-----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, T/vhkH925jIIHEB8AzVIQDIKX9tnILhV7wtob3V6NbG5t+NbsD0MWSvNzS5wES3D 2d36m6q1lhP7EDXcgKgypg== 0000950134-99-002170.txt : 19990330 0000950134-99-002170.hdr.sgml : 19990330 ACCESSION NUMBER: 0000950134-99-002170 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981228 FILED AS OF DATE: 19990329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN RESTAURANT GROUP INC CENTRAL INDEX KEY: 0000853083 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 330193602 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-48183 FILM NUMBER: 99576039 BUSINESS ADDRESS: STREET 1: 450 NEWPORT CENTER DR CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 7147218000 MAIL ADDRESS: STREET 1: 450 NEWPORT CENTER DRIVE STREET 2: SUITE 600 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 10-K405 1 FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 1998 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee required) For the fiscal year ended December 28, 1998 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required) For the transition period from _____________ to _____________ Commission file number: 33-48183 American Restaurant Group, Inc. - ------------------------------------------------------------------------------- Exact Name of Registrant as Specified in Its Charter Delaware 33-0193602 - ---------------------------------------- ---------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 450 Newport Center Drive Newport Beach, California 92660 - ---------------------------------------- ---------------------------- (Address of Principal Executive Offices) (Zip Code) (714) 721-8000 - ------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- --------------------- None None Securities registered pursuant to Section 12(g) of the Act: None Indicate by a check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Indicate by a 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 II of this Form 10-K or any amendments to this Form 10-K. [X] The number of outstanding shares of the Registrant's Common Stock (one cent par value) as of March 1, 1999, was 128,081. 2 AMERICAN RESTAURANT GROUP, INC. INDEX
PAGE PART I ---- ITEM 1. BUSINESS................................................................................ 1 ITEM 2. PROPERTIES.............................................................................. 5 ITEM 3. LEGAL PROCEEDINGS....................................................................... 6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................... 6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..................................................................... 6 ITEM 6. SELECTED FINANCIAL DATA................................................................. 7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................................... 8 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................. 12 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..................................................... 12 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................................... 13 ITEM 11. EXECUTIVE COMPENSATION.................................................................. 15 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................................................................... 17 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................... 19 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K................................................................. 20
3 PART I ITEM 1. BUSINESS INTRODUCTION American Restaurant Group, Inc., a Delaware corporation (the "Company"), through its subsidiaries, competes predominately in the midscale segment of the United States restaurant industry. The Company was formed on August 13, 1986, by Anwar S. Soliman, Chairman of the Board and Chief Executive Officer of the Company, and other members of current senior management, to acquire certain operations of Saga Corporation, a wholly owned subsidiary of Marriott Corporation (the "Acquisition"). The Acquisition was completed in February 1987. (Prior to the completion of the Acquisition, the Company had no significant operations.) The Company is a subsidiary of American Restaurant Group Holdings, Inc., a Delaware corporation ("Holdings"). As of December 28, 1998, the Company operated 224 restaurants located in 16 states, principally California and Texas. The Company operates five restaurant divisions: Black Angus (western-style steakhouses specializing in steak and prime rib), Grandy's (family-oriented, quick-service restaurants specializing in fried and grilled chicken, country-fried steak and country breakfasts), Spoons (casual-style restaurants featuring fajitas, salads and hamburgers), Spectrum (upscale Northern Italian, American and Mexican specialty restaurants) and National Sports Grill (sports-theme restaurants featuring generous portions and microbrewery beers). In addition, as of December 28, 1998, Grandy's franchised 57 restaurants in the southern United States. DIVISION OVERVIEW BLACK ANGUS As of December 28, 1998, Black Angus operated 101 Stuart Anderson's Black Angus and Stuart Anderson's Cattle Company steakhouses located primarily in California, the Pacific Northwest and Arizona. The chain was founded in Seattle in 1964 and is the Company's largest restaurant concept. Black Angus restaurants are typically located in highly visible and heavily traveled areas in or near retail and commercial businesses. The restaurants are generally freestanding and range in size from 6,600 to 12,000 square feet, seating approximately 220 to 350 customers. Black Angus restaurants are distinctly Western in their design and feature booth seating for dining. They are generally open for lunch from 11:30 a.m. to 4:00 p.m. and for dinner from 4:00 p.m. to 10:00 p.m. As of December 28, 1992, Black Angus operated 66 in-restaurant lounges which offered disc jockeys, dancing and a focus on the sale of alcoholic beverages during the after-dinner and late-night time periods. While the late-night entertainment business in isolation generated favorable profit margins, management was concerned that this business was negatively affecting the positive, family image of the restaurants and negatively affecting visits by its core customer base of middle-income families and that liability and other expenses associated with the late-night entertainment business were increasing. Black Angus began limiting its late-night entertainment business in 1992 and subsequently, between 1994 and 1998, phased out its late-night entertainment business in 8 to 19 restaurants per year. It currently operates four restaurants with late-night entertainment and does not intend to discontinue these operations because management does not believe that the dining operations at these restaurants have been adversely affected by the late-night entertainment operations. The Company intends to expand the Black Angus division through the opening of new restaurants. 1 4 GRANDY'S As of December 28, 1998, Grandy's operated 85 family-oriented, quick-service restaurants located primarily in Texas and Oklahoma and franchised an additional 57 restaurants primarily in the southern United States. The chain was founded in Lewisville, Texas in 1973. Grandy's restaurants are generally freestanding and are located near shopping malls or other highly visible, heavily traveled areas. The restaurants range in size from 3,800 to 5,200 square feet and have dining areas, which generally seat 130 to 220 customers. All restaurants offer self-service beverages with free refills, and all but two restaurants have drive-thru service. Grandy's restaurants are generally open from 6:00 a.m. to 10:00 p.m. and serve breakfast, lunch and dinner. Grandy's differentiates itself from its competitors by offering complete home-style meals with limited service. Approximately 51% of Grandy's 1998 revenues were for consumption in the dining room as opposed to take- out. Grandy's franchise agreements generally require initial fees of $15,000 to $30,000 per restaurant, ongoing royalties of 4% of sales (3% for some older franchises) and advertising expenditures of approximately 4% of sales. Grandy's provides certain support functions for franchisees, including initial training and ongoing monitoring and consultations. The Company does not provide financing for franchisees. In July 1998, the Company announced a plan to convert a majority of its company-owned Grandy's restaurants to franchised restaurants. The Company intends to sell the property and equipment, including applicable lease rights, and enter into franchise agreements with the purchasers. SPOONS Spoons, founded in 1978, operated 18 casual-style restaurants as of December 28, 1998, all of which are located in California. Spoons restaurants are generally freestanding, located in heavily traveled areas, ranging in size from 5,500 to 7,800 square feet and seating approximately 200 customers. These full-service restaurants average a 40-minute table turnover and offer booth and table seating in a casual, highly energetic atmosphere. In addition, each restaurant has a lounge area which also serves food. Spoons restaurants are generally open from 11:00 a.m. to 12:00 a.m. and feature the same menu all day. SPECTRUM Spectrum, founded in 1970, operated 14 unique, upscale, specialty restaurants as of December 28, 1998, all of which are located in California. All restaurants focus on "authentic" Northern Italian, contemporary American or Mexican cuisine. The division includes four Prego restaurants, two Tutto Mare restaurants, two MacArthur Park restaurants and six other restaurants which, although operated under different names, generally concentrate on Northern Italian food. Spectrum restaurants vary in size and physical type but are primarily located proximite to concentrations of young professionals and other upper-income customers. The restaurants are generally open from 11:00 a.m. to 12:00 a.m. NATIONAL SPORTS GRILL National Sports Grill, founded in 1993, operated six sports-theme restaurants as of December 28, 1998, all of which are located in California. This concept offers a menu featuring generous portions and microbrewery beers and provides multiple video telecasts of national and regional sporting events as well as interactive video games and other sporting-related games. National Sports Grill restaurants are freestanding and generally range in size from 10,000 to 17,000 square feet, seating approximately 200 to 300 customers. The restaurants feature a bar, a dining area, a billiards area and multiple video screens throughout. National Sports Grill restaurants are typically open from 11:00 a.m. to 2:00 a.m. 2 5 RESTAURANT OPERATIONS The Company has five distinct divisions. The Black Angus division is generally managed separately from the other divisions and is organized functionally with separate operations, marketing, finance, real estate and human resources departments. Grandy's and the three smaller divisions are each run independently but share among them certain support functions such as finance, administration and human resources. In addition, the Company generally provides purchasing, cash management, insurance and other treasury functions, and accounting and legal services, on a centralized basis. The Company's corporate headquarters provides strategic direction and approves major capital expenditures, annual budgets and all salaries above a specified level. The Company's cash management system is highly sophisticated with controls down to the server level. Restaurants are required to make daily deposits of cash and the Company uses a centralized cash concentration system which sweeps all of its cash accounts on a daily basis. There is a central accounts payable and check writing system with roughly 6,900 vendors profiled on the system. The Company uses a combination of in-house and outside-contracted services for its management information system needs. In-house systems include a point-of-sale system for each restaurant and stand-alone computing at the restaurant, division and corporate levels. The Company contracts for payroll services and for mainframe-based data processing. Each restaurant is staffed with a General Manager who is directly responsible for the operation of the restaurant, including product quality, cleanliness, service, inventory, cash control and the appearance and conduct of store employees. Except for Grandy's, most restaurants also have one or two Assistant Managers and a Chef. Managers and supervisory personnel train other restaurant employees in accordance with detailed procedures and guidelines prescribed by each division. General Managers are supervised by District Managers, each of whom is responsible for approximately ten restaurants. District Managers, General Managers, Assistant Managers and Chefs are eligible for bonuses under each division's extra compensation program, for which goals and objectives are established based on the profitability, sales and other factors relating to the restaurants. PURCHASING AND DISTRIBUTION To ensure standards of quality and to maximize pricing efficiencies, a central purchasing department coordinates the supply of almost all restaurant items. The Company purchases products throughout the United States and abroad through agreements with various food-service vendors. None of the Company's vendors supply the Company exclusively and no material agreements exist. The Company routinely uses public, cold-storage facilities and makes forward commitments in order to establish the availability and price of key food items such as beef and seafood. In order to achieve more favorable terms, the Company concentrates its distribution among certain of its vendors but believes that it could replace any of these distributors, if necessary, on a timely basis. COMPETITION AND MARKETS All aspects of the restaurant business are highly competitive. Price, restaurant location, food quality, service and attractiveness of facilities are important aspects of competition. The competitive environment is often affected by factors beyond a particular restaurant management's control, including changes in the public's taste and eating habits, population and traffic patterns and economic conditions. The Company's restaurants compete with a wide variety of restaurants, ranging from national and regional restaurant chains to locally owned restaurants. Competition from other restaurant chains typically represents the more important competitive influence, principally because of their significant marketing and financial resources. Many of the Company's competitors have substantially greater financial, marketing, personnel and other resources than the Company. In addition, 3 6 competition is not limited to a particular segment of the restaurant industry because fast-food restaurants, steakhouses and casual-dining restaurants are all competing for the same consumer's dining dollars. The Company believes that its principal competitive strengths lie in the distinctive atmosphere and food presentation offered; the value, variety and quality of food products served; the quality and training of its employees; the experience and ability of its management; and the economies of scale enjoyed by the Company because of its size and geographic concentration. The Company continually monitors consumer tastes and adjusts and updates its menus accordingly. EMPLOYEES At December 28, 1998, the Company employed approximately 10,600 persons, of whom approximately 9,700 were hourly employees in restaurants, approximately 700 were salaried employees in restaurants (Managers and Chefs) and approximately 200 were hourly and salaried employees in divisional and corporate management and administration. Approximately 72% of the hourly restaurant employees work on a part-time basis (25 hours or less per week). None of the Company's facilities are unionized. The Company believes it provides competitive compensation and benefits to its employees and that its employee relations are good. REGULATIONS Each restaurant is subject to licensing and regulation by state and local health, sanitation, safety, fire and other departments. In addition, each restaurant (except for Grandy's) is subject to licensing with respect to the sale of alcoholic beverages. The loss of licenses or permits by the Company's restaurants to sell alcohol would interrupt or terminate the Company's ability to serve alcoholic beverages at those restaurants and, if a significant number of restaurants were affected, could have a material adverse effect on the Company. The Company believes it has good relations with the various alcoholic beverage authorities. The Company is subject to the Fair Labor Standards Act and various state laws governing such matters as minimum wages, overtime and other working conditions. Substantially all of the Company's restaurant employees are paid at rates related to the federal and state minimum wage, and, accordingly, increases in the minimum wage increase the Company's labor costs. SERVICE MARKS The Company regards its service marks and trademarks as important to the identification of its restaurants and believes they have significant value in the conduct of its business. The Company has registered various service marks and trademarks with the United States Patent and Trademark Office. In addition, certain marks have been registered in the State of California, in various other states and in certain foreign countries. SEASONALITY The Company's restaurant revenues and profitability are not subject to significant seasonal fluctuations. 4 7 ITEM 2. PROPERTIES Of the 224 restaurants operated by the Company on December 28, 1998, the Company owns the land and building for four, owns the building and leases the land for 76, and leases both land and building for the remaining 144 restaurants. In addition, the Company currently leases the land for six, and leases both the land and the building for nine restaurants which are now closed. (Nine of these closed restaurants are subleased to others.) Most of the Company's restaurants are freestanding and range from approximately 4,000 square feet for a Grandy's restaurant to as much as 17,000 square feet for the Company's other restaurants. Most of the Company's leases provide for the payment of the greater of a set base rental or a percentage rental of up to 6% of gross revenues, plus real estate taxes, insurance and other expenses. In addition, the Company owns the land and building for the Grandy's headquarters in Lewisville, Texas, and leases office space for its other divisions and corporate headquarters in Los Altos and Newport Beach, California. The following table sets forth, as of December 28, 1998, the number of Company-operated restaurants by division and state of operation:
DIVISION ---------------------------------------------------------- NATIONAL TOTAL STATE BLACK SPORTS NUMBER OF ANGUS GRANDY'S SPOONS SPECTRUM GRILL RESTAURANTS ----- -------- ------ -------- ----- ----------- California 56 -- 18 14 6 94 Texas -- 61 -- -- -- 61 Oklahoma -- 15 -- -- -- 15 Washington 10 -- -- -- -- 10 Arizona 9 -- -- -- -- 9 Minnesota 6 -- -- -- -- 6 Colorado 5 -- -- -- -- 5 Kansas -- 5 -- -- -- 5 Oregon 5 -- -- -- -- 5 Indiana 3 -- -- -- -- 3 Florida -- 3 -- -- -- 3 Hawaii 2 -- -- -- -- 2 Nevada 2 -- -- -- -- 2 New Mexico 1 1 -- -- -- 2 Alaska 1 -- -- -- -- 1 Utah 1 -- -- -- -- 1 --- --- --- --- --- --- Total 101 85 18 14 6 224 === === === === === ===
5 8 ITEM 3. LEGAL PROCEEDINGS The Company is involved in various litigation incidental to its business, including claims arising out of personal injuries, employment practices, worker's compensation cases and contract lawsuits, the claims for which sometimes involve substantial damages. Based on information presently available, management does not believe that the outcome of such litigation will have a material adverse effect on the Company's financial position, business or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the stockholders of the Company in the fourth quarter of 1998. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS COMMON STOCK As of March 1, 1999, there were six record holders of the outstanding shares of the Company's common stock. There is currently no market for the Company's common stock, nor is such anticipated in the near future. The Company has never paid dividends to its common stockholders and currently has no plans to do so. CUMULATIVE PREFERRED STOCK, MANDATORILY REDEEMABLE As of March 1, 1999, there were six record holders of the 37,885 outstanding shares of the Company's cumulative preferred stock. Dividends accrue at a rate of 12% per annum, payable semiannually on February 15 and August 15 of each year. The Company may, at its option, pay dividends in cash or in additional shares of cumulative preferred stock. Stock dividends of 2,000 and 2,224 shares were paid on August 15, 1998 and February 15, 1999, respectively. There is currently no market for the Company's cumulative preferred stock, nor is such anticipated in the near future. 6 9 ITEM 6. SELECTED FINANCIAL DATA The following selected historical consolidated financial data for each of the five periods ended December 28, 1998 has been derived from the consolidated financial statements of the Company which have been audited by Arthur Andersen LLP, independent public accountants, and 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 elsewhere in this Form 10-K.
Year ended (1) --------------------------------------------------------------------- Dec. 26, Dec. 25, Dec. 30, Dec. 29, Dec. 28, 1994 1995 1996(2) 1997 1998 --------- --------- --------- --------- --------- (dollars in thousands) INCOME STATEMENT DATA: REVENUES: Black Angus .................. $ 253,634 $ 243,624 $ 254,946 $ 264,175 $ 265,536 Grandy's ..................... 109,301 101,839 90,962 78,832 70,799 Other concepts ............... 97,471 100,503 99,516 97,032 90,593 --------- --------- --------- --------- --------- Total revenues ......... 460,406 445,966 445,424 440,039 426,928 RESTAURANT COSTS: Food and beverage ............ 142,828 138,270 141,032 140,015 135,873 Payroll ...................... 136,151 134,532 137,104 133,732 130,242 Direct operating ............. 108,382 110,399 114,589 110,502 106,449 Depreciation and amortization ............... 26,400 22,819 20,386 19,627 14,638 --------- --------- --------- --------- --------- Total restaurant costs ... 413,761 406,020 413,111 403,876 387,202 General and administrative expenses ..................... 31,027 31,360 28,086 29,360 22,357 Non-cash charge for impairment of long-lived assets ......... -- 20,178 13,205 3,047 1,415 Grandy's Franchise Conversion: Non-cash charge for assets to be disposed ................ -- -- -- -- 5,034 Operating profit (loss) ........ 15,618 (11,592) (8,978) 3,756 10,920 Interest expense, net .......... 27,691 28,004 27,714 23,985 20,269 Net loss before extraordinary gain (loss) .... (12,130) (39,662) (36,773) (20,292) (9,416) Extraordinary gain (loss) on extinguishment of debt ....... -- -- (1,688) -- 9,559 Net income (loss) .............. $ (12,130) $ (39,662) $ (38,461) $ (20,292) $ 143 BALANCE SHEET DATA: Plant and equipment, net ....... 181,496 171,030 101,169 92,322 90,565 Total assets ................... 282,438 249,053 172,129 152,011 150,459 Long-term obligations, including current portion .... 226,394 233,011 182,137 181,399 167,443 Cumulative preferred stock, manditorily redeemable........ -- -- -- -- 36,801 Redeemable cumulative preferred stock .............. -- -- -- -- -- Common stockholders' equity (deficit) ............. (20,437) (60,099) (91,446) (111,738) (119,175)
- ---------------------- 7 10 (1) The Company's obligations under its 11.5% senior secured notes due 2003 (the "Notes") are guaranteed by each of its direct subsidiaries (the "Subsidiary Guarantors"). Separate financial statements of the Subsidiary Guarantors are not included in this Form 10-K because the Subsidiary Guarantors are unconditionally jointly and severally liable for the obligations of the Company under the Notes pursuant to such guarantees. The aggregate net assets, earnings and equity of such Subsidiary Guarantors are substantially equivalent to the net assets, earnings and equity of the Company on a consolidated basis. (2) The year ended December 30, 1996 included 53 weeks. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Years Ended December 30, 1996, December 29, 1997 and December 28, 1998: Revenues. Total revenues decreased 1.2% from $445.4 million in 1996 to $440.0 million in 1997 followed by a 3.0% decrease to $426.9 million in 1998. The year ended December 30, 1996 included a 53rd week which added $6.9 million to total revenues. Same-store-sales for 1998 decreased 0.6% from 1997. Two new restaurants opened during 1998 were offset by the closure of nine restaurants. There were 247, 231 and 224 restaurants operating at the end of 1996, 1997 and 1998, respectively. Black Angus revenues increased 3.6% from $254.9 million in 1996 to $264.2 million in 1997 and then increased 0.5% to $265.5 million in 1998. The increase in 1998 was primarily due to a $7.8 million increase in same-store-sales (excluding late-night entertainment) and a $1.5 million increase resulting from the addition of four new restaurants in the first quarter of 1997 and the second quarter of 1998. This increase was partially offset by a $5.1 million decrease from four restaurants which closed at the end of the leases and a $2.9 million decrease due to the closure of late-night entertainment at eight restaurants. Same-store-sales increased 3.3% (increased 2.0% including late-night entertainment) in 1998. Grandy's revenues decreased 13.3% from $91.0 million in 1996 to $78.8 million in 1997 followed by a 10.2% decrease to $70.8 million in 1998. The decrease in 1998 resulted from a $4.9 million, or a 6.7%, decline in same-store-sales from de-emphasizing discounted sales and a $2.3 million decline due to the closure of 18 restaurants in the second half of 1997 and in 1998. Franchise income decreased $0.8 million related to a non-recurring international franchise fee in 1997. Franchise revenues were $2.0 million, $2.6 million and $1.8 million in 1996, 1997 and 1998, respectively. Revenues from other concepts (Spoons, Spectrum and National Sports Grill) decreased 2.5% from $99.5 million in 1996 to $97.0 million in 1997 and then decreased 6.6% to $90.6 million in 1998. Revenues declined $4.7 million due to the closure of six restaurants in 1997 and 1998 and a $2.6 million decrease in same-store-sales. The decrease was partially offset by $0.9 million related to the opening of one new restaurant in 1998. Food and Beverage Costs. As a percentage of revenues, food and beverage costs increased slightly from 31.7% in 1996 to 31.8% in 1997 and remained constant at 31.8% in 1998. Payroll Costs. As a percentage of revenues, labor costs decreased from 30.8% in 1996 to 30.4% in 1997 and then increased slightly to 30.5% in 1998. 8 11 Direct Operating Costs. Direct operating costs consist of occupancy, advertising and other expenses incurred by individual restaurants. As a percentage of revenues, these costs decreased from 25.7% in 1996 to 25.1% in 1997 and then decreased to 24.9% in 1998. The decrease was primarily a result of lower occupancy costs related to the ending of certain equipment leases and disposition of closed units as well as lower general liability expenses. Depreciation and Amortization. Depreciation and amortization consists of depreciation of fixed assets used by individual restaurants, division and corporate offices, as well as amortization of intangible assets. As a percentage of revenues, depreciation and amortization decreased from 4.6% in 1996 to 4.5% in 1997 and then decreased to 3.4% in 1998. The decrease in 1998 was primarily due to the reduction in amortization of deferred debt costs related to the refinancing of the Company's debt in the first quarter of 1998. General and Administrative Expenses. General and administrative expenses as a percentage of revenues were 6.3% in 1996, 6.7% in 1997 and 5.2% in 1998. The decrease in 1998 was primarily due to a $3.5 million decrease in corporate overhead resulting from the Company's strategy to reduce corporate salaries and expenses which was implemented in late 1997 and a $3.4 million decrease in non-cash charges for costs associated with closed restaurants. In addition, 1997 included a legal settlement of $0.9 million. The decrease was partially offset by a $0.8 million charge related to international franchise activities. Non-Cash Charge for Impairment of Long-Lived Assets. In December 1998 certain assets, including fixed assets and certain related intangible assets, were valued at less than their historic costs and resulted in a non-cash charge of $1.4 million. This non-cash charge was 0.3% of revenues. Similar non-cash charges of $13.2 million and $3.0 million were recorded in 1996 and 1997, respectively. Non-Cash Charge for Assets to be Disposed. In conjunction with the plan announced in July 1998 to convert a majority of company-owned Grandy's restaurants to franchised restaurants, the Company recognized a $5.0 million non-cash charge related to fixed assets and certain intangible assets valued at less than their historical costs. Operating Profit. As a result of the items discussed above, operating profit improved from an operating loss of $9.0 million in 1996 to an operating profit of $3.8 million in 1997 and then improved to an operating profit of $10.9 million in 1998 (an operating profit of $4.2 million, $6.8 million and $17.4 million in 1996, 1997 and 1998, respectively, before the non-cash charge for impairment of long-lived assets and the non-cash charge for assets to be disposed). The Company's divisions are not uniform in revenues, size or profitability. For example, for the fiscal year ended 1998, Black Angus had an operating profit of $23.6 million, Grandy's had an operating loss of $1.3 million and the Other Concepts had a net operating profit of $2.0 million. These amounts exclude non-cash charges and certain corporate general and administrative expenses. Interest Expense - Net. Interest expense decreased from $27.7 million in 1996 to $24.0 million in 1997 and then decreased to $20.3 million in 1998. The average interest rate on Company borrowings was 11.7%, 12.3% and 11.7% for 1996, 1997 and 1998, respectively. Average borrowings (excluding capitalized lease obligations) decreased from $208.2 million in 1996 to $171.7 million in 1997 and then decreased to $161.6 million in 1998. Average borrowings declined in 1998 due to the recapitalization plan (the "Recapitalization Plan") described below. Income Taxes. Income taxes decreased from a provision of $81,000 in 1996 to $63,000 in 1997 and then increased to $67,000 in 1998. The provisions represent amounts provided for certain minimum state income taxes. 9 12 Extraordinary Gain/Loss. The Company recognized an extraordinary gain of $9.6 million on the extinguishment of debt in 1998. This gain resulted from the refinancing of the Company's debt in February 1998. An extraordinary loss of $1.7 million occurred in 1996 with the extinguishment of a prior term loan. This extraordinary loss resulted from a non-cash charge to expense for capitalized debt costs associated with the debt repaid. There were no extraordinary gains or losses in 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash flow from operations and borrowings under its credit facilities. The Company requires capital principally for the acquisition and construction of new restaurants, the remodeling of existing restaurants and the purchase of new equipment and leasehold improvements. As of December 28, 1998, the Company had cash of approximately $8.8 million. In general, restaurant businesses do not have significant accounts receivable because sales are made for cash or by credit card vouchers which are ordinarily paid within three to five days, and do not maintain substantial inventory as a result of the relatively brief shelf life and frequent turnover of food products. Additionally, restaurants generally are able to obtain trade credit in purchasing food and restaurant supplies. As a result, restaurants are frequently able to operate with working capital deficits, i.e., current liabilities exceed current assets. At December 28, 1998, the Company had a working capital deficit of $39.6 million. The Company estimates that capital expenditures of $6.0 million to $10.0 million are required annually to maintain and refurbish its existing restaurants. In addition, the Company spends approximately $12.0 million annually for repairs and maintenance which are expensed as incurred. Other capital expenditures, which are generally discretionary, are primarily for the construction of new restaurants and for expanding, reformatting and extending the capabilities of existing restaurants and for general corporate purposes. Total capital expenditures were $13.3 million in 1996, $4.6 million in 1997, and $12.3 million in 1998. New store capital expenditures included in these amounts were $4.8 million, $0.4 million and $1.9 million for 1996, 1997 and 1998, respectively. The Company estimates that capital expenditures in 1999 will be approximately $10.0 million. The Company intends to open new restaurants with small capital outlays and to finance most of the expenditures through operating leases. On February 25, 1998 the Company completed the Recapitalization Plan which included, among other things, the issuance by the Company of (a) $155.0 million of the 11.5% senior secured notes due 2003 (the "Notes") and (b) 35,000 preferred stock units of the Company, each unit consisting of $1,000 initial liquidation preference of 12% senior pay-in-kind manditorily redeemable cumulative preferred stock and one common stock purchase warrant initially to purchase 2.66143 shares of the common stock at an initial exercise price of one cent per share. The value of the Company's common stock warrants is de minimis. Also as part of the Recapitalization Plan, the Company concurrently (a) redeemed at par senior secured notes of $126.4 million together with accrued and penalty interest and repaid certain other interest-bearing short-term liabilities, (b) repurchased its existing 10.25% subordinated notes at 65% of the aggregate principal amount of $45.0 million together with accrued and penalty interest, and canceled the related warrants to purchase common stock of Holdings, and (c) established a $15.0 million revolving credit facility to include letters of credit. Letters of credit outstanding as of March 1, 1999, were $4.3 million. A quarterly fee of 0.5% per annum is payable on the unused portion of the revolving credit facility and a fee of 2.5% per annum is payable on outstanding letters of credit. As an additional component of the Recapitalization Plan, Holdings extended the accretion period on its senior discount debentures due 2005 (the "Holdings Debentures"), from June 15, 1999 to maturity on December 15, 2005, and amended certain provisions of the Holdings Debentures. The Holdings Debentures will accrete 10 13 at a rate of 14.25%, compounded semi-annually. Certain holders of the Holdings Debentures with an accreted value of approximately $10.8 million surrendered such debentures for cancellation and received $3.6 million principal amount of the Notes, which was in addition to the $155.0 million of the Notes sold as mentioned above. The Notes issued in lieu of Holdings Debentures were recorded as a non-cash distribution to Holdings by the Company. Substantially all assets of the Company are pledged to its senior lenders. In addition, the Subsidiary Guarantors have guaranteed the indebtedness owed by the Company and such guarantee is secured by substantially all of the assets of the subsidiaries. In connection with such indebtedness, contingent and mandatory prepayments may be required under certain specified conditions and events. There are no compensating balance requirements. Although the Company is highly leveraged, based upon current levels of operations and anticipated growth, the Company expects that cash flows generated from operations together with its other available sources of liquidity will be adequate to make required payments of principal and interest on its indebtedness, to make anticipated capital expenditures and to finance working capital requirements for the next several years. However, the Company does not expect to generate sufficient cash flow from operations in the future to pay the Notes upon maturity and, accordingly, it expects to refinance all or a portion of such debt, obtain new financing or possibly sell assets. As a result of the Recapitalization Plan and the change in ownership, the Company's net operating loss carryforwards were reduced from $139.8 million to $125.8 million under the applicable provision of the Internal Revenue Code of 1996, as amended. YEAR 2000 COMPLIANCE Since 1997, the Company has been assessing the Year 2000 issues that may affect it. The Company believes the Year 2000 issues it must address include ensuring (i) its information technology systems (hardware and software) enable it to manage and operate its business and (ii) its non-information technology systems (including heating, air conditioning and security systems) will continue to operate. The Company is currently on schedule for Year 2000 compliance and does not believe it has material potential liability to third parties if its systems are not Year 2000 compliant. The Company has received written responses from third parties with which it has material relationships. All of the responses received to date indicate the suppliers have or will timely resolve their Year 2000 issues. The Company's costs of compliance with the Year 2000 requirements are immaterial because it was in the process of upgrading or establishing systems in the normal course of business. The Company believes it and its material suppliers will resolve their Year 2000 issues in a timely fashion. However, if the Company or its material suppliers do not become Year 2000 compliant, the Company could suffer a material adverse effect on its business, results of operations and financial condition. The Company believes it is unlikely any of these events will result, but there can be no such assurance. The Company currently has no contingency plan to handle the occurrence of these events and does not currently intend to create one. RECENT ACCOUNTING PRONOUNCEMENTS SFAS No. 131 Disclosures about Segments of an Enterprise and Related Information was issued in June 1997. The Company adopted SFAS No. 131 as of December 28, 1998. The Company is reporting three restaurant segments: "Black Angus", "Grandy's" and "Other Concepts". Other Concepts include the Company's Spoons, Spectrum, National Sports Grill and former Velvet Turtle divisions. 11 14 SOP No. 98-5 Reporting on the Costs of Start-up Activities was issued in April 1998. SOP No. 98-5 requires costs of start-up activities and organization costs to be expensed as incurred. The Company has historically accumulated costs incurred in connection with opening a new restaurant and amortized these costs over the initial year of operations. Although not material to the Company's financial position or results of operations, any previously deferred preopening costs were expensed as of the end of fiscal year 1998. New restaurant openings are typically staggered throughout the year and, therefore, the Company does not anticipate the adoption of SOP No. 98-5 will materially affect the Company's financial statements. EITF No. 98-9 Accounting for Contingent Rents in Interim Financial Periods was issued in May 1998. The Company has adopted EITF No. 98-9 and such adoption has not materially affected the Company's financial statements. MARKET RISK EXPOSURE The Company is generally not exposed to market risks related to fluctuations in interest rates on its debt because all of the Company's debt is at fixed rates. Changes in interest rates affect the fair market value of fixed rate debt, but not the Company's earnings or cash flows. The Company generally cannot prepay fixed rate debt prior to maturity; therefore, interest rate risk and changes in fair market value would not have a significant impact on its fixed rate debt until the Company refinances such debt. The Company is exposed to market risks related to fluctuations in interest rates on short-term borrowings on its revolving credit facility. Although the Company may borrow on its revolver from time to time, no amounts were outstanding at year end. Even if the entire revolving credit facility were outstanding for the entire year, a one percentage point increase in interest rates would only result in an increase in interest expense of approximately $114,000. The Company does not utilize interest rate swaps, forward or option contracts on foreign currencies or commodities, or other types of derivative financial instruments. For all these reasons, the Company does not believe future market rate risks will have a material impact on the Company or the results of its future operations. IMPACT OF INFLATION Although inflationary increases in food, labor or operating costs could adversely affect operations, the Company has generally been able to offset increases in cost through price increases, labor scheduling and other management actions. FORWARD-LOOKING STATEMENTS Certain statements contained herein are forward-looking regarding cash flow from operations, restaurant openings, capital requirements and other matters. These forward-looking statements involve risks and uncertainties and, consequently, could be affected by general business conditions, the impact of competition, governmental regulations and inflation. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Index to Consolidated Financial Statements on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 12 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information about the Company's current directors and each of its executive officers and key management personnel:
NAME AGE POSITION WITH COMPANY ---- --- --------------------- Anwar S. Soliman 61 Chairman, Chief Executive Officer, Director Ralph S. Roberts 56 President, Chief Operating Officer, Director William J. McCaffrey, Jr. 52 Vice President Wilfred H. Partridge 69 Vice President - Purchasing Patrick J. Kelvie, Esq. 47 Vice President, Secretary and General Counsel Ken A. Di Lillo 44 Vice President - Finance, Treasurer and Assistant Secretary Robert D. Beyer 39 Director George G. Golleher 51 Director M. Brent Stevens 38 Director
Officers are elected by the Board of Directors and serve at the discretion of the Board. Anwar S. Soliman. Mr. Soliman has served as Chairman, Chief Executive Officer and a Director of the Company since its organization in 1986. Prior to joining the Company, Mr. Soliman was Executive Vice President of W. R. Grace & Co. ("Grace") and Group Executive of the Grace Restaurant Group, which he started in 1977. Mr. Soliman spent 22 years with Grace in various executive positions. He is also a trustee of the Orange County Museum of Art and a member of the Board Council of Boys Hope of California. Mr. Soliman received both a B. Commerce and an M.B.A. from Alexandria University and a Ph.D. from New York University. Ralph S. Roberts. Mr. Roberts has served as a Director of the Company since 1991 and has served as the President and Chief Operating Officer of the Company since 1986. Mr. Roberts has over 30 years of experience in the restaurant industry and before joining the Company was Deputy Group Executive of Operations of the Grace Restaurant Group and Vice President of Grace. Prior to joining Grace in 1980, he was Vice President of the Stouffer Restaurant Division and President and co-founder of the Rusty Scupper restaurants. Mr. Roberts received a B.A. from Princeton University. William J. McCaffrey, Jr. Mr. McCaffrey has served as Vice President since 1986 and as Chief Financial Officer of Black Angus since June 1998. Mr. McCaffrey served as a Director of the Company from 1991 to 1998 and as the Chief Financial Officer, Treasurer and Assistant Secretary of the Company from 1986 to 1998. Prior thereto he was Chief Financial Officer of the Grace Restaurant Group, having spent 12 years with Grace. For eight years, Mr. McCaffrey was assistant to the Chief Executive Officer of Grace. He received a B.S., M.E. from the University of Notre Dame and an M.B.A. from Harvard University. Wilfred H. Partridge. Mr. Partridge served as Vice President responsible for purchasing and distribution for the Company 1986 through 1998. Mr. Partridge has extensive experience in the restaurant industry encompassing purchasing, production and distribution, as well as restaurant operations, and was President of Grace Restaurant Services before joining the Company. Mr. Partridge served as Vice President of Purchasing, Production and Distribution with Marriott Corporation (Bob's Big Boy Division) for 19 years. He served as Director of Manufacturing and 13 16 Distribution for Foodmaker Company (Jack-in-the-Box) and also operated his own restaurants in the San Diego area. He received a B.A. in Commercial Science from Benjamin Franklin University. Patrick J. Kelvie. Mr. Kelvie has served as General Counsel of the Company since 1987 and Secretary of the Company since 1989. Mr. Kelvie was elected as Vice President of the Company in 1998. From 1987 to 1989, Mr. Kelvie was an Assistant Secretary of the Company. Between 1978 and 1987, Mr. Kelvie held various legal counsel positions for Saga Corporation. Mr. Kelvie received a B.A. from the University of California at Berkeley and a J.D. from Harvard Law School. Ken A. Di Lillo. Mr. Di Lillo was elected as the Treasurer and Assistant Secretary of the Company in 1998. Mr. Di Lillo has served as the Vice President - - Finance of the Company since June 1998 and as Corporate Controller since 1989. Prior thereto, he was Corporate Manager - Financial Reporting at Nissan Motor Acceptance Corporation ("NMAC"), having spent six years with NMAC. Mr. Di Lillo received a B.B.A. from Cleveland State University and is a Certified Public Accountant registered by the Accountancy Board of Ohio. Robert D. Beyer. Mr. Beyer was elected as a Director of the Company in 1998. Mr. Beyer has served as Group Managing Director of Trust Company of the West ("TCW") since 1995. Mr. Beyer was Co-Chief Executive Officer of Cresent Capital Corporation, a registered investment advisor, from 1991 until its acquisition by TCW in 1995. From 1986 to 1991, Mr. Beyer was a member of the Investment Banking Department of Drexel Burnham Lambert, Incorporated. From 1983 to 1986, Mr. Beyer was a member of the Investment Banking Department of Bear, Stearns & Co., Inc. Mr. Beyer is also a Director of Fred Meyer, Inc., and a commissioner of the Los Angeles City Employees Retirement System. George G. Golleher. Mr. Golleher was elected as a Director of the Company in 1998. Mr. Golleher was Chief Executive Officer of Ralphs Grocery Company ("Ralphs") January 1996 to July 1998 and was Vice Chairman from June 1995 to January 1996. Mr. Golleher was a Director of F4L Supermarkets since its inception in 1989 and was the President and Chief Operating Officer of F4L Supermarkets from January 1990 until its merger with Ralphs. From 1986 through 1989, Mr. Golleher served as Senior Vice President - Finance and Administration of the Boys Markets, Inc. Mr. Golleher served as a Director of Dominick's Finer Foods, Inc. from March 1995 until October 1996 and currently serves as a Director of Fred Meyer, Inc., Koo Koo Roo Enterprises, Inc., and Santee Dairy. M. Brent Stevens. Mr. Stevens was elected as a Director of the Company in 1999. Mr. Stevens has served as Managing Director of Jefferies & Company, Inc. since 1997. From 1993 to 1996, Mr. Stevens was Senior Vice President at Jefferies & Company, Inc. 14 17 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the cash compensation for services rendered in all capacities which the Company paid to or accrued for the Chief Executive Officer and each of the other four most highly compensated executive officers. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------------------------- ANNUAL COMPENSATION AWARDS PAYOUTS - ------------------------------------------------------------------------ --------------------- ------- OTHER NUMBER ALL ANNUAL RESTRICTED OF OTHER NAME AND COMPEN- STOCK OPTIONS/ LTIP COMPEN- PRINCIPAL POSITION YEAR SALARY BONUS SATION(a) AWARD(s) SARS PAYOUTS SATION(b) - ------------------------------------------------------------------------- --------------------------------- -------- ANWAR S. SOLIMAN 1998 $ 740,188 0 $105,626 -- -- -- $ 37,907 (CHAIRMAN AND CEO) 1997 945,793 0 99,975 -- -- -- 24,300 1996 1,233,640 0 96,125 -- -- -- 24,303 RALPH S. ROBERTS 1998 422,961 0 53,073 -- -- -- 13,050 (PRESIDENT AND COO) 1997 558,181 0 50,360 -- -- -- 13,050 1996 704,935 0 48,295 -- -- -- 8,351 WILLIAM J. MCCAFFREY, JR. 1998 195,000 0 3,850 -- -- -- 16,931 (VICE PRESIDENT) 1997 252,500 0 3,850 -- -- -- 17,525 1996 325,000 0 5,680 -- -- -- 14,846 WILFRED H. PARTRIDGE 1998 174,000 50,000 5,900 -- -- -- 6,289 (VICE PRESIDENT- 1997 225,308 0 5,900 -- -- -- 7,038 PURCHASING) 1996 290,000 0 7,610 -- -- -- 5,754 PATRICK J. KELVIE 1998 195,000 0 0 -- -- -- 1,575 (VICE PRESIDENT, 1997 188,070 30,000 0 -- -- -- 1,512 SECRETARY AND 1996 175,000 0 0 -- -- -- 1,312 GENERAL COUNSEL)
- ----------------------- (a) Amounts shown are for reimbursement during the fiscal year for the payment of premiums and income taxes thereon relating to executive life and disability plans. In addition, Holdings and the Company maintain key man life insurance policies for the benefit of Holdings and the Company on Messrs. Soliman and Roberts. (b) Amounts shown in this column for the last fiscal year include the following: group term life insurance premiums of $37,907, $13,050, $15,552 and $5,040 for Messrs. Soliman, Roberts, McCaffrey and Partridge, respectively; and Company matching contributions to a 401(k) plan of $1,379, $1,249 and $1,575 for Messrs. McCaffrey, Partridge and Kelvie, respectively. 15 18 EMPLOYMENT AGREEMENTS The following table sets forth, with respect to each executive officer who has entered into an employment agreement with the Company, the base salary for such officer provided for therein together with the termination date of such agreement:
BASE TERMINATION NAME OF INDIVIDUAL CAPACITY IN WHICH SERVED SALARY DATE - ------------------ ------------------------ ------ ---- Anwar S. Soliman Chairman and Chief Executive Officer $ 740,184 12/31/99 Ralph S. Roberts President and Chief Operating Officer 422,961 12/31/99
Each of the agreements provides, among other things, for adjustments to the base salaries and automatic extensions of the termination date. The agreements also provide for certain other benefits, including, in the case of Mr. Soliman, one year's severance pay equal to his then salary in the event of disability or death; in the case of Mr. Roberts, one year's severance pay in the event of death and salary for the remainder of the calendar year in the event of disability. The employment agreements of Mr. Soliman and Mr. Roberts each provide six months' severance pay if either executive terminates his employment for cause. None of the Company's employment agreements provides for any salary obligations in the event of termination by the Company for cause. SAVINGS PLAN The Company currently has the American Restaurant Group Savings and Investment Plan (the "Savings Plan"), which is a 401(k) plan established for the benefit of employees who have satisfied certain requirements. These requirements include completion of one year of service with a minimum of 1,000 hours worked. Subject to applicable limits imposed on tax-qualified plans, eligible employees may elect pre-tax contributions up to 18.5% of a participant's total earnings for a calendar year (but not in excess of $9,500 for 1998). The Company makes matching contributions to the Savings Plan equal to 25% of the participant's contributions up to 6% of the participant's earnings. A participant is entitled to a distribution from the Savings Plan upon termination of employment and any such distribution will be in a lump sum form. Distributable benefits are based on the value of the participant's individual account balance which is invested at the direction of the participant in one or a combination of six investment funds, none of which include investments in the Company. Under certain circumstances, a participant may borrow amounts held in his account under the Savings Plan. Based upon the Savings Plan vesting schedule, as of 1998, 100% of the Company matching contributions were vested for Messrs. McCaffrey, Partridge and Kelvie. 16 19 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of the Company's common stock (as if the Warrants and any other outstanding warrants were exercised), as of March 1, 1999, by (i) each of the Company's directors, (ii) the Chief Executive Officer and certain other highly compensated executive officers of the Company, (iii) all executive officers and directors as a group and (iv) each person believed by the Company to own beneficially more than 5% of the Company's outstanding common stock. Pursuant to the Voting Trust Agreement, Anwar S. Soliman controls Holdings and, accordingly, together with his direct ownership of common stock and the New Voting Trust Agreement (as described below), effectively controls the voting of all (without giving effect to the exercise of Warrants and any other outstanding warrants) the outstanding common stock, subject to the terms of the Securityholders Agreement as described below.
Amount and Nature of Percent of Percent of Name and Address Beneficial Ownership Outstanding Class Diluted Class (1) - ---------------- -------------------- ----------------- ----------------- Anwar S. Soliman 19,990(2) 15.6% 8.6% Roberts Family Limited Partnership 9,702 7.6 4.2 William J. McCaffrey, Jr. 2,426 1.9 1.0 Wilfred H. Partridge 2,426 1.9 1.0 Patrick J. Kelvie 387 0.3 0.2 Ken A. Di Lillo -- -- -- Robert D. Beyer(3) -- -- -- George G. Golleher(4) -- -- -- M. Brent Stevens(5) -- -- -- American Restaurant Group Holdings, Inc.(6) 93,150 72.7 40.0 All directors and officers of the company as a group(8 persons) 34,931 27.3 15.0 TCW Investors(7) 55,558 (8) - 23.9
(1) Gives effect to the exercise of all outstanding warrants. (2) Does not include 14,941 shares of the common stock which Mr. Soliman is deemed to be the owner of pursuant to the New Voting Trust Agreement. (3) Does not include shares deemed to be beneficially owned by the TCW Investors (as defined herein). Robert D. Beyer is a Group Managing Director of TCW, of which TCW Group (see footnote 7) and the TCW Investors are affiliates. Mr. Beyer shares investment power for the following TCW Investors: TCW Shared Opportunity Fund II L.P., TCW Leveraged Income Trust, L.P. and TCW Shared Opportunity Fund IIB, LLC. See footnote 6. (4) George G. Golleher was elected Director of the Company, as nominee of the TCW Investors. (5) Does not include shares deemed to be beneficially owned by Jefferies & Company, Inc. (6) Anwar S. Soliman owns 228,577 shares of Holdings common stock, representing 46.4% of the outstanding common stock of Holdings. In addition, Mr. Soliman is deemed to be the owner, pursuant to the Voting Trust Agreement, of an additional 175,963 shares of Holdings common stock. (7) TCW Shared Opportunity Fund II., L.P., TCW Leveraged Income Trust, L.P., Brown University and TCW Shared Opportunity Fund IIB , LLC. 17 20 (8) Represents warrants which are immediately exercisable at a nominal price per share. Includes warrants beneficially owned by the TCW Investors and of which TCW Asset Management Company and certain affiliates which control voting and investment power in their capacity as general partner, investment manager or manager of the TCW Investors (the "TCW Group"), disclaims beneficial ownership. All of the Company's Management Stockholders have entered into a voting trust agreement (the "New Voting Trust Agreement") dated February 25, 1998 in accordance with which Anwar S. Soliman, Chairman and Chief Executive Officer of the Company, exercises, as voting trustee, all voting and substantially all other rights to which such shareholders would otherwise be entitled until the earlier of August 15, 2005 or the earlier termination of the New Voting Trust Agreement. As a result, Mr. Soliman is considered the beneficial owner of approximately 86.9% of the outstanding shares of Company's common stock (approximately 47.8% on a diluted basis). In addition, the Management Stockholders have entered into other agreements pursuant to which such holders were granted registration rights substantially identical to the rights granted to the holders of the Warrants pursuant to the Securityholders' Agreement. Each of the Management Stockholders is also party to a subscription agreement with Holdings which provides such stockholder certain rights with respect to shares of Holdings common stock held by such stockholder. As of March 1, 1999, holders of the Company's preferred stock held warrants for 41% of the common stock on a diluted basis. STOCK OPTION PLANS The Company is in the process of adopting a stock option plan for the grant of options to the management of the Company and select employees of the Company and its subsidiaries. The Company expects the plan will provide for options for up to 15% of the fully diluted number of shares of common stock of the Company. SECURITYHOLDERS AGREEMENT In connection with the Recapitalization Plan, each of Holdings, the Management Stockholders, Jefferies & Company, Inc. (the "Initial Purchaser" of the Notes), and TCW Shared Opportunity Fund II, L.P., TCW Leveraged Income Trust, L.P., Brown University and TCW Shared Opportunity Fund IIB, LLC (collectively, the "TCW Investors") and TCW Asset Management Company entered into a securityholders agreement concerning the Company (the "Securityholders Agreement"). The Securityholders Agreement provides that the parties will agree to vote all of their shares of the Company's equity securities so that the composition of the Company's Board of Directors consists of five members, two of whom will be management nominees, two of whom will be nominees of the TCW Investors and one of whom, the Remaining Director, will be an independent director designated by the Initial Purchaser; provided that after the date that is 45 days after the date upon which underwritten primary public offerings of common stock of the Company pursuant to effective registration statements under the Securities Act have resulted in 35% of the Company's common stock (measured on a fully diluted basis after giving effect to such offerings) being sold to the public and in the Company's common stock being listed for trading on any of the New York Stock Exchange, the NASDAQ National Market or the American Stock Exchange (the "Public Company Date") the TCW Investors and management will mutually choose the Remaining Director and the Initial Purchaser will no longer have any right to designate a director. The Securityholders Agreement does not limit the rights of the holders of the preferred stock under the Certificate of Designation to elect additional directors to serve on the Company's Board of Directors in certain circumstances. The Securityholders Agreement also provides that (i) in the event that Holdings sells or transfers any of its shares of Company equity securities, directly or indirectly, TCW Investors will have the option to include its Company equity securities in such sale or transfer on the same terms as Holdings' sale or transfer, (ii) TCW investors will have a right of first refusal with respect to any sale of equity securities by the Company or a party to the Securityholders Agreement (other than Management Stockholders) to purchase the equity securities being sold; and (iii) TCW Investors have the nontransferable right to approve certain major corporate transactions concerning the Company, including mergers and consolidations, sales of any capital stock of the Company's Subsidiaries, a sale of a material amount of the assets and properties of the Company, transactions with affiliates and 18 21 amendments to the Company's Certificate of Incorporation and Bylaws. In addition, the Securityholders Agreement provides that certain of the TCW Investors' purchasers will receive payments from the Company with respect to withholding obligations as a result of their ownership of the preferred stock, which amount shall not exceed $125,000 per year. None of the rights under the Securityholders Agreement are transferable by TCW Investors. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 19 22 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K (a) Consolidated Financial Statements. See the Index to Consolidated Financial Statements on page F-1. (c) List of Exhibits
Exhibit No. Description ----------- ----------- > 2.1 Purchase Agreement dated as of September 11, 1996 by and between ARG Property Management Corporation and ARG Enterprises, Inc. and ARG Properties I, LLC.*** 2.2 Master lease dated September 11, 1996 between ARG Properties I, LLC, as Landlord and ARG Enterprises, Inc. as Tenant.*** 2.3 Lease #06152 dated September 11, 1996 between Captec Net Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for Bloomington, Minnesota.*** 2.4 Lease #06153 dated September 11, 1996 between Captec Net Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for Fridley, Minnesota.*** 2.5 Lease #06154 dated September 11, 1996 between Captec Net Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for Minnetonka, Minnesota.*** 2.6 Lease #06155 dated September 11, 1996 between Captec Net Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for Roseville, Minnesota.*** 2.7 Lease dated September 11, 1996 between Safeway Inc. as Landlord and ARG Enterprises, Inc. as Tenant.*** 2.8 Guaranty of Lease dated September 11, 1996 by ARG Enterprises, Inc. as Tenant to ARG Properties I, LLC as Landlord.*** 2.9 A Guaranty of Lease dated September 11, 1996 by ARG Enterprises, Inc. as Tenant to Captec Net Lease Realty, Inc. as Landlord for each of four Minnesota restaurants.*** 2.10 Guaranty of Lease dated September 11, 1996 by ARG Enterprises, Inc. as Tenant and Safeway Inc. as Landlord.*** 3.1 Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on July 23, 1991.*
20 23 3.2 Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on March 21, 1992. * 3.3 Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on February 23, 1998. **** 3.4 By-Laws of the Company. * 4.1 Indenture dated as of February 25, 1998 between the Company and U.S. Trust Company of California, N.A., as Trustee (including specimen certificate of 11.5% Senior Secured Note due 2003). **** 4.2 Warrant Agreement dated as of February 25, 1998 between the Company and U.S. Trust Company of California, N.A., as warrant agent (including specimen certificate of Warrant). **** 4.3 Registration Rights Agreement dated as of February 25, 1998 between the Company and Jefferies & Company, Inc. **** 4.4 Securityholders' and Registration Right Agreement dated as of February 25, 1998 between the Company and Jefferies & Company, Inc., as purchaser. **** 4.5 Management Registration Right Agreement dated as of February 28, 1998 between the Company and the Management Stockholders. **** 4.6 Certificate of Designation filed with the Secretary of State of Delaware on February 24, 1998. **** 4.7 Certificate of Correction to the Certificate of Designation filed with the Secretary of State of Delaware on February 25, 1998. **** 4.8 Form of Indenture relating to the 12% Senior Subordinated Debentures to be entered into between the Company and a trustee (including specimen certificate of 12% Senior Subordinated Debenture due 2003). ***** 9.1 Common Stock Voting Trust and Transfer Agreement dated as of February 24, 1998 among the Company and the stockholders parties thereto and Anwar S. Soliman, as voting trustee. **** 9.2 Securityholders Agreement dated as of February 25, 1998 among the Company, American Restaurant Group Holdings, Inc., Jefferies & Company, Inc., TCW Asset Management Company and the Management Stockholders. **** 10.1 Amended and Restated Employment Agreement dated as of December 14, 1993 between the Company and Anwar S. Soliman. ** 10.2 Amended and Restated Employment Agreement dated as of December 14, 1993 between the Company and Ralph S. Roberts. **
21 24 21.1 Subsidiaries of the Company. ** 27.1 Financial Data Schedule - ------------------- * Incorporated by reference to the Registrant's Registration Statement No. 33-48183 on Form S-4 filed with the Securities and Exchange Commission on May 28, 1992 as amended with Amendment No. 1 filed on September 11, 1992. ** Incorporated by reference to the Registrant's Registration Statement No. 33-74010 on Form S-4 filed with the Securities and Exchange Commission on January 12, 1994. *** Incorporated by reference to the Registrant's Current Report on Form 8-K dated September 13, 1996 filed with the Securities and Exchange Commission on September 30, 1996. **** Incorporated by reference to the Registrant's Annual Report on Form 10-K dated December 29, 1997 filed with the Securities and Exchange Commission on March 30, 1998. ***** Incorporated by reference to the Registrant's Registration Statement No. 333-55861 on Amendment No. 1 to Form S-4 filed with the Securities and Exchange Commission on July 29, 1998.
22 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN RESTAURANT GROUP, INC. By: /s/ ANWAR S. SOLIMAN --------------------------------- Anwar S. Soliman Chairman, Chief Executive Officer and Director Pursuant to the requirements of the Securities 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. /S/ ANWAR S. SOLIMAN Chairman, Chief Executive March 29, 1999 - -------------------------------- Officer and Director Anwar S. Soliman (Principal Executive Officer) /s/ KEN A. DI LILLO Treasurer and March 29, 1999 - -------------------------------- Assistant Secretary Ken A. Di Lillo (Principal Financial and Accounting Officer) /s/ RALPH S. ROBERTS President, Chief Operating March 29, 1999 - -------------------------------- Officer and Director Ralph S. Roberts /s/ ROBERT D. BEYER Director March 29, 1999 - -------------------------------- Robert D. Beyer /s/ GEORGE G. GOLLEHER Director March 29, 1999 - -------------------------------- George G. Golleher /s/ M. BRENT STEVENS Director March 29, 1999 - -------------------------------- M. Brent Stevens
23 26 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Public Accountants.................................................................. F-2 Consolidated Balance Sheets as of December 29, 1997 and December 28, 1998............................................................................ F-3 Consolidated Statements of Operations for the Years Ended December 30, 1996, December 29, 1997 and December 28, 1998............................................................................ F-5 Consolidated Statements of Common Stockholder's Equity for Years Ended December 30, 1996, December 29, 1997 and December 28, 1998.......................................................... F-6 Consolidated Statements of Cash Flows for Years Ended December 30, 1996, December 29, 1997 and December 28, 1998............................................................................ F-7 Notes to Consolidated Financial Statements................................................................ F-8
F-1 27 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of American Restaurant Group, Inc.: We have audited the accompanying consolidated balance sheets of AMERICAN RESTAURANT GROUP, INC. (a Delaware corporation) AND SUBSIDIARIES as of December 29, 1997 and December 28, 1998, and the related consolidated statements of operations, common stockholder's equity (deficit) and cash flows for the years ended December 30, 1996, December 29, 1997 and December 28, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Restaurant Group, Inc. and subsidiaries as of December 29, 1997 and December 28, 1998, and the results of their operations and their cash flows for the years ended December 30, 1996, December 29, 1997 and December 28, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Orange County, California March 19, 1999 F-2 28 AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 29, 1997 AND DECEMBER 28, 1998
ASSETS December 29, December 28, 1997 1998 ------------ ------------ CURRENT ASSETS: Cash $ 5,737,000 $ 8,832,000 Accounts receivable, net of reserve of $916,000 and $602,000 at December 29, 1997 and December 28, 1998, respectively 5,606,000 4,504,000 Notes receivable 1,000,000 300,000 Inventories 5,893,000 5,716,000 Prepaid expenses 3,142,000 3,108,000 ------------ ------------ Total current assets 21,378,000 22,460,000 ------------ ------------ PROPERTY AND EQUIPMENT: Land and land improvements 5,610,000 5,485,000 Buildings and leasehold improvements 110,800,000 112,280,000 Fixtures and equipment 85,603,000 84,774,000 Property held under capital leases 12,375,000 11,634,000 Construction in progress 1,827,000 2,250,000 ------------ ------------ 216,215,000 216,423,000 Less-- Accumulated depreciation 123,893,000 125,858,000 ------------ ------------ 92,322,000 90,565,000 ------------ ------------ OTHER ASSETS: Intangible assets 12,375,000 11,334,000 Deferred debt costs 21,692,000 10,818,000 Leasehold interests 9,666,000 9,518,000 Franchise rights 6,024,000 3,945,000 Liquor licenses and other 6,857,000 6,447,000 Cost in excess of net assets acquired 12,332,000 11,219,000 ------------ ------------ 68,946,000 53,281,000 Less-- Accumulated amortization 30,635,000 15,847,000 ------------ ------------ 38,311,000 37,434,000 ------------ ------------ Total assets $152,011,000 $150,459,000 ============ ============
(consolidated balance sheets continued on following page) The accompanying notes are an integral part of these consolidated statements. F-3 29
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY December 29, December 28, 1997 1998 ------------- ------------- CURRENT LIABILITIES: Accounts payable $ 29,420,000 $ 22,937,000 Accrued liabilities 18,021,000 18,299,000 Accrued insurance 11,251,000 4,243,000 Accrued interest 7,514,000 7,033,000 Accrued payroll costs 10,861,000 8,194,000 Current portion of obligations under capital leases 926,000 950,000 Current portion of long-term debt 537,000 421,000 ------------- ------------- Total current liabilities 78,530,000 62,077,000 ------------- ------------- LONG-TERM LIABILITIES, net of current portion: Obligations under capital leases 7,517,000 6,566,000 Long-term debt 172,419,000 159,506,000 ------------- ------------- Total long-term liabilities 179,936,000 166,072,000 ------------- ------------- DEFERRED GAIN 5,283,000 4,684,000 ------------- ------------- COMMITMENTS AND CONTINGENCIES CUMULATIVE PREFERRED STOCK, MANDATORILY REDEEMABLE -- 36,801,000 ------------- ------------- REDEEMABLE CUMULATIVE PREFERRED STOCK: Redeemable cumulative senior preferred stock, $0.01 par value; 1,400,000 shares authorized, no shares issued or outstanding -- -- Redeemable cumulative junior preferred stock, $0.01 par value; 100,000 shares authorized, no shares issued or outstanding -- -- COMMON STOCKHOLDERS' EQUITY: Common stock, $0.01 par value; 1,000,000 shares authorized; 93,150 and 128,081 shares issued and outstanding at December 29, 1997 and December 28, 1998, respectively 1,000 1,000 Paid-in capital 63,246,000 55,666,000 Accumulated deficit (174,985,000) (174,842,000) Total common stockholders' deficit (111,738,000) (119,175,000) ------------- ------------- Total liabilities and common stockholders' equity $ 152,011,000 $ 150,459,000 ============= =============
The accompanying notes are an integral part of these consolidated statements. F-4 30 AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 30, 1996, DECEMBER 29, 1997 AND DECEMBER 28, 1998
Year ended ----------------------------------------------------------- December 30, December 29, December 28, 1996 1997 1998 ------------ ------------ ------------- REVENUES $445,424,000 $440,039,000 $426,928,000 ------------ ------------ ------------- RESTAURANT COSTS: Food and beverage 141,032,000 140,015,000 135,873,000 Payroll 137,104,000 133,732,000 130,242,000 Direct operating 114,589,000 110,502,000 106,449,000 Depreciation and amortization 20,386,000 19,627,000 14,638,000 GENERAL AND ADMINISTRATIVE EXPENSES 28,086,000 29,360,000 22,357,000 NON-CASH CHARGE FOR IMPAIRMENT OF LONG-LIVED ASSETS 13,205,000 3,047,000 1,415,000 GRANDY'S FRANCHISE CONVERSION PROGRAM: Non-cash charge for assets to be disposed -- -- 5,034,000 ------------- ------------- ------------- Operating profit (loss) (8,978,000) 3,756,000 10,920,000 INTEREST EXPENSE, net 27,714,000 23,985,000 20,269,000 ------------- ------------- ------------- Loss before provision for income taxes and extraordinary gain (loss) (36,692,000) (20,229,000) (9,349,000) PROVISION FOR INCOME TAXES 81,000 63,000 67,000 ------------- ------------- ------------- Loss before extraordinary item (36,773,000) (20,292,000) (9,416,000) EXTRAORDINARY GAIN (LOSS) ON EXTINGUISHMENT OF DEBT (1,688,000) -- 9,559,000 ------------- ------------- ------------- Net income (loss) $ (38,461,000) $ (20,292,000) $ 143,000 ============= ============= =============
The accompanying notes are an integral part of these consolidated statements. F-5 31 AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 30, 1996, DECEMBER 29, 1997 AND DECEMBER 28, 1998
Common Paid-in Accumulated Stock Capital Deficit Total ----- ------- ------- ----- BALANCE, December 25, 1995 $ 1,000 $ 56,132,000 $(116,232,000) $ (60,099,000) Net loss -- -- (38,461,000) (38,461,000) Cash contribution from parent -- 7,114,000 -- 7,114,000 ------------- ------------- ------------- ------------- BALANCE, December 30, 1996 1,000 63,246,000 (154,693,000) (91,446,000) Net loss -- -- (20,292,000) (20,292,000) ------------- ------------- ------------- ------------- BALANCE, December 29, 1997 1,000 63,246,000 (174,985,000) (111,738,000) Net income -- -- 143,000 143,000 Amortization of cost related to the issuance of preferred stock -- (332,000) -- (332,000) Dividends payable, preferred stock -- (3,648,000) -- (3,648,000) Non-cash distribution to parent -- (3,600,000) -- (3,600,000) ------------- ------------- ------------- ------------- BALANCE, December 28, 1998 $ 1,000 $ 55,666,000 $(174,842,000) $(119,175,000) ============= ============= ============= =============
The accompanying notes are an integral part of these consolidated statements. F-6 32 AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 30, 1996, DECEMBER 29, 1997 AND DECEMBER 28, 1998
Year ended --------------------------------------------------------- December 30, December 29, December 28, 1996 1997 1998 ------------ ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 445,678,000 $ 440,695,000 $ 428,403,000 Cash paid to suppliers and employees (415,662,000) (417,714,000) (403,321,000) Interest paid, net (32,524,000) (17,358,000) (20,729,000) Income taxes paid (74,000) (30,000) (144,000) ------------- ------------- ------------- Net cash provided by (used in) operating activities (2,582,000) 5,593,000 4,209,000 ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (13,279,000) (4,650,000) (12,316,000) Net (increase) decrease in other assets (2,455,000) (945,000) 155,000 Proceeds from disposition of assets 64,560,000 620,000 9,000 Sale/leaseback costs included in deferred gain (1,112,000) -- -- ------------- ------------- ------------- Net cash provided by (used in) investing activities 47,714,000 (4,975,000) (12,152,000) ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on indebtedness (51,907,000) (1,334,000) (163,117,000) Borrowings on indebtedness 1,791,000 186,000 162,215,000 Net increase in deferred debt costs (4,165,000) (324,000) (10,818,000) Cost included in extraordinary gain on extinguishment of debt -- -- (1,686,000) Issuance of cumulative preferred stock -- -- 35,000,000 Cost related to issuance of cumulative preferred stock -- -- (2,179,000) Payment on insurance related financing -- -- (7,450,000) Payments on capital lease obligations (857,000) (902,000) (927,000) Contribution from parent 7,114,000 -- -- ------------- ------------- ------------- Net cash provided by (used in) financing activities (48,024,000) (2,374,000) 11,038,000 ------------- ------------- ------------- NET INCREASE (DECREASE) IN CASH (2,892,000) (1,756,000) 3,095,000 CASH, at beginning of period 10,385,000 7,493,000 5,737,000 ------------- ------------- ------------- CASH, at end of period $ 7,493,000 $ 5,737,000 $ 8,832,000 ============= ============= ============= RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net income (loss) $ (38,461,000) $ (20,292,000) $ 143,000 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Extraordinary (gain) loss on extinguishment of debt 1,688,000 -- (9,559,000) Loss on impairment of long-lived assets 13,205,000 3,047,000 1,415,000 Non-cash charge for Grandy's assets to be disposed -- -- 5,034,000 Depreciation and amortization 20,386,000 19,627,000 14,638,000 Loss on disposition of assets 1,610,000 4,806,000 1,529,000 Amortization of deferred gain (123,000) (523,000) (599,000) Accretion on indebtedness 99,000 110,000 21,000 (Increase) decrease in current assets: Accounts receivable, net 254,000 1,656,000 775,000 Notes receivable -- (1,000,000) 700,000 Inventories (221,000) 925,000 177,000 Prepaid expenses (467,000) (766,000) (8,000) Increase (decrease) in current liabilities: Accounts payable 4,155,000 (3,974,000) (6,483,000) Accrued liabilities 160,000 255,000 (868,000) Accrued insurance (846,000) (4,597,000) 442,000 Accrued interest (4,909,000) 6,517,000 (481,000) Accrued payroll costs 888,000 (198,000) (2,667,000) ------------- ------------- ------------- Net cash provided by (used in) operating activities $ (2,582,000) $ 5,593,000 $ 4,209,000 ============= ============= =============
The accompanying notes are an integral part of these consolidated statements. F-7 33 AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 30, 1996, DECEMBER 29, 1997 AND DECEMBER 28, 1998 1. Background and Summary of Significant Accounting Policies a. Company American Restaurant Group, Inc., (the "Company") a Delaware corporation, through its subsidiaries, operates middle and upper price full-service restaurants, casual-style restaurants and quick-service restaurants primarily in California and Texas. The Company is a subsidiary of American Restaurant Group Holdings, Inc. ("Holdings"), also a Delaware corporation. At year end 1996, 1997 and 1998, the Company and its subsidiaries, collectively referred to herein as the Company, operated 247, 231 and 224 restaurants, respectively. b. Operations The Company's operations are affected by local and regional economic conditions, including competition in the restaurant industry. The Company has had recurring operating losses in recent years and was unable to meet a required debt principal payment during 1997. A recapitalization plan was consummated during 1998. This plan substantially eliminated debt principal payments until the year 2003. Management believes the recapitalization will also allow it to effect changes in its operations and has already implemented measures to reduce overhead costs. However, the Company does not expect to generate sufficient cash flow from operations in the future to make principal payments on long-term debt upon maturity in the year 2003 and, accordingly, it expects to refinance all or a portion of such debt, obtain new financing or possibly sell assets. c. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. d. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates. e. Inventories and Prepaid Expenses Inventories consist of food, beverages and supplies and are valued at the lower of cost (first-in, first-out method) or market value. When a restaurant is opened, the initial purchase of expendable equipment, such F-8 34 as china, glassware and silverware, is recorded as prepaid supplies and is not depreciated; however, all replacements are expensed. f. Advertising Costs Advertising costs are accrued as a percentage of sales and expensed during the year. Production costs are allocated to the related advertisements. At year end, production costs for advertisements which have not been aired are included in prepaid expenses. Prepaid advertising costs of $912,000 and $1,199,000 were included in prepaid expenses at December 29, 1997 and December 28, 1998, respectively. Advertising expenses included in net income (loss) were $20,870,000, $16,995,000 and $17,254,000 in fiscal years 1996, 1997 and 1998, respectively. g. Preopening Costs Effective December 28, 1998, the Company adopted Statement of Position Number 98-5, Reporting on the Costs of Start-up Activities (SOP 98-5) which was issued in April 1998. SOP 98-5 requires costs of start-up activities and organization costs to be expensed as incurred. The Company has historically accumulated costs incurred in connection with opening a new restaurant and amortized these costs over the initial year of operations. Although not material to the Company's financial position or results of operations, any previously deferred preopening costs were expensed as of the end of fiscal year 1998. Preopening expense was $588,000, $2,077,000 and $582,000 in 1996, 1997 and 1998, respectively. Fiscal 1998 includes $248,000 of previously deferred preopening costs expensed at year-end. h. Property and Equipment Property and equipment is carried at the lower of cost or, if impaired, at the estimated fair value of the asset (see Note 2, "Impairment of Long-Lived Assets"). The Company provides for depreciation and amortization based upon the estimated useful lives of depreciable assets using the straight-line method. Estimated useful lives are as follows: Land improvements 20 years Buildings 30 to 35 years Leasehold improvements Life of lease Fixtures and equipment 3 to 10 years Property held under capital leases Life of lease Substantially all of the Company's assets, including property and equipment, are pledged as collateral on the senior debt of the Company. i. Interest Costs Interest costs incurred during the construction period of restaurants are capitalized. The Company capitalized approximately $168,000, $90,000 and $68,000 for the years ended 1996, 1997 and 1998, respectively. j. Other Assets Other assets include intangible assets, leasehold interests, franchise rights, liquor licenses and cost in excess of net assets acquired. These costs are amortized using the straight-line method over the periods estimated to be benefited, not greater than 40 years. F-9 35 Deferred debt costs are amortized using the effective interest method over the related debt term. Estimated useful lives are as follows: Intangible assets 3 to 40 years Deferred debt costs Term of debt Leasehold interests Life of lease Franchise rights 35 years Liquor licenses 40 years Cost in excess of net assets acquired 40 years The following table details the components of intangible assets included in the accompanying consolidated balance sheets (in thousands):
December 29, December 28, 1997 1998 ------------ ------------ Assembled workforce $ 4,862 $ 4,513 Goodwill 3,295 2,944 Trademark/service marks 2,632 2,390 Acquisition costs 1,143 1,048 Other 443 439 -------- --------- Total $ 12,375 $ 11,334 ======== =========
k. Insurance The Company self-insures the first $100,000 of its annual medical and dental benefits per family. The Company also self-insures up to the first $350,000 per incident for property and casualty risks inherent in its operations. Reserves for losses are established currently based upon estimated obligations. l. Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash, accounts receivable and payable and debt instruments. The carrying values of all financial instruments, other than debt instruments, are representative of their fair value due to their short-term maturity. The fair value of the Company's long-term debt instruments is estimated based on the current rates offered to the Company. m. Franchise Income The Company franchises Grandy's quick-service restaurants. Franchise fees are recognized as income as services are rendered in accordance with Financial Accounting Standards Number 45, Accounting for Franchise Fee Revenue (SFAS 45). Franchise royalties based upon a percentage of the franchisees' gross sales are accrued currently. Revenues include franchise royalties and franchise fees of $1,995,000, $2,586,000, and $1,800,000, respectively, for the years ended 1996, 1997 and 1998. There were 56, 61 and 57 franchised restaurants at year end 1996, 1997 and 1998, respectively. n. Accounting Period The Company's fiscal year ends on the last Monday in December. The years ended 1996 included 53 weeks while 1997 and 1998 included 52 weeks. F-10 36 o. Reclassifications Certain prior year accounts have been reclassified to conform with the current year presentation. 2. Impairment of Long-Lived Assets Effective December 25, 1995, the Company adopted the provisions of Financial Accounting Standards Number 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of (SFAS 121). This statement changed the method of evaluating the impairment of the Company's long-lived assets, including intangible assets. Various assumptions and estimates are used to determine fair value. The calculation of the impairment loss is based on estimated future cash flows. The estimates used to determine the impairment adjustment can change in the near term as the economy and operations of specific restaurants change. The adoption of SFAS 121, together with the effects of continuing adverse operations of certain restaurants, resulted in pre-tax non-cash charges, excluding non-cash charges related to the Grandy's franchise conversion program, of $13,205,000, $3,047,000 and $1,415,000 for the years ended 1996, 1997 and 1998, respectively. 3. Grandy's Franchise Conversion Program In 1998, the Company announced a plan to convert a majority of its company-owned Grandy's restaurants to franchised restaurants. The Company intends to sell the property and equipment, including applicable lease rights, and enter into franchise agreements with the purchasers. The Company has reviewed the value of the recorded assets, including an allocation of intangible assets, for each restaurant to be converted. A write-down has been recorded for each restaurant where the carrying amount of the tangible and intangible assets exceeds the anticipated net proceeds. A total write-down of $4,789,000 was recorded in 1998 as well as a provision of $245,000 for other costs, including severence, associated with the conversion program. The restaurants will remain in operation pending their conversion to franchised restaurants; therefore, the Company will continue to depreciate the remaining assets. 4. Lease Obligations The Company leases certain of its operating facilities under terms ranging up to 40 years. These leases are classified as both operating and capital leases. Certain of the leases contain provisions calling for additional rentals based on sales or other provisions obligating the Company to pay related property taxes and certain other expenses. F-11 37 The following is a summary of property held under leases that have been capitalized and included in the accompanying consolidated balance sheets (in thousands):
December 29, December 28, 1997 1998 ------------ ------------ Property $12,375 $11,634 Less-- Accumulated depreciation 7,687 7,580 ------- ------- $ 4,688 $ 4,054 ======= =======
The following represents the minimum lease payments remaining under noncancelable operating leases and capitalized leases as of December 28, 1998 (in thousands):
Operating Capitalized Fiscal years ending Leases Leases 1999 $ 25,645 $ 1,791 2000 24,567 1,694 2001 23,153 1,694 2002 21,478 1,612 2003 20,176 1,178 Thereafter 222,745 3,848 -------- -------- Total minimum lease payments $337,764 11,817 ======== ======== Less -- Imputed interest (8.75% to 15.5%) 4,301 -------- Present value of minimum lease payments 7,516 Less -- Current portion 950 Long-term portion $ 6,566 ========
Rental expense (including $895,000, $802,000 and $733,000, respectively, for contingent rents under operating leases) was $24,814,000, $30,676,000 and $28,656,000 during 1996, 1997 and 1998, respectively. F-12 38 5. Long-Term Debt Long-term debt is summarized as follows (in thousands):
December 29, December 28, 1997 1998 ------------ ------------ Senior secured notes, interest only due semi-annually beginning August 15, 1998 at 11.5%, principal due February 15, 2003 -- $158,600 Senior secured notes, interest only due semi-annually beginning September 15, 1992 at 12%, amended to 13% beginning August 28, 1996 due quarterly, principal due September 15, 1998, paid February 25, 1998 84,356 -- Senior secured notes, interest only due semi-annually beginning March 15, 1994 at 12%, amended to 13% beginning August 28, 1996 due quarterly, principal due September 15, 1998, paid February 25, 1998 41,906 -- Subordinated notes payable, quarterly principal payments of $5,625,000 due beginning December 31, 1998, interest only due quarterly at 10.25%, redeemed February 25, 1998 45,000 -- Other 1,694 1,327 -------- -------- 172,956 159,927 Less-- Current portion 537 421 -------- -------- Long-term portion $172,419 $159,506 ======== ========
Maturities of the remaining long-term debt during each of the five fiscal years subsequent to year end 1998 are $421,000, $281,000, $315,000, $310,000 and $158,600,000. In March 1997, the Company's senior secured noteholders consented to an amendment which provided for an increase of $10 in the stated principal amount for each $1,000 in stated principal amount of consenting noteholders. This resulted in an increase of approximately $1,617,000 in the stated principal amount of the senior secured notes and $1,200,000 in the actual outstanding principal amount of the senior secured notes. In September 1997, the Company failed to make the $40,531,000 payment that was due under the sinking fund provisions of its senior secured notes. The Company was late, but within the grace period, in paying the quarterly interest of $4,124,000 on its senior secured notes which was due September 15, 1997. The Company was restricted from paying the quarterly interest of $1,153,000 on its subordinated debt which was due September 15, 1997 F-13 39 and December 15, 1997. In December 1997, the Company was late, but within the grace period, in paying the quarterly interest of $4,107,000 on its senior secured notes which was due December 15, 1997. In February, 1998, the Company completed a recapitalization plan (the "Recapitalization Plan") which included, among other things, the issuance by the Company of $155,000,000 of $11.5% senior secured notes due 2003 (the "Notes"). Also as part of the Recapitalization Plan, the Company concurrently(a) redeemed at par senior secured notes of $126,381,000 together with interest thereon and repaid certain other interest-bearing short-term liabilities, (b) repurchased its existing 10.25% subordinated notes at 65% of the par amount of $45,000,000 together with interest thereon, and canceled the related warrants to purchase common stock of Holdings, and (c) established a $15,000,000 revolving credit facility to include letters of credit. A quarterly fee of 0.5% per annum is payable on the unused portion of the letter of credit facility and a quarterly fee of 2.5% per annum is payable on outstanding letters of credit. At year end 1997 and 1998, the Company had outstanding letters of credit primarily related to its self-insurance programs of approximately $11,005,000 and $4,316,000, respectively. As an additional component of the Recapitalization Plan, Holdings extended the accretion period on its senior discount debentures due 2005 (the "Holdings Debentures") from June 15, 1999 to maturity on December 15, 2005, and amended certain provisions of the Holdings Debentures. The Holdings Debentures will accrete at a rate of 14.25%, compounded semi-annually. In addition, holders of the Holdings Debentures with an accreted value of approximately $10,757,000 surrendered such debentures for cancellation and received $3,600,000 principal amount of the Notes which was in addition to the $155,000,000 of Notes sold as mentioned above. The Notes issued in lieu of Holdings Debentures were recorded as a non-cash distribution to Holdings by the Company. Substantially all assets of the Company are pledged to its senior lenders. In addition, the direct subsidiaries have guaranteed the indebtedness owed by the Company and such guarantee is secured by substantially all of the assets of the subsidiaries. In connection with such indebtedness, contingent and mandatory prepayments may be required under certain specified conditions and events. There are no compensating balance requirements. 6. Income Taxes The Company's state income tax provision, all of which was current, was $81,000, $63,000 and $67,000 in 1996, 1997 and 1998, respectively. No provision for Federal income taxes was required in any year. F-14 40 The income tax effects of temporary differences that give rise to significant portions of the Company's deferred income tax assets and liabilities are as follows (in thousands):
Year ended ----------------------------- December 29, December 28, 1997 1998 ------------ ------------- Deferred income tax asset: Reserves and other accrued expenses not currently deductible for tax purposes $ 2,833 $ 2,147 Long-lived asset impairment not recognized on tax return 6,675 9,219 Tax gain on sale/leaseback transactions, net 3,545 3,342 Net operating loss carryforward 45,899 42,743 -------- -------- Deferred income tax asset 58,952 57,451 -------- -------- Deferred income tax liability: Tax depreciation greater than depreciation for financial reporting purposes (8,034) (7,879) Costs capitalized for financial reporting purposes and expensed on tax return (4,338) (4,150) Other, net (1,906) (1,789) -------- -------- Deferred income tax liability (14,278) (13,818) -------- -------- Deferred asset, net of deferred liability 44,674 43,633 Valuation allowance (44,674) (43,633) -------- -------- Net deferred income tax asset $ -- $ -- ======== ========
The effective tax rate differs from the Federal statutory rate of 34 percent as a result of the following items (in thousands):
Year ended ---------------------------------------------- December 30, December 29, December 28, 1996 1997 1998 ------------ ------------ ------------ Federal income tax benefit at statutory rates $(13,049) $ (6,878) 49 $ 49 State income tax provision for which no federal benefit was recorded 53 42 44 Losses for which no federal benefit was recorded 12,834 6,125 3,792 Nondeductible items, principally intangible amortization 243 774 964 Cancellation of debt income -- -- (4,782) -------- -------- -------- Provision for income taxes $ 81 $ 63 $ 67 ======== ======== ========
F-15 41 As a result of the Recapitalization Plan (see Note 4), the Company no longer files consolidated income tax returns with Holdings. The Company recorded cancellation of indebtedness income in the amount of $14,000,000. Under certain circumstances, cancellation of indebtedness income is not taxable for federal income tax purposes. However, U.S. income tax law requires that net operating losses and other "tax attributes" be reduced as follows: Net operating loss carryforward $139,800,000 Reduction (14,000,000) ------------ Adjusted net operating loss carryforward $125,800,000 ============ The Company's federal net operating loss carryforwards expire in 2004 to 2013. At December 28, 1998, the Company had available federal general business credit carryforwards of $11,989,000, expiring in 2004 to 2013. 7. Commitments and Contingencies The Company is obligated under employment agreements with certain officers and employees. Obligations under the agreements are $1,163,000, provide for periodic increases and expire in 1999 unless extended. The Company has been named as defendant in various lawsuits. It is the opinion of management that the outcome of such litigation will not materially affect the Company's financial position or results of operations. 8. Cumulative Preferred Stock, Manditorily Redeemable As part of the Recapitalization Plan in February, 1998, the Company issued 35,000 preferred stock units of the Company (the "Units"). Each Unit consists of $1,000 initial liquidation preference of 12% senior pay-in-kind exchangeable preferred stock and one common stock purchase warrant initially to purchase 2.66143 shares of the common stock at an initial exercise price of one cent per share. The Company's cumulative preferred stock is monitorilty redeemable on August 15, 2003, for cash at a price per share equal to 110% of the then applicable liquidation preference. 9. Redeemable Cumulative Senior and Junior Preferred Stock At year end 1997 and 1998, there were 1,400,000 authorized shares of senior preferred stock (one cent par value). There were no issued or outstanding shares. At year end 1997 and 1998, there were 100,000 authorized shares of junior preferred stock (one cent par value). There were no issued or outstanding shares. 10. Common Stock Common stock (one cent par value) authorized, issued and outstanding is as follows:
December 29, December 28, 1997 1998 ------------ ------------ Shares authorized 1,000,000 1,000,000 Shares issued 93,150 128,081 Shares outstanding 93,150 128,081
F-16 42 As of December 29, 1997, all of the Company's common stock was owned by American Restaurant Group Holdings, Inc. The Chairman and certain other members of the Company's management owned all outstanding shares of Holdings common stock other than shares of Holdings common stock issued to holders of the debenture units and rights to acquire shares of Holdings common stock issuable upon exercise of options and warrants. In conjunction with the Recapitalization Plan, the Company issued shares of common stock to certain members of the Company's management (the "Management Stockholders") in an aggregate amount equal to 15% of the common stock on a fully diluted basis. Such Management Stockholders have entered into a voting trust agreement in accordance with which the Chairman and Chief Executive Officer of the Company will exercise all voting and substantially all other rights to which such Management Stockholders would otherwise be entitled until August 15, 2005, or the earlier termination of the agreement. The Management Stockholders also entered into a stockholders agreement with the remaining Company stockholders, which provides that the parties will agree to vote all of their shares of the Company's equity securities so that the Board of Directors of the Company consists of five directors, with two directors designated by TCW Asset Management Company, two by the Management Stockholders, with the remaining director being an independent director initially designated by the initial purchaser of the Notes. 11. Savings Plan The American Restaurant Group Savings and Investment Plan (The "Savings Plan") is a 401(k) plan established for the benefit of employees who have satisfied certain requirements. These requirements include completion of one year of service with a minimum of 1,000 hours worked. Subject to applicable limits imposed on tax qualified plans, eligible employees may elect pre-tax contributions up to 18.5% of a participant's total earnings for a calendar year (but not in excess of $9,500 for 1998). The Company makes matching contributions to the Savings Plan equal to 25% of the participant's contributions up to 6% of the participant's earnings. During fiscal 1996, 1997 and 1998, the Company contributed approximately $161,000, $200,000 and $174,000 to the Savings Plan, respectively. At December 1998 there were approximately 900 participants in the plan. 12. Segment Reporting The Company adopted Financial Accounting Standards Number 131 Disclosures about Segments of an Enterprise and Related Information (SFAS 131), as of December 28, 1998. SFAS 131 established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products and services, and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company's reportable operating segments include Black Angus, Grandy's, and the Other Concepts (Spoons, Spectrum, National Sports Grill, and the former Velvet Turtle, none of which individually meet the separate disclosure requirements of SFAS 131). F-17 43 The applicable line items for the Company's reportable segments reconciled to the consolidated financial statements for the years 1996, 1997 and 1998 are as follows (in thousands except for number of restaurants):
December 30, December 29, December 28, 1996 1997 1998 ------------ ------------ ------------ Number of restaurants Black Angus 101 102 101 Grandy's 103 89 85 Other Concepts 43 40 38 --------- --------- --------- Total Consolidated 247 231 224 ========= ========= ========= Revenues (a) Black Angus $ 254,946 $ 264,175 $ 265,536 Grandy's 90,962 78,832 70,799 Other Concepts 99,516 97,032 90,593 --------- --------- --------- Total Consolidated $ 445,424 $ 440,039 $ 426,928 ========= ========= ========= Gross profit (b) Black Angus $ 33,361 $ 36,237 $ 37,832 Grandy's 10,596 10,086 8,322 Other Concepts 8,742 9,467 8,210 --------- --------- --------- Total Consolidated $ 52,699 $ 55,790 $ 54,364 ========= ========= ========= Depreciation and amortization Black Angus $ 9,259 $ 9,143 $ 6,967 Grandy's 4,455 3,085 2,954 Other Concepts 2,856 2,005 2,141 Corporate 3,816 5,394 2,576 --------- --------- --------- Total Consolidated $ 20,386 $ 19,627 $ 14,638 ========= ========= ========= Non-cash charge for impairment of long-lived assets Black Angus $ 13 $ 964 $ 149 Grandy's 9,012 1,468 2 Other Concepts 4,182 615 1,264 Corporate (2) -- -- --------- --------- --------- Total Consolidated $ 13,205 $ 3,047 $ 1,415 ========= ========= ========= Grandy's conversion plan: Non-cash charge for assets to be disposed Black Angus $ -- $ -- $ -- Grandy's -- -- 5,034 Other Concepts -- -- -- --------- --------- --------- Total Consolidated $ -- $ -- $ 5,034 ========= ========= =========
F-18 44
December 30, December 29, December 28, 1996 1997 1998 ------------ ------------ ------------ Interest expense, net Black Angus $ 14,562 $ 12,254 $ 10,992 Grandy's 3,186 1,249 796 Other Concepts 4,505 3,867 4,109 Corporate 5,461 6,615 4,372 -------- -------- -------- Total Consolidated $ 27,714 $ 23,985 $ 20,269 ======== ======== ======== Provision for income taxes Black Angus $ 1,057 $ 2,928 $ 4,976 Grandy's 32 19 15 Other Concepts 381 465 3 Corporate 81 63 67 Eliminations (1,470) (3,412) (4,994) -------- -------- -------- Total Consolidated $ 81 $ 63 $ 67 ======== ======== ======== Extraordinary gain (loss) on extinquishment of debt Black Angus $ -- $ -- $ -- Grandy's -- -- -- Other Concepts -- -- -- Corporate (1,688) -- 9,559 -------- -------- -------- Total Consolidated $ (1,688) $ -- $ 9,559 ======== ======== ======== Net income (loss) without corporate overhead charges to segments (c) Black Angus $ 1,579 $ 4,373 $ 8,123 Grandy's (14,901) (5,473) (6,887) Other Concepts (5,792) (153) (2,008) Corporate (20,817) (22,451) (4,079) Eliminations 1,470 3,412 4,994 -------- -------- -------- Total Consolidated $(38,461) $(20,292) $ 143 ======== ======== ======== Net income (loss) with corporate overhead charges to segments (c) Black Angus $ 7,434 Grandy's (7,166) Other Concepts (3,373) Corporate (1,746) Eliminations 4,994 -------- Total Consolidated $ 143 ========
F-19 45
December 30, December 29, December 28, 1996 1997 1998 ------------ ------------ ------------ Total assets Black Angus $ 96,731 $ 93,094 $ 83,443 Grandy's 43,966 38,446 31,741 Other Concepts 29,645 28,593 27,542 Corporate 19,433 12,937 18,505 Eliminations (17,646) (21,059) (10,772) --------- --------- --------- Total Consolidated $ 172,129 $ 152,011 $ 150,459 ========= ========= ========= Capital Expenditures Black Angus $ 10,022 $ 2,480 $ 7,876 Grandy's 1,485 995 1,413 Other Concepts 1,731 1,138 3,007 Corporate 41 37 20 --------- --------- --------- Total Consolidated $ 13,279 $ 4,650 $ 12,316 ========= ========= =========
(a) Reflects sales and revenues from external customers. Intersegment sales and revenues are not applicable. (b) Gross profit is defined as revenues less food and beverage, payroll and direct operating costs. (c) In 1998, the Company began charging certain corporate overhead general and administrative expenses to the divisions. Because it is not practicable to restate prior years, the Company has presented 1998 net income (loss) without the corporate charges for comparison to prior years. Net income (loss) in 1998 with the inclusion of corporate overhead expenses is not comparable to prior years. F-20 46
Exhibit No. Description ----------- ----------- 2.1 Purchase Agreement dated as of September 11, 1996 by and between ARG Property Management Corporation and ARG Enterprises, Inc. and ARG Properties I, LLC.*** 2.2 Master lease dated September 11, 1996 between ARG Properties I, LLC, as Landlord and ARG Enterprises, Inc. as Tenant.*** 2.3 Lease #06152 dated September 11, 1996 between Captec Net Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for Bloomington, Minnesota.*** 2.4 Lease #06153 dated September 11, 1996 between Captec Net Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for Fridley, Minnesota.*** 2.5 Lease #06154 dated September 11, 1996 between Captec Net Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for Minnetonka, Minnesota.*** 2.6 Lease #06155 dated September 11, 1996 between Captec Net Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for Roseville, Minnesota.*** 2.7 Lease dated September 11, 1996 between Safeway Inc. as Landlord and ARG Enterprises, Inc. as Tenant.*** 2.8 Guaranty of Lease dated September 11, 1996 by ARG Enterprises, Inc. as Tenant to ARG Properties I, LLC as Landlord.*** 2.9 A Guaranty of Lease dated September 11, 1996 by ARG Enterprises, Inc. as Tenant to Captec Net Lease Realty, Inc. as Landlord for each of four Minnesota restaurants.*** 2.10 Guaranty of Lease dated September 11, 1996 by ARG Enterprises, Inc. as Tenant and Safeway Inc. as Landlord.*** 3.1 Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on July 23, 1991.*
47 3.2 Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on March 21, 1992. * 3.3 Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on February 23, 1998. **** 3.4 By-Laws of the Company. * 4.1 Indenture dated as of February 25, 1998 between the Company and U.S. Trust Company of California, N.A., as Trustee (including specimen certificate of 11.5% Senior Secured Note due 2003). **** 4.2 Warrant Agreement dated as of February 25, 1998 between the Company and U.S. Trust Company of California, N.A., as warrant agent (including specimen certificate of Warrant). **** 4.3 Registration Rights Agreement dated as of February 25, 1998 between the Company and Jefferies & Company, Inc. **** 4.4 Securityholders' and Registration Right Agreement dated as of February 25, 1998 between the Company and Jefferies & Company, Inc., as purchaser. **** 4.5 Management Registration Right Agreement dated as of February 28, 1998 between the Company and the Management Stockholders. **** 4.6 Certificate of Designation filed with the Secretary of State of Delaware on February 24, 1998. **** 4.7 Certificate of Correction to the Certificate of Designation filed with the Secretary of State of Delaware on February 25, 1998. **** 4.8 Form of Indenture relating to the 12% Senior Subordinated Debentures to be entered into between the Company and a trustee (including specimen certificate of 12% Senior Subordinated Debenture due 2003). ***** 9.1 Common Stock Voting Trust and Transfer Agreement dated as of February 24, 1998 among the Company and the stockholders parties thereto and Anwar S. Soliman, as voting trustee. **** 9.2 Securityholders Agreement dated as of February 25, 1998 among the Company, American Restaurant Group Holdings, Inc., Jefferies & Company, Inc., TCW Asset Management Company and the Management Stockholders. **** 10.1 Amended and Restated Employment Agreement dated as of December 14, 1993 between the Company and Anwar S. Soliman. ** 10.2 Amended and Restated Employment Agreement dated as of December 14, 1993 between the Company and Ralph S. Roberts. **
48 21.1 Subsidiaries of the Company. ** 27.1 Financial Data Schedule - ------------------- * Incorporated by reference to the Registrant's Registration Statement No. 33-48183 on Form S-4 filed with the Securities and Exchange Commission on May 28, 1992 as amended with Amendment No. 1 filed on September 11, 1992. ** Incorporated by reference to the Registrant's Registration Statement No. 33-74010 on Form S-4 filed with the Securities and Exchange Commission on January 12, 1994. *** Incorporated by reference to the Registrant's Current Report on Form 8-K dated September 13, 1996 filed with the Securities and Exchange Commission on September 30, 1996. **** Incorporated by reference to the Registrant's Annual Report on Form 10-K dated December 29, 1997 filed with the Securities and Exchange Commission on March 30, 1998. ***** Incorporated by reference to the Registrant's Registration Statement No. 333-55861 on Amendment No. 1 to Form S-4 filed with the Securities and Exchange Commission on July 29, 1998.
EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 28, 1998 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS ON FORM 10-K. YEAR DEC-28-1998 DEC-30-1997 DEC-28-1998 8,832,000 0 5,406,000 602,000 5,716,000 22,460,000 216,423,000 125,858,000 150,459,000 62,077,000 0 0 0 1,000 (119,176,000) 150,459,000 426,928,000 426,928,000 135,873,000 236,691,000 14,638,000 (45,000) 20,269,000 (9,349,000) 67,000 (9,416,000) 0 9,559,000 0 143,000 0 0
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