-----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, EzBCetEVRV21IZdgy/RP0ALKhyvUg869C2xpeBvVBEA26CPW5FVtVtR+mxgx6vFc qdtkHg6sa7Gcjfyb+L+G5w== 0000912057-01-540137.txt : 20020411 0000912057-01-540137.hdr.sgml : 20020411 ACCESSION NUMBER: 0000912057-01-540137 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20011002 FILED AS OF DATE: 20011116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FURRS RESTAURANT GROUP INC CENTRAL INDEX KEY: 0000872548 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 752350724 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10725 FILM NUMBER: 1793694 BUSINESS ADDRESS: STREET 1: 3001 E PRESIDENT GEORGE BUSH HWY STREET 2: SUITE 200 CITY: RICHARDSON STATE: TX ZIP: 75085-5943 BUSINESS PHONE: 972-808-2923 MAIL ADDRESS: STREET 1: P.O. BOX 852800 CITY: RICHARDSON STATE: TX ZIP: 75085-2800 FORMER COMPANY: FORMER CONFORMED NAME: FURRS BISHOPS INC DATE OF NAME CHANGE: 19930328 10-Q 1 a2063868z10-q.txt 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 2, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 1-10725 FURR'S RESTAURANT GROUP, INC. INCORPORATED IN DELAWARE IRS EMPLOYER IDENTIFICATION NO. 75-2350724 3001 E. PRESIDENT GEORGE BUSH HWY., SUITE 200, RICHARDSON, TEXAS 75082 REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 808-2923 - -------------------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES _X_ NO __ - -------------------------------------------------------------------------------- As of November 2, 2001 there were 9,767,926 shares of Common Stock outstanding. 1
FURR'S RESTAURANT GROUP, INC. INDEX PART I. FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements Condensed Consolidated Balance Sheets - October 2, 2001 (Unaudited) and January 2, 2001 3 Unaudited Condensed Consolidated Statements of Operations - For the thirteen weeks ended October 2, 2001 and September 26, 2000 5 Unaudited Condensed Consolidated Statements of Operations- For the thirty-nine weeks ended October 2, 2001 and September 26, 2000 6 Unaudited Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit) - For the thirty-nine weeks ended October 2, 2001 7 Unaudited Condensed Consolidated Statements of Cash Flows - For the thirty-nine weeks ended October 2, 2001 and September 26, 2000 8 Notes to Unaudited Condensed Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosure About Market Risk 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 16
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PART I. FINANCIAL INFORMATION Item 1. Financial Statements FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS OCTOBER 2, 2001 AND JANUARY 2, 2001 (DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS) (Unaudited) October 2, 2001 January 2, 2001 ----------------- ----------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ - $ 5,694 Accounts and notes receivable, net 2,077 1,260 Inventories 7,476 6,908 Prepaid expenses and other 2,819 887 ----------------- ----------------- Total current assets 12,372 14,749 ----------------- ----------------- PROPERTY, PLANT AND EQUIPMENT, NET 45,840 54,876 DEFERRED TAX ASSETS 19,321 19,178 DEFERRED LOAN COSTS, NET 2,611 - OTHER ASSETS 628 628 ----------------- ----------------- TOTAL ASSETS $ 80,772 $ 89,431 ================= =================
(Continued) 3 FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS OCTOBER 2, 2001 AND JANUARY 2, 2001 (DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
(Unaudited) October 2, January 2, 2001 2001 ---------------- ---------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Current maturities of long-term debt $ 4,825 $ 3,000 Trade accounts payable 9,201 6,051 Other payables and accrued expenses 12,329 15,859 Derivative liability, current 470 - Reserve for store closings, current 714 795 ---------------- ---------------- Total current liabilities 27,539 25,705 ---------------- ---------------- RESERVE FOR STORE CLOSINGS, NET OF CURRENT MATURITIES 1,853 2,270 LONG-TERM DEBT, NET OF CURRENT PORTION 35,675 52,219 OTHER PAYABLES 9,671 10,197 DERIVATIVE LIABILITY, NET OF CURRENT PORTION 174 - EXCESS OF FUTURE LEASE PAYMENTS OVER FAIR VALUE, NET OF AMORTIZATION 1,195 1,474 STOCKHOLDERS' EQUITY (DEFICIT): Preferred Stock, $.01 par value; 5,000,000 shares authorized, none issued - - Common Stock, $.01 par value; 15,000,000 shares authorized, 9,767,926 shares issued and outstanding 98 98 Additional paid-in capital 56,407 56,386 Accumulated other comprehensive loss (3,933) (3,521) Accumulated deficit (47,907) (55,397) ---------------- ---------------- Total stockholders' equity (deficit) 4,665 (2,434) ---------------- ---------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 80,772 $ 89,431 ================ ================
See accompanying notes to condensed consolidated financial statements. 4 FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED OCTOBER 2, 2001 AND SEPTEMBER 26, 2000 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Thirteen weeks ended -------------------------------------- October 2, September 26, 2001 2000 ---------------- ----------------- Sales $ 45,351 $ 49,597 Costs and expenses: Cost of sales (excluding depreciation) 13,040 14,644 Selling, general and administrative 27,965 30,149 Depreciation and amortization 2,354 2,734 ---------------- ----------------- 43,359 47,527 ---------------- ----------------- Operating income 1,992 2,070 Gain on disposal of assets (22) (100) Interest expense 1,128 87 ---------------- ----------------- Earnings before income taxes 886 2,083 Income tax expense (benefit) (349) 361 ---------------- ----------------- Net income $ 1,235 $ 1,722 ================ ================= Weighted average number of shares of common stock outstanding: Basic 9,767,926 9,757,918 ================ ================= Diluted 9,771,203 9,758,558 ================ ================= Net income per share: Basic $ 0.13 $ 0.18 ================ ================= Diluted $ 0.13 $ 0.18 ================ =================
See accompanying notes to condensed consolidated financial statements. 5 FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 2, 2001 AND SEPTEMBER 26, 2000 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Thirty-nine weeks ended -------------------------------------- October 2, September 26, 2001 2000 --------------- ------------------ Sales $ 140,393 $ 145,549 Costs and expenses: Cost of sales (excluding depreciation) 40,332 42,869 Selling, general and administrative 86,179 87,387 Depreciation and amortization 8,002 8,047 --------------- ------------------ 134,513 138,303 --------------- ------------------ Operating income 5,880 7,246 Gain on disposal of assets (366) (585) Interest expense 2,307 259 --------------- ------------------ Earnings before income taxes and extraordinary item 3,939 7,572 Income tax expense 89 1,326 --------------- ------------------ Earnings before extraordinary item 3,850 6,246 Extraordinary gain on retirement of debt 3,640 - =============== ================== Net income $ 7,490 $ 6,246 =============== ================== Weighted average number of shares of common stock outstanding: Basic 9,759,345 9,757,918 =============== ================== Diluted 9,761,169 9,761,262 =============== ================== Earnings before extraordinary item per share: Basic $ 0.40 $ 0.64 =============== ================== Diluted $ 0.40 $ 0.64 =============== ================== Extraordinary item per share: Basic $ 0.37 $ - =============== ================== Diluted $ 0.37 $ - =============== ================== Net income per share: Basic $ 0.77 $ 0.64 =============== ================== Diluted $ 0.77 $ 0.64 =============== ==================
See accompanying notes to condensed consolidated financial statements. 6 FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 2, 2001 (DOLLARS IN THOUSANDS)
Accumulated Additional Other Preferred Common Paid-In Comprehensive Accumulated Stock Stock Capital Loss Deficit Total ----------- -------- ------------ --------------- ------------- ---------- BALANCE, JANUARY 2, 2001 $ - $ 98 $ 56,386 $ (3,521) $ (55,397) $ (2,434) Change in fair value of estimated cash flows related to interest rate swap, net of tax (430) (430) Reclassification of interest rate swap to earnings, net of tax 18 18 Stock issued 21 21 Net income - - - - 7,490 7,490 ----------- -------- ------------ --------------- ------------- ---------- BALANCE, OCTOBER 2, 2001 $ - $ 98 $ 56,407 $ (3,933) $ (47,907) $ 4,665 =========== ======== ============ =============== ============= ==========
See accompanying notes to condensed consolidated financial statements. 7 FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
Thirty-nine weeks ended ---------------------------------- October 2, September 26, 2001 2000 --------------- ------------------ Cash flows from operating activities: Net income $ 7,490 $ 6,246 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,002 8,047 Amortization of deferred loan costs 313 - Deferred tax expense 89 1,326 Gain on disposal of assets (366) (585) Extraordinary gain on debt refinancing (3,640) - Changes in operating assets and liabilities: Accounts and notes receivable (703) (334) Inventories (568) (168) Prepaid expenses and other (2,270) (439) Reserve for store closings (498) (576) Trade accounts payable, other payables, accrued expenses and other liabilities (2,952) (2,836) --------------- ------------------ Net cash provided by operating activities 4,897 10,681 --------------- ------------------ Cash flows from investing activities: Purchases of property, plant and equipment (1,968) (11,577) Proceeds from the sale of property, plant and equipment 2,975 718 --------------- ------------------ Net cash provided by (used in) investing activities 1,007 (10,859) --------------- ------------------ Cash flows from financing activities: Payment of indebtedness (11,079) (2,746) Payment of loan costs (2,924) - Increase in cash overdraft 2,384 - Issuance of stock 21 - --------------- ------------------ Net cash used in financing activities (11,598) (2,746) --------------- ------------------ Decrease in cash and cash equivalents (5,694) (2,924) Cash and cash equivalents at beginning of period 5,694 5,172 --------------- ------------------ Cash and cash equivalents at end of period $ - $ 2,248 =============== ================== Supplemental disclosure of cash flow information: Cash paid for interest (including $3,364 in 2001 and $2,746 in 2000 classified as payment of indebtedness.) $ 4,790 $ 3,006 =============== ================== Cash paid for income taxes $ - $ - =============== ================== Noncash investing and financing activities: Receivable related to involuntary equipment conversion $ 114 $ - =============== ==================
See accompanying notes to condensed consolidated financial statements. 8 FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in Thousands) BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles. These statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended January 2, 2001. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of interim financial position and results of operations. Interim results of operations may not be indicative of the results that may be expected for a full fiscal year. EARNINGS PER SHARE The following table reconciles the denominators of basic and diluted earnings per share for the periods ended October 2, 2001 and September 26, 2000.
Thirteen Weeks Ended Thirty-nine Weeks Ended ------------------------------------ ------------------------------------ October 2, September 26, October 2, September 26, 2001 2000 2001 2000 -------------- ----------------- -------------- ------------------ Weighted average common shares outstanding-basic 9,767,926 9,757,918 9,759,345 9,757,918 Options 3,277 640 1,824 3,344 -------------- ----------------- -------------- ------------------ Weighted average common shares outstanding-diluted 9,771,203 9,758,558 9,761,169 9,761,262 ============== ================= ============== ==================
The following table sets forth the options and warrants that were not included in the computation of diluted earnings per share because their exercise price was greater than the average market price of the common shares and therefore, the effect would be anti-dilutive.
Thirteen Weeks Ended Thirty-nine Weeks Ended ------------------------------------ ------------------------------------ October 2, September 26, October 2, September 26, 2001 2000 2001 2000 -------------- ----------------- -------------- ------------------ Options 531,000 890,415 558,000 840,665 Warrants - 512,246 - 512,246
9 COMPREHENSIVE INCOME The following table sets forth the components of comprehensive income for the periods ended October 2, 2001 and September 26, 2000:
Thirteen Weeks Ended Thirty-nine Weeks Ended ------------------------------------ ------------------------------------ October 2, September 26, October 2, September 26, 2001 2000 2001 2000 -------------- ----------------- -------------- ------------------ Net income $1,235 $1,722 $7,490 $6,246 Fair value of estimated cash flows related to interest rate swap, net of tax (195) - (412) - -------------- ----------------- -------------- ------------------ $1,040 $1,722 $7,078 $6,246 ============== ================= ============== ==================
INCOME TAXES The Company has provided income tax expense (benefit) of ($349) and $89 for the thirteen weeks and thirty-nine weeks ended October 2, 2001, respectively. The effective income tax rate is lower than the statutory Federal rate of 35% due to interest expense reported as additional debt rather than interest expense pursuant to Statement of Financial Accounting Standards No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings" ("SFAS 15"). There is no income tax expense associated with the extraordinary gain as this represents early disposition of remaining restructured debt interest under SFAS 15. DEBT REFINANCING On April 10, 2001, the Company entered into a new $55,000 Revolving Credit and Term Loan Agreement (Credit Agreement) with various banks and lenders. Concurrent with the execution of this new agreement the Company defeased and gave notice of redemption of its 12% Senior Secured Notes due December 31, 2001 and repaid in full the $2,600 of 10.5% Notes due December 31, 2001. Accordingly, the balance of these notes, less the current portion of the new term loan, was classified as long term at January 2, 2001. After the redemption of the 12% Notes and the repayment in full of the 10.5% Notes, the Company had $44,000 outstanding under the new Credit Agreement. The Credit Agreement contains covenants with regard to maintaining certain leverage ratios, achieving certain levels of EBITDA, operating cash flow and limits on capital expenditures. In addition there are certain restrictions on the payment of dividends and additional indebtedness. The Credit Agreement allows the Company to borrow at either a Federal Funds Rate plus an applicable margin or at a Eurocurrency Reserve Rate plus an applicable margin. The Credit Agreement provides that the Company can borrow up to $20,000 on a revolving basis until April 2006, of which $9,000 was drawn at closing, with the remaining $11,000 of available borrowings to be used for working capital and capital expenditures. The Credit Agreement contains a $30,000 Term Loan A and a $5,000 Term Loan B. The Term Loan A and Term Loan B provide for quarterly amortization through April 2006 and April 2007, respectively, with the remaining amounts outstanding then due. The Company's obligations under the Credit Agreement are secured by a security interest in and liens upon substantially all of the Company's assets. As a result of retiring the 12% Senior Secured Notes, the Company reported an extraordinary gain of $3,640 in the second quarter of fiscal 2001. 10 BUSINESS SEGMENTS Following is a summary of segment information of the Company for the thirteen weeks ended October 2, 2001 and September 26, 2000:
CAFETERIAS DYNAMIC FOODS TOTAL ---------- ------------- ----- 2001: External revenues $ 44,857 $ 494 $ 45,351 Intersegment revenues - 12,764 12,764 Depreciation and amortization 2,096 258 2,354 Segment profit 1,744 270 2,014 2000: External revenues $ 49,130 $ 467 $ 49,597 Intersegment revenues - 15,386 15,386 Depreciation and amortization 2,463 271 2,734 Segment profit 1,951 219 2,170
Following is a summary of segment information of the Company for the thirty-nine weeks ended October 2, 2001 and September 26, 2000:
CAFETERIAS DYNAMIC FOODS TOTAL ---------- ------------- ----- 2001: External revenues $ 139,068 $ 1,325 $ 140,393 Intersegment revenues - 42,539 42,539 Depreciation and amortization 7,220 782 8,002 Segment profit 5,137 1,109 6,246 2000: External revenues $ 144,339 $ 1,210 $ 145,549 Intersegment revenues - 45,523 45,523 Depreciation and amortization 7,261 786 8,047 Segment profit 7,196 635 7,831
Following is a reconciliation of reportable segments to the Company's consolidated totals for the periods ended October 2, 2001 and September 26, 2000:
Thirteen Weeks Ended Thirty-nine Weeks Ended ------------------------------ ---------------------------- October 3, September 26, October 2, September 26, 2001 2000 2001 2000 ---------- ------------- ---------- ------------- Revenues Total revenues of reportable segments $ 58,115 $ 64,983 $ 182,932 $ 191,072 Elimination of inter-segment revenue (12,764) (15,386) (42,539) (45,523) --------- --------- --------- --------- Total consolidated revenues $ 45,351 $ 49,597 $ 140,393 $ 145,549 ========= ========= ========= =========
11 INTEREST RATE RISK MANAGEMENT The Company uses variable-rate debt to finance its operations. In particular, it has borrowed money under a Credit Agreement providing for variable-rate interest to retire the bonds and notes due December 31, 2001. This debt obligation exposes the Company to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases and conversely, if interest rates decrease, interest expense also decreases. Management believes it is prudent to limit the variability of a portion of its interest payments. It is the Company's objective to hedge between 50 and 70 percent of its variable-rate long-term note interest payments. The Company's Credit Agreement also requires that the Company hedge at least $20,000 for a period of two years. To meet this requirement, the Company has entered into a derivative instrument, in the form of an interest rate swap, to manage fluctuations in cash flows resulting from interest rate risk. The interest rate swap changes the variable-rate cash flow exposure to fixed-rate cash flows by entering into a receive-variable, pay-fixed interest rate swap. Under the interest rate swap, which has a notional amount of $20,000 and a two-year term, the Company receives variable interest rate payments based on LIBOR and makes fixed interest rate payments at 4.99%. The Company accounts for the interest rate swap in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. SFAS No. 133 requires that all derivative instruments be recorded in the balance sheet at fair value. The interest rate swap is a cash flow hedge under SFAS No. 133 and, accordingly, changes in fair value are reported in other comprehensive income and such amounts are reclassified into interest expense as a yield adjustment in the same period in which the related expense on the variable rate debt affects operations. The Company does not enter into derivative instruments for any purpose other than cash flow hedging purposes. That is, the Company does not speculate using derivative instruments. The Company assesses interest rate cash flow risk by identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS THIRTEEN WEEKS ENDED OCTOBER 2, 2001 COMPARED TO THIRTEEN WEEKS ENDED SEPTEMBER 26, 2000: Sales for the third fiscal quarter of 2001 were $45.4 million, a decrease of $4.2 million from the same quarter of 2000. Operating income for the third quarter of 2001 was $2.0 million compared to $2.1 million in the comparable period in the prior year. Net income for the third quarter of 2001 was $1.2 million compared to $1.7 million in the third quarter 2000. SALES. Restaurant sales in comparable units (units open a minimum of 16 months) decreased $1.0 million, or 2.24%, in the third quarter of 2001 over the same quarter of 2000. Two factors contributed to the slightly more negative sales in this quarter. First, sales were temporarily impacted in the days immediately following the tragedies of September 11, and secondly, the Company did not promote the same price discount strategy as it did during the prior year. Sales of nine units closed subsequent to the third quarter of 2000 were $2.7 million during the third quarter of 2000 accounting for almost two-thirds of the sales decrease in the third quarter of 2001. Sales by Dynamic Foods to third parties were $494 thousand in the third quarter of 2001, $27 thousand higher than third quarter of 2000. 12 COST OF SALES. Cost of sales was 28.8% of sales for the third quarter of 2001, a 70 basis point improvement from the 29.5% of sales for the third quarter of 2000. Cost of sales in third quarter of 2000 was negatively impacted by the price discounting promotions run during that quarter. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative ("SG&A") expense was lower in the aggregate by $2.2 million in the third quarter of 2001 as compared to 2000, principally due to fewer restaurants in operation in the current year. The change in SG&A expense included decreases of $1.4 million in labor related expenses, $.2 million in repairs and maintenance, $.2 million in supplies expense and $.3 million in other store expense. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was lower by $392 thousand in the third quarter of 2001 due to the closure of nine units since third quarter 2000. INTEREST EXPENSE. Interest expense was $1.0 million higher in the third quarter of 2001 due to the interest associated with the 12% Senior Secured Notes reported as additional debt rather than interest expense during 2000 pursuant to SFAS 15. INCOME TAXES. Income tax expense (benefit) of ($349) thousand and $361 thousand was provided in the third quarter of 2001 and 2000, respectively. Our effective tax rate is lower than the statutory Federal rate of 35% due to interest expense on restructured debt, which is reported as additional debt rather than interest expense pursuant to SFAS 15. The third quarter 2001 income tax benefit is due to a reduction in the estimated effective income tax rate for fiscal 2001 compared to the previous estimate which is accounted for prospectively during the fiscal year. THIRTY-NINE WEEKS ENDED OCTOBER 2, 2001 COMPARED TO THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 2000: Sales for the first thirty-nine weeks of 2001 were $140.4 million, a decrease of $5.2 million from the same period of 2000. Operating income for the first thirty-nine weeks of 2001 was $5.9 million compared to $7.2 million in the comparable period in the prior year. Net income for the first thirty-nine weeks of 2001 was $7.5 million compared to $6.2 million in the same period of 2000 and includes an extraordinary gain of $3.6 million realized as a result of early retirement of debt and the associated interest that had been classified as additional debt pursuant to SFAS 15. SALES. Restaurant sales in comparable units (units open a minimum of 16 months) decreased $2.2 million, or 1.6%, in the first thirty-nine weeks of 2001 over the same period of 2000. The nine closed units represented year-to-date sales of $6.2 million in the prior year. New units represented additional sales of $2.7 million for 2001. Sales by Dynamic Foods to third parties were $115 thousand higher in the first thirty-nine weeks of 2001 than that of the comparable period of 2000. COST OF SALES. Cost of sales was 28.7% of sales for the first thirty-nine weeks of 2001, a 70 basis point improvement from the 29.4% of sales for the same period of 2000. As a percentage of sales, cost of sales during 2000 was negatively impacted by price discounting promotions run periodically throughout the year. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative ("SG&A") expense was lower in the aggregate by $1.2 million in the first thirty-nine weeks of 2001 as compared to 2000. The change in SG&A expense included increases of $866 thousand in utility expense and $361 thousand in marketing expense, and decreases of $1.9 million in labor and related expenses, $359 thousand in repairs and maintenance and $498 thousand in supplies expense. INTEREST EXPENSE. Interest expense was $2.0 million higher for the first 39 weeks of 2001 due to the interest associated with the 12% Senior Secured Notes reported as additional debt rather than interest expense during 2000 pursuant to SFAS 15. 13 DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was lower by $45 thousand in the first thirty-nine weeks of 2001. Included in depreciation for the first thirty-nine weeks of 2001 is a $583 thousand write down of impaired assets. INCOME TAXES. Income tax expense of $89 thousand and $1,326 thousand was provided in the thirty-nine weeks of 2001 and 2000, respectively. Our effective tax rate is lower than the statutory Federal rate of 35% due to interest expense on restructured debt, which is reported as additional debt rather than interest expense pursuant to SFAS 15. During the third quarter 2001, the Company reduced its estimated effective tax rate for fiscal 2001, the effect of which is accounted for prospectively during the fiscal year. EXTRAORDINARY GAIN ON RETIREMENT OF DEBT. As a result of retiring the 12% senior Secured Notes, the Company reported an extraordinary gain of $3.6 million in the second quarter of fiscal 2001. LIQUIDITY AND CAPITAL RESOURCES During the thirty-nine weeks ended October 2, 2001, cash provided by operating activities was $4.9 million compared to $10.7 million in the same period of 2000. We made capital expenditures of $2.0 million during the first thirty-nine weeks of 2001 compared to $11.6 million during the same period of 2000. The $11.6 million spent in 2000 included capital expenditures on three new units and expenditures on the final phase of our re-imaging program. Due to the cash management provision under our new revolving credit facility, cash and temporary investments were $0 and cash overdraft (included in accounts payable) was ($2.4) million at October 2, 2001 compared to cash and temporary investments of $2.2 million at September 26, 2000 and $5.7 million at January 2, 2001. Our current ratio was .45:1 at October 2, 2001 compared to .46:1 at September 26, 2000 and .57:1 at January 2, 2001. Total assets at October 2, 2001 aggregated $80.8 million, compared to $88.9 million at September 26, 2000 and $89.4 million at January 2, 2001. Our restaurants are a cash business. Funds available from cash sales are not needed to finance receivables and are not generally needed immediately to pay for food, supplies and certain other expenses of the restaurants. Therefore, the business and operations of the Company have not historically required proportionately large amounts of working capital, which is generally common among similar restaurant companies. On April 10, 2001, we entered into a new $55 million Revolving Credit and Term Loan Agreement (Credit Agreement) with various banks and lenders. Concurrent with the execution of this new agreement we defeased and gave notice of redemption of our 12% Senior Secured Notes due December 31, 2001 and repaid in full the $2.6 million of 10.5% Notes due December 31, 2001. The Credit Agreement contains covenants with regard to maintaining certain leverage ratios, achieving certain levels of EBITDA, operating cash flow and limits on capital expenditures. In addition there are certain restrictions on the payment of dividends and additional indebtedness. The Credit Agreement allows us to borrow at either a Federal Funds Rate plus an applicable margin or at a Eurocurrency Reserve Rate plus an applicable margin. Our obligations under the Credit Agreement are secured by a security interest in and liens upon substantially all of our assets. The Credit Agreement provides that we can borrow up to $20 million on a revolving basis until April 2006, of which $9 million was drawn at closing, with the remaining $11 million of available borrowings to be used for working capital and capital expenditures. The Credit Agreement contains a $30 million Term Loan A and a $5 million Term Loan B. The Term Loan A and Term Loan B provide for quarterly amortization through April 2006 and April 2007, respectively, with the remaining amounts outstanding then due. 14 As a result of retiring the 12% Senior Secured Notes, we reported an extraordinary pre-tax gain of $3.6 million in the second quarter of fiscal 2001. In order to hedge exposure to cash flow risk associated with variable interest rates, we entered into an interest rate swap with a notional amount of $20 million for a two-year term. Under the interest rate swap, we receive variable interest rate payments based on LIBOR and make fixed interest rate payments at 4.99%. RECENT ACCOUNTING PRONOUNCEMENTS In July 2001 the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards No. 141 "Business Combinations" and No. 142 "Goodwill and Other Intangible Assets." Statement 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method, and Statement 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. As of October 2, 2001, there is no impact to the Company's financial statements as we have not entered into any business combinations and have not acquired goodwill. Also, the FASB has recently issued Statement No. 143 "Accounting for Asset Retirement Obligations," and Statement No. 144 "Accounting for the Impairment of Disposal of Long-Lived Assets." Statement 143 establishes requirements for the accounting of removal-type costs associated with asset retirements and Statement 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. Statement 143 is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged and Statement 144 is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The Company is currently assessing the impact of these standards on its financial statements. Item 3. Quantitative and Qualitative Disclosure About Market Risk We are exposed to market risk from changes in commodity prices. We purchase certain commodities used in food preparation. These commodities are generally purchased based upon market prices established with vendors. These purchase arrangements may contain contractual features that limit the price paid by establishing certain price floors or caps. We do not use financial instruments to hedge commodity prices because these purchase arrangements help control the ultimate cost paid and any commodity price aberrations are generally short term in nature. We are exposed to market risk from changes in interest rates affecting our variable rate debt. We use an interest rate swap to manage the cash flow risk on $20 million of our variable rate debt. The impact on our results of operations for the quarter of a one point interest rate change on the outstanding balance of our variable rate debt is approximately $100 thousand. We do not use derivatives for trading purposes. This market risk discussion contains forward-looking statements. Actual results may differ materially from this discussion based upon general market conditions and changes in domestic and global financial markets. 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings None. Items 2, 3, 4 and 5 are not applicable and have been intentionally omitted. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits -------- 11.1 Employment Agreement, dated as of October 9, 2001, between Craig S. Miller and Furr's Restaurant Group, Inc. 11.2 Nonqualified Stock Option Agreement, effective as of October 9, 2001, between Craig S. Miller and Furr's Restaurant Group, Inc. 11.3 Stock Grant Agreement, effective as of November 5, 2000, between Craig S. Miller and Furr's Restaurant Group, Inc. (b) Reports on Form 8-K ------------------- A report on Form 8-K was filed on October 17, 2001 with respect to the appointment of Craig S. Miller as President and Chief Executive Officer of the Company and his election as a member of the Company's Board of Directors. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATE: November 14, 2001 FURR'S RESTAURANT GROUP, INC. /s/ Craig S. Miller ------------------------------------- Craig S. Miller President and Chief Executive Officer /s/ Nancy Ellefson ------------------------------------- Nancy Ellefson Vice President - Finance 16 EX-11.1 3 a2063868zex-11_1.txt EXHIBIT 11.1 EMPLOYMENT AGREEMENT Employment Agreement (the "AGREEMENT" dated as of October 9, 2001 by and between Craig Miller ("EXECUTIVE") and Furr's Restaurant Group, Inc., a Delaware corporation (the "COMPANY"). RECITALS The Company desires to obtain the services of Executive in accordance with the terms, conditions, and provisions of this Agreement. Executive desires to provide services to the Company in accordance the terms, conditions, and provisions of this Agreement. Now, therefore, the parties to this Agreement agree as follows. 1. EMPLOYMENT Subject to the terms and conditions specified in this Agreement, the Company hereby agrees to employee Executive as the President and Chief Executive Officer of the Company. Executive hereby accepts such employment from the Company for the period commencing on the date of this Agreement and expiring on December 31, 2004, unless earlier terminated in accordance with the provisions of this Agreement (the "INITIAL TERM"); provided, however, that commencing on December 31, 2004, and each anniversary date thereafter, the term of this Agreement shall automatically be extended for one (1) additional year unless on, or nor more than thirty (30) days prior to, such anniversary date, the Company or Executive shall have given notice that the Company or Executive does not wish to extend this Agreement (the "TERM OF EMPLOYMENT"). 2. EXTENT OF SERVICES (a) Executive, during the Term of Employment, shall serve as President and Chief Executive Officer of the Company, reporting to the non-executive Chairman of the Company's board of directors, and shall have supervision and control over, and responsibility for, the general operations of the Company and shall have such other powers and duties as may from time to time be prescribed by the board of directors, provided that such duties are consistent with the Executive's position. All of the senior executive officers of the Company shall report to Executive. (b) During the Period of Employment, Executive will devote substantially all of executive's full business time, attention, and energies to the business of the Company. Executive will discharge the duties described in Section 2(a) faithfully, diligently, to the best of Executive's abilities, and in a manner consistent with those duties normally associated with the position of Executive. Executive will report to, and Executive's authority to act on behalf of the Company is subject to, oversight by the Company's board of directors. (c) Executive shall be based at the Company's principal executive offices during the Term of Employment. Executive is willing to travel on the Company's business as much as is reasonably necessary to carry out the Executive's duties. (d) Executive has been elected as a member of the Company's Board of Directors effective upon his execution and delivery of this Agreement. The Company agrees to allow Executive to serve on the Board of Directors of up to two other companies or industry associations in the restaurant industry that do not compete with the Company, as long as Executive's service on the other Boards of Directors does not interfere with his duties on behalf of the Company. 3. COMPENSATION (a) BASE COMPENSATION. During the Term of Employment, as compensation for the performance of Executive's services under this Agreement, the Company will pay Executive the annual base compensation rate of $375,000 ("Base Compensation"). Base Compensation will accrue and be payable to Executive in accordance with the payroll and bonus practices of the Company in effect from time to time during the term of this Agreement. All such payments will be subject to deduction and withholding authorized or required by applicable law. Executive's Base Compensation will be reviewed annually by the Company's Board of Directors in connection with the preparation of the Company's annual budget, commencing with the budget for the fiscal year ending December 31, 2002, and any adjustment will be effective as of January 1 of such fiscal year. Executive will not participate in the Company's 2001 cash bonus program for the Company's management. Executive Base Compensation will never be less than the Base Compensation for the preceding year without Executive's written consent. (b) INCENTIVE COMPENSATION. During the Term of Employment, Executive is eligible to receive an annual cash bonus in a target amount of 50% of Executive's Base Compensation (and a maximum of 100% of Executive's Base Compensation) for each fiscal year of the Company, commencing with the Company's fiscal year ending December 31, 2002 (the "Incentive Bonus"). For the fiscal year ending December 31, 2002, Executive's Incentive Bonus will be not less than $94,000. No later than March 31 of each year the Executive will provide the Company's Board of Directors with an acceptable statement of performance objectives that will be used as criteria to determine Executive's eligibility for the Inventive Bonus for that year. Beginning with the fiscal year ending December 31, 2002, the Board of Directors or its representatives shall meet with Executive by March 31 of the following fiscal year to review his performance under the performance objectives for the preceding fiscal year and to make a decision regarding the amount of the Incentive Bonus. The Incentive Bonus accrues on the last day of the Company's fiscal year, and the Company shall pay the Incentive Bonus within ninety (90) days of the Company's fiscal year end. Ten percent of Executive's Incentive Bonus for each fiscal year will be paid in the form of the Company's Common Stock pursuant to the Company's 2001 Management Stock Bonus Plan (or any similar successor plan). (c) SIGNING BONUS. The Company will pay Executive a signing bonus of $135,000 on the first regular payday after commencement of Executive's employment, which will compensate 2 Executive for all costs associated with his relocation to the Dallas area which would be required to be reported as income to Executive for federal income tax purposes. (d) RESTRICTED STOCK. The Company will make a restricted stock grant to Executive of 75,000 shares of Common Stock from the Company's 2001 Stock Bonus Plan, which shares will vest and be issued as unrestricted shares of Common Stock upon any termination of Executive's employment by the Company. The grant of restricted stock will be evidenced by a separate agreement in form reasonably satisfactory to Executive and the Company to be completed and executed within thirty (30) days of the date of this Agreement. 4. EXECUTIVE BENEFITS; REIMBURSEMENT OF EXPENSES (a) GENERAL EMPLOYMENT BENEFITS. During the term of this Agreement, the Company shall provide such fringe benefits, including three weeks paid vacation, paid sick leave, paid holidays, participation in health insurance plans, and other employee benefits consistent with those offered to other senior management, in accordance with the policies of the Company in effect from time to time. Executive's automobile allowance is included in his Base Compensation. (b) SUPPLEMENTAL LIFE AND DISABILITY INSURANCE. The Company will provide Executive with term life insurance in the amount of two times his Base Compensation and long-term disability insurance in the amount of 60% of his Base Compensation, provided that the aggregate expense to the Company of such benefits does not exceed $15,000 per year. If the cost of such benefits would exceed $15,000 per year, the Company will apply $15,000 to the purchase of reduced term life insurance and disability coverages as Executive may direct, subject to availability, or will allow Executive to contribute the difference in cost to purchase the specified coverages. (c) REIMBURSABLE EXPENSES. The Company shall reimburse Executive for Executive's reasonable travel, entertainment, automobile mileage and research expenses incurred in connection with Executive's employment under this Agreement, in accordance with the policies of the Company in effect from time to time. (d) RELOCATION EXPENSES. The Company shall reimburse Executive for Executive's reasonable out-of-pocket costs of moving his household goods to the Dallas area and his travel to Dallas at the time of the move. This reimbursement will include those costs for moving which Executive would not be required to report as income for federal income tax purposes. 5. TERMINATION (a) RIGHT TO TERMINATE. Either the Company or Executive may terminate Executive's employment upon thirty (30) days prior written notice to the other. (b) TERMINATION FOR CAUSE AND VOLUNTARY TERMINATION. If Executive's employment is terminated by the Company for Cause (as defined below), or if Executive voluntarily terminates the employment by the Company without Good Reason (as defined below), Executive shall be 3 entitled to receive no other payments except: (i) the Base Compensation through the date of termination; (ii) any unpaid reimbursement of business expenses; and (iii) any amounts or benefits required by law to be provided. (c) DEATH, DISABILITY, TERMINATION WITHOUT CAUSE AND FOR GOOD REASON. If Executive's employment is terminated by Executive's death or disability, or by the Company without Cause, or by Executive with Good Reason, Executive shall be entitled to receive no other payments except: (i) the Base Compensation through the date of termination; (ii) a pro rata amount of the Incentive Bonus that has been earned through the date of termination, which will be determined by multiplying the amount of the annual Incentive Bonus earned for the entire fiscal year in which Executive's employment is terminated multiplied by a fraction the numerator of which is the number of days in such fiscal year that Executive was employed and the denominator of which is 365, and which will be paid at the time that annual management bonuses for such fiscal year are paid; (iii) any unpaid reimbursement of business expenses; (iv) any amounts or benefits required by law to be provided; and (v) an amount equal to one year's Base Compensation as then in effect, in regular installments consistent with the Company's normal payroll practices. (d) TERMINATION OF EMPLOYMENT AFTER A CHANGE OF CONTROL. In the event that Executive's employment is terminated by Company without Cause or by Executive for Good Reason within a period of one year following a Change of Control, Executive shall be entitled to receive no other payments except: (i) Base Compensation through the date of termination; (ii) a pro rata amount of the Incentive Bonus that has been earned through the date of termination, which will be determined by multiplying the amount of the annual Incentive Bonus earned for the entire fiscal year in which Executive's employment is terminated multiplied by a fraction the numerator of which is the number of days in such fiscal year that Executive was employed and the denominator of which is 365, and which will be paid at the time that annual management bonuses for such fiscal year are paid; (iii) any unpaid reimbursement of business expenses; (iv) any amounts or benefits required by law to be provided; (v) an amount equal to one year's Base Compensation as then in effect, which will be payable in a lump sum, subject to withholding in accordance with the Company's payroll practices. The assumption of this Agreement by a person acquiring all or substantially all of the assets of the Company will not be considered to be a termination of Executive's employment by the Company under the Agreement. For purposes of determining whether Executive is entitled to invoke the terms of this Subsection (d), Good Reason shall include, in addition to the other conditions specified below in subparagraph (f): (i) The Company effects any material change in the duties or conditions of employment of Executive, including assigning to Executive duties that are inconsistent with Executive's position as the President and Chief Executive Officer of the Company, that Executive reasonably concludes to be materially adverse to Executive, and such change continues for a period of ten (10) business days after delivery of written notice to the Company. The Company's ceasing to be a reporting company under the Securities Exchange Act of 1934, as amended, or its operation as a privately owned company or 4 wholly owned subsidiary of another company will not be evidence of a material adverse change in Executive's duties or conditions of employment. A "CHANGE OF CONTROL" of the Company will be deemed to exist upon the occurrence of any of the following events, if, as a result of such event, or within twelve months thereafter, the individuals who constituted the Board immediately prior to such event no longer constitute a majority of the members of the Board: (i) The Company is merged, consolidated or reorganized (each a "Combination") into or with another corporation or other legal person and as a result of such merger, consolidation or reorganization less than 50% of the voting securities of the remaining corporation or legal person or its ultimate parent immediately after such transaction is available to be received by all shareholders of the Company on a pro rata basis and is actually received in respect of or exchange for voting securities of the Company pursuant to such transactions, excluding any Combination with any person or group, or an affiliate of a person or group, owning at least ten percent (10%) of the common stock of the Company as of October 1, 2001 (a "RELATED PARTY"). (ii) The Company sells all or substantially all of its assets to any other corporation or other legal person (other than a Related Party) and as a result of such sale less than 50% of the combined voting securities of such corporation or legal person or its ultimate parent immediately after such transaction is available to be received by all shareholders of the Company on a pro rata basis and is actually received in respect of or exchange for voting securities of the Company pursuant to such sale; or (iii) Any person or group (including any "person" or "group" as such terms are used in Section 13 or Section 14 of the Securities Exchange Act of 1934 and the regulations thereunder (the "EXCHANGE ACT")), excluding from such "group" any Related Party, has become the beneficial owner (as the term "beneficial owner" is defined under the Exchange Act) of voting securities which, when added to any voting securities already owned by such person, would represent in the aggregate 50% or more of the then outstanding voting securities of the Company. "Voting securities" means common stock and any other security which carries, or which is at the time of determination convertible into or exercisable to acquire a security that carries, the right to vote upon the election of the board of directors of the Company, with the number of such voting securities to be determined by reference to the number of votes that the holder could cast in the election of directors on a fully converted or exercised basis. (e) "CAUSE" as used in this Agreement means any one or more of the following events: (i) Executive fails to devote substantially all of Executive's full business time, attention, and energies to the business of the Company or to discharge the duties as the President and Chief Executive Officer of the Company faithfully, diligently, to the best of 5 Executive's abilities, and in a manner consistent with those duties normally associated with the position of Executive, and such failure continues for a period of ten business days after Executive receives written notice authorized by the Company's Board of Directors, setting forth with reasonable specificity the nature of such failure. (ii) Executive breaches any of the covenants and agreements set forth in Sections 6, 7 or 8. (iii) Executive fails to follow a directive of the Board of Directors and such failure continues for a period of ten business days after Executive receives written notice authorized by the Company's Board of Directors, setting forth with reasonable specificity the nature of such failure. (iv) Executive willfully engages in conduct that is significantly injurious to the Company, financially or otherwise, and such conduct continuous, or such injury is not cured, within a period of ten business days after Executive receives written notice authorized by the Company's Board of Directors setting forth with reasonable specificity the nature of such conduct and injury. (v) Executive is convicted of a crime involving moral turpitude. (vi) Executive uses illegal drugs or abuses controlled substances or is habitually intoxicated. (f) "GOOD REASON" as used in this Agreement means any one or more of the following events: (i) The Company breaches any provision of this Agreement and such breach continues for a period of ten (10) days after written notice thereof by Executive. (ii) The Company effects any material change in the duties or conditions of employment of Executive, including assigning to Executive duties that are inconsistent with Executive's position as the President and Chief Executive Officer that Executive reasonably concludes to be materially adverse to Executive, and such change continues for a period of ten (10) business days after delivery of written notice to the Company. (iii) Executive is not elected to serve as a director of the Company or Executive is removed from any such office without Executive's consent. (iv) The Company notifies Executive that it does not wish to extend this Agreement for one (1) additional year pursuant to Section 1. (g) The provisions of Sections 6, 7 and 8 shall survive any termination or expiration of this Agreement. 6 (h) Executive agrees that he will be deemed to have resigned as a member of the Board of Directors of the Company and of each subsidiary of the Company effective upon any termination of employment. 6. RESTRICTIVE COVENANT Executive acknowledges that the Company is providing him with significant information and opportunities which are confidential and proprietary in nature. Executive further acknowledges that such information and opportunities would have significant value to any current or prospective competitor of the Company. In recognition of the Company's provision to Executive of such information and opportunities from unauthorized disclosure or use, and in consideration of the numerous mutual promises contained in this Agreement between the Company and the Executive, including, without limitation, those involving Confidential Information (as defined in Section 7), compensation and termination and in order to protect the Company's Confidential Information and to reduce the likelihood of irreparable damage which would occur in the event such information is provided to or used by a competitor of the Company, Executive agrees that during the Term of Employment and for a period of one (1) year from the date of termination of employment (the "NONCOMPETE PERIOD"), Executive will not, directly or indirectly, either as an individual or as an employee, officer, director, shareholder, partner, adviser, or consultant, or in any capacity whatsoever: (a) conduct or assist others in conducting any business that is in competition with the Business of the Company (as defined below) or any of its Affiliates (as defined below) which are engaged in Business substantially similar to the Business of the Company in any geographic area in the United States and any other nation where the Company or any of its Affiliates operates its restaurants; (b) recruit, hire, assist others in recruiting or hiring, discuss employment or refer to others for employment (collectively referred to as "RECRUITING ACTIVITY") any person who is, or within the 24 month period immediately preceding the date of any such Recruiting Activity was, an employee of the Company or any of its Affiliates; or (c) approach or solicit any customer or vendor of the Company for the purpose of competing with the Company or causing, directly or indirectly, any such person to cease doing business with the Company. For the purpose of this Agreement, the "BUSINESS OF THE COMPANY" means the business of owning, operating, managing, consulting or otherwise advising restaurants, diners, cafes, cafeterias or other eating establishments, in each case which offer buffets or a-la-cartes or "all you can eat" cafeteria style meals at a comparable price point to that offered by the Company, or wholesale food or commissary operations, and designing, producing or distributing, serving or otherwise selling products that are competitive with any products served, produced or sold by the Company. The term "AFFILIATES" means all subsidiaries of the Company and each person or entity that controls, is controlled by, or is under common control with the Company. It is understood and agreed that the scope of each of the covenants contained in this SECTION 6 is 7 reasonable as to time, area, and persons and is necessary to protect the legitimate business interest of the Company. It is further agreed that such covenants will be regarded as divisible and will be operative as to time, area and persons to the extent that they may be operative. The terms of this SECTION 6 shall not apply to the ownership by Executive of less than 5% of a class of equity securities of an entity, which securities are publicly traded on the New York Stock Exchange, the American Stock Exchange, the National Market System of the National Association of Securities Dealers Automated Quotation System or other national market system. The provisions of this SECTION 6 will survive any termination or expiration of this Agreement. 7. CONFIDENTIALITY AND PROPERTY (a) Executive acknowledges that all customer, supplier and distributor lists, trade secrets, plans, production techniques, sales, marketing and expansion strategies, and technology and process of the Company and its Affiliates, as they may exist from time to time, and information concerning the products, services, production, development, technology and all technical information, procurement and sales activities and procedures, promotion and pricing techniques, and credit and financial data concerning customers of the Company and its Affiliates are valuable, special, and unique assets of the Company and its Affiliates (collectively, "CONFIDENTIAL INFORMATION"). Executive acknowledges that access to and knowledge of the Confidential Information as essential to the performance of Executive's duties under this Agreement. Executive represents and agrees that, except as specifically authorized in writing by the Company or in connection with the performance of Executive's duties pursuant to SECTION 2, Executive will not (i) disclose any Confidential Information to any person or entity, or (ii) make use of any Confidential Information for Executive's own purposes or for the benefit of any other person or entity, other than the Company. (b) Executive acknowledges and agrees that all manuals, drawings, blueprints, letters, notes, notebooks, reports, books, procedures, forms, documents, records, or paper or copies thereof used in connection with the operations or business of the company made or received by Executive or made known to Executive in any way in connection with Executive's employment and any other Confidential Information are and will be the exclusive property of the Company. Executive agrees not to copy or remove any of the above from the premises or custody of the Company, or disclose the contents thereof to any other person or entity, other than as may be required in order for Executive to perform the duties under this Agreement. Executive acknowledges that all such papers and records will at all times be subject to the control of the Company, and Executive agrees to surrender the same upon request of the Company, and will surrender such no later than any termination of employment with the Company, whether voluntary or involuntary. The Company may notify anyone employing Executive at any time of the provision of this Agreement. 8. INJUNCTIVE RELIEF, ARBITRATION (a) Executive acknowledges that a remedy of law for any breach or attempted breach of SECTIONS 6 OR 7 of this Agreement by Executive will be inadequate, agrees that the Company will be entitled to specific performance and injunctive and other equitable relief in case of any 8 breach or attempted breach of such sections by Executive, and agrees not to use as a defense that the Company has an adequate remedy at law. Notwithstanding paragraphs (b), (c), and (d) below, SECTIONS 6 AND 7 of this Agreement shall be enforceable in a court of equity, or other tribunal with jurisdiction, by a decree of specific performance, and appropriate injunctive relief may be applied for and granted in connection herewith. Such remedy shall not be exclusive and shall be in addition to any other remedies now or hereafter existing at law or in equity, by statute or otherwise, which remedies shall be determined by binding arbitration as provided below. No delay or omission in exercising any right or remedy set forth in this Agreement shall operate as a waiver thereof or of any other right or remedy and no single or partial exercise thereof shall preclude any others or further exercise thereof or the exercise of any other right or remedy. (b) Executive and the Company acknowledge and agree that any claim or controversy arising out of or relating to this Agreement or the breach of this Agreement, or any other dispute arising out of or relating to the employment of Executive by the Company, other than claims described in paragraph (a) above, shall be settled by final and binding arbitration in Dallas, Texas in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect on the date of the claim or controversy arises. Executive and the Company further acknowledge and agree that either party must request arbitration of any claim or controversy within one year of the date the claim or controversy accrues or first arises by giving written notice of the party's request for arbitration by certified U.S. mail or personal delivery addressed to the Company's principal business address or to Executive's last known address reflected in the Company's personnel records. Notice shall be effective upon delivery or mailing. Failure to give notice of any claim or controversy within ninety days shall constitute a waiver of the claim or controversy. (c) All claims or controversies subject to arbitration shall be submitted to arbitration within six months from the date the written notice of a request for arbitration is effective. All claims or controversies shall be resolved by a panel of three arbitrators who are licensed to practice law in the State of Texas and who are experienced in the arbitration of labor and employment disputes. These arbitrators shall be selected in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect at the time the claim or controversy arises. Either party may request that the arbitration proceeding be stenographically recorded by a Certified Shorthand Reporter. The arbitrators shall issue a written decision with respect to all claims or controversies which are submitted to arbitration. The parties shall be entitled to be represented by legal counsel at any arbitration proceeding. Executive and the Company agree that each party will bear fifty percent of the cost of the arbitration proceeding. The parties shall be responsible for paying their own attorneys' fees, if any. (d) The Company and Executive agree that the arbitration provisions in the preceding paragraphs may be specifically enforced by either party and by any court of competent jurisdiction. The Company and Executive further acknowledge and agree that the decision of the arbitrators may be specifically enforced by either party in any court of competent jurisdiction. 9 9. BINDING NATURE The rights and obligations of the Company under this Agreement will inure to the benefit of and will be binding upon the successors and assigns of the Company. 10. SEVERABILITY If any provision of this Agreement is declared or found to be illegal, unenforceable, or void, in whole or in part, then both parties will be relieved of all obligations arising under such provision, but only to the extent it is illegal, unenforceable, or void. The intent and agreement of the parties to this Agreement is that this Agreement will be deemed amended by modifying any such illegal, unenforceable, or void provision to the extent necessary to make it legal and enforceable while preserving its intent, or if such is not possible, by substituting therefore another provision that is legal and enforceable and achieves the same objectives. Notwithstanding the foregoing, the remainder of this Agreement will not be affected by such declaration or finding and is capable of substantial performance, then each provision not so affected will be enforced to the extent permitted by law. 11. WAIVER No delay or omission by either party to this Agreement to exercise any right or power under this Agreement will impair such right or power to be construed as a waiver thereof. A waiver by either of the parties to this Agreement of any of the covenants to be performed by the other or any breach thereof will not be construed to be a waiver of any succeeding breach thereof or of any other covenant contained in this Agreement. All remedies provided for in this Agreement will be cumulative and in addition to and not in lieu of any other remedies available to either party at law, in equity, or otherwise. 12. GOVERNING LAW THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO ANY PRINCIPLE OF CONFLICT-OF-LAWS THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION. 13. NOTICES All notices which are required or may be given pursuant to this Agreement will be in writing and mailed or delivered to the addresses set forth on the signature page of this Agreement or to such other address as either party will request of the other in writing. All notices will be deemed to be effective upon delivery to any agent for personal delivery or upon mailing. 14. ENTIRE AGREEMENT This Agreement constitutes the entire agreement between the parties to this Agreement with respect to the subject matter of this Agreement and there are no understandings or agreements relative to this Agreement which are not fully expressed in this Agreement, except 10 for that certain Option Agreement by and between the Company and Executive of even date herewith. All prior agreements with respect to the subject matter of this Agreement are expressly superseded by this Agreement. No change, waiver, or discharge of this Agreement will be valid unless in writing and signed by the party against which such change, waiver, or discharge is to be enforced. 15. NO VIOLATION The execution, delivery and performance of this Agreement by Executive will not conflict with or result in the breach of any term or provision of, or violate or constitute a default under any agreement, instrument, order, law or regulation to which Executive is a party or by which Executive is in any way bound or obligated. IN WITNESS WHEREOF, the parties to this Agreement have executed and delivered this Agreement on the date first above written. THE COMPANY: FURR'S RESTAURANT GROUP, INC. - ---------------------------------- Damien Kovary, Chairman of the Board of Directors Address: 3001 E. President George Bush Highway Richardson, Texas 75082 EXECUTIVE: - ---------------------------------- Craig Miller Address: -------------------------- 11 EX-11.2 4 a2063868zex-11_2.txt EXHIBIT 11.2 NONQUALIFIED STOCK OPTION AGREEMENT This STOCK OPTION AGREEMENT (the "AGREEMENT") is made between FURR'S RESTAURANT GROUP, INC., a Delaware corporation (the "COMPANY"), and Craig Miller (the "EXECUTIVE"). The Company considers that its interests will be served by granting the Executive an option to purchase shares of common stock of the Company as an inducement for the Executive's effective performance of services for the Company. The Board of Directors of the Company (the "BOARD") has adopted, and the stockholders have approved, the 1995 Stock Option Plan of Furr's/Bishop's Incorporated (the "PLAN"), a copy of which is attached hereto and incorporated by reference herein. The Executive has been designated as a participant in the Plan. IT IS AGREED: 1. Subject to the terms of the Plan, on October 9, 2001 (the "DATE OF GRANT"), the Company hereby grants to the Executive an option (the "OPTION") to purchase 400,000 shares of the common stock of the Company, $.01 par value per share, at a price of $3.00 per share as to 200,000 shares ("TRANCHE A") and at a price of $3.75 per share as to 200,000 shares ("TRANCHE B"), such number of shares and exercise prices being subject to adjustment as provided in the Plan (the "OPTION PRICE"). The Option is exercisable according to the following schedule: (a) On the day after the first anniversary of the Date of Grant, the Option may be exercised with respect to up to ? of the shares subject to the Option included in Tranche A and ? of the shares subject to the Option included in Tranche B; and (b) After each succeeding anniversary of the Date of Grant, the Option may be exercised with respect to up to an additional ? of the shares subject to the Option in each of Tranche A and Tranche B, so that after the expiration of the third anniversary of the Date of Grant the Option will have been vested in full; and (c) to the extent not exercised, installments will be cumulative, and may be exercised in whole or in part; and (d) the Option will become fully vested and exercisable upon the termination of the Executive's status as the Company's Chief Executive Officer at any time within twelve months following the occurrence of a "change of control," other than a termination of Executive's employment by the Company for "cause" or by the Executive other than for "good reason," as such terms are defined in the Employment Agreement between Executive and the Company of even date herewith. A "CHANGE OF CONTROL" of the Company will be deemed to exist upon the occurrence of any of the following events, if, as a result of such event, or within twelve months thereafter, the individuals who constituted the Board immediately prior to such event no longer constitute a majority of the members of the Board: (i) The Company is merged, consolidated or reorganized (each a "COMBINATION") into or with another corporation or other legal person and as a result of such merger, consolidation or reorganization less than 50% of the voting securities of the remaining corporation or legal person or its ultimate parent immediately after such transaction is available to be received by all shareholders of the Company on a pro rata basis and is actually received in respect of or exchange for voting securities of the Company pursuant to such transactions, excluding any Combination with any person or group, or an affiliate of a person or group, owning at least ten percent (10%) of the common stock of the Company as of October 1, 2001 (a "RELATED PARTY"). (ii) The Company sells all or substantially all of its assets to any other corporation or other legal person (other than a Related Party) and as a result of such sale less than 50% of the combined voting securities of such corporation or legal person or its ultimate parent immediately after such transaction is available to be received by all shareholders of the Company on a pro rata basis and is actually received in respect of or exchange for voting securities of the Company pursuant to such sale; or (iii) Any person or group (including any "person" or "group" as such terms are used in Section 13 or Section 14 of the Securities Exchange Act of 1934 and the regulations thereunder (the "EXCHANGE ACT")), excluding from such "group" any Related Party, has become the beneficial owner (as the term "beneficial owner" is defined under the Exchange Act) of voting securities which, when added to any voting securities already owned by such person, would represent in the aggregate 50% or more of the then outstanding voting securities of the Company. "Voting securities" means common stock and any other security which carries, or which is at the time of determination convertible into or exercisable to acquire a security that carries, the right to vote upon the election of the board of directors of the Company, with the number of such voting securities to be determined by reference to the number of votes that the holder could cast in the election of directors on a fully converted or exercised basis. Notwithstanding paragraphs (a) and (b) of this Section 1, the foregoing vesting schedule can be accelerated by action of the board of directors of the Company in its discretion. 2. The Option granted to the Executive under this Agreement will not be transferable or assignable by the Executive other than by will or the laws of descent and distribution, and will be exercisable during the Executive's lifetime only by the Executive. 3. The Option, to the extent such rights will not previously have been exercised, will terminate and become null and void (except in the case of the occurrence of a Change of Control as provided below) on the earliest of: (a) the last day within the ten year period commencing on the Date of Grant (the "EXPIRATION DATE"); (b) the date that is 90 days after the date of termination of the Executive's service as Chief Executive Officer of the Company for any reason other than death or disability, as defined in the plan ("DISABILITY"); (c) the date that is 180 days after the date -2- of the termination of the Executive's service as Chief Executive Officer of the Company because of death or Disability. In the event of the termination of the Executive's service as Chief Executive Officer of the Company for any reason prior to the Expiration Date, the Option will not continue to vest after such termination; provided that if a Change of Control of the Company occurs within 180 days after the date of termination of the Executive's employment by the Company without "cause," as defined in Executive's Employment Agreement of even date, or within 180 days after the date of termination of the Executive's employment by Executive for "good reason," as defined in Executive's Employment Agreement of even date, then the Option will not be deemed to have terminated, and will continue to vest, and will be exercisable, until the date that is ten (10) business days after the date of the Change of Control of the Company. Upon the death of the Executive, the Executive's executors, administrators or any person or persons to whom this Option may be transferred by will or by the laws of descent and distribution, will have the right to exercise the Option with respect to the number of shares that the Executive would have been entitled to exercise if the Executive were still alive. 4. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the party against whom enforcement of any such change or termination is sought. 5. The Company will not be deemed by the grant of the Option (as distinguished from a separate employment agreement, if any) to be required to continue the Executive's service or to nominate the Executive for election as a director. 6. The Executive will not have any rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of the stock certificate or certificates to the Executive for such shares following exercise of the Option pursuant to its terms and conditions and payment for the shares. No adjustment will be made for dividends or other rights for which the record date is prior to the date such certificate or certificates are issued. 7. The Executive consents to the placing on the certificate for any shares covered by the Option of an appropriate legend restricting resale or other transfer of such shares except in accordance with the Securities Act of 1933 and all applicable rules thereunder. 8. In the event of any difference of opinion concerning the meaning or effect of the Plan or this Agreement, such difference will be resolved by the committee referred to in the Plan. 9. The validity, construction and performance of this agreement will be governed by the laws of the State of Delaware. Any invalidity of any provision of this Agreement will not affect the validity of any other provision. 10. All offers, notices, demands, requests, acceptances or other communications hereunder will be in writing and will be deemed to have been duly made or given if mailed by registered or certified mail, return receipt requested. Any such notice mailed to the Company must be addressed to its principal office, and any notice mailed to the Executive must be addressed to the Executive's residence address as it appears on the books and records of the Company or to such other address as either party may hereafter designate in writing to the other. -3- 11. This Agreement will, except as herein stated to the contrary, inure to the benefit of and bind the legal representatives, successors and assigns of the parties hereto. 12. This Option is a nonqualified stock option and is not intended to be governed by section 422 of the Internal Revenue Code of 1986, as amended. 13. In accepting this Option, the Executive accepts and agrees to be bound by all the terms and conditions of the Plan that pertain to nonqualified stock options granted under the Plan. IN WITNESS WHEREOF, this Agreement has been duly executed and delivered to be effective as of the Date of Grant. THE COMPANY: FURR'S RESTAURANT GROUP, INC. By: ------------------------------------ Damien Kovary, Chairman of the Board EXECUTIVE: - --------------------------------------- Craig Miller -4- EX-11.3 5 a2063868zex-11_3.txt EXHIBIT 11.3 STOCK GRANT AGREEMENT This STOCK GRANT AGREEMENT (the "AGREEMENT") is made between FURR'S RESTAURANT GROUP, INC., a Delaware corporation (the "COMPANY"), and Craig Miller (the "EXECUTIVE"). The Company considers that its interests will be served by granting the Executive shares of common stock of the Company pursuant to its 2001 Stock Bonus Plan (the "Plan") as an inducement for the Executive's effective performance of services for the Company. The Board of Directors of the Company (the "BOARD") has adopted, and the stockholders have approved, the Plan, a copy of which is attached hereto and incorporated by reference herein. IT IS AGREED: 1. Subject to the terms of the Plan, on the date of Executive's termination of employment with the Company for any reason (whether with or without cause, or due to death or disability) Executive shall be issued 75,000 shares of the common stock of the Company, $.01 par value per share (the "Granted Shares"). The grant of the Granted Shares may be accelerated by action of the board of directors of the Company in its discretion. 2. This Agreement and the Granted Shares will not be transferable or assignable by the Executive other than by will or the laws of descent and distribution until such time as the Granted Shares are issued, after which the Granted Shares may be disposed of in any lawful manner without restriction, other than restrictions upon the sale of securities under applicable law. 3. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the party against whom enforcement of any such change or termination is sought. 4. The Company will not be deemed by this Agreement (as distinguished from a separate employment agreement, if any) to be required to continue the Executive's service or to nominate the Executive for election as a director. 5. The Executive will not have any rights as a stockholder with respect to any Granted Shares covered by the Option until the date of the issuance of the stock certificate or certificates to the Executive for such shares. The Company will pay or distribute to Executive dividends or other rights which are paid to or distributed to holders of Common Stock generally prior to the date of issuance of the Granted Shares. The number of Granted Shares will be proportionately adjusted in the event of any stock split, stock dividend or other change in the denomination of the Company's Common Stock, and upon any merger, exchange, reorganization or reclassification of the Company, the right to receive the Granted Shares will be converted into the right to receive the securities, property or rights into which the Company's Common Stock is converted or changed pursuant to such transactions. 6. The Executive consents to the placing on the certificate for the Granted of an appropriate legend restricting resale or other transfer of such shares except in accordance with the Securities Act of 1933 and all applicable rules thereunder. 7. In the event of any difference of opinion concerning the meaning or effect of the Plan or this Agreement, such difference will be resolved by the committee referred to in the Plan. 8. The validity, construction and performance of this agreement will be governed by the laws of the State of Delaware. Any invalidity of any provision of this Agreement will not affect the validity of any other provision. 9. All offers, notices, demands, requests, acceptances or other communications hereunder will be in writing and will be deemed to have been duly made or given if mailed by registered or certified mail, return receipt requested. Any such notice mailed to the Company must be addressed to its principal office, and any notice mailed to the Executive must be addressed to the Executive's residence address as it appears on the books and records of the Company or to such other address as either party may hereafter designate in writing to the other. 10. This Agreement will, except as herein stated to the contrary, inure to the benefit of and bind the legal representatives, successors and assigns of the parties hereto. 11. In accepting the Granted Shares, the Executive accepts and agrees to be bound by all the terms and conditions of the Plan that pertain to Common Stock granted under the Plan. IN WITNESS WHEREOF, this Agreement has been duly executed and delivered to be effective as of November 5, 2001. THE COMPANY: FURR'S RESTAURANT GROUP, INC. By: ------------------------------------ Damien Kovary, Chairman of the Board EXECUTIVE: - --------------------------------------- Craig Miller -2- -----END PRIVACY-ENHANCED MESSAGE-----