-----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, O9yzL/tq1wgORvs0RVZMmltowr54IypYP6bGfdAtUXRKFlLyP7RgMf5rn2y86lLD tCsOhaUNoG/y06zb0XttIw== 0000950144-99-003097.txt : 19990325 0000950144-99-003097.hdr.sgml : 19990325 ACCESSION NUMBER: 0000950144-99-003097 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981230 FILED AS OF DATE: 19990324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAMILY STEAK HOUSES OF FLORIDA INC CENTRAL INDEX KEY: 0000784539 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 592597349 STATE OF INCORPORATION: FL FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14311 FILM NUMBER: 99571857 BUSINESS ADDRESS: STREET 1: 2113 FLORIDA BLVD STREET 2: STE A CITY: NEPTUNE BEACH STATE: FL ZIP: 32266 BUSINESS PHONE: 9042494197 MAIL ADDRESS: STREET 1: 2113 FLORIDA BLVD STE A STREET 2: 2113 FLORIDA BLVD STE A CITY: NEPTUNE BEACH STATE: FL ZIP: 32266 10-K 1 FAMILY STEAK HOUSES OF FLORIDA, INC. 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- FORM 10-K (MARK ONE) (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 30, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) COMMISSION FILE NO. 0-14311 FAMILY STEAK HOUSES OF FLORIDA, INC. (exact name of registrant as specified in its charter) FLORIDA NO. 59-2597349 (State of Incorporation) (I.R.S. Employer Identification) 2113 Florida Boulevard Neptune Beach, Florida 32266 (Address of Principal Executive Offices) Registrant's telephone number, including area code: (904) 249-4197 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value (Title of Class) ------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. YES NO X --- As of March 2, 1999, 2,398,300 shares of Common Stock of the registrant were outstanding. The aggregate market value of such voting Common Stock (based upon the closing sale price of the registrant's Common Stock on the NASDAQ SmallCap Market System on March 5, 1999, as reported in The Wall Street Journal) held by non-affiliates of the registrant was approximately $1,872,000. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's 1998 Annual Report to Shareholders are incorporated by reference into Part II. Portions of the Proxy Statement for the registrant's 1999 Annual Meeting of Shareholders are incorporated by reference into Part III. 2 PART I ITEM 1. BUSINESS GENERAL Family Steak Houses of Florida, Inc. ("Family" or the "Company"), is the sole franchisee of Ryan's Family Steak House restaurants ("Ryan's restaurants") in the State of Florida. The Company's first Ryan's restaurant was opened in Jacksonville, Florida, in May 1982. As of December 30, 1998, the Company operated 26 Ryan's restaurants in Florida, including nine in north Florida and seventeen in central and west Florida. Two restaurants in Jacksonville, Florida were closed in January 1999. The Company plans to open a restaurant in Deland, Florida in April 1999. A Ryan's restaurant is a family-oriented restaurant serving high-quality, reasonably-priced food in a casual atmosphere with server-assisted service. Ryan's restaurants serve lunch and dinner seven days a week and offer a variety of charbroiled entrees, including various cuts of beef, chicken, and seafood. Most of the restaurants serve a brunch on weekends only. Each restaurant features a diverse selection of items from either a series of "scatter bars" or a 65-foot, self-service, all-you-can-eat Mega Bar(TM), and a separate fresh bakery and dessert bar. In addition to traditional salad bar items, the scatter bars or Mega Bars(TM) offer hot meats, pre-made salads, soups, baked potatoes with toppings, cheeses and a variety of vegetables. The Company believes that its operating strategy of selling top-quality meals at reasonable prices, at food costs to the Company which are higher than the industry average, creates a perception of value to its customers. The Company operates its Ryan's restaurants under a Franchise Agreement with Ryan's Family Steak Houses, Inc., ("Ryan's", or the "Franchisor") which grants the Company the exclusive right to operate Ryan's Family Steak House restaurants throughout North and Central Florida. COMPANY HISTORY The Company was formed by the combination, effective February 1986, of six limited partnerships, each of which owned and operated a Ryan's restaurant franchise. In April 1986, the Company issued 4,266,000 shares of its common stock in exchange for the assets and liabilities of the predecessor partnerships and 1,134,000 shares of its common -2- 3 stock to Eddie L. Ervin, Jr., in consideration for Mr. Ervin assigning to the Company all of his rights under the Franchise Agreement, as defined below. The Company completed its initial public offering of 4,500,000 shares of its common stock in 1986 resulting in net proceeds to the Company of approximately $4,145,000. FRANCHISE AGREEMENT The Company operates its Ryan's restaurants under a Franchise Agreement between the Company and the Franchisor dated as of September 16, 1987, which Franchise Agreement amended and consolidated all previous franchise agreements (as amended, the "Franchise Agreement"). The Franchise Agreement extends through December 31, 2010 and provides for two additional ten-year renewal options. The renewal options are subject to certain conditions, including the condition that the Company has fully and faithfully performed its obligations under the Franchise Agreement during its original term. Under the terms of the Franchise Agreement, the Company has the right to use the registered mark "Ryan's Family Steak House" and the right to use the Franchisor's techniques in the operation of Ryan's Family Steak House restaurants. In 1996, the Company and the Franchisor amended the Franchise Agreement. The amended agreement requires the Company to pay a royalty fee of 3.0% through December 2001 and 4.0% thereafter on the gross receipts of each Ryan's Family Steak House restaurant. Total royalty fee expenses were $1,150,900, $1,108,400, and $1,138,600, for the fiscal years ended December 30, 1998, December 31, 1997, and January 1, 1997 respectively. The Franchise Agreement requires the Company to operate a minimum number of Ryan's restaurants on December 31 of each year. Failure to operate the minimum number of restaurants could result in the loss of exclusivity rights to the Ryan's concept in the Company's north and central Florida territory. The Company operated 26 restaurants as of fiscal year end 1998 and was therefore in compliance with the Franchise Agreement. The Company has listed six restaurants for sale. Although the Company closed two restaurants in January 1999, management expects to be able to open enough new restaurants in 1999 to satisfy the requirement. If management determines the Company will not be able to open enough restaurants to satisfy the requirement, a waiver of the requirement will be requested from the Franchisor. The following schedule outlines the number of Ryan's restaurants required to be operated by the Company on December 31 of each year under the Franchise Agreement: -3- 4
Number of Restaurants Required to End of Fiscal Year be in Operation - ------------------ ----------------------- 1998 26 1999 27 2000 28 2001 and subsequent years Increases by one each year
The Franchise Agreement contains provisions relating to the operation of the Company's Ryan's restaurants. Upon the Company's failure to comply with such provisions, the Franchisor may terminate the Franchise Agreement if such default is not cured within 30 days of notice from the Franchisor. Termination of the Franchise Agreement would result in the loss of the Company's right to use the "Ryan's Family Steak House" name and concept and could result in the sale of the physical assets of the Company to the Franchisor pursuant to a right of first refusal. Termination of the Company's rights under the Franchise Agreement may result in the disruption, and possibly the discontinuance, of the Company's operations. The Company believes that it has operated and maintained each of its Ryan's Family Steak House restaurants in accordance with the operational procedures and standards set forth in the Franchise Agreement, as amended. OPERATIONS OF RYAN'S RESTAURANTS FORMAT. As of March 5, 1999, 22 of the Company's Ryan's restaurants are located in free-standing buildings which vary in size from 7,500 to 12,000 square feet. Two of the Company's Ryan's restaurants are located in shopping malls. Each restaurant is constructed of brick or stucco walls, interior and exterior, with exposed woodwork. The interior of each Ryan's restaurant contains a dining room, a customer ordering area, and a kitchen. The dining rooms seat a total of between 270 and 500 persons and highlight centrally located, illuminated scatter bars or Mega Barstm and a fresh bakery and dessert bar. Each Ryan's restaurant has parking for approximately 100 to 175 cars on lots of overall size of approximately 50,000 to 70,000 square feet. The Ryan's restaurants operate seven days a week. Typical hours of operation are from 11:00 a.m. to 9:00 p.m., Sunday through Thursday, and from 11:00 a.m. to 10:00 p.m., Friday and Saturday. Restaurants that serve brunch open at 8:00 a.m. Saturday and Sunday. In a Ryan's restaurant, the customer enters the restaurant, orders from the menu, and then enters the dining room. Beverages are brought to the table by servers. Entrees are cooked to order. The customer ordering the salad bar is given unlimited access to the scatter bars or Mega Barstm and the bakery dessert bar. Customers receive table service of the entree and beverage -4- 5 refills. For the fiscal year ended December 30, 1998, the average weekly customer count per restaurant was approximately 4,705 and the average meal price (including beverage) was approximately $6.18. RESTAURANT MANAGEMENT AND SUPERVISION. The Company manages the Ryan's restaurants pursuant to a standardized operating and control system together with comprehensive recruiting and training of personnel to maintain food and service quality. In each Ryan's restaurant, the management group consists of a general manager, a manager and one to three assistant managers, depending on sales volume. The Company requires at least two members of the management group on duty during all peak serving periods. Management-level personnel usually begin employment at the manager trainee or assistant manager level, depending on prior restaurant management experience. All new management-level personnel must complete the Company's five-week training period prior to being placed in a management position. Each restaurant management group reports to a supervisor. Presently, the supervisors each oversee the operations of five to seven restaurants. The supervisors report directly to the Director of Operations. Communication and support from all departments in the Company are designed to assist the supervisors in responding promptly to local problems and opportunities. All restaurant managers and supervisors participate in incentive programs based upon the profitability of their restaurants and upon the achievement of certain pre-set goals. The Company believes these incentive programs enable it to operate more efficiently and to attract qualified managers. PURCHASING, QUALITY AND COST CONTROL. The Company has a centralized purchase control program which is designed to ensure uniform product quality in all restaurants. The program also helps to maintain reduced food, beverage, and supply costs. The Company purchases approximately 95% of the products used by the Company's restaurants through the centralized purchase control program. USDA choice grain-fed beef, the Company's primary commodity, is closely monitored by the Company for advantageous purchasing and quality control. The Company purchases beef through various producers and brokers both on a contract basis and on a spot basis. Beef and other products are generally delivered directly to the restaurants three times weekly, except for fresh produce, which is delivered three to five times per week. The Company has in the past obtained satisfactory sources of supply for all the items it regularly uses and believes it will be able to do so in the future. -5- 6 The Franchise Agreement requires that all suppliers to Ryan's restaurants are subject to approval by the Franchisor. Through its relationship with the Franchisor, the Company has obtained favorable pricing on the purchase of food products from several suppliers. In June 1995, the Company renewed its agreement with Kraft Foodservice, Inc. to serve as its primary supplier. Kraft was subsequently purchased by Alliant Foodservice, Inc. The Alliant agreement has a five-year term and is cancellable at any time with 60 days notice. The Company maintains centralized financial and accounting controls for its restaurants. On a daily basis, restaurant managers forward customer counts, sales information and supplier invoices to Company headquarters. On a weekly basis, restaurant managers forward summarized sales reports and payroll data. Physical inventories of all food and supply items are taken weekly, and meat is inventoried daily. DEVELOPMENT GENERAL. The Company operated 24 Ryan's restaurants as of March 5, 1999. SITE LOCATION AND CONSTRUCTION. The Company considers the specific location of a restaurant to be important to its long-term success. The Company's Franchisor assists the Company in selection of new restaurant sites. The site selection process focuses on a variety of factors, including trade area demographics (such as population density and household income level), an evaluation of site characteristics (such as visibility, accessibility, and traffic volume), and an analysis of the potential competition. In addition, site selection is influenced by the general proximity of a site to other Ryan's restaurants in order to improve the efficiency of the Company's field supervisors and potential marketing programs. The Company generally locates its restaurants near or adjacent to residential areas in an effort to capitalize on repeat business from such areas as opposed to transient business. The Company constructs its Ryan's restaurants using a general contractor selected from several solicited bids. For certain new restaurants, the Company may use its construction subsidiary to serve as the general contractor in order to expedite the process of obtaining building permits. Management believes that by performing site selection through the Franchisor, the Company can select superior sites with high average sales volumes and control real estate costs. New Ryan's restaurants are usually completed within four months of the date on which construction is commenced. -6- 7 MANAGEMENT OF NEW RESTAURANTS. When a new Ryan's restaurant is opened, the principal restaurant management positions are staffed with personnel who have prior experience in a management position at another of the Company's restaurants and who have undergone special training. Prior to opening, all staff personnel at the new location undergo one week of intensive training conducted by a training team. Such training includes preopening drills in which test meals are served to the invited public. Both the staff at the new location and personnel experienced in store openings at other locations participate in the training and drills. PROPRIETARY TRADE MARKS The name "Ryan's Family Steak House," along with all ancillary signs, building design and other symbols used in conjunction with the name, and the name "Mega Bar", are the primary trademarks and service marks of the Franchisor. Such marks are registered in the United States. All of these registrations and the goodwill associated with the Franchisor's trademarks are of material importance to the Company's business and are licensed to the Company under the Franchise Agreement. COMPETITION The food service business in Florida is highly competitive and is often affected by changes in the taste and eating habits of the public, economic conditions affecting spending habits, local demographics, traffic patterns and local and national economic conditions. The principal bases of competition in the industry are the quality and price of the food products offered. Location, speed of service and attractiveness of the facilities are also important factors. The Company's restaurants are in competition with restaurants operated or franchised by national, regional and local restaurant companies offering a similar menu, many of which have greater resources than the Company. The Company is also in competition with specialty food outlets and other vendors of food. The amount of new competition near Company restaurants has increased significantly in the past few years. In addition, in the past several years, many restaurants have remodeled their restaurants so that they are similar to the scatter bar format used by the Company. The increased competition had a significant negative impact on sales of some Company restaurants in 1998. Management has developed a plan to attempt to reduce the negative impact on sales from new competition, but there can be no assurance that sales trends will improve. In addition, the Franchisor has the right to operate restaurants in several other west Florida and south Florida counties. -7- 8 EMPLOYEES As of December 30, 1998, the Company employed approximately 1,200 persons, of whom approximately 50% are considered by management as part-time employees. No labor unions currently represent any of the Company's employees. The Company has not experienced any work stoppages attributable to labor disputes and considers employee relations to be good. EXECUTIVE OFFICERS The following persons were executive officers of the Company effective December 30, 1998: Lewis E. Christman, Jr., age 79, has been President and Chief Executive Officer of the Company since April 1994. Mr. Christman was hired as a consultant to oversee and direct the Company's purchasing program in January 1994 and has been a Director of the Company since May 1993. In addition, Mr. Christman serves as President of each of the Company's subsidiaries. Mr. Christman has been a partner in East Coast Marketing since 1990. From 1979 to 1989, Mr. Christman served as Chairman of the Board of Neptune Marketing, Inc., a food brokerage company. Edward B. Alexander, age 40, has been Vice President of Finance since December 1996, and was Secretary and Treasurer of the Company from November 1990 to December 1996. In addition, Mr. Alexander was appointed to the Board of Directors in May 1996, and serves as Secretary of each of the Company's subsidiaries. Mr. Alexander served as controller of the Company from January 1989 to April 1990. From April 1985 until December 1988, Mr. Alexander was employed as controller for Mac Papers, Inc., a wholesale paper products distributor. Prior to April 1985, Mr. Alexander served as a senior accountant for the accounting firm of Deloitte & Touche LLP. GOVERNMENT REGULATION The Company is subject to the Fair Labor Standards Act which governs such matters as minimum wage requirements, overtime and other working conditions. A large number of the Company's restaurant personnel are paid at or slightly above the federal minimum wage level and, accordingly, any change in such minimum wage will affect the Company's labor costs. The Company is also subject to the Equal Employment Opportunity Act and a variety of federal and state statutes and regulations. The Company's restaurants are constructed to meet local and state building requirements and are operated in accordance with state and local regulations relating to the preparation and service of food. More -8- 9 stringent and varied requirements of local governments with respect to land use, zoning and environmental factors may in some cases delay the Company's construction of new restaurants or remodels of existing ones. The Company believes that it is in substantial compliance with all applicable federal, state and local statutes, regulations and ordinances and that compliance has had no material effect on the Company's capital expenditures, earnings or competitive position, and such compliance is not expected to have a material adverse effect upon the Company's operations. The Company, however, cannot predict the impact of possible future legislation or regulation on its operations. SOURCES AND AVAILABILITY OF RAW MATERIALS The Company procures its food and other products from a variety of suppliers, and follows a policy of obtaining its food and products from several major suppliers under competitive terms. A substantial portion of the beef used by the Company is obtained from one supplier, although the Company believes comparable beef meeting its specifications is available in adequate quantities from other suppliers. To ensure against interruption in the flow of food supplies due to unforeseen or catastrophic events, to take advantage of favorable purchasing opportunities, and to insure that meat received by the Company is properly aged, the Company maintains a two to six week supply of beef. WORKING CAPITAL REQUIREMENTS Substantially all of the Company's revenues are derived from cash sales. Inventories are purchased on credit and are converted rapidly to cash. The Company does not maintain significant receivables and inventories. Therefore, with the exception of debt service, working capital requirements for continuing operations are not significant. In December 1996, the Company entered into a $15.36 million Loan Agreement with FFCA Mortgage Corporation ("FFCA"). The Loan Agreement governs seventeen Promissory Notes payable to FFCA. Each Note is secured by a mortgage on a Company restaurant property. The Promissory Notes provide for a term of twenty years and an interest rate equal to the thirty-day LIBOR rate plus 3.75%, adjusted monthly. The Loan Agreement provides for various covenants, including the maintenance of prescribed debt service coverages. The Company used the proceeds of the FFCA loan to retire its Notes with Cerberus Partners, L.P. ("Cerberus") and its loans with the Daiwa Bank Limited and SouthTrust Bank of Alabama, N.A. In addition, the Company retired warrants for 210,000 shares of the Company's common stock -9- 10 previously held by Cerberus. Cerberus continues to hold warrants to purchase 140,000 shares of the Company's common stock at an exercise price of $2.00 per share. Also in December 1996, the Company entered into a separate loan agreement with FFCA under which it borrowed an additional $2,590,000 in 1998. This additional financing is evidenced by three additional Promissory Notes secured by mortgages on three Company restaurant properties. The terms and conditions of this loan agreement are substantially identical to those of the loan agreement described above. In October 1998, the Company received two commitments for new financing from FFCA. One commitment was for construction financing for two new restaurants to be built in 1999. Terms of this commitment include funding of a maximum of $1,600,000 per restaurant, with an expiration date of October 1, 1999. The second commitment provides for funding of a maximum of $3,000,000, secured by mortgages on three Company restaurant properties, with an expiration date of March 31, 1999. Other terms and conditions of these loan agreements are substantially identical to those of the $15.36 million Loan Agreement described above. SEASONALITY The Company's operations are subject to some seasonal fluctuations. Revenues per restaurant generally increase from January through April and decline from September through December. RESEARCH The Company relies primarily on the Franchisor to maintain ongoing research programs relating to the development of new products and evaluation of marketing activities. Although research and development activities are important to the Company, no expenditures for research and development have been incurred by the Company. CUSTOMERS No material part of the Company's business is dependent upon a single customer or a few customers. INFORMATION AS TO CLASSES OF SIMILAR PRODUCTS OR SERVICES The Company operates in only one industry segment. All significant revenues and pre-tax earnings relate to retail sales of food to the general public through restaurants owned and operated by the Company. The Company has no operations outside the continental United States. -10- 11
ITEM 2. PROPERTIES Location Date Opened -------- ----------- Jacksonville May 1982 Jacksonville November 1983 Orange Park May 1984 Jacksonville May 1985 Ocala September 1986 Neptune Beach November 1986 Lakeland February 1987 Lakeland March 1987 Winter Haven August 1987 Apopka September 1987 Gainesville December 1987 Hudson February 1988 New Port Richey May 1988 Tampa June 1988 Tallahassee August 1988 Daytona Beach September 1988 Tampa November 1988 Orlando January 1989 Orlando February 1989 Clearwater August 1989 Melbourne November 1989 Lake City March 1991 Brooksville January 1997 Leesburg June 1998 Deland April 1999 (expected opening date)
In January 1999, the Company entered into a lease agreement for a new restaurant expected to be opened in July 1999. As of March 5, 1999, the Company operated 24 Ryan's restaurants. The specific rate at which the Company is able to open new restaurants will be determined, among other factors, by its ability to locate suitable sites on satisfactory terms, raise the necessary capital, secure appropriate governmental permits and approvals and recruit and train management personnel. As of December 30, 1998, the Company owned the real property on which 20 of its restaurants were located. Twenty of these properties were subject to mortgages securing the FFCA notes. The Company leases the real property on which four of its restaurants are located. Those restaurants are located in Jacksonville, Clearwater, Brooksville, and Leesburg, Florida. The Company also leases two buildings in Jacksonville, Florida for its executive offices. -11- 12 The Company leases the premises where its Clearwater, Florida restaurant is located. On May 13, 1997, the Company received notice from Aetna Life Insurance Company, the mortgage holder of the property at which the Company's Clearwater, Florida restaurant is located, that Aetna intended to foreclose on the property due to a default by the landlord on the mortgage. In October 1998, Aetna was granted a Motion for Summary Judgment of Foreclosure by the Circuit Court of the Sixth Judicial Court in Pinellas County. The Company subsequently agreed not to appeal the Circuit Court's ruling in exchange for Aetna's agreement not to initiate any eviction proceedings prior to May 30, 1999. After May 1999, either the Company or Aetna may terminate the lease agreement with 30 days notice. If Aetna decides to terminate the lease in 1999, the Company would be required to write-off approximately $300,000 of leasehold improvements. ITEM 3. LEGAL PROCEEDINGS The Company is subject from time to time to various pending legal proceedings arising in the normal course of business. In the opinion of management, based on the advice of legal counsel, the ultimate disposition of currently pending claims and litigation will not have material adverse effect on the financial position or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information contained under the caption "Common Stock Data" in the Company's 1998 Annual Report to Shareholders is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information contained under the caption "Five-Year Financial Summary" in the Company's 1998 Annual Report to Shareholders is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained under the caption "Management's Discussion and Analysis of Financial Condition -12- 13 and Results of Operations" in the Company's 1998 Annual Report to Shareholders is incorporated herein by reference. ITEM 7.A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK The Company is exposed to market risk from changes in interest rates. For its cash and cash equivalents, investments and mortgages receivable, a change in interest rates effects the amount of interest income than can be earned. For its debt instruments, a change in interest rates effects the amount of interest expense incurred. The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates.
1999 2000 2001 2002 2003 Thereafter Total - ------------------------------------------------------------------------------------------------------------------------- Assets Overnight repurchase account at variable interest rate $ 1,791,300 $ 1,719,300 Weighted average interest rate 4.6% Certificates of deposit at fixed interest rates $ 644,000 $ 644,000 Weighted average interest rate 5.3% Mortgages receivable at fixed interest rate $ 71,100 77,800 159,800 $ 308,700 Weighted average interest rate 9.0% 9.0% 9.0% Liabilities Notes payable at variable interest rate $ 370,500 406,400 446,000 489,200 536,700 14,696,000 $16,944,800 Weighted average interest rate 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% Long-term capital lease at fixed interest rate $ 3,100 3,500 3,800 18,800 20,900 1,005,700 $1,055,800 Weighted average interest rate 10.7% 10.7% 10.7% 10.7% 10.7% 10.7%
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements of the Company and the Report of Independent Certified Public Accountants -13- 14 as contained in the Company's 1998 Annual Report to Shareholders are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding directors contained under the caption "Election of Directors" in the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission prior to April 29, 1999, is incorporated herein by reference. The information regarding executive officers is set forth in Item 1 of this report under the caption "Executive Officers." The information regarding reports required under section 16(a) of the Securities Exchange Act of 1934 contained under caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's proxy statement for the 1999 Annual Meeting of Shareholders, which will be filed with Securities and Exchange Commission prior to April 29, 1999 is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information contained under the caption "Executive Pay" in the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission prior to April 29, 1999, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission prior to April 29, 1999, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained under the caption "Election of Directors - Certain Relationships and Related -14- 15 Transactions" in the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission prior to April 29, 1999, is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)1. The financial statements listed below are filed with this report on Form 10-K or are incorporated herein by reference from the Company's 1998 Annual Report to Shareholders. With the exception of the pages listed below, the 1998 Annual Report to Shareholders is not deemed "filed" as a part of this report on Form 10-K.
Page Reference --------- Form 1998 10-K Annual Report ---- ------------- Consent of Independent Certified Public Accountants F-1 Independent Auditors' Report 29 Consolidated Statements of Operations 13 Consolidated Balance Sheets 14 Consolidated Statements of Share- holders' Equity 15 Consolidated Statements of Cash Flows 16 Notes to Consolidated Financial Statements 17
(a)2. No financial statement schedules have been included since the required information is not applicable or the information required is included in the financial statements or the notes thereto. (a)3. The following exhibits are filed as part of this report on Form 10-K, and this list comprises the Exhibit Index. No. Exhibit --- ------- 3.01 Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3.01 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 3.02 Bylaws of Family Steak Houses of Florida, Inc. (Exhibit 3.02 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) -15- 16 3.03 Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3.03 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 3.04 Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3.04 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 3.05 Amended and Restated Bylaws of Family Steak Houses of Florida, Inc. (Exhibit 4 to the Company's Form 8-A, filed with the Commission on March 19, 1997, is incorporated herein by reference.) 3.06 Shareholder Rights Agreement, dated March 19, 1997, by and between Family Steak Houses of Florida, Inc. and Chase Mellon Shareholder Services, LLC (Exhibit 1 to the Company's Form 8-A, filed with the Commission on March 19, 1997, is incorporated herein by reference.) 3.07 Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3 to the Company's Form 8-A filed with the Commission on March 19, 1997, is incorporated herein by reference.) 3.08 Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3.08 to the Company's Annual Report on Form 10-K filed with the Commission on March 31, 1998 is incorporated herein by reference.) 4.01 Specimen Stock Certificate for shares of the Company's Common Stock (Exhibit 4.01 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 10.01 Amended Franchise Agreement between Family Steak Houses of Florida, Inc. and Ryan's Family Steak Houses, Inc., dated September 16, 1987. (Exhibit 10.01 to the Company's Registration Statement on Form S-1, filed with the Commission on October 2, 1987, Registration No. 33-17620, is incorporated herein by reference.) 10.02 Lease regarding the restaurant located at 3549 Blanding Boulevard, Jacksonville, Florida (Exhibit 10.03 to the Company's Registration Statement on -16- 17 Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 10.03 Lease, dated May 18, 1989, between the Company and Stoneybrook Associates, Ltd., for a restaurant located in Clearwater, Florida. (Exhibit 10.25 to the Company's Registration Statement on Form S-1, filed with the Commission on September 29, 1989, Registration No. 33-17620, is incorporated herein by reference.) 10.04 Amended and Restated Warrant to Purchase Shares of Common Stock, void after October 1, 2003, which represents warrants issued to The Phoenix Insurance Company, The Travelers Indemnity Company, and The Travelers Insurance Company, (subsequently transferred to Cerberus Partners, L.P.) (Exhibit 10.07 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference.) 10.05 Warrant to Purchase Shares of Common Stock, void after October 1, 2003, which represents warrants issued to The Phoenix Insurance Company, The Travelers Indemnity Company, and The Travelers Insurance Company. (subsequently transferred to Cerberus Partners, L.P.) (Exhibit 10.08 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference.) 10.06 Amendment of Franchise Agreement between Ryan's Family Steak Houses, Inc. and the Company dated July 11, 1994. (Exhibit 10.17 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference.) 10.07 Agreement between the Company and Kraft Foodservice, Inc., as the Company's primary food product distribution. (Exhibit 10.06 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on August 9, 1995, is incorporated herein by reference.) 10.08 Lease Agreement between the Company and CNL American Properties Fund, Inc., dated as of September 18, 1996. (Exhibit 10.02 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on November 18, 1996 is hereby incorporated by reference.) -17- 18 10.09 Rent Addendum to Lease Agreement between the Company and CNL American Properties Fund, Inc., dated as of September 18, 1996. (Exhibit 10.04 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on November 18, 1996 is hereby incorporated by reference.) 10.10 Amendment of Franchise Agreement between the Company and Ryan's Family Steak Houses, Inc. dated October 3, 1996. (Exhibit 10.15 to the Company's Annual Report on Form 10-K, filed with the Commission on April 1, 1997 is hereby incorporated by reference.) 10.11 $15.36m Loan Agreement, between the Company and FFCA Mortgage Corporation, dated December 18, 1996. (Exhibit 10.18 to the Company's Annual Report on Form 10-K, filed with the Commission on April 1, 1997 is hereby incorporated by reference.) 10.12 $4.64m Loan Agreement, between the Company and FFCA Mortgage Corporation, dated December 18, 1996. (Exhibit 10.19 to the Company's Annual Report on Form 10-K, filed with the Commission on April 1, 1997 is hereby incorporated by reference.) 10.13 Form of Promissory Note between the Company and FFCA Mortgage Corporation, dated December 18, 1996. (Exhibit 10.20 to the Company's Annual Report on Form 10-K, filed with the Commission on April 1, 1997 is hereby incorporated by reference.) 10.14 Form of Mortgage between the Company and FFCA Mortgage Corporation, dated December 18, 1996 (Exhibit 5 to the Company's Schedule 14D-9, filed with the Commission on March 19, 1997 is hereby incorporated by reference.) 10.15 Form of Mortgage between the Company and FFCA Mortgage Corporation, dated March 18, 1996. (Exhibit 10.22 to the Company's Annual Report on Form 10-K, filed with the Commission on March 31, 1998 is hereby incorporated by reference.) 10.16 Employment agreement between the Company and Edward B. Alexander, dated as of January 26, 1998. (Exhibit 10.16 to the Company's Annual Report on Form 10-K, filed with the Commission on March 31, 1998 is hereby incorporated by reference.) -18- 19 10.17 Employment agreement between the Company and Lewis E. Christman, Jr., dated as of January 26, 1998. (Exhibit 10.17 to the Company's Annual Report on Form 10-K, filed with the Commission on March 31, 1998 is hereby incorporated by reference.) 10.18 Standstill and Settlement Agreement between the Company and Bisco Industries, Inc. (and affiliates) dated February 24, 1998. (The Company's Form 8-K filed with the Commission on March 6, 1998 is hereby incorporated by reference.) 10.19 Lease agreement dated January 29, 1998 between the Company and Excel Realty Trust, Inc. (Exhibit 10.19 to the Company's Annual Report on Form 10-K, filed with the Commission on March 31, 1998 is hereby incorporated by reference.) 10.20 First Amendment to Shareholder Rights Agreement dated February 25, 1998 by and between Family Steak Houses of Florida, Inc. as Rights Agreement. (Item 6(a) from the Company's Quarterly Report on Form 10-Q, filed with the Commission on May 18, 1998, is incorporated herein by reference.) 10.21 $3 million loan commitment from FFCA Acquisition Corporation, dated October 2, 1998. (Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q is incorporated herein by reference.) 10.22 Commitment for construction financing for two restaurants from FFCA Acquisition Corporation, dated October 2, 1998. (Exhibit 10.02 to the Company's Quarterly Report on Form 10-Q filed with the commission on November 16, 1998 is incorporated herein by reference.) 10.23 Lease between the Company and Stuart S. Golding Company dated February 3, 1999 for a new restaurant scheduled to open in 1999. 13.01 1998 Annual Report to Shareholders. 21.01 Subsidiaries of the Company. 23.0l Consent of Independent Certified Public Accountants - Deloitte & Touche LLP. 27.00 Financial data schedules (electronic filing only). (b) None. -19- 20 (c) See (a)3. above for a list of all exhibits filed herewith and the Exhibit Index. (d) None. -20- 21 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Annual Report of Family Steak Houses of Florida, Inc. on Form 10-K of our report dated February 25, 1999, appearing in the 1998 Annual Report to Shareholders of Family Steak Houses of Florida, Inc. We additionally consent to the incorporation by reference in Registration Statement No. 33-11684 pertaining to the 1986 Employee Incentive Stock Option Plan of Family Steak Houses of Florida, Inc. on Form S-8 of our report dated February 25, 1999 appearing in and incorporated by reference in this Annual Report on Form 10-K of Family Steak Houses of Florida, Inc. for the year ended December 30, 1998. We further consent to the incorporation by reference in Registration Statement No. 33-12556 pertaining to the 1986 Stock Option Plan for Non-Employee Directors of Family Steak Houses of Florida, Inc. on Form S-8 of our report dated February 25, 1999 appearing in and incorporated by reference in this Annual Report on Form 10-K of Family Steak Houses of Florida, Inc. for the year ended December 30, 1998. We further consent to the incorporation by reference in Registration Statement No. 33-62101 pertaining to the 1996 Long Term Incentive Plan of Family Steak Houses of Florida, Inc. on Form S-8 of our report dated February 25, 1999 appearing in and incorporated by reference in this Annual Report on Form 10-K of Family Steak Houses of Florida, Inc. for the year ended December 30, 1998. Deloitte & Touche LLP Jacksonville, Florida March 24, 1999 F-1 22 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FAMILY STEAK HOUSES OF FLORIDA, INC. Date: March 12, 1999 BY: /s/ Lewis E. Christman, Jr. ---------------------------------- Lewis E. Christman, Jr., President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the date indicated.
Signature Title Date - --------- ----- ---- /s/ Lewis E. Christman, Jr. President (Principal March 12, 1999 - --------------------------- Executive Officer Lewis E. Christman, Jr. and Director) /s/ Edward B. Alexander Vice President and Director March 12, 1999 - ----------------------- (Principal Financial and Edward B. Alexander Accounting Officer) /s/ G. Alan Howard Director March 16, 1999 - ------------------ G. Alan Howard /s/ Joseph M. Glickstein, Jr. Director March 19, 1999 - ----------------------------- Joseph M. Glickstein, Jr.
23 /s/ Richard M. Gray Director March 19, 1999 - ------------------ Richard M. Gray /s/ Glen F. Ceiley Director March 19, 1999 - ------------------ Glen F. Ceiley /s/ Jay Conzen Director March 16, 1999 - ------------------ Jay Conzen
EX-10.23 2 LEASE AGREEMENT / STUART S. GOLDING COMPANY 1 EXHIBIT 10.23 Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. INDEX TO SHOPPING CENTER LEASE
Page ARTICLE I-GRANT AND TERM Section 1.01.Leased Premises .................................. 1 Section 1.02.Use of Additional Areas .......................... 1 Section 1.03.Commencement and Ending Date of Term ............. 1 Section 1.04.Lease Year Defined ............................... 1 Section 1.05.Failure of Tenant to Open ........................ 1 Section 1.06.Excuse of Owner's Performance .................... 1 Section 1.07.Joint Opening .................................... 1 ARTICLE II-RENT Section 2.01.Minimum Rent ..................................... 2 Section 2.02.Percentage Rent .................................. 2 Section 2.03.Gross Receipts Defined ........................... 2 Section 2.04.Taxes ............................................ 2 Section 2.05.Additional Rent .................................. 3 Section 2.06.Past Due Rent and Additional Rent ................ 3 ARTICLE III-RECORDS AND BOOKS OF ACCOUNT Section 3.01.Tenant's Records ................................. 3 Section 3.02.Reports by Tenant ................................ 3 ARTICLE IV - AUDIT Section 4.01.Right to Examine Books ........................... 3 Section 4.02.Audit ............................................ 3 ARTICLE V-CONSTRUCTION ALTERATION, RELOCATION AND FINANCING OF IMPROVEMENTS AND ADDITIONS THERETO Section 5.01.Owner's Obligation ............................... 4 Section 5.02.Parking Facilities ............................... 4 Section 5.03.Changes and Additions to Building ................ 4 Section 5.04.Financing ........................................ 4 Section 5.05.Right to Relocate ................................ 4 ARTICLE VI-CONDUCT OF BUSINESS BY TENANT Section 6.01.Use of Premises .................................. 4 Section 6.02.Operation of Business ......................................... 4 Section 6.03.Competition ...................................... 4 Section 6.04.Storage, Office Space ............................................ 4 ARTICLE VII-OPERATION OF CONCESSIONS Section 7.01.Consent of Owner ................................. 5 ARTICLE VIII-SECURITY DEPOSIT Section 8.01.Amount of Deposit ................................ 5 Section 8.02.Use and Return of Deposit ........................ 5 Section 8.03.Transfer of Deposit .............................. 5 ARTICLE IX-PARKING AND COMMON USE AREAS AND FACILITIES Section 9.01.Control of Common Areas by Owner ................. 5 Section 9.02.License .......................................... 5 ARTICLE X-COST OF MAINTENANCE OF COMMON AREAS Section 10.01.Tenant to Bear Pro Rata Share of Expense........ 6 ARTICLE XI-SIGNS,AWNINGS,CANOPIES FIXTURES, ALTERATIONS Section 11.01.Installation by Tenant .......................... 6 Section 11.02.Removal and Restoration by Tenant................ 6 Section 11.03.Tenant shall Discharge all Liens ................ 6 Section 11.04.Signs, Awnings, Canopies ........................ 6 ARTICLE XII-MAINTENANCE OF LEASED PREMISES Section 12.01.Maintenance by Tenant ........................... 6 Section 12.02.Maintenance by Owner ............................ 7 Section 12.03.Surrender of Premises ........................... 7 Section 12.04.Rules and Regulations ........................... 7 ARTICLE XIII-INSURANCE AND INDEMNITY Section 13.01.Liability Ins ................................... 7 Section 13.02.Increase in Fire Insurance Premium .............. 7 Section 13.03.Indemnification of Owner ........................ 7 Section 13.04.Plate Glass ..................................... 7 Section 13.05.Boiler Insurance ................................ 7 ARTICLE XIV-UTILITIES Section 14.01.Utility Charges ................................. 8 ARTICLE XV-OFFSET STATEMENT, ATTORNMENT SUBORDINATION Section 15.01.Offset Statement ................................ 8 Section 15.02.Attornment ...................................... 8 Section 15.03.Subordination ................................... 8 Section 15.04.Attorney-in-Fact ................................ 8 ARTICLE XVI-ASSIGNMENT AND SUBLETTING Section 16.01.Consent Required ................................ 8 Section 16.02.Corporate Ownership ............................. 8 Section 16.03.Fees ............................................ 8 ARTICLE XVII-WASTE, GOVERNMENTAL REGULATIONS Section 17.01.Waste or Nuisance ............................... 8 Section 17.02.Governmental Regulations ........................ 9 ARTICLE XVIII-ADVERTISING, MERCHANTS ASSOCIATION Section 18.01.Change of Name .................................. 9 Section 18.02.Solicitation of Business ........................ 9 Section 18.03.Merchants Assoc ................................. 9 ARTICLE XIX-DESTRUCTION OF LEASED PREMISES Section 19.01.Total or Partial Destruction .................... 9 Section 19.02.Partial Destruction of Shopping Center .......... 9 ARTICLE XX-EMINENT DOMAIN Section 20.01.Total Condemnation of Leased Premises ........... 9 Section 20.02.Partial Condemnation ............................ 10 Section 20.03.Total Condemnation of Parking Area .............. 10 Section 20.04.Partial Condemnation of Parking Area ............ 10 Section 20.05.Owner's Damages ................................. 10 Section 20.06.Tenant's Damages ................................ 10 Section 20.07.Condemnation of Less Than a Fee ................. 10 ARTICLE XXI-DEFAULT OF THE TENANT Section 21.01.Right to Re-enter ............................... 10 Section 21.02.Right to Relet .................................. 11
2
Page Section 21.03.Legal Expenses .................................. 11 Section 21.04.Waiver of Jury Trial and Counterclaims........... 11 Section 21.05.Waiver of Rights of Redemption .................. 11 ARTICLE XXII-ACCESS BY OWNER Section 22.01.Right of Entry .................................. 11 Section 22.02.Excavation ...................................... 11 ARTICLE XXIII-TENANT'S PROPERTY Section 23.01.Taxes on Leasehold .............................. 12 Section 23.02.Loss and Damage ................................. 12 Section 23.03.Notice by Tenant ................................ 12 ARTICLE XXIV-HOLDING OVER, SUCCESSORS Section 24.01.Holding Over .................................... 12 Section 24.02.Successors ...................................... 12 ARTICLE XXV-QUIET ENJOYMENT Section 25.01.Owner's Covenant ................................ 12 ARTICLE XXVI-ENVIRONMENTAL & COMPLIANCE Section 26.01.Compliance ...................................... 12 Section 26.02.Indemnification ................................. 12 Section 26.03.Access .......................................... 13 Section 26.04.Law ............................................. 13 Section 26.05.Remedies ........................................ 13 Section 26.06.Radon Gas ....................................... 13 ARTICLE XXVII-MISCELLANEOUS Section 27.01.Waiver .......................................... 13 Section 27.02.Accord and Satisfaction ......................... 14 Section 27.03.Entire Agreement ................................ 14 Section 27.04.No Partnership .................................. 14 Section 27.05.Force Majeure ................................... 14 Section 27.06.Notices ......................................... 14 Section 27.07.Captions and Section Numbers .................... 14 Section 27.08.Tenant Defined, Use of Pronoun .................. 14 Section 27.09.Broker's Commission ............................. 14 Section 27.10.Partial Invalidity .............................. 14 Section 27.11.Recording ....................................... 15 Section 27.12.Non Liability of Agent and Trustees.............. 15 Section 27.13.Rider ........................................... 15 RULES AND REGULATIONS ......................................... 16
THIS INDENTURE OF LEASE, made on the ___ day of _______, 1999 by TWELVE OAKS PLAZA C/O STUART S. GOLDING COMPANY 27001 U.S. HIGHWAY 19 N., SUITE 2095 CLEARWATER, FL 33761 herein called "Owner," and FAMILY STEAKHOUSE OF FLORIDA, INC. DBA RYANS FAMILY STEAKHOUSE herein called "Tenant": WITNESSETH: ARTICLE I GRANT AND TERM SECTION 1.01. LEASED PREMISES. In consideration of the rents, covenants and agreements hereinafter reserved and contained on the part of Tenant to be observed and performed, the Owner demises and leases to the Tenant, and Tenant rents from Owner, those certain premises, now or hereafter to be erected in the TWELVE OAKS PLAZA Shopping Center, (herein called the "Shopping Center") in the TAMPA (City) HILLSBOROUGH (County) FLORIDA (State), which premises consists of a store having approximate measurements of 86 feet in width and 142' 10" [feet] in depth and containing an area of approximately 12,283 square feet, herein called the "leased premises." The boundaries and location of the leased premises are outlined in red on the site plan of the Shopping Center, which is marked Exhibit "A" attached hereto and made a part hereof. SECTION 1.02. USE OF ADDITIONAL AREAS. The use and occupation by the Tenant of the leased premises shall include the use in common with others entitled thereto of the common areas, employees' parking areas, service roads, loading facilities, sidewalks and customer car parking areas, shown and depicted on Exhibit "A," and other facilities as may be designated from time to time by the Owner, subject however to the terms and conditions of this agreement and to reasonable rules and regulations for the use thereof as prescribed from time to time by the Owner. SECTION 1.03. COMMENCEMENT AND ENDING DATE OF TERM. The term of this lease and Tenant's obligation to pay rent hereunder shall commence upon: THE EARLIER OF OPENING OR 120 [90] DAYS AFTER LEASE EXECUTION * [POSSESSION] [(a) the date thirty (30) days after the day Owner, or Owner's supervising architect, notifies Tenant in writing that the leased premises are ready for occupancy; or (b) the date on which Tenant shall open the leased premises for business to the public, whichever of said dates shall first occur.] The term of this lease shall end on the last day of the TENTH (10TH) consecutive full lease year as said term "lease year" is hereinafter defined. *TENANT IS NOT REQUIRED TO PAY RENT, OR ITS SHARE OF COMMON AREA MAINTENANCE AND INSURANCE UNTIL TERM COMMENCES. TENANT IS REQUIRED TO PAY ITS SHARE OF REAL ESTATE TAXES FROM DATE OF LEASE EXECUTION. TENANT MAY CANCEL THIS LEASE IF BUILDING PERMIT NOT OBTAINED WITHIN 120 DAYS OF LEASE EXECUTION. SECTION 1.04. LEASE YEAR DEFINED. The term "lease year" as used herein shall mean a period of twelve (12) consecutive full calendar months. The first lease year shall begin on the date of commencement of the term hereof if the date of commencement of the term hereof shall occur on the first day of a calendar month; if not, then the first lease year shall commence upon the first day of the calendar month next following the date of commencement of the term hereof. Each succeeding lease year shall commence upon the anniversary date of the first lease year. SECTION 1.05. FAILURE OF TENANT TO OPEN. [ In the event that the Owner notifies the Tenant that the leased premises are ready for occupancy as herein defined and the Tenant fails to take possession and to open the leased premises for business fully fixtured, stocked and staffed within the time herein provided, then the Owner shall have in addition to any and all remedies herein provided the right at its option to collect not only the minimum rent herein provided, but additional rent at the rate of ................. ($.........) Dollars per day for each and every day that the Tenant shall fail to commence to do business as herein provided; said additional rental shall be deemed to be in lieu of any percentage rent that might have been earned during such period of the Tenant's failure to open.] SECTION 1.06. EXCUSE OF OWNER'S PERFORMANCE. Any thing in this agreement to the contrary notwithstanding, providing such cause is not due to the willful act or neglect of the Owner, the Owner shall not be deemed in default with respect to the performance of any of the terms, covenants and conditions of this lease if same shall be due to any strike, lockout, civil commotion, war-like operation, invasion, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, inability to obtain any material, service or financing, through Act of God or other cause beyond the control of the Owner. SECTION 1.07. JOINT OPENING. [Tenant shall cooperate in an endeavor to effect a joint opening of the Shopping Center and accordingly if so requested by Owner in writing, will delay the opening of its store for a period not to exceed thirty (30) days from the date it otherwise would have opened its store for business; but if Tenant does so at the written request of the Owner then, notwithstanding any provision to the contrary herein contained, the term of this lease and Tenant's obligation to pay rent shall commence upon the date of said joint opening.] 1. 3 ARTICLE II RENT SECTION 2.01. MINIMUM RENT. Tenant agrees to pay to Owner at the office of Owner, or at such other place designated by Owner, without any prior demand therefor and without any deduction or set-off whatsoever, and as fixed minimum rent plus Florida State Sales Tax: (a) The sum of $7165.08 in advance upon the first day of each calendar month of (each lease year) (the first through the TENTH lease year inclusive); [(b) The sum of $........ in advance upon the first day of each calendar month of the ...... lease year through the ..... lease year inclusive; and (c) The sum of $........ in advance upon the first day of each calendar month of the ...... lease year through the ..... lease year inclusive. ] If the term shall commence upon a day other than the first day of a calendar month, then Tenant shall pay, upon the commencement date of the term, a pro-rata portion of the fixed monthly rent described in the foregoing clause (a) prorated on a per diem basis with respect to the fractional calendar month preceding the commencement of the first lease year hereof. NOTWITHSTANDING THE FOREGOING, TENANT SHALL PAY $5,665.08 AS THE FIRST MONTH'S RENT DUE HEREUNDER IN ORDER TO RECEIVE A CREDIT OF $1,500.00 FOR THE COST OF REVISION OF ITS BUILDING PLANS. SECTION 2.02. PERCENTAGE RENT. [ (a) In addition to the fixed minimum rent aforesaid, Tenant agrees to pay to Owner, in the manner and upon the conditions and at the times hereinafter set forth during each lease year, and as percentage rent hereunder, a sum equivalent to the amount, if any, by which ..*... per cent (....%) of the gross receipts, as hereinafter defined, exceeds the fixed minimum rent payable during a lease year. Said percentage rent shall be payable as hereinafter provided at the office of Owner or at such other place as Owner may designate without any prior demand therefor and, except as provided in clause (b) of this section, without any set-off or deduction whatsoever. *DURING YEARS 6 THROUGH 10 INCLUSIVE, TENANT SHALL PAY FIVE (5%) PERCENT OF ALL GROSS SALES IN EXCESS OF $2,500,000 ANNUALLY, TO A LIMIT OF $6,000.00 PAYABLE IN ANY ONE LEASE YEAR, SO THAT THE MAXIMUM THAT COULD BE PAID OVER THE 5 YEAR PERIOD IS $30,000.00. (b) Said percentage rent shall be paid quarter-annually. The first payment of percentage rent shall be paid on or before the fifteenth (15th) day after the last day of the first three (3) calendar months of the first lease year of the term hereof, and another payment of percentage rent shall be paid on or before the fifteenth (15th) day after the end of each successive 3-month-calendar-period thereafter. The amount of each payment of percentage rent shall be equal to the amount, if any, by which the percentage (described in the foregoing clause (a) of this section) of the gross receipts for the immediately preceding three (3) calendar months exceeds one fourth (1/4) of the fixed minimum rent for a lease year. If, at the end of any lease year, the total amount of rent paid by Tenant exceeds the total amount of fixed and percentage rent required to be paid by Tenant during such lease year, Tenant shall receive a credit equivalent to such excess which may be deducted by Tenant from the next payment of percentage rent due under the foregoing provisions HEREOF. GROSS SALES FOR YEARS 6 THROUGH 10 INCLUSIVE SHALL BE SUBMITTED TO LANDLORD IN WRITING WITHIN 30 DAYS AFTER EACH LEASE YEAR AND PAYMENT, IF DUE, SHALL FOLLOW WITHIN 30 DAYS THEREAFTER. (c) For the purpose of computing the percentage rent payable hereunder with respect to the first lease year of the term hereof, the gross receipts received during the first fractional calendar month, if any, of the term hereof shall be added to the gross receipts for the first 3-month period of the first lease year of the term hereof.] SECTION 2.03. GROSS RECEIPTS DEFINED. APPLIES ONLY DURING YEARS 5 THROUGH INCLUSIVE. The term "gross receipts" as used herein is hereby defined to mean receipts from gross sales of Tenant and of all licensees, [concessionaires] and tenants of Tenant, from all business conducted upon or from the leased premises by Tenant and all others, and whether such sales be evidenced by check, credit, charge account, exchange or otherwise, and shall include, but not be limited to, the amounts received from the sale of goods, wares and merchandise and for services performed on or at the leased premises, together with the amount of all orders taken or received at the leased premises, whether such orders be filled from the leased premises or elsewhere, [and whether such sales be made by means of merchandise or other vending devices in the leased premises]. If any one or more departments or other divisions of Tenant's business shall be sublet by Tenant or conducted by any person, firm or corporation other than Tenant, then there shall be included in gross receipts for the purpose of fixing the percentage rent payable hereunder all the gross sales of such departments or division, whether such sales be made at the leased premises or elsewhere, in the same manner and with the same effect as if the business or sales of such departments and divisions of Tenant's business had been conducted by Tenant itself. Gross sales shall not include sales of merchandise for which cash has been refunded, or allowances made on merchandise claimed to be defective or unsatisfactory, provided they shall have been included in gross sales; and there shall be deducted from gross sales the sales price of merchandise returned by customers for exchange, provided that the sales price of merchandise delivered to the customer in exchange shall be included in gross sales. Gross receipts shall not include the amount of any sales, use or gross receipts tax imposed by any federal, state, municipal or governmental authority directly on sales and collected from customers, provided that the amount thereof is added to the selling price or absorbed therein, and paid by the Tenant to such governmental authority. No franchise or capital stock tax and no income or similar tax based upon income or profits as such shall be deducted from gross receipts in any event whatever. Each charge or sale upon installment or credit shall be treated as a sale for the full price in the month during which such charge or sale shall be made, irrespective of the time when Tenant shall receive payment (whether full or partial) therefor. IN ORDER TO VERIFY GROSS RECEIPTS TENANT SHALL ON A MONTHLY BASIS, NO LATER THAN THE 20TH OF THE MONTH, SUBMIT TO THE LANDLORD A COPY OF THEIR PREVIOUS MONTH'S FLORIDA SALES TAX REPORT (FORM DR-15). SECTION 2.04. TAXES. Tenant's proportionate share, determined and payable as hereinafter provided, of the taxes, public charges and assessments (and all costs and fees incurred by Landlord in contesting the same and/or negotiating with the public authorities as to the same) assessed or imposed upon the land, buildings and (other than income taxes) rents of that portion of the Shopping Center upon which Landlord is from time to time obligated to pay the taxes. Said taxes, public charges and assessments which (without limiting the aforegoing) shall be held to include all school and sewer taxes or charges and said costs and fees or assessments (including without limitation all impact fees incurred, any storm water drainage fees and any Florida State Sales Tax thereon) are hereinafter collectively called "taxes". Tenant's proportionate share of said taxes shall be calculated on the percentage that the total square footage of floor area in the premises bears to the total square footage of rentable floor areas in that portion of the Shopping Center upon which Landlord is obligated to pay the taxes, determined as of the date the tax bill is issued. Should the taxing authorities include in taxes machinery, equipment, inventory or other personal property or assets of Tenant, then Tenant shall pay the entire taxes for such items. Until adjusted by notice in writing Tenant agrees to pay Landlord $1,000.00 on the first day of each calendar month as its estimated payment for taxes. If when Landlord shall make a payment on account of taxes, the unapplied payments from Tenant under this subparagraph in Landlord's possession do not amount to the sum then due from Tenant on account of taxes, Tenant shall pay said deficit to Landlord promptly upon being notified of the amount thereof. At the end of each lease year there shall be an adjustment between Landlord and 2. 4 Tenant as to the payments paid by Tenant under this subparagraph and the sums due from it thereunder, and the surplus or deficit (as the case may be) as of that date credited to or collected from Tenant. FOR PURPOSES OF THIS ADJUSTMENT, THE MAXIMIM DISCOUNT AVAILABLE SHALL BE USED. Taxes due for any lease year shall be deemed to be taxes for the lease year in which the taxes become due. The deficit herein provided to be paid by Tenant shall be paid by it to Landlord within thirty (30) days after request therefor by Landlord. A photostatic copy of the tax bill shall be conclusive evidence of the amount of taxes due. Tenant's proportionate share of the taxes will be prorated according to the length of time the lease is in effect for the year in which the lease commences and the year in which it terminates. MONTHLY PAYMENTS TO BE ADJUSTED ANNUALLY, BASED ON PREVIOUS YEARS ACTUAL. TENANT'S PROPORTIONATE SHARE SHALL BE A FACTOR OF 10.25%, SUBJECT TO ADJUSTMENT WHEN REQUIRED, HOWEVER, TENANT'S SHARE SHALL NOT EXCEED 10.25%. SECTION 2.05. ADDITIONAL RENT. The Tenant shall pay as additional rent any money required to be paid pursuant to Sections 2.04, 10.01, 12.01, 12.02, 13.02, 13.04, 13.05 and 14.01, and all other sums of money or charges required to be paid by Tenant under this lease, whether or not the same be designated "additional rent." If such amounts or charges are not paid at the time provided in this lease, they shall nevertheless, if not paid when due, be collectible as additional rent with the next installment of rent thereafter falling due hereunder, but nothing herein contained shall be deemed to suspend or delay the payment of any amount of money or charge at the time the same becomes due and payable hereunder, or limit any other remedy of the Owner. SECTION 2.06. PAST DUE RENT AND ADDITIONAL RENT. If Tenant shall fail to pay, [when the same is due and payable,] WITHIN 10 [5] DAYS OF THE FIRST DAY OF THE CALENDAR MONTH, any rent or any additional rent, or amounts or charges of the character described in Section 2.05 hereof, such unpaid amounts shall bear interest from the due date thereof to the date of payment at the rate of FIFTEEN PERCENT (15%) per annum. ARTICLE III RECORDS AND BOOKS OF ACCOUNT SECTION 3.01. TENANT'S RECORDS. [APPLIES DURING YEARS 6 THROUGH 10 INCLUSIVE] APPLIES DURING YEARS 5 THROUGH 10 ONLY For the purpose of ascertaining the amount payable as rent, Tenant agrees to prepare and keep [on the leased premises] for a period of not less than two (2) years following the end of each lease year adequate records which shall [show inventories and receipts of merchandise at the leased premises, and daily receipts] from all sales [and other transactions] on or from the leased premises by Tenant [and any other persons conducting any business upon or from said premises]. Tenant shall record at the time of sale, in the presence of the customer, all receipts from sales or other transactions whether for cash or credit in a cash register or in cash registers having a cumulative total [which shall be sealed in a manner approved by Owner, and having such other features as shall be approved by Owner.] Tenant further agrees to keep [on the leased premises] for at least two (2) years following the end of each lease year the gross income, sales and occupation tax returns with respect to said lease [years and all pertinent original sales records. [Pertinent original sales records shall include: (a) cash register tapes, including tapes from temporary registers; (b) serially numbered sales slips; (c) the originals of all mail orders at and to the leased premises; (d) the original records of all telephone orders at and to the leased premises; (e) settlement report sheets of transactions with sub-tenants, concessionaires and licensees; (f) the original records showing that merchandise returned by customers was purchased at the leased premises by such customers; (g) memorandum receipts or other records of merchandise taken out on approval; (h) such other sales records, if any, which would normally be examined by an independent accountant pursuant to accepted auditing standards in performing an audit of Tenant's sales; and (i) the records specified in (a) to (h) above of sub-tenants, assignees, concessionaires, or licensees]. Owner and Owner's authorized representative shall have the right to examine Tenant records aforesaid during regular business hours[.] SECTION 3.02. REPORTS BY TENANT. [APPLIES DURING YEARS 6 THROUGH 10 INCLUSIVE] APPLIES ONLY DURING YEARS 5 THROUGH 10. Tenant shall submit to Owner on or before the 15th day following each three (3) month period during the term hereof (including the 15th day of the month following the end of the term) at the place then fixed for the payment of rent, [together with the remittance of quarterly percentage rent,] a written statement signed by Tenant, and certified by it to be true and correct showing in reasonably accurate detail, the amount of gross receipts for each month during the preceding three months and fractional month, if any, prior to the commencement of the first lease year. Tenant shall submit to the Owner on or before the 60th day following the end of each lease year at the place then fixed for the payment of rent a written statement signed by Tenant, and certified to be true and correct showing in reasonably accurate detail satisfactory in scope to Owner the amount of gross receipts during the preceding lease year, [and duly certified by independent certified public accountants of recognized standing, which certification shall be one which is satisfactory to Owner in scope and substance. ]The statements referred to herein shall be in such form and style and contain such details and breakdown as the Owner may reasonably determine. ARTICLE IV AUDIT SECTION 4.01. RIGHT TO EXAMINE BOOKS. [APPLIES DURING YEARS 6 THROUGH 10 INCLUSIVE] APPLIES ONLY DURING YEARS 5 THROUGH 10. The acceptance by the Owner [of payments of percentage rent] shall be without prejudice to the Owner's right to an examination of the Tenant's Books and records of its gross receipts [and inventories of merchandise] at the leased premises in order to verify the amount of annual gross receipts received by the Tenant in and from the leased premises. SECTION 4.02. AUDIT. [APPLIES DURING YEARS 6 THROUGH 10 INCLUSIVE] APPLIES ONLY DURING YEARS 5 THROUGH 10. At its option, Owner may cause, at any reasonable time upon forty-eight (48) hours prior written notice to Tenant, a complete audit to be made of Tenant's entire business affairs and records relating to the leased premises for the period covered by any statement issued by the Tenant as above set forth. If such audit shall disclose a liability for rent to the extent of five (5%) percent or more in excess of the rentals theretofore computed and paid by Tenant for such period, Tenant shall promptly pay to Owner the cost of said audit in addition to the deficiency, which deficiency shall be payable in any event, and, in addition, Owner, at Owner's option, may terminate this lease upon five (5) days notice to Tenant of Owner's election so to do. Any information obtained by the owner as a result of such audit shall be held in strict confidence by Owner. 3. 5 ARTICLE V CONSTRUCTION, ALTERATION, RELOCATION AND FINANCING OF IMPROVEMENTS AND ADDITIONS THERETO SECTION 5.01. [OWNER'S] TENANTS OBLIGATION. [Owner] TENANT shall at its cost and expense construct the leased premises for Tenant's use and occupancy in accordance with plans and specifications prepared by [owner] TENANT or [owner's] TENANT'S architect, incorporating in such construction all items of work described in Exhibit "B" attached hereto and made a part hereof. [Any work in addition to any of the items specifically enumerated in said Exhibit "B" shall be performed by the Tenant at its own cost and expense. Any equipment or work other than those items specifically enumerated in said Exhibit "B" which the Owner installs or constructs in the leased premises on the Tenant's behalf shall be paid for by the Tenant within fifteen days after receipt of a bill therefor at cost, plus twenty (20%) percent for overhead and supervision.] CONTRACT TO BE ENTERED INTO SHALL REQUIRE A PAYMENT AND PERFORMANCE BOND. ALL PERMITS, IMPACT FEES AND SUCH OTHER CHARGES ARE TO BE PAID BY TENANT. TENANT SHALL NOT PERMIT ANY CONSTRUCTION LIEN TO BE FILED AGAINST THE LEASED PREMISES AS A RESULT OF LABOR, MATERIALS OR SERVICES PERFORMED UPON OR SUPPLIED TO THE LEASED PREMISES BY OR AT THE REQUEST OF TENANT, AND, IN THE EVENT ANY SUCH CONSTRUCTION LIEN IS FILED AGAINST THE LEASED PREMISES, TENANT SHALL WITHIN THIRTY (30) DAYS FOLLOWING NOTICE THEREOF CAUSE THE LIEN TO BE TRANSFERRED TO BOND [US] AS PROVIDED BY STATUTE. SECTION 5.02. PARKING FACILITIES. The Owner shall construct upon the Shopping Center site at its own cost access roads, footways and parking lots or facilities as shown on Exhibit "A". SECTION 5.03. CHANGES AND ADDITIONS TO BUILDINGS. Owner hereby reserves the right at any time to make alterations or additions to and to build additional stories on the building in which the premises are contained and to build adjoining the same. Owner also reserves the right to construct other buildings or improvements in the Shopping Center from time to time and to make alterations thereof or additions thereto and to build additional stories on any such building or buildings and to build adjoining same and to construct double-deck or elevated parking facilities. SECTION 5.04. FINANCING. [ The Owner shall not be obligated to proceed with the construction of the leased premises unless and until financing acceptable to Owner is obtained. Should such financing not be obtainable within six (6) months after completion of final plans and specifications, Owner may so notify Tenant in writing, and this lease shall thereupon cease and terminate and each of the parties hereto shall be released and discharged from any and all liability and responsibility hereunder. If Owner can obtain financing only upon the basis of modifications of the terms and provisions of this lease, the Owner shall have the right to cancel this lease, if the Tenant refuses to approve in writing any such modification within thirty days after Owner's request therefor, which request may not be made after delivery of possession. If such right to cancel is exercised, this lease shall thereafter be null and void, any money or security deposited hereunder shall be returned to Tenant, and neither party shall have any liability to the other by reason of such cancellation.] SECTION 5.05. RIGHT TO RELOCATE. [The purpose of the site plan attached hereto as Exhibit "A" is to show the approximate location of the leased premises. Owner reserves the right at any time to relocate the various buildings, automobile parking areas, and other common areas shown on said site plan.] ARTICLE VI CONDUCT OF BUSINESS BY TENANT SECTION 6.01. USE OF PREMISES. Tenant shall use the leased premises solely for the purpose of conducting the business of: A RESTAURANT [Tenant shall occupy the leased premises within thirty (30) days after the date of the notice provided for in Section 1.03 hereof, and shall conduct continuously in the leased premises the business above stated.] Tenant will not use or permit, or suffer the use of the leased premises for any other business or purpose. Tenant shall not conduct catalogue sales in or from the leased premises except of merchandise which Tenant is permitted to sell "over the counter" in or at the leased premises pursuant to the provisions of this Section 6.01. DURING THE TERM OF THIS LEASE AND ANY RENEWAL THEREOF, PROVIDING TENANT IS NOT IN DEFAULT, TENANT SHALL HAVE THE EXCLUSIVE RIGHT TO OPERATE IN THE SHOPPING CENTER A FOOD SERVICE BUSINESS OFFERING FOOD FOR ON PREMISES CONSUMPTION ("FOOD SERVICE BUSINESS"); PROVIDED, HOWEVER , LANDLORD MAY ALLOW ONE OR MORE OTHER FOOD SERVICE BUSINESSES TO OPERATE WITHIN THE SHOPPING CENTER, SO LONG AS NO ONE FOOD SERVICE BUSINESS OCCUPIES SPACE LARGER THAN 3,000 SQUARE FEET. SECTION 6.02. OPERATION OF BUSINESS. Tenant shall operate all of leased premises during the entire term of this lease with due diligence and efficiency so as to produce all of the gross sales which may be produced by such manner of operation, unless prevented from doing so by causes beyond Tenant's control. Subject to inability by reason of strikes or labor disputes, Tenant shall carry at all times in said premises a stock of merchandise of such size, character and quality as shall be reasonably designed to produce the maximum return to Owner and Tenant. Tenant shall conduct its business in the leased premises during the regular customary days and hours for such type of business in the City or trade area in which the Shopping Center is located. [, and will keep the leased premises open for business during the same days, nights and hours as ....... store located in the Shopping Center, or during the days, nights and hours agreed upon by a majority of the members of the Merchants Association provided for in Section 18.03 hereof. Tenant shall install and maintain at all times displays of merchandise in the display windows (if any) of the leased premises.] Tenant shall keep the display windows and signs, if any, in the leased premises well lighted during the hours from sundown to 11:00 o'clock P.M., unless prevented by causes beyond the control of Tenant. SECTION 6.03. COMPETITION. During the term of this lease Tenant shall not directly or indirectly engage in any similar or competing business within a radius of three miles from the outside boundary of the Shopping Center. Tenant shall not perform any acts or carry on any practices which may injure the building or be a nuisance or menace to other tenants in the Shopping Center. SECTION 6.04. STORAGE, OFFICE SPACE. Tenant shall warehouse, store and/or stock in the leased premises only such goods, wares and merchandise as Tenant intends to offer for sale at retail at, in, from or upon the leased premises. This shall not preclude occasional emergency transfers of merchandise to the other stores of Tenant, if any, not located in the Shopping Center. Tenant shall use for office, clerical or other nonselling purposes only such space in the leased premises as is from time to time reasonably required for Tenant's business in the leased premises. No auction, fire or bankruptcy sales may be conducted in the leased premises without the previous written consent of Owner. 4. 6 ARTICLE VII OPERATION OF CONCESSIONS SECTION 7.01. CONSENT OF OWNER. Tenant shall not permit any business to be operated in or from the leased premises by any concessionaire or licensee without the prior written consent of Owner, EXCEPT TENANT MAY OPERATE UP TO TWO (2) "SKILL CRANE" VENDING MACHINES. ARTICLE VIII SECURITY DEPOSIT SECTION 8.01. AMOUNT OF DEPOSIT. Tenant, contemporaneously with execution of this lease, has deposited with Owner the sum of EIGHT THOUSAND Dollars ($8,000.00), receipt of which is hereby acknowledged by Owner. Said deposit shall be held by Owner, without liability for interest, as security for the faithful performance by Tenant of all of the terms, covenants, and conditions of this lease by said Tenant to be kept and performed during the term hereof. If at any time during the term of this lease any of the rent herein reserved shall be overdue and unpaid, or any other sum payable by Tenant to Owner hereunder shall be overdue and unpaid then Owner may, at the option of Owner (but Owner shall not be required to), appropriate and apply any portion of said deposit to the payment of such overdue rent or other sum. SECTION 8.02. USE AND RETURN OF DEPOSIT. In the event of the failure of Tenant to keep and perform any of the terms, covenants and conditions of this lease to be kept and performed by Tenant, then the Owner at its option may appropriate and apply said entire deposit, or so much thereof as may be necessary, to compensate the Owner for loss or damage sustained or suffered by Owner due to such breach on the part of Tenant. Should the entire deposit, or any portion thereof, be appropriated and applied by Owner for the payment of overdue rent or other sums due and payable to Owner by Tenant hereunder, then Tenant shall, upon the written demand of Owner, forthwith remit a sufficient amount in cash to restore said security in the original sum deposited, and Tenant's failure to do so within five (5) days after receipt of such demand shall constitute a breach of this lease. Should Tenant comply with all of said terms, covenants and conditions and promptly pay all of the rental herein provided for as it falls due, and all other sums payable by Tenant to Owner hereunder, the said deposit shall be returned in full to Tenant at the end of the term of this lease, or upon the earlier termination of this lease. SECTION 8.03. TRANSFER OF DEPOSIT. Owner may deliver the funds deposited hereunder by Tenant to the purchaser of Owner's interest in the leased premises, in the event that such interest be sold, and thereupon Owner shall be discharged from any further liability with respect to such deposit. ARTICLE IX PARKING AND COMMON USE AREAS AND FACILITIES SECTION 9.01. CONTROL OF COMMON AREAS BY OWNER. All automobile parking areas, driveways, entrances and exits thereto, and other facilities furnished by Owner in or near the Shopping Center, including employee parking areas, the truck way or ways, loading docks, package pick-up stations, pedestrian sidewalks and ramps, landscaped areas, exterior stairways, first-aid stations, comfort stations and other areas and improvements provided by Owner for the general use, in common, of tenants, their officers, agents, employees and customers, shall at all times be subject to the exclusive control and management of Owner, and Owner shall have the right from time to time to establish, modify and enforce rules and regulations with respect to all facilities and areas mentioned in this Article. Owner shall have the right to construct, maintain or operate lighting facilities on all said areas and improvements; to police the same; from time to time to change the area, level, location and arrangement of parking areas and other facilities hereinabove referred to; to restrict parking by tenants, their officers, agents and employees to employee parking areas; SO LONG AS SUCH CHANGES DO NOT REDUCE PARKING SPACES CURRENTLY AVAILABLE TO TENANTS CUSTOMERS OR OTHERWISE ADVERSELY EFFECT TENANTS BUSINESS, [to enforce parking charges (by operation of meters or otherwise), with appropriate provisions for free parking ticket validating by Tenants]; to close all or any portion of said areas or facilities to such extent as may, in the opinion of Owner's counsel, be legally sufficient to prevent a dedication thereof or the accrual of any rights to any person or the public therein; [to close temporarily all or any of the parking areas or facilities;] to discourage non-customer parking; and to do and perform such other acts in and to said areas and improvements as, in the use of good business judgement, the Owner shall determine to be advisable with a view to the improvement of the convenience and use thereof by Tenants, their officers, agents, employees and customers. Owner will operate and maintain the common facilities referred to above in such manner as Owner, in its sole discretion, shall determine from time to time. Without limiting the scope of such discretion, Owner shall have the full right and authority to employ all personnel and to make all rules and regulations pertaining to and necessary for the proper operation and maintenance of the common areas and facilities. TENANT SHALL AT ALL TIMES HAVE ACCESS TO AT LEAST 165 PARKING SPACES, ON A NON EXCLUSIVE BASIS, FOR ITS CUSTOMERS, NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT. PRIOR TO TENANT OPENING FOR BUSINESS, OWNER SHALL RESTRIPE THE PARKING AREA IN ACCORDANCE WITH THE SITE PLAN ATTACHED HERETO AND IDENTIFIED AS EXHIBIT "A". SECTION 9.02. LICENSE. All common areas and facilities not within the leased premises, which Tenant may be permitted to use and occupy, are to be used and occupied under a revocable license, and if the amount of such areas be diminished, Owner shall not be subject to any liability nor shall Tenant be entitled to any compensation or diminution or abatement of rent, not shall such diminution of such areas be deemed constructive or actual eviction. 5. 7 ARTICLE X COST OF MAINTENANCE OF COMMON AREAS SECTION 10.01. TENANT TO BEAR PRO RATA SHARE OF EXPENSES. (a) In each lease year, Tenant will pay to Owner, in addition to the rentals specified in Article II hereof, as further additional rent, subject to the limitation hereinafter set forth, a proportion of the Shopping Center's operating cost, hereinafter defined, based upon a ratio of the square feet of the leased premises to the total square feet of all the building space leased in the Shopping Center. TENANT'S SHARE SHALL NOT EXCEED 10.25% (b) For the purpose of this Section 10.01 the "Shopping Center's operating cost" means the total REASONABLE cost and expense incurred in operating and maintaining the common facilities, hereinafter defined, actually used or available for use by Tenant and the employees, agents, servants, customers and other invitees of Tenant, excluding only items of expense commonly known and designated as carrying charges, but specifically including, without limitation, gardening and landscaping, [the cost of public liability and property damage insurance, real estate taxes and assessments,] repairs, line painting, lighting MAINTENANCE, sanitary control, removal of snow, trash, rubbish, garbage and other refuse, depreciation on machinery and equipment used in such maintenance, the cost of personnel to implement such services, to direct parking, and to police the common facilities and 15% of all the foregoing costs[ (excluding real estate taxes and assessments)] to cover the Owner's administrative and overhead costs. "Common facilities" means all areas, space, equipment and special services provided by Owner for the common or joint use and benefit of the occupants of the Shopping Center, their employees, agents, servants, customers and other invitees, including without limitation parking areas, access roads, driveways, retaining walls, landscaping areas, truck serviceways or tunnels, loading docks, pedestrian malls, courts, stairs, ramps and sidewalks, comfort and first aid stations, washrooms and parcel pick-up stations. [(c) The additional rent provided to be paid in this Section 10.01 shall be computed on the basis of periods of three (3) consecutive calendar months, commencing and ending on such dates as may be designated by Owner, and shall be paid by Tenant promptly upon receipt of quarterly bills thereof from Owner without any deduction or set-off whatever.] (d) Changes in any particular floor area occurring during any quarterly period shall be effective on the first day of the next succeeding quarterly period, and the amount of any floor area in effect for the whole of any quarterly period shall be the average of the total amounts in effect on the first day of each calendar month in such quarterly period. (e) TENANT TO PAY $670.00 PER MONTH, PLUS FLORIDA STATE SALES TAX, TOWARDS ITS PRO RATA SHARE OF COMMON AREA MAINTENANCE, TO BE ADJUSTED ANNUALLY; ALSO MONTHLY PAYMENTS TO BE ADJUSTED ANNUALLY, BASED ON PREVIOUS YEARS ACTUAL. INCREASE FOR COMMON AREA MAINTENANCE SHALL NOT EXCEED 5% PER YEAR, EXCLUDING UTILITIES, AFTER RECONCILIATION, DURING THE 1ST 5 YEARS ONLY. OWNER SHALL PROVIDE TENANT DETAILED DOCUMENTATION OF ACTUAL COMMON AREA MAINTENANCE CHARGES AT THE TIME OF ANNUAL RECONCILIATION, AND ALLOW TENANT TO AUDIT SUCH DOCUMENTATION UPON REASONABLE NOTICE. ARTICLE XI SIGNS, AWNINGS, CANOPIES, FIXTURES, ALTERATIONS SECTION 11.01. INSTALLATION BY TENANT. All fixtures installed by Tenant shall be new or completely reconditioned. Tenant shall not make or cause to be made any alterations, additions or improvements or install or cause to be installed any trade fixture, exterior signs, floor covering, interior or exterior lighting, plumbing fixtures, shades or awnings or make any changes to the store front without first obtaining Owner's written approval and consent. Tenant shall present to the Owner plans and specifications for such work at the time approval is sought. TENANT TO INSTALL AN INDIVIDUAL ILLUMINATED LETTER SIGN ON FASCIA IMMEDIATELY ABOVE STORE FRONT. TENANT TO SUBMIT DRAWINGS OF SAID SIGN TO LANDLORD FOR APPROVAL PRIOR TO INSTALLATION. PYLON SIGN PER EXHIBIT "C" ["A"] ATTACHED. TENANT HAS THE RIGHT TO PLACE A DIRECTIONAL SIGN AT THE HANLEY ROAD ENTRANCE, PROVIDING LANDLORD'S PRIOR WRITTEN APPROVAL IS OBTAINED, AND APPROPRIATE PERMITS AND APPROVALS ARE OBTAINED FROM APPLICABLE GOVERNMENTAL AGENCIES. SECTION 11.02. REMOVAL AND RESTORATION BY TENANT. All alterations, decorations, additions and improvements made by the Tenant, or made by the Owner on the Tenant's behalf by agreement under this lease, shall remain the property of the Tenant for the term of the lease, or any extension or renewal thereof. Such alterations, decorations, additions and improvements shall not be removed from the premises prior to the end of the term hereof without prior consent in writing from the Owner. [Upon expiration of this lease, or any renewal term thereof, the Tenant shall remove all such alterations, decorations, additions and improvements and restore the leased premises as provided in Section 12.03 hereof.] If the Tenant fails to remove such alterations, decorations, additions and improvements and restore the leased premises, then upon the expiration of this lease, or any renewal thereof, and upon Tenant's removal from the premises, all such alterations, decorations, additions and improvements shall become the property of the Owner. SECTION 11.03. TENANT SHALL DISCHARGE ALL LIENS. Tenant shall promptly pay all contractors and materialmen, so as to minimize the possibility of a lien attaching to the leased premises, and should any such lien be made or filed, Tenant shall bond against or discharge the same within ten (10) days after written request by Owner. SECTION 11.04. SIGNS, AWNINGS AND CANOPIES. Tenant will not place or suffer to be placed or maintained on any exterior door, wall or window of the leased premises any sign, awning or canopy, or advertising matter or other thing of any kind, and will not place or maintain any decoration, lettering or advertising matter on the glass of any window or door of the leased premises without first obtaining Owner's written approval and consent. Tenant further agrees to maintain such sign, awning, canopy, decoration, lettering, advertising matter or other thing as may be approved in good condition and repair at all times. ARTICLE XII MAINTENANCE OF LEASED PREMISES SECTION 12.01. MAINTENANCE BY TENANT. Tenant shall at all times keep the leased premises (including maintenance of exterior entrances, such as glass and show window mouldings) and all partitions, doors, fixtures, equipment and appurtenances thereof (including lighting, heating and plumbing fixtures, escalators, elevators, and any air conditioning system) in good order, condition and repair (including reasonably periodic painting as determined by Owner), damage by unavoidable casualty excepted, except for structural portions AND THE ROOF of the premises, which shall be maintained by Owner, but if Owner is required to make repairs to structural portions by reason of Tenant's negligent acts or omission to act, Owner may add the cost of such repairs to the rent which shall thereafter become due. 6. 8 SECTION 12.02. MAINTENANCE BY OWNER. If Tenant refuses or neglects to repair property as required hereunder and to the reasonable satisfaction of Owner as soon as reasonably possible after demand, Owner may make such repairs without liability to Tenant for any loss or damage that may accrue to Tenant's merchandise, fixtures, or other property or to Tenant's business by reason thereof, and upon completion thereof, Tenant shall pay Owner's costs for making such repairs plus twenty percent for overhead, upon presentation of bill therefor, as additional rent. SECTION 12.03. SURRENDER OF PREMISES. At the expiration of the tenancy hereby created, Tenant shall surrender the leased premises in the same condition as the leased premises were in upon delivery of possession thereto under this lease, reasonable wear and tear excepted, and damage by unavoidable casualty excepted, and shall surrender all keys for the leased premises to Owner at the place then fixed for the payment of rent and shall inform Owner of all combinations on locks, safes and vaults, if any, in the leased premises. Tenant shall remove all its trade fixtures, [and any alterations or improvements as provided in Section 11.02 hereof, surrendering the premises as aforesaid] and shall repair any damage to the leased premises caused thereby. Tenant's obligation to observe or perform the covenant shall survive the expiration or other termination of the term of this lease. SECTION 12.04. RULES AND REGULATIONS. The rules and regulation appended to this lease are hereby made a part of this lease, and Tenant agrees to comply with and observe the same. Tenant's failure to keep and observe said rules and regulations shall constitute a breach of the terms of this lease in the manner as if the same were contained herein as covenants. Owner reserves the right from time to time to amend or supplement said rules and regulations and to adopt and promulgate additional rules and regulations applicable to leased premises and the Shopping Center. Notice of such additional rules and regulations and amendments and supplements, if any, shall be given to Tenant, and Tenant agrees thereupon to comply with and observe all such rules and regulations, and amendments thereto and supplements thereof, provided the same shall apply uniformly to all tenants of the Shopping Center. ARTICLE XIII INSURANCE AND INDEMNITY SECTION 13.01. LIABILITY INSURANCE. Tenant shall, during the entire term hereof, keep in full force and effect a policy of public liability and property damage insurance with respect to the leased premises, and the business operated by Tenant and any subtenants of Tenant in the leased premises in which the limits of public liability shall not be less than $200,000 per person and $500,000 per accident and in which the property damage liability shall be not less than $50,000. The policy shall name Owner, any person, firms or corporations designated by Owner, and Tenant as insured, and shall contain a clause that the insurer will not cancel or change the insurance without first giving the Owner ten days prior written notice. The insurance shall be in an insurance company approved by Owner and a copy of the policy or a certificate of insurance shall be delivered to Owner. TENANT TO PAY $250.00 PER MONTH PLUS FLORIDA STATE SALES TAX TOWARDS ITS PRO RATA SHARE OF INSURANCE. SECTION 13.02. INCREASE IN FIRE INSURANCE PREMIUM. [Tenant agrees that it will not keep, use, sell or offer for sale in or upon the leased premises any article which may be prohibited by the standard form of fire insurance policy. Tenant agrees to pay any increase in premiums for fire and extended coverage insurance that may be charged during the term of this lease on the amount of such insurance which may be carried by Owner on said premises or the building of which they are a part, resulting from the type of merchandise sold by Tenant in the leased premises, whether or not Owner has consented to the same. In determining whether increased premiums are the result of Tenant's use of the leased premises, a schedule, issued by the organization making the insurance rate on the leased premises, showing the various components of such rate, shall be conclusive evidence of the several items and charges which make up the fire insurance rate on the leased premises. In the event Tenant's occupancy causes any increase of premium for the fire, boiler and/or casualty rates on the leased premises or any part thereof above the rate for the least hazardous type of occupancy legally permitted in the leased premises, the Tenant shall pay the additional premium on the fire, boiler and/or causality insurance policies by reason thereof. The Tenant also shall pay in such event, any additional premium on the rent insurance policy that may be carried by the Owner for its protection against rent loss through fire. Bills for such additional premiums shall be rendered by Owner to Tenant at such time as Owner may elect, and shall be due from, and payable by Tenant when rendered, and the amount thereof shall be deemed to be, and be paid as additional rent.] SECTION 13.03. INDEMNIFICATION OF OWNER/TENANT. Tenant will indemnify Owner and save it harmless from and against any and all claims, actions, damages, liability and expense in connection with loss of life, personal injury and/or damage to property arising from or out of any occurrence in, upon or at the leased premises, or the occupancy or use by Tenant of the leased premises or any part thereof, or occasioned wholly or in part by any act or omission of Tenant, its agents, contractors, employees, servants, lessees or concessionaires. In case Owner shall, without fault on its part, be made a party to any litigations commenced by or against Tenant, then Tenant shall protect and hold Owner harmless and shall pay all costs, expenses and reasonable attorney's fees incurred or paid by Owner in connection with such litigation. Tenant shall also pay all costs, expenses and reasonable attorney's fees that may be incurred or paid by Owner in enforcing the covenants and agreements in this lease. THIS INDEMNIFICATION SHALL BE RECIPROCAL BETWEEN OWNER AND TENANT. SECTION 13.04. PLATE GLASS. Tenant shall replace, at the expense of Tenant, any and all plate and other glass damaged or broken from any cause whatsoever in and about the leased premises. Tenant will insure, and keep insured, at Tenant's expense, all plate and other glass in the leased premises for and in the name of Owner. SECTION 13.05. BOILER INSURANCE. The Tenant is required to obtain boiler broad form insurance, if any is applicable, in the amount of $50,000 in the name of the Tenant. The policy shall name Owner and Tenant as insured. A copy of the policy or a certificate of insurance shall be delivered to Owner. 7. 9 ARTICLE XIV UTILITIES SECTION 14.01. UTILITY CHARGES. Tenant shall be solely responsible for and promptly pay all charges for heat, water, gas, electricity or any other utility used or consumed in the leased premises. Should Owner elect to supply the water, gas, heat, electricity or any other utility used or consumed in the leased premises, Tenant agrees to purchase and pay for the same as additional rent at the applicable rates filed by the Owner with the proper regulatory authority. In no event shall Owner be liable for an interruption or failure in the supply of any such utilities to the leased premises, UNLESS CAUSED BY OWNER'S WILLFUL ACT OR GROSS NEGLIGENCIES. ARTICLE XV OFFSET STATEMENT, ATTORNMENT SUBORDINATION SECTION 15.01. OFFSET STATEMENT. Within ten days after request therefor by Owner, or in the event that upon any sale, assignment or hypothecation of the leased premises and/or the land thereunder by Owner an offset statement shall be required from Tenant; Tenant agrees to deliver in recordable form a certificate to any proposed mortgagee or purchaser, or to Owner, certifying (if such be the case) that this lease is in full force and effect and that there are no defenses or offsets thereto, or stating those claimed by Tenant. SECTION 15.02. ATTORNMENT. Tenant shall, in the event any proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale under any mortgage made by the Owner covering the leased premises, attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the Owner under this lease. SECTION 15.03. SUBORDINATION. Upon request of the Owner, Tenant will subordinate its rights hereunder to the lien of any mortgage or mortgages, or the lien resulting from any other method of financing or refinancing, now or hereafter in force against the land and/or buildings of which the leased premises are a part or against any buildings hereafter placed upon the land of which the leased premises are a part, and to all advances made or hereafter to be made upon the security thereof. SECTION 15.04. ATTORNEY-IN-FACT. [ The tenant, upon request of any party in interest, shall execute promptly such instruments or certificates to carry out the intent of Sections 15.02 and 15.03 above as shall be requested by the Owner. The Tenant hereby irrevocably appoints the Owner as attorney-in-fact for the Tenant with full power and authority to execute and deliver in the name of the Tenant any such instruments or certificates. If fifteen (15) days after the date of a written request by Owner to execute such instruments, the Tenant shall not have executed the same, the Owner may, at its option, cancel this lease without incurring any liability on account thereof, and the term hereby granted is expressly limited accordingly.] ARTICLE XVI ASSIGNMENT AND SUBLETTING SECTION 16.01. CONSENT REQUIRED. Tenant will not assign this lease in whole or in part, nor sublet all or any part of the leased premises, without the prior written consent of Owner in each instance. The consent by Owner to any assignment or subletting shall not constitute a waiver of the necessity for such consent to any subsequent assignment or subletting. This prohibition against assigning or subletting shall be construed to include a prohibition against any assignment or subletting by operation of law. If this lease be assigned, or if the leased premises or any part thereof be underlet or occupied by anybody other than Tenant, Owner may collect rent from the assignee, under-tenant or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, underletting, occupancy or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, under-tenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. Notwithstanding any assignment or sublease, Tenant shall remain fully liable on this lease and shall not be released from performing any of the terms, covenants and conditions of this lease. SECTION 16.02. CORPORATE OWNERSHIP. If at any time during the term of this lease any part or all of the corporate shares of Tenant shall be transferred by sale, assignment, bequest, inheritance, operation of law or other disposition so as to result in a change in the present effective voting control of Tenant by the person or persons owning a majority of said corporate shares on the date of this lease, Tenant shall promptly notify Owner in writing of such change. [and Owner may terminate this lease at any time after such change in control by giving Tenant ninety (90) days' prior written notice of such termination.] SECTION 16.03 Notwithstanding anything contained in this Lease to the contrary, Landlord shall not be obligated to entertain or consider any request by Tenant to consent to any proposed assignment of this Lease or sublet of all or any part of the Demised Premises unless each request by Tenant is accompanied by a nonrefundable fee payable to Landlord in the amount of TWO HUNDRED FIFTY Dollars ($250.00) to cover Landlord's administrative, legal, and other costs and expenses incurred in processing each of Tenant's requests. Neither Tenant's payment nor Landlord's acceptance of the foregoing fee shall be construed to impose any obligation whatsoever upon Landlord to consent to Tenant's request. ARTICLE XVII WASTE, GOVERNMENTAL REGULATIONS SECTION 17.01. WASTE OR NUISANCE. Tenant shall not commit or suffer to be committed any waste upon the leased premises or any nuisance or other act or thing which may disturb the quiet enjoyment of any other tenant in the building in which the leased premises may be located, or in the Shopping Center, or which may disturb the quiet enjoyment of any person within five hundred feet of the boundaries of the Shopping Center. 8. 10 SECTION 17.02. GOVERNMENTAL REGULATIONS. Tenant shall, at Tenant's sole cost and expense, comply with all of the requirements of all county, municipal, state, federal and other applicable governmental authorities, now in force, or which may hereafter be in force, pertaining to the said premises, and shall faithfully observe in the use of the premises all municipal and county ordinances and state and federal statutes now in force or which may hereafter be in force. NOTWITHSTANDING THE FOREGOING, TENANT SHALL ONLY BE OBLIGATED TO MAKE ALTERATIONS OR IMPROVEMENTS WITHIN THE DEMISED PREMISES IF REQUIRED BY SUCH AUTHORITIES. ARTICLE XVIII ADVERTISING, MERCHANTS ASSOCIATION SECTION 18.01. CHANGE OF NAME. Tenant agrees not to change the advertised name of the business operated in the leased premises without the written permission of Owner. SECTION 18.02. SOLICITATION OF BUSINESS. Tenant and Tenant's employees and agents shall not solicit business in the parking or other common areas, nor shall tenant distribute any handbills or other advertising matter in automobiles parked in the parking area or in other common areas. SECTION 18.03. MERCHANTS' ASSOCIATION. [ The Tenant will become a member of, participate fully in, and remain in good standing in the Merchants' Association (as soon as the same has been formed) limited to tenants occupying premises in the Shopping Center, and abide by the regulations of such Association. Each member tenant shall have one vote and the Owner shall also have one vote in the operation of said Association. The objects of such Association shall be to encourage its members to deal fairly and courteously with their customers, to sell their merchandise or services at fair prices, to follow ethical business practices, to assist the business of the tenants by sales promotions and center-wide advertising, and in particular to help the interests of members of the said Association. The Tenant agrees to pay minimum dues to the Merchants' Association in the amount of $........ per month (calculated on the basis of $.20 per square foot per year of the area of the leased premises), subject, however, to annual adjustments, approved by a majority vote of the members of the Association, increasing said dues to the extent required by increases in the costs of promotional, public relations and advertising services. In any event, the continuing monthly contributions to the Association will be adjusted annually by a percentage equal to the percentage increase or decrease from the base period of the United States Department of Labor, Bureau of Labor Statistics Cost of Living Index, provided that said Index has increased or decreased by at least 10% or more from the base period. The term "base period" shall refer to the date on which said Index is published, which is closest to the date of the formation of the Merchants' Association. The Tenant also agrees to pay the Merchants' Association an initial assessment, in addition to the foregoing dues, in the amount of $........ (calculated on the basis of......... per square foot of the area of the leased premises) for the purposes of defraying the promotional and public relations expenses to be incurred by the Merchants' Association in connection with the joint opening of the Shopping Center. The Owner shall pay to the Merchants' Association for the purposes of promotion of such joint opening an amount equal to one third of the aggregate assessments payable by all members of the Association for such promotion, and shall pay to the Merchants' Association for the continuing promotion of the Shopping Center an amount equal to one-fourth of the aggregate monthly dues payable by the members of the Association. Nothing in the By-Laws or regulations of the said Association shall be in conflict with the provisions of this lease, including without limiting the generality of the foregoing any reasonable rules and regulations adopted pursuant to the provisions of Section 12.04 hereof, or in any way shall affect the rights of the Owner.] ARTICLE XIX DESTRUCTION OF LEASED PREMISES SECTION 19.01. TOTAL OR PARTIAL DESTRUCTION. If the leased premises shall be damaged by fire, the elements, unavoidable accident or other casualty, but are not thereby rendered untenantable in whole or in part, Owner shall at its own expense cause such damage to be repaired, and the rent shall not be abated. If by reason of such occurrence, the premises shall be rendered untenantable only in part, Owner shall at its own expense cause the damage to be repaired, and the fixed minimum rent meanwhile shall be abated proportionately as to the portion of the premises rendered untenantable. If the premises shall be rendered wholly untenantable by reason of such occurrence the Owner shall at its own expense cause such damage to be repaired, and the fixed minimum rent meanwhile shall abate until the leased premises have been restored and rendered tenantable, or Owner may at its election, terminate this lease and the tenancy hereby created by giving to Tenant within the sixty (60) days following the date of said occurrence, written notice of Owner's election so to do and in event of such termination rent shall be adjusted as of such date. Nothing in this Section shall be construed to permit the abatement in whole or in part of the percentage rent, but for the purpose of Section 2.02 hereof the computation of percentage rent shall be based upon the revised minimum rent as the same may be abated pursuant to this Section 19.01. SECTION 19.02. PARTIAL DESTRUCTION OF SHOPPING CENTER. In the event that fifty (50%) percent or more of the rentable area of the Shopping Center shall be damaged or destroyed by fire or other cause, notwithstanding that the leased premises may be unaffected by such fire or other cause, Owner may terminate this lease and the tenancy hereby created by giving the Tenant five (5) days prior written notice of Owner's election so to do which notice shall be given, if at all, within the sixty (60) days following the date of said occurrence. Rent shall be adjusted as of the date of such termination. ARTICLE XX EMINENT DOMAIN SECTION 20.01. TOTAL CONDEMNATION OF LEASED PREMISES. If the whole of the leased premises shall be acquired or condemned by eminent domain for any public or quasi-public use or purpose, then the term of this lease shall cease and terminate as of the date of title vesting in such proceeding and all rentals shall be paid up to that date and Tenant shall have no claim against Owner nor the condemning authority for the value of any unexpired term of this lease. 9. 11 SECTION 20.02. PARTIAL CONDEMNATION. If any part of the leased premises shall be acquired or condemned as aforesaid, and in the event that such partial taking or condemnation shall render the leased premises unsuitable for the business of the Tenant, then the term of this lease shall cease and terminate as of the date of title vesting in such proceeding. Tenant shall have no claim against Owner nor the condemning authority for the value of any unexpired term of this lease and rent shall be adjusted to the date of such termination. In the event of a partial taking or condemnation which is not extensive enough to render the premises unsuitable for the business of the Tenant, the Owner shall promptly restore the leased premises to a condition comparable to its condition at the time of such condemnation less the portion lost in the taking, and this lease shall continue in full force and effect without any reduction or abatement of rent. SECTION 20.03. TOTAL CONDEMNATION OF PARKING AREA. If the whole of the common parking areas in the Shopping Center shall be acquired or condemned as aforesaid, then the term of this lease shall cease and terminate as of the date of title vesting in such proceeding unless Owner shall take immediate steps to provide other parking facilities substantially equal to the previously existing ration between the common parking areas and the leased premises, and such substantially equal parking facilities shall be provided by Owner at its own expense within ninety (90) days from the date of acquisition. In the event that Owner shall provide such other substantially equal parking facilities, then this lease shall continue in full force and effect without any reduction or abatement of rent. SECTION 20.04. PARTIAL CONDEMNATION OF PARKING AREA. If any part of the parking area in the Shopping Center shall be acquired or condemned as aforesaid, and if, as the result thereof the ratio of square feet of parking field to square feet of the sales area of the entire Shopping Center buildings is reduced to a ratio below two to one, then the term of this lease shall cease and terminate upon the vesting of title in such proceeding, unless the Owner shall take immediate steps toward increasing the parking ratio to a ratio in excess of two to one, in which event this lease shall be unaffected and remain in full force and effect without any reduction or abatement of rent. In event of termination of this lease as aforesaid, Tenant shall have no claim against Owner nor the condemning authority for the value of any unexpired term of this lease and rent shall be adjusted to the date of said termination. SECTION 20.05. OWNER'S DAMAGES. In the event of any condemnation or taking as aforesaid, whether whole or partial, the Tenant shall not be entitled to any part of the award paid for such condemnation and Owner is to receive the full amount of such award, the Tenant hereby expressly waiving any right or claim to any part thereof. SECTION 20.06. TENANT'S DAMAGES. Although all damages in the event of any condemnation are to belong to the owner whether such damages are awarded as compensation for diminution in value of the leasehold or to the fee of the leased premises, Tenant shall have the right to claim and recover from the condemning authority, but not from Owner, such compensation as may be separately awarded or recoverable by Tenant in Tenant's own right on account of any and all damage to Tenant's business by reason of the condemnation and for or on account of any cost or loss to which Tenant might be put in removing Tenant's merchandise, furniture, fixtures, leasehold improvements and equipment. SECTION 20.07. CONDEMNATION OF LESS THAN A FEE. In the event of a condemnation of a leasehold interest in all or a portion of the leased premises without the condemnation of the fee simple title also, this lease shall not terminate and such condemnation shall not excuse Tenant from full performance of all of its covenants hereunder, but Tenant in such event shall be entitled to present or pursue against the condemning authority its claim for and to receive all compensation or damages sustained by it by reason of such condemnation, and Owner's right to recover compensation or damages shall be limited to compensation for and damages if any, to its reversionary interest; it being understood, however, that during such time as Tenant shall be out of possession of the leased premises by reason of such condemnation, the lease shall not be subject to forfeiture for failure to observe and perform those covenants not calling for the payment of money. In the event the condemning authority shall fail to keep the premises in the state of repair required hereunder, or to perform any other covenant not calling for the payment of money, Tenant shall have ninety (90) days after the restoration of possession to it within which to carry out its obligations under such covenant or covenants. During such time as Tenant shall be out of possession of the leased premises by reason of such leasehold condemnation, Tenant shall pay to Owner, in lieu of the minimum and percentage rents provided for hereunder, and in addition to any other payments required of Tenant hereunder, an annual rent equal to the average annual minimum and percentage rents paid by Tenant for the period from the commencement of the term until the condemning authority shall take possession, or during the preceding three full calendar years, whichever period is shorter. At any time after such condemnation proceedings are commenced, Owner shall have the right, at its option, to require Tenant to assign to Owner all compensation and damages payable by the condemnor to Tenant, to be held without liability for interest thereon as security for the full performance of Tenant's covenants hereunder, such compensation and damages received pursuant to said assignment to be applied first to the payment of rents and all other sums from time to time payable by Tenant pursuant to the terms of this lease as such sums fall due, and the remainder, if any, to be payable to Tenant at the end of the term hereof or on restoration of possession to Tenant, whichever shall first occur, it being understood and agreed that such assignment shall not relieve Tenant of any of its obligations under this lease with respect to such rents, and other sums except as the same shall be actually received by Owner. ARTICLE XXI DEFAULT OF THE TENANT SECTION 21.01. RIGHT TO RE-ENTER. In the event of any failure of Tenant to pay any rental due hereunder within ten (10) days after the same be due, or any failure to perform any other of the terms, conditions or covenants of this lease to be observed or performed by Tenant for more than thirty (30) days after written notice of such default shall have been given to Tenant, or if Tenant or an agent of Tenant shall falsify any report required to be furnished to Owner pursuant to the terms of this lease, or if Tenant or any guarantor of this Lease shall become bankrupt or insolvent, or file any debtor proceedings or take or have taken against Tenant or any guarantor of this Lease in any court pursuant to any statute either of the United States or of any State a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee of all or a portion of Tenant's or any such guarantor's property, or if Tenant or any such guarantor makes an assignment for the benefit of creditors, or petitions for or enters into an arrangement, or if Tenant shall abandon said premises, or suffer this lease to be taken under any writ of execution, then Owner besides other rights or remedies it may have, shall have the immediate right to re-entry and may remove all persons and property from the leased premises and such property may be removed and stored in a public warehouse or elsewhere at the cost of, and for the account of Tenant, all without service of notice or resort of legal process and without being deemed guilty of trespass, or becoming liable for any loss or damage which may be occasioned thereby. 10. 12 SECTION 21.02. RIGHT TO RELET. Should Owner elect to re-enter, as herein provided, or should it take possession pursuant to legal proceedings or pursuant to any notice REASONABLY provided for by law, it may either terminate this lease or it may from time to time without terminating this lease make such alterations and repairs as may be REASONABLY necessary in order to relet the premises, and relet said premises or any part thereof for such term or terms (which may be a term extending beyond the term of this lease) and such rental or rentals and upon such other terms and conditions as Owner in its sole discretion may deem advisable; upon each such reletting all rentals received by the Owner from such reletting shall be applied, to the payment of any indebtedness other than rent due hereunder from Tenant to Owner; second, to the payment of any costs and expenses of such reletting, including brokerage fees and attorney's fees and of cost of such alterations and repairs; third, to the payment of rent due and unpaid hereunder, and the residue, if any, shall be held by Owner and applied in payment of future rent as the same may become due and payable hereunder. If such rentals received from such reletting during any month be less than that to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Owner. Such deficiency shall be calculated and paid monthly. No such re-entry or taking possession of said premises by Owner shall be construed as an election on its part to terminate this lease unless a written notice of such intention be given to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any such reletting without termination, Owner may at any time thereafter elect to terminate this lease for such previous breach. Should Owner at any time terminate this lease for any breach, in addition to any other remedies it may have, it may recover from Tenant all damages it may incur by reason of such breach, including the cost of recovering the leased premises, reasonable attorney's fees, and including the worth at the time of such termination of the excess, if any, of the amount of rent and charges equivalent to rent reserved in this lease for the remainder of the stated term over the then reasonable rental value of the leased premises for the remainder of the stated term, all of which amounts shall be immediately due and payable from Tenant to Owner. In determining the rent which would be payable by Tenant hereunder, subsequent to default, the annual rent for each year of the unexpired term shall be equal to the average annual minimum and percentage rents paid by Tenant from the commencement or the term to the time of default, or during the preceding three full calendar years, whichever period is shorter. SECTION 21.03. LEGAL EXPENSES. In case suit shall be brought for recovery of possession of the leased premises, for the recovery of rent or any other amount due under the provisions of this lease, or because of the breach of any other covenant herein contained on the part of Tenant to be kept or performed, and a breach shall be established, Tenant shall pay to Owner all expenses incurred therefor, including a reasonable attorney's fee. SECTION 21.04. WAIVER OF JURY TRIAL AND COUNTERCLAIMS. The parties hereto shall and they hereby do waive trial by jury in any action proceeding or counterclaim brought by either of the parties hereto against the other on any matter whatsoever arising out of or in any way connected with the lease, the relationship of Owner and Tenant, Tenant's use or occupancy of the leased premises, and/or any claim of injury or damage. In the event Owner commences any proceedings for non-payment of rent, minimum rent, percentage rent and additional rent, Tenant will not interpose any counterclaim of whatever nature or description in any such proceedings. This shall not, however, be construed as a waiver of the Tenant's right to assert such claims in any separate action or actions brought by the Tenant. SECTION 21.05. WAIVER OF RIGHTS OF REDEMPTION. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed for any cause, or in the event of Owner obtaining possession of the leased premises by reason of the violation by Tenant of any of the covenants or conditions of this lease, or otherwise. ARTICLE XXII ACCESS BY OWNER SECTION 22.01. RIGHT OF ENTRY. Owner or Owner's agents shall have the right to enter the leased premises at all times UPON REASONABLE NOTICE TO TENANT to examine the same, and to show them to prospective purchasers or lessees of the building, and to make such repairs, alterations, improvements or additions as Owner may deem necessary or desirable, and Owner shall be allowed to take all material into and upon said premises that may be required thereof without the same constituting an eviction of Tenant in whole or in part and the rent reserved shall in no wise abate while said repairs, alterations, improvements, or additions are being made, by reason of loss or interruption of business of Tenant, or otherwise. During the six months prior to the expiration of the term of this lease or any renewal term, owner may exhibit the premises to prospective tenants or purchasers, and place upon the premises the usual notices "To Let" or "For Sale" which notices Tenant shall permit to remain thereon without molestation. If Tenant shall not be personally present to open and permit an entry into said premises, at any time, when for any reason an entry therein shall be necessary or permissible, Owner or Owner's agents may enter the same by a master key, or may forcibly enter the same, without rendering Owner or such agents liable therefor, and without in any manner affecting the obligations and covenants of this lease. Nothing herein contained however, shall be deemed or construed to impose upon Owner any obligation, responsibility or liability whatsoever, for the care, maintenance or repair of the building or any part thereof, except as otherwise herein specifically provided. SECTION 22.02. EXCAVATION. If an excavation shall be made upon land adjacent to the leased premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the leased premises for the purpose of doing such work as Owner shall deem necessary to preserve the wall or the building of which the leased premises form a part from injury or damage and to support the same by proper foundations, without any claim for damages or indemnification against Owner or diminution or abatement of rent. 11. 13 ARTICLE XXIII TENANT'S PROPERTY SECTION 23.01. TAXES ON LEASEHOLD. Tenant shall be responsible for and shall pay before delinquency all municipal, county or state taxes assessed during the term of this lease against any leasehold interest or personal property of any kind, owned by or placed in, upon or about the leased premises by the Tenant. SECTION 23.02. LOSS AND DAMAGE. Owner shall not be liable for any damage to property of Tenant or of others located on the premises, nor for the loss of or damage to any property of Tenant or of others by theft or otherwise. Owner shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain or snow or leaks from any part of the leased premises or from the pipes, appliances or plumbing works or from the roof, street or sub-surface or from any other place or by dampness or by any other cause of whatsoever nature. Owner shall not be liable for any such damage caused by other tenants or persons in the leased premises, occupants or adjacent property, of the Shopping Center, or the public, or caused by operations in construction of any private, public or quasi-public work. Owner shall not be liable for any latent defect in the leased premises or in the building of which they form a part except for a period of one (1) year from the date Tenant takes possession of the leased premises. All property of Tenant kept or stored on the leased premises shall be kept or stored at the risk of Tenant only and Tenant shall hold Owner harmless from any claims arising out of damage to the same, including subrogation claims by Tenant's insurance carrier, unless such damage shall be caused by the willful act or gross neglect of Owner. SECTION 23.03. NOTICE BY TENANT. Tenant shall give immediate notice to Owner in case of fire or accidents in the leased premises or in the building of which the premises are a part of defects therein or in any fixtures or equipment. ARTICLE XXIV HOLDING OVER, SUCCESSORS SECTION 24.01. HOLDING OVER. Any holding over after the expiration of the term hereof, with the consent of the Owner, shall be construed to be a tenancy from month to month at the rent herein specified (pro-rated on a monthly basis) and shall otherwise be on the terms and conditions herein specified, so far as applicable. SECTION 24.02. SUCCESSORS. All rights and liabilities herein given to, or imposed upon, the respective parties hereto shall extend and bind the several respective heirs, executors, administrators, successors, and assigns of the said parties; and if there shall be more than one tenant, they shall all be bound jointly and severally by the terms, covenants and agreements herein. No rights, however, shall inure to the benefit of any assignee of Tenant unless the assignment to such assignee has been approved by Owner in writing as provided in Section 16.01 hereof. ARTICLE XXV QUIET ENJOYMENT SECTION 25.01. OWNER'S COVENANT. Upon payment by the Tenant of the rents herein provided, and upon the observance and performance of all the covenants, terms and conditions on Tenant's part to be observed and performed, Tenant shall peaceably and quietly hold and enjoy the leased premises for the term hereby demised without hindrance or interruption by Owner or any other person or persons lawfully or equitably claiming by, through or under the Owner, subject, nevertheless, to the terms and conditions of this lease. ARTICLE XXVI ENVIRONMENTAL & COMPLIANCES SECTION 26.01. COMPLIANCE. Except for Hazardous Materials (as hereinafter defined) contained in products used by Tenant in small quantities for ordinary cleaning and office purposes, Tenant shall not permit or cause any party to bring any Hazardous Materials in, upon, or about the Premises, or transport, store, use, generate, manufacture or release any Hazardous Material in, upon, or about the Premises without the prior written consent of Landlord, in Landlord's sole and absolute discretion. Tenant, at Tenant's sole cost and expense, will operate its business upon the Premises, and maintain the Premises, in full compliance with all federal, state and local Environmental Laws (as hereinafter defined). Tenant shall notify Landlord of any change in the nature or extent of any hazardous or toxic materials , substances or wastes maintained on, in or under the Premises or used in connection therewith, and will transmit to Landlord copies of any citations, orders, notices or other material governmental or other communication received with respect to any other hazardous materials, substances, wastes or other environmentally regulated substances affecting the Premises. Tenant will remediate in a manner satisfactory to Landlord any Hazardous Materials released on or from the Premises by Tenant, its agents, employees, contractors, subtenants or invitees. Upon request of Landlord, Tenant will promptly complete and certify such disclosure statements to such parties as Landlord may require from time to time relating to Tenant's transportation, storage, use, generation or release of Hazardous Materials on the Premises. SECTION 26.02. INDEMNIFICATION. Tenant hereby agrees to indemnify, reimburse, defend and hold harmless Landlord, its officers, directors, employees, successors and assigns, from and against all demands, claims, civil or criminal actions or causes of action, liens, assessments, civil or criminal penalties or fines, losses (including diminution in value and loss of rental revenue of the Premises or Shopping Center), damages (including punitive damages), liabilities, obligations, expenses (including expenses incurred to remediate, remove, repair, correct or cleanup), costs, disbursements or fees of any kind or of any nature (including attorneys', consultants' or experts' fees and disbursements and costs of litigation at trial and appellate levels) which may at any time be imposed upon, incurred by, asserted or awarded against, Landlord directly or indirectly, resulting from: (a)any acts or activities of Tenant, its agents, employees or contractors at on or about the Premises which contaminate air, soils, improvements, surface waters or groundwaters over, on or under the premises; (b)arising from or out 12. 14 of any Hazardous Material on, in or under the Premises WHICH WERE DEPOSITED OR BROUGHT TO THE PREMISES BY TENANT; (c)pursuant to or in connection with the application of any Environmental Law to the acts or omission of Tenant or any other person and any environmental damage alleged to have been caused in whole or in part, by the transportation, treatment, storage, or disposal of any Hazardous Material; or (d)arising from or in relation to the presence, whether past, present or future, of any Hazardous Materials on the Premises WHICH WERE DEPOSITED OR BROUGHT TO THE PREMISES BY TENANT. Without limiting the foregoing, this indemnification provision specifically protects the Landlord against any claim or action from activities described in (a),(b),(c) or (d) above, based in whole or in part upon any environmental statute, rule, regulation or policy, or other laws, whether now in existence or enacted in the future. [Tenant's indemnification obligation hereunder shall be one of strict liability and shall be enforceable without regard to any fault or knowledge of Landlord with respect to any act or omission or condition or event which is the basis of the claim under such indemnification obligation. Tenant's obligations hereunder shall continue, survive and remain in full force and effect notwithstanding the expiration or termination of this Lease. ] SECTION 26.03. ACCESS. In addition to any other rights of entry and inspection to which Landlord may be entitled under this Lease, Landlord shall have a continuing right of access to, and the right to perform inspections and tests of the Premises for the purpose of determining Tenant's compliance with Environmental laws. Tenant will give such access to Landlord upon Landlord's prior notice to tenant and at such times as to minimize, so far as may be reasonable under the circumstances, any disturbance to Tenant's operations. Such inspections and tests will be conducted at Landlord's expense, unless such inspections or tests reveal that Tenant has not complied with applicable Environmental Laws, in which case Tenant will reimburse Landlord for the reasonable cost of such inspections and tests. SECTION 26.04. LAW. As used herein, the term "Environmental Law" means all present and any future federal, state, or local statutes, regulations, ordinances, codes, judgments, orders, or other similar enactments of any governmental authority or agency regulating or relating to health, safety, pollution release or abatement, or protection of the environment, including without limitation, any common law of nuisance or trespass, and any of the following statutes: the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"); the Superfund Amendments and Reauthorization Act of 1986; the Resource Conservation and Recovery Act; the Emergency Planning and Community Right to Know Act; the Hazardous Substances Transportation Act; the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act, the National Environmental Policy Act; the Rivers and Harbors Appropriation Act; and Chapters 403 and 376, Florida Statutes, as the same may be amended from time to time, together with all rules, regulations and guidance documents implemented under authority of any of the foregoing. As used herein, the term "Hazardous Material" means any substance or material (whether solid, liquid or gas) which is (a)identified as a "Hazardous Substance" in Section 101 (14) of CERCLA, 42 USC Section 9601(14), as the same may be amended from time to time, or (b) determined to be toxic, or a pollutant, contaminant, hazardous substance, hazardous material or hazardous waste, under any federal, state or local statue, law, ordinance, rule or regulation or judicial or administrative order or decision, as same may be amended from time to time, or that may have a negative impact on human health or the environment, including but not limited to petroleum, fraction of petroleum and petroleum products, asbestos and asbestos containing materials (friable or nonfriable), polychlorinated biphenyls, lead and other metals, radon, radioactive materials, chemicals known to cause cancer or reproductive toxicity, flammables and explosives. The term "release" when applied to any Hazardous Material, means and includes any release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of a Hazardous Material. The term "remediate" means any response, remedy, removal or corrective action, any activity to detoxify, decontaminate, contain, or otherwise abate any Hazardous Material, any actions to prevent, cure or mitigate any release a Hazardous Material, any action to comply with Environmental Laws or with any permits issued pursuant thereto, and any inspection, investigation, study, monitoring, assessment, audit, sampling, testing, laboratory or other analysis or evaluation relating to any Hazardous Material. SECTION 26.05. REMEDIES. Any breach of this Section shall be an event of default under this Lease and shall entitle Landlord to exercise any and all remedies provided in this Lease or otherwise permitted by law. SECTION 26.06. RADON GAS. As required by applicable Florida statute, Landlord hereby discloses to Tenant the following: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceeded federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. ARTICLE XXVII MISCELLANEOUS SECTION 27.01. WAIVER. The waiver by Owner of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of rent hereunder by Owner shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of Owner's knowledge of such preceding breach at the time of acceptance of such rent. No covenant, term or conditions of this lease shall be deemed to have been waived by Owner, unless such waiver be in writing by Owner. 13. 15 SECTION 27.02. ACCORD AND SATISFACTION. No payment by Tenant or receipt by Owner of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check or any letter accompany any check or payment as rent be deemed an accord and satisfaction, and Owner may accept such check or payment without prejudice to Owner's right to recover the balance of such rent or pursue any other remedy in this lease provided. SECTION 27.03. ENTIRE AGREEMENT. This lease and the Exhibits, and Rider, if any, attached hereto and forming a part hereof, set forth all the covenants, promises, agreements, conditions and understandings between Owners and Tenant concerning the leased premises and there are no covenants, promises, agreements, conditions or understandings, either oral or written, between them other than are herein set forth. Except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this lease shall be binding upon Owner or Tenant unless reduced to writing and signed by them. SECTION 27.04. NO PARTNERSHIP. Owner does not, in any way or for any purpose, become a partner of Tenant in the conduct of its business, or otherwise, or joint adventurer or member of a joint enterprise with Tenant. The provisions of this lease relating to the percentage rent payable hereunder are included solely for the purpose of providing a method whereby the rent is to be measured and ascertained. SECTION 27.05. FORCE MAJEURE. In the event that either party hereto shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of strikes, lock-outs, labor troubles, inability to procure materials, failure of power, restrictive governmental laws or regulations, riots, insurrection, war or other reason of a like nature not the fault of the party delayed in performing work or doing acts required under the terms of this lease, then performance of such act shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. The provisions of this Section 26.05 shall not operate to excuse Tenant from prompt payment of rent, percentage rent, additional rent or any other payments required by the terms of this lease. SECTION 27.06. NOTICES. Any notice, demand, request or other instrument which may be or are required to be given under this lease shall be delivered in person or sent by United States certified mail postage prepaid and shall be addressed (a) if to Owner at the address first hereinabove given or at such other address as Owner may designate by written notice and (b) if to Tenant at the leased premises or at such other address as Tenant shall designate by written notice. SECTION 27.07. CAPTIONS AND SECTION NUMBERS. The captions, section numbers, article numbers, and index appearing in this lease are inserted only as a matter of convenience and in no way define, limit, construe, or describe the scope or intent of such sections or articles or this lease nor in any way affect this lease. SECTION 27.08. TENANT DEFINED, USE OF PRONOUN. The word "Tenant" shall be deemed and taken to mean each and every person or party mentioned as a Tenant herein, be the same one or more; and if there shall be more than one Tenant, any notice required or permitted by the terms of this lease may be given by or to any one thereof, and shall have the same force and effect as if given by or to all thereof. The use of the neuter singular pronoun to refer to Owner or Tenant shall be deemed a proper reference even though Owner or Tenant may be an individual, a partnership, a corporation, or a group of two or more individuals or corporations. The necessary grammatical changes required to make the provisions of this lease apply in the plural sense where there is more than one Owner or Tenant and to either corporations, associations, partnerships, or individuals, males or females, shall in all instances be assumed as though in each case fully expressed. SECTION 27.09. BROKER'S COMMISSION. Each of the parties represents and warrants that there are no claims for brokerage commissions or finder's fees in connection with the execution of this lease, except as listed below, and each of the parties agrees to indemnify the other against, hold it harmless from, all liabilities arising from any such claim (including, without limitation, the cost of counsel fees in connection therewith, except as follows: CHARLES WAYNE PROPERTIES, INC. SECTION 27.10. PARTIAL INVALIDITY. If any term, covenant or condition of this lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this lease, or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unforceable, shall not be affected thereby and each term, covenant or condition of this lease shall be valid and be enforced to the fullest extent permitted by law. 14. 16 SECTION 27.11. RECORDING. Tenant shall not record this lease without the written consent of Owner, however, upon the request of either party hereto the other party shall join in the execution of a memorandum or so-called "short form" of this lease for the purpose of recordation. Said memorandum or short form of this lease shall describe the parties, the leased premises and the term of this lease and shall incorporate this lease by reference. SECTION 27.12. NON-LIABILITY OF AGENT AND TRUSTEE. Tenant agrees that Owner shall not have any personal liability hereunder but that the liability of the Owner shall be limited to Owner's interest in the Shopping Center and that Tenant agrees to look solely to the interest of the Owner in the Shopping Center for the payment of any claims made hereunder. In the event that the Shopping Center is owned by a partnership, one of whose partners is a Real Estate Investment Trust, then in such event, Tenant acknowledges that neither the shareholders nor the trustees, officers, employees or agents of such trust shall be liable with respect to any liabilities of the trust hereunder and that Tenant shall look solely to the trust estate of the trust for the payment of any claims under or for the performance of any obligation of the Trust. SECTION 27.13. RIDER. A rider consisting of ___1__ page[s], with sections numbered consecutively 26.13 through [26.16] 26.17 is attached hereto and made a part hereof. IN WITNESS WHEREOF, Owner and Tenant have signed and sealed this lease as of the day and year first above written. WITNESSES: TWELVE OAKS PLAZA BY: - ----------------------------------- -------------------------------- - ----------------------------------- ----------------------------------- Owner's Signature WITNESSES: FAMILY STEAKHOUSE OF FLORIDA, INC. DBA RYANS FAMILY STEAKHOUSE - ----------------------------------- ----------------------------------- - ----------------------------------- ----------------------------------- Tenant's Signature GUARANTY In consideration of the Owner leasing to the Tenant under the foregoing terms, the Guarantor hereinafter described unconditionally guarantees to the Owner, its successors and assigns, the full performance and observance of all the covenants, conditions and agreements herein provided to be performed and observed by the Tenant, during the term of this agreement and any extension thereof, without requiring any notice of non-payment, non-performance or non-observance or proof or notice or demand whereby to charge the Guarantor therefor, all of which the Guarantor hereby expressly waives and expressly agrees that the validity of this agreement and the obligation of the Guarantor hereunder shall in no wise be terminated, affected or impaired by reason of the assertion by Owner against the Tenant of any of the rights or remedies reserved to the Owner pursuant to the provisions of agreement. The Guarantor does further agree that any modification of this agreement made by the Owner and the Tenant or any indulgence rendered by the Owner to the Tenant shall in no way affect this guaranty. WITNESS: - ----------------------------------- ----------------------------------- - ----------------------------------- ----------------------------------- Guarantor's Signature LEASE-RYANS 12OAKS 15. 17 RULES AND REGULATIONS Tenant agrees as follows: (1) All loading and unloading of goods shall be done only at such times, in the areas, and through the entrances, designated for such purposes by Owner. (2) The delivery or shipping of merchandise, supplies and fixtures to and from the leased premises shall be subject to such rules and regulations as in the judgement of Owner are necessary for the proper operation of the leased premises or Shopping Center. (3) All garbage and refuse shall be kept in the kind of container specified by Owner, and shall be placed outside of the premises prepared for collection in the manner and at the time and places specified by Owner. If Owner shall provide or designate a service for picking up refuse and garbage, Tenant shall use same at Tenant's cost. Tenant shall pay the cost of removal of any of Tenant's refuse or rubbish. (4) No radio or television or other similar device shall be installed without first obtaining in each instance Owner's consent in writing. No aerial shall be erected on the roof or exterior walls of the premises, or on the grounds, without in each instance, the written consent of Owner. Any aerial so installed without such written consent shall be subject to removal without notice at any time. (5) No loud speakers, televisions, phonographs, radios or other devices shall be used in a manner so as to be heard or seen outside of the premises without the prior written consent of Owner. (6) If the leased premises are equipped with heating facilities separate from those in the remainder of the Shopping Center, Tenant shall keep the leased premises at a temperature sufficiently high to prevent freezing of water pipes and fixtures. (7) The outside areas immediately IN FRONT OF THE PREMISES [adjoining the premises] shall be kept clean and free from snow, ice, dirt and rubbish by Tenant to the satisfaction of Owner, and Tenant shall not place or permit any obstruction or merchandise in such areas. (8) Tenant and Tenant's employees shall park their cars only in those portions of the parking area designated for that purpose by Owner. [Tenant shall furnish Owner with State automobile license numbers assigned to Tenant's car or cars, and cars of Tenant's employees, within five (5) days after taking possession of the premises and shall thereafter notify Owner of any changes within five (5) days after such changes occur. In the event that Tenant or its employees fail to park their cars in designated parking areas as aforesaid, then Owner at its option shall charge Tenant Ten Dollars ($10.00) per day per car parked in any area other than those designated, as and for liquidated damage]. SUCH AREAS SHALL BE WITHIN REASONABLE WALKING DISTANCES OF THE RESTAURANT. (9) The plumbing facilities shall not be used for any other purpose than that for which they are constructed, and no foreign substances of any kind shall be thrown therein, and the expense of any breakage, stoppage, or damage resulting from a violation of this provision shall be borne by Tenant, who shall, or whose employees, agents or invitees shall have caused it. (10) Tenant shall use at Tenant's cost A [such] pest extermination contractor [as Owner may direct and] at REGULAR [such] intervals [as Owner may require]. (11) Tenant shall not burn any trash or garbage of any kind in or about the leased premises, the Shopping Center, or within one mile of the outside property lines of the Shopping Center. 16. 18 SHOPPING CENTER LEASE TENANT: FAMILY STEAKHOUSE OF FLORIDA, INC. DBA RYANS FAMILY STEAKHOUSE TERM: TEN (10) YEARS DATE: STUART S. GOLDING COMPANY 27001 U.S. HIGHWAY 19 NORTH SUITE 2095 CLEARWATER, FLORIDA 33761 (727) 796-1077 SECTION 27.13 RIDER Providing Tenant is not in default of the terms and conditions as contained herein Tenant will be given the one time right to an option period of FIVE (5) additional years. Notice of intent to exercise said option must be done so in writing six months prior to the expiration of the initial term hereof. Minimum rent as provided for in Section 2.01 will be at the rate of [$9,030.00] $8,700.46 per month plus Florida State Sales Tax. SECTION 27.14 [WHEN PART OR ALL OF THE ADJOINING SPACE TO THE WEST OF STORE IS LEASED, OR THE SPACE FORMERLY OCCUPIED BY SCOTTY'S IS LEASED, THEN RYANS MAY, AT IT'S SOLE DISCRETION, REQUEST THE LANDLORD TO REVISE THE PARKING LAYOUT AS PER SD1.2 ATTACHED.] NOTWITHSTANDING ANY PROVISION IN THIS LEASE TO THE CONTRARY, IF DURING THE FIFTH YEAR OF THE LEASE TERM TENANT HAS FAILED TO PRODUCE AT LEAST $2,300,000 OF GROSS REVENUES IN ITS BUSINESS CONDUCTED AT THE LEASED PREMISES, TENANT MAY, AT ITS OPTION AND UPON SIXTY (60) DAYS WRITTEN NOTICE TO LANDLORD, TERMINATE THIS LEASE. THIS OPTION TO TERMINATE IS A ONE TIME RIGHT THAT MUST BE EXERCISED WITHIN 60 DAYS AFTER END OF THE 5TH YEAR, OTHERWISE IT IS NULL AND VOID AND OF NO FURTHER FORCE AND EFFECT. GROSS REVENUES TO BE EVIDENCED BY FLORIDA STATE SALES TAX REPORTS CERTIFIED TO BE TRUE AND CORRECT BY THE TENANT'S CHIEF FINANCIAL OFFICER. ALL CONSTRUCTION TO BE DONE BY TENANT IN ACCORDANCE WITH PLANS AND SPECIFICATIONS TO BE 1ST APPROVED BY OWNER AND TO BE ATTACHED AS EXHIBIT "B". SECTION 27.15 PREMISES ARE ON AN "AS IS WHERE IS BASIS" SECTION 27.16 A SUBORDINATION AND NON DISTURBANCE AGREEMENT IN A FORM SATISFACTORY TO TENANT, OWNER AND OWNER'S LENDOR TO BE [WILL PROVIDED BY OWNERS LENDOR THE TENANT FOR APPROVAL AND EXECUTION. BY BOTH LANDLORD AND LANDLORD'S LENDOR.] EXECUTED BY ALL PARTIES WITHIN 30 DAYS FROM LEASE EXECUTION. FAILURE TO COMPLETE THE ABOVE WILL RENDER THIS LEASE TO BE NULL AND VOID AND OF NO FURTHER FORCE OR EFFECT. SECTION 27.17 TENANT MAY INSTALL REFRIGERATION EQUIPMENT ADJACENT TO AND OUTSIDE OF THE LEASED PREMISES AT THE LOCATION SHOWN ON EXHIBIT A-1 AT NO ADDITIONAL RENT, FEE OR OTHER COST. (LABELED "COOLERS" ON A-1) 17. 19 EXHIBIT "B" PLANS AND SPECIFICATIONS INCLUDING DEMOLITION (TO BE APPROVED BY BOTH OWNER AND TENANT AND ATTACHED HERETO). EX-13.01 3 ANNUAL REPORT TO SHAREHOLDERS 1 FAMILY STEAK HOUSES OF FLORIDA, INC. CORPORATE PROFILE ABOUT THE COMPANY Family Steak Houses of Florida, Inc. is the sole franchisee of Ryan's Family Steak House restaurants in the state of Florida. The Company's first restaurant was opened in Jacksonville, Florida in May 1982. The Company presently operates 24 Ryan's restaurants in Florida, including five in the Jacksonville area, and plans to open its 25th restaurant in Deland, Florida in April 1999. A Ryan's Family Steak House restaurant is a family-oriented restaurant serving high-quality, reasonably priced food in a casual atmosphere with server-assisted service. The restaurants feature scatter bars or a self-service Mega Bar(TM), bakery dessert bars, and table service of meals and drink refills. Each restaurant serves cuts of charbroiled steaks and hamburgers, seafood and various chicken entrees. In addition to traditional salad bar items, the scatter bars or Mega Bars(TM) include a variety of hot meats and vegetables, as well as a variety of pre-made salads and cheeses. The bakery bar consists of fresh baked products such as hot yeast rolls, a variety of muffins, sweet rolls, brownies and cookies. Other selections include cobblers, fresh fruit, candy, cheesecake, pudding, ice cream, lowfat yogurt and a wide variety of dessert toppings. The bakery bar is included in the customer's meal price, and items can also be purchased for take-home. RYAN'S LOCATIONS: Jacksonville (4) Lakeland (2) Gainesville (1) Orange Park (1) Apopka (1) Hudson (1) Ocala (1) Winter Haven (1) New Port Richey (1) Tampa (2) Tallahassee (1) Daytona Beach (1) Orlando (2) Melbourne (1) Clearwater (1) Lake City (1) Brooksville (1) Leesburg (1) Deland (1)*
- --------------- * Scheduled to open April 1999. - ---------------------------------(RYAN'S LOGO)--------------------------------- 2 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- DEAR SHAREHOLDERS: When I write this letter each year, I pause and reflect on the twelve months just past. I often look at last year's shareholder letter. It is a good opportunity for me to review the progress we have made and see if we have lived up to the expectations we had a year ago. In reflecting on the year just past, I am pleased with our Company's overall progress. Total sales at the Company's restaurants were up 3.9%. A large portion of that increase is attributable to the success of our new restaurant in Leesburg, Florida, which was opened in June 1998. However, even without the success in the Leesburg restaurant, same store sales increased by 1.1%. This represents the first same store sales increase over a previous year since 1987. Although we reported a net loss for the year, we reduced by 50% the loss from the prior year. The increase in same store sales is directly attributable to a number of steps which we have taken over the last few years to strengthen our operations. In 1998, we implemented a five day work week for our restaurant managers in an effort to improve their quality of life and reduce the level of turnover in our management ranks. Just as turnover among store managers adversely impacts store operations, profit and loss, stability in our management ranks improves operations, profit and loss. We completed our store remodeling program in 1998. We have now remodeled all the restaurants scheduled for remodeling. The improved physical appearance of our restaurants directly contributes to increased sales. We also continued our emphasis on serving the best quality of food available and improving our service to customers, which is already among the best in our industry. While we are pleased with the overall progress of the restaurants within our company, we recognize that changing demographics and aging physical facilities at some of our older restaurants present insurmountable obstacles to profitability. Therefore, in January 1999 we took the extraordinary step of closing two of our restaurants in Jacksonville, Florida. Those two restaurants' combined loss was $174,000 in fiscal year 1998. In addition, we have four underperforming restaurants which we continue to monitor. Although those remaining underperforming restaurants do not currently lose money on a cash basis, they demand an inordinate amount of time and divert scarce management resources from more profitable restaurants. As we had previously advised you, the Company has listed the two closed restaurants and these four underperforming restaurants for sale. The closure of restaurants and listing of units for sale does not mean that we are taking a step backwards. In fact, we are redeploying the capital these units previously tied up and utilizing new financing to open new stores. One new restaurant is nearing completion and will open in Deland, Florida in April 1999. We believe this store has great profit potential. We have also signed a lease on a new restaurant in Tampa, Florida and anticipate opening it in August 1999. With the assistance of our franchisor, we continue to search for two additional sites for new restaurants. We plan on purchasing those restaurant sites in 1999 and opening at least two new restaurants in 2000. The construction of new restaurants is being financed with the support of our primary lender, Franchise Finance Corporation of America. I am pleased to say that the Company already has the commitment in hand for financing of the four new restaurants discussed above. This financing was obtained at very competitive rates and enables us to make the best use of our financial resources. The Company is also continuing to explore strategic options in an effort to enhance shareholder value. We continue to work with J.H. Chapman Group LLC, an investment banking firm located in Chicago, Illinois. J.H. Chapman specializes in the restaurant industry nationally and has been actively working with the Company over the last year to identify strategic opportunities. That progress is ongoing. 1998 was a successful year for Family Steak House of Florida. We sincerely appreciate your support and look forward to continued success in 1999 and into the new millennium. Sincerely, Lewis E. Christman, Jr. President and Chief Executive Officer - ---------------------------------(RYAN'S LOGO)--------------------------------- 2 3 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- FIVE YEAR FINANCIAL SUMMARY
- -------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995(1) 1994 - -------------------------------------------------------------------------------------------------------------- SELECTED INCOME STATEMENT DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA) Sales $38,412 $36,978 $37,978 $42,105 $44,849 Cost and expenses: Food and beverage 15,015 14,642 15,090 16,591 18,174 Payroll and benefits 10,878 10,516 10,538 11,412 12,097 Depreciation and amortization 1,935 1,751 1,663 1,720 1,961 Other operating expenses 6,127 6,070 5,953 6,313 6,412 General and administrative expenses 2,472 2,681 2,220 2,452 2,899 Franchise fees 1,151 1,108 1,139 1,263 1,561 Asset valuation charge 209 550 -- -- -- Costs from closed restaurants 53 -- -- (303) 1,392 Loss on disposition of equipment 140 146 57 198 86 ------- ------- ------- ------- ------- 37,980 37,464 36,660 39,646 44,582 Earnings (loss) from operations 432 (486) 1,318 2,459 267 Interest and other income 410 438 465 536 123 Gain on sale of restaurant -- -- -- 159 -- Gain on sale of property held for sale -- -- -- 31 -- Write-down of property held for sale -- -- -- -- (465) Interest expense (1,619) (1,577) (1,516) (1,694) (1,980) ------- ------- ------- ------- ------- (Loss) earnings before income taxes, and extraordinary item (777) (1,625) 267 1,491 (2,055) (Benefit) provision for income taxes (68) (201) 53 147 (274) ------- ------- ------- ------- ------- Net (loss) earnings before extraordinary item (709) (1,424) 214 1,344 (1,781) Extraordinary item - gain on early extinguishment of debt, net of income taxes of $89 -- -- 348 -- -- ------- ------- ------- ------- ------- Net (loss) earnings $ (709) $(1,424) $ 562 $ 1,344 $(1,781) ======= ======= ======= ======= ======= Basic earnings per share: (2) (Loss) earnings before extraordinary item $ (0.30) $ (0.65) $ 0.10 $ 0.62 $ 0.83 Extraordinary item - gain on early extinguishment of debt -- -- 0.16 -- -- ------- ------- ------- ------- ------- Net (loss) earnings $ (0.30) $ (0.65) $ 0.26 $ 0.62 $ 0.83 ======= ======= ======= ======= ======= Diluted earnings per share: (2) (Loss) earnings before extraordinary item $ (0.30) $ (0.65) $ 0.09 $ 0.57 $ 0.83 Extraordinary item - gain on early extinguishment of debt -- -- 0.15 -- -- ------- ------- ------- ------- ------- Net (loss) earnings $ (0.30) $ (0.65) $ 0.24 $ 0.57 $ 0.83 ======= ======= ======= ======= ======= SELECTED BALANCE SHEET DATA: Land and net property and equipment $27,312 $26,300 $26,350 $26,837 $26,896 Total assets 32,092 30,333 32,803 31,260 32,809 Long-term debt 16,574 14,403 15,107 14,420 16,305 Current portion of long-term debt 371 279 333 1,580 851 Shareholders' equity 10,275 10,644 11,998 11,460 9,993 SELECTED OPERATING DATA: Current ratio 0.8 0.6 0.9 0.4 0.6 Working capital (deficit) $ (744) $(1,795) $ (617) $(3,285) $(2,673) Cash provided by operating activities 1,525 626 1,645 2,135 3,096 Property and equipment additions 2,786 2,304 1,768 2,600 1,796
- ------------------------ (1) Fifty-three week period. (2) Per share amounts have been retroactively adjusted to reflect a 1-for-5 reverse stock split effected in March, 1998. - ---------------------------------(RYAN'S LOGO)--------------------------------- 3 4 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Shown for the years indicated are (i) items in the statements of operations as a percent of total sales, (ii) operating expense items in the statements of operations as a percent of sales and (iii) the number of restaurants open at the end of each year. - --------------------------------------------------------------------------------
PERCENTAGE CHANGE VERSUS PRIOR YEAR ---------------- 1998 1997 VS VS 1998 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------- Sales $38,412,400 $36,977,800 $37,977,600 3.9% (2.6)% =========== =========== =========== === ==== - -------------------------------------------------------------------------------------------------------------
NET CHANGE IN PERCENTAGE ------------------ PERCENT OF SALES 1998 1997 ----------------------------------- VS VS 1998 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------ Cost and expenses: Operating expenses 88.4% 89.1% 87.6% (0.7) 1.5 General and administrative expenses 6.4 7.3 5.8 (0.9) 1.5 Franchise fees 3.0 3.0 3.0 -- -- Asset valuation charge 0.6 1.5 -- (0.9) 1.5 Closed restaurant costs 0.1 -- -- 0.1 -- Loss on disposition of property and equipment 0.4 0.4 0.1 -- 0.3 ---- ---- ---- ---- ---- 98.9 101.3 96.5 (2.4) 4.8 ---- ---- ---- ---- ---- Earnings (loss) from operations 1.1 (1.3) 3.5 2.4 (4.8) Interest and other income 1.1 1.2 1.2 (0.1) -- Interest expense (4.2) (4.3) (4.0) 0.1 (0.3) ---- ---- ---- ---- ---- (Loss) earnings before income taxes and extraordinary item (2.0) (4.4) 0.7 2.4 (5.1) (Benefit) provision for income taxes (0.2) (0.5) 0.1 0.3 (0.6) ---- ---- ---- ---- ---- Net (loss) earnings before extraordinary item (1.8) (3.9) 0.6 2.1 (4.5) Extraordinary item - gain on early extinguishment of debt, net of income taxes of $88,700 -- -- 0.9 -- (0.9) ---- ---- ---- ---- ---- Net (loss) earnings (1.8)% (3.9)% 1.5% 2.1% (5.4)% ==== ==== ==== ==== ==== Operating expenses: Food and beverage 39.1% 39.6% 39.7% (0.5)% (0.1)% Payroll and benefits 28.3 28.4 27.8 (0.1) 0.6 Depreciation and amortization 5.0 4.7 4.4 0.3 0.3 Other operating expenses 16.0 16.4 15.7 (0.4) 0.7 ---- ---- ---- ---- ---- 88.4% 89.1% 87.6% (0.7)% 1.5% ==== ==== ==== ==== ==== Restaurants open at end of year 26 25 24 ==== ==== ====
- ---------------------------------(RYAN'S LOGO)--------------------------------- 4 5 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS 1998 COMPARED TO 1997 For the year ended December 30, 1998, total sales increased 3.9% compared to 1997, due to an increase in same-store sales and one additional restaurant opened in June 1998. The sales increase in 1998 compared to 1997 consisted of the following components:
- ------------------------------------------------------------------------------------------------------ % CHANGE FROM 1997 1998 1997 CHANGE TOTAL SALES - ------------------------------------------------------------------------------------------------------ Same-Store Sales $36,130,000 $35,739,400 $ 390,600 1.1% New Restaurants* 2,282,400 1,238,400 1,044,000 2.8% ----------- ----------- ---------- --- Total Sales $38,412,400 $36,977,800 $1,434,600 3.9% =========== =========== ========== ===
- ------------------------ * Sales at restaurants open for 18 months or less. Same-store sales (average unit sales in restaurants that have been open for at least 18 months and operating during comparable weeks during the current and prior year) for 1998 increased 1.1% from the same period in 1997, compared to a decrease of 8.0% from 1997 as compared to 1996. Total sales (including restaurants open less than 18 months) increased 3.9%. Management believes that the increase in same-store sales is primarily due to significant increases in sales at certain restaurants remodeled by the Company. These remodels included installation of scatter bars at three restaurants, which resulted in same-store sales gains at these locations in excess of 20%. These increases were somewhat offset by decreases in sales at other Company restaurants caused by the effects of increasing competition, including several new or remodeled restaurants opened by competitors in areas close to Company restaurants. Management is seeking to improve sales trends by focusing on improved restaurant operations and devising competitive strategies to offset the effects of new competition. Management plans to sell restaurants which are not meeting sales and profit expectations. To this end, the Company closed two restaurants in January 1999 and has listed a total of six restaurants for sale. Proceeds from any sales of restaurants would be used either to reduce long-term debt or build new restaurants with more competitive facilities in superior locations. Due primarily to the negative effects of increasing competition on the Company's sales and profitability, in March 1998 the Company announced that it had retained an investment banking firm specializing in the restaurant industry to assist the Company in identifying and evaluating strategic opportunities which would enhance shareholder value. The Company is continuing to evaluate strategic opportunities recommended by the investment banking firm, and to pursue such strategies it deems appropriate. However, there can be no assurance that a restructuring or transaction will result from this process. The operating expenses of the Company's restaurants include food and beverage, payroll and benefits, depreciation and amortization, and other operating expenses, which include repairs, maintenance, utilities, supplies, advertising, insurance, property taxes, rents and licenses. The Company's food, beverage, payroll and benefits costs are believed to be higher than the industry average as a percentage of sales as a result of the Company's philosophy of providing customers with high value of food and service for every dollar a customer spends. In total, food and beverage, payroll - ---------------------------------(RYAN'S LOGO)--------------------------------- 5 6 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- and benefits, depreciation and amortization and other operating expenses as a percentage of sales decreased to 88.4% in 1998 from 89.1% in 1997. Food and beverage costs as a percentage of sales decreased to 39.1% in 1998 from 39.6% in 1997, primarily due to lower beef prices, and sales price increases implemented in 1998. Payroll and benefits as a percentage of sales decreased to 28.3% in 1998 from 28.4% in 1997, primarily due to lower workers' compensation insurance costs. Other operating expenses as a percentage of sales decreased to 16.0% in 1998 from 16.4% in 1997, primarily due to lower repair and maintenance costs and to reduced costs for rental of equipment. Depreciation and amortization increased as a percentage of sales to 5.0% in 1998 from 4.7% in 1997, as a result of additions to property and equipment during 1998. General and administrative expenses as a percentage of sales decreased to 6.4% in 1998 from 7.3% in 1997, primarily due to costs associated with the Bisco takeover attempt in 1997. The Company recognized asset valuation charges of $209,000 in 1998 and $550,000 in 1997 in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The charges were based upon a financial review of all Company-owned restaurants and applied to one underperforming restaurant held for sale in each year. In 1998, the Company established a reserve to close two restaurants in 1999, resulting in a pre-tax charge to earnings of $53,000. The charge to earnings reflected anticipated costs associated with closing the restaurants. The two restaurants in Jacksonville, Florida were closed in January 1999. Interest expense increased to $1,618,900 in 1998 from $1,576,700 during 1997 due to additional borrowing under the Company's credit facility in 1998. In addition, the Company capitalized interest cost of approximately $52,600 in 1998. The effective income tax rates for the year ended December 30, 1998 and December 31, 1997 were (8.6%) and (12.4%), respectively. An increase in the valuation allowance in deferred tax assets for 1998 and 1997 resulted in the lower than statutory effective rates for those periods. Net loss for 1998 was $709,300, compared to $1,423,900 in 1997. Loss per share assuming dilution was $.30 for 1998, compared to $.65 in 1997. - ---------------------------------(RYAN'S LOGO)--------------------------------- 6 7 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS 1997 COMPARED TO 1996 For the year ended December 31, 1997, total sales decreased 2.6% compared to 1996. The sales decline in 1997 compared to 1996 consisted of the following components:
- ------------------------------------------------------------------------------------------------------ % CHANGE FROM 1996 1997 1996 CHANGE TOTAL SALES - ------------------------------------------------------------------------------------------------------ Same-Store Sales $34,936,600 $37,977,600 $(3,041,000) (8.0%) New Restaurant 2,041,200 -- 2,041,200 5.4% ----------- ----------- ----------- ---- Total Sales $36,977,800 $37,977,600 $ (999,800) (2.6%) =========== =========== =========== ====
Management believes that the decrease in same-store sales (sales in restaurants that have been open for at least 18 months during comparable weeks during the current and prior year) was primarily due to the effects of increasing competition, including several new restaurants opened by competitors in areas close to Company restaurants. Food and beverage costs as a percentage of sales decreased to 39.6% in 1997 from 39.7% in 1996. Payroll and benefits as a percentage of sales increased to 28.4% in 1997 from 27.8% in 1996. The Company experienced unusually high management turnover in 1997, resulting in higher than expected training costs for new manager hires, as well as operational difficulties. In an attempt to reduce turnover, management decided to increase the number of restaurant managers in order to provide the Company's managers with a five-day work week and a higher quality of life, and therefore improve management retention and customer service. This increase in number of restaurant managers contributed to higher payroll and benefits costs in 1997 as compared to 1996. In addition, the decline in same-store sales resulted in an increase in payroll as a percentage of sales, since a significant amount of payroll cost is a fixed cost. Other operating expenses as a percentage of sales increased to 16.4% in 1997 from 15.7% in 1996, primarily due to increased fixed operating expenses (as a percentage of sales) resulting from the decline in same store sales. Depreciation and amortization increased as a percentage of sales in 1997 compared to 1996, as a result of additions to property and equipment over the last 24 months and to the decline in comparable store sales. General and administrative expenses as a percentage of sales increased to 7.3% in 1997 from 5.8% in 1996. The increase was primarily due to approximately $375,000 in costs associated with the Bisco Industries, Inc. ("Bisco") takeover attempt, sales tax expenses incurred and accrued for under a Florida sales tax audit, and the decline in same-store sales. The expenses incurred in opposing the Bisco takeover attempt relate to, among other things, the preparation and mailing of materials in opposition to the Bisco consent solicitation and tender offer and the Ceiley shareholder proposal, litigation filed by the Company against Bisco, and the attendant fees paid for legal advice and proxy solicitation. In February 1998, the Company entered into a one-year Standstill and Settlement Agreement with Bisco. The Company recognized an asset valuation charge of $550,000 in 1997 in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The charge was based upon a financial review of all Company-owned restaurants and applied to one underperforming restaurant held for sale. - ---------------------------------(RYAN'S LOGO)--------------------------------- 7 8 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- Interest expense increased to $1,576,700 in 1997 from $1,516,300 during 1996. The increase was due to interest costs associated with a new restaurant opened in January 1997. The effective income tax rates for the years ended December 31, 1997 and January 1, 1997 were (12.4%) and 20.1%, respectively. The increase in the valuation allowance in deferred tax assets in 1997 and the use of certain deferred tax assets which had previously been reserved in 1996 resulted in the lower than statutory effective rates for those periods. In December 1996, the Company realized a gain on early extinguishment of debt of $348,500, net of income taxes. The gain was accounted for as an extraordinary item. Net loss for 1997 was $1,423,900, compared to net earnings of $562,200 in 1996. Loss per share assuming dilution was $.65 for 1997, compared to net earnings per share assuming dilution of $.24 in 1996. LIQUIDITY AND CAPITAL RESOURCES Substantially all of the Company's revenues are derived from cash sales. Inventories are purchased on credit and are converted rapidly to cash. Therefore, the Company does not carry significant receivables or inventories and, other than the repayment of debt, working capital requirements for continuing operations are not significant. At December 30, 1998, the Company had a working capital deficit of $744,100 compared to a working capital deficit of $1,794,700 at December 31, 1997. The decrease in the working capital deficit in 1998 was primarily due to proceeds from long-term debt issued in 1998, and improved results from operations in 1998. Cash provided by operating activities increased to $1,525,100 in 1998 from $626,100 in 1997, primarily due to a reduction in the net loss compared to 1997. Cash provided by operating activities decreased to $626,100 in 1997 from $1,645,000 in 1996 due to lower earnings in 1997. The Company spent approximately $3,226,000 in 1998, $2,741,000 in 1997 and $1,356,000 in 1996 for land, new restaurant construction, restaurant remodeling and equipment. Capital expenditures for 1999, based on present costs and plans for capital improvements, are estimated to be $4,800,000. The Company projects that proceeds from the Company's financing agreements (described below), and cash generated from operations will be sufficient to fund these improvements. In December 1996, the Company entered into a $15.36 million Loan Agreement with FFCA Mortgage Corporation ("FFCA"). The Loan Agreement governs seventeen Promissory Notes payable to FFCA. Each Note is secured by a mortgage on a Company restaurant property. The Promissory Notes provide for a term of twenty years and an interest rate equal to the thirty-day LIBOR rate plus 3.75%, adjusted monthly. The Loan Agreement provides for various covenants, including the maintenance of prescribed debt service coverages. As of December 30, 1998, the outstanding balance due under the loan was $14,375,500. The Company used the proceeds of the FFCA loan to retire its Notes with Cerberus Partners, L.P. ("Cerberus") and its loans with the Daiwa Bank Limited and SouthTrust Bank of Alabama, N.A. In addition, the Company retired warrants for 210,000 shares of the Company's common stock previously held by Cerberus. Cerberus continues to hold Warrants to purchase 140,000 shares of the Company's common stock at an exercise price of $2.00 per share. - ---------------------------------(RYAN'S LOGO)--------------------------------- 8 9 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- Also in December 1996, the Company entered into a separate loan agreement with FFCA under which it borrowed an additional $2,590,000 in 1998. This additional financing is evidenced by three additional Promissory Notes secured by mortgages on three Company restaurant properties. The terms and conditions of this loan agreement are substantially identical to those of the loan agreement described above. As of December 30, 1998, the outstanding balance under this loan was $2,569,300. In October 1998, the Company received two commitments for new financing from FFCA. The first commitment provides for funding of a maximum of $3,000,000, secured by mortgages on three Company restaurant properties, with an expiration date of March 31, 1999. The second commitment was for construction financing for two new restaurants to be built in 1999. Terms of this commitment include funding of a maximum of $1,600,000 per restaurant, with an expiration date of October 1, 1999. Other terms and conditions of these loan agreements are substantially identical to those of the $15.36 million Loan Agreement described above. Proceeds from the two new loan commitments should be sufficient to satisfy the Company's capital requirements through the end of 1999. The Company's ability to build additional restaurants or make other capital improvements after 1999 is dependent on its ability to secure additional new financing. The preceding discussion of liquidity and capital resources contains certain forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, and in addition to the factors discussed in this Annual Report, among the other factors that could cause actual results to differ materially are the following: failure of facts to conform to necessary management estimates and assumptions; the willingness of FFCA to extend financing commitments; repairs or similar expenditures required for existing restaurants due to weather or acts of God; the Company's ability to identify and secure suitable locations on acceptable terms and open new restaurants in a timely manner; the Company's success in selling restaurants listed for sale; the economic conditions in the new markets into which the Company expands; changes in customer dining patterns; competitive pressures from other national and regional restaurant chains and other food vendors; business conditions, such as inflation or a recession, and growth in the restaurant industry and the general economy; and other risks identified from time to time in the Company's SEC reports, registration statements and public announcements. RECENT DEVELOPMENTS Change in Listing of Securities on the NASDAQ Stock Market On February 10, 1999, the Company received notice from NASDAQ that the listing of its common stock was moved from the NASDAQ National Market to the NASDAQ SmallCap Market, due to a failure to comply with the $5.0 million minimum public float requirement of the National Market. The new listing on the SmallCap Market was effective February 12, 1999, but is contingent upon NASDAQ's review of the Company's application. The Company filed a listing application for the SmallCap Market and is awaiting NASDAQ's review for final approval of the Company's listing. The SmallCap Market has various listing and maintenance requirements, including requirements that (i) the Company maintain at least $2.0 million in net tangible assets, (ii) the minimum bid price of the Common Stock be $1.00 or more per share, (iii) there be at least 500,000 shares in the public float, valued at a minimum of $1.0 million, (iv) the Common Stock have at least two active market makers and (v) the Common Stock be held by at least 300 shareholders owning a minimum of 100 shares. - ---------------------------------(RYAN'S LOGO)--------------------------------- 9 10 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- On March 23, 1999, the Company received notice from NASDAQ that the Company's closing bid price had declined below $1.00 per share, and has remained below the $1.00 minimum requirement since that time. ACCORDINGLY, NASDAQ DETERMINED TO CONTINUE THE LISTING OF THE COMPANY'S SECURITIES ON THE NASDAQ SMALLCAP MARKET PURSUANT TO THE FOLLOWING EXCEPTION. ON OR BEFORE JUNE 21, 1999, THE COMPANY MUST MEET OR EXCEED A CLOSING BID PRICE OF $1.00 PER SHARE; IMMEDIATELY THEREAFTER, THE COMPANY'S CLOSING BID PRICE MUST MEET OR EXCEED $1.00 PER SHARE FOR A MINIMUM OF TEN CONSECUTIVE TRADING DAYS. IN ORDER TO FULLY COMPLY WITH THE TERMS OF THIS EXCEPTION, THE COMPANY MUST BE ABLE TO DEMONSTRATE COMPLIANCE WITH ALL REQUIREMENTS FOR CONTINUED LISTING. IN THE EVENT THE COMPANY FAILS TO MEET ANY OF THE TERMS OF THIS EXCEPTION, THE COMPANY'S SECURITIES WILL BE DELISTED FROM THE NASDAQ SMALLCAP MARKET. If the Company's stock is delisted from NASDAQ, trading in the Common Stock would thereafter be conducted on the over-the-counter markets in the so-called "pink sheets" or the National Association of Securities Dealers, Inc.'s "Electronic Bulletin Board". Consequently, the liquidity of the Company's securities could be impaired, not only in the number of shares that could be bought and sold, but also as a result of delays in the timing of the transactions, a reduction in the number and quality of security analysts' and the news media's coverage of the Company, lower prices for the Company's securities than might otherwise be attained and a larger spread between the bid and asked prices for the Company's securities. In addition, if the Company's securities were to be delisted from the NASDAQ SmallCap Market, the Company's securities could become subject to Rule 15g-9 under the Exchange Act relating to penny stocks, which imposes additional sales practice requirements on broker-dealers which sell such securities to persons other than established customers and "accredited investors" (generally, individuals with net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). Commission regulations define a "penny stock" to be any equity security that is not listed on The NASDAQ Stock Market or a national securities exchange and that has a market price (as therein defined) of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. If the Company's securities were subject to the rules on penny stocks, the market liquidity for the Company's securities could be adversely affected. In order to settle litigation and other matters between the Company and Bisco Industries, its president and chief executive officer, Glen F. Ceiley and other affiliates ("Bisco"), the Company entered into a Standstill and Settlement Agreement with Bisco in February 1998. Under this agreement, Bisco agreed, among other matters, to (i) not initiate the solicitation of proxies or any shareholder vote in opposition to the Board's recommendations for the 1998 Annual Meeting of Shareholders, (ii) vote shares of the Company's stock owned by Bisco in favor of the Company's slate of Director nominees for the 1998 Annual Meeting of Shareholders and (iii) acquire no more than 19.9% of the total outstanding shares of the Company's common stock. In turn, the Company agreed, among other matters, to (i) dismiss certain litigation against Bisco and (ii) to appoint two Bisco nominees to its Board of Directors. As this agreement expired on February 24, 1999, these parties are no longer subject to the foregoing restrictions. IMPACT OF INFLATION Costs of food, beverage, and labor are the expenses most affected by inflation in the Company's business. Although inflation in recent years has been low and accordingly has not had a significant impact on the Company, there can be no assurance that inflation will not increase and impact the Company in the future. A significant portion of the - ---------------------------------(RYAN'S LOGO)--------------------------------- 10 11 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- Company's employees are paid by the federally established statutory minimum wage. On August 8, 1996, President Clinton signed into law a bill which raised the federally mandated minimum wage by $.50 per hour on October 1, 1996, and by an additional $.40 per hour on September 1, 1997. Future changes in the federal minimum wage may impact the Company's payroll and benefits costs. The Company raised sales prices approximately 3.0% in 1998 in order to offset the effect of higher payroll and benefit costs. Sales prices were increased approximately 1.0% in 1997 and 3.0% in 1996. INFORMATION SYSTEMS AND THE YEAR 2000 General. The Company uses and is dependent upon a significant number of computer software programs and operating systems to conduct its business. Such programs and systems include those developed and maintained by the Company, software and systems purchased from outside vendors and software and systems used by the Company's third party providers. The Company recognizes that the Year 2000 issue is one of the most complex data processing problems faced by businesses worldwide. State of Readiness. The Company's approach to Year 2000 compliance includes a standard set of methods and tools to coordinate and drive the project to completion. The approach consists of six phases: 1. Assessment -- Defining each system and process to determine if there are date dependencies and how to resolve them. 2. Remediation -- Implementing the steps identified in the assessment phase to repair date errors. 3. Testing -- Developing and implementing test scripts to determine if remediated code is correct. 4. Implementation -- Moving all approved changes from testing into production. 5. Check-Off -- Formally acknowledging that each process has been implemented and is functioning correctly. 6. Clean Management -- Employing procedures and practices to prevent the reintroduction of non-compliant applications, products and processes into the operating environment, once Year 2000 compliance has been achieved. Testing and remediation of critical systems is underway. The Company is having its accounting software revised and rewritten and expects to have the new software installed by the end of the second quarter. It is also testing cash registers and other systems at its restaurants and expects to fix or replace any Year 2000 noncompliant equipment and systems in the next several months. The Company believes that there are no material impediments to its goal of Year 2000 readiness. The Company has relationships with vendors, customers and other third parties that rely on software and systems that may not be Year 2000 compliant. With respect to such third parties, Year 2000 compliance matters will not be within the Company's direct control. There can be no assurance that Year 2000 compliance failures by such third parties will not have a material adverse effect on the Company's results of operations, although the Company is in contact with these third parties in connection with its contingency planning. - ---------------------------------(RYAN'S LOGO)--------------------------------- 11 12 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- Cost of Year 2000 Efforts. The Company acknowledges that some level of modification or replacement of hardware and software is necessary in order to make the Company's systems "Year 2000 Compliant". The Company presently estimates these remediation costs to be less than $100,000. The Company expects to expense remediation costs as they are incurred, with the exception of new hardware and software purchases, which will be capitalized. The Company has not incurred significant remediation costs prior to December 30, 1998. The source of funds for Year 2000 remediation is in the Company's financing commitment from FFCA Mortgage Corporation described under "Liquidity and Capital Resources". Year 2000 remediation costs are based on management's best estimates; however, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those plans. Risks. The worst case Year 2000 scenario, disregarding the Company's remediation efforts and contingency planning, is a failure of the Company's ability to obtain necessary food and beverage supplies from non-compliant suppliers in a timely manner and/or a failure of HVAC and other facility systems due to undetected embedded chips. Such failures would result in material disruption in the Company's operations. The Company does not presently anticipate any material Year 2000 failures nor does the Company anticipate any material adverse impact to its business, financial condition, or prospects as a result of the Year 2000. The foregoing description of a worst case Year 2000 scenario is furnished in response to and in compliance with the Statement of the Commission Regarding Disclosure of Year 2000 Issues and Consequences by Public Companies, Investment Advisors, Investment Companies, and Municipal Securities Issuers, Securities Act Rel. No. 33-7558 (July 30, 1998). Contingency Planning. The Company's Year 2000 Program is based on the assumption that 100% impact coverage is neither feasible nor practical. It is possible that the Company or third parties on which the Company depends may have unplanned system difficulties during the transition through 2000, or that third parties may not successfully manage the change to 2000. Therefore, an integral part of the Company's Year 2000 Program is the development of contingency plans in anticipation of systems or third party failure. These contingency plans are in the process of being developed. - ---------------------------------(RYAN'S LOGO)--------------------------------- 12 13 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------ FOR THE YEARS ENDED ----------------------------------------------- DECEMBER 30, DECEMBER 31, JANUARY 1, 1998 1997 1997 - ------------------------------------------------------------------------------------------------------------ Sales $38,412,400 $36,977,800 $37,977,600 Cost and expenses: Food and beverage 15,015,500 14,642,500 15,089,500 Payroll and benefits 10,878,300 10,516,000 10,537,500 Depreciation and amortization 1,935,000 1,750,700 1,662,500 Other operating expenses 6,127,100 6,069,700 5,953,400 General and administrative expenses 2,471,800 2,680,900 2,220,200 Franchise fees 1,150,900 1,108,400 1,138,600 Asset valuation charge 209,000 550,000 -- Loss from store closings 53,000 -- -- Loss from disposition of equipment 139,700 146,200 57,400 ----------- ----------- ----------- 37,980,300 37,464,400 36,659,100 ----------- ----------- ----------- Earnings (loss) from operations 432,100 (486,600) 1,318,500 Interest and other income 409,900 437,900 465,100 Interest expense (1,618,900) (1,576,700) (1,516,300) ----------- ----------- ----------- (Loss) earnings before income taxes and extraordinary item (776,900) (1,625,400) 267,300 (Benefit) provision for income taxes (67,600) (201,500) 53,600 ----------- ----------- ----------- Net (loss) earnings before extraordinary item (709,300) (1,423,900) 213,700 Extraordinary item - gain on early extinguishment of debt, net of income taxes of $88,700 -- -- 348,500 ----------- ----------- ----------- Net (loss) earnings $ (709,300) $(1,423,900) $ 562,200 =========== =========== =========== Basic earnings per share: Net (loss) earnings before extraordinary item $ (0.30) $ (0.65) $ 0.10 Extraordinary item - gain on early extinguishment of debt -- -- 0.16 ----------- ----------- ----------- Net (loss) earnings $ (0.30) $ (0.65) $ 0.26 =========== =========== =========== Diluted earnings per share: Net (loss) earnings before extraordinary item $ (0.30) $ (0.65) $ 0.09 Extraordinary item - gain on early extinguishment of debt -- -- 0.15 ----------- ----------- ----------- Net (loss) earnings $ (0.30) $ (0.65) $ 0.24 =========== =========== ===========
See accompanying notes to consolidated financial statements. - ---------------------------------(RYAN'S LOGO)--------------------------------- 13 14 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------ DECEMBER 30, 1998 DECEMBER 31, 1997 - ------------------------------------------------------------------------------------------------------ ASSETS Current assets: Cash and cash equivalents $ 1,910,200 $ 696,000 Investments 644,000 600,300 Receivables 107,000 93,200 Current portion of mortgages receivable 71,100 124,900 Income taxes receivable 60,200 297,900 Inventories 333,400 280,500 Prepaid and other current assets 296,600 311,200 ------------ ------------ Total current assets 3,422,500 2,404,000 Mortgages receivable 237,600 308,700 Property and equipment: Land 8,882,100 9,088,300 Buildings and improvements 21,236,600 19,908,900 Equipment 12,528,600 13,151,600 ------------ ------------ 42,647,300 42,148,800 Accumulated depreciation (16,509,400) (15,848,500) ------------ ------------ Net property and equipment 26,137,900 26,300,300 Property held for sale 1,463,400 552,800 Other assets, principally deferred charges, net of accumulated amortization 830,700 767,000 ------------ ------------ $ 32,092,100 $ 30,332,800 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,381,000 $ 1,287,000 Accrued liabilities 2,412,000 2,630,300 Current portion of long-term debt 370,500 278,900 Current portion of obligation under capital lease 3,100 2,500 ------------ ------------ Total current liabilities 4,166,600 4,198,700 Long-term debt 16,574,300 14,402,800 Obligation under capital lease 1,052,700 1,056,000 Deferred revenue 23,200 30,800 ------------ ------------ Total liabilities 21,816,800 19,688,300 Shareholders' equity: Preferred stock of $.01 par; authorized 10,000,000 shares; none issued -- -- Common stock of $.01 par; authorized 4,000,000 shares; outstanding 2,371,600 in 1998 and 2,216,200 shares in 1997 23,700 22,200 Additional paid-in capital 8,594,700 8,256,100 Retained earnings 1,656,900 2,366,200 ------------ ------------ Total shareholders' equity 10,275,300 10,644,500 ------------ ------------ $ 32,092,100 $ 30,332,800 ============ ============
See accompanying notes to consolidated financial statements. - ---------------------------------(RYAN'S LOGO)--------------------------------- 14 15 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 30, 1998, DECEMBER 31, 1997 AND JANUARY 1, 1997
- ------------------------------------------------------------------------------------------------------------------- COMMON STOCK ADDITIONAL --------------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL - ------------------------------------------------------------------------------------------------------------------- Balance, January 3, 1996 10,845,000 $108,500 $8,123,300 $3,227,900 $11,459,700 Net earnings 562,200 562,200 Exercise of stock options 75,700 700 18,100 18,800 Retirement of warrants (63,000) (63,000) Directors' fees in the form of stock options 20,000 20,000 ---------- -------- ---------- ---------- ----------- Balance, January 1, 1997 10,920,700 109,200 8,098,400 3,790,100 11,997,700 Net loss (1,423,900) (1,423,900) Exercise of stock options 32,060 1,600 49,100 50,700 Common stock 1-for-5 reverse split (8,736,560) (88,600) 88,600 -- Directors' fees in the form of stock options 20,000 20,000 ---------- -------- ---------- ---------- ----------- Balance, December 31, 1997 2,216,200 22,200 8,256,100 2,366,200 10,644,500 Net loss (709,300) (709,300) Exercise of stock options 14,108 100 4,700 4,800 Sale of common stock 141,340 1,400 303,900 305,300 Directors' fees in the form of stock options 30,000 30,000 ---------- -------- ---------- ---------- ----------- Balance, December 30, 1998 2,371,648 $ 23,700 $8,594,700 $1,656,900 $10,275,300 ========== ======== ========== ========== ===========
See accompanying notes to consolidated financial statements. - ---------------------------------(RYAN'S LOGO)--------------------------------- 15 16 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------- FOR THE YEARS ENDED ------------------------------------------------------------- DECEMBER 30, 1998 DECEMBER 31, 1997 JANUARY 1, 1997 - ------------------------------------------------------------------------------------------------------------- Operating activities: Net (loss) earnings $ (709,300) $ (1,423,900) $ 562,200 Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: Depreciation and amortization 1,935,000 1,750,700 1,662,500 Asset valuation charge 209,000 550,000 -- Directors' fees in the form of stock options 30,000 20,000 20,000 Amortization of loan fees 24,700 22,200 89,800 Loss on disposition of property and equipment 139,700 146,200 57,400 Amortization of loan discount -- -- 51,000 Gain on early extinguishment of debt -- -- (437,200) Decrease (increase) in: Receivables (13,800) (3,200) (16,100) Income taxes receivable 237,700 (297,900) -- Inventories (52,900) (78,200) 45,100 Prepaids and other current assets 14,600 (64,000) 9,400 Other assets (157,700) (50,900) (492,500) Increase (decrease) in: Accounts payable 94,000 104,000 (67,700) Accrued liabilities (218,300) 48,200 88,000 Income taxes payable -- (84,800) 79,400 Deferred revenue (7,600) (12,300) (6,300) ------------ ------------ ------------ Net cash provided by operating activities 1,525,100 626,100 1,645,000 ------------ ------------ ------------ Investing activities: Principal receipts on notes receivable 124,900 776,100 208,700 (Purchase) sale of investments (43,700) 492,800 (492,800) Proceeds from sale of property and equipment 263,200 900 548,600 Capital expenditures (3,225,800) (2,740,700) (1,356,400) ------------ ------------ ------------ Net cash used in investing activities (2,881,400) (1,470,900) (1,091,900) ------------ ------------ ------------ Financing activities: Payments on long-term debt and obligation under capital lease (329,600) (760,800) (15,414,500) Construction draw on building under capital lease -- 500,100 585,000 Proceeds from issuance of long-term debt 2,590,000 -- 15,360,000 Retirement of warrants -- -- (63,000) Proceeds from the issuance of common stock 310,100 50,700 18,800 ------------ ------------ ------------ Net cash provided by (used in) financing activities 2,570,500 (210,000) 486,300 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 1,214,200 (1,054,800) 1,039,400 Cash and cash equivalents-beginning of year 696,000 1,750,800 711,400 ------------ ------------ ------------ Cash and cash equivalents-end of year $ 1,910,200 $ 696,000 $ 1,750,800 ============ ============ ============ Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 1,581,900 $ 1,435,200 $ 1,386,600 ============ ============ ============ Cash paid during the period for income taxes $ 0 $ 181,000 $ 63,000 ============ ============ ============
See accompanying notes to consolidated financial statements. - ---------------------------------(RYAN'S LOGO)--------------------------------- 16 17 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION The Company was organized under the laws of the State of Florida in September l985 and is the sole franchisee of Ryan's Family Steak House restaurants in the State of Florida. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Steak House Construction. All significant intercompany transactions and balances have been eliminated. FISCAL YEAR The fiscal year consists of a fifty-two or fifty-three week period ending on the Wednesday nearest to December 31. Fiscal years 1996, 1997 and 1998 consisted of fifty-two weeks. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company has a cash management program which provides for the investment of excess cash balances in short-term investments. These investments are stated at cost which approximates market value and consist of money market instruments. INVESTMENTS Investments represent certificates of deposit with maturities of less than one year. These investments are pledged with various entities to support the Company's workers' compensation liability. Interest rates on the certificates vary from 4.88% to 5.50%. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market and consist of food items, ingredients and supplies. - ---------------------------------(RYAN'S LOGO)--------------------------------- 17 18 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Maintenance, repairs and betterments which do not enhance the value of or increase the life of the assets are charged to costs and expenses as incurred. Depreciation is provided for financial reporting purposes principally on the straight-line method over the following estimated lives: buildings -- 25 years, land improvements -- 25 years and equipment -- 5-8 years. Leasehold improvements are amortized over the life of the related lease, or the life of the asset, whichever was less. Interest expense from the FFCA loan is capitalized to the extent that such proceeds are used for the construction of new restaurants. Interest costs of approximately $52,600 were capitalized in 1998. PROPERTY HELD FOR SALE Property held for sale consists of two restaurant properties and an outparcel stated at the lower of cost or estimated net realizable value. The Company has four additional restaurants listed for sale which are still operating and are therefore not included in property held for sale. DEFERRED CHARGES Deferred charges and related amortization periods are as follows: financing costs -- term of the related loan, and initial franchise rights -- 40 years. INCOME TAXES Deferred income taxes are provided for temporary differences between financial reporting basis and tax basis of the Company's assets and liabilities using presently enacted income tax rates. NEW ACCOUNTING STANDARDS In April 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-5, "Reporting on the Cost of Start-up Activities". This SOP requires that the costs of start-up activities, or one-time activities that relate to the opening of a new facility, be expensed as incurred instead of being capitalized. The Company incurs such costs when opening a new restaurant and currently amortizes these pre-opening costs over the first 52 weeks of a restaurant's operations. This SOP must be implemented by no later than the first quarter of 1999. Management estimates that, when implemented, the related write-off will not have a material impact on the Company's financial statements. Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes standards for the reporting and display of comprehensive income and its components in the financial statements. The adoption of SFAS No. 130 has no material impact on the Company's consolidated results of operations, financial position or cash flows. Comprehensive income equals net income plus other comprehensive income. Other comprehensive income refers to revenues, expenses, gains and losses that are reflected in shareholder's equity but excluded from net income. At December 30, 1998 and for the three years then ended, the Company had no other comprehensive income. - ---------------------------------(RYAN'S LOGO)--------------------------------- 18 19 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- NOTE 2. CLOSED RESTAURANT COSTS In 1998, the Company established a reserve to close two restaurants in 1999, resulting in a pre-tax charge to earnings of $53,000. The charge to earnings reflected anticipated costs associated with closing the restaurants. The two restaurants in Jacksonville, Florida were closed in January 1999. The total book value of these restaurants as of December 30, 1998 was approximately $1,190,000, which is included in property held for sale. These two restaurants incurred a combined pre-tax loss of $174,000 in fiscal year 1998. NOTE 3. ASSET VALUATION CHARGE In accordance with SFAS No. 121, the Company recognized an asset valuation charge of $209,000 in 1998 and $550,000 in 1997. This charge was based upon a financial review of all Company-owned restaurants and applied to one underperforming unit each year, both of which the Company intends to sell or lease in 1999. The charge was based on the difference between each unit's net book value and estimated fair value, which equaled the estimated proceeds from disposal as determined by management. Considerable management judgment is necessary to estimate proceeds from disposal and, accordingly, actual proceeds could vary significantly from such estimates. Management plans to actively market these restaurants, but currently cannot estimate the expected disposal dates. NOTE 4. FRANCHISE AGREEMENT In October 1996, the Company amended its Franchise Agreement with Ryan's Family Steak Houses, Inc. The amended agreement requires the Company to pay a monthly royalty fee of 3.0% through December 2001, and 4.0% thereafter of the gross receipts of each Ryan's Family Steak House restaurant. Total royalty fee expenses were $1,150,900, $1,108,400 and $1,138,600 for fiscal years 1998, 1997 and 1996. The Franchise Agreement requires the Company to operate a minimum number of Ryan's restaurants on December 31 of each year. Failure to operate the minimum number could result in the loss of exclusive franchise rights to the Ryan's concept in North and Central Florida. The Company operated 26 restaurants as of fiscal year end 1998 and was therefore in compliance with the Franchise Agreement. The Company has listed six restaurants for sale. Although the Company closed two restaurants in January 1999, management expects to be able to open enough new restaurants in 1999 to satisfy the requirement. If management determines that the Company will not be able to open enough restaurants to satisfy the requirement, a waiver of the requirement will be requested from the Franchisor. The following schedule outlines the number of Ryan's restaurants required to be operated by the Company as of December 31 each year under the amended Franchise Agreement:
- ---------------------------------------------------------------------------------------- NUMBER OF RESTAURANTS REQUIRED TO END OF FISCAL YEAR BE IN OPERATION - ---------------------------------------------------------------------------------------- 1998 26 1999 27 2000 28 2001 and subsequent years Increases by one each year
- ---------------------------------(RYAN'S LOGO)--------------------------------- 19 20 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- NOTE 5. ACCRUED LIABILITIES Accrued liabilities are summarized as follows:
- ---------------------------------------------------------------------------------------------- 1998 1997 - ---------------------------------------------------------------------------------------------- Payroll and payroll taxes $ 618,700 $ 549,200 Workers' compensation liability 1,074,100 1,260,500 Other 719,200 820,600 ---------- ---------- $2,412,000 $2,630,300 ========== ==========
The Company self-insures workers' compensation losses up to certain limits. The estimated liability for workers' compensation claims represents an estimate for the ultimate cost of uninsured losses which are unpaid as of the balance sheet date. These estimates are continually reviewed and adjustments to the Company's estimated claim liabilities, if any, are reflected in current operations. NOTE 6. LONG-TERM DEBT Long-term debt is summarized as follows:
- ----------------------------------------------------------------------------------------------- 1998 1997 - ----------------------------------------------------------------------------------------------- Collateralized notes payable to FFCA Mortgage Corporation, monthly principal and interest payments totaling $165,000 effective December 1998, interest at thirty day LIBOR rate +3.75% (9.03% at December 30, 1998) $16,944,800 $14,681,400 Other -- 300 ----------- ----------- 16,944,800 14,681,700 Less current portion: (370,500) (278,900) ----------- ----------- $16,574,300 $14,402,800 =========== ===========
Total maturities of long-term debt are as follows: 1999 $ 370,500 2000 406,400 2001 446,000 2002 489,200 2003 536,700 Thereafter 14,696,000 ----------- $16,944,800 ===========
In December 1996, the Company entered into a $15.36 million Loan Agreement with FFCA Mortgage Corporation ("FFCA"). The Loan Agreement governs seventeen Promissory Notes payable to FFCA. Each Note is collateral- - ---------------------------------(RYAN'S LOGO)--------------------------------- 20 21 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- ized by a mortgage on a Company restaurant property. The Promissory Notes provide for a term of twenty years and an interest rate equal to the thirty-day LIBOR rate plus 3.75%, adjusted monthly. The Loan Agreement provides for various covenants, including the maintenance of prescribed debt service coverages. As of December 30, 1998, the outstanding balance due under the loan was $14,375,500. The Company used the proceeds of the FFCA loan to retire its Notes with Cerberus Partners, L.P. ("Cerberus") and its loans with the Daiwa Bank Limited and SouthTrust Bank of Alabama, N.A. In addition, the Company retired warrants for 210,000 shares of the Company's common stock previously held by Cerberus. Cerberus continues to hold warrants to purchase 140,000 shares of the Company's common stock at an exercise price of $2.00 per share. Also in December 1996, the Company entered into a separate loan agreement with FFCA under which it borrowed an additional $2,590,000 in 1998. This additional financing is evidenced by three additional Promissory Notes collateralized by mortgages on three Company restaurant properties. The terms and conditions of this loan agreement are substantially identical to those of the loan agreement described above. As of December 30, 1998, the outstanding balance under this loan was $2,569,300. In October 1998, the Company received two commitments for new financing from FFCA. The first commitment provides for funding of a maximum of $3,000,000, collateralized by mortgages on three Company restaurant properties, with an expiration date of March 31, 1999. The second commitment was for construction financing for two new restaurants to be built in 1999. Terms of this commitment include funding of a maximum of $1,600,000 per restaurant, with an expiration date of October 1, 1999. Other terms and conditions of these loan agreements are substantially identical to those of the $15.36 million Loan Agreement described above. NOTE 7. INCOME TAXES The (benefit) provision for income taxes is comprised of the following:
- --------------------------------------------------------------------------------------------------- 1998 1997 1996 - --------------------------------------------------------------------------------------------------- Current: Federal $(67,600) $(201,500) $142,300 ======== ========= ========
Income taxes for the years ended December 30, 1998, December 31, 1997 and January 1, 1997 differ from the amount computed by applying the federal statutory corporate rate to earnings before income taxes. The differences are reconciled as follows:
- ------------------------------------------------------------------------------------------------- 1998 1997 1996 - ------------------------------------------------------------------------------------------------- Tax (benefit) provision at statutory rate $(271,900) $(568,900) $245,500 Increase (decrease) in taxes due to: Effect of graduated tax rates 7,800 16,300 (7,000) State tax net of federal benefit (28,200) (59,000) 38,600 Change in deferred tax asset valuation allowance 224,500 377,900 (109,400) Other 200 32,200 (25,400) --------- --------- -------- (Benefit) provision for income taxes $ (67,600) $(201,500) $142,300 ========= ========= ========
- ---------------------------------(RYAN'S LOGO)--------------------------------- 21 22 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- The components of deferred taxes at December 30, 1998 and December 31, 1997 are summarized below:
- ----------------------------------------------------------------------------------------- DECEMBER 30, 1998 DECEMBER 31, 1997 - ----------------------------------------------------------------------------------------- Deferred tax assets: Capital loss not currently deductible $ 47,500 $ 46,100 Excess tax over book basis: Property held for sale 109,300 164,700 Asset valuation reserve 285,600 207,000 Federal and state tax credits 589,400 562,500 Accruals not currently deductible 424,100 474,500 Unearned revenue, previously taxed 12,000 16,800 State net operating loss 267,700 44,900 ---------- ---------- Total deferred tax asset 1,735,600 1,516,500 Valuation allowance (744,200) (519,700) ---------- ---------- 991,400 996,800 ---------- ---------- Deferred tax liability: Excess of tax over book depreciation and amortization 991,400 996,800 ========== ========== Net deferred taxes $ -- $ -- ========== ==========
At December 30, 1998 the Company's federal and state tax credit was comprised of $49,200 in general business credits which expire in 2013 and alternative minimum tax credits of $540,200 which have no expiration date. The Company has operating loss carryforward available to offset future federal taxable income of approximately $565,500 at December 30, 1998. NOTE 8. COMMON SHAREHOLDERS' EQUITY Stock Split The Company effected a 1-for-5 reverse stock split of its common stock in March 1998, which was recorded by transferring the aggregate par value of the shares retired from common stock to additional paid in capital. Accordingly, the weighted average number of common and equivalent shares, per share amounts for net earnings, and stock option and warrant data have been retroactively adjusted to reflect the reverse stock split for all periods presented. - ---------------------------------(RYAN'S LOGO)--------------------------------- 22 23 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- Earnings per Share The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for net income and net income available to common shareholders:
- -------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 ------------------------------------ ------------------------------------ ----------- INCOME SHARES PER INCOME SHARES PER INCOME (NUMERATOR) (DENOMINATOR) SHARE (NUMERATOR) (DENOMINATOR) SHARE (NUMERATOR) - -------------------------------------------------------------------------------------------------------------------- BASIC EPS: Net (loss) income available to common shareholders $(709,300) 2,348,000 $(0.30) $(1,423,900) 2,206,000 $(0.65) $562,200 ====== ====== Effect of Dilutive Securities: Stock options 1,200 Warrants 5,800 DILUTED EPS: Net (loss) income available to common shareholders plus assumed conversions $(709,300) 2,355,000 $(. 30) $(1,423,900) 2,206,000 $(0.65) $562,200 ====== ====== - ------------------------- --------------------- 1996 --------------------- SHARES PER (DENOMINATOR) SHARE - ------------------------- --------------------- BASIC EPS: Net (loss) income available to common shareholders 2,177,400 $0.26 ===== Effect of Dilutive Securities: Stock options 49,800 Warrants 140,700 DILUTED EPS: Net (loss) income available to common shareholders plus assumed conversions 2,367,600 $0.24 =====
The Company has a stock option plan for non-employee directors pursuant to which up to an aggregate of 180,000 shares of the common stock are authorized to be granted. All options expire five years after the date of grant or one year after completion of the term as a director. The Company also had an employee incentive stock option plan pursuant to which up to an aggregate of 108,000 shares of the common stock were authorized to be granted. All options expire ten years after the date of grant or 90 days after termination of employment. This plan expired as of November 30, 1995. Certain options outstanding under this plan as of November 30, 1995 remain exercisable pursuant to terms of the plan. In 1995 the Company's shareholders approved a new employee long-term incentive plan pursuant to which an additional 200,000 shares of common stock are authorized to be granted in the form of stock options or restricted stock. All options granted under this plan expire no later than ten years after the date of grant or in most cases three months after termination of employment. If compensation cost for stock option grants had been determined based on the fair value at the grant dates for 1998, 1997, and 1996 consistent with the method prescribed by SFAS No. 123, the Company's net earnings and earnings per share would have been adjusted to the pro forma amounts indicated below:
- -------------------------------------------------------------------------------- 1998 1997 1996 - -------------------------------------------------------------------------------- Net Earnings As reported $(709,300) $(1,423,900) $562,200 Pro forma (735,700) (1,477,800) 490,300 Diluted Earnings As reported $ (.30) $ (.65) $ .24 Per Share Pro forma (.31) (.67) .21
Under SFAS No. 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weight-average assumptions used for grants in 1998, 1997 and 1996, - ---------------------------------(RYAN'S LOGO)--------------------------------- 23 24 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- respectively: dividend yield 0 percent each year, expected volatility of 75, 99, and 134 percent, risk-free interest rates of 5.1, 5.6, and 6.5 percent, and expected lives of 10 years for each year. The following table summarizes the changes in the total number of stock option shares outstanding during the three years ended December 30, 1998.
- -------------------------------------------------------------------------------------------------------------- 1998 1997 1996 --------------------------- --------------------------- --------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE - -------------------------------------------------------------------------------------------------------------- Options outstanding at beginning of year 181,940 $3.08 193,840 $3.00 262,040 $3.11 Options granted 42,478 .77 34,852 2.64 27,886 2.66 Options exercised (14,028) .37 (32,052) 1.58 (15,136) 1.25 Options forfeited (19,450) 4.20 (14,700) 4.23 (80,950) 3.57 -------- -------- -------- Options outstanding at end of year 190,940 2.66 181,940 3.08 193,840 3.00 ======== ======== ======== Options exercisable at end of year 123,830 2.65 103,670 3.20 89,810 3.50 ======== ======== ======== Weighted average fair value of options granted during the year $ 26,400 $ 41,800 $ 36,200 Common shares reserved for future grants at end of year 98,289 -- 125,689 -- 153,289 --
The following table summarizes information about fixed stock options outstanding at December 30, 1998:
- -------------------------------------------------------------------------------------------------------------------- YEAR EXERCISE OPTIONS OPTIONS WEIGHTED AVERAGE GRANTED PRICE $ OUTSTANDING EXERCISABLE REMAINING LIFE - -------------------------------------------------------------------------------------------------------------------- 1989 $14.38 2,600 2,600 .5 1991 4.06 9,400 9,400 2.3 1992 5.63 2,800 2,800 3.1 1993 3.13 4,200 4,200 4.3 1994 1.25 11,500 11,500 6.0 1995 3.75 26,440 19,830 6.7 1995 2.00 57,500 57,500 6.7 1996 2.81 19,700 9,850 8.0 1997 3.28 24,600 6,150 9.0 1998 1.00 32,200 -- 10.0 ------- ------- 190,940 123,830 ======= =======
- ---------------------------------(RYAN'S LOGO)--------------------------------- 24 25 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- Remaining non-exercisable options as December 30, 1998 become exercisable as follows: 1999 25,735 2000 19,125 2001 14,200 2002 8,050 ------ 67,110 ======
Cerberus Partners, L.P., holds detachable warrants to purchase 140,000 shares of the Company's common stock at $2.00 per share at any time prior to October 1, 2003. The estimated fair value of the warrants retired as of December 18, 1996 (the date of the retirement of the Cerberus Notes) of $63,000 was recorded as a decrease to additional paid-in capital and included in the gain from early retirement of debt. The Company's Board of Directors is authorized to set the various rights and preferences for the Company's Preferred Stock, including voting, conversion, dividend and liquidation rights and preferences, at the time shares of Preferred Stock are issued. As of December 30, 1998 there were no shares of Preferred Stock issued. RIGHTS PLAN On March 18, 1997, the Company entered into a Rights Agreement (the "Rights Agreement") with ChaseMellon Shareholder Services, LLC and declared a dividend of rights to purchase Junior Participating Preferred Stock of the Company ("Rights") to shareholders of record as of March 19, 1997. Each Right will initially entitle the registered holder to purchase from the Company a unit consisting of one one-hundredth of a share (a "Unit") of Junior Participating Preferred Stock of the Company ("Preferred Stock") at $5.00 per Unit, subject to adjustment (the "Purchase Price"). The description and terms of the Rights are contained in the Rights Agreement. As long as the Rights are attached to the common stock of the Company and in certain other circumstances specified in the Rights Agreement, five Rights (as such number may be adjusted pursuant to the provisions of the Rights Agreement) shall be deemed to be delivered with each share of the Company's common stock currently outstanding or issued or transferred by the Company in the future. The Rights will be exercisable and will trade separately from the Company's common stock upon the tenth business day after (i) the date of public announcement that a person or group has become the beneficial owners of 15% (other than Bisco and its affiliates, for which the threshold is 20%) or more of the outstanding shares of the Company's common stock (an "Acquiring Person"), or (ii) such later date determined by the Board of Directors after the first public announcement of a tender or exchange offer, which, upon consummation, would result in a person or a group being the beneficial owner of 15% (other than Bisco and its affiliates, for which the threshold is 20%) or more of the outstanding shares of common stock, or (iii) after a majority of the Board who are not officers of the Company have determined that a person is an Adverse Person (as defined in the Rights Agreement). If (i) a person becomes the beneficial owner of 15% (other than Bisco and its affiliates, for which the threshold is 20%) or more of the then outstanding shares of the Company's common stock or voting power (except pursuant to certain business combinations or an offer for all outstanding shares of the Company's common stock and all other voting securities which the independent and disinterested directors of the Company determine to be fair to and otherwise in the best interest of the Company and its shareholders) or (ii) any person is determined to be an Adverse Person, then each holder of a Right (with the exception of an Adverse or Acquiring Person) will thereafter - ---------------------------------(RYAN'S LOGO)--------------------------------- 25 26 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- have the right to receive, upon exercise, common stock having a value equal to no less than two times the exercise price of the Right, which is $5.00, subject to adjustment. The Company may redeem each Right for $0.001 at any time before the earliest of (i) ten business days after a person or group becomes an Acquiring Person, (ii) ten business days after the Board's determination that a person is an Adverse Person, or (iii) March 17, 2007. NOTE 9. PROFIT SHARING AND RETIREMENT PLAN Employees of the Company participate in a profit sharing and retirement plan covering substantially all full-time employees at least twenty-one years of age and with more than one year of service. The plan was established in August 1991. Contributions are made to the plan at the discretion of the Company's Board of Directors. No profit-sharing contributions have been made since the inception of the plan. The profit sharing plan includes a 40l(k) feature by which employees can contribute, by payroll deduction only, l% to l5% of their annual compensation not to exceed $10,000 in 1998. The plan provides for a Company matching contribution of $.25 per dollar of the first 6% of employee contributions. The Company's matching contribution was $30,900 in 1998, $29,211 in 1997 and $32,050 in 1996. Employees vest in Company contributions based on the following schedule:
- ----------------------------------------------------------------------------------------------------------- YEARS OF VESTING SERVICE PERCENTAGE - ----------------------------------------------------------------------------------------------------------- Less than 3 0% 3 20% 4 40% 5 60% 6 80% 7 100%
NOTE 10. COMMITMENTS AND CONTINGENCIES Lease Obligations At December 30, 1998, the Company is committed under the terms and conditions of real and personal property operating leases for minimum rentals aggregating $2,672,800 plus insurance, common area expenses and taxes. The Company has various renewal options on these leases covering periods of five to twenty years. In September 1996, the Company entered into a twenty year lease agreement with two five year renewal options for a restaurant building. The total net book value of the assets covered by the lease amount to $1,033,400 at December 30, 1998. Interest is computed at an annual rate of 10.65%. - ---------------------------------(RYAN'S LOGO)--------------------------------- 26 27 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- Future minimum lease obligations under noncancelable capital leases and operating leases consist of the following as of December 30, 1998:
- ----------------------------------------------------------------------------------------------------------------- CAPITAL OPERATING LEASES LEASES - ----------------------------------------------------------------------------------------------------------------- 1999 $ 115,400 $ 312,100 2000 115,400 264,200 2001 115,400 214,700 2002 129,300 213,400 2003 129,300 171,000 Future years 1,922,000 1,497,400 ----------- ---------- Total minimum lease payments 2,526,800 $2,672,800 ========== Amounts representing interest (1,471,000) ----------- Present value of net minimum payments 1,055,800 Current portion (3,100) ----------- Long-term capitalized lease obligations $ 1,052,700 ===========
Rental expense for operating leases for the years ended December 30, 1998, December 31, 1997, and January 1, 1997 was approximately $490,000, $477,700, and $380,500 respectively. The Company leases the premises where its Clearwater, Florida restaurant is located. On May 13, 1997, the Company received notice from Aetna Life Insurance Company, the mortgage holder of the property at which the Company's Clearwater, Florida restaurant is located, that Aetna intended to foreclose on the property due to a default by the landlord on the mortgage. In October 1998, Aetna was granted a Motion for Summary Judgment of Foreclosure by the Circuit Court of the Sixth Judicial Court in Pinellas County. The Company subsequently agreed not to appeal the Circuit Court's ruling in exchange for Aetna's agreement not to initiate any eviction proceedings prior to May 30, 1999. After May 1999, either the Company or Aetna may terminate the lease agreement with 30 days notice. If Aetna decides to terminate the lease in 1999, the Company would be required to write-off approximately $300,000 of leasehold improvements. Legal Matters The Company, in the normal course of business, is subjected to claims and litigation with respect to store operations. In the opinion of management, based on the advice of legal counsel the ultimate disposition of these claims and litigation will not have a material effect on the financial position or results of operations of the Company. - ---------------------------------(RYAN'S LOGO)--------------------------------- 27 28 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Cash Equivalents -- For those short-term instruments, the carrying amount is a reasonable estimate of fair value. Investments -- The Company's investments consist of certificates of deposit for which the carrying amount is a reasonable estimate of fair value. Mortgage Receivable -- The fair value of mortgage receivable is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The Company believes the carrying amount is a reasonable estimate of fair value. Debt -- Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt instruments. The Company believes the carrying amount is a reasonable estimate of such fair value. NOTE 12. SUBSEQUENT EVENTS Expiration of Stand Still and Settlement Agreement In order to settle litigation and other matters between the Company and Bisco industries, its president and chief executive officer, Glen F. Ceiley and other affiliates ("Bisco"), the Company entered into a Standstill and Settlement Agreement with Bisco in February 1998. Under this agreement, Bisco agreed, among other matters, to (i) not initiate the solicitation of proxies or any shareholder vote in opposition to the Board's recommendations for the 1998 Annual Meeting of Shareholders, (ii) vote shares of the Company's stock owned by Bisco in favor of the Company's slate of Director nominees for the 1998 Annual Meeting of Shareholders and (iii) acquire no more than 19.9% of the total outstanding shares of the Company's common stock. In turn, the Company agreed, among other matters, to (i) dismiss certain litigation against Bisco and (ii) to appoint two Bisco nominees to its Board of Directors. As this agreement expired on February 24, 1999, these parties are no longer subject to the foregoing restrictions. Change in Listing of Securities on the NASDAQ Stock Market On February 10, 1999, the Company received notice from NASDAQ that the listing of its common stock was moved from the NASDAQ National Market to the NASDAQ SmallCap Market, due to a failure to comply with the $5.0 million minimum public float requirement of the National Market. The new listing on the SmallCap Market was effective February 12, 1999, but is contingent upon NASDAQ's review of the Company's application. The Company filed a listing application for the SmallCap Market and is awaiting NASDAQ's review for final approval of the Company's listing. - ---------------------------------(RYAN'S LOGO)--------------------------------- 28 29 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT THE BOARD OF DIRECTORS AND SHAREHOLDERS FAMILY STEAK HOUSES OF FLORIDA, INC. We have audited the accompanying consolidated balance sheets of Family Steak Houses of Florida, Inc. and subsidiaries as of December 30, 1998 and December 31, 1997 and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 30, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with 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, such consolidated financial statements present fairly, in all material respects, the financial position of Family Steak Houses of Florida, Inc. and subsidiaries as of December 30, 1998 and December 31, 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 1998 in conformity with generally accepted accounting principles. Deloitte & Touche LLP Jacksonville, Florida February 25, 1999 - ---------------------------------(RYAN'S LOGO)--------------------------------- 29 30 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- COMPANY'S REPORT ON FINANCIAL STATEMENTS Family Steak Houses of Florida, Inc. has prepared and is responsible for the accompanying consolidated financial statements and related consolidated financial information included in this report. These consolidated financial statements were prepared in accordance with generally accepted accounting principles and are appropriate under the circumstances. These consolidated financial statements necessarily include amounts determined using management's best judgements and estimates. Family Steak Houses of Florida, Inc. maintains accounting and other control systems which the Company believes provides reasonable assurance that assets are safeguarded and that the books and records reflect the authorized transactions of the Company, although there are inherent limitations in all internal control structure elements, as well as cost/benefit considerations. - ---------------------------------(RYAN'S LOGO)--------------------------------- 30 31 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- CORPORATE LISTING CORPORATE OFFICER AND DIRECTORS Lewis E. Christman, Jr. President, Chief Executive Officer, Director Edward B. Alexander Vice President of Finance and Director G. Alan Howard Director Senior Counsel, HomeSide Lending, Inc. Of Counsel -- Milam Otero Larsen Dawson & Traylor, P.A. Joseph M. Glickstein, Jr. Director Partner, Glickstein & Glickstein Richard M. Gray Director Partner, Gray & Kelley Glen F. Ceiley Director President & CEO, Bisco Industries, Inc. Jay Conzen Director Principal, Jay Conzen Investments ANNUAL MEETING The annual meeting will be held at: Sea Turtle Inn One Ocean Boulevard Atlantic Beach, FL 32233 Thursday, July 1 at 10:00 am FAMILY STEAK HOUSES OF FLORIDA, INC. INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Deloitte & Touche LLP Suite 2801, Independent Square One Independent Drive Jacksonville, FL 32202-5034 GENERAL COUNSEL McGuire Woods Battle & Boothe LLP 3300 Barnett Center 50 North Laura Street P.O. Box 4099 Jacksonville, FL 32201 TRANSFER AGENT/RIGHTS AGENT Chase Mellon Shareholder Services Four Station Square Third Floor Pittsburg, PA 15219-1173 EXECUTIVE OFFICE Family Steak Houses of Florida, Inc. 2113 Florida Boulevard Neptune Beach, Florida 32266 FORM 10-K A copy of the Company's Annual Report on Form 10-K for fiscal 1998, as filed with the Securities and Exchange Commission, may be obtained by writing to: Corporate Secretary Family Steak Houses of Florida, Inc. 2113 Florida Boulevard Neptune Beach, FL 32266 - ---------------------------------(RYAN'S LOGO)--------------------------------- 31 32 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- COMMON STOCK DATA The Company's common stock is traded on the NASDAQ SmallCap Market System under the trading symbol "RYFL". As of March 1, 1999, prior to the reverse split, there were 2,456 shareholders of record, not including individuals holding shares in street names. The closing sale price for the Company's stock on March 1, 1999 was $1.00. The Company has never paid cash dividends on its common stock and is not allowed to pay dividends under its loan agreements. Management of the Company presently intends to retain all available funds for expansion of the business. The quarterly high and low closing prices (as adjusted for the reverse stock split) of the Company's common stock are as shown below: MARKET PRICE OF COMMON STOCK - --------------------------------------------------------------------------------
1998 1997 QUARTER HIGH LOW HIGH LOW - --------------------------------------------------------------------------------------------- First 3 3/4 1 3/4 5 2 1/2 Second 3 1/2 1 11/16 4 3/8 3 7/16 Third 2 7/16 1 1/4 3 29/32 2 21/32 Fourth 1 1/2 11/16 3 19/32 2 31/32
Pursuant to the Standstill and Settlement Agreement with Bisco and its affiliates, on February 27, 1998, the Company sold 141,340 shares of its common stock to Bisco at a purchase price of $2.16, which was the average closing price of the Company's common stock for the ten trading days immediately preceding the date of the sale. The total price paid by Bisco to the Company was $305,312. These shares of common stock were sold without registration under the exemption granted under Rule 506 of Regulation D since the sale was made to only one purchaser who qualified as an accredited investor. - ---------------------------------(RYAN'S LOGO)--------------------------------- 32 EX-21.01 4 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.01 LIST OF SUBSIDIARIES Steak House Construction Corporation, a Florida corporation. EX-23.01 5 CONSENT OF DELOITTE & TOUCHE LLP 1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Annual Report of Family Steak Houses of Florida, Inc. on Form 10-K of our report dated February 25, 1999, appearing in the 1998 Annual Report to Shareholders of Family Steak Houses of Florida, Inc. We additionally consent to the incorporation by reference in Registration Statement No. 33-11684 pertaining to the 1986 Employee Incentive Stock Option Plan of Family Steak Houses of Florida, Inc. on Form S-8 of our report dated February 25, 1999 appearing in and incorporated by reference in this Annual Report on Form 10-K of Family Steak Houses of Florida, Inc. for the year ended December 30, 1998. We further consent to the incorporation by reference in Registration Statement No. 33-12556 pertaining to the 1986 Stock Option Plan for Non-Employee Directors of Family Steak Houses of Florida, Inc. on Form S-8 of our report dated February 25, 1999 appearing in and incorporated by reference in this Annual Report on Form 10-K of Family Steak Houses of Florida, Inc. for the year ended December 30, 1998. We further consent to the incorporation by reference in Registration Statement No. 33-62101 pertaining to the 1996 Long Term Incentive Plan of Family Steak Houses of Florida, Inc. on Form S-8 of our report dated February 25, 1999 appearing in and incorporated by reference in this Annual Report on Form 10-K of Family Steak Houses of Florida, Inc. for the year ended December 30, 1998. Deloitte & Touche LLP Jacksonville, Florida March 24, 1999 EX-27.00 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FAMILY STEAK HOUSES OF FLORIDA, INC.'S ANNUAL REPORT ON FORM 10-K, AS OF AND FOR THE YEAR ENDED DECEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-30-1998 DEC-30-1998 1,910,200 644,000 178,100 0 333,400 3,422,500 42,647,300 16,509,400 32,092,100 4,166,600 16,574,300 0 0 23,700 10,251,600 32,092,100 38,412,400 38,412,400 15,015,500 37,980,300 0 0 1,618,900 (776,900) (67,600) (709,300) 0 0 0 (709,300) (.30) (.30) Represents investments in certificates of deposits with maturities of less than one year.
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