CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Related Person Transactions
On July 23, 2002, the Company entered into an Indemnification Agreement with each member of the Board under which the Company obligated itself to indemnify each director to the fullest extent permitted by applicable law so that he or she will continue to serve the Company free from undue concern regarding liabilities. The Company has also entered into an Indemnification Agreement with each person becoming a member of the Board since July 23, 2002. The Board has determined that uncertainties relating to liability insurance and indemnification have made it advisable to provide directors with assurance that liability protection will be available in the future.
The Company obtains certain goods and/or services from entities owned or controlled by Christopher J. Pappas, a current director of the Company, and Harris J. Pappas, a former director of the Company (the “Pappas Entities”), pursuant to the terms of an Amended and Restated Master Sales Agreement, dated August 2, 2017 (the “Master Sales Agreement”). Under the terms of the Master Sales Agreement, the Pappas Entities may provide specialized (customized) equipment fabrication and basic equipment maintenance, including stainless steel stoves, shelving, rolling carts, and chef tables. During fiscal 2020, the Pappas Entities provided goods and services to the Company under the Master Sales Agreement in the amount of approximately $8,000. Consistent with past practices, the Finance and Audit Committee, consisting entirely of independent directors, reviewed on a quarterly basis all applicable amounts related to the Master Sales Agreement. The Company anticipates that there will be no transactions with or payments to the Pappas Entities under the Master Sales Agreement during fiscal 2021.
In the third quarter of fiscal 2004, Messrs. Pappas became partners in a limited partnership which purchased a retail strip center in Houston, Texas. Messrs. Pappas collectively own a 50% limited partner interest and a 50% general partner interest in the limited partnership. A third-party company manages the center. One of the Company’s Luby’s Cafeteria restaurants has rented approximately 7% of the space in that center since July 1969. No changes were made to the Company’s lease terms as a result of the transfer of ownership of the center to the new partnership. On November 22, 2006, due to the approaching expiration of the previous lease, the Company executed a new lease agreement with respect to this property. The new lease agreement was approved by the Finance and Audit Committee and provided for a primary term of approximately 12 years with two subsequent five-year options. The new lease was effective upon the Company’s relocation and occupancy into the new space in July 2008. Through July 1, 2020, the Company paid $22.00 per square foot plus maintenance, taxes, and insurance. The lease provided for increases in rent at set intervals Due to the COVID-19 pandemic, the landlord agreed to abate the rent for April 2020. The Company entered into an amendment to the lease, effective July 1, 2020, whereby (1) the lease was terminated early on December 31, 2020, (2) the rent for May and June of 2020 was abated and (3) commencing July 1, 2020 through the early termination date, the monthly rent was a fixed gross amount..
On February 23, 2021, a subsidiary of the Company entered into a lease termination agreement and release (the “Lease Termination”) with HPCP Investments, LLC (“HPCP Investments”). Pursuant to the Lease Termination, the lease relating to one of the Company’s Fuddruckers restaurants in Houston, Texas (the “Franchise Location”) will terminate effective as of February 25, 2021, in exchange for the payment by HPCP Investments to the subsidiary of the Company of $200,000. In addition, the Lease Termination releases the subsidiary of the Company from its remaining obligations under the lease agreement, which included payment obligations of approximately $723,374.20 as of February 23, 2021. In connection with the Lease Termination, the subsidiary of the Company agreed to grant to an affiliate of HPCP Investments a Fuddruckers franchise for the Franchise Location. HPCP Investments is an affiliate of Harris J. Pappas and Christopher J. Pappas.
To allow the Company to continue to receive the benefit of Mr. Read's expertise and experience once he ceases to serve as a member of the Board, the Company is in discussions with Mr. Read for the provision of financial advisory services in connection with the completion of the Company's Plan of Liquidation and Dissolution.
Policies and Procedures Regarding Related Person Transactions
The Board has adopted a written Related Person Transaction Approval Policy, which requires the Finance and Audit Committee to review each related person transaction (as defined below) and determine whether it will approve or ratify that transaction.
For purposes of the policy, a “related person transaction” is any transaction, arrangement, or relationship where the Company is a participant, the Related Person (defined below) had, has, or will have a direct or indirect material