SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended August 3, 1997
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ______________ to ____________________
Commission file number 0-23420
QUALITY DINING, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1804902
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4220 Edison Lakes Parkway, Mishawaka, Indiana 46545
- -----------------------------------------------------
(Address of principal executive offices and zip code)
(219) 271-4600
- ---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (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 ________
The number of shares of the registrant's common stock outstanding as of
September 15, 1997 was 16,909,799.
QUALITY DINING, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED AUGUST 3, 1997
INDEX
Page
PART I. - Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Statements of Operations....................3
Consolidated Balance Sheets..............................4
Consolidated Statements of Cash Flows....................5
Notes to Consolidated Financial Statements...............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........12
Part II - Other Information
Item 1. Legal Proceedings.......................................18
Item 2. Changes in Securities...................................18
Item 3. Defaults upon Senior Securities.........................18
Item 4. Submission of Matters to a Vote of Security Holders.....18
Item 5. Other Information.......................................18
Item 6. Exhibits and Reports on Form 8-K........................19
Signatures........................................................19
Part I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Twelve Weeks Ended Forty Weeks Ended
August 3, August 4, August 3, August 4,
1997 1996 1997 1996
Revenues: -------- -------- -------- --------
Restaurant sales:
Grady's American Grill $ 18,453 $ 22,761 $ 66,821 $ 64,440
Burger King 17,915 17,941 56,225 53,529
Bruegger's Bagel Bakery 18,635 8,638 41,340 14,959
Chili's Grill & Bar 13,253 9,805 47,892 30,891
Italian Dining Division 3,364 1,720 9,481 6,093
-------- ------- ------- -------
Total restaurant sales 71,620 60,865 221,759 169,912
Franchise related revenue 1,712 2,723 9,190 2,723
-------- ------- ------- -------
Total revenues 73,332 63,588 230,949 172,635
Operating expenses:
Restaurant operating expenses:
Food and beverage 21,459 18,543 67,637 52,799
Payroll and benefits 21,787 17,499 67,137 48,149
Depreciation and
amortization 4,505 3,061 13,401 8,121
Other operating expense 18,783 14,253 56,900 38,397
Total restaurant operating ------- ------- ------- -------
expenses 66,534 53,356 205,075 147,466
General and administrative 7,977 3,905 23,473 8,993
Amortization of intangibles 267 817 2,828 1,386
Restructuring and integration
costs - 8,000 - 9,938
Impairment of assets - - 185,000 -
Store closing costs - - 15,513 -
Franchise operating
partner expense - - 2,066 -
------- ------- ------- -------
Total operating expenses 74,778 66,078 433,955 167,783
------- ------- ------- -------
Operating income (loss) (1,446) (2,490) (203,006) 4,852
------- ------- ------- -------
Other income (expense):
Interest expense (3,043) (1,871) (7,578) (4,996)
Gain on sale of property
and equipment 538 - 539 3
Interest income 36 47 158 158
Other income (expense), net (16) 25 101 63
------- ------- ------- -------
Total other expense, net (2,485) (1,799) (6,780) (4,772)
------- ------- ------- -------
Income (loss) before
income taxes (credit) (3,931) (4,289) (209,786) 80
Income taxes (credit) 40 (1,365) (5,703) 230
------- ------- ------- ------
Net loss $ (3,971) $ (2,924) $ (204,083) $ (150)
======= ======= ======= ======
Net loss per share $ (0.23) $ (0.23) $ (12.07) $ (0.01)
======= ======= ======= ======
Weighted average shares
outstanding 16,910 12,825 16,910 10,034
======= ======= ======= =======
See Accompanying Notes to Consolidated Financial Statements
QUALITY DINING, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
August 3, October 27,
1997 1996
---------- ----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 1,625 $ 444
Accounts receivable (less allowance
for bad debts of $673 in 1997) 6,859 4,518
Accounts and note receivable, related parties - 11,651
Notes receivable 1,198 3,585
Refundable income taxes 2,390 -
Inventories 3,383 3,082
Deferred income taxes 7,579 1,996
Other current assets 3,682 3,438
------- -------
Total current assets 26,716 28,714
------- -------
Property and equipment, net 183,045 177,044
------- -------
Other assets:
Franchise fees and development costs, net 10,191 10,406
Goodwill, net 9,260 152,195
Trademarks, net 12,825 13,082
Pre-opening and non-competition agreements, net 2,029 2,463
Liquor licenses, net 3,272 2,876
Other 1,110 1,234
------- -------
Total other assets 38,687 182,256
------- -------
Total assets $ 248,448 $ 388,014
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 141,106 $ -
Current portion of capitalized lease and
non-competition obligations 532 451
Accounts payable 7,490 8,531
Accrued liabilities 22,614 21,119
------- -------
Total current liabilities 171,742 30,101
Long-term debt - 78,610
Capitalized lease and non-competition
obligations, principally to related parties,
less current portion 6,553 6,436
Deferred income taxes 5,112 3,744
------- -------
Total liabilities 183,407 118,891
------- -------
Stockholders' equity:
Preferred stock, without par value:
5,000,000 shares authorized; none issued
Common stock, without par value: 50,000,000
shares authorized; 16,929,799 and 16,929,035
shares issued, respectively 28 28
Additional paid-in capital 258,243 258,242
Retained earnings (deficit) (192,980) 11,103
------- -------
65,291 269,373
Less treasury stock, at cost, 20,000 shares 250 250
------- -------
Total stockholders' equity 65,041 269,123
------- -------
Total liabilities and stockholders' equity $ 248,448 $ 388,014
======= =======
See Accompanying Notes to Consolidated Financial Statements.
QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Forty Weeks Ended
August 3, August 4,
1997 1996
-------- --------
Cash flows from operating activities:
Net loss $(204,083) $ (150)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization of
property and equipment 12,291 6,820
Amortization of other assets 6,034 3,163
Impairment of assets 185,000 -
Store closing costs 15,513 -
Deferred income taxes (4,215) -
Refundable income taxes (2,390) -
Gain on sale of property and equipment (539) (3)
Changes in assets and liabilities, net of
consolidation of controlled affiliate:
Net increase in current assets (2,428) (2,934)
Net increase (decrease) in
current liabilities (10,368) 8,787
Other assets (29) 46
------- -------
Net cash provided by (used in)
operating activities (5,214) 15,729
------- -------
Cash flows from investing activities:
Acquisition of business, net of cash acquired - (73,568)
Advances to affiliates (23,927) (3,770)
Proceeds from sale of property and equipment 1,905 3
Purchase of property and equipment (30,772) (30,177)
Payment of other assets (3,110) (3,544)
------- -------
Net cash used in investing activities (55,904) (111,056)
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options 1 482
Proceeds from the issuance of common stock - 59,749
Borrowings of long-term debt 62,500 113,479
Repayment of long-term debt (4) (76,135)
Repayment of capitalized lease
and non-competition obligations (198) (163)
Redemption of preferred stock - (1,665)
Payment of redeemable preferred stock
subscription payable - (250)
Other - (6)
------- -------
Net cash provided by financing activities 62,299 95,491
------- -------
Net increase in cash and cash equivalents 1,181 164
Cash and cash equivalents, beginning of period 444 5,639
------- -------
Cash and cash equivalents, end of period $ 1,625 $ 5,803
======= =======
See Accompanying Notes to Consolidated Financial Statements.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 3, 1997
(Unaudited)
Note 1: Description of Business.
Quality Dining, Inc. and its subsidiaries (the "Company") develop and operate
both quick service and full service restaurants throughout the United States.
The Company owns, operates and franchises Bruegger's Bagel Bakeries. As of
August 3, 1997, there were 476 retail bagel bakeries, of which 317 were
operated by independent franchisees, 48 were operated by a controlled affiliate
(Bagel Acquisition Corporation) and 111 were Company-owned and operated. As of
August 3, 1997 the Company owned and operated 40 Grady's American Grill
restaurants, five Spageddies Italian Kitchen restaurants and three Papa Vino's
Italian Kitchen restaurants. The Company also operated, as a franchisee, 66
Burger King restaurants and 27 Chili's Grill & Bar restaurants.
Note 2: Basis of Presentation.
The accompanying condensed consolidated financial statements include the
accounts of Quality Dining, Inc. and its wholly-owned subsidiaries. As of May
11, 1997, the Company began consolidating its controlled affiliate, Bagel
Acquisition Corporation, into its consolidated financial statements (see note
9). All significant intercompany balances and transactions have been
eliminated.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X promulgated by the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for annual
financial statement reporting purposes. In the opinion of management, all
adjustments, consisting only of normal recurring accruals, considered necessary
for a fair presentation have been included. Operating results for the twelve-
week period and the forty-week period ended August 3, 1997 are not necessarily
indicative of the results that may be expected for the 52-week year ending
October 26, 1997.
These financial statements should be read in conjunction with the Company's
audited financial statements for the fiscal year ended October 27, 1996
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
Note 3: Disposition
On September 3, 1997, the Company's Board of Directors approved definitive
purchase agreements for the divestiture of the Company's bagel-related
businesses to Mr. Nordahl L. Brue, Mr. Michael J. Dressell and an entity
controlled by them and their affiliates. The sale includes the stock of
Bruegger's Corporation and the stock of all of the other bagel-related
businesses. Terms of the transaction include the repayment by Bruegger's
Corporation of $16.0 million of debt to the Company, less certain reductions
estimated to be approximately $10.5 million at closing. These reductions
relate to transaction expenses and liabilities to be retained by the Company.
Other consideration includes the issuance by Bruegger's Corporation of a
junior subordinated note in the amount of $10.0 million to the Company,
$4.0 million in cash and the transfer of the 4,310,740 shares of the
Company's common stock owned by Messrs. Brue and
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
August 3, 1997
(Unaudited)
Dressell, which will be retired. The subordinated note will have an annual
interest rate of 12% and will mature in seven years. Interest will be accrued
and added to the principal amount of the note for the first three years and
will be paid in cash for the remaining life of the note.
Following completion of the transactions, Messrs. Brue and Dressell and Mr.
David T. Austin will resign from the Company's Board of Directors. The
transaction is subject to certain closing conditions and is anticipated to
occur during the Company's fourth fiscal quarter which concludes on October
26, 1997.
During the second quarter of fiscal 1997 the Company incurred a non-cash
charge to pre-tax earnings of $185 million for impairment of bagel-related
assets and charges of $17.6 million for expenses related to the divestiture
(see Note 4). The Company does not anticipate any further charge related to
the divestiture.
Note 4: Impairment of Long-Lived Assets
On May 10, 1997, the Company's Board of Directors committed the Company to a
plan of action to divest the Bruegger's bagel-related businesses. During the
second quarter of fiscal 1997 the Company recorded a non-cash impairment charge
of $185.0 million and a store closing charge of $15.5 million as a result of
this decision. The non-cash impairment charge represents a reduction of the
carrying amounts of bagel-related assets to their estimated fair values. The
impairment charge includes non-cash charges for the write-off of goodwill and
the write-down of notes receivable and property and equipment. During the
second quarter of fiscal 1997 the Company received non-binding offers to
purchase its bagel-related assets and used these offers, less estimated costs
to sell, to determine the current fair value of the bagel-related assets. The
Company currently has definitive purchase agreements for the divestiture of
its bagel-related businesses (see Note 3) and does not anticipate any further
charge related to the divestiture.
The store closing charge represents the estimated costs associated with
closing under-performing Bruegger's units and other Bruegger's units which
were at various stages of development when the decision was made to divest the
Bruegger's bagel-related businesses. The charge includes amounts for
terminating leases, the write-off of fixed assets and pre-opening costs,
restaurant management severance costs and other store closing costs. During
the third quarter of fiscal 1997 the Company closed a total of 22 Bruegger's
units in eight markets. As of August 3, 1997, $10.4 million in costs related to
these activities had been incurred, of which $1.7 million were cash payments
and $8.7 million were non-cash charges, primarily for the write-down of fixed
assets. The Company believes that the remaining reserve is adequate to cover
all future expenses relating to the closed stores.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
August 3, 1997
(Unaudited)
Note 5: Restructuring and Integration Costs.
In connection with the Company's acquisition of Bruegger's Corporation on June
7, 1996, the Company recorded a special pre-tax charge of $8.0 million during
the third quarter of fiscal 1996 for combining and integrating administrative
functions, recruiting and relocating new employees, franchise-related costs,
and legal and professional fees. This charge was in addition to the $6.0
million recorded as part of the cost of the acquisition for facility closures,
restaurant remodeling, and relocation and severance packages for Bruegger's
personnel. As of the third quarter of fiscal 1997, all costs related to these
activities had been incurred.
In conjunction with the acquisitions of the Grady's American Grill restaurants
on December 21, 1995 and the rights to the Spageddies restaurant concept in the
United States, which was finalized on October 28, 1995, the Company recorded a
special pre-tax charge of $1.9 million during the sixteen-week period ended
February 18, 1996. The charge reflected the estimated costs for integration of
computer systems, employee transition costs, recruitment and relocation costs,
and legal and professional fees. As of the end of fiscal 1996, substantially
all costs related to these activities had been incurred.
Note 6: Commitments.
As of August 3, 1997, the Company had commitments aggregating approximately
$1.3 million for the construction of new restaurants.
Note 7: Long-Term Debt.
On January 22, 1997, the Company amended its revolving credit agreement with
Texas Commerce Bank, as agent for a group of seven banks, providing for
borrowings of up to $150 million with interest payable monthly at the adjusted
LIBOR rate plus a contractual spread. The revolving credit agreement expires
on April 26, 1999 and is unsecured. As of August 3, 1997, there was $141.1
million outstanding under this revolving credit facility.
The revolving credit agreement contains, among other provisions, certain
restrictive covenants including maintenance of certain prescribed debt and
fixed charge coverage ratios, minimum levels of tangible net worth, limitations
on the incurrence of additional indebtedness and annual limitations on the
payment of dividends (other than stock dividends), or the purchase or
redemption of, shares of the Company's capital stock. At the conclusion of the
third quarter of fiscal 1997, the Company completed a waiver and amendment with
the bank group for non-compliance of the following financial covenants
contained in the revolving credit agreement: minimum tangible net worth, ratio
of funded debt to total capitalization, fixed charge coverage ratio and ratio
of funded debt to consolidated cash flow. In addition, the bank group waived
non-compliance with one non-financial covenant. The waiver and amendment also
included the following: a change in the pricing structure of the facility, a
requirement that 100% of the net proceeds from the bagel-related disposition
be applied to debt reduction and a decrease in the total commitment to $145.0
million upon consummation of the sale of bagel-related assets.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Concluded
August 3, 1997
(Unaudited)
In accordance with Issue No. 86-30 of the FASB Emerging Issues Task Force
("ETIF"), the Company has classified the entire amount outstanding under its
revolving credit facility at August 3, 1997 as current debt. Issue No. 86-30
requires the debt to be classified as current because it is possible that the
Company will not meet the financial covenants under it's existing revolving
credit agreement at year end, October 26, 1997, unless the bank credit agreement
is further amended. The Company is currently in negotiations with the bank
group to amend the financial covenants through the maturity of the loan,
April 26, 1999, and to allow for the sale of the bagel-related businesses.
The Company believes that the necessary amendment to the revolving credit
facility will be completed with the bank group prior to October 26, 1997.
However, there can be no assurance that the Company and the bank group will
be able to reach final agreement on the proposed amendment.
Note 8: Contingencies.
On November 10, 1994, the Company acquired all of the outstanding stock of
Grayling Corporation, Grayling Management Corporation, Chili's of Mt. Laurel,
Inc. ("Mt. Laurel"), and Chili's of Christiana, Inc. ("Christiana"). Prior to
entering into negotiations with the Company, Grayling Corporation and its
principal shareholder, T. Garrick Steele ("Steele"), had entered into an
agreement (the "Asset Agreement") to sell substantially all of Grayling
Corporation's assets to a third party, KK&G Enterprises, Inc. ("KK&G"). The
Asset Agreement was terminated by Grayling Corporation and was not
consummated. On September 27, 1994, KK&G filed suit in the Court of Common
Pleas, Philadelphia County, Pennsylvania, against Grayling Corporation, Mt.
Laurel, Christiana and Steele seeking damages and specific performance of the
Asset Agreement. Steele is obligated to continue to defend the lawsuit and
indemnify the Company and Grayling Corporation against any loss or damages
resulting from the lawsuit. Management does not expect that the lawsuit will
have a material adverse effect on the Company's financial position or results
of operations. In making such assessment, management considered the financial
ability of Steele to defend the lawsuit and indemnify the Company against any
loss or damages resulting from the lawsuit.
BruWest, L.L.C., a franchisee of Bruegger's Franchise Corporation, and Timothy
Johnson, Gregory LeMond, Michael Snow and Matthew Starr, principals of BruWest
(collectively "BruWest") commenced an action on January 30, 1997 against
Bruegger's Franchise Corporation, Quality Dining, Inc., Daniel B. Fitzpatrick
(the "Bruegger's Defendants") and an investment banking firm retained by
BruWest alleging inter alia that the Bruegger's Defendants breached
commitments to provide financing to BruWest, interfered with the Plaintiffs'
efforts to obtain financing from third parties, violated existing franchise
and development agreements between BruWest and Bruegger's Franchise
Corporation, violated certain provisions of the Minnesota Franchise Act and
breached duties and implied covenants of good faith and fair dealing. The
Bruegger's Defendants denied all allegations in the Complaint. Without
admitting any liability or obligation to do so, on March 11, 1997, Bruegger's
Corporation loaned $1.2 million to the Plaintiffs. The loan is secured by
certain assets of the Plaintiffs and personal guarantees of Mssrs. LeMond and
Snow. The loan provides for monthly interest payments commencing April 11,
1997 at the rate of nine (9%) percent per annum and matured on September 11,
1997. On March 14, 1997, the complaint was dismissed, without prejudice. On
May 22, 1997, BruWest refiled the complaint with additional allegations
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Concluded
August 3, 1997
(Unaudited)
challenging the enforceability of the loan documents and personal guarantees.
BruWest has ceased payment of royalties as required under its franchise
agreements and did not repay the loan at maturity. 1997. On March 14, 1997,
the complaint was dismissed, without prejudice. On May 22, 1997, BruWest
refiled the complaint with additional allegations challenging the
enforceability of the loan documents and personal guarantees. BruWest has
ceased payment of royalties as required under its franchise agreements and did
not repay the loan at maturity.
Quality Baking, LLC, a franchisee of Bruegger's Franchise Corporation, and
Mark Ratterman, Chris Galloway and Peter Shipman, principals of Quality
Baking, LLC, commenced an action on July 9, 1997 against Bruegger's
Corporation, Bruegger's Franchise Corporation, Nordahl Brue, Michael Dressell,
Daniel B. Fitzpatrick and John Firth alleging that the plaintiffs purchased
their franchises based upon financial representations that have not
materialized, that they purchased preferred stock in Bruegger's Corporation
based upon false representations, that the defendants falsely represented
their intentions with respect to repurchasing bakeries from the plaintiffs,
and that the defendants violated implied covenants of good faith and fair
dealing. Quality Baking, LLC has ceased payment of royalties as required
under its franchise agreements for its four (4) bakeries.
D & K Foods, Inc., Pacific Capital Ventures, Inc., and PLB Enterprises, Inc.,
franchisees of Bruegger's Franchise Corporation, and Ken Wagnon, Dan Carney,
Jay Wagnon and Patrick Beatty, principals of the foregoing franchisees,
commenced an action on July 16, 1997 against Bruegger's Corporation,
Bruegger's Franchise Corporation, Quality Dining, Inc., Daniel B. Fitzpatrick,
Michael J. Dressell and Nordahl L. Brue alleging that the plaintiffs purchased
their franchises based upon financial representations that have not
materialized, that they purchased preferred stock in Bruegger's Corporation
based upon false representations, that Bruegger's Corporation falsely
represented its intentions with respect to purchasing bakeries from the
plaintiffs or providing financing to the plaintiffs, and that the defendants
violated implied covenants of good faith and fair dealing. PLB Enterprises,
Inc. has ceased payment of royalties as required under its franchise
agreements for its two (2) bakeries.
Rigel Corporation, a franchisee of Bruegger's Corporation has commenced an
action on July 16, 1997 against Quality Dining, Inc. and Bruegger's
Corporation alleging that the defendants have breached franchise and
development agreements and violated the Sherman Act.
All of the above franchise related litigation is in preliminary stages and
discovery has not commenced. Based upon the currently available information,
the Company does not believe that these cases individually or in the aggregate
will have a material adverse affect on the Company's financial condition.
The Company is involved in various other legal proceedings incidental to the
conduct of its business. Management does not expect that any such other
proceedings will have a material adverse effect on the Company's financial
condition or results of operations.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Concluded
August 3, 1997
(Unaudited)
Note 9: Related Party Transactions
During the forty weeks ended August 3, 1997, the Company loaned $28.1 million
to a related company ("Bagel Acquisition Corporation") owned by a director and
officer of the Company, which used the funds to acquire a number of Bruegger's
Bagel Bakeries from independent franchisees and for working capital purposes.
Bagel Acquisition Corporation was formed for the sole purpose of facilitating
the acquisition of bakeries and markets on behalf of the Company for inclusion
in the Company's proposed Franchise Operating Partner Program. The Company had
loaned Bagel Acquisition Corporation an aggregate of $38.0 million as of August
3, 1997. The $38.0 million promissory note bears interest at 11% and is
collateralized by substantially all assets of Bagel Acquisition Corporation. On
May 10, 1997, the Company's Board of Directors decided to divest the Bruegger's
bagel-related businesses and therefore has canceled the Franchise Operating
Partner Program. In connection with this decision, the Company began
consolidating the assets and liabilities of Bagel Acquisition Corporation as of
May 11, 1997 and Bagel Acquisition Corporation became a wholly-owned subsidiary
on August 21, 1997, when the Company exercised its option to acquire the stock
of Bagel Acquisition Corporation for $1,000. The note receivable from Bagel
Acquisition Corporation has been eliminated as part of the consolidation.
Since Bagel Acquisition Corporation was consolidated as of May 11, 1997, its
results of operations have only been included in the Company's Statements of
Operations for the twelve week period from May 11, 1997 to August 3, 1997.
Note 10: Franchise Operating Partner Program
During the second quarter of fiscal 1997 the Company recorded a $2.1 million
charge for expenses relating to the Franchise Operating Partner Program.
These costs were primarily related to the professional services of financial
advisors involved in negotiating with potential equity investors for the
Franchise Operating Partner Program. The Franchise Operating Partner Program
has been canceled due to the Company's decision to divest Bruegger's
Corporation.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company has a 52/53-week fiscal year ending on the last Sunday in October
of each year. The first quarter of the Company's fiscal year consists of 16
weeks with all subsequent quarters being 12 weeks in duration. The current
fiscal year ends October 26, 1997.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages
which certain items of revenue and expense bear to total revenues, except where
otherwise noted.
Twelve Weeks Ended Forty Weeks Ended
August 3, August 4, August 3, August 4,
1997 1996 1997 1996
-------- -------- -------- --------
Revenues:
Restaurant sales 97.7% 95.7% 96.0% 98.4%
Franchise related revenue 2.3 4.3 4.0 1.6
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
Operating expenses:
Restaurant operating expenses (as % of restaurant sales)
Food and beverage 30.0 30.5 30.5 31.1
Payroll and benefits 30.4 28.8 30.3 28.3
Depreciation and amortization 6.3 5.0 6.0 4.8
Other operating expenses 26.2 23.4 25.7 22.6
----- ----- ----- -----
Total restaurant
operating expenses 92.9 87.7 92.5 86.8
General and administrative 10.9 6.1 10.2 5.2
Amortization of intangibles 0.4 1.3 1.2 .8
Restructuring and
integration costs - 12.6 - 5.8
Impairment of assets - - 80.1 -
Store closing costs - - 6.7 -
Franchise operating
partner expense - - 0.9 -
----- ----- ----- -----
Total operating expenses 102.0 103.9 187.9 97.2
Operating income (loss) (2.0) (3.9) (87.9) 2.8
----- ----- ----- -----
Other income (expense):
Interest expense (4.1) (2.9) (3.3) (2.9)
Interest income - .1 .1 .1
Gain on sale of property
and equipment .7 - .2 -
Other income (expense), net - - .1 -
----- ----- ----- -----
Total other expense, net (3.4) (2.8) (2.9) (2.8)
----- ----- ----- -----
Income (loss) before income
taxes (credit) (5.4) (6.7) (90.8) -
Income taxes (credit) - (2.1) (2.5) .1
----- ----- ----- -----
Net loss (5.4)% (4.6)% (88.3)% (.1)%
===== ===== ===== =====
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Restaurant sales for the third quarter of fiscal 1997 were $71.6 million, an
increase of 17.7% over restaurant sales of $60.9 million for the comparable
period in fiscal 1996. The increase was primarily attributable to the
consolidation of Bagel Acquisition Corporation and sales generated by Company
restaurants operating in the third quarter of fiscal 1997 that were not
operating during the third quarter of fiscal 1996. The Company operated 300
restaurants at the end of the third quarter of fiscal 1997 compared to 211 at
the end of the third quarter of fiscal 1996. The increase was partially offset
by a decrease in sales at the Company's Grady's American Grill restaurants.
Total revenues for the Company were $73.3 million for the third quarter of
fiscal 1997, an increase of 15.3% over the comparable period in fiscal 1996.
Total revenues for the Company includes restaurant sales and franchise-related
revenues from Bruegger's Corporation. Franchise-related revenues include
royalties on franchised restaurant sales, franchise and development fees,
interest income and other miscellaneous fees from franchised operations.
Franchise-related revenue decreased from $2.7 million in fiscal 1996 to $1.7
million in fiscal 1997 mainly due to lower franchise and development fees.
Restaurant sales for the first forty weeks of fiscal 1997 were $221.8 million,
an increase of 30.5% over restaurant sales for the comparable period in fiscal
1996. The increase was primarily attributable to the acquisitions of Grady's
American Grill restaurants and Bruegger's Corporation and sales generated by
other Company restaurants operating in the first forty weeks of fiscal 1997
that were not operating during the same period of fiscal 1996.
Total revenues for the Company were $230.9 million for the first forty weeks
of fiscal 1997, an increase of 33.8% over the comparable period in fiscal
1996.
As a percentage of restaurant sales, total restaurant operating expenses
increased to 92.9% for the third quarter of fiscal 1997 from 87.7% in the
third quarter of fiscal 1996. Contributing to this increase were higher
payroll and benefits expense, higher depreciation and amortization expense and
higher other operating expenses. These increases are primarily due to the
following factors. First, sales at the Company's Bruegger's Bagel
Bakery and Grady's American Grill units have been lower than expected,
producing higher costs as a percentage of sales than at the Company's other
concepts. Second, payroll expenses increased as a percentage of sales as a
result of the minimum wage increase, the continued competition for qualified
restaurant employees and the labor inefficiencies typically associated with
new unit development as well as higher payroll levels at the Company's Grady's
American Grill and Bruegger's units. In addition, pre-opening expenses as a
percentage of sales were substantially higher due to significant new unit
openings.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
As a percentage of restaurant sales, total restaurant operating expenses
increased to 92.5% in the first forty weeks of fiscal 1997 from 86.8% in the
same period of fiscal 1996. Contributing to this increase were higher payroll
and benefits expense, higher depreciation and amortization expense and higher
other operating expenses as discussed above.
General and administrative expenses, as a percentage of total revenues, were
10.9% in the third quarter of fiscal 1997 versus 6.1% in the comparable period
of fiscal 1996 and 10.2% for the first forty weeks of fiscal 1997 versus 5.2%
in the comparable period of fiscal 1996. The increases in fiscal 1997 are
primarily due to costs associated with the development of corporate
infrastructure designed to support the anticipated aggressive development of
the Bruegger's brand. General and administrative costs also increased due to
significant professional services associated with the ongoing efforts by the
Company to divest itself of its Bagel-related businesses.
In connection with the decision to discontinue Bruegger's development and
divest the Company's bagel-related businesses, a staff reduction plan was
implemented during the second quarter of fiscal 1997. A significant number of
positions were eliminated by this action. The Company does not expect to make
additional reductions prior to the divestiture of the bagel-related
businesses, but does anticipate significant further reductions following the
intended divestiture.
During the second quarter of fiscal 1997, the Company recorded a $15.5 million
charge for closing under-performing Bruegger's units and other Bruegger's
units which were at various stages of development when the decision was made
to divest the Bruegger's bagel-related businesses. The charge includes amounts
for terminating leases, write-offs of fixed assets and pre-opening costs,
restaurant management severance costs and other store closing costs. As of
August 3, 1997, the Company has closed a total of 22 Bruegger's restaurants in
eight markets. As of August 3, 1997, $10.4 million in costs related to these
activities had been incurred, of which $1.7 million were cash payments and $8.7
million were non-cash charges, primarily for the write-down of fixed assets.
The Company believes that the remaining reserve is adequate to cover all future
expenses relating to the closed stores.
During the second quarter of fiscal 1997, the Company recorded a $2.1 million
charge for expenses related to the Franchise Operating Partner Program. These
costs were primarily related to the professional services of financial
advisors involved in negotiating with potential equity investors for the
Franchise Operating Partner Program. The Franchise Operating Partner Program
has been canceled due to the Company's decision to divest Bruegger's
Corporation.
Amortization of intangibles, as a percentage of total revenues, decreased to
.4% for the third quarter of fiscal 1997 compared to 1.3% for the same period
in fiscal 1996. The decrease for the quarter was primarily due to the write-
off of Bruegger's-related goodwill in connection with the Bruegger's asset
impairment charge taken during the second quarter of fiscal 1997.
Amortization of intangibles, as a percentage of total revenues, increased to
1.2% for the first forty weeks of fiscal 1997 compared to .8% for the same
period in fiscal 1996. The increase was primarily due to the amortization of
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
intangible assets relating to the acquisitions of Bruegger's Corporation and
Grady's American Grill.
During the second quarter of fiscal 1997 the Company recorded a non-cash
impairment charge of $185.0 million as a result of the decision to divest its
bagel-related businesses. The non-cash impairment charge represents a reduction
of the carrying amounts of bagel-related assets to their estimated fair value.
The impairment charge includes non-cash charges for the write-off of goodwill
and the write-down of notes receivable and property and equipment. The Company
had received non-binding offers to purchase its bagel-related assets and used
these offers, less estimated costs to sell, to calculate the current fair value
of the bagel-related assets. The Company does not anticipate further charges
related to the divestiture.
During the first quarter of fiscal 1996, the Company recorded a special pre-
tax charge of $1.9 million for restructuring and integration costs related to
the acquisitions of Grady's American Grill restaurants and Spageddies Italian
Kitchen.
Total other expenses, as a percentage of total revenues, increased to 3.4% for
the third quarter of fiscal 1997 and to 2.9% for the first forty weeks of
fiscal 1997. The increases are mainly due to increased interest expense due to
increased borrowings under the Company's revolving credit agreement.
The effective income tax rates for the twelve and forty weeks ended August 3,
1997 were 1.0% and 2.7%, respectively. The low effective rate in the third
quarter of fiscal 1997 was due to the operating losses experienced resulting
in no federal income tax provision and a small state income tax provision. For
the forty weeks ended August 3, 1997 The low income tax benefit rate is a
result of a significant portion of the $185.0 million non-cash charge for
asset impairment being non-deductible for tax purposes. A benefit for income
taxes was recognized for the amount of the charge giving rise to a net
operating loss carryback and the amount of the deferred income tax assets
which can be justified by taxes paid in prior years. A valuation allowance
was established for the remaining deferred tax assets.
For the third quarter of fiscal 1997, the Company reported a net loss of $4.0
million compared to a net loss of $2.9 million for the third quarter of fiscal
1996.
For the first forty weeks of fiscal 1997, the Company reported a net loss of
$204.1 million compared to net loss of $0.2 million for the same period in
fiscal 1996.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128") was issued by the Financial Accounting
Standards Board. The Company is required to initially adopt this
pronouncement during its fiscal 1998 first quarter ending February 15, 1998.
SFAS No. 128 will require the Company to make a dual presentation of basic and
fully diluted earnings per share on the face of its consolidated statements of
operations. The Company does not presently anticipate that SFAS No. 128 will
have a significant impact on the Company's historically reported earnings per
share.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $1.6 million at August 3, 1997,
an increase of $1.2 million from the $0.4 million at October 27, 1996. The
principal source of funds was the net proceeds from the Company's revolving
credit facility ($62.5 million). The primary uses of funds consisted of: (i)
expenditures associated with new restaurant development ($30.8 million), (ii)
net increase in notes receivable ($23.9 million) and (iii) funds used by
operations ($5.2 million).
The Company's primary cash requirements for the remainder of fiscal 1997 will
be to provide for general working capital purposes since it does not plan to
open any more restaurants during the fourth quarter of fiscal 1997. On
August 25, 1997 the Company opened a Chili's Grill & Bar in the Philadelphia
area. The Company's growth plan for fiscal 1998 includes the opening of two
to three Chili's Grill & Bar restaurants and two to three Burger King
restaurants. The Company expects fiscal 1998 capital expenditures for new
restaurants, remodeling of existing restaurants and maintenance expenditures
to be $5.0 to $7.0 million dollars. The Company's future development plan is
contingent upon several factors, including the level of cash flow from its
operations, the successful amendment of its revolving credit agreement and
general economic factors, including the level of interest rates.
On January 22, 1997, the Company amended its existing revolving credit
facility with Texas Commerce Bank, as agent for a group of seven banks. The
facility, as amended, provides for borrowings up to a maximum of $150 million,
with interest payable at the adjusted LIBOR rate plus a contractual spread.
The loan agreement expires on April 26, 1999 and is unsecured. As of August
3, 1997, there was $141.1 million outstanding under this revolving credit
facility. The entire amount outstanding at August 3, 1997 was classified as
current debt in accordance with Issue No. 86-30 of the FASB Emerging Issues
Task Force as discussed below.
The revolving credit agreement contains, among other provisions, certain
restrictive covenants including maintenance of certain prescribed debt and
fixed charge coverage ratios, minimum levels of tangible net worth, limitations
on the incurrence of additional indebtedness and annual limitations on the
payment of dividends (other than stock dividends) on, or the purchase or
redemption of, any shares of the Company's capital stock. At the conclusion of
the third quarter of fiscal 1997, the Company completed a waiver and amendment
with the bank group for non-compliance of the following financial covenants
contained in the revolving credit agreement: minimum tangible net worth, ratio
of funded debt to total capitalization, fixed charge coverage ratio and ratio
of funded debt to consolidated cash flow. In addition, the bank group waived
non-compliance with one non-financial covenant. The waiver and amendment also
included the following: a change in the pricing structure of the facility, a
requirement that 100% of the net proceeds from the bagel-related disposition
be applied to debt reduction and a decrease in the total commitment to $145.0
million upon consummation of the sale of bagel-related assets. In order to
avoid future non-compliance with the covenants contained in the agreement,
the Company will seek an amendment to the revolving credit agreement to
revise certain covenants and terms and conditions. There can be no assurance
that the Company will be able to amend the existing agreement under terms
acceptable to it and the bank group.
The entire $141.1 million outstanding under its revolving credit facility was
classified as current debt as of August 3, 1997. Issue No. 86-30 of the FASB
Emerging Issues Task Force requires the debt to be classified as current
because it is possible that the Company will not meet the financial covenants
under it's existing revolving credit agreement at year end, October 26, 1997,
unless the bank credit agreement is further amended. The Company is currently
in negotiations with the bank group to amend the financial covenants through
the maturity of the loan, April 26, 1999, and to allow the sale of the
bagel-related businesses. The Company believes that the necessary amendment
to the revolving credit facility will be completed with the bank group prior
to October 26, 1997. However, there can be no assurance that the Company and
the bank group will be able to reach final agreement on the proposed amendment.
Except for the historical information contained herein, the matters discussed
in this document are forward looking statements that involve a number of
risks and uncertainties. Among the factors that could cause actual results to
differ materially are the following: the timing of and the amount realized from
the divestiture of the bagel-related businesses, the availability and cost of
the necessary capital to enable the Company to meet its obligations and to
develop additional units, the availability and cost of suitable locations for
new restaurants, the hiring, training and retention of skilled management and
other restaurant personnel, the ability to obtain the necessary government
approvals and third party consents, changes in governmental regulations,
including an increase in the minimum wage, and other risk factors listed from
time to time in the Company's filings with the Securities and Exchange
Commission.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Note 8 to the unaudited consolidated financial statements of the Company
included in Part I of this report is incorporated herein by reference.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On September 3, 1997 Nordahl L. Brue and Michael J. Dressell (collectively,
the "Holders") entered into a Share Exchange Agreement (the "Exchange
Agreement") with the Company and Bruegger's Corporation, a wholly owned
subsidiary of the Company, pursuant to which, upon the terms and subject to
the conditions set forth in the Exchange Agreement, the Holders will exchange
(the "Exchange") an aggregate of 4,310,740 shares of Common Stock of the
Company owned by them for all of the issued and outstanding shares of capital
stock of Bruegger's Corporation and, in connection therewith, the Holders have
agreed that at the closing of the Exchange, Bruegger's Corporation will repay
an aggregate of $16,000,000 of inter-company indebtedness owned by Bruegger's
Corporation to the Company and Bruegger's Corporation will issue to the
Company a subordinated promissory note in the original principal amount of
$10,000,000 which will bear interest at the rate of 12% per annum and will
mature and be payable on the seventh anniversary of the closing of the
Exchange. In addition, LETHE LLC, a Delaware limited liability company
established by the Holders and certain of their affiliates ("Lethe"), has
entered into an Agreement and Plan of Merger, dated as of September 3, 1997
(the "Subsidiaries Merger Agreement") with the Company and Bagel Disposition
Corporation, a newly formed wholly owned subsidiary of the Company ("BDC")
pursuant to which, concurrently with the closing of the Exchange, BDC will be
merged with and into Lethe (the "Merger"). Pursuant to the Subsidiaries
Merger Agreement, prior to the Merger, Best Bagels, Inc., Bagel Acquisition
Corporation, Mohold Franchise Corporation and Mohold, Inc., each a wholly
owned subsidiary of the Company engaged in the bagel business, will be merged
with and into BDC so that, pursuant to the Merger, Lethe will acquire and
succeed to the respective business of each of such companies. In
consideration of the Merger, Lethe will pay to the Company an aggregate of
$4,000,000 in cash.
Pursuant to the Exchange Agreement and the Subsidiaries Merger Agreement
(the "Agreements") the parties have made various representations and
warranties and have agreed to provide certain indemnifications to the other
party or parties thereto. In addition, at the closing of the transactions
contemplated by the Agreements, Messrs. Brue and Dressell and David T. Austin
will resign from the Board of Directors of the Company.
PART II - OTHER INFORMATION (continued)
Consummation of the transaction contemplated by the Agreements is subject to
the prior satisfaction of certain conditions including, among others, (a)
expiration of any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 as amended, (b) approval of the transaction
contemplated by the Agreements by the lenders under the Company's revolving
credit agreement and (c) receipt by the Holders and Lethe of financing
pursuant to a certain commitment letter issued by BankBoston, N.A.
On August 20, 1997 William W. Moreton resigned from the Board of Directors. He
will continue in his capacity as Executive Vice President, Treasurer and Chief
Financial Officer.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
A list of exhibits required to be filed as part of this report is set
forth in the Index to Exhibits, which immediately precedes such exhibits,
and is incorporated herein by reference.
(b) Reports on Form 8-K
None
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Quality Dining, Inc.
(Registrant)
Date: September 16, 1997 By: /s/ William W. Moreton
Executive Vice President,
Treasurer and Chief Financial
Officer
INDEX TO EXHIBITS
Exhibit
No. Description
10-AN* (1) Share Exchange Agreement, by and among Quality Dining, Inc.,
Bruegger's Corporation, Nordahl L. Brue and Michael J.
Dressell, dated as of September 3, 1997.
10-AO* (2) Agreement and Plan of Merger, by and among Quality Dining,
Inc., Bagel Disposition Corporation and LETHE LLC, dated as
of September 3, 1997.
10-AP Waiver and amendment, dated as of September 11, 1997, between
the Registrant, GAGHC, Inc., and BF Holding, Inc., as
borrowers, and Texas Commerce Bank National Association, as
agent, NBD Bank, N.A., LaSalle National Bank, NationsBank,
N.A. (South), SunTrust Bank, Central Florida, N.A.,
The Northern Trust Company and Key Bank.
27 Financial Data Schedule
(1) The copy of this Exhibit filed as exhibit number 1 to Amendment No. 5 of
Schedule 13D filed by Nordahl L. Brue, Michael J. Dressell, Steven P.
Schonberg and David T. Austin, dated September 4, 1997, is incorporated
herein by refenence.
(2) The copy of this Exhibit filed as exhibit number 2 to Amendment No. 5 of
Schedule 13D filed by Nordahl L. Brue, Michael J. Dressell, Steven P.
Schonberg and David T. Austin, dated September 4, 1997, is incorporated
herein by reference.
* Schedules to exhibits 10-AN and 10-AO have been omitted but will be provided
to the Securities and Exchange Commission upon request.
Exhibit 10 AP
WAIVER AND AMENDMENT
Dated as of September 16, 1997
Reference is hereby made to the Amended and Restated Revolving Credit
Agreement dated as of April 26, 1996 by and between Quality Dining, Inc. and
GAGHC, Inc., as Borrowers, the Banks which are party thereto and Texas
Commerce Bank National Association, in its individual capacity and as Agent;
as amended by First Amendment to Amended and Restated Revolving Credit
Agreement dated as of November 7, 1996 by and between Quality Dining, Inc.,
GAGHC, Inc. and BF Holding, Inc., as Borrowers, Texas Commerce Bank National
Association, in its individual capacity and as Agent, and the Banks which are
party thereto (together, "Credit Agreement"). Capitalized terms used herein
and not defined herein shall have the meanings assigned thereto in the Credit
Agreement.
WHEREAS, the Borrowers have informed the Agent and the Banks that the
Borrowers are in violation of certain covenants under the Credit Agreement as
of the last day of the third quarter of QDI's 1997 fiscal year ended August 3,
1997, as follows:
(i) Consolidated Tangible Net Worth set forth at 6.1 of the Credit
Agreement,
(ii) Ratio of Funded Debt to Total Capitalization set forth in 6.2 of
the Credit Agreement,
(iii) Fixed Charge Coverage Ratio set forth at 6.3 of the Credit
Agreement, and
(iv) Ratio of Funded Debt to Pro Forma Consolidated Cash Flow set forth
at 6.4 of the Credit Agreement.
The covenant defaults identified in clauses (i), (ii), (iii) and (iv) above
are sometimes referred to herein as the "Financial Covenant Defaults."
WHEREAS, the Borrowers request that the Banks waive the Financial
Covenant Defaults existing as of the last day of the third quarter of QDI's
1997 fiscal year.
WHEREAS, the Borrowers request a waiver of compliance with the
provisions of Section 5.12 of the Credit Agreement to the extent that it would
require Bagel Disposition Corporation ("BDC"), Bagel Acquisition Corporation
("BAC") and Mohold, Inc. ("Mohold") to become parties to the Subsidiary
Guaranty.
WHEREAS, as a condition precedent to the granting of the waivers
requested by the Borrowers, the Banks have requested certain amendments to the
Credit Agreement to provide for, among other things, an increase in the
interest rate and Commitment Fees payable by the Borrowers under the Credit
Agreement.
WHEREAS, the parties have determined that it is in their best interests
to enter into this Waiver and Amendment.
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, the parties hereto agree as follows:
Section1. Waiver. TCB, in its individual capacity and as Agent for the
Banks (as that term is defined in the Credit Agreement), and those Banks whose
signatures are set forth below hereby waive (a) the Financial Covenant
Defaults existing as of the last day of the third quarter of QDI's 1997 fiscal
year ended August 3, 1997 and (b) compliance with the provisions of Section
5.12 to the extent they would require BAC and Mohold to become parties to the
Subsidiary Guaranty and require the delivery of the documents specified
therein in connection therewith; provided, that if the Bruegger's Sale has not
been consummated on or before November 10, 1997, BDC, BAC and Mohold shall be
required to become parties to the Subsidiary Guaranty and the Borrowers shall
be required to deliver to the Agent the documents specified in Section 5.12
with respect thereto on or before November 17, 1997. The waivers contained
herein are limited to the express terms of and to the extent described in this
Section 1 and shall not apply to any other facts, time periods or
circumstances and nothing contained in this letter shall constitute a waiver
of any other provisions of the Loan Documents or of any rights or remedies
that may be available as a result of any other or future defaults that have
occurred or may occur subsequent to the date of this letter.
Section2. Amendments to Article I.
(a) A new definition of "Bruegger's Sale" shall be inserted in
Article I of the Credit Agreement immediately following the definition of
"Bruegger's Entities" to read as follows:
""Bruegger's Sale" shall mean the sale by QDI of its bagel-related
businesses, including, without limitation, Bruegger's under and pursuant
to the terms of a Share Exchange Agreement dated as of September 3, 1997
by and among QDI, Bruegger's, Nordahl L. Brue and Michael J. Dressel and
an Agreement and Plan of Merger dated as of September 3, 1997 by and
among Quality Dining, Inc., Bagel Disposition Corporation and Lethe
LLC."
(b) A new definition of "Net Cash Proceeds" shall be inserted in
Article I of the Credit Agreement immediately following the definition of
"Monthly Payment Date" to read as follows:
""Net Cash Proceeds" shall mean the cash consideration received by
QDI or any of its Subsidiaries in respect of the Bruegger's Sale, less
(i) any income or other taxes payable as a result of the Bruegger's Sale
and (ii) all brokerage commissions and other out-of-pocket fees and
expenses incurred in respect of the Bruegger's Sale."
Section3. Amendments to Section 2.1.
(a) Section 2.1(b) of the Credit Agreement is hereby amended by
inserting a new subsection (iii) to read as follows:
"(iii) The respective Commitments of the Banks shall
automatically reduce ratably upon consummation of the Bruegger's Sale to
an amount such that the aggregate Commitments of all Banks shall equal
$145,000,000."
(b) Clause (A) of Section 2.1(f) of the Credit Agreement is hereby
amended in its entirety to read as follows:
"(A) with respect to any Advance constituting a Base Rate Loan,
at a fluctuating rate per annum equal to the sum of the Base Rate, plus
the Applicable Base Rate Margin (as determined in accordance with
Section 2.1(g)); and"
(c) Clause (B) of Section 2.1(f) of the Credit Agreement is hereby
amended in its entirety to read as follows:
"(B) with respect to any Advance constituting a LIBOR Base Loan,
at a rate per annum equal at all times during the Interest Period
relating to such LIBOR Base Loan to the sum of the Adjusted LIBOR Rate,
plus the Applicable LIBOR Rate Margin (as determined in accordance with
Section 2.1(g));"
(d) Section 2.1(g) of the Agreement is hereby amended in its entirety
to read as follows:
"(g) Determination of Applicable Margin.
(i) The Applicable Base Rate Margin in respect of any Base
Rate Loan and the Applicable LIBOR Rate Margin in respect of any LIBOR
Base Loan shall be determined by reference to the table set forth below
on the basis of the Indebtedness Ratio determined by reference to the
most recent financial statements delivered pursuant to Section 5.1(a) or
5.1(b).
Indebtedness Ratio Applicable Applicable
LIBOR Rate Base Rate
Margin Margin
Greater than 4.50:1.00 3.00% 0.75%
Less than or equal to
4.50:100 but greater than
4.00:100 2.75% 0.50%
Less than or equal to
4.00:1.00 2.50% 0.25%
(ii) Upon receipt of the financial statements delivered pursuant
to Section 5.1(a) or Section 5.1(b), as applicable, the Applicable Base
Rate Margin and the Applicable LIBOR Rate Margin shall be adjusted, such
adjustment being effective on the tenth Business Day after receipt of
such financial statements and the Compliance Certificate to be delivered
in connection therewith; provided, however, if the Borrowers shall not
have timely delivered such financial statements in accordance with
Section 5.1(a) or Section 5.1(b), as applicable, beginning with the date
upon which such financial statements should have been delivered and
continuing until such financial statements are delivered, the Applicable
Base Rate Margin and the Applicable LIBOR Rate Margin shall equal the
Applicable Base Rate Margin and the Applicable LIBOR Rate Margin, as
applicable, for the prior period; provided further, however, that if
upon delivery of such financial statements the Applicable Base Rate
Margin and the Applicable LIBOR Rate Margin is adjusted upwards, the
adjustment of the Applicable Base Rate Margin and the Applicable LIBOR
Rate Margin, as applicable, shall be retroactive to the date upon which
such financial statements should have been delivered.
(e) Section 2.1(h) of the Credit Agreement is hereby amended by
inserting a new subsection (ii) to read as follows:
"(ii) Concurrently with the consummation of the Bruegger's Sale,
the Borrowers shall prepay the Loans outstanding in an amount equal to
the Net Cash Proceeds of the Bruegger's Sale."
(f) Section 2.9 of the Credit Agreement is hereby amended be inserting
at the end thereof the following sentence:
"Notwithstanding any provision in this Section 2.9 to the contrary, the
Borrowers agree to pay a Commitment Fee for the period (including,
without limitation, any portion thereof when the banks' obligation to
lend shall be suspended by reason of the Borrower's inability to satisfy
the conditions of Article III) commencing on September 15, 1997 and
continuing through the Termination Date of the Applicable Percentage per
annum of the Unused Portion. For purposes hereof, the "Applicable
Percentage" shall be determined by reference to the table set forth
below on the basis of the Indebtedness Ratio determined by reference to
the most recent financial statements delivered pursuant to Section
5.1(a) or 5.1(b).
Indebtedness Ratio Applicable
Percentage
Greater than 3.50:1.00 0.50%
Less than or equal to
3.50:100 0.25%
Upon receipt of the financial statements delivered pursuant to Section
5.1(a) or Section 5.1(b), as applicable, the Applicable Percentage shall
be adjusted, such adjustment being effective on the tenth Business Day
after receipt of such financial statements and the Compliance
Certificate to be delivered in connection therewith; provided, however,
if the Borrowers shall not have timely delivered such financial
statements in accordance with Section 5.1(a) or Section 5.1(b), as
applicable, beginning with the date upon which such financial statements
should have been delivered and continuing until such financial
statements are delivered, the Applicable Percentage shall equal the
Applicable Percentage for the prior period; provided further, however,
that if upon delivery of such financial statements the Applicable
Percentage is adjusted upwards, the adjustment of the Applicable
Percentage shall be retroactive to the date upon which such financial
statements should have been delivered."
Section4. Effectiveness. This Waiver and Amendment will become effective on
the date on which the Agent shall have received counterparts of this Waiver
and Amendment which, when taken together, bear the signatures of each of the
Borrowers, the Agent and the Required Banks.
Section5. Applicable Law. This Waiver and Amendment shall be governed by
and construed in accordance with the laws of the State of Illinois (without
regard to any choice of law provisions thereof).
Section6. Counterparts. This Waiver and Amendment may be executed in two or
more counterparts, each of which shall constitute an original, but all of
which when taken together shall constitute but one instrument.
Section7. Agreement. Except as expressly amended or waived hereby, the
Credit Agreement shall continue in full force and effect in accordance with
the provisions thereof on the date hereof.
Section8. Expenses. The Borrowers shall pay all reasonable out-of-pocket
expenses incurred by the Agent in connection with the preparation of this
Waiver and Amendment, including, but not limited to, the reasonable fees and
disbursements of special counsel for the Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
QUALITY DINING, INC.
By:
Its:
GAGHC, INC.
By:
Its:
BF HOLDING, INC.
By:
Its:
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
in its individual capacity and as Agent
for the Banks (as that term is defined in
the Credit Agreement).
By:
(Signature
(typed or printed name and title)
NBD BANK, N.A.
By:
(Signature)
(typed of printed name and title)
THE NORTHERN TRUST COMPANY
By:
(Signature)
(typed of printed name and title)
KEYBANK NATIONAL ASSOCIATION (successor in
interest to Society National Bank)
By:
(Signature)
(typed of printed name and title)
LASALLE NATIONAL BANK
By:
(Signature)
(typed of printed name and title)
NATIONS BANK, N.A. (SOUTH)
By:
(Signature)
(typed of printed name and title)
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By:
(Signature)
(typed of printed name and title)