quarters of 2001 and 2000. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. There is incorporated in this Item 10 by reference that portion of the Company's definitive proxy statement for the 2002 annual meeting of shareholders appearing therein under the captions "Election of Directors," "Information Concerning Directors and Committees," and "Certain Relationships and Related Transactions." See also the information in Item 4A of Part I of this Report. Item 11. Executive Compensation. There is incorporated in this Item 11 by reference that portion of the Company's definitive proxy statement for the 2002 annual meeting of shareholders appearing therein under the captions "Compensation of Directors," "Personnel and Administrative Policy Committee Report," "Executive Compensation," "Deferred Compensation," and "Certain Relationships and Related Transactions." Item 12. Security Ownership of Certain Beneficial Owners and Management. There is incorporated in this Item 12 by reference that portion of the Company's definitive proxy statement for the 2002 annual meeting of shareholders appearing therein under the captions "Principal Shareholders" and "Management Shareholders" and "Principal Shareholders." Item 13. Certain Relationships and Related Transactions. There is incorporated in this Item 13 by reference that portion of the Company's definitive proxy statement for the 2002 annual meeting of Shareholders appearing therein under the caption "Certain Relationships and Related Transactions." PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) Documents. 1. Financial Statements The following financial statements are filed as part of this Report: Consolidated balance sheets at August 31, 2001 and 2000 Consolidated statements of operations for each of the three years in the period ended August 31, 2001 Consolidated statements of shareholders' equity for each of the three years in the period ended August 31, 2001 Consolidated statements of cash flows for each of the three years in the period ended August 31, 2001 Notes to consolidated financial statements Report of independent auditors 2. Financial Statement Schedules All schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto. 3. Exhibits The following exhibits are filed as a part of this Report: 3(a) Certificate of Incorporation of Luby's, Inc., as currently in effect (filed as Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference). 3(b) Bylaws of Luby's, Inc. as currently in effect (filed as Exhibit 3(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference). 4(a) Description of Common Stock Purchase Rights of Luby's Cafeterias, Inc., in Form 8-A (filed April 17, 1991, effective April 26, 1991, File No. 1-8308, and incorporated herein by reference). 4(b) Amendment No. 1 dated December 19, 1991, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1991, and Incorporated herein by reference). 4(c) Amendment No. 2 dated February 7, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and Incorporated herein by reference). 4(d) Amendment No. 3 dated May 29, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995, and incorporated herein by reference). 4(e) Amendment No. 4 dated March 8, 2001, to Rights Agreement dated April 16, 1991 (filed as Exhibit 99.1 to the Company's Report on Form 8-A12B/A on March 22, 2001, and incorporated herein by reference). 4(f) Credit Agreement dated February 27, 1996, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference). 4(g) First Amendment to Credit Agreement dated January 24, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 4(h) ISDA Master Agreement dated June 17, 1997, between Luby's Cafeterias, Inc. and NationsBank, N.A., with Schedule and Confirmation dated July 7, 1997 (filed as Exhibit 4(g) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference). 4(i) ISDA Master Agreement dated July 2, 1997, between Luby's Cafeterias, Inc. and Texas Commerce Bank National Association, with Schedule and Confirmation dated July 2, 1997 (filed as Exhibit 4(h) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference). 4(j) Second Amendment to Credit Agreement dated July 3, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(i) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference). 4(k) Third Amendment to Credit Agreement dated October 27, 2000, among Luby's, Inc., Certain Lenders, and Bank of America, N.A. (filed as Exhibit 4(j) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2000, and incorporated herein by reference). 4(l) Fourth Amendment to Credit Agreement dated July 9, 2001, among Luby's, Inc., Bank of America and other creditors of its bank group (filed as Exhibit 4(l) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). 4(m) Deed of Trust, Assignment, Security Agreement, and Financing Statement dated July 2001, executed as part of the Fourth Amended to Credit Agreement (filed as Exhibit 4(m) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). 4(n) Subordination and Intercreditor Agreement dated June 29, 2001, between Harris J. Pappas and Christopher J. Pappas, Bank of American N.A. Agreement [as the bank group agent], and Luby's, Inc. (filed as Exhibit 4(n) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). 4(o) Convertible Subordinated Promissory Note dated June 29, 2001, between Christopher J. Pappas and Luby's, Inc. in the amount of $1,500,000 (filed as Exhibit 4(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). 4(p) Convertible Subordinated Promissory Note dated June 29, 2001, between Harris J. Pappas and Luby's, Inc. in the amount of $1,500,000 (filed as Exhibit 4(p) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). 4(q) Convertible Subordinated Promissory Note dated June 29, 2001, between Christopher J. Pappas and Luby's, Inc. in the amount of $3,500,000 (filed as Exhibit 4(q) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). 4(r) Convertible Subordinated Promissory Note dated June 29, 2001, between Harris J. Pappas and Luby's, Inc. in the amount of $3,500,000 (filed as Exhibit 4(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). 4(s) Fifth Amendment to Credit Agreement dated December 5, 2001, among Luby's, Inc., Bank of America and other creditors of its bank group. 10(a) Form of Deferred Compensation Agreement entered into between Luby's Cafeterias, Inc. and various officers (filed as Exhibit 10(b) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1981, and incorporated herein by reference).* 10(b) Form of Amendment to Deferred Compensation Agreement between Luby's Cafeterias, Inc. and various officers and former officers adopted January 14, 1997 (filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(c) Management Incentive Stock Plan of Luby's Cafeterias, Inc. (filed as Exhibit 10(i) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1989, and incorporated herein by reference).* 10(d) Amendment to Management Incentive Stock Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(k) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(e) Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted October 27, 1994 (filed as Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1994, and incorporated herein by reference).* 10(f) Amendment to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(m) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(g) Amendment to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted March 19, 1998 (filed as Exhibit 10(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* 10(h) Amended and Restated Nonemployee Director Stock Option Plan of Luby's, Inc. approved by the shareholders of Luby's, Inc. on January 14, 2000 (filed as Exhibit 10(j) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 2000, and incorporated herein by reference).* 10(i) Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan dated May 30, 1996 (filed as Exhibit 10(j) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference).* 10(j) Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 14, 1997 (filed as Exhibit 10(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(k) Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 9, 1998 (filed as Exhibit 10(u) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* 10(l) Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted May 21, 1999 (filed as Exhibit 10(q) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference.)* 10(m) Severance Agreement between Luby's, Inc. and Barry J.C. Parker dated December 19, 2000 (filed as Exhibit 10(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 2000, and incorporated herein by reference.)* 10(n) Luby's Cafeterias, Inc. Nonemployee Director Phantom Stock Plan adopted March 19, 1998 (filed as Exhibit 10(aa) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* 10(o) Luby's Incentive Stock Plan adopted October 16, 1998 (filed as Exhibit 10(cc) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1998, and incorporated herein by reference).* 10(p) Form of Change in Control Agreement entered into between Luby's, Inc., and each of its Senior Vice Presidents as of January 8, 1999 (filed as Exhibit 10(aa) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1999, and incorporated herein by reference).* 10(q) Luby's, Inc. Deferred Compensation Plan effective June 1, 1999 (filed as Exhibit 10(cc) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference).* 10(r) Registration Rights Agreement dated March 9, 2001, by and among Luby's, Inc., Christopher J. Pappas, and Harris J. Pappas (filed as Exhibit 10.4 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference). 10(s) Purchase Agreement dated March 9, 2001, by and among Luby's, Inc. Harris J. Pappas, and Christopher J. Pappas (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference). 10(t) Employment Agreement dated March 9, 2001, between Luby's, Inc. and Christopher J. Pappas (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference).* 10(u) Employment Agreement dated March 9, 2001, between Luby's, Inc. and Harris J. Pappas (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference).* 10(v) Luby's, Inc. Incentive Bonus Plan for Fiscal 2001 (filed as Exhibit 10(z) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2000, and incorporated herein by reference).* 10(w) Luby's, Inc. Stock Option granted to Christopher J. Pappas on March 9, 2001 (filed as Exhibit 10(w) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001 and incorporated herein by reference).* 10(x) Luby's, Inc. Stock Option granted to Harris J. Pappas on March 9, 2001 (filed as Exhibit 10(x) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001 and incorporated herein by reference).* 10(y) Affiliate Services Agreement dated August 31, 2001, by and among Luby's, Inc., Christopher J. Pappas, Harris J. Pappas, Pappas Restaurants, L.P., and Pappas Restaurants, Inc. 10(Z) Ground Lease dated March 25, 1994, by and between Luby's Cafeterias, Inc. and PHCG Investments, as amended by Lease Amendment dated July 6, 1994. 10(aa) Lease Agreement dated June 1, 2001, by and between Luby's, Inc. and Pappas Restaurants, Inc. 10(bb) Final Severance Agreement and Release between Luby's, Inc. and Alan M. Davis dated July 20, 2001.* 10(cc) Consultant Agreement between Luby's Restaurants Limited Partnership and Alan M. Davis dated July 20, 2001.* 11 Statement re computation of per share earnings. 13 Luby's, Inc. 2001 annual report to shareholders (furnished for the information of the Commission and not deemed to be "filed" except for those portions expressly incorporated by reference). 21 Subsidiaries of Luby's, Inc. (filed as Exhibit 21 to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, and incorporated herein by reference). 99(a) Corporate Governance Guidelines of Luby's, Inc., as amended July 26, 2001. 99(b) Consent of Ernst & Young LLP. *Denotes management contract or compensatory plan or arrangement. (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the last quarter of the period covered by this Report. 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. Date: December 5, 2001 LUBY'S, INC. (Registrant) By: /s/ CHRISTOPHER J. PAPPAS ____________________________ Christopher J. Pappas, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature and Date Name and Title __________________ __________________________ /s/ROBERT T. HERRES Robert T. Herres, Director and ________________________________ Chairman of the Board December 5, 2001 /s/CHRISTOPHER J. PAPPAS Christopher J. Pappas, Director ________________________________ and President and Chief Executive December 5, 2001 Officer /s/HARRIS J. PAPPAS Harris J. Pappas, Director and ________________________________ Chief Operating Officer December 5, 2001 /s/ERNEST PEKMEZARIS Ernest Pekmezaris, Senior Vice ________________________________ President and Chief Financial December 5, 2001 Officer /s/RONALD K. CALGAARD Ronald K. Calgaard, Director ________________________________ December 5, 2001 /s/JUDITH B. CRAVEN Judith B. Craven, Director ________________________________ December 5, 2001 /s/DAVID B. DAVISS David B. Daviss, Director ________________________________ December 5, 2001 /s/ARTHUR R. EMERSON Arthur R. Emerson, Director ________________________________ December 5, 2001 /s/ROGER R. HEMMINGHAUS Roger R. Hemminghaus, Director ________________________________ December 5, 2001 /s/WALTER J. SALMON Walter J. Salmon, Director ________________________________ December 5, 2001 /s/JOANNE WINIK Joanne Winik, Director ________________________________ December 5, 2001 /s/JIM W. WOLIVER Jim W. Woliver, Director ________________________________ December 5, 2001 EXHIBIT INDEX 3(a) Certificate of Incorporation of Luby's, Inc., as currently in effect (filed as Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference). 3(b) Bylaws of Luby's, Inc. as currently in effect (filed as Exhibit 3(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference). 4(a) Description of Common Stock Purchase Rights of Luby's Cafeterias, Inc., in Form 8-A (filed April 17, 1991, effective April 26, 1991, File No. 1-8308, and incorporated herein by reference). 4(b) Amendment No. 1 dated December 19, 1991, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1991, and incorporated herein by reference). 4(c) Amendment No. 2 dated February 7, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference). 4(d) Amendment No. 3 dated May 29, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995, and incorporated herein by reference). 4(e) Amendment No. 4 dated March 8, 2001, to Rights Agreement dated April 16, 1991 (filed as Exhibit 99.1 to the Company's Report on Form 8-A12B/A on March 22, 2001, and incorporated herein by reference). 4(f) Credit Agreement dated February 27, 1996, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference). 4(g) First Amendment to Credit Agreement dated January 24, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 4(h) ISDA Master Agreement dated June 17, 1997, between Luby's Cafeterias, Inc. and NationsBank, N.A., with Schedule and Confirmation dated July 7, 1997 (filed as Exhibit 4(g) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference). 4(i) ISDA Master Agreement dated July 2, 1997, between Luby's Cafeterias, Inc. and Texas Commerce Bank National Association, with Schedule and Confirmation dated July 2, 1997 (filed as Exhibit 4(h) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference). 4(j) Second Amendment to Credit Agreement dated July 3, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(i) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference). 4(k) Third Amendment to Credit Agreement dated October 27, 2000, among Luby's, Inc., Certain Lenders, and Bank of America, N.A. (filed as Exhibit 4(j) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2000, and incorporated herein by reference). 4(l) Fourth Amendment to Credit Agreement dated July 9, 2001, among Luby's, Inc., Bank of America and other creditors of its bank group (filed as Exhibit 4(l) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). 4(m) Deed of Trust, Assignment, Security Agreement, and Financing Statement dated July 2001, executed as part of the Fourth Amended to Credit Agreement (filed as Exhibit 4(m) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). 4(n) Subordination and Intercreditor Agreement dated June 29, 2001, between Harris J. Pappas and Christopher J. Pappas, Bank of American N.A. Agreement [as the bank group agent], and Luby's, Inc. (filed as Exhibit 4(n) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). 4(o) Convertible Subordinated Promissory Note dated June 29, 2001, between Christopher J. Pappas and Luby's, Inc. in the amount of $1,500,000 (filed as Exhibit 4(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). 4(p) Convertible Subordinated Promissory Note dated June 29, 2001, between Harris J. Pappas and Luby's, Inc. in the amount of $1,500,000 (filed as Exhibit 4(p) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). 4(q) Convertible Subordinated Promissory Note dated June 29, 2001, between Christopher J. Pappas and Luby's, Inc. in the amount of $3,500,000 (filed as Exhibit 4(q) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). 4(r) Convertible Subordinated Promissory Note dated June 29, 2001, between Harris J. Pappas and Luby's, Inc. in the amount of $3,500,000 (filed as Exhibit 4(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). 4(s) Fifth Amendment to Credit Agreement dated December 5, 2001, among Luby's, Inc., Bank of America and other creditors of its bank group. 10(a) Form of Deferred Compensation Agreement entered into between Luby's Cafeterias, Inc. and various officers (filed as Exhibit 10(b) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1981, and incorporated herein by reference).* 10(b) Form of Amendment to Deferred Compensation Agreement between Luby's Cafeterias, Inc. and various officers and former officers adopted January 14, 1997 (filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(c) Management Incentive Stock Plan of Luby's Cafeterias, Inc. (filed as Exhibit 10(i) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1989, and incorporated herein by reference).* 10(d) Amendment to Management Incentive Stock Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(k) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(e) Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted October 27, 1994 (filed as Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1994, and incorporated herein by reference).* 10(f) Amendment to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(m) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(g) Amendment to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted March 19, 1998 (filed as Exhibit 10(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* 10(h) Amended and Restated Nonemployee Director Stock Option Plan of Luby's, Inc. approved by the shareholders of Luby's, Inc. on January 14, 2000 (filed as Exhibit 10(j) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 2000, and incorporated herein by reference).* 10(i) Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan dated May 30, 1996 (filed as Exhibit 10(j) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference).* 10(j) Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 14, 1997 (filed as Exhibit 10(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(k) Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 9, 1998 (filed as Exhibit 10(u) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* 10(l) Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted May 21, 1999 (filed as Exhibit 10(q) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference.)* 10(m) Severance Agreement between Luby's, Inc. and Barry J.C. Parker dated December 19, 2000 (filed as Exhibit 10(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 2000, and incorporated herein by reference.)* 10(n) Luby's Cafeterias, Inc. Nonemployee Director Phantom Stock Plan adopted March 19, 1998 (filed as Exhibit 10(aa) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* 10(o) Luby's Incentive Stock Plan adopted October 16, 1998 (filed as Exhibit 10(cc) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1998, and incorporated herein by reference).* 10(p) Form of Change in Control Agreement entered into between Luby's, Inc., and each of its Senior Vice Presidents as of January 8, 1999 (filed as Exhibit 10(aa) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1999, and incorporated herein by reference).* 10(q) Luby's, Inc. Deferred Compensation Plan effective June 1, 1999 (filed as Exhibit 10(cc) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference).* 10(r) Registration Rights Agreement dated March 9, 2001, by and among Luby's, Inc., Christopher J. Pappas, and Harris J. Pappas (filed as Exhibit 10.4 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference). 10(s) Purchase Agreement dated March 9, 2001, by and among Luby's, Inc. Harris J. Pappas, and Christopher J. Pappas (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference). 10(t) Employment Agreement dated March 9, 2001, between Luby's, Inc. and Christopher J. Pappas (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference).* 10(u) Employment Agreement dated March 9, 2001, between Luby's, Inc. and Harris J. Pappas (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference).* 10(v) Luby's, Inc. Incentive Bonus Plan for Fiscal 2001 (filed as Exhibit 10(z) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2000, and incorporated herein by reference).* 10(w) Luby's, Inc. Stock Option granted to Christopher J. Pappas on March 9, 2001 (filed as Exhibit 10(w) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001 and incorporated herein by reference).* 10(x) Luby's, Inc. Stock Option granted to Harris J. Pappas on March 9, 2001 (filed as Exhibit 10(x) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001 and incorporated herein by reference).* 10(y) Affiliate Services Agreement dated August 31, 2001, by and among Luby's, Inc., Christopher J. Pappas, Harris J. Pappas, Pappas Restaurants, L.P., and Pappas Restaurants, Inc. 10(Z) Ground Lease dated March 25, 1994, by and between Luby's Cafeterias, Inc. and PHCG Investments, as amended by Lease Amendment dated July 6, 1994. 10(aa) Lease Agreement dated June 1, 2001, by and between Luby's, Inc. and Pappas Restaurants, Inc. 10(bb) Final Severance Agreement and Release between Luby's, Inc. and Alan M. Davis dated July 20, 2001.* 10(cc) Consultant Agreement between Luby's Restaurants Limited Partnership and Alan M. Davis dated July 20, 2001.* 11 Statement re computation of per share earnings. 13 Luby's, Inc. 2001 annual report to shareholders (furnished for the information of the Commission and not deemed to be "filed" except for those portions expressly incorporated by reference). 21 Subsidiaries of Luby's, Inc. (filed as Exhibit 21 to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, and incorporated herein by reference). 99(a) Corporate Governance Guidelines of Luby's, Inc., as amended July 26, 2001. 99(b) Consent of Ernst & Young LLP. *Denotes management contract or compensatory plan or arrangement. (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the last quarter of the period covered by this Report. EX-4 3 exh4s.txt CREDIT-FACILITY AMENDMENT DATED DECEMBER 5, 2001 Exhibit 4(s) WAIVER AND FIFTH AMENDMENT TO CREDIT AGREEMENT THIS WAIVER AND FIFTH AMENDMENT TO CREDIT AGREEMENT (this "Fifth Amendment") dated as of December 5, 2001, is entered into among LUBY'S, INC. (formerly known as Luby's Cafeterias, Inc.), a Delaware corporation (the "Borrower"), the banks listed on the signature pages hereof ("Lenders") and BANK OF AMERICA, N.A. (successor by merger to NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as Administrative Lender for the Lenders (in said capacity, the "Administrative Lender"). RECITALS: A. The Borrower, the Lenders, and the Administrative Lender have entered into that certain Credit Agreement dated as of February 27, 1996 (As amended by that certain First Amendment to Credit Agreement dated as of January 24, 1997, that certain Second Amendment to Credit Agreement dated as of July 3, 1997, that certain Third Amendment to Credit Agreement dated as of October 27, 2000, and that certain Fourth Amendment to Credit Agreement dated as of June 29, 2001, and as the same may be further amended or modified, the "Credit Agreement"). B. The Borrower has informed the Administrative Lender and the Lenders that it has failed to comply with certain covenants in Section 5.9 of the Credit Agreement for the fiscal quarter ending November 21, 2001. C. The Borrower, the Lenders, and the Administrative Lender desire to waive certain Events of Default under the Credit Agreement and amend the Credit Agreement as set forth herein. NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, the Borrower, the Lenders, and the Administrative Lender covenant and agree as follows: ARTICLE 1 Definitions Section 1.1 Definitions. Unless otherwise defined in this Fifth Amendment, terms defined by the Credit Agreement, where used in this Fifth Amendment, shall have the same meanings in this Fifth Amendment as are prescribed by the Credit Agreement. ARTICLE 2 Amendments Section 2.1. Amendment to Definitions in Article 1. Effective as of the date hereof, Article 1 of the Credit Agreement is amended as follows: (a) The definition of "Further Extension Conditions" in Article 1 of the Credit Agreement is amended and restated in its entirety to read as follows: "Further Extension Conditions" shall mean each of the following: (a) the Borrower shall have maintained a minimum annual EBITDA of $20,000,000 for the Borrower's fiscal year ending August 28, 2002; (b) the Borrower shall have delivered to the Administrative Lender a certificate signed by an Authorized Officer of the Borrower, effective as of April 30, 2003, stating that no Default or Event of Default has occurred and remains in existence on such date, (c) all payments required by subparagraphs (i) and (ii) of Section 2.5(b) shall have been made, (d) no Default or Event of Default shall have occurred and remain in existence on April 30, 2003 and (e) the Borrower shall have paid to the Administrative Lender, for the benefit of the Administrative Lender and the Lenders, the fee required by Section 5.22. b. The definition of "Fifth Amendment" is added, in proper alphabetical order, to Article 1 of the Credit Agreement and shall read in its entirety as follows: "Fifth Amendment" means that certain Fifth Amendment to Credit Agreement dated as of December 5, 2001 among the Borrower, the Administrative Lender and certain Lenders party thereto. Section 2.2. Amendment to Section 5.4. Effective as of the date hereof, Section 5.4 of the Credit Agreement is amended and restated to read in its entirety as follows: Section 5.4. Capital Expenditures. Capital Expenditures by the Borrower shall be made solely from cash flow or from proceeds of Pappas Loans, exclusive of any disposition or refinancing of real estate. Capital Expenditures, excluding Capital Expenditures made from Excess Cash pursuant to Section 5.19, shall not exceed (i) $15,000,000 in the fiscal year ending August 28, 2002, (ii) $20,000,000 for any fiscal year of the Borrower ending August 27, 2003 and thereafter, and (iii) $5,000,000 during any fiscal quarter of any fiscal year of the Borrower. Section 2.3. Amendment to Section 5.9. Effective as of the date hereof, Section 5.9 of the Credit Agreement is amended and restated to read in its entirety as follows: Section 5.9. Minimum EBITDA. (a) The Borrower shall maintain minimum quarterly EBITDA in amounts, (i) for the fiscal quarter ending November 21, 2001, at least equal to $6,344,100, (ii) for the fiscal quarter ending February 13, 2002, $645,088, (iii) for the fiscal quarter ending May 8, 2002, at least equal to $5,715,371, (iv) for the fiscal quarter ending August 28, 2002, at least equal to $9,675,061, (v) for each of the first three (3) fiscal quarters of each fiscal year beginning with fiscal year ending August 27, 2003, at least equal to 90.0% of the Borrower's projected quarterly EBITDA for each such fiscal quarter and (vi) for the fiscal year to date period through the end of such fiscal quarter, at least 90.0% of the Borrower's projected cumulative EBITDA for such period, in the case of clause (v) and (vi) as reflected in the Budget. (b) The Borrower shall maintain minimum annual EBITDA as follows: $16,000,000 for the Borrower's fiscal year ending August 31, 2001; $16,600,000 for the Borrower's fiscal year ending August 28, 2002; $44,000,000 for the Borrower's fiscal year ending August 27, 2003; and $47,000,000 for the Borrower's fiscal year ending August 25, 2004. Section 2.4. Amendment to add Section 5.23. Effective as of the date hereof, the Credit Agreement is amended to add a new Section 5.23, which shall read in its entirety as follows: Section 5.23 Fifth Amendment Fee. On or before June 30, 2002, the Borrower shall pay to the Administrative Lender for the benefit of the Lenders executing the Fifth Amendment a deferred amendment fee equal to 0.10% of the aggregate principal amount of the Obligations outstanding as of November 30, 2001. Such deferred amendment fee shall be deemed to be a part of, and included in, the Obligations and secured by the Collateral. Section 2.5. Amendment to Section 6.1. Effective as of the date hereof, clause (j) of Section 6.1 of the Credit Agreement is amended and restated to read in its entirety as follows: (j) Within 30 days after the last day of each four week fiscal period, (i) a financial report, in form satisfactory to the Administrative Lender and the Lenders, reflecting actual financial performance compared to projected financial performance as set forth in the Budget and (ii) a cash flow statement substantially in the form of Exhibit D hereto. Section 2.6 Amendment to add Exhibit D. Effective as of the date hereof, the Credit Agreement is amended to add a new Exhibit D to the Credit Agreement, such Exhibit D shall read as Exhibit D attached hereto. ARTICLE 3 Miscellaneous Section 3.1. Representations and Warranties; No Event of Default. By its execution and delivery hereof, the Borrower represents and warrants that, as of the date hereof and after giving effect to the amendment contemplated by this Fifth Amendment, subject to Section 3.2: (a) the representations and warrants contained in the Credit Agreement are true and correct on and as of the date hereof as made on and as of such date; (b) no event has occurred and is continuing which constitutes a Default or an Event of Default; (c) the Borrower has full power and authority to execute, deliver and perform this Fifth Amendment, and the Credit Agreement, as amended by this Fifth Amendment, the execution, delivery and performance of this Fifth Amendment and the Credit Agreement, as amended by this Fifth Amendment, have been authorized by all corporate action of the Borrower, and this Fifth Amendment and the Credit Agreement, as amended by this Fifth Amendment, constitute the legal, valid, and binding obligations of the Borrower, enforceable in accordance with their respective terms, except as enforceability may be limited by applicable Debtor Relief Laws and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and except as rights to indemnity may be limited by federal or state securities laws; (d) neither the execution, delivery and performance of this Fifth Amendment or the Credit Agreement, as amended by this Fifth Amendment, nor the consummation of any transactions herein or therein, will contravene or conflict with any law, rule or regulation to which the Borrower or any of its Subsidiaries is subject or any indenture, agreement or other instrument to which the Borrower or any of its Subsidiaries or any of their respective property is subject; (e) no authorization, approval consent, or other action by, notice to, or filing with, any Tribunal or other Person (other than the Board of Directors of the Borrower) is required for the (i) execution, delivery or performance by the Borrower of this Fifth Amendment and the Credit Agreement, as amended by this Fifth Amendment, or (ii) acknowledgment of this Fifth Amendment by any Guarantor; and (f) except as attached hereto, the all Schedules and Exhibits to the Credit Agreement are true, correct and complete as of the date of this Fifth Amendment. Section 3.2. Condition of Effectiveness. This Fifth Amendment and the amendments and waivers contained herein, shall be effective as of the date first above written, subject to the following: (a) The Borrower shall have paid to the Administrative Lender, for the benefit of the Lenders executing the Fifth Amendment, in immediately available funds an amendment fee in an amount equal to 0.15% of the aggregate principal amount of the Obligations outstanding as of November 30, 2001; (b) the Administrative Lender shall have received counterparts of this Fifth Amendment executed by sufficient Lenders to constitute Lenders in accordance with Section 10.12 of the Credit Agreement; (c) the Administrative Lender shall have received counterparts of this Fifth Amendment executed by the Borrower and acknowledged by each Guarantor; (d) the representations and warranties set forth in Section 3.1 of this Fifth Amendment shall be true and correct; and (e) the Administrative Lender shall have received a copy of the certified resolutions of the Borrower authorizing the execution, delivery and performance of this Fifth Amendment. Section 3.3. Agreement for Specific Waiver. Upon the effectiveness of this Fifth Amendment, the Event of Default which exists by reason of the Borrower's noncompliance with the minimum quarterly EBITDA required by Section 5.9(a) of the Credit Agreement for the period of September 1, 2001 through November 21, 2001 shall be deemed to be waived, provided that such waiver is expressly conditioned and limited as provided by this Section 3.3. Except as expressly provided by this Section 3.3, this Fifth Amendment shall not constitute and shall not be deemed a waiver of any other term or covenant in the Credit Agreement or any other Loan Paper. Section 3.4. Guarantors' Acknowledgment. By signing below, each Guarantor (i) acknowledges, consents and agrees to the execution, delivery and performance by the Borrower of this Fifth Amendment, (ii) acknowledges and agrees that its obligations in respect of its Subsidiary Guaranty are not released, diminished, waived, modified, impaired or affected in any manner by this Fifth Amendment or any of the provisions contemplated herein, (iii) ratifies and confirms its obligations under its Subsidiary Guaranty, and (iv) acknowledges and agrees that it has no claims or offsets against, or defenses or counterclaims to, its Subsidiary Guaranty. Section 3.5. Reference to the Credit Agreement. (a) Upon the effectiveness of this Fifth Amendment, each reference in the Credit Agreement to "this Agreement," "hereunder," or words of like import shall mean and be a reference to the Credit Agreement, as affected and amended hereby. (b) The Credit Agreement, as amended by the amendments referred to above, shall remain in full force and effect and is hereby ratified and confirmed. Section 3.6. Costs, Expenses and Taxes. The Borrower agrees to pay on demand all costs and expenses of the Administrative Lender in connection with the preparation, reproduction, execution and delivery of this Fifth Amendment and the other instruments and documents to be delivered hereunder (including the reasonable fees and out-of-pocket expenses of counsel for the Administrative Lender with respect thereto and with respect to advising the Administrative Lender as to its rights and responsibilities under the Credit Agreement, as hereby amended). Section 3.7. Execution in Counterparts. This Fifth Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which when taken together shall constitute but one and the same instrument. A telecopy of any such executed counterpart shall be deemed valid as an original thereof. Section 3.8. Governing Law; Binding Effect. This Fifth Amendment shall be governed by and construed in accordance with the laws of the State of Texas and shall be binding upon the Borrower and each Lender and their respective successors and assigns. Section 3.9. Headings. Section headings in this Fifth Amendment are included herein for convenience of reference only and shall not constitute a part of this Fifth Amendment for any other purpose. Section 3.10. Entire Agreement. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIFTH AMENDMENT AND THE OTHER LOAN DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO ORAL UNWRITTEN AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have executed this Fifth Amendment as of the date first above written. LUBY'S, INC. By: /s/ Ernest Pekmezaris Name: Ernest Pekmezaris _____________________________ Title:Senior Vice President and CFO _____________________________ BANK OF AMERICA, N.A., as Administrative Lender By: Authorized Representative BANK OF AMERICA, N.A., as a Lender By: Authorized Representative SUNTRUST BANK By: Authorized Representative THE CHASE MANHATTAN BANK By: Authorized Representative By: Authorized Representative THE BANK OF TOKYO-MITSUBISHI, LTD. HOUSTON AGENCY By: Authorized Representative By: Authorized Representative ACKNOWLEDGED AND AGREED: LUBY'S HOLDINGS, INC. By: /s/ Ernest Pekmezaris Name: Ernest Pekmezaris _____________________________ Title:Senior Vice President and CFO _____________________________ LUBCO, INC. By: /s/ Ernest Pekmezaris Name: Ernest Pekmezaris _____________________________ Title:Senior Vice President and CFO _____________________________ LUBY'S LIMITED PARTNER, INC. By: /s/ Ernest Pekmezaris Name: Ernest Pekmezaris _____________________________ Title:Senior Vice President and CFO _____________________________ LUBY'S MANAGEMENT, INC. By: /s/ Ernest Pekmezaris Name: Ernest Pekmezaris _____________________________ Title:Senior Vice President and CFO _____________________________ LUBY'S RESTAURANTS LIMITED PARTNERSHIP By: LUBY'S MANAGEMENT, INC., its general partner By: /s/ Ernest Pekmezaris Name: Ernest Pekmezaris _____________________________ Title:Senior Vice President and CFO _____________________________ LUBY'S BEVCO, INC. By: /s/ Ernest Pekmezaris Name: Ernest Pekmezaris _____________________________ Title:Senior Vice President and CFO _____________________________ EXHIBIT D to WAIVER AND FIFTH AMENDMENT Form of Cash Flow Statement Cash Flow Statement for the period ending _______ __, 200_ Period ending _____ __, 200_ ____________________________________________________ EBITDA _____________________________ Federal Tax Refund _____________________________ Interest Expense _____________________________ Capital Expenditures _____________________________ Total _____________________________ Cash & Investments _____________________________ Net Cash & Investments _____________________________ EX-10 4 exh10y.txt AFFILIATE SERVICES AGREEMENT DATED 8/31/01 Exhibit 10(y) AFFILIATE SERVICES AGREEMENT This Affiliate Services Agreement ("Agreement"), entered into to be effective as of August 31, 2001, between Harris J. Pappas, Christopher J. Pappas, and each of the entities described on Exhibit "A" hereto (the "Pappas Entities")(collectively, "Pappas"), and Luby's, Inc., a Delaware corporation (the "Company"). WHEREAS, Pappas has provided, and will provide, corporate services to the Company; WHEREAS, the Company and Pappas wish to provide for the terms of payment for such services; and WHEREAS, to provide for the ongoing provision of Corporate Services (as defined in paragraph 1 below) by Pappas to the Company and to express the term of provisions of those Services, Pappas and the Company desire to enter into this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual agreements contained in this Agreement, Pappas and the Company hereby agree as follows: 1. Corporate Services To Be Made Available. (a) For the period provided for under paragraph 6 hereof, Pappas agrees to make available to the Company such services (collectively, the "Corporate Services") as to which the respective Chief Executive Officers of Pappas and the Company may from time to time agree, on the terms provided herein. If the same person serves as Chief Executive Officer of both parties, such Chief Executive Officer may act singly hereunder on behalf of both such parties. (b) Without limiting the generality or flexibility of paragraph 1(a), the Corporate Services shall initially consist of the following services (the "Initial Services"): (i) financial advice and services, including, without limitation, assistance with respect to the raising of capital, investment analysis, cash and treasury management, and risk management services, to be provided by Pappas's treasury staff; (ii) accounting, audit, payroll, and bookkeeping advice and services, to be provided by Pappas's accounting staff; (iii) office and warehouse space for maintenance and storage facilities, to be leased from the Pappas Entities; (iv) furniture and equipment, to be purchased from the Pappas Entities; (v) equipment and facilities maintenance services, to be provided by the Pappas Entities; and (vi) architectural and construction services, to be provided by the Pappas Entities. (c) For purposes of the avoidance of doubt, the Initial Services shall constitute the Corporate Services unless and until modified in accordance with the provisions of paragraph 1(a) or 6(a) of this Agreement. 2. Standard of Conduct. (a) In providing Corporate Services to the Company, Pappas's officers and employees shall conduct themselves in accordance with the Company's written policies and procedures and, shall provide the Corporate Services with the same degree of care, skill and prudence customarily exercised by such officers and employees for the benefit of Pappas in connection with Pappas's operations. Notwithstanding the foregoing, in providing the Corporate Services, Pappas and its directors, officers and employees will not be responsible for, and shall have no liability for, any Losses (as defined below) arising out of the performance by Pappas of the Corporate Services, except to the extent arising out of the gross negligence or willful misconduct of Pappas or its directors, officers or employees. Pappas shall indemnify, defend and hold harmless the Company, its affiliates, and their respective directors, officers and employees from and against any and all Losses incurred by the Company arising as a result of the gross negligence or willful misconduct of Pappas or its directors, officers or employees in connection with the performance of the Corporate Services hereunder, except in circumstances where the party that would otherwise be indemnified hereunder is found by a court of competent jurisdiction to have acted with gross negligence or to have engaged in willful misconduct. (b) The Company shall indemnify, defend and hold harmless Pappas, its affiliates, and their respective directors, officers and employees from and against any and all Losses incurred by Pappas arising as a result of Pappas having provided Corporate Services, except in circumstances where the party that would otherwise be indemnified hereunder is found by a court of competent jurisdiction to have acted with gross negligence or to have engaged in willful misconduct. (c) In no event shall Pappas, the Company, their respective affiliates, or their respective directors, officers or employees be liable for any indirect, special or consequential damages in connection with or arising out of this Agreement. (d) For purposes of this paragraph, the term "Losses" shall mean any and all losses, liabilities, demands, claims, actions or causes of action, assessments, losses, fines, penalties, costs, damages and/or expenses (including, without limitation, the reasonable fees and expenses of attorneys and other professionals). 3. Cost of Services. (a) The parties hereby ratify the previously made determination of the level of corporate services and the payments therefor provided by Pappas prior to the effective date of this Agreement as detailed on Exhibit "B" hereto for the Company's current fiscal year, and the estimated fee and payment schedule therefor. (b) Not less than thirty (30) days prior to each successive fiscal year of the Company, Pappas and the Company shall estimate the probable level of Corporate Services to be provided under this Agreement for the fiscal year in question, and shall budget the estimated amount of the fee to be paid by the Company to Pappas therefor on the assumption that such estimated level of Corporate Services will actually be provided. In determining each such estimate and subsequent adjustment, Pappas and the Company shall value Corporate Services based on Pappas's direct and indirect costs allocable thereto, calculated in accordance with Pappas's usual accounting practices. As soon as practicable after the end of each of the Company's fiscal quarters (including the Company's current fiscal quarter), Pappas and the Company shall, based on a detailed review, determine the actual level of Corporate Services rendered by Pappas during such fiscal quarter, and the Company shall pay Pappas the applicable adjusted fee within 15 business days of presentation of a statement therefor. Pappas shall cause its employees to record or otherwise apportion the time they devote in providing Corporate Services to the Company, in order to facilitate such review and determination and to permit a proper adjustment to be made. (c) The Company also agrees to reimburse Pappas, within 15 business days of presentation of invoices therefor, for all reasonable out- of-pocket expenses incurred by Pappas in providing Corporate Services, including reasonable expenses for outside professional services incurred by Pappas for the benefit of the Company. (d) The failure of the Company to make any payment to Pappas hereunder within 30 days of the date such payment is due shall result in the Company owing Pappas interest at the rate of 10% per annum on the amount due from the date payable to the actual payment date. 4. Requirement of Approval By Finance and Audit Committee of the Board of Directors of the Company. All determinations on behalf of the Company made pursuant to paragraphs 3 and 6 hereof must be approved by the Finance and Audit Committee of the Board of Directors of the Company (the "Committee"). In carrying out its duties pursuant to this Agreement, the Committee may retain such independent accountants, lawyers and other experts as it deems necessary or prudent to retain, and the expenses of all such professionals shall be reimbursed by the Company. 5. Information and Witnesses. Pappas shall provide to the Company and the Company shall provide to Pappas, upon the other's written request, at reasonable times, full and complete access to, and duplication rights with respect to, any and all Information, as defined below, as the other may reasonably request and require, and Pappas shall use its best efforts to make available to the Company, and the Company shall use its best efforts to make available to Pappas, upon the other's written request, the officers, directors, employees and agents of Pappas and of the Company, respectively, as witnesses to the extent that such persons may reasonably be required in connection with any legal, administrative or other proceedings in which the Company or Pappas, as the case may be, may from time to time be a party; provided, however, that neither Pappas nor the Company need provide any Information or make available witnesses to the other to the extent that doing so would (i) unreasonably interfere with the performance by any person of such person's duties to the party to which a request under this paragraph 5 is made or otherwise cause unreasonable burden to such party, (ii) result in a waiver of any attorney-client or work product privilege of such party or its legal counsel, (iii) require either Pappas or the Company to provide any Information which relates to the subject matter of any legal, administrative or other proceeding in which Pappas and the Company are adverse parties, or (iv) result in any breach of any agreement with a third party; and provided, further, that the party providing Information or making available witnesses pursuant to this paragraph 5 shall be entitled to receive from the other party, upon presentation of reasonably detailed invoices therefor, payment of its reasonable out-of-pocket costs (including, without limitation, the reasonable fees and expenses of attorneys and other professionals) incurred in connection with providing Information or making witnesses available. The term Information as used in this paragraph 5 means any books, records, contracts, instruments, data, facts and other information in the possession or under the control of either Pappas or the Company and necessary or desirable for use in legal, administrative or other proceedings or for auditing, accounting or tax purposes. 6. Term of Agreement. (a) This Agreement shall become effective as of the date hereof, and shall continue in effect thereafter unless terminated with respect to the performance of Corporate Services in whole or in part by either party upon not less than 30 days written notice. Termination of Corporate Services in part shall not result in the termination of this Agreement. Termination of Corporate Services in whole shall result in the termination of this Agreement except that the obligations of the parties under paragraphs 2, 3, 4, 5, 6, 8 and 9 shall continue after such termination. (b) Notwithstanding the foregoing, Pappas shall have the right (but not the obligation) to terminate this Agreement immediately and without the requirement of notice at any time upon the first to occur of the date on which (i) the Company sells, or enters into a definitive agreement to sell, all or substantially all of its assets to any one or more persons (other than Pappas), (ii) the Company merges, or enters into a definitive agreement to merge, with any person other than Pappas, or (iii) any person or group of persons (other than Pappas) acquires the right (as a consequence of share ownership, contractual right or otherwise) to elect or designate a majority of the board of directors of the Company. (c) Upon termination of this Agreement in part, an appropriate revision of fees shall be made. (d) Upon termination of this Agreement in whole, a final fee adjustment on the basis described in paragraph 3(b) shall be made within 60 days. 7. Independence. All employees and representatives of Pappas providing the Corporate Services to the Company will be deemed for purposes of all compensation and employee benefits to be employees or representatives of Pappas and not employees or representatives of the Company. Except to the extent such employees and representatives are elected officers of the Company, in performing such services such employees and representatives will be under the direction, control and supervision of Pappas (and not of the Company) and Pappas will have the sole right to exercise all authority with respect to the employment (including termination of employment), assignment and compensation of such employees and representatives. 8. Independent Contractor. The relationship of Pappas to the Company which is created hereunder is that of an independent contractor. This Agreement is not intended to create and shall not be construed as creating between the Company and Pappas the relationship of affiliate, principal and agent, joint venture, partnership, or any other similar relationship, the existence of which is hereby expressly denied. 9. Confidentiality. Any and all information which is not generally known to the public which is exchanged between the parties in connection with the performance of this Agreement, whether of a technical or business nature, shall be considered to be confidential. The parties agree that confidential information shall not be disclosed to any third party or parties without the written consent of the other party, except as permitted below. Each party shall take reasonable measures to protect against disclosure of confidential information by its officers, employees and agents. Confidential information shall not include any information (i) which is or becomes part of the public domain other than as a result of the breach of a party's obligation hereunder, (ii) which is obtained from third parties who are not bound by confidentiality obligations or (iii) which is required to be disclosed by law, under compulsion of legal process, or by the rules of any state or Federal regulatory agency or any securities exchange (including NASDAQ) on which the Company's or Pappas's securities might be listed for trading. The provisions of this paragraph shall survive the termination of this Agreement. 10. Miscellaneous. (a) Nonassignability of Agreement. This Agreement shall not be assignable, in whole or in part, directly or indirectly, whether by operation of law or otherwise, by either party hereto without the prior written consent of the other (which consent may be withheld in the sole discretion of the party whose consent is required), and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void; provided, however, that the provisions of this Agreement shall be binding upon, inure to the benefit of and be enforceable by Pappas and the Company and their respective successors and permitted assigns. (b) Further Assurances. Subject to the provisions hereof, each of the parties hereto shall make, execute, acknowledge and deliver such other actions and documents as may be reasonably required in order to effectuate the purposes of this Agreement, and to comply with all applicable laws, regulations, orders and decrees, and obtain all required consents and approvals and make all required filings with any governmental agency, other regulatory or administrative agency, commission or similar authority, as may be reasonably necessary or desirable in this connection. (c) Waivers. No failure or delay on the part of Pappas or the Company in exercising any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, or any abandonment or discontinuance of steps to enforce such a right, preclude any other or further exercise thereof or the exercise of any other right. No modification or waiver of any provision of this Agreement nor consent to any departure by Pappas or the Company therefrom shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Any consent or waiver by the Company under this paragraph 10(c) must be approved by the Independent Committee. (d) Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the transactions contemplated hereby. (e) Amendments. Except as provided in paragraph 1 with respect to changes in the level of Corporate Services which may be agreed by the respective Chief Executive Officers of Pappas and the Company without approval of or authorization by their respective Boards of Directors and Section 6(a) with respect to the termination of the provision of Corporate Services in whole or in part by the Company, this Agreement may be amended or supplemented only in writing executed by the parties hereto under authorization by their respective Boards of Directors (including, in the case of the Company, the approval of the Independent Committee). (f) Notices. All notices, approvals and other communications provided for herein shall be validly given, made or served, if in writing and delivered personally, by telegram or be telephonic facsimile transmission, or sent by registered mail, postage prepaid, to: The Company: Luby's, Inc. 2211 Northeast Loop 410 San Antonio, Texas 78217-4673 Attention: Chairman of the Finance and Audit Committee and to: Cauthorn Hale Hornberger Fuller Sheehan Becker & Beiter Incorporated 700 N. St. Mary's Street, Suite 600 San Antonio, Texas 78205 Attention: Drew R. Fuller, Jr. Telephone: (210) 271-1700 Facsimile: (210) 271-1730 Pappas: Harris J. Pappas 642 Yale Houston, Texas 77007 with a copy to: Frank Markantonis 645 Heights Blvd. Houston, Texas 77007 and shall become effective upon receipt. (g) Governing Law. Despite any different result required by any conflicts of law provisions, this Agreement shall be governed by the laws of the Commonwealth of Massachusetts. (h) Force Majeure. Anything else in this Agreement notwithstanding, Pappas shall be excused from performance hereunder while, and to the extent that, its performance is prevented by fire, drought, explosion, flood, invasion, rebellion, earthquake, civil commotion, strike or labor disturbance, governmental or military authority, act of God, mechanical failure or any other event or casualty beyond the reasonable control of Pappas, whether similar or dissimilar to those enumerated in this paragraph. In the event of any of the foregoing occurrences, the Company shall be responsible for making its own alternative arrangements with respect to the interrupted services. IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the date first above written. /s/Harris J. Pappas _________________________ Harris J. Pappas /s/Christopher J. Pappas _________________________ Christopher J. Pappas LUBY'S, INC. By: Name: Its: Exhibit "A" List of Pappas Entities providing services (See attached) Exhibit "B" List of Services provided to date and the amounts owed to date (See attached) Exhibit "B" Corporate Services - Affiliate Services Agreement See Section 1.(b) in agreement Fiscal Year Ended August 31, 2001 ________________________________________________________________________________ March - August Incurred Paid Outstanding Professional Services and Consulting Fees $ 47,463 - $ 47,463 Out-of-Pocket 3,932 - 3,932 Equipment and other Restaurant- Related Services 200,460 (84,257) 116,203 Lease Cost (Houston Service Center) - Crockett St. Property 19,500 - 19,500 ________ _______ _______ Total $271,355 (84,257) 187,098 ________ _______ _______ Budget Estimate - 1st Quarter Ended November 21, 2001 ________________________________________________________________________________ September - November Estimate Professional Services and Consulting Fees $ 22,500 Out-of-Pocket 1,000 Equipment and other Restaurant- Related Services 175,000 Houston Service Center Rent Expense 19,500 ________ Total $218,000 ________ EX-10 5 exh10z.txt GROUND LEASE DATED 3/25/94 Exhibit 10(z) GROUND LEASE This Lease is entered into as of the 25th day of March, 1994, between PHCG INVESTMENTS ("Landlord"), a Texas general partnership, whose address is c/o Pappas Restaurant Group, 642 Yale, Houston, Texas 77007, and LUBY'S CAFETERIAS, INC. ("Tenant"), a Delaware corporation, whose address is 2211 Northeast Loop 410, P. O. Box 33069, San Antonio, Texas 78265-3069. 1. Landlord's Tract. Landlord represents that it owns, free and clear of mortgage liens, a parcel of land (the "Landlord's Tract") located in the City of Dallas, Dallas County, Texas, containing 1.5717 acres, described as Tract A in the property description attached hereto as Exhibit "A," which is made a part hereof. 2. City Tract. Landlord represents that it owns, free and clear of mortgage liens, a valid and subsisting leasehold estate in a parcel of land (the "City Tract") owned by the City of Dallas and located adjacent to Landlord's Tract, containing 0.6106 acre, described as Tract B in the property description attached hereto as Exhibit "A." 3. City Lease. Landlord's leasehold estate in the City Tract exists under and by virtue of Lease Agreement dated November 10, 1982, between the City of Dallas, as Lessor, and Oaklawn Place, Ltd., as Lessee, recorded in Volume 82225, page 1953, Deed Records of Dallas County, Texas, as amended by (i) First Amendment dated April 23, 1984, recorded in Volume 84088, page 4336, Deed Records of Dallas County, Texas, (ii) Second Amendment dated January 10, 1985, recorded in Volume 85039, page 1688, Deed Records of Dallas County, Texas, (iii) Third Amendment dated July 30, 1985, recorded in Volume 88181, page 1583, Deed Records of Dallas County, Texas, and (iv) Fourth Amendment dated June 1, 1988, recorded in Volume 88181, page 1575, Deed Records of Dallas County, Texas. Said Lease Agreement, as so amended, is referred to hereinafter as the "City Lease." Landlord represents that the City Lease is in full force and effect and that Landlord owns all rights of the Lessee under the City Lease. 4. Leased Premises and Reserved Parking Area. Landlord hereby leases and lets exclusively to Tenant, and Tenant hereby leases from Landlord, upon and subject to the provisions hereof, the following lands (the "Leased Premises"): (a) all of Landlord's Tract; and (b) all of the City Tract save and except an area reserved for exclusive use by the City of Dallas for parking 14 automobiles (the "Reserved Parking Area"). The Leased Premises and the Reserved Parking Area are shown on the drawing attached hereto as Exhibit "B," which is made a part hereof. 5. Sublease. Notwithstanding anything to the contrary contained herein, it is understood and agreed that, with respect to that portion of the City Tract included within the Leased Premises, this Lease is a sublease and is subject to all the terms and provisions of the City Lease. During the term of this Lease, the City Lease shall not be amended or terminated without the prior written consent of Tenant, except as hereinafter expressly provided. During the term of this Lease, Tenant at its own expense shall comply with the provisions of the City Lease and shall perform and fulfill the duties and obligations of the Lessee thereunder. 6. Amendment of the City Lease. Landlord at its expense shall use reasonable efforts to cause the City Lease to be amended as set forth in Exhibit "C" attached hereto, which is made a part hereof. If, within 90 days after the date of this Lease, the City Lease has not been amended as set forth in Exhibit "C" by a recordable instrument duly authorized by the City Council of the City of Dallas, Tenant may, as its sole and exclusive remedy, terminate this Lease by written notice to Landlord given within 100 days after the date of this Lease. If such termination notice is timely given, this Lease shall then terminate and neither party shall have any further obligations hereunder. 7. Feasibility Study. Tenant shall have a period of 60 days from the date of this Lease to conduct a feasibility study and to determine, at Tenant's expense, that the following conditions (the "Conditions") are satisfied: (a) that the Leased Premises are appropriately zoned and platted to permit the construction and operation thereon of a typical "Luby's" cafeteria (with signage and other customary facilities) in accordance with Tenant's standard criteria and that all building permits, curb cut permits, signage permits, and other licenses and approvals of governmental authorities necessary for such construction and operation are readily obtainable by Tenant without expense other than normal fees and charges which Tenant does not consider excessive; (b) that soil conditions and contour elevations of the Leased Premises are reasonably satisfactory for purposes of the contemplated construction and operation of a cafeteria on the premises without the expenditure of site development costs which Tenant considers excessive; (c) that there are no hazardous or toxic substances or pollutants in significant quantities present in the soil of the Leased Premises; (d) that no part of the surface of the Leased Premises lies within the 100-year flood plain; (e) that Reagan Street, Cedar Springs Road and Oak Lawn Avenue in the vicinity of the Leased Premises are dedicated public streets maintained by public authority; (f) that a water line for fire protection is located in the proximity of the Leased Premises, that public fire hydrants connected to such water line are installed at locations sufficiently near the Leased Premises to meet the requirements of municipal codes and ordinances, and that such water line is adequate to meet Tenant's fire sprinkler system requirements; (g) that there are available, at the perimeter of the Leased Premises, public mains or public conduits providing electricity, telephone, natural gas, water and sanitary sewer services adequate and suitable for Tenant's intended use of the Leased Premises to which Tenant may make connection within a reasonable time without charge other than normal connection fees; and (h) that governmental authorities will permit drainage of the Leased Premises without the construction of drainage facilities by Buyer at a cost which Buyer considers excessive. 8. Unsatisfied Feasibility Conditions. If Tenant determines after conducting the feasibility study that the Conditions are not satisfied, Tenant shall by written notice, given within 60 days after the date of this Lease, inform Landlord of any Conditions, whether one or more, which are not satisfied. Unless Landlord and Tenant shall in writing agree otherwise, Landlord shall have 30 days from and after the date of Tenant's notice to Landlord within which to satisfy the unsatisfied Conditions described in Tenant's notice, but Landlord shall have no obligation to do so. If all of such Conditions are not satisfied by the end of such 30 day period, Tenant may, as its sole and exclusive remedy, terminate this Lease by written notice given to Landlord within 10 days after expiration of such 30-day period. If such termination is timely given, this Lease shall then terminate and neither party shall have any further obligations hereunder. 9. Tenant's Plans. Within 60 days after the date of this Lease, Tenant shall submit to Landlord a set of plans (the "Plans") for the cafeteria building (the "Cafeteria") and other improvements to be constructed by Tenant on the Leased Premises, consisting of a site plan, exterior elevations of the Cafeteria, a description of exterior building materials and colors for the Cafeteria, and a description of exterior signs to be located on the Leased Premises. If within 30 days after Landlord's receipt of the Plans, Landlord does not deliver written approval of the Plans to Tenant, either party may terminate this Lease by written notice given to the other within 10 days after the expiration of said 30-day period, in which event this Lease shall terminate and neither party shall have any further obligations hereunder. Landlord and Tenant shall act in good faith in an effort to cause the Plans to be approved within the time above provided. 10. Survey. Within 30 days after the date of this Lease, Landlord at its expense shall provide to Tenant a current boundary and topographical survey of the Leased Premises describing the Leased Premises by metes and bounds and designating site contours at one-foot intervals. Such survey shall be prepared and certified by a licensed public surveyor and shall locate the Leased Premises by a correct metes and bounds description (with iron pins set to mark all corners) and shall show all easements affecting the Leased Premises and all utilities located on the Leased Premises and in the adjacent streets. Such survey shall contain a certification of the surveyor indicating whether any part of the Leased Premises lies within the 100-year flood plain. If such survey reveals any dimension of the Leased Premises to be materially different from the dimensions shown in Exhibit "A" hereto, or if such survey reveals the existence of any easement or other matter which may interfere with Tenant's use of the Leased Premises, Tenant may, as its sole and exclusive remedy, terminate this Lease by written notice to Landlord given within 30 days after receipt of such survey, in which event this Lease shall terminate and neither party shall have any further obligations hereunder. 11. Short-Form Lease. Promptly after the City Lease has been amended pursuant to Section 6 and the survey has been provided pursuant to Section 10, Landlord and Tenant shall execute and deliver to each other counterparts of a recordable Short-Form Lease containing a summary of the essential terms of this Lease and describing the Leased Premises by metes and bounds in accordance with said survey. The Short-Form Lease shall be recorded promptly at Tenant's expense. 12. Title. Within 30 days after the Short-Form Lease referred to in Section 11 is filed in the Office of the County Clerk of Dallas County, Texas, Tenant at its expense shall cause a national title insurance company to issue a leasehold title policy commitment covering the Leased Premises obligating the title company to issue a leasehold title insurance policy to Tenant at Tenant's expense insuring title to Tenant's leasehold estate in the Leased Premises. If such commitment reveals any title exception or title matter which is objectionable to Tenant, Tenant shall give Landlord prompt written notice of Tenant's objections. Landlord may, but shall not be obligated to, cure such objections. If the objections are not cured to Tenant's satisfaction or waived by Tenant in writing within 30 days after written notice thereof is given to Landlord, either party may terminate this Lease by written notice to the other given within 10 days after the expiration of said 30-day period, in which event this Lease shall terminate and neither party shall have any further obligations hereunder. 13. Date of Possession. Tenant shall take possession of the Leased Premises for purposes of this Lease when all of the following shall have occurred: (i) the City Lease has been amended as provided in Section 6, (ii) Tenant's Plans have been approved by Landlord as provided in Section 9, (iii) the survey has been furnished as provided in Section 10, and (iv) the leasehold title insurance policy referred to in Section 12 has been issued. The date on which the last of such matters occurs shall be the "Date of Possession." If, for any reason whatsoever, the Date of Possession has not occurred within 90 days after the date of this Lease, either party may terminate this Lease by written notice to the other, in which event this Lease shall terminate and neither party shall have any further obligations hereunder. 14. Tenant's Work and Opening. Tenant at its expense shall construct the Cafeteria and related improvements on the Leased Premises (referred to as "Tenant's Work") in accordance with the approved Plans, subject to such modifications as may be required by municipal authorities in connection with the issuance of the necessary building permits. Subject to force majeure, as hereinafter defined, Tenant shall cause Tenant's Work to be completed and the Cafeteria to be opened to the public for business within nine months after the Date of Possession. Tenant shall have no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord in the Leased Premises. Tenant shall pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Leased Premises by or on behalf of Tenant. 15. Primary Term. The term of this Lease shall commence on a date, hereincalled the "Commencement Date", which is the earlier of (i) the expiration of six months after the Date of Possession or (ii) the date on which the Cafeteria is first opened to the public for business. The initial term of this Lease (the "Primary Term") shall be a period of 20 years (plus the partial month in which the Commencement Date occurs, if the Commencement Date is not on the first day of a month), beginning on the Commencement Date. 16. Renewal Terms. Tenant is hereby granted options to extend the term of this Lease beyond the expiration of the Primary Term for four additional periods of five years each (the "Renewal Terms"), the first of which is to commence upon the expiration of the Primary Term. Such options may be exercised only in sequence. Each such option may be exercised only by written notice given to Landlord at least six months prior to the beginning of the particular Renewal Term to which the notice relates, but no such notice may be given at any time when Tenant is in default under this Lease. All of the provisions of this Lease applicable during the Primary Term shall be applicable during the Renewal Terms, except that (i) rentals during the Renewal Terms shall be as hereinafter provided and (ii) the Renewal Terms in the aggregate shall not exceed 20 years. References herein to the "Lease Term" or the "term of this Lease" shall include the Primary Term and any applicable Renewal Terms. 17. Rentals. (a) During the Lease Term, Tenant shall pay to Landlord as rentals hereunder the following annual amounts, payable in monthly installments in advance, without notice or demand, on the first day of each calendar month: Lease Years Annual Amount Monthly Rental 1 thru 5 $ 80,000.00 $ 6,666.67 6 thru 10 85,000.00 7,083.33 11 thru 15 90,000.00 7,500.00 16 thru 20 95,000.00 7,916.67 21 thru 25 109,250.00 9,104.17 26 thru 30 125,637.50 10,469.79 31 thru 35 144,483.13 12,040.26 36 thru 40 166,155.59 13,846.30 (b) All rentals and other amounts required to be paid to Landlord shall be paid at the notice address set forth in this Lease or at such other place as Landlord may from time to time designate in writing. Tenant shall pay all such amounts when due and payable without prior demand therefor and without any deduction or setoff. (c) If the Lease Term commences on a date other than the first day of a calendar month, Tenant shall pay on such date a rental for the partial month prorated for the number of days in such month included in the Lease Term. 18. Use of Leased Premises. Tenant shall have the right to use the Leased Premises solely for the operation of a cafeteria of the type operated by Tenant at other locations in Texas and for no other purpose whatsoever. Tenant's business operations on the Leased Premises shall be conducted only under the trade name "Luby's" or such other trade name as is being used at the time by a majority of Tenant's other cafeteria units in Texas. In using and occupying the Leased Premises, Tenant shall conform to good business practice and shall comply with all applicable laws, rules and regulations of governmental authorities. 19. Maintenance of the Leased Premises. During the Lease Term, Tenant shall maintain the Leased Premises, the improvements and landscaping thereon and the utility lines and other facilities located thereon in good condition and repair at Tenant's expense, subject to the provisions hereof relating to damage by fire or other casualty. If Tenant, after having been given 30 days' written notice, refuses or neglects to perform any such maintenance or repair, Landlord shall have the right to perform the maintenance or repair for the account of Tenant, and in such event Tenant shall reimburse Landlord for the reasonable costs so incurred, promptly upon receipt of a bill therefor. 20. Utilities. Tenant shall pay for all utility services furnished to the Leased Premises, including utility deposits, connection fees, meter fees and monthly charges. 21. Property Taxes. During the Lease Term, Tenant shall pay when due and before becoming delinquent all property (ad valorem) taxes levied upon or assessed against the Leased Premises and the improvements located thereon. Tenant may at its expense contest the validity of any such taxes but only after providing Landlord with an adequate bond or other assurances of payment acceptable to Landlord. If only a portion of a tax year is included within the Lease Term, Tenant shall pay taxes only for that portion of the tax year included within the Lease Term. 22. Tenant's Insurance. (a) During the Lease Term, Tenant at its expense shall maintain (i) fire and extended coverage insurance on the improvements located on the Leased Premises and on Tenant's trade fixtures, equipment and personal property located on the Leased Premises with limits of not less than 80% of their full replacement cost, less a deductible not to exceed $100,000, and (ii) comprehensive general public liability insurance with respect to the Leased Premises with limits for each occurrence of not less than $2,000,000 for personal injury or death and $500,000 for property damage. All such insurance shall name Landlord as an additional insured and shall require at least 10 days' notice to Landlord of any reduction, cancellation or termination of such insurance. Tenant shall furnish Landlord with certificates of such insurance upon request. (b) Tenant shall also comply during the term of this Lease with the provisions of Article VII of the City Lease relating to insurance and indemnity. 23. Waiver. Landlord and Tenant hereby waive and release any rights each may have against the other for any loss or damage to the Leased Premises or to any building located on the Leased Premises or to the contents of any such building caused by fire or any other hazard or peril covered by fire and extended coverage or all-risk insurance, to the extent such loss or damage is covered by insurance; and such waiver and release shall be effective even if the loss or damage is caused by the party released or by anyone for whom such party is responsible. Landlord and Tenant, on behalf of their respective insurers insuring the property of either against any such loss or damage, hereby waive any right of subrogation that any such insurer may have against Landlord or Tenant, as the case may be. 24. Tenant's Contractor's Insurance. Tenant shall require its General Contractor performing work on the Leased Premises to maintain (i) comprehensive general public liability insurance with respect to the Leased Premises with limits for each occurrence of not less than $2,000,000 for personal injury or death and $500,000 for property damage and (ii) workers' compensation insurance as provided by law. 25. Tenant's Contractor's Operations. Tenant shall require its General Contractor to keep the construction area and the Leased Premises in as clean and neat condition as possible during construction. Tenant shall require its General Contractor to furnish payment and performance bonds with respect to the work to be done on the Leased Premises on behalf of Tenant. Tenant shall require its General Contractor to locate its construction storage and staging area on the Leased Premises. 26. Tenant's Signs. Tenant shall be permitted to maintain exterior signs throughout the Lease Term in accordance with the following provisions: (a) Tenant shall be entitled to maintain building signs on the Cafeteria in accordance with Tenant's approved Plans, subject to applicable laws, codes and governmental regulations; (b) Tenant shall be entitled to maintain "food-to-go" signs on selected parking spaces located on the Leased Premises in accordance with Tenant's approved Plans, subject to applicable laws, codes and governmental regulations; (c) Tenant shall be entitled to maintain a free-standing sign on the Leased Premises in accordance with Tenant's approved Plans, subject to applicable laws, codes and governmental regulations; (d) Tenant at its expense shall obtain all necessary permits of governmental authorities for the erection and maintaining of Tenant's signs and shall comply with all applicable laws, codes and regulations of governmental authorities applicable to such signage; (e) Tenant at its expense shall provide and install all equipment required for the illumination of Tenant's signs and shall pay for all electricity used for sign illumination; and (f) Tenant at its expense shall maintain Tenant's signs in attractive condition and good repair throughout the Lease Term. 27. Casualty Damage. If the improvements constructed on the Leased Premises are damaged by fire or other casualty, Tenant shall proceed with reasonable diligence, and at its cost and expense, to rebuild and repair such improvements to the same or similar condition as that which existed prior to the casualty; and for such purpose Tenant shall be entitled to utilize the proceeds of the insurance maintained by Tenant. Notwithstanding the foregoing, if such improvements are damaged to the extent of more than 25% of the replacement cost thereof and if the damage occurs during the last three years of the Lease Term (as then in effect), Tenant may terminate this Lease by written notice to Landlord given within 30 days after the damage occurs, in which case the proceeds from insurance maintained by Tenant on the improvements located on the Leased Premises shall be assigned by Tenant to Landlord to the extent necessary to cover Landlord's expense of removing debris and restoring the Leased Premises to the condition which existed prior to construction of Tenant's improvements. If the casualty, repairing or rebuilding renders the Leased Premises untenantable, in whole or in part, a proportionate abatement of rentals shall be allowed from the date when the damage occurred until substantial completion of the repairs or rebuilding, provided Tenant diligently pursues to completion the repairs or rebuilding. 28. Condemnation. (a) If any material part of the Leased Premises is taken for public or quasi-public use under any governmental law, ordinance or regulation or by right of eminent domain, or if Tenant's rights of ingress and egress are materially restricted or denied as a result of any taking for public or quasi-public use under any governmental law, ordinance or regulation or by right of eminent domain, Tenant may terminate this Lease by written notice to the Landlord, in which event this Lease shall terminate as of the date that possession of the part so taken is surrendered to the condemning authority and neither party shall have any further obligation hereunder. If this Lease is terminated as a result of any such taking, the award or compensation for such taking shall be apportioned as follows: (i) Tenant shall be entitled to an amount equal to the unamortized investment of Tenant in the leasehold improvements on the Leased Premises, based upon twenty-year straight-line depreciation, and (ii) the balance shall belong to Landlord. (b) If any part of the Leased Premises is taken for public or quasi- public use under any governmental law, ordinance or regulation or by right of eminent domain and Tenant does not exercise its right to terminate this Lease as provided in the preceding paragraph, this Lease shall continue in force and effect with respect to that portion of the Leased Premises not taken; rentals hereunder shall thereafter be reduced in the proportion that the area of the land taken bears to the total land area of the Leased Premises; and the entire award or compensation for such taking shall belong exclusively to Landlord. (c) As used in this Section 28, the phrase "material part of the Leased Premises" shall mean a portion of the Leased Premises the loss of which would materially and adversely affect Tenant's cafeteria operations on the Leased Premises. (d) Notwithstanding the foregoing, the provisions of Article XIII of the City Lease shall apply to any condemnation or other taking of all or any part of the City Tract. 29. Mechanic's Liens. Tenant shall use its best efforts to prevent the creation of any lien against the Leased Premises on account of labor or materials furnished in connection with any construction, maintenance, repairs or alterations. If any such lien is filed against the Leased Premises, Tenant shall cause such lien to be released within 60 days after actual notice of the filing thereof or shall furnish to Landlord a bond or other security reasonably satisfactory to Landlord, conditioned to indemnify Landlord against the foreclosure of such lien. 30. Force Majeure. Notwithstanding anything elsewhere herein contained, it is agreed that in the event either party shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of strikes, lockouts, inability to procure labor or materials, failure of power, restrictive governmental laws or regulations, riots, insurrection, war, fire or other casualty or other cause beyond the reasonable control of the party delayed in performing work or doing acts required under the terms of this Lease, then performance of such act shall be excused for the period of the delay, and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. The provisions of this Section shall not (a) operate to excuse Tenant from prompt payment of rentals or other payments required under this Lease or (b) be applicable to delays resulting from Tenant's financial distress or its inability to obtain financing. The causes described in this Section are referred to elsewhere in this Lease as "force majeure." 31. Default by Tenant. Tenant may be declared in default hereunder by Landlord if (a) Tenant fails to pay when due any payment of rental or other sum of money payable to Landlord hereunder and such failure continues for more than 10 days after written notice from Landlord to Tenant; (b) It becomes necessary for Landlord to give (and Landlord does give) more than two notices of non-payment to Tenant pursuant to clause (a) above in any period of 12 consecutive months; or (c) Tenant fails to perform or observe any covenant or condition (other than for the payment of rental or other sum of money to Landlord) which Tenant is required to perform or observe hereunder and such failure continues for 30 days after written notice from Landlord to Tenant specifying the nature of such failure (unless the failure is of such nature that it cannot reasonably be cured within 30 days, in which case Tenant shall not be in default if Tenant commences to cure within the 30-day period and thereafter diligently pursues the cure to completion). In addition, Landlord may declare Tenant in default if (i) Tenant is adjudicated bankrupt or insolvent, (ii) Tenant makes a general assignment for the benefit of creditors, (iii) a receiver is appointed for a substantial portion of Tenant's assets or (iv) Tenant's interest in the Leased Premises is sold under attachment, execution or similar legal process. If Landlord declares Tenant in default, Landlord shall have the right and option to pursue any and all remedies provided by law or in this Lease. All rights and remedies herein provided shall be cumulative and shall not exclude any other rights or remedies. Such rights and remedies may be exercised and enforced concurrently or whenever or as often as the occasion therefor arises. If Tenant is declared in default, Landlord shall have the right to re-enter and take possession of the Leased Premises, to remove all persons and property from the Leased Premises and to store such property at Tenant's expense, all without notice or resort to legal process and without being deemed guilty of trespass or becoming liable for any loss or damage occasioned thereby. If Tenant is declared in default and Landlord does not elect to terminate this Lease, Landlord shall have the right to correct the default and to recover the reasonable cost thereof from Tenant, which cost Tenant agrees to pay to Landlord upon written demand. If Landlord takes possession of the Leased Premises without terminating this Lease, Landlord shall use good faith and best efforts to relet the same on reasonable terms, with Tenant remaining liable to pay rentals hereunder for the remainder of the term of this Lease, less the net amount realized from such reletting. Should the sum realized from such reletting be less than the rentals, Tenant shall pay such deficiency each month upon demand therefor. No act of Landlord shall be deemed an act terminating this Lease or declaring the term of this Lease ended unless a written notice is served upon Tenant by Landlord expressly setting forth therein that Landlord elects to terminate this Lease or to declare the term ended, in which event Tenant shall thereby be released from any liabilities hereunder. 32. Legal Expenses. If either party hereto resorts to legal action against the other to protect or enforce any right hereunder, the party prevailing in such action shall be entitled to recover its attorneys' fees, court costs and other expenses relating to such action from the other party. 33. Peaceable Possession. So long as Tenant is not in default hereunder, Tenant shall peaceably and quietly hold and enjoy during the Lease Term the Leased Premises and all rights granted hereunder without interruption, subject to the terms and conditions of this Lease. 34. Termination. Tenant shall vacate the Leased Premises on or before the last day of the term of this Lease (or any Renewal Lease), leaving such premises in a good, clean and satisfactory condition, unless termination results from fire or other casualty. All improvements located on the Leased Premises at the expiration or termination of this Lease shall become the property of Landlord. Tenant shall have the right at such time to remove its personal property, trade fixtures, restaurant equipment, coolers, compressors, heating equipment, air conditioning equipment and signs, but Tenant shall repair any damage to improvements caused by such removal. 35. Holding Over. In the event Tenant remains in possession of the Leased Premises after the expiration of the Lease Term with Landlord's consent, Tenant shall be deemed to be occupying the Leased Premises as a tenant from month to month, at the rents herein specified, subject to all conditions, provisions and obligations of this Lease, insofar as the same are applicable to a month-to- month tenancy. In the event Tenant remains in possession of the Leased Premises after the expiration of the Lease Term without Landlord's consent, Tenant shall be deemed to be occupying the Leased Premises as a tenant at sufferance, at 150% of the rents herein specified, subject to all conditions, provisions and obligations of this Lease, insofar as the same are applicable to a tenant at sufferance. 36. Assignment and Subletting. Tenant covenants and agrees not to assign this Lease or to sublease the whole or any part of the Leased Premises to other than a parent, subsidiary or affiliated company (i.e., an entity having the same parent company as Tenant), or to permit any other persons to occupy same, without the written consent of Landlord, which consent will not be unreasonably withheld. Landlord's consent to any assignment or subletting shall not constitute a waiver of the necessity for such consent to any subsequent assignment or subletting. The acceptance of rent from any other person shall not be deemed to be a waiver of any of the provisions of this Lease or to be a consent to the assignment of this Lease or subletting of the Leased Premises. Any assignee of Tenant shall take possession of the Leased Premises in accordance with the terms, conditions, obligations and rights of this Lease. Any transfer of an ownership interest in Tenant by merger, consolidation or sale of stock shall not constitute an assignment for the purpose of this Lease and shall not require the consent of Landlord, provided the surviving entity specifically assumes Tenant's obligations under this Lease in writing. No assignment, sublease, or occupancy of the Leased Premises shall affect or diminish Tenant's liability hereunder. 37. Late Payment. If Tenant shall fail to pay to Landlord when due any installment of rental or other sum of money payable hereunder, the past-due amount shall bear interest at the maximum legal rate permitted by law (not in excess of 18% per annum) from the date due until paid. 38. Brokers. Landlord and Tenant represent to each other that no real estate agent or broker has been engaged or involved in connection with this Lease except that Landlord agrees to pay, upon the opening of the Cafeteria on the Leased Premises, a commission of $35,000.00 to Scott R. Steenson, a commission of $35,000.00 to Chris Cosby, and a commission of $35,000.00 to Thomas Mattingly, which commissions shall be paid only if and when the Cafeteria is opened to the public for business. 39. Notices. Any notice or demand required or permitted to be given herein shall be in writing and shall be deemed delivered when actually received, or when deposited in the United States mails, certified or registered mail, return receipt requested, postage prepaid, addressed to the parties as follows: Landlord: PHCG Investments c/o Pappas Restaurant Group 642 Yale Houston, Texas 77007 Tenant: Luby's Cafeterias, Inc. 2211 Northeast Loop 410 P. O. Box 33069 San Antonio, Texas 78265-3069 Attention: Real Estate Department Either party may change its address for notice at any time or from time to time by notification in writing delivered to the other party. 40. Miscellaneous. (a) This Lease contains the entire agreement of the parties and may not be amended, modified, released or discharged, in whole or in part, except by an instrument in writing signed by the parties. (b) The captions contained in this Lease are for convenience and reference only, and shall not be held to explain, modify, amplify or aid in the interpretations, construction or meanings of the provisions of this Lease to which they relate. (c) This Lease shall be governed by and construed in accordance with the laws of the state where the Leased Premises are located. If any provision of this Lease shall to any extent be invalid or unenforceable, the remainder of this Lease or the application of such provision or any portion thereof to any person or circumstances shall not be affected thereby, and each valid provision or portion thereof shall be enforceable to the fullest extent permitted by law. (d) Nothing contained in this Lease shall be construed to make the parties partners or joint venturers or to render either party liable for the debts or obligations of the other, except as expressly provided in this Lease. (e) Subject to the provisions of this Lease, the covenants, conditions and agreements contained herein shall bind and inure to the benefit of Landlord and Tenant and their respective successors and assigns. (f) No waiver by either party of any default or breach of any term, condition, or covenant of this Lease shall be deemed to be a waiver of any other breach of any other term, condition, or covenant contained herein. Executed in counterparts as of the date first above written. PHCG INVESTMENTS By: /s/Pete H. Pappas _____________________ Name: Pete H. Pappas Title: General Partner LUBY'S CAFETERIAS, INC. By: /s/John A. Finch _____________________ John A. Finch, Vice President LEASE AMENDMENT This Lease Amendment is entered into as of July 6, 1994, between PHCG INVESTMENTS ("Landlord"), a Texas general partnership, and LUBY'S CAFETERIAS, INC. ("Tenant"), a Delaware corporation, witnesseth: WHEREAS, a Ground Lease (the "Lease") dated March 25, 1994, was entered into between Landlord and Tenant covering certain land located in the City of Dallas, Dallas County, Texas (the "Leased Premises"); and WHEREAS, the parties desire to amend the Lease as hereinafter set forth; NOW, THEREFORE, Landlord and Tenant hereby amend the Lease as follows: A. There is hereby added to the Lease a new Section 41 reading in its entirety as follows: 41. Platting. (a) It is understood that the City of Dallas (the "City") will not issue a building permit for construction of Tenant's improvements on the Leased Premises until the Leased Premises have been platted in accordance with the City's platting ordinances. Tenant at its expense shall cause to be prepared and filed with the City an application for platting the Leased Premises. Landlord agrees to execute such documents as may be required to initiate and to consummate the platting process, but the expense involved shall be borne by Tenant. (b) If the City imposes preliminary platting conditions which are unacceptable to Tenant, Tenant may, as its sole and exclusive remedy, terminate this Lease by written notice given to Landlord within 15 days after receipt by Tenant of written notification from the City specifying the preliminary platting conditions. If such notice is not given to Landlord within the 15-day period, such conditions shall be deemed acceptable to Tenant. (c) If Tenant does not terminate this Lease pursuant to subsection (b) above, Tenant shall proceed diligently at its expense to comply with the preliminary platting conditions and to obtain final platting approval by the City. (d) Engineering fees and filing fees paid by Tenant in connection with the platting process not exceeding $1,000.00 in the aggregate may be offset and deducted from the first rentals payable by Tenant under this Lease. B. Section 6 of the Lease is hereby amended by adding thereto the following: Tenant shall pay $1,000.00 to the City of Dallas as the required consideration for amending the City Lease. Such amount may be offset and deducted from the first rentals payable by Tenant under the Lease. C. Section 13 of the Lease is hereby amended so as to read in its entirety as follows: 13. Date of Possession. Tenant shall take possession of the Leased Premises for purposes of this Lease when all of the following shall have occurred: (i) the City Lease has been amended as provided in Section 6, (ii) Tenant's Plans have been approved by Landlord as provided in Section 9, (iii) the survey has been furnished as provided in Section 10, (iv) the leasehold title insurance policy referred to in Section 12 has been issued, and (v) preliminary platting conditions acceptable to Tenant have been received by Tenant as provided in Section 41. The date on which the last of such matters occurs shall be the "Date of Possession." If, for any reason whatsoever, the Date of Possession has not occurred by August 31, 1994, either party may terminate this Lease by written notice to the other, in which event this Lease shall terminate and neither party shall have any further obligations hereunder. D. The Lease, as hereby amended, shall continue in force and effect according to its terms. Executed in counterparts as of the date first above written. LUBY'S CAFETERIAS, INC. PHCG INVESTMENTS By: /s/John A. Finch By: /s/Pete H. Pappas ___________________ ____________________ John A. Finch Pete H. Pappas Vice President General Partner EX-10 6 exh10aa.txt LEASE AGREEMENT DATED 6/1/01 Exhibit 10(aa) LEASE AGREEMENT This Lease Agreement is made and entered into by and between PAPPAS RESTAURANTS, INC., a Texas corporation (herein referred to as "Landlord"), and LUBY'S, INC., Delaware corporation (hereinafter referred to as "Tenant"). In consideration of the mutual covenants and agreements set forth in this Lease Agreement (hereinafter referred to as the "Lease"), and other good and valuable consideration, Landlord does hereby demise and lease to Tenant, and Tenant does hereby lease from Landlord a portion of that certain real property in the City of Houston, Texas, described in Exhibit "A" attached hereto, consisting of 21,000 square feet of shop space and 5,664 square feet of office space located at 2429 Crockett Street. The demised premises as set forth herein shall be hereinafter referred to as the "Leased Premises." ARTICLE I. TERM 1.01 Term of Lease. The term of this Lease shall be three (3) years, commencing on June 1, 2001 and ending on May 31, 2004 unless sooner terminated as provided in this Lease. 1.02 Termination. In conjunction with the provisions of Article XII, Section 12.09 herein, this Lease shall terminate and become null and void without further notice on the expiration of the term specified in Section 1.01 herein or any renewals thereunder, and any holding over by Tenant after the expiration of that term shall not constitute a renewal of the Lease or give Tenant any rights under the Lease in or to the Leased Premises. Notwithstanding other provisions set forth in this Lease, Landlord may, after thirty (30) days prior written notice of default by Tenant of any of the terms or conditions of this Lease, terminate this Lease without further notice to Tenant if such default is not cured by Tenant within said thirty (30) day period and proof thereof submitted to Landlord. Upon termination under the provisions of this Agreement, such Lease shall become null and void. ARTICLE II. RENT AND TAXES 2.01 Monthly Rent. During the initial term and any succeeding terms of this Lease, Tenant agrees to pay Landlord, without demand, deduction, or offset, the sum of Six Thousand Five Hundred and No/100 Dollars ($6,500.00) per month, on or before the first day of each month. 2.02 Taxes. Landlord shall pay all taxes which shall be assessed against the Leased Premises during the term of this Lease. Tenant shall pay, before delinquency, all taxes, ad valorem taxes, assessments, license fees, and other charges (taxes) that may be levied or assessed against Tenant's moveable property installed or located on the Leases Premises, and that become due and payable during any portion of the term of this Lease. For purposes of this section, "moveable property" shall mean all buildings, equipment, machinery, and any other appurtenances placed upon the Leased Premises by Tenant or its agents. ARTICLE III. PERMITTED USE 3.01 Permitted Use. The Leased Premises may be used by the Tenant for any and all lawful purposes. 3.02 Wastes, Nuisance or Illegal Usage. Tenant shall not use, or permit the use of, the Leased Premises in any manner which results in waste of the Leased Premises or constitutes a nuisance or violates any statute, ordinance, rule, or regulation of any applicable jurisdiction to the Leased Premises or for any illegal purpose. ARTICLE IV. REPAIRS, MAINTENANCE AND ALTERATIONS 4.01 Acceptance of Leased Premises by Tenant. Tenant hereby accepts the Leased Premises from Landlord "as is" with no warranty, express or implied, as to its condition or suitability for any particular purpose. 4.02 Repairs and Maintenance by Tenant. Landlord shall, throughout the term of this Lease, at its own expense and risk, maintain the exteriors of all improvements on the Leased Premises in good order and condition, including, but not limited to, making all repairs and replacements necessary to keep the Leased Premises thereon in good condition. Tenant shall, throughout the term of this Lease, at its own expense and risk, maintain the interiors of all improvements on the Leased Premises in good order and condition, including, but not limited to, making all repairs and replacements necessary to keep the Leased Premises and improvements thereon in good condition. Neither party shall be required under this section to repair or maintain damage or deterioration caused by the other party. All maintenance, repairs and replacements required by this section must be performed promptly when required and in a manner that will not cause depreciation of the value of the Leased Premises. 4.03 Failure to Repair or Maintain. In the event either party fails to perform its obligation to repair, replace or maintain, as set forth in 4.02 above, after notice from the other party of the need for such repair, replacement, or maintenance and the passage of a reasonable amount of time for performance after such notice, the notifying party may enter the Premises and make such repairs or replacements or perform such maintenance or cause such repairs or replacements to be made or maintenance to be performed, at its own expense. Upon receipt of notice of the performance and the cost of any maintenance, repairs, or replacements pursuant to this section, the party responsible for repair, replacement or maintenance as set forth in Section 4.01 hereinabove shall immediately reimburse the notifying party for any reasonable costs incurred by that party pursuant to this section. 4.04 Landlord's Right of Entry. Landlord shall have the right to enter upon the Leased Premises during normal business hours for the purpose of inspecting the same, making repairs or additions to the Leased Premises, making repairs, alterations, or additions to adjacent premises, or of showing the Leased Premises to prospective purchasers, tenants, or lenders. Such entry shall not unreasonably interfere with Tenant's business. 4.05 Cleanup. Upon the termination of this Lease, for whatever reason, Tenant shall surrender the Leased Premises to Landlord broom clean, ordinary wear and tear excepted, subject, however, to the provisions of Subsection 4.06 below, Tenant shall repair any damage to the Leased Premises occasioned by the removal of its trade fixtures, furnishings, and equipment pursuant to Subsection 4.06 below, which repair shall include the patching and filling of holes and repair of structural damage. 4.06 Alterations and Additions. Tenant shall not, without Landlord's prior written consent, make any alterations, improvements, additions, or utility installments, in or about the Leased Premises, except for non-structural alterations not exceeding One Thousand Dollars ($1,000.00) in cost. In the event Tenant wishes to make additions or alterations to the Leased Premises the cost of which shall exceed One Thousand Dollars, Landlord shall not unreasonably withhold its consent to such alterations or additions. Tenant at its sole option may elect to remove any such alterations, improvements or additions, or portions thereof at the expiration or termination of this Lease, and restore the Leased Premises to its prior condition with respect to such removal. Should Tenant not so elect, Landlord may, at its sole option, demand removal of any such alterations, improvements, or additions, or portions thereof, at the expiration or termination of this Lease, and demand the Leased Premises be restored to its prior condition with respect to such removal. Tenant shall bear all costs for the removal of the improvements and restoration of the Leased Premises. 4.07 Used Prohibited by Insurance Coverage. Tenant shall not, without Landlord's prior written consent, keep anything within the Leased Premises or use the Leased Premises for any purpose which invalidates any insurance policy carried on the Leased Premises. All property kept, stored, or maintained within the Leased Premises by Tenant shall be at Tenant's sole risk. Notwithstanding the foregoing, storage of doors and related glass products and all reasonable use of a forklift and tow motor shall be permitted. ARTICLE V. UTILITIES AND WASTE REMOVAL 5.01 Utility Charges. Tenant shall pay its pro rata share of all electrical utilities based on submetering provided by Landlord. Tenant shall pay its own water and gas utilities. 5.02 Waste Removal. Tenant shall pay for and expedite the removal of all waste material and rubbish from the Leased Premises during the term of this Lease. Such removal shall be in compliance with all applicable federal, state and local ordinances, rules and regulations. Tenant shall not be required to pay for or expedite the removal of waste material or rubbish generated by Landlord or waste material or rubbish pre-existing onsite before commencement of this Lease. 5.03 Contaminant Spills and Releases. Tenant shall immediately correct, contain, and remediate any and all actual or threatened spills or releases of hazardous substances, regulated nonhazardous substances, or petroleum products which occur on the Leased Premises during the term of this Lease or for any other period in which Tenant exercises control of the Leased Premises, excepting spills released solely by Landlord or its agents or contractors. If Tenant fails to perform Tenant's obligations hereunder, Landlord may, upon Landlord's sole election, enter upon the Leased Premises after five (5) days prior written notice to Tenant, and perform all necessary actions to remediate or contain any actual or threatened release, or to otherwise reestablish compliance with any and all applicable municipal, state or federal laws, ordinances, and regulations, and the reasonable costs thereof shall become due and payable as additional rent to Landlord contemporaneously with Tenant's next rental installment. The terms and conditions of this section shall be subject to the terms and provisions of Section 7.05 hereinafter. ARTICLE VI. MECHANIC'S LIENS 6.01 Mechanic's Liens. Tenant will not permit any mechanic's lien or liens that result, directly or indirectly from Tenant's actions, to be placed upon the Leased Premises or improvements of the Leased Premises. If a mechanic's lien, resulting directly or indirectly from Tenant's actions, is filed on the Leased Premises or on improvements on the Leased Premises, Tenant will promptly remove the lien, by payment, bond, or other acceptable means. If default in removal of the lien continues for twenty (20) days after written notice from Landlord to Tenant, Landlord may, at its option, pay the lien or any portion of it without inquiry as to its validity. Any amounts paid by Landlord to remove a mechanic's lien caused to be filed against the Leased Premises or improvements on the Leased Premises by Tenant, including expenses and interest, shall be due from Tenant to Landlord and shall be paid to Landlord immediately upon rendition of notice. ARTICLE VII. INSURANCE AND INDEMNITY 7.01 Property Insurance. Landlord shall, during the term of this Lease, keep all improvements on the Leased Premises insured against loss or damage by catastrophe or theft. 7.02 Liability Insurance. Tenant, at its own expense, shall provide and maintain in force during the term of this Lease, general liability and contractual liability insurance with $500,000.00 bodily injury and property damage, combined single limit each occurrence, $500,000.00 personal injury liability, and $1,000,000.00 general aggregate. This insurance shall be carried with an insurance company satisfactory to Landlord and authorized to do business in the state where the Leased Premises is located. All insurance required under this Section shall include from each insurance company an endorsement naming Landlord as additional insured and a waiver of subrogation issued in favor of the Landlord. 7.03 Proof of Insurance. Tenant shall furnish to Landlord proof of insurance by causing the policies or duly executed certificates thereof to be delivered to Landlord. Proof of all renewals of such policies shall also be delivered to Landlord at least thirty (30) days prior to the expiration of the respective policy terms. All policies maintained by Tenant shall provide for Landlord to be named as an additional insured with a waiver of subrogation in favor of Landlord, and a minimum of thirty (30) days notice of cancellation or material change to be provided to Landlord. 7.04 Indemnification. Tenant shall save, defend, indemnify and hold Landlord harmless from and against all damages, losses, claims, demands, causes of action, liens, expenses, and other liabilities arising out of the actions of Tenant's employees, sublessees, and agents in any way related to the performance of this Lease, except to the extent such are caused by Landlord's negligence or willful misconduct. In those matters in which Tenant is required to indemnify and hold Landlord harmless and to the same extent to which Tenant is required to do so, Tenant shall defend claims asserted against Landlord and pay costs, expenses, and attorney's fees incidental thereto and judgments resulting from such claims. Landlord shall have the right, at its option, to participate in the defense of each such claim without relieving Tenant of any obligations expressed herein. In cases of losses, claims, actions, costs, expenses, judgments, subrogation or other damages resulting from the joint negligence of Tenant and Landlord, Landlord and Tenant shall share such liability or loss on the basis of liability or loss. Tenant shall not be held responsible for any losses, expenses, claims, actions, costs, judgments, or other damages, directly, solely, and proximately caused by the negligence of Tenant. 7.05 Property and Environmental Indemnification. Tenant agrees to save, defend, indemnify, and hold harmless Landlord, its successors and assigns, from and against any and all claims, liabilities (including strict liability), losses, damages, expenses, and other liabilities for bodily injury (including death), and costs whether seen or unforeseen (including, without limitation, cleanup costs; enforcement actions; penalties; counsel; engineering; and other professional fees, which may be incurred by Landlord, its subsidiaries, divisions, or successors and assigns to the extent the same arise out of any hazardous, regulated non-hazardous, or petroleum discharge or environmental complaint attributable to Tenant's occupation or operation of the Leased Premises, or due to Tenant's failure to obtain any and all necessary environmental permits, registrations, or authorizations in connection with the possession, use, operation, or activities of Tenant on or related to the Leased Premises during the occupancy of Tenant, its agents, employees, or representatives. Such indemnity under this section shall survive the termination of this agreement. Tenant shall have no liability for contamination from hazardous substances on the Leased Premises which occurred before the commencement of this Lease or which is caused by Landlord or its contractors. Landlord shall indemnify, defend, and hold harmless Tenant from and against any loss, cost, damage, expense, liability, or claim arising from or related to the presence of any hazardous substance on, under, or in the Leased Premises prior to the commencement of this Lease. As used herein, "hazardous substances" shall mean any substance, the release, storage, disposal, use, or treatment of which is regulated or shall become regulated by applicable law, statute, regulation, code, or ordinance during the term of this Agreement. ARTICLE VIII. DAMAGE OR DESTRUCTION 8.01 Partial Damage - Insured. Subject to the provisions of Section 8.04, if the Leased Premises are damaged and such damage was caused by casualty covered under an insurance policy maintained by Landlord pursuant to Section 7.01, Landlord shall, at Landlord's expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. 8.02 Partial Damage - Uninsured. If at any time during the term hereof the Leased Premises are damaged, except by a negligent or willful act of Landlord or someone acting under Landlord's direction, and such damage was caused by a casualty not covered under an insurance policy to be maintained by Landlord pursuant to Section 7.01, Tenant may, at Tenant's expense, elect to repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. 8.03 Total Destruction. If at any time during the term hereof the Leased Premises are totally destroyed from any cause whether or not covered by the insurance required to be maintained pursuant to Section 7.01 (including any total destruction required by authorized public authority), this Lease shall terminate automatically as of the date of such total destruction. 8.04 Damage Near End of Term. If the Leased Premises are partially destroyed or damaged during the last three (3) months of the term of this Lease or any renewal thereof, either Landlord or Tenant at its option may cancel or terminate this Lease as of the date of occurrence of such damage by giving written notice to the other party of its election to do so within thirty (30) days after the date of occurrence of such damage. 8.05 Abatement of Rent - Tenant's Remedies. If the Leased Premises are partially destroyed or damaged and Landlord or Tenant repairs or restores them pursuant to the provisions of this Lease, the rent payable hereunder for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree in which Tenant's use of the Leased Premises is impaired. If Landlord shall be obligated to repair or restore the Leased Premises under the provisions of this Lease and shall not commence such repair or restoration within forty-five (45) days after such obligation shall accrue, Tenant may at its option, cancel and terminate this Lease by giving written notice of Tenant's election to do so at any time not less than five (5) days to commencement of such repair restoration. ARTICLE IX. DEFAULT 9.01 Default by Tenant. In the event of default in any of Tenant's covenants or obligations set forth herein, Landlord may assert any remedies provided or made available by law to an aggrieved landlord. Without limiting the generality of the foregoing, Landlord, at its sole option, may pursue and exercise any one or all of the following remedies which shall be cumulative: (a) Landlord may declare the Lease forfeited, but such declaration of forfeiture shall not terminate Tenant's duty to pay rentals or other charges owed Landlord hereunder, nor waive any other rights of Landlord, unless Landlord expressly so states in writing; (b) Landlord may resume possession of the Leased Premises and relet the same for the account of Tenant, who shall make good any deficiency; (c) Landlord may recover all arrearages of rent and other charges owed Landlord hereunder; (d) In the event that Tenant defaults in its covenant to pay rent and such default continues for ten (10) days, Landlord shall have the right to accelerate the total amount of rentals and charges due hereunder and to collect same as liquidated damages, irrespective of whether Landlord may have resumed possession of the Leased Premises or asserted any of its other rights; and (e) Tenant, in addition to arrearages of rentals and future rentals, shall be liable for all damages and expenses which Landlord has suffered by reason of Tenant's default, including, but not limited to, damage to the Leased Premises (which shall be determined at Landlord's option by Landlord's cost to repair the same or by the difference in the market value of the Leased Premises before and after such damage), cost of reletting (e.g., advertising the premises for lease and preparation of new lease development), attorneys' fees, costs of court, costs of repossession, and other related special or consequential damages. 9.02 Waiver of Notice. Tenant hereby waives all exemptions in connection with such properties which would otherwise be available to it. Landlord shall give Tenant ten (10) days prior written notice of any actual default described herein; provided, however, that no such notice shall be a prerequisite to Landlord's assertion of its rights, whether under this Lease or by law, when such default is in Tenant's duty to timely and fully pay rental and other charges under this Lease. In the event Tenant becomes bankrupt or makes a voluntary assignment for the benefit of creditors or in the event a receiver of Tenant is appointed, then, at the sole option of Landlord and upon thirty (30) days prior written notice to Tenant of Landlord's exercise of such option, this Lease shall cease, become null and void, and of no further force and effect. 9.03 Default by Landlord. If Landlord defaults in the performance of any term, covenant, or condition required to be performed by it under this Lease, Tenant may elect to terminate this Lease on giving at least thirty (30) days written notice to Landlord of such intention. In the event Tenant elects to terminate this Lease, the Lease will be terminated on the date designated on Tenant's notice. 9.04 Cumulative Remedies. All rights and remedies of Landlord and Tenant under this article shall be cumulative, and none shall exclude any other right or remedy provided by law or provided by any other provision of this Lease. All such rights and remedies may be exercised and enforced concurrently and whenever, and as often as, occasion for the exercise of such rights and/or remedies arises. 9.05 Waiver of Breach. A waiver by either Landlord or Tenant of a breach of this Lease by the other party does not constitute a continuing waiver or a waiver of any subsequent breach of the Lease. ARTICLE X. INSPECTION BY LANDLORD 10.01 Inspection by Landlord. Tenant shall permit Landlord and Landlord's agents, representatives, and employees to enter into and on the Leased Premises at all reasonable times for the purpose of inspection, or any other purpose necessary to protect Landlord's interest in the Leased Premises or to perform Landlord's duties under this Lease. ARTICLE XI. ASSIGNMENT AND SUBLEASE 11.01 Assignment and Subletting by Tenant. Tenant may not sublet, assign, encumber or otherwise transfer, including any transfer by operation of law, this Lease or any right or interest in this Lease or in the Leased Premises or in the improvements on the Leased Premises without the prior written consent of Landlord. Landlord's consent under this section will not be arbitrarily or unreasonably withheld. Tenant shall at all times remain fully responsible and liable for the payment of the rent herein specified and for compliance with all remaining obligations under this Lease. Should Tenant be in default of any of its obligations under this Lease, Landlord, in addition to any other remedies provided by law, may, at his option, collect directly from the assignee or sublessee all rents becoming due to Tenant under such assignment or sublease and apply such rents against any sums due to Landlord by Tenant hereunder. No direct collection by Landlord from any such assignee or sublessee shall be construed to constitute a novation or release of Tenant from the further performance of its obligations under this Lease. 11.02 Tenant's Additional Rental Obligation Upon Subleasing. In the event that Tenant shall sublease any or all of its interest in the Leased Premises, Tenant agrees to pay Landlord an additional rental in the amount of twenty percent (20%) of the regular monthly rental amount stated in Article II, section 2.01 herein. Upon subleasing all or any part of the Leased Premises, Tenant hereby agrees to execute an amendment to this Lease acknowledging its additional rental payment obligation as set forth in this section. Such amendment shall be executed before Tenant shall be permitted to sublease all or any part of the Leased Premises. 11.03 Restriction Against Encumbrances. Tenant shall not mortgage, pledge, or otherwise encumber its interest in this Lease or in the Leased Premises, nor may its interests in and to this Lease be assigned or otherwise transferred by operation of law. 11.04 Assignment by Landlord. Landlord may freely assign or transfer any or all of its interest under this Lease. ARTICLE XII. MISCELLANEOUS 12.01 Notices and Addresses. All notices required under this Lease must be given by certified mail, return receipt requested, postage prepaid and addressed to the proper party at the following addresses: If to Landlord: Pappas Restaurants, Inc. P.O. Box 3141 Houston, Texas 77253 Attention: Frank Markantonis If to Tenant: Luby's, Inc. P.O. Box 33069 San Antonio, Texas 78265-3069 Attention: Drew Fuller Either party may change the address to which notices are to be sent it by giving the other party notice of the new address in the manner provided in this section. 12.02 Parties Bound. This Lease Agreement shall be binding upon, and inure to the benefit of, the parties to this Lease and all rights and liabilities herein given to or imposed upon the respective parties hereto shall extend to and bind their respective heirs, executors, administrators, successors, and assigns, and if there be more than one Tenant, they shall be bound jointly and severally by the terms, covenants, and conditions herein. No rights under this Lease shall inure to the benefit of any assignee of Tenant without the prior express written approval of Landlord. 12.03 Texas Law to Apply. This Lease shall be governed by and interpreted pursuant to the laws of the state of Texas and the parties voluntarily submit to personal jurisdiction in either the United States District Court for the Southern District of Texas or the local courts of Harris County, Texas. 12.04 Legal Construction. In case any one or more of the provisions contained in this Lease shall for any reason be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of the Lease and this Lease shall be construed as if the invalid, illegal, or unenforceable provision had never been included in this Lease. 12.05 Time of Essence. Time is expressly declared to be of the essence of this Lease. 12.06 Prior Agreements Superseded. This Lease and the exhibits, if any, attached hereto and forming a part hereof, contain the entire and only agreement covering this subject matter/transaction between the parties and any representation, promise, or condition in connection with the subject matter/transaction of this Lease not incorporated herein shall not be binding upon either party. This Lease Agreement supersedes and cancels any former written agreement between the parties covering the same subject matter/transaction. No modification of this Lease shall be of any force or effect unless reduced to writing and signed by the party claiming to be bound thereby. 12.07 Effect of Bankruptcy. Tenant agrees that in the event any proceedings under the Bankruptcy Act or any amendment thereto shall be commenced by or against Tenant, and if against Tenant, such proceeding shall not be dismissed before either an adjudication in bankruptcy or the confirmation of a composition, arrangement, or plan of reorganization, or in the event Tenant is adjudged insolvent or makes an assignment for the benefit of its creditors, or if a receiver is appointed in any proceeding or action to which Tenant is a party, with authority to take possession or control of the Demised Premises or the business conducted thereon by Tenant, and such receiver is not discharged within sixty (60) days after his appointment, any such event or any involuntary assignment prohibited by the provisions of this Lease shall be deemed to constitute a breach of this Lease by Tenant and shall, at the election of Landlord, but not otherwise, and without notice or entry or other action of Landlord to terminate this Lease and also all rights of Tenant hereunder and in and to the Demised premises and also rights of any and all persons claiming under Tenant. 12.08 Rights and Remedies Cumulative. The rights and remedies provided by this Lease are cumulative, and the use of any one right or remedy by either party shall not preclude nor waive that party's right to use any or all other remedies. The rights and remedies provided by this Lease are in addition to any other rights the parties may have by law, statute, ordinance, or otherwise. 12.09 Attorney's Fees and Costs. If as a result of a breach of this Lease by either party, the other party employs an attorney or attorneys to enforce its rights under this Lease, then the breaching or defaulting party agrees to pay the other party the reasonable attorney's fees and costs incurred to enforce the Lease. 12.10 Sale of Demised Premises. In the event the Leased Premises are sold, Landlord has the right to terminate this Lease upon ninety (90) days prior written notice. 12.11 Force Majeure. Neither Landlord nor Tenant shall be required to perform any term, condition, or covenant in this Lease so long as such performance is delayed or prevented by force majeure, which shall mean, acts of God, strikes, lockouts, material or waiver restriction by any governmental authority, civil riot, floods and any other cause not reasonably within the control of Landlord or Tenant in which by the exercise of due diligence, Landlord or Tenant is unable, wholly or in part, to prevent or overcome. 12.12 Captions and Headings. The captions, article and section numbers, basic provisions, and any index appearing in this Lease are inserted as a matter of convenience only, and in no way define, limit, construe, or describe the scope or intent of such sections of this Lease, nor in any way affect this Lease. 12.13 Examination of Lease. The submission of this Lease for examination does not constitute a reservation of or option for the Leased Premises and this Lease becomes effective only upon execution and delivery hereof both by Landlord and Tenant. 12.14 Exhibits and Attachments. The following exhibits are attached to this Lease and incorporated herein for all purposes. Rendition of Leased Premises. EXECUTED this the 28th day of September, 2001, at Houston, Harris County, Texas, but effective as of June 1, 2001. LANDLORD: PAPPAS RESTAURANTS, INC. By: /s/Frank Hubbard ________________ Printed Name: Frank Hubbard Title: Controller ________________ TENANT: LUBY'S, INC. By: /s/Ernie Pekmezaris Printed Name: Ernie Pekmezaris _________________ Title: Senior Vice President EX-10 7 exh10bb.txt SEVERANCE AGREEMENT ALAN M. DAVIS DATED 7/20/01 Exhibit 10(bb) FINAL SEVERANCE AGREEMENT AND RELEASE WHEREAS, Alan M. Davis, was employed on April 29, 1998, by Luby's, Inc. to perform certain tasks; and WHEREAS, it is the mutual desire of Luby's Inc. and Alan M. Davis to terminate this employment relationship and the existing salary continuation agreement executed on January 24, 2001 by the parties and enter into the Consultant Agreement attached hereto; and WHEREAS, it is the mutual desire of Luby's, Inc. and Mr. Davis to terminate the existing employment relationship effective July 20, 2001. For and in consideration of the terms set forth below, the parties agree as follows: 1. Luby's, Inc. agrees to pay to Mr. Davis the sum of ONE THOUSAND AND NO ONE HUNDRED DOLLARS ($1,000.00) less applicable taxes or other withholdings. Mr. Davis acknowledges that this is an amount which Luby's, Inc. is not required to pay him and that it is in addition to any amounts that are owed to him for the services that he has performed for Luby's, Inc. 2. Mr. Davis releases Luby's, Inc. and its directors, officers, managers, employees, former employees, agents, attorneys, and other persons acting on behalf of Luby's, Inc. (all referred to as "the Parties Released") from all federal and state discrimination claims specifically including any claims of violation of the Age Discrimination in Employment Act ("ADEA") and/or from all claims of any nature in any way related to his employment or to the termination of his employment with Luby's, Inc. up to the date of signing this Final Severance Agreement and Release. The release stated above shall not apply to any rights or claims Alan M. Davis may have with regard to any Incentive Stock Option Agreements previously granted to him. Any options previously granted under the Incentive Stock Option Plan must be exercised on or before July 20, 2002. 3. Mr. Davis agrees that a) he has read this Final Severance Agreement and Release, and agrees that it is written in language understandable to him. He further acknowledges that he has been advised to consult with an attorney before signing this Final Severance Agreement and Release. b) he has been given at least 21 days to consider whether to accept this Final Severance Agreement and Release. c) he understands and agrees that in the event he decides to sign this Final Severance Agreement and Release prior to the end of the 21 day time period, he represents that his decision to accept this shorter time period is knowing and voluntary and is not induced by Luby's, Inc. through fraud, misrepresentation, or a threat to withdraw or alter the offer prior to the expiration of the 21 day time period. d) he understands that he may revoke the agreement reflected in this Final Severance Agreement and Release at any time within seven days after he signs it (excluding the date of signing). To revoke the Final Severance Agreement and Release, he must deliver notice of revocation to Peter Tropoli, 2211 Northeast Loop 410, San Antonio, Texas 78217, or in his absence to his office, within seven days after the date he signs the Final Severance Agreement and Release. e) he understands that if he does not revoke this Final Severance Agreement and Release as described above, this Final Severance Agreement and Release will become effective, binding, and enforceable on the seventh day after he signs this Final Severance Agreement and Release (excluding the date of signing). Mr. Davis understand that he will not receive the sum of money described in Paragraph 2 until the first regular pay day after the Final Severance Agreement and Release becomes effective. 4. This Final Severance Agreement and Release is not an admission by Luby's, Inc. that it has acted unlawfully or violated any local, state or federal law or regulation. 5. Mr. Davis understands that the terms of this Final Severance Agreement and Release are confidential. Mr. Davis understands that he is not permitted to disclose the terms of this Final Severance Agreement and Release to any person other than his attorney, financial advisor, spouse or as required by law. 6. Mr. Davis understands that this Final Severance Agreement and Release shall be binding upon him, and upon his heirs, administrators, representatives, executors, successors and assigns. 7. This Final Severance Agreement and Release has been signed in the State of Texas. The laws of the State of Texas, and federal law where applicable, govern the interpretation and enforcement of this Final Severance Agreement and Release. The parties agree that venue for any disputes shall lie in Bexar County, Texas. 8. Mr. Davis has read this document and understands the he is giving a full and final release to Luby's, Inc. and the Parties Released and declares that it is his intent to provide such a release. Mr. Davis acknowledges that he has been advised to consult with an attorney, and has consulted with an attorney, prior to signing this agreement. Mr. Davis agrees that this document is a full and final expression of his Final Severance Agreement and Release with Luby's, Inc. and made with the Parties Released. Mr. Davis acknowledges that no other promise has been made to him either by Luby's, Inc., or the Parties Released that are not set forth in this document. Mr. Davis hereby signs this document knowingly, voluntarily, and of his own free will. 9. As part of the consideration identified above, Mr. Davis agrees, on behalf of himself, his heirs, successors and assigns, to INDEMNIFY and HOLD HARMLESS agree to DEFEND Luby's Inc. and the Released Parties from all claims, demands, and causes of action of any nature, which may have been or may be asserted by any person claiming by, through, or under me concerning any of the matters covered by this release. IN WITNESS WHEREOF, the parties execute this Final Severance Agreement and Release in duplicate originals on this 20th day of July, 2001. /s/ Peter Tropoli /s/ Alan M. Davis __________________________ __________________________ LUBY'S, INC. ALAN M. DAVIS DATE: July 20, 2001 DATE: July 20, 2001 EX-10 8 exh10cc.txt CONSULTANT AGREEMENT ALAN M. DAVIS DATED 7/20/01 Exhibit 10(cc) CONSULTANT AGREEMENT Consultant Name: Alan M. Davis Position: Development Consultant Address: 20323 Huebner Road, Suite 111, San Antonio, Texas 78258 Date: July 20, 2001 1. Introduction. I, the consultant named above ("Consultant"), and Luby's Restaurants Limited Partnership, a Texas partnership ("Luby's), enter into this Consultant Agreement (the "Agreement"). Luby's and I agree as follows: 2. Services to be Performed by Consultant. Consultant is hereby retained to develop or assist in the development of real estate and to assist in work-outs with regard to lease agreements. During the performance of the Agreement, Consultant agrees to comply with all applicable federal, state, county and municipal laws, rules and regulations that are now or may be in the future become applicable to Luby's business. Consultant agrees to inform Luby's immediately upon becoming aware of any possible claim against Luby's that could be brought by a third party. 3. Independent Consultant. I understand that I, as an Independent Consultant, will be paid monthly the following amount: $16,666.67. No deductions will be made for federal, state or local taxes or any other withholdings or off-sets required by law. I shall be responsible for all such amounts. 4. Compensation and Benefits. (a) For all the services rendered by me under this Agreement, and for so long as this Agreement remains in effect, I alone and not Luby's, will be responsible for the payment of all federal, state and local taxes in respect of the payments to be made and benefits to be provided under this Agreement or otherwise (except to the extent withheld by Luby's). (b) Luby's shall provide Consultant's and his family's regular monthly group health, life and disability insurance benefits. The provision of said benefits by Luby's during the term of this Agreement shall constitute COBRA continuation coverage as a result of Consultant's termination of employment with Luby's. Following the term of this Agreement, any remaining portion of the COBRA continuation coverage period shall be at the election and expense of the Consultant. 5. Term of Agreement; Termination. (a) The term of this Agreement will from the date written above through July 20, 2002. With reasonable cause, Luby's may terminate this Agreement effective immediately upon the giving of written notice of termination for cause. Reasonable cause shall include but shall mean: (a) willful and continued failure of Consultant to substantially perform his duties, or (b) Consultant willfully engaging in gross misconduct (active or passive), gross negligence, fraud or dishonesty which has resulted in, or is likely to result in, material injury to the Company. Such termination, however, shall not relieve Consultant from performance of any continuing obligations provided for under this Agreement. 6. Confidential Information. I acknowledge that the law provides companies, such as Luby's with protection for their trade secrets and confidential information. "Confidential Information" can include, without limitation both technical and non-technical information such as formulas, processes, recipes, specifications, compilations of information, financial information, vendor lists, preparation methods or procedures, manufacturing techniques, trade secrets, or special knowledge. I will not disclose, directly or indirectly, any of Luby's' confidential business information or confidential technical information to anyone without authorization from Luby's management. I will not use any of Luby's' confidential business information or confidential technical information in any way, either during or after this agreement with Luby's, except as required in the course of this Consultant Agreement. Luby's shall receive the exclusive benefit and be the sole owner of all products, recipes, formulas, processes, specifications, preparation methods, and procedures, in whole or in part, or any confidential information, made by me in the course of or as a result of this agreement. I agree not to publish, communicate, or in any way disseminate the confidential information that I develop on behalf of Luby's. (b) All originals and all copies of any manuals, reports, computer programs or data, notebooks, notes, photographs, and all other recorded, written or printed matter relating to research, manufacturing operations, or business of Luby's made or received by me during my relationship by Luby's are the property of Luby's. Upon termination of this Agreement, whether or not for cause, I will immediately deliver to Luby's all property of Luby's which may still be in my possession. I will not remove or assist in removing such property from Luby's' premises under any circumstances, either during my consulting relationship or after termination thereof, except as authorized by Luby's management. (c) I agree that I will be responsible for maintaining the secrecy and confidentiality of such confidential information as required herein, and will be responsible for such and agree to indemnify Luby's for all damages which Luby's may sustain as a result of any unauthorized disclosure of such confidential information, or as a result of any breach of this agreement whatsoever. In addition to other remedies, Luby's shall be entitled to an injunction or other equitable relief for any breach of this agreement. (d) Luby's will be the sole owner of any and all of my inventions that are related to Luby's' business, as defined in more detail below. For purposes of this Agreement, "Inventions" means all inventions, discoveries, and improvements (including without limitation, any information relating to specifications, formulations, preparation methods or procedures, manufacturing techniques, processes, recipes, trade secrets, special knowledge, developments or experimental work, work in progress, or business trade secrets), along with any and all other work product relating thereto. (e) An invention is "related to Luby's' business" ("Luby's-related Invention"), if it is made, conceived, or reduced to practice by me (in whole or in part, either alone or jointly with other, whether or not during regular working hours), whether or not potentially patentable or copyrightable in the U.S. or elsewhere, and it either (i) involves equipment, supplies, facilities, or trade secret information of Luby's; (ii) involves the time for which I was compensated by Luby's' (iii) relates to the present or reasonably anticipated future business of Luby's or to Luby's' actual or anticipated research or development; or (iv) results, in whole or in part, from work performed by me for Luby's. 7. Consultant Handbooks, Etc. From time to time, Luby's may establish, maintain, or distribute Consultant manuals or handbooks or policy manuals, and officers or other representatives of Luby's may make written or oral statements relating to policies and procedures. Such manuals, handbooks and statements are intended only for general guidance. No policies, procedures or statement of any nature by or on behalf of Luby's (whether written or oral and whether or not contained in any Consultant manual or handbook or policy manual), and no acts or practices of any nature, will be construed as modifying this Agreement or as creating any express or implied obligations of any nature to me. 7. No Authority to Bind Luby's. Consultant has no authority to enter into any contracts or agreements on behalf of Luby's. This Agreement does not create a partnership, joint venture, or joint undertaking of any kind between the parties. 8. No Assignment Rights. Consultant may not subcontract this Agreement, or any part hereof, without express written permission from Luby's. Any subConsultant that is permitted to perform any part of the Services shall be specifically bound by all of the terms and covenants hereof; however, Consultant will remain primarily responsible for all services provided by such subConsultant. 9. Arbitration. To the greatest extent permitted by applicable law, any dispute, controversy, or claim arising out of or related to this Agreement will be submitted to binding arbitration pursuant to the Federal Arbitration Act with hearings to be held in San Antonio, Texas, in accordance with the American Arbitration Association Commercial Rules in effect on the date of the demand for arbitration. The arbitrator(s) shall be selected by agreement of the parties, or if they cannot agree on an arbitrator(s) within 30 days after a claim is made, then the arbitrator shall be selected by the American Arbitration Association. In any such arbitration, Consultant shall be entitled to seek both legal and equitable relief and remedies. The arbitrator shall not be bound by judicial formalities and may abstain from following the strict rules of evidence and shall interpret this agreement as an honorable engagement and not merely as a legal obligation. Luby's will pay all arbitration fees, whether the arbitration is initiated by the Company or Consultant. Luby's will pay, upon demand by Consultant, all attorney's fees and costs which Consultant may reasonably incur in connection with any arbitration to enforce this Agreement, plus interest; provided, however, that this provision for fees and costs shall not apply unless Consultant recovers an amount in excess of the amount the Company had offered prior to the commencement of the arbitration hearing. To protect trade secrets or other confidential information, Luby's may seek temporary or preliminary injunctive relief in a court of arbitration tribunal may take any interim measures it deems necessary with respect to the subject matter of the dispute, including measures for the preservation of confidentiality granted in this Agreement. Judgment upon the award rendered by the arbitrator(s) may be entered into in any court having jurisdiction. 10. Indemnification. Consultant (and his predecessors, heirs, successors, executors, assigns and legal representatives) will DEFEND, PROTECT, INDEMNIFY and hold Luby's (and its affiliated companies or entities, predecessors, successors, officers, directors, shareholders, employees, agents, legal representatives, attorneys, and insurers) harmless against any and all claims, demands, causes of action and judgments of every kind and character, including court costs and attorney's fees, arising, occurring, growing out of, incident to, or resulting directly or indirectly from Consultant's negligence, gross negligence, willful misconduct, intentional act or material misrepresentation while providing services under this Agreement. Consultant (and his predecessors, heirs, successors, executors, assigns and legal representatives) agrees to hold Luby's (and its affiliated companies or entities, predecessors, successors, officers, directors, shareholders, employees, agents, legal representatives, attorneys, and insurers) harmless from any and all costs associated with any personal injury or death that may be suffered by Consultant, his employees, assistants, assignees, transferees or designees while performing the Services. This indemnity is subject to any restrictions or limitations imposed by law, but only to the extent of such restrictions or limitations. 11. Miscellaneous. (a) I have no obligations, contractual or otherwise, inconsistent with my obligations set forth in this Agreement. (b) This Agreement will remain in full force and effect after any termination of this Agreement with respect to my obligations concerning confidential or proprietary information and concerning assignment of Luby's-related Inventions or Confidential Information. (c) This Agreement sets forth the entire agreement of the parties concerning the subjects covered herein; there are no promises, understandings, representations or warranties of any kind concerning those subjects except as expressly set forth in this Agreement. (d) Any modification of this Agreement must be in writing and signed by all parties; any attempt to modify this Agreement orally or in writing, not executed by all parties will be void. (e) If any provision of this Agreement or its application to anyone or under any circumstances, is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability will not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or application and will not invalidate or render unenforceable such provision or application in any other jurisdiction. (f) This Agreement will be governed by and interpreted under the laws of the state of Texas as applied to contracts made and carried out in Texas by residents of Texas. (g) No failure on the part of any party to enforce any provisions of this Agreement will act as a waiver of the right to enforce that provision. This Agreement contains provisions requiring arbitration of disputes. By signing this Agreement, I acknowledgment that I have read the entire Agreement; I have had the opportunity to ask questions and consult counsel or other advisors about its terms, and I agree to be bound by it. LUBY'S RESTAURANTS LIMITED Consultant's Signature PARTNERSHIP By: /s/ Peter Tropoli /s/ Alan M. Davis ________________________________ ____________________________ Printed Name: Peter Tropoli Printed Name: Alan M. Davis Title: Senior Vice President-Administration EX-11 9 exh11.txt STMT RE COMPUTATION OF PER SHARE EARNINGS Exhibit 11 COMPUTATION OF PER SHARE EARNINGS The following is a computation of the weighted average number of shares outstanding which is used in the computation of per share earnings for Luby's, Inc. for the three and twelve months ended August 31, 2001 and 2000. Three months ended August 31, 2001 22,422,943 x shares outstanding for 92 days 2,062,910,756 Divided by number of days in the period 92 _____________ 22,422,943 Twelve months ended August 31, 2001 22,420,375 x shares outstanding for 133 days 2,981,909,875 22,422,943 x shares outstanding for 232 days 5,202,122,776 _____________ Total 8,184,032,651 Divided by number of days in the period 365 _____________ 22,422,007 Three months ended August 31, 2000 22,420,375 x shares outstanding for 92 days 2,062,674,500 Divided by number of days in the period 92 _____________ 22,420,375 Twelve months ended August 31, 2000 22,420,375 x shares outstanding for 366 days 8,205,857,250 Divided by number of days in the period 366 _____________ 22,420,375 EX-99.A CHARTER 10 exh99a.txt CORPORATE GOVERNANCE GUIDELINES Exhibit 99(a) LUBY'S, INC. CORPORATE GOVERNANCE GUIDELINES ROLE AND RESPONSIBILITIES OF BOARD 1. Ethical Business Environment The Board believes that the long-term success of Luby's is dependent on the maintenance of an ethical business environment that focuses on adherence to both the letter and spirit of the law and regulations and the highest standards of corporate citizenship. 2. Oversight The Board acknowledges that Luby's has many different stakeholders. However, the paramount duty of Luby's Board and management is to the shareholders; the interests of other stakeholders are relevant as a derivative of the duty to shareholders. The Board is the ultimate decision making body except for those matters reserved by law to the shareholders. The management team is charged by the Board with the management of Luby's affairs. The Board monitors corporate performance against business plans on a regular basis to evaluate whether the business is being properly managed. 3. Senior Management The Board selects and regularly evaluates the CEO. The appointment and regular evaluation of a Chief Operating Officer, if any, will be made by the Board in collaboration with the CEO. The Board determines the CEO's compensation and reviews and approves the salaries of senior management named in the Summary Compensation Table of the Proxy Statement. The Board also reviews and approves management's recommendations for threshold, target, and stretch points for the annual Incentive Bonus Plan. It periodically reviews succession planning and management development with the CEO. 4. Strategy The Board ensures that a strategic planning process is in place, is used, and produces sound choices. It reviews and approves major corporate strategies and monitors the implementation of current strategic initiatives to assess whether they are on schedule, on budget, and producing effective results. 5. Material Transactions The Board reviews and approves significant capital allocations and expenditures and material transactions not in the ordinary course of business. 6. Internal Controls, Reporting, and Compliance The Board satisfies itself as to the adequacy of internal controls, risk management, financial reporting, and compliance with laws and regulations. 7. Corporate Governance The Board nominates directors to serve on the Board and ensures that the structure and practices of the Board provide for sound corporate governance. COMPOSITION OF THE BOARD 8. Independent Director An "Independent Director" is a person who is not a current and, generally, not a former member of management and has no relationship or activity that could affect or appear to affect his or her ability to exercise independent judgment as a director. The Governance Committee reviews the circumstances in each case and determines when a Board member or candidate is not independent. The Board will seek to maintain a substantial majority of independent directors. Various regulatory agencies have adopted differing concepts of independence (e.g. SEC, NYSE, IRS). These external definitions are not part of these Guidelines and should be consulted only for the specific purposes for which they were intended. 9. Number of Directors The Board believes that the number of directors should not be less than nine or more than twelve. The Board may adjust the number upward to accommodate an outstanding potential candidate or during periods of transition when new directors may overlap with retiring directors. 10. Membership Criteria The Board Governance Committee is responsible for recommending to the Board the appropriate skills and characteristics for prospective Board candidates in the context of the current Board makeup and the perceived needs of Luby's at that point in time. This assessment should include issues of general business experience, specialized knowledge, functional skills, other Board and time commitments, personal characteristics, age, independence, and diversity. 11. Screening, Selection, and Invitation to Serve Luby's Bylaws provide that director candidates standing for election by the shareholders shall be nominated by the Board or by a shareholder as provided in the Bylaws. Vacancies in the Board shall be filled by selection of the current directors. The Governance Committee is responsible for screening potential candidates with input from all Board members. The Chairman will coordinate the extension of an invitation to Board membership. 12. Directors Who Change Principal Job Responsibility Directors who have a significant change in their professional roles and responsibilities, such as retirement or a change in employer, should submit a letter to the Chairman of the Board explaining the circumstances. The Board, through its Governance Committee, should review the circumstances and decide whether it is in the best interest of Luby's that the director continue to serve. 13. Retirement Age and Term Limits A director shall not be eligible to stand for election or reelection to the Board after reaching the age of 70 years. Except for incumbent directors as of March 19, 1998, who were then 70 years of age or older, a director will offer his or her resignation from the Board upon reaching the age of 70 years effective at the next annual meeting of shareholders. The Board has not established term limits for directors; however, the Board Governance Committee should consider each Director's contribution to the Board every three years, prior to his of her nomination for reelection by the shareholders. 14. Chairman/CEO Corporate policy allows for separation of the office of Chairman and CEO. This policy is intended to preserve flexibility for the board of directors regarding the selection of Chairman and CEO and the independence of those positions. 15. Lead Director If the offices of the CEO and Chairman are not separate or if the Chairman is not considered by the Board to be an independent director, the independent directors will elect one of their number to serve as Lead Director. The Lead Director will chair meetings of independent directors, will facilitate communications between other members of the Board and the CEO and Chairman, and will assume other duties which the independent directors as a whole may designate from time to time. Directors are always free to communicate directly with the CEO and Chairman. 16. Limitations on Tenure as Independent Chair or Lead Director An Independent Chair or Lead Director serves at the pleasure of the Board. It is the sense of the Board that a director's service as Independent Chair or Lead Director should generally not extend beyond the annual meeting of shareholders after three consecutive years of service. FUNCTIONING OF THE BOARD 17. Board Meetings Article III of Luby's Bylaws spells out required procedures for calling and conducting meetings of the Board in order to conduct corporate business. The Board sets the number and schedule of Regular Board meetings for the entire year at the annual meeting of the Board in January. Currently the Board has five Regular Meetings each year. The Chairman, the CEO, or a majority of directors may call Special Meetings of the Board as necessary. 18. Board Agendas The CEO in conjunction with the Chairman and committee chairs will establish and publish an agenda for each meeting of the Board. Board members may suggest items for inclusion on the agenda and may raise for discussion at any Board meeting subjects not on the agenda. 19. Board Materials Distributed in Advance Information and data that are important to the Board's understanding of the business of the meeting and presentations on special subjects should, when practical, be distributed at least one week in advance of the meeting to permit directors to prepare for the meeting. This will conserve Board meeting time and allow discussion to focus on questions and analysis of these materials. Management will try to keep materials as brief as possible while still providing the desired information. Lengthy reports or documents, when practical, should be accompanied by executive summaries. Directors are encouraged to comment on the adequacy and effectiveness of materials provided. 20. Attendance of Nondirectors at Board Meetings The CEO may invite members of senior management who are not Board members to regularly participate in portions of the Board meeting. Further, the Board encourages the participation at Board meetings of managers who can provide additional insight into items being discussed or who have substantial future potential in the Company and who should be given exposure to the Board. Portions of all Board meetings will be reserved for private deliberation among Board members. 21. Meetings of Independent Directors Independent directors will meet in executive session at the conclusion of the regularly scheduled board meetings as a matter of practice whenever requested by an individual board member, either in advance of or during board deliberations. They may also meet at other times when the need to do so is established by the Chairman or lead outside director, as appropriate, or upon the Board's own motion. The Chairman/Lead outside director is responsible for keeping the CEO fully informed of any substantive deliberations in such executive sessions. These meetings may include a discussion with the CEO. FUNCTIONING OF COMMITTEES OF THE BOARD 22. Board Committees The current standing committees of the Board are: Executive, Finance and Audit, Personnel and Administrative Policy, and Board Governance. From time to time the Board may create a new or disband an existing Committee depending on particular interests of the Board, issues facing the Company, or legal requirements. 23. Committee Charters Each Committee should, with leadership from its Chair, maintain a charter describing its duties and responsibilities. Charters developed or amended will be reviewed by the Executive Committee and approved by the full Board. 24. Assignment and Rotation of Committee Membership The Executive Committee in consultation with the Chairman and, the CEO, and individual Board members, will assign Board members and chairs to various Committees, subject to Board approval. Assignments should comply with various applicable regulations (e.g. SEC, NYSE, IRS) and with the desires of individual members insofar as possible. Consideration should be given to rotating committee membership and chairs from time to time generally on a three to five year schedule. 25. Scheduling of Committee Meetings and Committee Agendas The Chair of each Committee, in collaboration with management and the Chairman of the Board, determine the frequency, length, and agenda of each meeting of the Committee. 26. Committee Reports to the Board The Chair of each Committee, with the support of management, will report to the full Board as soon as practical following a Committee meeting all significant matters discussed and will present recommendations of the committee to the Board for action, review, or approval, as appropriate, at each Board meeting. Minutes of all Committee meetings will be distributed to all Board members. MISCELLANEOUS 27. Board Access to Management Board members have access to Luby's management, as necessary to fulfill their obligations as members of the board, and will keep the CEO, COO, and the chairman informed of any contacts of substance and concerns that may arise therefrom. Board members should use judgment to insure that this contact is not distracting to business operations or that it could be perceived as infringing on the responsibilities of the CEO. Correspondence from a Board member to a member of management should be copied to the CEO and Chairman. 28. Communications with the Public and Various Constituencies The CEO is responsible for establishing effective communications with Luby's various constituencies, i.e. press, shareholders, potential investors, customers, communities, suppliers, creditors, and corporate partners. Management speaks for Luby's, and Board members should communicate with these constituencies only with the consent and generally at the request of management. 29. Assessing Board Performance Approximately annually, the Governance committee will survey Board members on their perceptions of the performance and effectiveness of the Board and solicit suggestions for improving its performance. The objective is to increase the effectiveness of the Board and not to evaluate individual Board members. The results of this survey will be reported to the Executive committee which will report, in turn to the full board with the results and recommended action the committee deems appropriate. 30. Board Compensation Luby's policy is to compensate nonmanagement directors competitively relative to companies of comparable size. The Governance Committee will annually recommend to the full Board for its consideration director compensation for the next year. 31. Stock Ownership Guidelines for Directors The Board believes that each Luby's director should accumulate a meaningful investment in Luby's stock and has established guidelines for share ownership. Currently, directors are expected to accumulate, over time, common shares with a market value of at least $100,000. Luby's has established a tax deferred Nonemployee Director Phantom Stock Plan. Beginning in 1999 and until the ownership guidelines are met, the nonemployee director will receive at least $10,000 of the annual retainer in phantom stock units to be redeemed for a like number of common shares when he or she ceases for any reason to be a director. 32. Review of Guidelines The Executive Committee is responsible for periodic review of these Guidelines, as well as consideration of other corporate governance issues that may, from time to time, merit consideration of the entire Board. 33. Intent These Guidelines are intended to be a statement of general principles to guide the Board in formulating corporate policy. The Guidelines are not rules or bylaws. They may be amended from time to time by the Board. In addition, the Board may on occasion depart from the Guidelines when circumstances indicate that a departure is in the best interest of the Company and its shareholders. Luby's, Inc. Board of Directors Corporate Governance Guidelines Approved September 25, 2001 EX-99 11 exh99b.txt CONSENT OF INDEPENDENT AUDITORS Exhibit 99(b) Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-8s) pertaining to the Luby's Cafeterias, Inc. Management Incentive Stock Plan (No 33-36791), the Luby's Incentive Stock Plan (No. 1.333-70315), the Luby's Cafeterias Saving and Investment Plan of Luby's Cafeterias, Inc. (No. 333-19283) and the Luby's Inc. Nonemployee Director Phantom Stock Plan (No. 333- 55146) of our report dated October 15, 2001, except for the third paragraph of Note 5, as to which the date is December 5, 2001, with respect to the consolidated financial statements of Luby's Inc. included in the Annual Report (Form 10-K) for the year ended August 31, 2001. /s/ ERNST & YOUNG LLP San Antonio, Texas December 5, 2001 -----END PRIVACY-ENHANCED MESSAGE-----