<PAGE>
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
For the Fiscal Year Ended October 2, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-14030
------------------------------
ARK RESTAURANTS CORP.
------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
New York 13-3156768
- ------------------------------- ------------------------------------
<S> <C>
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
</TABLE>
85 Fifth Avenue, New York, N.Y. 10003
-----------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(212) 206-8800
--------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
<S> <C>
Common Stock, $.01 par value NASDAQ/NMS
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
<PAGE>
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
amendments to this Form 10-K. [ ].
The aggregate market value at December 27, 1999 of shares of the
Registrant's Common Stock, $.01 par value (based upon the closing price per
share of such stock on the Nasdaq National Market) held by non-affiliates of the
Registrant was approximately $15,850,000. Solely for the purposes of this
calculation, shares held by directors and officers of the Registrant have been
excluded. Such exclusion should not be deemed a determination or an admission by
the Registrant that such individuals are, in fact, affiliates of the Registrant.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: At December 27,
1999, there were outstanding 3,181,699 shares of the Registrant's Common Stock,
$.01 par value.
Document Incorporated by Reference: Certain portions of the Registrant's
definitive proxy statement to be filed not later than January 31, 2000 pursuant
to Regulation 14A are incorporated by reference in Items 10 through 13 of Part
III of this Annual Report on Form 10-K.
-2-
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Ark Restaurants Corp. (the "Registrant" or the "Company") is a
holding company which, through subsidiaries, owns and operates 22 restaurants
and manages five restaurants owned by others. Fourteen of the restaurants owned
or managed by the Company are located in New York City, four are located in
Washington, D.C., four are located in Las Vegas, Nevada (one of which is within
the Forum Shops at Caesar's Shopping Center and three of which are within the
New York-New York Hotel & Casino), three are located in Boston, Massachusetts,
and one is located in each of McLean, Virginia and Islamorada, Florida. At the
New York-New York Hotel & Casino, the Company also operates the room service,
banquet facilities and employee dining room and a complex of nine smaller
eateries. The Company also owns and operates four food court facilities at the
Venetian Casino Resort. The Company's other operations include catering
businesses in New York City and Washington, D.C., as well as wholesale and
retail bakeries in New York City.
The Company is currently constructing significant additional
facilities that are scheduled to be completed in fiscal 2000. In Las Vegas,
Nevada, the Company is completing construction of two additional restaurants at
the Venetian Casino Resort (one of which is scheduled to open in December 1999
and the second of which is scheduled to open in January 2000). A third
restaurant at the Venetian Casino Resort is scheduled to open in the fourth
quarter of fiscal 2000. Construction will commence shortly on two new facilities
at the Aladdin Resort & Casino (a restaurant and a 15,000 square foot food court
facility, both of which are scheduled to open during the fourth quarter of
fiscal 2000). The Company also owns 50% of a limited liability company (and is
the managing member of such company) that is constructing four restaurants at a
large theater development in Southfield, Michigan. These restaurants are
currently scheduled to open in the second quarter of fiscal 2000.
The Company was formed in 1983 to concentrate the ownership of four
restaurants previously operated by the Company's principals. Until 1987 all of
the Company's facilities were located in the New York City metropolitan area. In
1987, three facilities were opened in Boston, Massachusetts. Since then the
Company has opened five facilities in the Washington, D.C. metropolitan area
(one of which has been sold), one in Islamorada, Florida and one in Jersey City,
New Jersey (a management agreement that was terminated in fiscal 1998). In
January 1997, the Company opened a group of restaurants in the 2,100-room hotel
known as New York-New York Hotel & Casino in Las Vegas, Nevada. Since that time,
the Company has significantly expanded its Las Vegas operations and, as noted
above, is continuing at the present time to expand such operations.
In addition to the shift from a Manhattan-based operation to a
multi-city operation, the nature of the facilities operated by the Company has
shifted from smaller, neighborhood restaurants to larger, destination
restaurants intended to benefit from high patron traffic attributable to the
uniqueness of the restaurant's location. Most of the restaurants opened in
recent years are of the latter description and the Company intends to
concentrate on developing or acquiring similar facilities in the future. The
Company opened the restaurant operations at the New York-New York Hotel & Casino
in Las Vegas, Nevada in fiscal 1997, opened two such destination restaurants in
fiscal 1998 (the Stage Deli located at the Forum Shops in Las Vegas, Nevada and
Red located at the South Street Seaport in New York) and one in fiscal 1999
(Thunder Grill in Union Station, Washington, D.C.). By the end of fiscal 2000,
the Company expects to have opened three restaurants and four food court
facilities at the Venetian Casino Resort and one restaurant and a 15,000 square
foot food court containing multiple outlets at the Aladdin Resort & Casino, in
Las Vegas, Nevada. The four restaurants at the theater development in
Southfield, Michigan also fall within this category of larger, destination
restaurants. In fiscal 1998 and 1999, the Company continued its efforts to sell
some of its smaller, neighborhood restaurants. Three such facilities were sold
in fiscal 1998 and two were sold in fiscal 1999.
-3-
<PAGE>
The names and themes of each of the Company's restaurants are
different except for the Company's four America restaurants, two Sequoia
restaurants and two Gonzalez y Gonzalez restaurants. Also, two of the Company's
planned restaurants will be known as Fat Anthony's. The menus in the Company's
restaurants are extensive, offering a wide variety of high quality foods at
generally moderate prices. One of the Company's restaurants, Lutece, may be
classified as expensive. The atmosphere at many of the restaurants is lively and
extremely casual. Most of the restaurants have separate bar areas utilized by
diners awaiting tables. A majority of the net sales of the Company is derived
from dinner as opposed to lunch service. Most of the restaurants are open seven
days a week and most serve lunch as well as dinner.
While decor differs from restaurant to restaurant, interiors are
marked by distinctive architectural and design elements which often incorporate
dramatic interior open spaces and extensive glass exteriors. The wall
treatments, lighting and decorations are typically vivid, unusual and, in some
cases, highly theatrical.
The following table sets forth certain information with respect to
the Company's facilities currently in operation and facilities with signed
leases that are intended to be opened in fiscal 2000.
<TABLE>
<CAPTION>
Seating
Capacity(2)
Restaurant Size Indoor- Lease
Name Location Year Opened(1) (Square feet) (Outdoor) Expiration(3)
---- -------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Metropolitan Cafe First Avenue 1982 4,000 180-(50) 2006
New York, New York
(between 52nd and 53rd
Streets)
Ernie's Broadway 1983 6,600 300 2008
New York, New York
(between 75th and 76th
Streets)
America 18th Street 1984 9,600 350 2004
New York, New York
(between 5th Avenue
and Broadway)
Arlo(4) Seventh Avenue South 1986(9) 1,700 90 2011
New York, New York
(between Charles and
10th Streets)
The Grill Eighth Avenue 1986(9) 8,000 400 2011
New York, New York
(at 47th Street)
The Marketplace Faneuil Hall Market 1987 3,000 100 2000
Cafe(4) Boston, Massachusetts
El Rio Grande(4)(5) Third Avenue 1987 4,000 160 2014
New York, New York
(between 38th and 39th
Streets)
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
Seating
Capacity(2)
Restaurant Size Indoor- Lease
Name Location Year Opened(1) (Square feet) (Outdoor) Expiration(3)
---- -------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
The Brewskeller Faneuil Hall Market 1987 1,500 50 2000
Pub(4) Boston, Massachusetts
Gonzalez y Broadway 1989 6,000 250 month-to-
Gonzalez New York, New York month
(between Houston and
Bleecker Streets)
America Union Station 1989 10,000 400 2009
Washington, D.C.
Center Cafe Union Station 1989 4,000 200 2009
Washington, D.C.
Sequoia Washington Harbour 1990 26,000 600(400) 2010
Washington, D.C.
Sequoia South Street Seaport 1991 12,000 300(100) 2006
New York, New York
Canyon Road First Avenue 1984 2,500 130 2009
New York, New York
(between 76th and 77th
Streets)
The Marketplace Faneuil Hall Market 1987(10) 2,500 130 2000
Grill(4) Boston, Massachusetts
America(11) Tyson's Corner 1994 11,000 400 2014
McLean, Virginia
Lutece East 50th Street 1994 2,500 92 2019
New York, New York
(between 2nd and 3rd
Avenues)
Lorelei Restaurant Islamorada, Florida 1994 10,000 400 2029
and Cabana Bar
Columbus Bakery Columbus Avenue 1988 3,000 75 2007
New York, New York
(between 82nd and 83rd
Streets)
Bryant Park Grill Bryant Park 1995 25,000 180(820) 2025
& Cafe New York, New York
Columbus Bakery First Avenue 1995 2,000 75 2006
New York, New York
(between 52nd and 53rd
Streets)
America New York-New York 1997 20,000 450 2017(6)
Hotel & Casino
Las Vegas, Nevada
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Seating
Capacity(2)
Restaurant Size Indoor- Lease
Name Location Year Opened(1) (Square feet) (Outdoor) Expiration(3)
---- -------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Gallagher's New York-New York 1997 5,000 160 2017(6)
Hotel & Casino
Las Vegas, Nevada
Gonzalez y New York-New York 1997 2,000 120 2017(6)
Gonzalez Hotel & Casino
Las Vegas, Nevada
Village Eateries(7) New York-New York 1997 6,300 400(8) 2017(6)
Hotel & Casino
Las Vegas, Nevada
The Grill Room World Financial Center 1997 10,000 250 2012
New York, New York
The Stage Deli Forum Shops 1998 5,000 200 2008
Las Vegas, Nevada
Red South Street Seaport 1998 7,000 150(150) 2013
New York, New York
Thunder Grill Union Station 1999 10,000 500 2019
Washington, D.C.
Venetian Food Venetian Casino Resort 1999 5,000 300(8) 2014
Court Las Vegas, Nevada
Tsunami Grill Venetian Casino Resort 1999(13) 13,000 300 2019
Las Vegas, Nevada
Lutece Venetian Casino Resort 1999(12) 6,400 90(90) 2019
Las Vegas, Nevada
Chulas Venetian Casino Resort 2000(14) 9,700 250 2019
Las Vegas, Nevada
Volcano Grill Star Theatres 2000(13) 14,000 350 2029
Entertainment Complex
Southfield, Michigan
Fat Anthony's Star Theatres 2000(13) 10,000 250 2029
Entertainment Complex
Southfield, Michigan
Starlight Brewery Star Theatres 2000(13) 12,000 350 2029
Entertainment Complex
Southfield, Michigan
Z-Dim Star Theatres 2000(13) 9,000 300 2029
Entertainment Complex
Southfield, Michigan
Aladdin Food Aladdin Resort & 2000(14) 15,000 400(8) 2020
Court Casino
Las Vegas, Nevada
Fat Anthony's Aladdin Resort & 2000(14) 10,000 300 2020
Casino
Las Vegas, Nevada
</TABLE>
-6-
<PAGE>
(1) Restaurants are, from time to time, renovated and/or renamed. "Year
Opened" refers to the year in which the Company or an affiliated
predecessor of the Company first opened, acquired or began managing a
restaurant at the applicable location, notwithstanding that the
restaurant may have been renovated and/or renamed since that date.
(2) Seating capacity refers to the seating capacity of the indoor part of
a restaurant available for dining in all seasons and weather
conditions. Outdoor seating capacity, if applicable, is set forth in
parentheses and refers to the seating capacity of terraces and
sidewalk cafes which are available for dining only in the warm seasons
and then only in clement weather.
(3) Assumes the exercise of all available lease renewal options.
(4) Restaurant owned by a third party and managed by the Company.
Management fees earned by the Company are based either on a percentage
of cash flow of the restaurant or a fixed amount or a combination of
the two.
(5) The Company owns a 19% interest in the partnership which owns El Rio
Grande.
(6) Includes two five-year renewal options exercisable by the Company if
certain sales goals are achieved during the two year period prior to
the exercise of the renewal option. Under the America lease, the sales
goal is $6.0 million. Under the Gallagher's lease the sales goal is
$3.0 million. Under the lease for Gonzalez y Gonzalez and the Village
Eateries, the combined sales goal is $10.0 million. Each of the
restaurants is currently operating at a level substantially in excess
of the minimum sales level required to exercise the renewal option for
such restaurant.
(7) The Company operates nine small food court restaurants in a food court
at this hotel facility. The Company also operates the hotel's room
service, banquet facilities and employee cafeteria.
(8) Represents common area seating.
(9) The Company has operated a restaurant at this site since 1986. In the
fourth quarter of fiscal 1999, the Company converted Woody's to Arlo.
In the first quarter of fiscal 2000, the Company converted B. Smith's
to The Grill.
(10) The Company has operated a restaurant at this site since 1987. In
fiscal 2000, the Company converted Savannah to The Marketplace Grill.
(11) This restaurant is under contract to be sold.
(12) Opening anticipated in the first quarter of fiscal 2000.
(13) Opening anticipated in the second quarter of fiscal 2000.
(14) Opening anticipated in the fourth quarter of fiscal 2000.
-7-
<PAGE>
RESTAURANT EXPANSION
The Company is constructing four restaurants containing a total of
approximately 45,000 square feet at a large theater development in Southfield,
Michigan, of which the Company owns 50% in a joint venture with Sony Theatres'
Loeks Star Partners and Millennium Partners. The Company is the managing member
of the limited liability company that owns the restaurants. The restaurants are
currently scheduled to open in the second quarter of fiscal 2000.
The Company is also constructing three restaurants at the recently
opened Venetian Casino Resort in Las Vegas, Nevada, where the Company currently
owns and operates four fast food outlets. One restaurant, Lutece, is modeled
after the New York restaurant of the same name and is scheduled to open in
December 1999. The second restaurant, Tsunami, a pan-Asian restaurant, is
scheduled to open in January 2000. The third restaurant, Chulas, a mexican
restaurant, is scheduled to open in the fourth quarter of fiscal 2000.
During the fourth quarter of fiscal 2000, the Company expects to open
one restaurant (Fat Anthony's) and one 15,000 square foot food court facility
containing multiple outlets in the Aladdin Resort & Casino in Las Vegas, Nevada.
In April 1999, the Company opened a 500 seat Southwestern style
restaurant at Union Station in Washington, D.C., (Thunder Grill) where the
Company operates two other restaurants (America & Center Cafe).
During the second quarter of fiscal 1998, the Company purchased the
Stage Deli in the Forum Shops at Caesar's Shopping Center in Las Vegas, Nevada.
This 200-seat restaurant operates under a license agreement with the owner of
the original Stage Deli in New York City. During the fourth quarter of fiscal
1998, the Company opened its second restaurant at the South Street Seaport in
New York City. This facility, Red, is a 7,000 square foot restaurant with a
Southwestern theme.
During the second quarter of fiscal 1997, the Company's facilities at
the New York-New York Hotel & Casino in Las Vegas, Nevada opened. The Company's
facilities consist of a 450-seat restaurant (named America and modeled after the
Company's other America restaurants), a 160-seat steakhouse (named Gallagher's
under a license agreement from the owner of the New York restaurant of that
name), a 120-seat restaurant (named Gonzalez y Gonzalez and modeled after the
Company's New York restaurant of the same name) and a group of nine small fast
food restaurants in a food court with a New York theme. In addition, the Company
operates the hotel's room service, its banquet facilities and its employee
cafeteria.
The restaurant facilities at the New York-New York Hotel & Casino
represented the Company's first effort at designing, constructing and operating
restaurants in Las Vegas and the first such facilities in conjunction with a
large-scale hotel and casino operation. The number of patrons served at the
various facilities at the New York, New York Hotel & Casino far exceeds the
number of patrons served by the Company in any other single location.
During the third quarter of fiscal 1997, the Company opened The Grill
Room at a 10,000 square foot site in the World Financial Center in downtown New
York City.
The opening of a new restaurant is invariably accompanied by
substantial pre-opening expenses and early operating losses associated with the
training of personnel, excess kitchen costs and costs of supervision and other
expenses during the pre-opening period and during a post-opening "shake out"
period until operations can be considered to be functioning normally. The amount
of such pre-opening expense and early operating loss can generally be expected
to depend upon the size and complexity of the facility being opened. The Company
estimates that such pre-opening expenses and early operating losses were
approximately $400,000 in fiscal 1999, $200,000 in fiscal 1998 and $2,000,000 in
fiscal 1997.
-8-
<PAGE>
The Company's restaurants generally do not achieve substantial
increases from year to year in net sales or profits, which the Company considers
to be typical of the restaurant industry. The Company will have to continue to
open new and successful restaurants or expand existing restaurants to achieve
significant increases in net sales or to replace net sales of restaurants which
close because of lease expirations or other reasons. After a restaurant is
opened, there can be no assurance that such restaurant will be successful,
particularly since in many instances the Company will not operate new
restaurants under a tradename currently used by the Company, thereby requiring
each new restaurant to establish its own identity.
The Company intends to continue to direct its restaurant expertise and
financial resources in developing larger restaurants benefitting from the high
patron traffic of unique locations, such as the Sequoia and Red restaurants in
the South Street Seaport in New York, the Sequoia restaurant in Washington
Harbour in Washington, the America restaurant in Union Station in Washington,
the Bryant Park facilities in New York and the Las Vegas facilities.
Nevertheless, the Company also intends to take advantage of other opportunities
considered to be favorable when they occur, such as the acquisition of the
highly regarded restaurant, Lutece.
RECENT RESTAURANT DISPOSITIONS
In the first quarter of fiscal 1997, the Company sold three of its
smaller restaurants (Mackinac Bar & Grill, The Museum Cafe and Albuquerque
Eats/The Rodeo Bar), each of which was operating at a loss at the time of its
sale. In fiscal 1998, the Company sold three of its smaller restaurants (Jim
McMullen, An American Place and Beekman 1776 Tavern). In the first quarter of
fiscal 1999, the Company sold two of its smaller restaurants (Perretti's in New
York City and B. Smith's in Washington, D.C.).
In fiscal 1999, the Company entered into an agreement to sell its
America restaurant in Tyson's Corner, McLean, Virginia. The transaction has not
closed and the Company has asserted a claim against the buyer for its failure to
close in accordance with the agreement. The Company continues to operate the
restaurant America on this site.
RESTAURANT MANAGEMENT
Each restaurant is managed by its own manager and has its own chef.
Food products and other supplies are purchased from various unaffiliated
suppliers, in most cases by the Company's headquarters personnel. Each of the
Company's restaurants has two or more assistant managers and assistant chefs.
The executive chef department designs menus and supervises the kitchens.
Financial and management control is maintained at the corporate level through
the use of an automated data processing system that includes centralized
accounting and reporting. The Company has developed its own proprietary software
which processes information input daily at the Company's restaurants. The
Company believes that the information generated by this process enables it to
monitor closely the activities at each restaurant and enhances the Company's
ability to effectively manage its restaurants.
EMPLOYEES
At December 4, 1999, the Company employed 2,320 persons (including
employees at managed facilities), 1,823 of whom were full-time employees, 497
of whom were part-time employees, 38 of whom were headquarters personnel,222 of
whom were restaurant management personnel, 641 of whom were kitchen personnel
and 1,419 of whom were restaurant service personnel. A number of the Company's
restaurant service personnel are employed on a part-time basis. Changes in
minimum wage levels may affect the labor costs of the Company and the restaurant
industry generally because a large percentage of restaurant personnel are paid
at or slightly above the minimum wage. With the exception of the employees at
Lutece in New York, the Company's employees are not covered by a collective
bargaining agreement. The Company believes its employee relations are
satisfactory.
-9-
<PAGE>
GOVERNMENT REGULATION
The Company is subject to various federal, state and local laws and
regulations affecting its business, including a variety of regulatory provisions
relating to the wholesomeness of food, sanitation, health, safety and licensing
in the sale of alcoholic beverages. A number of the Company's restaurants have
open or enclosed outdoor cafes which require the approval of, or licensing by, a
number of governmental agencies. The suspension by any regulatory agency of the
food service or the liquor license of any of the Company's restaurants would
have a material adverse effect upon the affected restaurant and may adversely
affect the Company as a whole.
The New York State Liquor Authority must approve any transaction in
which a shareholder of the Company increases his holdings to 10% or more of the
outstanding capital stock of the Company and any transaction involving 10% or
more of the outstanding capital stock of the Company.
SEASONAL NATURE OF BUSINESS
The Company's business is highly seasonal. The second quarter of the
Company's fiscal year, consisting of the non-holiday portion of the cold weather
season in New York, Boston and Washington (January, February and March), is the
poorest performing quarter. The Company achieves its best results during the
warm weather, attributable to the Company's extensive outdoor dining
availability, particularly at Bryant Park and Sequoia in Washington (the
Company's largest restaurants) and the Company's outdoor cafes. The Company's
facilities in Las Vegas operate on a more level basis through the year.
FORWARD LOOKING STATEMENTS
This report contains forward looking statements that involve risks and
uncertainties. Discussions containing such forward-looking statements may be
found in the material set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" as well as throughout this report
generally. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth below.
Competition. The restaurant business is intensely competitive and
involves an extremely high degree of risk. The Company believes that a large
number of new restaurants open each year and that a significant number of them
do not succeed. Even successful restaurants rapidly can lose popularity due to
changes in consumer tastes, turnover in personnel, the opening of competitive
restaurants, unfavorable reviews and other factors. There can be no assurance
that the Company's existing restaurants will retain their current popularity or
that new restaurants opened by the Company will be successful. There is active
competition for competent chefs and management personnel and intense competition
among major restaurateurs and food service companies for the larger, unique
sites suitable for restaurants.
Importance of New Restaurants. The Company's restaurants generally do
not achieve substantial increases from year to year in net sales or profits. The
Company will have to continue to open new and successful restaurants or expand
existing restaurants to achieve significant increases in net sales or to replace
net sales of restaurants which experience declining popularity or which close
because of lease expirations or other reasons. The acquisition or construction
of new restaurants requires significant capital resources. New large scale
projects that have been the focus of the Company's efforts in recent years would
likely require additional financing.
-10-
<PAGE>
After a restaurant is opened, there can be no assurance that such
restaurant will be successful, particularly since in many instances the Company
will not operate new restaurants under a tradename currently used by the
Company, thereby requiring each new restaurant to establish its own identity.
Dependence on Key Personnel. The success of the Company depends to a
significant extent upon the performance of senior management and in particular
on the services of Michael Weinstein, President of the Company. The loss of the
services of Mr. Weinstein would have a material adverse effect on the Company.
Government Regulation. The Company is subject to various Federal, state
and local laws and regulations affecting its business, including regulatory
provisions relating to the wholesomeness of food, sanitation, health, safety and
licensing in the sale of alcoholic beverages. The suspension by any regulatory
agency of the food service or the liquor license of any of the Company's
restaurants would have a material adverse effect upon the affected restaurant
and may adversely affect the Company as a whole. The wholesomeness of food
served at the Company's restaurants is dependent in part upon third party
purveyors.
ITEM 2. PROPERTIES
The Company's restaurant facilities identified in the chart above and
its executive offices are occupied under leases. Most of the Company's
restaurant leases provide for the payment of base rents plus real estate taxes,
insurance and other expenses and, in certain instances, for the payment of a
percentage of the Company's sales at such facility. These leases (including
leases for managed restaurants) have terms (including any available renewal
options) expiring as follows:
<TABLE>
<CAPTION>
Years Lease Number of
Term Expire Facilities
----------- ----------
<S> <C>
1999-2000 4
2001-2005 1
2006-2010 10
2011-2015 7
2016-2020 11
2021-2025 1
2026-2030 5
</TABLE>
The Company's executive, administrative and clerical offices, located
in approximately 8,500 square feet of office space at 85 Fifth Avenue, New York,
New York, are occupied under a lease which expires in October 2008, which
includes one five-year renewal option. The Company maintains an office in
Washington, D.C. for its catering operations under a short-term lease.
For information concerning the Company's future minimum rental
commitments under non-cancelable operating leases, see Note 8 of Notes to
Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is a party to
various lawsuits arising from accidents at its restaurants and workmen's
compensation claims, which are generally handled by the Company's insurance
carriers.
-11-
<PAGE>
The employment by the Company of management personnel, waiters,
waitresses and kitchen staff at a number of different restaurants has resulted
in the institution, from time to time, of litigation alleging violation by the
Company of employment discrimination laws. The Company does not believe that any
of such suits will have a materially adverse effect upon the Company, its
financial condition or operations.
A lawsuit was commenced against the Company in October 1997 in the
District Court for the Southern District of New York by 44 present and former
employees alleging various violations of Federal wage and hour laws. The
complaint seeks an injunction against further violations of the labor laws and
payment of unpaid minimum wages, overtime and other allegedly required amounts,
liquidated damages, penalties and attorneys fees. The Company believes that most
of the claims asserted in this litigation, including those with respect to
minimum wages, are insubstantial. The Company believes that there were certain
violations of overtime requirements, which have today been largely corrected,
for which the Company will have liability. The period of time in which affected
employees could "opt-in" to the lawsuit asserting similar violations has expired
and a total of 214 individuals have so elected. Discovery in this action has not
been completed. This uncertainty prevents the Company from making any reasonable
estimate of its ultimate liability. However, based upon information available to
the Company at this time, the Company does not believe that the amount of
liability which may be sustained in this action will have a materially adverse
effect on its business and financial condition.
A lawsuit was commenced against the Company in April 1997 in the
District Court for Clark County, Nevada by one former employee and one current
employee of the Company's Las Vegas subsidiary alleging that (i) the Company
forced food service personnel at the Company's Las Vegas restaurant facilities
to pay a portion of their tips back to the Company in violation of Nevada law
and (ii) the Company failed to timely pay wages to terminated employees. The
action was brought as a class action on behalf of all similarly situated
employees. The Company believes that it will have no liability in connection
with the first allegation. The Company also believes that its liability, if any,
from an adverse result in connection with the second allegation would be
inconsequential. The Company intends to vigorously defend against these claims.
In addition, several unfair labor practice charges have been filed
against the Company before the National Labor Relations Board with respect to
the Company's Las Vegas subsidiary. One consolidated complaint alleged that the
Company unlawfully terminated seven employees and disciplined seven other
employees allegedly in retaliation for their union activities. An Administrative
Law Judge (ALJ) found that five employees were terminated unlawfully and two
were discharged for valid reasons. As far as the discipline, the Judge found
that the Company acted legally in disciplining four employees but not lawfully
with respect to three employees. The Company has appealed the adverse rulings of
the ALJ to the National Labor Relations Board in Washington, D.C. The Company
believes that there are reasonable grounds for obtaining a reversal of the
unfavorable findings by the ALJ and does not believe that an adverse outcome in
this proceeding will have a material adverse effect upon the Company's financial
condition or operations. In May 1999, the ALJ issued a favorable decision
involving unfair labor practice charges filed against the Company before the
National Labor Relations Board with respect to the Company's Las Vegas
subsidiary. The complaint alleged that four employees were terminated and three
other employees disciplined because of their union activities. The ALJ found
that none of the employees were terminated or disciplined for inappropriate
reasons. The ALJ found two violations of management communications rules for
which non-economic remedies were proposed. A second unfair labor practice matter
is pending before the full National Labor Relations Board.
The Company does not believe that an adverse outcome in any of the
unfair labor practice charges will have a material adverse effect upon the
Company's financial condition or operations. The Company believes that these
unfair labor practice charges and the litigation pending in Nevada described
above are part of an ongoing campaign by the Culinary Workers Union which is
seeking to represent employees at the Company's Las Vegas restaurants. However,
rather than pursue the normal election process pursuant to which employees are
given the freedom to choose whether they should be represented by a union, a
process which the Company supports, the Company believes the union is seeking to
achieve recognition as the bargaining agent for such employees through a
campaign directed not at the
-12-
<PAGE>
Company's employees but at the Company itself and its stockholders. The Company
intends to continue to support the right of its employees to decide such matters
and to oppose the efforts of the Culinary Workers Union to circumvent that
process.
An action was commenced in May 1998 in Superior Court of the District
of Columbia against the Company and its Washington, D.C. subsidiaries by seven
present and former employees of the restaurants owned by such subsidiaries
alleging violations of the District of Columbia Wage & Hour Act relating to
minimum wages and overtime compensation. The Company does not believe that its
liability if any, from an adverse result in this matter would have a material
adverse effect upon its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names and ages of executive officers
of the Company and all offices held by each person:
<TABLE>
<CAPTION>
Name Age Positions and Offices
---- --- ---------------------
<S> <C> <C>
Michael Weinstein 56 President
Vincent Pascal 56 Vice President and
Secretary
Robert Towers 52 Vice President and
Treasurer
Andrew Kuruc 41 Vice President and
Controller
Paul Gordon 48 Vice President
Mitchell Levy 38 Vice President
</TABLE>
Each executive officer of the Company serves at the pleasure of the
Board of Directors and until his successor is duly elected and qualifies.
Michael Weinstein has been President and a director of the Company
since its inception in January 1983. Since 1978, Mr. Weinstein has been an
officer, director and 25% shareholder of Easy Diners, Inc., a restaurant
management company which operates three restaurants in New York City. Easy
Diners, Inc. is not a parent, subsidiary or other affiliate of the Company.
Mr. Weinstein spends substantially all of his business time on Company-related
matters.
Vincent Pascal was elected Vice President, Assistant Secretary and a
director of the Company in October 1985. Mr. Pascal became Secretary of the
Company in January 1994.
Robert Towers has been employed by the Company since November 1983 and
was elected Vice President, Treasurer and a director in March 1987.
Andrew Kuruc has been employed as Controller of the Company since April
1987 and was elected as a director of the Company in November 1989.
-13-
<PAGE>
Paul Gordon has been employed by the Company since 1983 and was elected
as a director in November 1996. He was elected Vice President of the Company in
March 1998. Mr. Gordon is the manager of the Company's Las Vegas operations and
Vice President and a director of the Company's Las Vegas subsidiaries. Prior to
assuming that role in 1996, Mr. Gordon was the manager of the Company's
operations in Washington, D.C. since 1989.
Mitchell Levy has been employed as Vice President of the Company since
March 1998. For more than five years prior to that time, Mr. Levy was a partner
in the law firm of Solomon, Green & Ostrow.
-14-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock, $.01 par value, is traded in the
over-the-counter market on the Nasdaq National Market ("Nasdaq") under the
symbol "ARKR". The high and low sale prices for the Common Stock from October 4,
1998 through October 2, 1999 are as follows:
<TABLE>
<S> <C> <C>
Calendar 1997
- -------------
Third Quarter 11 1/2 8 1/4
Fourth Quarter 12 1/2 10 3/4
Calendar 1998
- -------------
First Quarter 13 1/8 11 1/2
Second Quarter 12 1/8 11
Third Quarter 12 3/8 9 1/4
Fourth Quarter 11 5/8 8 1/4
Calendar 1999
- -------------
First Quarter 10 1/4 9 1/2
Second Quarter 11 9 3/8
Third Quarter 11 5/8 9 3/8
</TABLE>
DIVIDENDS
The Company has not paid any cash dividends since its inception and
does not intend to pay dividends in the foreseeable future. Under the terms of
the Credit Agreement between the Company and its main lender, the Company may
pay cash dividends and redeem shares of Common Stock in any fiscal year only to
the extent of an aggregate amount equal to 20% of the Company's consolidated
operating cash flow for such fiscal year.
NUMBER OF SHAREHOLDERS
As of December 27, 1999, there were 80 holders of record of the
Company's Common Stock.
-15-
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
The following table sets forth certain financial data for the fiscal years ended
1995 through 1999. This information should be read in conjunction with the
Company's Consolidated Financial Statements and the notes thereto appearing at
page F-1.
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales $110,800,913 $117,398,453 $104,326,386 $76,795,940 $73,026,907
Gross restaurant profit 81,499,610 86,132,751 75,874,499 55,934,475 53,001,963
Operating income 6,833,874 7,589,465 2,785,713 497,996 960,794
Other income, net 236,465 91,417 96,550 743,615 937,763
Income before provision
for income taxes and
extraordinary item 7,070,339 7,680,882 2,882,263 1,241,611 1,898,557
Income before
extraordinary item 4,494,731 4,612,141 1,737,655 788,762 1,121,126
NET INCOME 4,494,731 4,612,141 1,737,655 788,762 1,121,126
NET INCOME
PER SHARE:
Basic $ 1.30 $ 1.21 $ 0.47 $ 0.24 $ 0.34
Diluted $ 1.29 $ 1.20 $ 0.46 $ 0.24 $ 0.34
Weighted average
number of shares
Basic 3,460,865 3,826,255 3,714,116 3,238,419 3,142,400
Diluted 3,475,890 3,852,019 3,742,811 3,272,857 3,252,669
BALANCE SHEET DATA
(end of period):
Total assets 47,379,103 44,045,179 42,079,098 33,020,479 28,541,920
Working capital (deficit) (3,044,204) (719,343) (2,373,859) (1,303,920) 40,996
Long-term debt 7,655,406 5,014,634 6,126,797 6,403,866 4,014,162
Shareholders' equity 29,513,971 29,062,140 25,888,880 17,804,394 16,706,301
Shareholders' equity
per share 8.49 7.54 6.92 5.44 5.24
Facilities in operation
at end of year, including
managed 40 42 46 32 32
</TABLE>
-16-
<PAGE>
ITEM 7 AND 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AND QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
ACCOUNTING PERIOD
The Company's fiscal year ends on the Saturday nearest September 30.
The fiscal years ended October 2, 1999 and September 27, 1997 included 52 weeks
while the fiscal year ended October 3, 1998 included 53 weeks.
NET SALES
Net sales at restaurants owned by the Company decreased by 5.6% from
fiscal 1998 to fiscal 1999 and increased by 12.5% from fiscal 1997 to fiscal
1998. Net sales for fiscal 1999 decreased by $8,586,000 from the loss of sales
at restaurants which the Company no longer operate (B. Smith's in Washington,
D.C. and Perretti Italian Cafe were sold in fiscal 1999 and An American Place
and the Beekman 1766 Tavern were sold in fiscal 1998). Additionally, fiscal 1999
included 52 weeks while fiscal 1998 included 53 weeks. This decrease in fiscal
1999 was offset in part by $3,827,000 in net sales from restaurants and food
court operations which either opened in fiscal 1999 (Thunder Grill at Union
Station in Washington, D.C. and Rialto Deli in the food court at the Venetian
Casino Resort) or did not operate for the full fiscal 1998 year (Stage Deli of
Las Vegas was acquired in February 1998 and Red opened in the fourth quarter of
fiscal 1998). Same store sales were basically unchanged for the year. Same store
sales for the year at the Company's Las Vegas operations increased by 2.0%
offset in part by a 0.8% decrease at the Company's non-Las Vegas operations.
The increase in fiscal 1998 was substantially due to sales from the
food and beverage operations in the New York-New York Hotel & Casino resort in
Las Vegas (the "New York-New York facilities") which opened in January 1997. At
the New York-New York facilities the Company operates a 450 seat, twenty four
hour a day restaurant (America); a 160 seat steakhouse (named Gallagher's under
a license agreement with the owner of the New York restaurant of that name); a
120 seat Mexican restaurant (Gonzalez y Gonzalez); the resort's room service,
banquet facilities and an employee dining facility. The Company also operates a
complex of nine smaller eateries (Village Eateries) in the resort which simulate
the experience of walking through New York City's Little Italy and Greenwich
Village. The increase in fiscal 1998 was also due in part to the acquisition of
a restaurant located in the Forum Shops at Caesar's Shopping Center in Las Vegas
(Stage Deli of Las Vegas) and to the first full operating year of a restaurant
which the Company opened in fiscal 1997 (The Grill Room). Same store sales in
fiscal 1998 increased by 3.1% principally due to increased customer counts.
COSTS AND EXPENSES
The Company's cost of sales consists principally of food and beverage
costs at restaurants owned by the Company. Cost of sales as a percentage of net
sales was 26.4% in fiscal 1999, 26.6% in fiscal 1998, and 27.3% in fiscal 1997.
Cost of sales in fiscal 1997 were impacted by higher cost of sales experienced
during the early operating period at the Company's Las Vegas operations.
Operating expenses of the Company, consisting of restaurant payroll,
occupancy and other expenses at restaurants owned by the Company, as a
percentage of net sales, were 62.7% in both fiscal 1999 and fiscal 1998, and
65.9% in fiscal 1997. This decrease in operating expenses in fiscal 1998 as
compared to fiscal 1997 was principally due to efficiencies achieved at the
Company's New York-New York facilities and to a lesser extent a benefit from the
3.1% increase in same store sales at the Company's other facilities. Operating
expenses are net of gains on sale of restaurants totaling $752,000 or 0.7% of
net sales in fiscal 1999, as compared to gains on sale of restaurants totaling
$259,000 or 0.2% of sales in fiscal 1998. Gains on sale totaled $229,000 or 0.2%
of sales in fiscal 1997. Restaurant payroll was 35.4% of sales in fiscal 1999,
35.1% in fiscal 1998, and 36.9% in fiscal 1997. Occupancy expenses
-17-
<PAGE>
(consisting of rent, rent taxes, real estate taxes, insurance and utility costs)
were 12.2% of net sales in fiscal 1999, 11.7% in fiscal 1998, and 12.5% in
fiscal 1997.
The Company incurred pre-opening expenses and early operating losses at
newly opened restaurants of approximately $400,000 in fiscal 1999, $200,000 in
fiscal 1998, and $2,000,000 in fiscal 1997. The fiscal 1997 pre-opening expenses
and early operating losses were from the opening of the Company's New York-New
York facilities. The Company typically incurs significant pre-opening expenses
in connection with its new restaurants which are expensed as incurred.
Furthermore, it is not uncommon that such restaurants experience operating
losses during the early months of operation.
General and administrative expenses, as a percentage of net sales, were
5.5% in fiscal 1999 and 5.2% in both fiscal 1998 and fiscal 1997. If net sales
at managed restaurants were included in consolidated net sales, general and
administrative expenses as a percentage of net sales would have been 5.0% in
fiscal 1999, 4.7% in fiscal 1998, and 4.6% in fiscal 1997.
As of October 2, 1999 the Company managed five restaurants owned by
others (El Rio Grande and Arlo in Manhattan, the Marketplace Cafe, the
Marketplace Grill, and the Brewskeller Pub in Boston, Massachusetts). Net sales
of these restaurant facilities, which are not included in consolidated net sales
were $9,804,000 in fiscal 1999, $12,390,000 in fiscal 1998, and $14,151,000 in
fiscal 1997. The decrease in net sales at managed operations is principally due
to the termination in fiscal 1998 of two management contracts at corporate
dining facilities.
Interest expense was $526,000 in fiscal 1999, $608,000 in fiscal 1998,
and $931,000 in fiscal 1997. The decrease in fiscal 1999 from fiscal 1998 and
the decrease in fiscal 1998 from fiscal 1997 is principally due to repayments of
borrowings incurred in fiscal 1997. Such borrowings financed the construction
costs and working capital requirements of the New York-New York facilities which
opened in January 1997.
Interest income was $226,000 in fiscal 1999, $210,000 in fiscal 1998,
and $72,000 in fiscal 1997. The increase in fiscal 1999 and fiscal 1998 as
compared to fiscal 1997 is due to interest earned on notes issued in connection
with restaurants sold in fiscal 1997 and fiscal 1998.
Other income, which generally consists of purchasing service fees, and
the sale of logo merchandise at various restaurants, was $436,000 in fiscal
1999, $490,000 in fiscal 1998, and $780,000 in fiscal 1997. A significant
portion of the amounts received in fiscal 1997 was principally due to amounts
the Company received by a third party due to the temporary closing in fiscal
1994 and fiscal 1995 of a restaurant (Ernie's).
INCOME TAXES
The provision for income taxes reflects Federal income taxes calculated
on a consolidated basis and state and local income taxes calculated by each New
York subsidiary on a non consolidated basis. Most of the restaurants owned or
managed by the Company are owned or managed by a separate subsidiary.
For state and local income tax purposes, the losses incurred by a
subsidiary may only be used to offset that subsidiary's income with the
exception of the restaurants which operate in the District of Columbia.
Accordingly, the Company's overall effective tax rate has varied depending on
the level of losses incurred at individual subsidiaries. The Company's overall
effective tax rate was 36.4% in fiscal 1999 and 40% in both fiscal 1998 and
fiscal 1997.
The Company's overall effective tax rate in the future will be affected
by factors such as the level of losses incurred at the Company's New York
facilities (which cannot be consolidated for state and local tax purposes),
pre-tax income earned outside of New York City (Nevada has no state income tax
and other states in which the Company operate have income tax rates
substantially lower in comparison to New York) and the utilization of state and
local net
-18-
<PAGE>
operating loss carry forwards. In order to more effectively utilize tax loss
carry forwards at restaurants that were unprofitable, the Company has merged
certain profitable subsidiaries with certain loss subsidiaries.
As a result of the enactment of the Revenue Reconciliation Act of 1993,
the Company is entitled, commencing January 1, 1994, to a tax credit based on
the amount of FICA taxes paid by the Company with respect to the tip income of
restaurant service personnel. The net benefit to the Company was $512,000 in
fiscal 1999, $506,000 in fiscal 1998 and $373,000 in fiscal 1997.
The Internal Revenue Service is currently examining the Company's
Federal Income Tax returns for the fiscal years ended September 28, 1991 through
October 1, 1994, and has proposed certain adjustments, all of which are being
contested by the Company. The adjustments primarily relate to (i) pre-opening,
legal and accounting expenses incurred in connection with new or acquired
restaurants that the Internal Revenue Service asserts should have been
capitalized and amortized rather than currently expensed and (ii) travel and
meal expenses for which the Internal Revenue Service asserts the Company did not
comply with certain record keeping requirements of the Internal Revenue Code.
The Company has reached an agreement in principle with the Internal Revenue
Service to resolve the proposed adjustments. The Company does not believe that
the final adjustments contemplated by the agreement in principle will have a
material effect on the Company's financial condition.
LIQUIDITY AND SOURCES OF CAPITAL
The Company's primary source of capital is cash provided by operations
and funds available from the revolving credit agreement with its main bank, Bank
Leumi USA. The Company from time to time also utilizes equipment financing in
connection with the construction of a restaurant and seller financing in
connection with the acquisition of a restaurant. The Company utilizes capital
primarily to fund the cost of developing and opening new restaurants and
acquiring existing restaurants.
The net cash used in investing activities in fiscal 1999 ($6,096,027),
fiscal 1998 ($4,179,043) and fiscal 1997 ($10,445,385) was principally from the
Company's continued investment in fixed assets associated with constructing new
restaurants and acquiring existing restaurants. In fiscal 1999, the Company
opened a restaurant in Union Station in Washington, D.C. (Thunder Grill) and
began constructing three restaurants and four food court outlets at the Venetian
Casino Resort in Las Vegas, Nevada. In fiscal 1998, the Company acquired an
existing restaurant in Las Vegas (the Stage Deli) and opened a new restaurant in
Manhattan (Red). In fiscal 1997, the Company finished and opened the New
York-New York facilities.
The net cash used in financing activities in fiscal 1999 ($1,631,906)
was due to the repurchase of 422,700 shares of the Company's outstanding common
stock offset by a net increase in long-term debt in excess of debt repayments.
The net cash used in financing activities in fiscal 1998 ($2,824,552) was
principally due to the repurchase of 159,000 shares of the Company's outstanding
common stock and repayments of debt on the Company's main credit facility in
excess of borrowings on such facility. The net cash provided by financing
activities in fiscal 1997 ($5,643,505) was principally due to proceeds of a
private placement of 551,454 shares of the Company's common stock.
At October 2, 1999, the Company had a working capital deficit of
$3,044,204 as compared to working capital deficit of $719,343 at October 3,1998.
Working capital deficit in fiscal 1999 was significantly impacted by cash
expended for the construction of three restaurants and four food court outlets
in the Venetian Casino Resort in Las Vegas, Nevada and four restaurants in Star
Theatres entertainment center in Southfield, Michigan. The restaurant business
does not require the maintenance of significant inventories or receivables, thus
the Company is able to operate with negative working capital.
The Company's Revolving Credit and Term Loan Facility with its main
bank includes an $16,000,000 facility for use in construction of and acquisition
of new restaurants and for working capital purposes at the Company's existing
-19-
<PAGE>
restaurants. The facility allows the Company to borrow up to $16,000,000 (less
the amount of any outstanding letters of credit) until April 2001 at which time
outstanding loans mature. The loans bear interest at a rate of prime plus 1/2%.
At October 2, 1999 the Company had borrowings of $5,850,000 outstanding on the
facility. For each 1% change in the prime rate, the impact on the Company will
be $60,000 based on the outstanding borrowings at October 2, 1999. The facility
was amended in December 1999 to increase the Company's borrowing capacity. See
"Recent Developments."
The Company also has a $4,000,000 equipment financing line with its
main bank, Bank Leumi for the acquisition of various kitchen equipment at the
projects currently under construction in Las Vegas and Southfield, Michigan. The
loans are repayable in 60 equal installments. As of October 2, 1999 the Company
had no borrowings on this facility.
The Revolving Credit and Term Loan Facility also includes a two year
$2,000,000 Letter of Credit Facility for use in lieu of lease security deposits.
At October 2, 1999 the Company had delivered $489,000 in irrevocable letters of
credit on this facility.
In December 1996, the Company raised net proceeds of $6,028,000 through
a private placement of 551,454 shares of its common stock at $11 per share. The
proceeds were used to repay a portion of the Company's outstanding borrowings on
its Revolving Credit and Term Loan Facility and for the payment of capital
expenditures on the Las Vegas restaurant facilities.
The amount of indebtedness that may be incurred by the Company is
limited by the revolving credit agreement with its main bank. Certain provisions
of the agreement may impair the Company's ability to borrow funds.
RESTAURANT EXPANSION
The Company is constructing three restaurants in the recently opened
Venetian Casino Resort in Las Vegas, Nevada. One restaurant is scheduled to open
in the first quarter of fiscal 2000 and the other two will follow thereafter in
fiscal 2000. The Company also opened one food court facility in May 1999 and
three additional food court facilities opened in the first quarter of fiscal
2000. The Company expects to spend up to $15,000,000 to open and operate the
restaurants and food court facilities at the Venetian Casino Resort.
The Company is also constructing four restaurants, which are scheduled
to open in the second quarter of fiscal 2000, at a large theatre development in
Southfield, Michigan under a joint venture agreement with Sony Theatres' Loeks
Star Partners and Millennium Partners. The Company anticipates that its share of
the required capital contributions to meet the construction costs, initial
inventories and pre-opening expenses will be $8,500,000.
The Company has also signed leases to open one large restaurant along
with a number of food court outlets at the new Aladdin Resort and Casino in Las
Vegas, Nevada. This casino is currently under construction and is expected to
open in the later part of fiscal 2000. The Company expects to spend up to
$12,000,000 to open and operate these facilities.
Although the Company is not currently committed to any other projects,
the Company is exploring additional opportunities for expansion of its business.
The Company expects to fund its projects through cash from operations and
existing credit facilities. Additional expansion may require additional external
financing.
RECENT DEVELOPMENTS
In December 1999, the Company entered into a new credit agreement with
its main bank, Bank Leumi USA. The new agreement allows the Company to borrow up
to $28,000,000 for use in construction of and acquisition of new restaurants and
for working capital purposes at the Company's existing restaurants. After two
years, the revolving loans
-20-
<PAGE>
will be converted into term loans payable over 36 months. Outstanding loans bear
interest at prime plus 1/2%. The new facility also includes a five-year
$2,000,000 Letter of Credit Facility for use at the Company's restaurants in
lieu of lease security deposits. At December 28, 1999, the Company had
borrowings outstanding under the new facility in the amount of $16,800,000.
The Financial Accounting Standards Board has recently issued several
new accounting pronouncements:
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. It requires that the Company recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designed as a hedge of the exposure to
changes in fair value of a recognized asset or liability or hedge of the
exposure to variable cash flows of a forecasted transaction. The accounting for
changes in fair value of a derivative (e.g. through earnings or outside
earnings, through comprehensive income) depends on the intended use of the
derivative and the resulting designation, SFAS No. 137 extends the effective
date until fiscal years beginning after June 15, 2001.
Statement of Position 98-5, Reporting on the Costs of Start-Up
Activities, requires costs of start-up activities and organization costs to be
expensed as incurred. The Statement is effective for fiscal years beginning
after December 15, 1998. The Company currently expenses all start-up costs as
incurred while organization costs are capitalized and amortized over five years.
The initial application of this Statement will be reported by the Company in
fiscal 2000 as a cumulative effect of a change in accounting principle. The
Company had net deferred organization expenses of $300,513 in intangible assets
as of October 2, 1999.
SFAS No. 134, Accounting for Mortgage-Backed Securities Retained after
the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise, SFAS No. 135, Rescission of FASB Statement No. 75 and Technical
Corrections, SFAS No. 136, Transfers of Assets to a Not-for-Profit Organization
or Charitable Trust that Raises or Holds Contributions for Others, and SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities have been
issued in the current year.
YEAR 2000
The Company has assessed and continues to assess the impact of the Year
2000 issue on its reporting systems and operations. The Year 2000 issue exists
because many computer systems and applications currently use two-digit fields to
designate a year. When the century date occurs, date-sensitive systems may
recognize the year 2000 as 1900 or not at all. This inability to recognize or
properly treat the year 2000 may cause systems to process critical financial and
operational information incorrectly.
The Company's centralized financial accounting and reporting software
system which processes information generated daily at each of the Company's
restaurants is Year 2000 compliant. Additionally all hardware which processes
such information is compliant at both corporate headquarters and the applicable
restaurants. Several of the Company's restaurants had non-compliant
point-of-sale systems. These systems process customer orders and generate
billing information. The Company has modified those systems and or replaced the
non-compliant systems. The Company's centralized purchasing system which process
numerous orders from the Company's restaurants is Year 2000 compliant.
All critical non-compliant systems have been remedied. The Company
has contingency plans in place should there be a Year 2000 problem. Backup
manual procedures are in place should the restaurant systems fail to properly
address the Year 2000 date. The Company has spent to date approximately
$115,000 and estimates that the additional cost of remediation will not
exceed $10,000.
-21-
<PAGE>
The Company has had communications with its significant vendors and
service providers to determine the extent to which the Company's systems are
vulnerable to those third parties' failure to remediate their own Year 2000
issues. At the Company's facilities at the New York-New York Hotel and Casino,
for example, the Company utilizes and interfaces with systems provided by the
Hotel and failure of the Hotel's computer systems to adequately address the Year
2000 issue may have a material adverse effect upon the Company. The Company has
been advised by the Hotel that its systems are expected to be Year 2000
compliant.
The Company is dependent upon major credit card issuers for the
remittance to the Company of charges incurred by customers. The Company has been
advised that the major credit card issuers in the United States have addressed
the Year 2000 issues they confront and do expect that their systems will
function properly in the Year 2000.
Other vendors and service providers with which the Company does
business may not have adequately addressed the year 2000 issue. However, the
Company believes that there are numerous sources for the various products and
services used by the Company and does not anticipate that Year 2000 compliance
issues confronted by its vendors and service providers will have a material
effect upon the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON WITH ACCOUNTANTS ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-22-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See Part I, Item 4. "Executive Officers of the Company." Other
information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed not later than January 31, 2000
pursuant to Regulation 14A of the General Rules and Regulations ("Regulation
14A") under the Securities Exchange Act of 1934, as amended.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference
from the Company's definitive proxy statement to be filed not later than January
31, 2000 pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference
from the Company's definitive proxy statement to be filed not later than January
31, 2000 pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference
from the Company's definitive proxy statement to be filed not later than January
31, 2000 pursuant to Regulation 14A.
-23-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) (1) FINANCIAL STATEMENTS: PAGE
----
<S> <C> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets --
at October 2, 1999 and October 3, 1998 F-2
Consolidated Statements of Operations --
For each of the three fiscal years ended
October 2, 1999, October 3, 1998 and September 27, 1997 F-3
Consolidated Statements of Shareholders' Equity --
For each of the three fiscal years ended
October 2, 1999, October 3, 1998 and September 27, 1997 F-4
Consolidated Statements of Cash Flows --
For each of the three fiscal years ended
October 2, 1999, October 3, 1998 and September 27, 1997 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
(2) EXHIBITS:
<TABLE>
<S> <C>
3.1 Certificate of Incorporation of the Registrant, filed on
January 4, 1983, incorporated by reference to Exhibit 3.1
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 1, 1994 (the "1994 10-K").
3.2 Certificate of Amendment of the Certificate of
Incorporation of the Registrant filed on October 11, 1985,
incorporated by reference to Exhibit 3.2 to the 1994 10-K.
3.3 Certificate of Amendment of the Certificate of
Incorporation of the Registrant filed on July 21, 1988,
incorporated by reference to Exhibit 3.3 to the 1994 10-K.
3.4 By-Laws of the Registrant, incorporated by reference to
Exhibit 3.4 to the 1994 10-K.
10.1 Amended and Restated Redemption Agreement dated June 29,
1993 between the Registrant and Michael Weinstein,
incorporated by reference to Exhibit 10.1 to the 1994
10-K.
10.2 Form of Indemnification Agreement entered into between the
Registrant and each of Michael Weinstein, Ernest Bogen,
Vincent Pascal, Robert Towers, Jay Galin, Andrew Kuruc and
Donald D. Shack, incorporated by reference to Exhibit 10.2
to the 1994 10-K.
10.3 Ark Restaurants Corp. Amended Stock Option Plan, incorporated by reference to Exhibit 10.3
to the 1994 10-K.
</TABLE>
-24-
<PAGE>
<TABLE>
<S> <C>
*10.4 Fourth Amended and Restated Credit Agreement dated as of
December 27, 1999 between the Company and Bank Leumi USA.
10.5 Ark Restaurants Corp. 1996 Stock Option Plan, incorporated
by reference to Exhibit 10.53 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 30,
1996.
10.6 Lease Agreement dated May 17, 1996 between New York-New
York Hotel, LLC, and Las Vegas America Corp., incorporated
by reference to Exhibit 10.4 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended October 3,
1998 (the "1998 10-K").
10.7 Lease Agreement dated May 17, 1996 between New York-New
York Hotel, LLC, and Las Vegas Festival Food Corp.,
incorporated by reference to Exhibit 10.7 to the 1998 10-K
10.8 Lease Agreement dated May 17, 1996 between New York-New
York Hotel, LLC, and Las Vegas Steakhouse Corp.,
incorporated by reference to Exhibit 10.8 to the 1998 10-K
*21 Subsidiaries of the Registrant.
*23 Consent of Deloitte & Touche LLP.
*27 Financial Data Schedule pursuant to Article 5 of
Regulation S-X filed with EDGAR Version only.
</TABLE>
---------------------------------
*Filed Herewith
(b) Reports on Form 8-K:
None
-25-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Ark Restaurants Corp.
We have audited the accompanying consolidated balance sheets of Ark Restaurants
Corp. and its subsidiaries as of October 2, 1999 and October 3, 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three fiscal years in the period ended October 2, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Ark Restaurants Corp. and
subsidiaries as of October 2, 1999 and October 3, 1998, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended October 2, 1999, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
November 22, 1999
<PAGE>
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 2, October 3,
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 333,621 $ 1,023,046
Accounts receivable 3,073,615 3,450,307
Current portion of long-term receivables (Note 2) 446,043 415,755
Inventories 1,916,436 1,950,146
Deferred income taxes (Note 12) 710,095 908,468
Prepaid expenses and other current assets 336,041 491,129
----------- -----------
Total current assets 6,815,851 8,238,851
----------- -----------
LONG-TERM RECEIVABLES (Note 2) 1,184,331 1,119,110
ASSETS HELD FOR SALE (Note 3) 988,004 1,767,782
FIXED ASSETS - At cost
Leasehold improvements 23,500,280 22,464,922
Furniture, fixtures and equipment 19,352,078 18,591,938
Leasehold improvements in progress 4,408,071 18,906
----------- -----------
47,260,429 41,075,766
Less accumulated depreciation and amortization 18,162,614 15,833,403
----------- -----------
29,097,815 25,242,363
----------- -----------
INTANGIBLE ASSETS - Net (Note 4) 5,294,531 5,514,932
DEFERRED INCOME TAXES (Note 12) 846,657 1,030,908
OTHER ASSETS (Note 5) 3,151,914 1,131,233
----------- -----------
$47,379,103 $44,045,179
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 3,815,760 $ 3,563,068
Accrued expenses and other current liabilities (Note 6) 4,736,897 3,850,766
Current maturities of capital lease obligations (Note 8) 148,657 229,944
Current maturities of long-term debt (Note 7) 972,330 609,283
Accrued income taxes (Note 12) 186,411 705,133
----------- -----------
Total current liabilities 9,860,055 8,958,194
----------- -----------
OBLIGATIONS UNDER CAPITAL LEASES (Note 8) -- 148,494
LONG-TERM DEBT - Net of current maturities (Notes 4 and 7) 6,683,076 4,405,351
OPERATING LEASE DEFERRED CREDIT (Notes 1 and 8) 1,322,000 1,471,000
COMMITMENTS AND CONTINGENCIES (Notes 5, 7 and 8) -- --
SHAREHOLDERS' EQUITY (Notes 7, 9 and 10):
Common stock, par value $.01 per share - authorized, 10,000,000
shares; issued, 5,208,336 and 5,187,836 shares, respectively 52,084 51,879
Additional paid-in capital 14,399,956 14,214,898
Retained earnings 22,059,989 17,565,258
----------- -----------
36,512,029 31,832,035
Less treasury stock, 1,927,037 and 1,504,337 shares 6,998,057 2,769,895
----------- -----------
29,513,972 29,062,140
----------- -----------
$47,379,103 $44,045,179
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
ARK RESTAURANT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 27,
1999 1998 1997
<S> <C> <C> <C>
NET SALES $110,800,913 $117,398,453 $104,326,386
COST OF SALES 29,301,303 31,265,702 28,451,887
------------ ------------ ------------
Gross restaurant profit 81,499,610 86,132,751 75,874,499
MANAGEMENT FEE INCOME (Note 11) 869,254 1,139,799 1,153,264
------------ ------------ ------------
82,368,864 87,272,550 77,027,763
OPERATING EXPENSES:
Payroll and payroll benefits 39,254,439 41,171,865 38,520,986
Occupancy 13,492,931 13,788,992 13,031,811
Depreciation and amortization 4,062,849 3,998,272 3,320,739
Other 12,654,868 14,671,521 13,922,524
------------ ------------ ------------
69,465,087 73,630,650 68,796,060
GENERAL AND ADMINISTRATIVE EXPENSES 6,069,903 6,052,435 5,445,990
------------ ------------ ------------
75,534,990 79,683,085 74,242,050
------------ ------------ ------------
OPERATING INCOME 6,833,874 7,589,465 2,785,713
------------ ------------ ------------
OTHER EXPENSE (INCOME):
Interest expense (Note 7) 425,141 608,278 755,383
Interest income (225,996) (209,577) (71,652)
Other income (Note 13) (435,610) (490,118) (780,281)
------------ ------------ ------------
(236,465) (91,417) (96,550)
------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 7,070,339 7,680,882 2,882,263
PROVISION FOR INCOME TAXES (Note 12) 2,575,608 3,068,741 1,144,608
------------ ------------ ------------
NET INCOME $ 4,494,731 $ 4,612,141 $ 1,737,655
============ ============ ============
NET INCOME PER SHARE - BASIC $ 1.30 $ 1.21 $ .47
============ ============ ============
NET INCOME PER SHARE - DILUTED $ 1.29 $ 1.20 $ .46
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES - BASIC 3,460,865 3,826,255 3,714,116
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES - DILUTED 3,475,980 3,852,019 3,742,811
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED OCTOBER 2, 1999, OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN RETAINED TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 28, 1996 4,608,882 $ 46,089 $ 7,790,242 $11,215,462 $(1,247,399) $17,804,394
Common stock private placement 551,454 5,515 6,023,111 -- -- 6,028,626
Issuance of warrants -- -- 175,000 -- -- 175,000
Exercise of stock options 17,500 175 85,450 -- -- 85,625
Tax benefit on exercise of options -- -- 57,580 -- -- 57,580
Net income -- -- -- 1,737,655 -- 1,737,655
--------- -------- ------------ ------------ ----------- ------------
BALANCE, SEPTEMBER 27, 1997 5,177,836 51,779 14,131,383 12,953,117 (1,247,399) 25,888,880
Exercise of stock options 10,000 100 64,900 -- -- 65,000
Purchase of treasury stock -- -- -- -- (1,522,496) (1,522,496)
Tax benefit on exercise of options -- -- 18,615 -- -- 18,615
Net income -- -- -- 4,612,141 -- 4,612,141
--------- -------- ------------ ------------ ----------- ------------
BALANCE, OCTOBER 3, 1998 5,187,836 51,879 14,214,898 17,565,258 (2,769,895) 29,062,140
Exercise of stock options 20,500 205 163,795 -- -- 164,000
Purchase of treasury stock -- -- -- -- (4,228,162) (4,228,162)
Tax benefit on exercise of options -- -- 21,263 -- -- 21,263
Net income -- -- -- 4,494,731 -- 4,494,731
--------- -------- ------------ ------------ ----------- ------------
BALANCE, OCTOBER 2, 1999 5,208,336 $ 52,084 $ 14,399,956 $ 22,059,989 $(6,998,057) $ 29,513,972
========= ======== ============ ============ =========== ============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
ARK RESTAURANT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 27,
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,494,731 $ 4,612,141 $ 1,737,655
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of fixed assets 3,330,568 3,432,104 3,047,422
Amortization of intangibles 732,281 566,168 445,123
Gain on sale of restaurants (752,274) (258,684) (229,000)
Operating lease deferred credit (149,000) (57,000) (19,000)
Deferred income taxes 382,624 57,164 (431,966)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 376,692 (663,873) (682,935)
Decrease (increase) in inventories 33,710 (17,020) (890,567)
Increase (decrease) in prepaid expenses and other current assets 155,088 (58,313) 112,961
(Increase) decrease in other assets, net (2,111,012) (543,820) 60,008
Increase in accounts payable - trade 252,692 2,818 1,194,311
Decrease (increase) in accrued income taxes (518,722) 291,263 89,476
Increase (decrease) in accrued expenses and other current liabilities 811,130 (58,590) 183,672
----------- ----------- ------------
Net cash provided by operating activities 7,038,508 7,304,358 4,617,160
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (6,989,405) (1,713,847) (11,006,116)
Additions to intangible assets (384,880) (229,524) (11,639)
Issuance of demand notes and long-term receivables (95,611) (81,580) -
Payments received on demand notes and long-term receivables 398,869 315,908 264,370
Restaurant sales 975,000 265,000 308,000
Restaurant acquisitions - (2,735,000) -
----------- ----------- ------------
Net cash used in investing activities (6,096,027) (4,179,043) (10,445,385)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on long-term debt (5,659,226) (8,012,164) (10,277,900)
Issuance of long-term debt 8,300,000 6,900,000 10,000,831
Exercise of stock options 185,263 83,615 143,205
Principal payment on capital lease obligations (229,781) (273,507) (251,257)
Purchase of treasury stock (4,228,162) (1,522,496) -
Proceeds from common stock private placement - - 6,028,626
----------- ----------- ------------
Net cash provided by (used in) financing activities (1,631,906) (2,824,552) 5,643,505
----------- ----------- ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (689,425) 300,763 (184,720)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,023,046 722,283 907,003
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 333,621 $ 1,023,046 $ 722,283
=========== =========== ============
SUPPLEMENTAL INFORMATION:
Cash payments for the following were:
Interest $ 526,382 $ 608,278 $ 931,383
=========== =========== ============
Income taxes $ 2,690,443 $ 2,699,651 $ 1,502,643
=========== =========== ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 2, 1999, OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
- --------------------------------------------------------------------------------
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ark Restaurants Corp. and subsidiaries (the "Company") own and operate 22
restaurants, and manage five restaurants, of which 14 are in New York
City, four in Washington, D.C., four in Las Vegas, Nevada (three within
the New York New York Hotel and Casino Resort), three in Boston,
Massachusetts and one each in McLean, Virginia; and Islamorada, Florida.
Along with the three restaurants within the New York New York Hotel &
Casino Resort, the Company also operates the Resort's room service,
banquet facilities, employee dining room and a complex of nine smaller
cafes and food operations. The Company also operates four food court
operations within the Venetian Casino Resort in Las Vegas, Nevada.
The Company's other operations include catering businesses in New York
City and Washington, D.C. as well as wholesale and retail bakeries in New
York City.
ACCOUNTING PERIOD - The Company's fiscal year ends on the Saturday nearest
September 30. The fiscal years ended October 2, 1999, and September 27,
1997, included 52 weeks and the fiscal year ended October 3, 1998,
included 53 weeks.
SIGNIFICANT ESTIMATES - In the process of preparing its consolidated
financial statements, the Company estimates the appropriate carrying value
of certain assets and liabilities which are not readily apparent from
other sources. The primary estimates underlying the Company's financial
statements include allowances for potential bad debts on accounts and
notes receivable, the useful lives and recoverability of its assets, such
as property and intangibles, fair values of financial instruments, the
realizable value of its tax assets and other matters. Management bases its
estimates on certain assumptions, which they believe are reasonable in the
circumstances, and while actual results could differ from those estimates,
management does not believe that any change in those assumptions in the
near term would have a material effect on the Company's consolidated
financial position or the results of operation.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its wholly owned and majority
owned subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. Investments in affiliated companies
where the Company is able to exercise significant influence over operating
and financial policies even though the Company holds 50% or less of the
voting stock, are accounted for under the equity method.
CASH EQUIVALENTS - Cash equivalents include instruments with original
maturities of three months or less.
ACCOUNTS RECEIVABLE - Included in accounts receivable are amounts due from
employees of $994,915 and $1,069,852 at October 2, 1999 and October 3,
1998, respectively. Such amounts, which are due on demand, are principally
due from various employees exercising stock options in accordance with the
Company's Stock Option Plan (see Note 10).
F-6
<PAGE>
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out) or market, and consist of food and beverages, merchandise for
sale and other supplies.
FIXED ASSETS - Leasehold improvements and furniture, fixtures and
equipment are stated at cost. Depreciation of furniture, fixtures and
equipment (including equipment under capital leases) is computed using the
straight-line method over the estimated useful lives of the respective
assets (seven years). Amortization of improvements to leased properties is
computed using the straight-line method based upon the initial term of the
applicable lease or the estimated useful life of the improvements,
whichever is less, and ranges from 5 to 35 years.
The Company includes in leasehold improvements in progress restaurants
that are under construction. Once the projects have been completed the
Company will begin depreciating the assets.
The Company annually assesses any impairments in value of long-lived
assets and certain identifiable intangibles to be held and used. For the
year ending October 2, 1999, no impairments were deemed necessary.
Costs incurred during the construction period of restaurants, including
rental of premises, training and payroll, are expensed as incurred.
INTANGIBLE AND OTHER ASSETS - Costs associated with acquiring leases and
subleases, principally purchased leasehold rights, have been capitalized
and are being amortized on the straight-line method based upon the initial
terms of the applicable lease agreements, which range from 10 to 21 years.
Goodwill recorded in connection with the acquisition of shares of the
Company's common stock from a former shareholder, as discussed in Note 4,
is being amortized over a period of 40 years. Goodwill arising from
restaurant acquisitions is being amortized over periods ranging from 10 to
15 years.
Legal and other costs incurred to organize restaurant corporations are
capitalized as organization costs and are amortized over a period of 5
years (See Future Impact of Recently Issued Accounting Standards).
Covenants not to compete arising from restaurant acquisitions are
amortized over the contractual period of 5 years.
Certain legal and bank commitment fees incurred in connection with the
Company's Revolving Credit and Term Loan Facility, as discussed in Note 7,
were capitalized as deferred financing fees and are being amortized over
four years, the term of the facility.
OPERATING LEASE DEFERRED CREDIT - Several of the Company's operating
leases contain predetermined increases in the rentals payable during the
term of such leases. For these leases, the aggregate rental expense over
the lease term is recognized on a straight-line basis over the lease term.
The excess of the expense charged to operations in any year and amounts
payable under the leases during that year are recorded as a deferred
credit. The deferred credit subsequently reverses over the lease term
(Note 8).
OCCUPANCY EXPENSES - Occupancy expenses include rent, rent taxes, real
estate taxes, insurance and utility costs.
INCOME PER SHARE OF COMMON STOCK - Net income per share is computed in
accordance with Statement of Financial Accounting Standard ("SFAS") No.
128, Earnings Per Share, and is calculated on the basis
F-7
<PAGE>
of the weighted average number of common shares outstanding during each
period plus the additional dilutive effect of common stock equivalents.
Common stock equivalents consist of dilutive stock options.
STOCK OPTIONS - The Company accounts for its stock options granted to
employees under the intrinsic value-based method for employee stock-based
compensation and provides pro forma disclosure of net income and earnings
per share as if the accounting provision of SFAS No.123 had been adopted.
The Company generally does not grant options to outsiders.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS - The Financial Accounting
Standard Board has issued SFAS No. 130, Reporting Comprehensive Income,
which is effective for fiscal years beginning after December 15, 1997 and
establishes standards for reporting and display of comprehensive income
and its components. There are no items that would require presentation in
a separate statement of comprehensive income.
SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information established standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued
to shareholders. It also established standards for related disclosures
about products and services, geographic areas, and major customers.
Management views its operations as one segment. SFAS No. 131 is effective
for fiscal years beginning after December 15, 1997.
The Financial Accounting Standards Board has issued SFAS No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits,
which revises employers' disclosures about pension and other
postretirement benefit plans. SFAS No. 132 is effective for fiscal years
beginning after December 15, 1997. This statement has no impact on the
Company.
FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS - The Financial
Accounting Standards Board has recently issued several new accounting
pronouncements. SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts and for hedging activities. It requires that the
Company recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. If certain conditions are met, a derivative may be specifically
designed as a hedge of the exposure to changes in fair value of a
recognized asset or liability or hedge of the exposure to variable cash
flows of a forecasted transaction. The accounting for changes in fair
value of a derivative (e.g., through earnings or outside earnings, through
comprehensive income) depends on the intended use of the derivative and
the resulting designation. SFAS No. 137 extends the effective date until
fiscal years beginning after June 15, 2001.
Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" requires costs of start-up activities and organization costs
to be expensed as incurred. The Statement is effective for fiscal years
beginning after December 15, 1998. The company currently expenses all
start-up costs as incurred while organization costs are capitalized and
amortized over five years. The initial application of this Statement will
be reported by the Company in 2000 as a cumulative effect of a change in
accounting principle. The Company carried approximately $300,000 of net
deferred organizational expenses on its books as of October 2, 1999.
F-8
<PAGE>
SFAS No. 134, Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise, SFAS No. 135, Rescission of FASB Statement No. 75 and
Technical Corrections, SFAS No. 136, Transfers of Assets to a
Not-for-Profit Organization or Charitable Trust That Raises or Holds
Contributions for Others, and SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities have all been issued in the current
year. The effect of the adoption of the statements on the Company's
consolidated financial statements is not expected to be material.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1998
and 1997 financial statements to conform to the 1999 presentation.
F-9
<PAGE>
2. LONG-TERM RECEIVABLES
Long-term receivables consist of the following:
<TABLE>
<CAPTION>
October 2, October 3,
1999 1998
<S> <C> <C>
Note receivable secured by fixed assets and
lease at a restaurant sold by the Company, at
8% interest; due in monthly installments
through December 2006 (a) $ 514,706 $ 564,769
Note receivable secured by fixed assets and
lease at a restaurant sold by the Company, at
7.5% interest; due in monthly installments
through March 2002 (b) 112,571 153,187
Note receivable secured by fixed assets and
lease at a restaurant sold by the Company, at
7.5% interest; due in monthly installments
through April 2000 (c) 126,796 331,700
Note receivable secured by fixed assets and
lease at a restaurant sold by the Company, at
7.5% interest; due in monthly installments
commencing May 2000 through December 2008 (c) 445,118 207,983
Note receivable secured by fixed assets and
lease at a restaurant sold by the Company, at
10.0% interest; due in monthly installments
through April 2004 (d) 244,565 -
Advances for construction and working capital,
at one of the Company's managed locations, at
15% interest; due in monthly installments
through December 2000 98,110 164,446
Advances for construction, at one of the
Company's managed locations, at prime plus
1%; due in monthly installments through
December 1999 9,390 33,662
Note receivable, secured by personal
guarantees of officers of a managed
restaurant and fixed assets at that location,
at 15% interest; due in monthly installments,
through September 2000 79,118 79,118
----------- -----------
1,630,374 1,534,865
Less current portion 446,043 415,755
----------- -----------
$ 1,184,331 $ 1,119,110
=========== ===========
</TABLE>
(a) In December 1996, the Company sold a restaurant for $900,000. Cash
of $50,000 was received on sale and the balance is due in
installments through December 2006.
(b) In October 1996, the Company sold a restaurant for $258,500. Cash of
$50,000 was received on sale and the balance is due in installments
through March 2002. The Company recognized a gain of $134,000 on
this sale in the fiscal year ended September 27, 1997.
F-10
<PAGE>
(c) In October 1997, the Company sold a restaurant for $1,750,000, of
which $200,000 was paid in cash and the balance is due in monthly
installments under the terms of two notes bearing interest at a rate
of 7.5%. One note, with an initial principal balance of $400,000, is
being paid in 24 monthly installments of $18,569 through April 2000.
The second note, with an initial principal balance of $1,150,000,
will be paid in 104 monthly installments of $14,500 commencing May
2000 and ending December 2008. At December 2008, the then
outstanding balance of $519,260 matures.
The Company recognized a gain on sale of approximately $142,000, and
$185,000 in the fiscal years ended October 2, 1999 and October 3,
1998, respectively. Additional deferred gains totaling $882,000 and
$1,024,000 for the fiscal years ended October 2, 1999 and October 3,
1998, respectively, could be recognized in future period as the
notes are collected. The Company deferred recognizing this
additional gain and recorded an allowance for possible uncollectible
note against the second outstanding note. This uncertainty is based
on the significant length of time of this note (over 10 years) and
the substantial balance which matures in December 2008 ($519,260).
(d) In December 1998, the company sold a restaurant for $500,000, of
which $250,000 was paid in cash and the balance of $250,000 was
financed by a note. The note is due in monthly installments of
$5,537, inclusive of interest at 10%, from May 1999 through April
2004. The Company recognized a gain of $207,220 on this sale in the
fiscal year ended October 2, 1999.
The carrying value of the Company's long-term receivables approximates its
current aggregate fair value.
3. ASSETS HELD FOR SALE
At October 2, 1999, the Company was actively pursuing the sale of one
restaurant and accordingly reclassified the net fixed assets ($935,097)
and inventories ($52,907) as assets held for sale.
At October 3, 1998, the Company was actively pursuing the sale of two
restaurants and accordingly reclassified the net fixed assets ($1,625,834)
and inventories ($141,948) as assets held for sale.
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
October 2, October 3,
1999 1998
<S> <C> <C>
Goodwill (a) $6,222,877 $6,222,877
Purchased leasehold rights (b) 750,740 652,740
Noncompete agreements and other (c) 790,000 790,000
Organization costs 789,521 678,491
---------- ----------
8,553,138 8,344,108
Less accumulated amortization 3,258,607 2,829,176
---------- ----------
$5,294,531 $5,514,932
========== ==========
</TABLE>
F-11
<PAGE>
(a) In August 1985, certain subsidiaries of the Company acquired
approximately one-third of the then outstanding shares of common
stock (964,599 shares) from a former officer and director of the
Company for a purchase price of $3,000,000. The consolidated balance
sheets reflect the allocation of $2,946,000 to goodwill.
(b) Purchased leasehold rights arise from acquiring leases and subleases
of various restaurants.
(c) During fiscal 1998, the Company acquired a restaurant for $2,735,000
in cash. The acquisition was accounted for as a purchase transaction
with the purchase price allocated as follows: leasehold improvements
$200,000; furniture, fixtures and equipment $300,000; and goodwill
$2,235,000.
5. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
October 2, October 3,
1999 1998
<S> <C> <C>
Deposits $ 313,142 $ 353,674
Deferred financing fees 144,195 214,192
Investments in and advances to affiliates (a) 2,694,577 563,367
---------- ----------
$3,151,914 $1,131,233
========== ==========
</TABLE>
(a) The Company, through a wholly owned subsidiary, became a general
partner with a 19% interest in a partnership which acquired on July
1, 1987 an existing Mexican food restaurant, El Rio Grande, in New
York City. Several related parties also participate as limited
partners in the partnership. The Company's equity in earnings of the
limited partnership was $65,000, $80,000 and $40,000, for the years
ended October 2, 1999, October 3, 1998 and September 27, 1997,
respectively.
The Company also manages El Rio Grande through another wholly owned
subsidiary on behalf of the partnership. Management fee income
relating to these services was $358,000, $421,000 and $311,000 for
the years ended October 2, 1999, October 3, 1998 and September 27,
1997, respectively (Note 11).
The Company, through a wholly owned subsidiary, became a partner
with a 50% interest in a partnership to construct and develop four
restaurants at a large theatre development in Southfield, Michigan.
At October 2, 1999 and October 3, 1998 the Company's investment in
the partnership was $2,691,000 and $567,000, respectively. The
Company is committed to investing $6,000,000 in the partnership, and
also anticipates loaning an additional $2,500,000 to open the
restaurants, which are expected to open in the March 2000 fiscal
quarter.
F-12
<PAGE>
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
OCTOBER 2, OCTOBER 3,
1999 1998
<S> <C> <C>
Sales tax payable $ 782,365 $ 928,225
Accrued wages and payroll related costs 877,758 675,520
Customer advance deposits 1,083,000 943,000
Accrued and other liabilities 1,993,774 1,304,021
---------- ----------
$4,736,897 $3,850,766
========== ==========
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 2, OCTOBER 3,
1999 1998
<S> <C> <C>
Revolving Credit and Term Loan Facility with interest at the
prime rate, plus 1/2%, payable on April 30, 2001 (a) $5,850,000 $2,600,000
Notes issued in connection with refinancing of restaurant
equipment, at 8.75%, payable in monthly installments through
January 2002 (b) 1,439,171 1,990,827
Note issued in connection with acquisition of restaurant site,
at 7.25%, payable in monthly installments through
January 1, 2000 (c) 366,235 423,807
---------- ----------
7,655,406 5,014,634
Less current maturities 972,330 609,283
---------- ----------
$6,683,076 $4,405,351
========== ==========
</TABLE>
(a) The Company's Revolving Credit and Term Loan Facility with its main bank
(Bank Leumi USA), as amended September 1999, includes a $16,000,000
facility to finance the development and construction of new restaurants and
for working capital purposes at the Company's existing restaurants.
Outstanding loans bear interest at 1/2% above the bank's prime rate. Any
outstanding loans on April 2001 are due in full. The Facility also includes
a two-year Letter of Credit Facility for use in lieu of lease security
deposits. The Company generally is required to pay commissions of 1 1/2%
per annum on outstanding letters of credit.
The Company's subsidiaries each guaranteed the obligations of the Company
under the foregoing facilities and granted security interests in their
respective assets as collateral for such guarantees. In addition, the
Company pledged stock of such subsidiaries as security for obligations of
the Company under such facilities.
F-13
<PAGE>
The agreement includes restrictions relating to, among other things,
indebtedness for borrowed money, capital expenditures, advances to managed
businesses, mergers, sale of assets, dividends and liens on the property of
the Company. The agreement also contains financial covenants requiring the
Company to maintain a minimum ratio of debt to net worth, minimum
shareholders' equity and a minimum ratio of cash flow prior to debt
service. The Company is in compliance with all covenants.
(b) In January 1997, the Company borrowed from its main bank, $2,851,000 to
refinance the purchase of various restaurant equipment at its food and
beverage facilities in a hotel and casino in Las Vegas, Nevada. The notes
bear interest at 8.75% per annum and are payable in 60 equal monthly
installments of $58,833 inclusive of interest, until maturity in January
2002. The Company granted the bank a security interest in such restaurant
equipment. In connection with such financing, the Company granted the bank
the right to purchase 35,000 shares of the Company's common stock at the
exercise price of $11.625 per share through December 2001. The fair value
of the warrants was estimated at the date of grant, credited to additional
paid-in capital and is being amortized over the life of the warrant.
(c) In November 1994, the Company issued a $600,000 note in connection with the
acquisition of a restaurant in the Florida Keys. The Company remits monthly
payments of $7,044 inclusive of interest until January 1, 2000, at which
time the outstanding balance of $358,511 is due. The debt is secured by the
leasehold improvements and tangible personal property at the restaurant.
Required principal payments on long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
2000 $ 972,330
2001 6,509,122
2002 173,954
----------
$7,655,406
==========
</TABLE>
During the fiscal years ended October 2, 1999, October 3, 1998 and September
27, 1997, interest expense was $526,411, $608,278 and $931,383,
respectively, of which $101,000 and $176,000 was capitalized during the
fiscal years ended October 2, 1999 and September 27, 1997, respectively.
The carrying value of the Company's long-term debt approximates its current
aggregate fair value.
8. COMMITMENTS AND CONTINGENCIES
LEASES - The Company leases its restaurants, bar facilities, and
administrative headquarters through its subsidiaries under terms expiring at
various dates through 2029. Most of the leases provide for the payment of
base rents plus real estate taxes, insurance and other expenses and, in
certain instances, for the payment of a percentage of the restaurants' sales
in excess of stipulated amounts at such facility.
F-14
<PAGE>
As of October 2, 1999, future minimum lease payments, net of sublease
rentals, under noncancelable leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR LEASES LEASES
<S> <C> <C>
2000 $ 7,147,104 $154,281
2001 7,353,938 --
2002 7,406,725 --
2003 7,406,003 --
2004 6,845,236 --
Thereafter 24,392,535 --
----------- --------
Total minimum payments $60,551,541 154,281
===========
Less amount representing interest 5,624
--------
Present value of net minimum lease payments $148,657
========
</TABLE>
In connection with the leases included in the table above, the Company
obtained and delivered irrevocable letters of credit in the aggregate amount
of $488,750 as security deposits under such leases.
Rent expense was $9,638,551, $9,940,639 and $9,102,267 during the fiscal
years ended October 2, 1999, October 3, 1998 and September 27, 1997,
respectively. Rent expense for the fiscal years ended October 2, 1999,
October 3, 1998 and September 27, 1997 includes approximately $149,000,
$57,000 and $19,000 operating lease deferred credits, representing the
difference between rent expense recognized on a straight-line basis and
actual amounts currently payable. Contingent rentals, included in rent
expense, were $2,799,585, $2,769,721 and $2,432,404 for the fiscal years
ended October 2, 1999, October 3, 1998 and September 27, 1997, respectively.
LEGAL PROCEEDINGS - In the ordinary course of its business, the Company is a
party to various lawsuits arising from accidents at its restaurants and
workmen's compensation claims, which are generally handled by the Company's
insurance carriers.
The employment by the Company of management personnel, waiters, waitresses
and kitchen staff at a number of different restaurants has resulted in the
institution, from time to time, of litigation alleging violation by the
Company of employment discrimination laws. The Company does not believe that
any of such suits will have a materially adverse effect upon the Company,
its financial condition or operations.
A lawsuit was commenced against the Company in October 1997 in the District
Court for the Southern District of New York by 44 present and former
employees alleging various violations of Federal wage and hour laws. The
complaint seeks an injunction against further violations of the labor laws
and payment of unpaid minimum wages, overtime and other allegedly required
amounts, liquidated damages, penalties and attorneys' fees. The Company
believes that most of the claims asserted in this litigation, including
those with respect to minimum wages, are insubstantial. The Company believes
that there were certain violations of overtime requirements, which have
today been largely corrected, for which the Company will have liability. The
period of time in which affected employees could "opt-in" to the lawsuit
asserting similar violations has expired and a total of 214 individuals have
so elected. Discovery in this action has not been completed. This
uncertainty prevents the Company from making any reasonable estimate of its
ultimate liability. However, based upon information available to the Company
at this time, the Company does not believe that the amount of liability
which may be
F-15
<PAGE>
sustained in this action will have a materially adverse effect on the
Company's business or financial condition.
A lawsuit was commenced against the Company in April 1997 in the District
Court for Clark County, Nevada by one former employee and one current
employee of the Company's Las Vegas subsidiary alleging that: (i) the
Company forced food service personnel at the Company's Las Vegas facilities
to pay a portion of their tips back to the Company in violation of Nevada
law and (ii) the Company failed to timely pay wages to terminated employees.
The action was brought as a class action on behalf of all similarly situated
employees. The Company believes that the first allegation is entirely
without merit and that the Company has no liability. The Company also
believes that its liability, if any, from an adverse result in connection
with the second allegation would be inconsequential. The Company intends to
vigorously defend against these claims.
In addition, several unfair labor practice charges have been filed against
the Company before the National Labor Relations Board with respect to the
company's Las Vegas subsidiary. One consolidated complaint alleged that the
Company unlawfully terminated seven employees and disciplined seven other
employees allegedly in retaliation for their union activities. An
Administrative Law Judge (ALJ) found that five employees were terminated
unlawfully and two were discharged for valid reasons. As far as the
discipline, the judge found that the Company acted legally in disciplining
four employees but not lawfully with respect to three employees. The Company
has appealed the adverse rulings of the ALJ to the National Labor Relations
Board in Washington, D.C. The Company believes that there are reasonable
grounds for obtaining a reversal of the unfavorable findings by the ALJ and
does not believe that an adverse outcome in this proceeding will have a
material adverse effect upon the Company's financial condition or results of
operations. In May 1999, the ALJ issued a favorable decision involving
unfair labor practice charges filed against the Company before the National
Labor Relations Board with respect to the Company's Las Vegas subsidiary.
The complaint alleged that four employees were terminated and three other
employees disciplined because of their union activities. The ALJ found that
none of the employees were terminated or disciplined for inappropriate
reasons. The ALJ found two violations of management communications rules for
which non-economic remedies were proposed. A second unfair labor practice
matter is pending before the full National Labor Relations Board. The
company does not believe that an adverse outcome in any of the unfair
practice charges will have a material adverse effect upon the Company's
financial condition or results of operations.
The Company believes that these unfair labor practice charges and the
litigation described above are part of an ongoing campaign by the Culinary
Workers Union which is seeking to represent employees at the Company's Las
Vegas restaurants. However, rather than pursue the normal election process
pursuant to which employees are given the freedom to choose whether they
should be represented by a union, a process which the Company support. The
Company believes the union is seeking to achieve recognition as the
bargaining agent for such employees through a campaign directed not at the
Company's employees but at the Company and its stockholders. The Company
intends to continue to support the right of its employees to decide such
matters and to oppose the efforts of the Culinary Workers Union to
circumvent that process.
An action was commenced in May 1998 in Superior Court of the District of
Columbia against the Company and its Washington, D.C. subsidiaries by 7
present and former employees of the restaurants owned by such subsidiaries
alleging violations of the District of Columbia Wage & Hours Act relating to
minimum wages and overtime compensation. The Company does not believe that
its liability, if any, from an adverse result in this matter would have a
material adverse effect upon its business or financial condition.
F-16
<PAGE>
9. SHAREHOLDERS' EQUITY
COMMON STOCK PRIVATE PLACEMENT - In December 1996, the Company raised net
proceeds of $6,028,626 in a private placement of 551,454 shares of its
common stock at $11 per share. The proceeds of such offering were used to
repay a portion of the Company's outstanding bank borrowings and for the
payment of capital expenditures on its Las Vegas restaurant facilities at
the New York New York Hotel & Casino in Las Vegas which opened in January
1997.
COMMON STOCK REPURCHASE PLAN - In August 1998, the Company authorized the
repurchase of up to 500,000 shares of the Company outstanding common stock.
In April 1999, the Company authorized the repurchase of an additional
300,000 shares of the Company outstanding common stock. For the years ended
October 2, 1999 and October 3, 1998 the Company repurchased 422,700 and
159,000 shares at a total cost of $4,228,162 and $1,522,496, respectively.
10. STOCK OPTIONS
On October 15, 1985, the Company adopted a Stock Option Plan (the "Plan")
pursuant to which the Company reserved for issuance an aggregate of 175,000
shares of common stock. In May 1991 and March 1994, the Company amended such
Plan to increase the number of shares issuable under the Plan to 350,000 and
447,650, respectively. In March 1996, the Company adopted a second plan and
reserved for issuance an additional 135,000 shares. In March 1997, the
Company amended this plan to increase the number of shares included under
the plan to 270,000. Options granted under the Plans to key employees are
exercisable at prices at least equal to the fair market value of such stock
on the dates the options were granted. The options expire five years after
the date of grant and are generally exercisable as to 25% of the shares
commencing on the first anniversary of the date of grant and as to an
additional 25% commencing on each of the second, third and fourth
anniversaries of the date of grant.
F-17
<PAGE>
Additional information follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------------------- -------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 311,500 $10.86 227,500 $10.38 105,625 $ 7.18
Options:
Granted 214,000 10.00 100,000 11.38 150,000 11.71
Exercised (20,500) 8.00 (10,000) 6.50 (17,500) 4.89
Canceled or expired (16,500) 9.24 (6,000) 8.63 (10,625) 6.37
--------- -------- --------
Outstanding, end of year (a) 488,500 10.65 311,500 10.86 227,500 10.38
--------- -------- --------
Price Range, Outstanding Shares $8.00 - $12.00 $8.00 - $12.00 $6.50 - $12.00
Weighted Average Years 3.3 years 3.2 years 3.53 years
Shares available for future grant 22,500 20,000 120,000
--------- -------- --------
Options exercisable (a) 178,917 10.78 117,583 10.13 47,500 7.65
--------- -------- --------
</TABLE>
(a) Options become exercisable at various times until expiration dates ranging
from October 1999 through April 2004.
Statement of Financial Accountings Standards No. 123, Accounting for
Stock-Based Compensation, ("SFAS No. 123") requires the Company to disclose
pro forma net income and pro forma earnings per share information for
employee stock option grants to employees as if the fair-value method
defined in SFAS No. 123 had been applied. The fair value of each
stock-option grant is estimated on the date of grant using the Black-Scholes
option pricing. The assumptions for fiscal 1999 include: risk-free interest
rate of 6.25%; no dividend yield; expected life of four years; and expected
volatility of 38%. The assumptions for fiscal 1998 include; risk free
interest rate of 5.5%; no dividend yield; expected life of four years; and
expected volatility of 75%. The assumptions for fiscal 1997 include;
risk-free interest rate of 6.5%; no dividend yield; expected life of 4 years
and expected volatility of 38%.
The pro forma impact was as follows:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 27,
1999 1998 1997
<S> <C> <C> <C>
Net earnings as reported $4,494,731 $4,612,141 $1,737,655
Net earnings - pro forma 4,307,357 4,464,576 1,694,991
Earnings per share as reported - basic $ 1.30 $ 1.21 $ 0.47
Earnings per share as reported - diluted 1.29 1.20 0.46
Earnings per share pro forma - basic 1.24 1.17 0.46
Earnings per share pro forma - diluted 1.24 1.16 0.45
</TABLE>
F-18
<PAGE>
The exercise of nonqualified stock options in the fiscal years ended October
2, 1999, October 3, 1998 and September 27, 1997 resulted in income tax
benefits of $21,263, $18,615 and $57,580, respectively, which were credited
to additional paid-in capital. The income tax benefits result from the
difference between the market price on the exercise date and the option
price.
11. MANAGEMENT FEE INCOME
As of October 2, 1999, the Company provides management services to five
restaurants owned by outside parties. In accordance with the contractual
arrangements, the Company earns fixed fees and management fees based on
restaurant sales and operating profits as defined by the various management
agreements.
Restaurants managed had net sales of $9,803,693, $12,738,639 and $14,151,888
during the management periods within the years ended October 2, 1999,
October 3, 1998 and September 27, 1997, respectively, which are not included
in consolidated net sales of the Company.
12. INCOME TAXES
The provision for income taxes reflects Federal income taxes calculated on a
consolidated basis and state and local income taxes calculated by each
subsidiary on a nonconsolidated basis. For New York State and City income
tax purposes, the losses incurred by a subsidiary may only be used to offset
that subsidiary's income.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 27,
1999 1998 1997
<S> <C> <C> <C>
Current provision:
Federal $1,298,451 $1,892,997 $ 668,391
State and local 894,533 1,117,363 908,183
---------- ---------- ----------
2,192,984 3,010,360 1,576,574
---------- ---------- ----------
Deferred provision (credit):
Federal 349,299 100,486 (329,602)
State and local 33,325 (42,105) (102,364)
---------- ---------- ----------
382,624 58,381 (431,966)
---------- ---------- ----------
$2,575,608 $3,068,741 $1,144,608
========== ========== ==========
</TABLE>
F-19
<PAGE>
The provision for income taxes differs from the amount computed by
applying the Federal statutory rate due to the following:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------
October 2, October 3, September 27,
1999 1998 1997
<S> <C> <C> <C>
Provision for Federal income taxes (34%) $ 2,404,000 $ 2,612,000 $ 980,000
State and local income taxes net of Federal
tax benefit 612,000 710,000 532,000
Amortization of goodwill 26,000 26,000 26,000
Tax credits (512,000) (506,000) (373,000)
Other 45,608 226,741 (20,392)
----------- ----------- -----------
$ 2,575,608 $ 3,068,741 $ 1,144,608
=========== =========== ===========
</TABLE>
Deferred tax assets or liabilities are established for (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) operating loss carryforwards. The tax effects of items comprising
the Company's net deferred tax asset are as follows:
<TABLE>
<CAPTION>
October 2, October 3,
1999 1998
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards $ 1,035,396 $ 839,253
Operating lease deferred credits 570,370 634,516
Carryforward tax credits 976,725 1,086,025
Depreciation and amortization 114,662 22,104
Deferred Gains (270,112) --
Valuation allowance (870,289) (642,522)
----------- -----------
$ 1,556,752 $ 1,939,376
=========== ===========
</TABLE>
A valuation allowance for deferred taxes is required if, based on the
evidence, it is more likely than not that some of the deferred tax assets
will not be realized. The Company believes that uncertainty exists with
respect to future realization of certain operating loss carryforwards and
operating lease deferred credits. Therefore, the Company provided a
valuation allowance of $870,289 at October 2, 1999 and $642,522 at October
3, 1998. The Company has state operating loss carryforwards of $11,671,000
and local operating loss carryforwards of $8,270,000, which expire in the
years 2002 through 2014.
The Internal Revenue Service is currently examining the Company's federal
income tax returns for fiscal years ended September 28, 1991 through
October 1, 1994, and the Internal Revenue Service has proposed certain
adjustments, all of which are being contested by the Company. The
adjustments primarily relate to (i) pre-opening, legal and accounting
expenses incurred in connection with new or acquired restaurants that the
Internal Revenue Service asserts should have been capitalized and
amortized rather than currently expensed and (ii) travel and meal expenses
for which the Internal
F-20
<PAGE>
Revenue Service asserts the Company did not comply with certain record
keeping requirements of the Internal Revenue Code. The Company has
reached an agreement in principle with the Internal Revenue
Service to resolve the proposed adjustments. The Company does not believe
that the final adjustments contemplated by the agreement in principle
will have a material effect on the Company's financial condition.
13. OTHER INCOME
Other income consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
October 2, October 3, September 27,
1999 1998 1997
<S> <C> <C> <C>
Purchasing service fees $ 88,061 $124,455 $ 86,073
Insurance proceeds (a) -- -- 377,427
Sales of logo T-shirts and hats 133,819 160,596 171,259
Other 213,730 205,067 145,522
-------- -------- --------
$435,610 $490,118 $780,281
======== ======== ========
</TABLE>
(a) In July 1994, the Company was required to close a restaurant in
Manhattan (Ernie's) on a temporary basis to enable structural repairs
to be made to the ceiling of the restaurant. The cost of such repairs,
other ongoing restaurant operating expenses and a guaranteed profit
were borne by a third party. The restaurant reopened in February 1995
and the agreement provided that the third party continue to guarantee
some level of operating profits through January 1998. During the
fiscal year ended September 27, 1997, the Company received $377,427 in
excess of the continuing restaurant operating expenses.
14. INCOME PER SHARE OF COMMON STOCK
The Company adopted in the first quarter of fiscal 1998, The Financial
Accounting Standards Board Statement No. 128, "Earnings per Share," which
established new standards for computing and presenting earnings per share.
The Company now discloses "Basic Earnings per Share," which is based upon
the weighted average number of shares of common stock outstanding during
each period and "Diluted Earnings per Share," which requires the Company
to include common stock equivalents consisting of dilutive stock options
and warrants. The Company also retroactively applied the new standard to
all periods presented.
F-21
<PAGE>
A reconciliation of the numerators and denominators of the basic and
diluted per share computations follow.
<TABLE>
<CAPTION>
Income Shares Per-share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Year ended October 2, 1999:
Basic EPS $4,494,731 3,460,865 $ 1.30
Stock options and warrants -- 15,115 0.01
---------- --------- ------
Diluted EPS 4,494,731 3,475,980 1.29
Year ended October 3, 1998:
Basic EPS 4,612,141 3,826,255 1.21
Stock options and warrants -- 25,764 0.01
---------- --------- ------
Diluted EPS 4,612,141 3,852,019 1.20
Year ended September 27, 1997:
Basic EPS 1,737,655 3,714,116 0.47
Stock options and warrants -- 28,695 0.01
---------- --------- ------
Diluted EPS 1,737,655 3,742,811 0.46
</TABLE>
15. QUARTERLY INFORMATION (UNAUDITED)
The following table sets forth certain quarterly operating data.
<TABLE>
<CAPTION>
Fiscal Quarter Ended
-------------------------------------------------------------------
January 2 April 3 July 3 October 2,
1999 1999 1999 1999
<S> <C> <C> <C> <C>
1999
Net sales $26,933,489 $ 23,344,731 $31,563,976 $28,958,717
Gross restaurant profit 19,823,052 16,983,679 23,408,382 21,284,497
Net income (loss) 1,025,576 (156,178) 2,115,333 1,510,000
Net income (loss) per share -
basic $ 0.28 $ (0.04) $ 0.63 $ 0.46
Net income (loss) per share -
diluted $ 0.28 $ (0.04) $ 0.63 $ 0.45
</TABLE>
<TABLE>
<CAPTION>
Fiscal Quarter Ended
-------------------------------------------------------------------
December 27, March 28, June 27, October 3,
1997 1998 1998 1998
<S> <C> <C> <C> <C>
1998
Net sales $26,940,384 $ 25,198,012 $33,029,512 $32,230,545
Gross restaurant profit 19,692,165 18,345,554 24,432,866 23,662,166
Net income (loss) 727,441 (254,154) 2,428,676 1,710,178
Net income (loss) per share -
basic and diluted $ 0.19 $ (0.07) $ 0.63 $ 0.45
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
-------------------------------------------------------------------
December 28, March 29, June 28, September 27,
1996 1997 1997 1997
<S> <C> <C> <C> <C>
1997
Net sales $ 18,166,656 $ 24,887,795 $31,469,304 $29,802,631
Gross restaurant profit 13,068,926 17,775,683 22,922,594 22,107,296
Net income (loss) (552,503) (1,108,203) 1,947,476 1,450,885
Net income (loss) per share
basic and diluted $ (0.16) $ (0.29) $ 0.51 $ 0.38
</TABLE>
16. SUBSEQUENT EVENTS (UNAUDITED)
In December 1999 the Company entered into a new credit agreement with its
main bank, Bank Leumi USA. The new agreement allows the Company to borrow
up to $28,000,000 for use in construction of and acquisition of new
restaurants and for working capital purposes at the Company's existing
restaurants. After two years, the revolving loans will be converted into
term loans payable over 36 months. Outstanding loans bear interest at
prime + 1/2%. The agreement also includes a five year $2,000,000 Letter
of Credit Facility for use at the Company's restaurants in lieu of lease
security deposits.
******
F-23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the 27th day of December, 1999.
ARK RESTAURANTS CORP.
By: s/ Michael Weinstein
-----------------------------
MICHAEL WEINSTEIN, President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been duly signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
s/Ernest Bogen Chairman of the Board December 27, 1999
- -----------------------
(Ernest Bogen)
s/Michael Weinstein President and Director December 27, 1999
- -----------------------
(Michael Weinstein)
s/Vincent Pascal Vice President, December 27, 1999
- ----------------------- Secretary and Director
(Vincent Pascal)
s/Robert Towers Vice President, Treasurer, December 27, 1999
- ----------------------- Principal Financial Officer
(Robert Towers) and Director
s/Andrew Kuruc Vice President, Controller, December 27, 1999
- ----------------------- Principal Accounting Officer
(Andrew Kuruc) and Director
Donald D. Shack Director December 27, 1999
- -----------------------
(Donald D. Shack)
s/Jay Galin Director December 27, 1999
- -----------------------
(Jay Galin)
s/Paul Gordon Director December 27, 1999
- -----------------------
(Paul Gordon)
</TABLE>
<PAGE>
EXHIBIT 10.4
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, dated as of the
27th day of December, 1999 by and between ARK RESTAURANTS CORP., a New York
corporation (the "Company") and BANK LEUMI USA, a New York banking corporation
(the "Bank").
A. Pursuant to a Revolving Credit Loan Agreement between the
Bank and the Company dated as of March 3, 1989, as amended by Agreement dated
August 3, 1989, the Bank made available to the Company a revolving credit
facility, a standby letter of credit facility, and other financial
accommodations (collectively, the "Initial Facility").
B. On or about December 30, 1992, the Bank and the Company
entered into an Amended and Restated Credit Agreement, dated as of said date
(the "Restated Agreement"), wherein and whereby the Bank and the Company, among
other things, renewed and increased the Initial Facility. The Restated Agreement
was amended by an Agreement dated August 10, 1994.
C. On or about March 5, 1996, the Bank and the Company entered
into a Second Amended and Restated Credit Agreement, dated as of said date (the
"Second Restated Agreement") wherein and whereby the Bank and the Company, among
other things (i) renewed, increased and made amendments to the Initial Facility,
and (ii) the Bank provided the Company with a second loan facility and a second
letter of credit facility. The Second Restated Agreement was amended by
Agreements dated as of March 31, 1996, and as of December 24, 1996.
D. On or about May 28, 1998, the Bank and the Company entered
into a Third Amended and Restated Credit Agreement, dated said date (the "Third
Restated Agreement") wherein and whereby the Bank and the Company, among other
things, renewed and extended and made amendments to the loan facilities and
revolving credit facilities. The Third Restated Agreement was amended by
Agreements, dated as of April 27, 1999, November 10, 1999 and December 13, 1999.
E. The Bank and the Company have agreed (i) that the revolving
loan facility will be increased and amended, (ii) that the term of the revolving
loan facility will be extended to the Conversion Date (as herein defined),
(iii) that the Letter of
1
<PAGE>
Credit facilities made available to the Company will be renewed, increased and
amended, (iv) that on the Conversion Date the then outstanding principal balance
of the Loans made pursuant to the revolving credit facility will be converted
into the Term Loan, and (v) to certain other modifications of the existing
arrangements. The Bank and the Company have agreed to reflect these changes in
this Fourth Amendment and Restated Credit Agreement.
NOW, THEREFORE, IT IS AGREED:
1. DEFINITIONS
Unless the context otherwise requires, for all purposes of
this Agreement and of the other Loan Documents (as hereinafter defined), all
capitalized terms used in this Agreement and in the other Loan Documents without
definition shall have the respective meanings provided therefor or referred to
below:
1.1 The term "Affiliate" means with reference to
any Person, any director, officer or employee of such Person, any Person in
which such Person has a direct or indirect controlling interest or by which such
person is directly or indirectly controlled or which is under direct or indirect
common control with such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with") when used with respect to any specified Person shall mean
the power to direct or cause the direction of the actions, management or
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and whether or not such power is
actually exercised.
1.2 The term "Agreement" means this Fourth Amended
and Restated Credit Agreement, including all of the Schedules and Exhibits
hereto, as the same may be amended or otherwise modified from time to time, and
the terms "herein", "hereof", "hereunder" and like terms shall be taken as
referring to this Agreement in its entirety and shall not be limited to any
particular section or provision hereof.
1.3 The term "Bank Debt" means and includes all
(i) Consolidated Indebtedness for money borrowed, unless it meets
2
<PAGE>
the definition of Purchase Money Indebtedness (ii) the amount of any letters of
credit outstanding for the account of the Company or any Subsidiary and (iii)
the aggregate amount of all equipment leases entered into by the Company or any
Subsidiary where the rental payments would be required to be capitalized under
generally accepted accounting principles, unless such lease meets the definition
of Purchase Money Indebtedness.
1.4 The term "Capital Expenditures" means assets
purchased for use in a Restaurant Related Business (other than assets purchased
on a non-recourse Purchase Money Indebtedness basis), including Indebtedness to
the Company of any newly organized Subsidiary (or any such Indebtedness
guaranteed by the Company) in connection with the development or acquisition of
a Restaurant Related Business.
1.5 The term "Capitalized Leases" means all
capitalized leases made to the Bank, or an Affiliate of the Bank, as lessor, and
the Borrower or any Subsidiary as lessee.
1.6 The term "Commitment" means the Commitment
(as defined in Section 2.1.1).
1.7 The term "Company's Collateral" means all of
the issued and outstanding shares of capital stock of each of the Subsidiaries,
other than shares of stock issued by one Subsidiary to another Subsidiary, and
the "security", as such term is defined in paragraph 3 of the Company's Security
Agreement.
1.8 The term "Consolidated Debt Service" means
interest expense and required amortization cost for the applicable period on all
of the Company's Consolidated Indebtedness.
1.9 The term "Consolidated Indebtedness" means
the aggregate consolidated Indebtedness of the Company and its consolidated
Subsidiaries. It is understood that in the calculation of Consolidated
Indebtedness, if one or more Letters of Credit, Guarantees or similar
obligations relate to the same underlying liability, only the amount of the
underlying liability will be included in Consolidated Indebtedness.
1.10 The term "Consolidated Operating Cash Flow"
3
<PAGE>
means consolidated after-tax earnings of the Company computed in accordance with
generally accepted accounting principles for the period of calculation, plus
depreciation and interest expense for such period on all Consolidated
Indebtedness.
1.11 The term "Consolidated Net Worth" shall mean
the excess of total assets over total liabilities of the Company and its
consolidated Subsidiaries total assets and total liabilities each to be
determined as to both classification of items and amounts in accordance with
generally accepted accounting principles, and consistent with the standards
applied in the financial statements referred to in Section 4.9; provided there
shall be excluded from total assets (i) cash set apart and held in a sinking or
other analogous fund established for the purposes of redemption or other
retirement of capital stock, (ii) any revaluation or other write-up in book
value of assets subsequent to the date hereof, and (iii) amounts owed to the
Company or any Subsidiary from any of the officers, directors or employees
thereof or any of their Affiliates in excess of $300,000 at any one time
outstanding.
1.12 The term "Consolidated Trade Indebtedness"
means Current Liabilities of the Company and its consolidated Subsidiaries for
trade or other obligations, not outstanding more than sixty (60) days, incurred
in the ordinary course of their respective businesses and not as a result of
money borrowed.
1.13 The term "Conversion Date" means the date
set forth in Section 2.1.1.
1.14 The term "Current Assets", with respect to
any entity, means as of the date of determination thereof, (i) cash and cash
items on hand or in transit to or on deposit in any bank or trust company which
has not suspended business and which is located in the United States of America;
(ii) stocks, bonds and other securities or obligations which are readily
marketable in the United States of America, all taken on the basis of cost or
market value whichever note is lower; (iii) good and collectible accounts and s
receivable (including drafts, acceptances and letters of credit), in good
standing and payable in currency of the United States of America and incurred
or created less than one hundred twenty (120) days prior to such date of
determination; (iv) inventories of merchandise and
4
<PAGE>
supplies located in the United States of America, all taken on the basis of cost
or market value, whichever is lower, and (v) subject to the limitations and
qualifications set forth in clauses (i) through (iv) of this paragraph, such
other assets located in the United States of America which in accordance with
generally accepted accounting principles would be included on a balance sheet as
current assets; all after write-offs and write-downs and after deducting
adequate reserves, in each case where a write-off, write-down or reserve is
proper in accordance with generally accepted accounting principles.
1.15 The term "Current Liabilities", with respect
to any entity, includes, as of the date of determination thereof, all
Indebtedness maturing on demand or within one year from the date as of which
such determination is made, serial maturities, fixed sinking fund payments or
other prepayments required to be made with respect to any Indebtedness within
one year after such date, and all other items (including taxes accrued as
estimated) which in accordance with generally accepted accounting principles
would be included on a balance sheet as current liabilities.
1.16 The term "Disclosure Schedule" means the
Disclosure Schedule, dated as of even date herewith, executed by an officer of
the Company and delivered to the Bank setting forth certain information with
respect to the Company and the Subsidiaries, as same may be amended or modified
from time to time.
1.17 The term "ERISA" means the Employee
Retirement Income Security Act of 1974, as amended from time to time, and the
regulations and published interpretations thereof.
1.18 The term "ERISA Affiliate" means any trade
or business (whether or not incorporated) which together with the Company would
be treated as a single employer under Section 4001 (b)(1) of ERISA.
1.19 The term "Events(s) of Default" shall have
the meaning provided therefor in Section 8.1.
1.20 The term "Indebtedness", as applied to a
Person (an "obligor") at any time, shall mean the following amounts and
liabilities:
5
<PAGE>
1.20.1. all amounts which, in accordance
with generally accepted accounting principles, are or should be treated as
liabilities or other obligations on the liabilities side of a balance sheet of
such obligor prepared in accordance with generally accepted accounting
principles; provided, however, that amounts accrued by such obligor in respect
of operating lease deferred credits shall not be deemed indebtedness; and
1.20.2. also, to the extent not so treated,
(i) letters of credit (whether revocable or
irrevocable) issued for the account of such obligor, but only to the extent
drawn upon and not repaid to the issuer;
(ii) liabilities of any other Person
guaranteed directly or indirectly, in any manner by such obligor;
(iii) liabilities of or to any Person in
effect guaranteed, directly or indirectly, by such obligor through any
agreement, endorsement or understanding, contingent or otherwise (except
liabilities arising from endorsement of negotiable instruments for deposit or
collection in the ordinary course of business) of such obligor entered into for
the purpose, or which is used for the purpose, in whole or in part, of enabling
the debtor to pay, indemnify against or otherwise satisfy a liability or
obligation or to assure the obligee of the liability against loss, including
without limitation (x) agreements, commitments or understandings to repay
amounts drawn down by beneficiaries of letters of credit (whether revocable or
irrevocable) whether or not issued, directly or indirectly, for the account of
such obligor (y) statements or representations to the effect that such obligor
will not permit any other person to default in respect of any liability or will
maintain minimum net worth of another person, or (z) agreements, commitments or
understandings (A) to purchase securities or Indebtedness, or (B) to purchase or
sell services, products, raw materials or other property of any description,
outside of the ordinary course of its business, or (C) to supply funds to or in
any other manner make an investment in the debtor;
(iv) all liabilities secured (directly or
indirectly) by a lien or encumbrance upon any property or asset of such obligor
regardless of whether such obligor has assumed or
6
<PAGE>
become liable for the payment of such liabilities; and
(v) amounts equal to any reserves or
commitments which are, or, under generally accepted accounting principles,
should be, reflected on the liabilities side of a balance sheet of such obligor
in respect of contingent or disputed claims, debts or other similar monetary
obligations, either direct or guaranteed, to the extent that the same are not
included pursuant to (i), (ii) or (iii) above; provided, however, that items
includable as stockholders' equity (or parts thereof), minority interests and
reserves for deferred income taxes, each as determined or set aside in
accordance with generally accepted accounting principles, shall not be deemed to
be "Indebtedness". Obligations in respect of leases shall be included as
"Indebtedness" only to the extent that the same are treated as liabilities or
obligations by such obligor on its balance sheets prepared in accordance with
generally accepted accounting principles, except that operating lease deferred
credits shall not be included as "Indebtedness".
1.21 The term "Letter of Credit" shall have the
meaning provided therefor in Section 2.1.5 hereof.
1.22 The term "Lien" means any charge, lien,
mortgage, pledge, security interest or other encumbrance of any nature
whatsoever upon, of or in property or other assets of a Person, whether absolute
or conditional, voluntary or involuntary, whether created pursuant to agreement,
arising by force of statute, by judicial proceedings or otherwise.
1.23 The terms "Loan and "Loans" shall mean all
of the Revolving Loans and the Term Loan.
1.24 The term "Loan Documents" shall mean and
include this Agreement, the Notes, the Guarantees, the Security Agreements
and all other documents executed by the Company or any Subsidiary pursuant
hereto or thereto, as same may be amended, modified, renewed or restated from
time to time.
1.25 The term "Maturity Date" shall have the
meaning provided therefor in Section 2.1.3 hereof.
1.26 The term "Multiemployer Plan" means a Plan
7
<PAGE>
described in Section 4001(a)(3) of ERISA which covers employees of the Company
or any ERISA Affiliate.
1.27 The terms "Note" and "Notes", respectively,
shall mean the Revolving Note and the Term Note.
1.28 The term "PBGC" means the Pension Benefit
Guaranty Corporation, or any successor thereto.
1.29 The term "Person" shall include an individual,
a partnership, a joint venture, a corporation (including, without limitation,
the Company or any Subsidiary), a limited liability company, a trust, an
estate, an unincorporated organization or association, a governmental agency
and any other business or legal entity.
1.30 The term "Plan" means any employee benefit
plan as defined in Section 3(2) of ERISA.
1.31 The term "Prohibited Transaction" means any
transaction set forth in Section 406 of ERISA or Section 4975 of the Internal
Revenue Code of 1986, as amended from time to time.
1.32 The term "Purchase Money Indebtedness" means
purchase money Indebtedness incurred by a Subsidiary at the time of the
acquisition of Restaurant-Related Business assets, which Indebtedness is secured
only by the assets of the business being acquired and not guaranteed by the
Company or any Subsidiary of the Company and for which the instrument or
instruments relating to the Indebtedness does not provide recourse against the
Company or any Subsidiary of the Company other than the Subsidiary issuing the
Indebtedness.
1.33 The term "Reference Rate" means the rate
designated by the Bank, and in effect from time to time, as its reference rate,
adjusted when such reference rate changes.
1.34 The term "Reportable Event" means any of the
events set forth in Section 4043 of ERISA.
1.35 The term "Restaurant-Related Business" means
a restaurant, catering, hospitality, food preparation or food service business.
8
<PAGE>
1.36 The term "Revolving Note" shall have the
meaning defined in Section 2.1.3.
1.37 The term "Security Agreement" and "Security
Agreements" mean each security agreement made by the Company or a Subsidiary, as
debtor, in favor of the Bank, as secured party, and all of the foregoing.
1.38 The term "Shareholders' Equity" means the
excess of the total assets of the Company and its consolidated Subsidiaries over
their total liabilities, in each case as such items would be classified on the
consolidated balance sheet of the Company and its consolidated Subsidiaries
determined in accordance with generally accepted accounting principles.
1.39 The term "Subsidiary" and "Subsidiaries"
mean, respectively, each of the corporations listed on the Disclosure Schedule,
and any other corporation or Person, not less than a majority of the outstanding
shares of the class or classes of stock or other equity interest of which,
having by the terms thereof ordinary voting power to elect a majority of the
directors or manage such corporation or Person, are at any time owned by the
Company or by a Subsidiary of the Company, or by the Company and one or more
Subsidiaries of the Company.
1.40 The terms "Subsidiary's Collateral" and
"Subsidiaries Collateral", respectively, shall mean all of the assets of a
Subsidiary and all of the assets of all of the Subsidiaries, except as is
otherwise provided in the Disclosure Schedule, including shares of stock in any
other Subsidiary.
1.41 The term "Term Note" shall have the meaning
defined in Section 2.1.4.
1.42 The term "United States of America", when
used in a geographical sense, means all of the States of the United States of
America and the District of Columbia and, so long as they continue as
possessions or territories of the United States, Puerto Rico and the Virgin
Islands.
1.43 The term "Working Capital", with respect to
any corporation, means the excess, if any, of the Current Assets over the
Current Liabilities of such corporation.
9
<PAGE>
2. THE LOAN
2.1 Amount and Terms of Credit.
2.1.1. Commitment of the Bank. The Bank
shall, subject to and upon the terms and conditions herein set forth, make
available to the Company until the second annual anniversary of the date of this
Agreement (the "Conversion Date") loans (each a "Loan" and collectively the
"Loans"). The Loans made available to the Company pursuant to this revolving
loan facility are to finance the development and construction of new restaurants
and to provide working capital for the Company's operations. The aggregate
principal amount of the Loans, at any time outstanding, shall not exceed
$28,000,000 (the "Commitment"). Subject to the foregoing, until the Conversion
Date, the Company may borrow, repay and reborrow the Loans to the limit of the
Commitment.
2.1.2. Notice of Borrowing. If and whenever
the Company desires to borrow under the Commitment it shall give the Bank prior
written notice, specifying the date of the proposed borrowing, and the amount to
be borrowed (which shall be not less than $250,000). Subject to all the terms
and conditions of this Agreement, the Bank shall make available to the Company
in immediately available funds at the Bank's office specified in Section 9.6,
not later than 11 a.m. current local time on the date specified in such notice,
the amount to be advanced hereunder.
2.1.3. Conversion to Term Loan. On and after
the Conversion Date, the Company shall no longer have the right to request
borrowings under the Commitment. The principal sum of the Revolving Loans
outstanding on the Conversion Date, as same may be reduced by reason of the
prepayment provided for in Section 2.2.2 of this Agreement (the "Term Loan
Amount") shall be converted to a term loan made by the Bank to the Company (the
"Term Loan"), and shall be repaid by the Company to the Bank in thirty-six (36)
consecutive equal monthly installments. The first installment under the Term
Loan shall be due and payable on the first day of the month immediately
subsequent to the Conversion Date, and each subsequent installment shall be due
on the first day of each month thereafter. The maturity date of the
10
<PAGE>
Term Loan is thirty six (36) months after the Conversion Date (the "Maturity
Date").
2.1.4. Notes. The Revolving Loans shall be
evidenced by a promissory note evidencing the Loans substantially in the form of
Exhibit A annexed, with the blanks completed in conformity herewith (the
"Revolving Note") duly executed by the Company and payable to the order of the
Bank and (i) be dated as of the date of this Agreement; (ii) be in the principal
amount of $28,000,000; (iii) bear interest at a fluctuating rate per annum equal
to one half of one (1/2%) percent above the Reference Rate, in effect from time
to time, until maturity (whether by acceleration or otherwise) and thereafter at
a fluctuating rate per annum equal to three (3%) percent above the Reference
Rate, in effect from time to time; and (iv) be payable as to interest at such
rate in arrears on the first day of each month commencing with the first day of
the month following the date of this Agreement and thereafter on the first day
of each month until (a) the Conversion Date, or (b) maturity by acceleration,
and both before and after judgment, until the principal amount is paid in full.
On the Conversion Date, the Company shall deliver the Revolving Note to the Bank
upon delivery by the Company to the Bank, at the Bank's office specified in
Section 9.6, (i) the prepayment, if any, provided for in Section 2.2.2 of this
Agreement, (ii) a note evidencing the Term Loan (the "Term Note") substantially
in the form of Exhibit B annexed, completed in conformity herewith, (iii)
payment of the conversion fee in an amount equal to three eighths of one (3/8%)
percent of the Term Loan Amount, and (iv) such other documents and papers as are
provided for herein. The Term Note shall be duly executed by the Company and
payable to the order of the Bank, and (i) be dated the Conversion Date, (ii) be
for the applicable Term Loan Amount, (iii) bear interest at a fluctuating rate
per annum equal to one half of one (1/2%) percent above the Reference Rate, in
effect from time to time, until maturity (whether by acceleration or
otherwise), and thereafter at a fluctuating rate per annum equal to three (3%)
percent above the Reference Rate, in effect from time to time, (iv) be payable
as to interest at such rate in arrears on the first day of each month,
commencing on the first day of the first month immediately subsequent to the
Conversion Date and thereafter on the first date of every month until maturity
(whether by acceleration or at the Maturity Date), until the principal amount
is paid in full, and (v) be payable as to
11
<PAGE>
principal in thirty-six (36) equal consecutive monthly installments, commencing
on the first day of the first month immediately subsequent to the Conversion
Date, and thereafter on the first day of every month thereafter until the
maturity (whether by acceleration or at the Maturity Date), when the entire then
unpaid balance and interest accrued thereon shall be due and payable.
2.1.5. Letters of Credit. Subject to and
upon the terms and conditions contained in this Agreement (including compliance
with the conditions precedent to the obligations of the Bank to make the initial
Loan to the Company and the Application (as hereinafter defined) and provided
the Company is not then in default of any of its obligations under this
Agreement, the Bank agrees (i) until the Conversion Date to issue, from time to
time, one or more letters of credit (each a "Letter of Credit"), and (ii) before
and after the Conversion Date to renew currently outstanding letters of credit
at the request and for the account of the Company. The letters of credit to be
made available by the Bank to the Company shall be for the Company's current
operations. The maximum contingent liability of the Bank (including therein any
payments made by the Bank to the beneficiaries of such Letters of Credit which
have not been repaid to the Bank) under all Letters of Credit issued for the
account of the Company shall not at any time exceed the sum of $2,000,000. If
and whenever the Company desires to obtain a Letter of Credit from the Bank for
its account, it shall apply to the Bank for such Letter of Credit in accordance
with the Bank's normal practices as in effect at that time, and shall execute
and deliver to the Bank such application and agreement as the Bank normally
requires in connection with such transactions (an "Application") and such other
documents as may be required thereunder. The Bank shall maintain a record of
the Letters of Credit and all transactions thereunder, which records shall be
conclusive evidence of the matters set forth therein, absent manifest error.
In the event of any inconsistency between any provision of this Agreement and
any provision of the Application, this Agreement shall govern and prevail. As
consideration to the Bank for the issuance of the Letters of Credit, the
Company shall pay a commission to the Bank in an amount equal to 1 and 1/2% per
annum of the maximum amount which may be drawn under each Letter of Credit;
provided, however, that the commission payable to the Bank on the renewal of any
Letter of Credit outstanding on the
12
<PAGE>
date of this Agreement shall be at a rate equal to the rate then payable with
respect to such Letter of Credit. All commissions shall be paid by the Company
upon issuance of the Letter of Credit. The obligation of the Bank to issue or
extend any Letter of Credit for the account of the Company hereunder shall exist
at any time only if at that time all conditions under Section 5.2 of this
Agreement to the Bank's obligation to make a Loan to the Company would have been
satisfied in full if the Company had requested a Loan in such amount. Each
Letter of Credit issued or renewed under this Section 2.1.5 shall have an
expiration date no later than one year from the date it is issued or renewed and
if renewal shall have an expiration date which is not beyond the Maturity Date,
and shall be renewable only in the sole discretion of the Bank. Commencing on
the Conversion Date and on the first day of each month thereafter, the Company
shall deposit cash collateral with the Bank equal to 1/36 of the face amount of
the outstanding Letters of Credit on the Conversion Date, until such time as
such cash collateral equals the face amount of the then outstanding Letters of
Credit. If at any time the cash collateral exceeds the face amount of the
outstanding Letters of Credit, unless an Event of Default shall have occurred,
the excess shall be released to the Company.
2.2 Prepayments.
2.2.1. Voluntary Prepayments. The Company
may prepay the Loans, or any of them, in part or in full at any time, and from
time to time, without premium or penalty, upon prior written notice to the Bank,
provided that each such prepayment shall be in the amount of $100,000 or any
integral multiple thereof. In the absence of any such designation, the Bank may
apply such prepayment at its discretion.
2.2.2. Mandatory Payment. On the Conversion
Date, the Company, without premium or penalty, shall prepay the Loans to the
extent, if any, by which the outstanding principal balance of the Loans exceeds
$22,000,000.
2.2.3. Prepayments Generally. Any
prepayments, whether mandatory or voluntary, shall be accompanied by the payment
of any accrued interest on the principal amount so prepaid.
13
<PAGE>
2.2.4. Application of Life Insurance
Proceeds. The Bank will apply any proceeds received by the Bank upon the policy
or policies of insurance assigned to the Bank upon the life of Michael
Weinstein, in its discretion, to the payment or prepayment of the Loans, or
other obligations, as the case may be, of the Company or the Subsidiaries to the
Bank.
2.3 General Provisions Concerning Loans.
Interest, including additional interest, shall be computed for the actual number
of days elapsed on the basis of a 360- day year. All mandatory and voluntary
payments or prepayments of principal and all payments of interest under either
of the Notes shall be made by the Company directly to the Bank in immediately
available funds. To effect the payment of any amount due hereunder, the Bank
may, but shall not be obligated to, charge any deposit account maintained by the
Company with the Bank. If any payment of principal of or interest on either of
the Notes, the commitment fee, agency fee or any other payment required to be
made by the Company hereunder or pursuant to any of the Loan Documents, becomes
due and payable on a day on which the Bank is closed (as required or permitted
by law or otherwise), the due date thereof shall be extended to the next
succeeding full business day and, in the case of principal, interest thereon
shall be payable at the applicable rate during such extension. All notations and
entries made by the Bank, or the holder of the Revolving Note, on the grid
attached thereto shall be presumptive evidence of the correctness of such
notations and entries, absent manifest error. The failure of the Bank to make
any notation or entry on any such grid shall not, however, limit or otherwise
affect the obligations of the Company under this Agreement or under the
Revolving Note.
2.4 Security For the Loans.
2.4.1. Concurrently with the execution
and delivery of the Restated Agreement, the Company granted a valid and
perfected first priority security interest to the Bank in the Company's
Collateral, pursuant to a security agreement, dated as of even date therewith,
which security agreement was amended and restated concurrently with the
14
<PAGE>
execution and delivery of the Second Restated Agreement and is concurrently
being amended and restated in the form annexed as Exhibit C-1 (the "Company's
Security Agreement").
2.4.2. Each of the Subsidiaries identified
on the Disclosure Schedule heretofore granted a valid and perfected security
interest to the Bank in such of the Subsidiary's Collateral as was owned by it
pursuant to a security agreement, which security agreement, concurrently with
the execution and delivery of this Agreement, is being amended and confirmed, as
provided in Exhibit C-2 annexed. Each existing security agreement, as
concurrently amended and confirmed, and each security agreement hereinafter
executed by a Subsidiary is a "Subsidiary's Security Agreement" and collectively
they are "Subsidiary' Security Agreements". Each security interest granted by a
Subsidiary's Security Agreement is a first priority security interest, subject
only to the security interests heretofore granted by each such Subsidiary, as
set forth on Schedule 4.13 and Purchase Money Indebtedness.
2.5 Guarantees. The Subsidiaries identified on the
Disclosure Schedule heretofore guaranteed all of the obligations of the Company
to the Bank pursuant to an unlimited guarantee executed by each such Subsidiary.
Concurrently with the execution and delivery of this Agreement, each of such
Subsidiary is reaffirming its Guaranty, by its execution of a Confirmation of
Guarantee, annexed as Exhibit C-2. Each existing Guarantee as concurrently
confirmed, or hereinafter executed by a Subsidiary, is individually a "Guaranty"
and collectively are the "Guarantees".
3. USE OF PROCEEDS.
The Company represents, warrants and covenants that the
proceeds of the Loans will be used for the following purposes and no others: to
finance the development and construction of new restaurants, Restaurant Related
Businesses and for working capital.
4. REPRESENTATIONS AND WARRANTIES.
15
<PAGE>
In order to induce the Bank to enter into this Agreement and
to make the Loans, the Company represents and warrants to the Bank that:
4.1 Corporate Existence and Power.
4.1.1. The Company and each Subsidiary
is a corporation duly incorporated, validly existing and in good standing under
the law of its state of incorporation, and is duly qualified as a foreign
corporation in each jurisdiction wherein the character of the property owned or
the nature of the business being transacted by it makes such qualification
necessary; and the Company has the corporate power to execute and deliver this
Agreement, the Revolving Note and all other documents to be executed and
delivered by the Company in connection herewith, and each Subsidiary has the
corporate power to execute and deliver, as is applicable (i) the Confirmation of
Guarantees and Amendment and Confirmation of Security Agreements and (ii) all
other documents executed and delivered by such Subsidiary in connection herewith
(collectively, the "Loan Documents") and to incur and perform their respective
obligations hereunder and thereunder.
4.1.2. Except as is otherwise set forth
on the Disclosure Schedule, all of the issued and outstanding shares of capital
stock of each of the Subsidiaries are owned of record and beneficially by the
Company. The Disclosure Schedule accurately sets forth the class and number of
shares issued by each Subsidiary, all of which shares have been duly issued,
fully paid and non-assessable. There are no outstanding warrants, options or
other rights to acquire any shares in any of the Subsidiaries.
4.2 Authorization. The Company and each of
the Subsidiaries has all requisite legal right, power and authority to execute,
deliver and perform the terms and provisions of this Agreement, the Loan
Documents executed by it, and all other instruments and documents delivered by
it pursuant hereto and thereto. The Company and each of the Subsidiaries has
taken or caused to be taken all necessary action to authorize the execution,
delivery and performance of this Agreement, the Loan Documents executed by it,
the Revolving Note, and any other related agreements, instruments
16
<PAGE>
or documents delivered or to be delivered by the Company or the Subsidiaries
pursuant hereto and thereto. This Agreement, the Loan Documents and all related
agreements, instruments and documents delivered or to be delivered pursuant
hereto or thereto constitute and will constitute legal, valid and binding
obligations of the Company (and, to the extent executed by them, the
Subsidiaries) enforceable in accordance with their respective terms.
4.3 No Conflicts. Neither the execution and
delivery of this Agreement, the Loan Documents or any of the instruments and
documents delivered or to be delivered pursuant hereto or thereto, nor the
consummation of the transactions herein or therein contemplated, nor compliance
with the provisions hereof or thereof, will violate any law or regulation, or
any order, writ or decree of any court or governmental instrumentality, or will
conflict with, or result in the breach of, or constitute a default in any
respect under, any indenture, mortgage, deed of trust, agreement or other
instrument to which the Company or any of the Subsidiaries is a party, or by
which any of them or any of their respective properties may be bound or
affected, or will result in the creation or imposition of any lien, charge
or encumbrance upon any of the property of any of them (except as contemplated
hereunder or under the Loan Documents) or will violate any provision of the
certificate or articles of incorporation (as amended to date) or by-laws (as
currently in effect) of the Company or any of the Subsidiaries.
4.4 Compliance and Other Agreements.
4.4.1. Neither the Company nor any of the
Subsidiaries is in default under any indenture, mortgage, deed of trust,
agreement or other instrument to which it is a party, or by which it or any of
its properties may be bound or affected, except for such defaults which,
individually or in the aggregate, will not have a material and adverse effect on
the business, operations, property or assets or in the condition, financial or
otherwise, of the Company or any of the Subsidiaries.
4.4.2. Neither the Company nor any of the
Subsidiaries is in default with respect to any order, writ,
17
<PAGE>
injunction or decree of any court or of any federal, state, municipal or other
governmental department, commission, board, bureau, agency or authority,
domestic or foreign, or in violation of any law, statute or regulation, domestic
or foreign, to which it is, or any of its properties are subject, except for
such defaults or violations which, in the aggregate, will not have a material or
adverse effect on the business, operations, property or assets or on the
condition, financial or otherwise, of the Company or any of the Subsidiaries.
4.4.3. Neither the Company nor any of the
Subsidiaries is a party to or bound by, nor are any of their respective
properties bound or affected by, any agreement, deed, lease or other instrument,
or subject to any charter or other corporate restriction or any judgment, order,
writ, injunction, decree or award, or any law, statute, rule or regulation, any
of which materially and adversely affects or in the future may (so far as the
Company or any Subsidiary should reasonably foresee) materially and adversely
affect the business, operations, prospects, properties or assets, or the
condition, financial or otherwise, of the Company or any of the Subsidiaries.
4.5 ERISA. Each of the Company and the
Subsidiaries is in compliance in all material respects with all applicable
provisions of ERISA. Neither a Reportable Event nor a Prohibited Transaction has
occurred and is continuing with respect to any Plan; no notice of intent to
terminate a Plan has been filed nor has any Plan been terminated; no
circumstances exist which constitute grounds under Section 4042 of ERISA
entitling the PBGC to institute proceedings to terminate, or appoint a trustee
to administrate, a Plan, nor has the PBGC instituted any such proceedings;
neither the Company, any Subsidiary, nor any ERISA Affiliate has completely or
partially withdrawn under Sections 4201 or 4204 of ERISA from a Multiemployer
Plan; the Company, the Subsidiaries and each of their respective ERISA
Affiliates have met their minimum funding requirements under ERISA with respect
to all of their Plans and the present fair market value of all Plan assets
exceeds the present value of all vested benefits under each Plan, as determined
on the most recent valuation date of the Plan and in accordance with the
provisions of ERISA and the regulations thereunder for
18
<PAGE>
calculating the potential liability of the Company, the Subsidiaries or any of
their respective ERISA Affiliates to PBGC or the Plan under Title IV of ERISA;
and neither the Company nor any of the Subsidiaries or their respective ERISA
Affiliates has incurred any liability to the PBGC under ERISA.
4.6 Investment Company. Neither the Company
nor any of the Subsidiaries is an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company Act of
1940.
4.7 Approvals and Consents. All authorizations,
consents, registrations, exemptions, approvals and licenses (governmental or
otherwise) or the taking of any other action (including, without limitation,
by the shareholders of the Company or any of the Subsidiaries) which are
required as a condition to the validity or enforceability of this Agreement,
the Loan Documents, or any of the instruments or documents delivered or to be
delivered pursuant hereto or thereto have been effected or obtained and are in
full force and effect.
4.8 Regulation U, etc. Neither the Company nor any
of the Subsidiaries is engaged in the business of extending credit for the
purpose of purchasing or carrying any margin stock (within the meaning of
Regulation U or G of the Board of Governors of the Federal Reserve System). None
of the proceeds of the Loans will be used, directly or indirectly, in violation
of Regulation U for the purpose of purchasing or carrying any margin stock or
for any other purpose which might constitute the loan contemplated hereby a
"purpose credit" within the meaning of such Regulation U which would be in
violation of Regulation U.
4.9 Financial Condition.
4.9.1. The audited consolidated balance
sheets of the Company and its Subsidiaries as at September 30, 1999 and the
audited consolidated statements of operations, shareholders' equity and cash
flows of the Company and its Subsidiaries for the fiscal year then ended, copies
of which have been furnished to the Bank, are complete and correct and fairly
present the consolidated financial
19
<PAGE>
condition and results of operations of the Company and its Subsidiaries as at
the dates and for the periods indicated. All of such financial statements have
been prepared in conformity with generally accepted accounting principles and
practices applied on a basis consistently maintained throughout the periods
involved.
4.9.2. There are no material
liabilities, direct or indirect, fixed or contingent, of the Company or the
Subsidiaries as of the dates of such financial statements which were not
reflected therein or in the notes thereto. Since the date of the most recent
financial statements, there has been no material adverse change in the
condition, financial or otherwise, or the business, operations, prospects,
properties or assets of the Company and its Subsidiaries on a consolidated basis
or of the Company individually.
4.10 Taxes. The Company and each Subsidiary
has filed or caused to be filed, all tax returns required to be filed, and has
paid all taxes (including interest and penalties) shown to be due and payable
on said returns or any assessments made against it, and no tax liens have been
filed and no claims are being asserted with respect to such taxes which are not
reflected in the financial statements referred to in Section 4.9.1 hereof. The
Company has no knowledge of any proposed material tax assessment against or
affecting it or any of the Subsidiaries and is not otherwise obligated by any
agreement, instrument or otherwise to contribute to the payment of taxes owed
by any other Person. All material tax liabilities are adequately provided for
or reserved against on the books of the Company and/or the Subsidiaries, as is
applicable, in accordance with generally accepted accounting principles.
4.11 Litigation. Except as set forth on
Schedule 4.11 annexed, there are no actions, suits or proceedings pending or, to
the knowledge of the Company, threatened against or affecting the Company or any
Subsidiary or the property of any of them before any court, arbitrator or
governmental department, commission, board, bureau, agency or instrumentality
which, (i) if not covered by insurance seeks recovery of more than $200,000 or
if covered by insurance seeks recovery of an amount in excess of the
20
<PAGE>
applicable insurance limits, (ii) either in any case or in the aggregate, if
adversely determined, would have a material adverse effect on the financial
condition, business or operations of the Company or any Subsidiary, or (iii)
question the validity or enforceability of this Agreement, the Third Restated
Agreement, the Loan Documents, or any action to be taken in connection with the
transactions contemplated hereby or thereby.
4.12 Chief Executive Office; Collateral Locations.
The address of the chief executive office of the Company is set forth in the
Company's Security Agreement. The only locations of any of the Company's
Collateral, other than such of the Company's Collateral as the Bank shall take
possession of to perfect its lien and security interest therein, and the chief
executive office of the Company, are those listed in the Company's Security
Agreement. The Chief Executive Office and principal place of business of each of
the Subsidiaries is set forth on the Disclosure Schedule and in such
Subsidiaries Security Agreement. The only other locations of any of the
Subsidiaries Collateral, other than their Chief Executive Office or principal
places of business, are listed in the Subsidiaries Security Agreements.
4.13 Title to Properties/Priority of Liens.
4.13.1. The Company and its Subsidiaries
have good and marketable title to, or valid leasehold interests in, all of the
properties and assets reflected on the most recent of the financial statements
delivered to the Bank pursuant to Section 4.9.1 or acquired by it after the date
of such financial statements and prior to the date hereof, except for those
properties and assets which have been disposed of since such date in the
ordinary course of business. All such properties and assets are owned or leased
by the Company or a Subsidiary free and clear of all mortgages, pledges, liens,
security interests, encumbrances or charges of any kind, except (i) such as are
disclosed on Schedule 4.13 hereto, (ii) such as are in favor of the Bank, and
(iii) such as are permitted under the provisions of Section 7.5 hereof.
4.13.2. The liens and security interest
granted by the Company to the Bank under the Company's
21
<PAGE>
Security Agreement constitute valid and perfected first priority liens and
security interest in the Company's Collateral. Except as disclosed on Schedule
4.13 hereto, the liens and security interests granted by each of the
Subsidiaries to the Bank under the Subsidiaries Security Agreements constitute
valid and perfected first priority liens and security interests in each
Subsidiary's Collateral.
4.14 Insurance. All physical properties and assets of
the Company and each of the Subsidiaries are insured in accordance with the
requirements of Section 6.5 hereof.
4.15 Subsidiaries. Except for shares of stock in
the Subsidiaries, neither the Company nor any Subsidiaries owns shares of stock
in, or has any option, warrant or other right to purchase or subscribe to
shares of stock in or otherwise acquire an equity interest in any Person which
upon effecting such purchase would be a Subsidiary.
4.16 Year 2000. The Company has (i) undertaken a
sufficient inventory, review and assessment of all of the Company's areas
within its business and operations that could be adversely affected by the
failure of the Company to be Year 2000 Compliant on a timely basis, (ii)
developed a plan and timeline for becoming Year 2000 Compliant on a timely
basis, (iii) to date, implemented that plan in accordance with that timeline in
all material respects and, (iv) made inquiry of its key suppliers, vendors and
customers as to whether such person(s) will, on a timely basis, be Year 2000
Compliant in all material respects and on the basis of such inquiry reasonably
believes that all such person(s) will be Year 2000 Compliant. "Year 200
Compliant" shall mean that, in all material respects, all computer and software
related applications shall be able to recognize and perform properly, date
sensitive functions involving dates prior to and after December 31, 1999. The
Company shall take all action necessary to ensure that the Company shall be Year
2000 Compliant and that no material adverse change will arise in the Company's
financial condition as a result of its efforts or failure to be year 2000
Compliant.
4.17 Disclosure. No certificate, statement,
report or other document furnished to the Bank by or on
22
<PAGE>
behalf of the Company or any of the Subsidiaries in connection herewith or in
connection with any transaction contemplated hereby, or this Agreement, each
agreement which this Agreement restates or any Loan Document, contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained therein not misleading.
4.18 No Event of Default. After giving effect to
the transactions contemplated by this Agreement, the Loan Documents and the
other instruments or documents delivered in connection herewith and therewith,
there does not exist at the date hereof any condition, event or act which
constitutes an Event of Default hereunder or which, after notice or lapse of
time, or both, would constitute an Event of Default hereunder.
5. CONDITIONS TO LOANS.
5.1 Initial Loan. The obligation of the Bank to
make the initial Loan to the Company hereunder on or after the date hereof is
subject to the satisfaction, on or before the date of the making of such Loan,
of each of the following conditions precedent:
5.1.1. Loan Documents. The Company and
each of the Subsidiaries shall have executed and delivered to the Bank the Loan
Documents to be executed by each of them, and all other agreements, instruments
and documents required or contemplated by this Agreement and the Loan Documents.
The liens and security interests created by the Company's Security Agreement
shall have been perfected and be first and prior to any other lien with respect
to the Company's Collateral, and the liens and security interests created by
each of the Subsidiaries Security Agreements shall have been perfected and be
first and be prior to any other lien with respect to such of the Subsidiaries
Collateral as is owned by the Subsidiaries executing and delivering such
Subsidiaries Security Agreement, except as set forth on Schedule 4.13 hereof.
5.1.2. Opinion of the Company's Counsel.
The Bank shall have received a written opinion of Shack & Siegel, P.C., counsel
to the Company and each of the
23
<PAGE>
Subsidiaries, dated as of even date herewith, to the effect set forth in Exhibit
D annexed, and covering such other matters incident to the transactions herein
contemplated as the Bank may reasonably request.
5.1.3. Supporting Documents - Initial Loan.
The Bank shall have received the following: (a) a certificate of the Secretary
or an Assistant Secretary of the Company and of each Subsidiary, dated as of
even date herewith, certifying as to (i) the By-laws of the Company and each
such Subsidiary as then in effect, or in the case of any Subsidiary a
certification by an officer thereof that its by-laws have not been amended or
repealed since the date of the last copy thereof provided by such Subsidiary to
the Bank; (ii) resolutions of the Board of Directors of the Company and each
such Subsidiary authorizing the execution, delivery and performance of this
Agreement, the Revolving Note, the amendment to and confirmation of the
Company's Security Agreement, the Subsidiaries Security Agreements, on any
applicable amendments thereto and confirmation thereof, the Guarantees, or as
applicable confirmations thereof, and the other Loan Documents and the
borrowing(s) hereunder, to the extent being executed by each such corporation;
(iii) the full force and effect of such resolutions on the date hereof; and (iv)
the incumbency and signature of each of the officers of the Company and each
Subsidiary signing such Loan Documents and all other closing papers hereunder;
(b) a certified copy of the Certificate or Articles of Incorporation of the
Company and each Subsidiary, as amended through the date hereof, or in the case
of any Subsidiary a certification by an officer that its Certificate of Articles
of Incorporation have not been amended since the date of the last certified copy
thereof provided by the Subsidiary to the Bank; (c) a long-form certificate of
subsistence from the Secretary of State of the State of New York in respect of
the Company and certificates of subsistence or good standing from the
appropriate official in the jurisdiction of incorporation of each Subsidiary;
(d) the tax status reports in respect of the Company and each Subsidiary from
state tax authorities; and (e) such additional supporting documents as the Bank
may reasonably request.
5.1.4. Insurance. The Bank shall have
received one or more certificates, in form and substance
24
<PAGE>
satisfactory to the Bank, evidencing the existence of the insurance required by
the provisions of Section 6.5 hereof.
5.1.5. Assignment of Life Insurance
Policy. The Bank shall have received confirmation satisfactory to it that the
assignment of life insurance in the aggregate amount of $3,000,000 on the life
of Michael Weinstein, made as condition to the effectiveness of the Second
Restated Agreement, remains in full force and effect.
5.1.6. Commitment Fee. The Borrower
shall have paid to the Bank a commitment fee in the sum of $125,000, and the
first annual installment of the agency fee provided for in Section 5.2.6.
5.2 All Loans. In addition to the conditions
set forth above with respect to the initial Loan, each of the following
conditions precedent shall be applicable thereto and to any subsequent Loans
hereunder.
5.2.1. Revolving Note. The Revolving Note
shall have been duly completed, executed and delivered to the Bank.
5.2.2. No Default. After giving effect
to each Loan there shall exist no Event of Default and no condition, event or
act which, with notice or lapse of time, or both, would constitute such an Event
of Default.
5.2.3. Representations. All representations
and warranties contained herein, or otherwise made in writing in connection
herewith by the Company or any Subsidiary, shall be true and correct, with the
same force and effect as if made on and as of the date of such Loan, and the
representations and warranties set forth in Section 4.9.1 shall also be true
and correct (and shall be deemed repeated as of the date of such Loan) in
respect of all of the Company's financial statements and all other information
furnished to the Bank as at any such date, or with respect to any period,
subsequent to September 30, 1999.
5.2.4. Officers' Certificate. At the
time of the making of the initial Loan and at the time of the making of such
subsequent Loan, the Company shall deliver to
25
<PAGE>
the Bank a certificate signed by the chief executive and the chief financial
officers of the Company, dated such date, certifying and confirming that (i) no
default exists as set forth in Section 5.2.2, (ii) the representations and
warranties referred to in Section 5.2.3 are true and correct and (iii) all
conditions to the Bank's obligation to make the Loan have been fully satisfied.
5.2.5. Form U-1. If required by the Bank
at any time, the Company shall have furnished to the Bank its duly executed
Federal Reserve Form U-1, in form and substance reasonably satisfactory to the
Bank.
5.2.6. Agency Fee. Concurrently with the
execution and delivery of this Agreement, and on each annual anniversary
thereof, until the Maturity Date, the Borrower shall pay the Bank an agency
fee of $25,000.
5.2.7. Proceedings. All corporate and legal
proceedings and all instruments and agreements in connection with the
transactions contemplated by this Agreement shall be satisfactory in form, scope
and substance to the Bank and its counsel, and the Bank and such counsel shall
have received all information and copies of all documents, including reports of
corporate proceedings, which the Bank or its counsel may reasonably have
requested in connection therewith, such documents where appropriate to be
certified by proper corporate and governmental authorities.
5.2.8. No Adverse Change. There shall
have been no material adverse change in the operations, business, property or
assets or in the condition (financial or otherwise) of the Company or any of the
Subsidiaries.
Each borrowing hereunder shall constitute a representation and
warranty by the Company to the Bank that all of the conditions specified in this
Section 5 have been satisfied as of that time.
6. AFFIRMATIVE COVENANTS.
The Company covenants and agrees that from and after the
date hereof and so long as any Loan (including interest or any other obligation
incurred hereunder) is outstanding or any Commitment is in effect, unless the
Bank
26
<PAGE>
shall otherwise consent in a writing delivered to the Company, the Company and
each Subsidiary will:
6.1 Financial Statements. Furnish to the Bank:
6.1.1. as soon as practicable, but in
any event not later than forty-five (45) days after the end of each of the first
three (3) fiscal quarters in each fiscal year of the Company, consolidated and
consolidating balance sheets of the Company and its Subsidiaries as at such date
and consolidated and consolidating statements of operations, shareholders'
equity and cash flows of the Company and its Subsidiaries for the period
commencing at the beginning of such fiscal year and ending on the last day of
such quarter, together with the comparative financial statements for the
corresponding period of the preceding fiscal year, in each case duly certified
by an authorized officer of the Company as being complete and correct and as
having been prepared in accordance with generally accepted accounting
principles consistently applied;
6.1.2. as soon as practicable, but in
any event not later than ninety (90) days after the end of each fiscal year,
consolidated balance sheets of the Company and its Subsidiaries as at such date
and consolidated statements of operations, shareholders' equity and cash flows
of the Company and its Subsidiaries for such fiscal year, together with the
comparative financial statements for the preceding fiscal year, in each case
certified by independent certified public accountants of recognized standing
acceptable to the Bank;
6.1.3. together with the financial
statements referred to in Sections 6.1.1 and 6.1.2, a certificate of an
authorized officer of the Company (a) stating that no event has occurred and is
continuing which constitutes an Event of Default or which with notice and/or
lapse of time would constitute an Event of Default, or if an Event of Default or
such event has occurred and is continuing, stating the nature thereof and the
action which the Company proposes to take in connection therewith; and (b)
setting forth the information (including detailed calculations) required in
order to establish whether the
27
<PAGE>
Company was in compliance with the covenants set forth in Section 7 hereof
during and as of the end of the period covered by the financial statements then
being furnished;
6.1.4. together with the financial
statements referred to in Section 6.1.2, the related consolidating financial
statements of the Company and its Subsidiaries, which need not be certified; and
6.1.5. as soon as practicable, but in
any event not later than forty-five (45) days prior to the end of each fiscal
year, a projection for the next following fiscal year, in form and substance
acceptable to the Bank.
6.2 SEC Filings. So long as the Company is
registered with the Securities and Exchange Commission ("SEC") pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended, the Company will
furnish to the Bank, promptly following the filing thereof with the SEC or any
securities exchange, copies of all regular and periodic reports, notices,
registration statements, proxy statements and other documents filed by the
Company with the SEC or any securities exchange.
6.3 Notice of Default; Litigation. Furnish to the
Bank (i) as soon as practicable and in any event within five (5) days after the
occurrence of each Event of Default or each event which, with notice and/or
lapse of time, would constitute an Event of Default, the statement of an
authorized officer of the Company setting forth details of such Event of Default
or event, and the action which the Company proposes to take in connection
therewith; and (ii) promptly after the occurrence thereof, notice of the
commencement of any action or proceeding of the type described in Section 4.11
hereof and notice of any material development in any such action or proceeding.
6.4 Payment of Taxes. Pay and discharge all taxes,
assessments and governmental charges or levies imposed upon it or its income or
profits, or upon any of its properties, or the income, profits or property of
any Subsidiary, prior to the date on which penalties attach thereto, except
those which are being contested in good faith and by proper proceedings;
provided, however, that the
28
<PAGE>
Company or Subsidiary, as the case may be, shall have established appropriate
and proper reserves which are reflected on its books, to the extent required by
generally accepted accounting principles.
6.5 Maintenance of Insurance. Maintain insurance with
responsible and reputable insurers reasonably acceptable to the Bank in such
amounts and covering such risks as is usually carried by companies engaged in
similar businesses and owning similar properties in the same general locations
in which the Company and each Subsidiary operates. All such insurance on the
Company's Collateral and the Subsidiaries Collateral (unless prohibited by the
terms of any lease to which the Company or such Subsidiary is a party) shall
name the Bank as loss payee in an amount not less than the maximum obligation of
the Company to the Bank hereunder, and shall contain such other provisions as
the Bank may reasonably require to fully protect its interest in the Company's
Collateral and the Subsidiaries Collateral, provided, however, that the Company
or a Subsidiary may be named as initial loss payee of such insurance in an
aggregate amount not exceeding $50,000 for each occurrence; provided, however,
the aggregate amount for which the Company and all Subsidiaries shall be named
as the initial loss payee(s) shall not exceed $100,000 in any fiscal year of the
Company. In the event that the Bank shall receive any such insurance proceeds,
it shall remit such proceeds to the Company or the Subsidiary which suffered the
insured loss, which proceeds shall be used either (i) to restore or replace the
fixtures, furniture, furnishings or equipment as were the subject of the insured
loss or (ii) for working capital purposes. Notwithstanding the foregoing, the
Bank shall have the right to apply any such amount received by it to the payment
of the Revolving Note, or Term Note, as is applicable, or other obligation of
the Company or the Subsidiaries to the Bank should an Event of Default occur,
and to retain such amount on deposit if an event, condition or act which with
notice or the lapse of time, or both, would constitute an Event of Default, has
occurred and is continuing.
6.6 Access to Premises, Books and Records. At any
reasonable time during normal business hours and from time to time, upon
reasonable prior notice, permit the Bank or any of its agents or representatives
to examine and make
29
<PAGE>
copies of and abstracts from its records and books of account, visit its
properties and discuss its affairs, finances and accounts with any of its
officers, directors or independent accountants.
6.7 Books of Account. Keep proper records and
books of account, in which complete entries will be made in accordance with
generally accepted accounting principles consistently applied, reflecting all of
its financial transactions.
6.8 Preservation of Corporate Existence.
Preserve and maintain its corporate existence, rights, franchises and
privileges, and those of each of the Subsidiaries, in the jurisdiction of its
incorporation and qualify and remain qualified as a foreign corporation in each
jurisdiction in which such qualification is necessary or desirable in view of
its business and operations or the ownership of its properties; provided,
however, that the Company shall not be required to maintain the existence,
rights, franchises and privileges of any Subsidiary which shall no longer
conduct any operations or own any property; and provided, further, that any
Subsidiary may be merged with and into the Company or another Subsidiary.
6.9 Maintenance of Properties. Maintain, preserve
and keep all of its properties and assets in reasonably good working order and
condition, ordinary wear and tear excepted, and make all necessary and proper
renewals, replacements, additions and improvements thereto.
6.10 ERISA. Maintain compliance in all material
respects with the applicable provisions of ERISA. The Company will deliver to
the Bank, promptly after the filing or receiving thereof, copies of all
reports, including annual reports and notices, which the Company or any
Subsidiary files with or receives from the PBGC or the U.S. Department of Labor
under ERISA; and as soon as possible and in any event within thirty (30) days
after the Company knows or has reason to know that any Reportable Event or
Prohibited Transaction has occurred with respect to any Plan or that the PBGC,
the Company or any Subsidiary has instituted or will institute proceedings under
Title IV of ERISA to terminate any Plan, the Company will deliver to the Bank a
certificate
30
<PAGE>
of the chief executive officer or chief financial officer of the Company setting
forth the details as to such Reportable Event or Prohibited Transaction or Plan
termination and the action the Borrower and/or each affected Subsidiary proposes
to take with respect thereto.
6.11 Change in Business. The Company and each
Subsidiary will not make any material change in the character of its business
as carried on at the date hereof.
6.12 Compliance. The Company and each Subsidiary
will comply with the requirements of all applicable laws, rules, regulations,
orders of any governmental authority, and all agreements to which it is a
party, a noncompliance with which laws, rules, regulations, orders and
agreements would materially adversely affect the business, operations, prospects
or assets, or the condition, financial or otherwise, of the Company.
6.13 Additional Notification to Bank. The Company
shall promptly notify the Bank of (i) each and every default by the Company or
any Subsidiary under any obligation for borrowed money which would permit the
holder of such obligation to accelerate its maturity, including the names and
addresses of the holders of such obligation and the amount thereof, in each
case describing the nature thereof and the action the Company, or the
applicable Subsidiary, as the case may be, proposes to take with respect
thereto, and (ii) any change in the chief executive office of the Company or
location of any of the Company's Collateral or any Subsidiaries Collateral from
that listed in the Company's Security Agreement or any of the Subsidiaries
Security Agreements.
6.14 Additional Subsidiaries. In the event that
the Company or any Subsidiary shall cause a new Subsidiary to be formed, or
acquire such shares of any corporation, or such equity interest in any other
Person, that it shall become a Subsidiary, the Company shall give the Bank not
less than fifteen (15) days notice following the formation or acquisition of a
new Subsidiary or of such Subsidiary, which notice shall (i) specify the name
and state of incorporation or formation of such new Subsidiary, identify each of
the shareholders, or other equity owners
31
<PAGE>
therein, and state the number of shares or other equity interest owned by each
of them, (ii) state whether it is to be a party to a lease or management
agreement and identify the other party thereto, (iii) give the address of any
Restaurant-Related Business or other facility to be operated or managed by such
Subsidiary, and (iv) state the amount to be invested by the Company in such
Subsidiary or to be paid by it to acquire same. Concurrently with the Company's
creating or acquiring a new Subsidiary, such Subsidiary shall execute and
deliver a Guaranty to the Bank, and a Subsidiary's Security Agreement pursuant
to which such Subsidiary, as debtor, shall grant to the Bank a first priority
perfected security interest in its Subsidiary's Collateral subject only to the
lien of Purchase Money Indebtedness in respect thereof. All of the shares in any
such Subsidiary which have been issued to the Company or to any Subsidiary,
together with stock powers executed in blank by the record owner of such shares,
or if applicable a collateral assignment of any other form of equity interest in
a Subsidiary, sufficient to transfer such shares or other interest upon
delivery, shall be delivered by the Company to the Bank promptly after the
Company, or such other Subsidiary's receipt thereof, which shares and stock
powers or collateral assignment will thereupon become part of the Company's
Collateral or the other Subsidiary's Collateral.
6.15 Notification of Write-offs of Investments and
Sales of Assets. Within ten (10) days of (a) the write-off or write-down of the
Company's or any Subsidiary's investments in or advances to any Restaurant-
Related Businesses in excess of an aggregate of $1,000,000 in any fiscal year,
or (b) the sale of any assets of the Company or any Subsidiary in excess of
$250,000 other than in the ordinary course of business, the Company shall
deliver a written notice to the Bank describing such event in reasonable detail.
6.16 Description of New Restaurant Arrangements.
Upon entering into a letter of intent or similar document setting forth the
terms of the arrangements for the development or acquisition of a new
Restaurant- Related Business, the Company will deliver to the Bank a copy
thereof, will advise the Bank of the material terms (including, without
limitation, the amount of the proposed
32
<PAGE>
investment, any indebtedness proposed to be incurred, and whether such
indebtedness is to be non-recourse or with recourse) and will thereafter keep
the Bank informed of any material developments in respect thereof. Within ten
(10) days after execution thereof, the Company will deliver to the Bank a copy
of any acquisition agreement or lease relating thereto.
6.17 Further Assurances. The Company and each
Subsidiary will duly execute and deliver, or will cause to be duly executed
and delivered, such further instruments and documents, including, without
limitation, additional security agreements, Uniform Commercial Code financing
statements or amendments or continuations thereof, and will do or use its best
efforts to cause to be done such further acts as may be necessary or proper in
the Bank's reasonable opinion to effectuate the provisions or purposes of this
Agreement or the Loan Documents.
7. NEGATIVE COVENANTS.
The Company covenants and agrees that from and after the
date hereof and so long as any Loan (including interest or any other obligations
incurred hereunder) is outstanding or any Commitment is in effect, unless the
Bank shall otherwise consent in writing delivered to the Company, the Company
will not, and will not permit or suffer any Subsidiary to:
7.1 Indebtedness. Create, incur, assume or suffer
to exist, any Indebtedness except:
7.1.1. Indebtedness listed in the
financial statements described in Section 4.9.1, but no renewals, extensions
or refinancings thereof;
7.1.2. Purchase Money Indebtedness;
7.1.3. Indebtedness of any Subsidiary
(other than Purchase Money Indebtedness) for assets purchased for use in the
Restaurant-Related Business of such Subsidiary, which shall be deemed a capital
expenditure and shall be subject to the limitation of Section 7.8;
33
<PAGE>
7.1.4. Indebtedness of the Company for
assets purchased for use in the Restaurant-Related Business conducted by the
Company or any Subsidiary, which, if such Indebtedness provides for non-recourse
liability limited to the asset purchased, shall constitute, for the purposes of
the second sentence of Section 7.1.9, Purchase Money Indebtedness, or which, if
such Indebtedness does not so provide, shall be deemed a capital expenditure
and shall be subject to the limitation of Section 7.8, and which Indebtedness
may be secured by the asset purchased;
7.1.5. Indebtedness of any Subsidiary to
the Company, which Indebtedness is created for working capital purposes and not
in connection with the development or acquisition of a Restaurant-Related
Business in an amount not exceeding $250,000, and any such Indebtedness of such
Subsidiary exceeding such amount, which excess shall be deemed a capital
expenditure subject to the limitation set forth in Section 7.8. Indebtedness of
the Company to a Subsidiary, or of a Subsidiary to a Subsidiary, is permitted
without limitation.
7.1.6. Indebtedness to the Company of any
newly-organized Subsidiary (or any such Indebtedness guaranteed by the Company)
in connection with the development or acquisition of a Restaurant-Related
Business, which shall be deemed a capital expenditure subject to the limitation
set forth in Section 7.8.
7.1.7. Consolidated Trade Indebtedness;
7.1.8. Indebtedness of the Company and the
Subsidiaries in respect of endorsements made in connection with the deposit of
items for credit or collection in the normal and ordinary course of business;
and
7.1.9. Consolidated Indebtedness, which
in the aggregate does not exceed (i) $26,000,000 prior to June 30, 2000, (ii)
$33,000,000 from July 1, 2000 through June 30, 2001, and (iii) thereafter
$24,000,000 until the Conversion Date, and subsequently $24,000,000 minus
scheduled monthly amortization on the Term Loan and Capitalized Leases; in each
of (i), (ii) and (iii) exclusive of (a) Consolidated
34
<PAGE>
Trade Indebtedness, (b) Purchase Money Indebtedness, and (c) outstanding Letters
of Credit against which there has not been a draw. This Section 7.1.9 is a
maintenance test as well as an incurrence test in that calculations will be made
on a quarterly basis to determine compliance. Nothing in this Section 7.1.9, or
elsewhere in this Agreement, shall permit the Company or any Subsidiary to
incur, assume or suffer to exist any Indebtedness except for Indebtedness which
is required in the normal course of the business of operating and acquiring
Restaurant-Related Businesses.
7.2 Cash Flow. Maintain Consolidated Operating Cash
Flow, calculated as of each September 30 on the basis of the twelve (12) full
calendar months preceding such calculation, of less than the product of (a) 2.0
and (b) the Consolidated Debt Service for such twelve (12) month period;
provided, however, that if Consolidated Operating Cash Flow for any such twelve
(12) month period shall be less than the product determined pursuant to the
first clause of this sentence, then Working Capital must equal or exceed the
total amounts paid or payable for Consolidated Debt Service for such twelve
(12) month period, and provided, further, that Consolidated Operating Cash Flow
for any such twelve (12) month period shall at all times at least equal the
amount of Consolidated Debt Service for such twelve (12) month period.
7.3 Consolidated Net Worth. Maintain Consolidated
Net Worth which is less than (i) at March 31, 2000 of not less than
$27,000,000, (ii) at September 30, 2000 of not less than $32,000,000, (iii) at
March 31, 2001 of not less than $31,000,000, (iv) at June 30, 2001 of not less
than $$35,000,000, (v) at September 30, 2001 of not less than $37,000,000, and
(vi) $5,000,000 more than the required Consolidated Net Worth for the prior
fiscal year, on each such date during each subsequent fiscal year of the
Borrower until the Maturity Date; provided, however, that the dollar thresholds
set forth in this Section 7.3 shall be reduced on a dollar-for-dollar basis to
the extent of cash dividends paid and expenditures made by the Company to redeem
its capital stock, to the extent permitted by Section 7.11 of this Agreement.
35
<PAGE>
7.4 Ratio of Consolidated Indebtedness to
Shareholders' Equity. Maintain a ratio of total Consolidated Indebtedness to
Shareholders' Equity of more than (i) 1:50 to 1:00 at any time through March 31,
2001, and (ii) 1.0 to 1.0 at any time thereafter.
7.5 Liens. Directly or indirectly, create, incur,
assume or permit or suffer to exist any mortgage, lien, security interest,
charge or encumbrance on, or pledge or deposit of or conditional sale, lease or
other title retention agreement with respect to, any of its properties or
assets, whether now owned or hereafter acquired or created, or be bound by or
subject to any agreement or option to do so, provided that the foregoing
restrictions shall not apply to:
7.5.1. liens for taxes, assessments or
governmental charges or levies the payment of which is not yet due or is being
contested in good faith by appropriate proceedings;
7.5.2. liens incurred by the Company or the
Subsidiaries or deposits made by the Company or the Subsidiaries in the
ordinary course of business in connection with worker's compensation or
unemployment insurance or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, performance and return-of-money bonds and
other similar obligations (exclusive of obligations for the payment of borrowed
money);
7.5.3. good faith deposits (in amounts not
greater than the amounts normally required under leases of that type) under
leases of real property to which the Company or any of the Subsidiaries is a
party;
7.5.4. zoning restrictions, easements,
rights-of-way, restrictions, exceptions, reservations, covenants and other
similar title exceptions or encumbrances affecting real property, provided the
same are not incurred in connection with the borrowing of money and do not in
the aggregate materially detract from the value of said properties or materially
interfere with their use in the ordinary course of business;
36
<PAGE>
7.5.5. statutory or common law possessory
liens for charges incurred by the Company or the Subsidiaries in the ordinary
course of business, the payment of which is not yet due or is being contested in
good faith by appropriate steps promptly initiated and diligently conducted, if
adequate reserves or other appropriate provision, if any, as shall be required
by generally accepted accounting principles shall have been made therefor;
7.5.6. the mortgages, liens and
encumbrances disclosed on Schedule 4.13 hereto;
7.5.7. purchase money liens securing
Indebtedness permitted to be incurred under Section 7.1 hereof, including
conditional sale or related lease arrangements, created or executed concurrently
with or immediately following the time of acquisition of such property;
7.5.8. purchase money liens created by any
Subsidiary securing Purchase Money Indebtedness or the assumption by any
Subsidiary of existing purchase money liens in connection with the acquisition
by such Subsidiary of any additional Restaurant-Related Business acquired by any
Subsidiary, provided, however, that such liens extend only to the assets of the
Restaurant-Related Business acquired;
7.5.9. a lien arising from a judgment
which does not at the time constitute the basis for a default under the
provisions of Section 8.1.8 hereof; and
7.5.10. liens created in connection with
the issuance of (or to further secure) Bank Debt.
7.6 Loans, Advances, Investments. Except (i) loans
made to fund the purchase of the Company's shares pursuant to its stock
option plans, (ii) loans to the Company's employees other than as provided for
in (i), which loans shall not exceed $600,000 in the aggregate, and (iii) other
loans with the prior written consent of the Bank, which consent shall not be
unreasonably withheld or delayed:
7.6.1. make any loan, advance or capital
contribution or extend any credit to any Person (except to
37
<PAGE>
employees or to a Subsidiary in the ordinary course of business, to the extent
permitted in this Agreement), or make any commitment to purchase or otherwise
acquire any stock, bond, debenture, note or other security or obligation of any
Person if such loan, advance, capital contribution, extension of credit or
purchase or acquisition (an "Investment") is to or in a Person engaged in other
than a Restaurant-Related Business and such Investment, together with all other
outstanding Investments and the cost of any mergers, consolidations or
acquisitions of corporations engaged in other than Restaurant-Related Businesses
pursuant to Section 7.9 hereof, exceeds the sum of $500,000; and
7.6.2. make any Investment in any
Restaurant-Related Businesses managed (but not owned by) the Company or a
Subsidiary if such Investment, together with all other such Investments made in
any twelve (12) month period, exceeds the sum of $1,000,000. For the purposes of
this subsection 7.6.2, a Restaurant-Related Business which is "owned" by the
Company shall include a Restaurant-Related Business in which an Investment is
permitted pursuant to Section 7.6.3.
7.6.3. without the prior written consent of
the Bank, make any Investment in any Restaurant-Related Business, unless the
Company, directly or indirectly, shall own not less than 51% of both the equity
and voting interests in the Person owning and operating such Restaurant-Related
Business. The Bank hereby consents to the Company's (i) owning a 50% membership
interest in Southfield Restaurant Company, L.L.C.; provided, however, that the
Investment of the Company in Southfield Restaurant Company, L.L.C. for
construction of restaurants, but not including loans to cover pre-opening
expenses and operating losses, shall not exceed $8,000,000, and (ii) obtaining a
50% membership interest in Ark/EPE Restaurant Company LLC, which will construct
and operate a museum (including Elvis Presley artifacts), restaurants and a gift
shop to be located in Las Vegas, Nevada; provided, however, that the Investment
of the Company in Ark/EPE Restaurant Company, L.L.C. for the construction of
Restaurants, but not including loans to cover pre-opening expenses and operating
losses, shall not exceed $10,000,000.
38
<PAGE>
7.7 Guarantees. Assume, guarantee, endorse or
otherwise be or become directly or contingently responsible or liable for the
obligations of any Person (including, but not limited to, an agreement to
purchase any obligation, stock, assets, goods or services or to supply or
advance any funds, assets, goods, or services other than in the ordinary course
of business, or otherwise to assure the creditors of any Person against loss)
other than (i) guarantees by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business, (ii)
guarantees by the Company of the obligations of any Subsidiary, or by any
Subsidiary of the obligations of the Company or any other Subsidiary, (iii)
guarantees in favor of the Bank, or (iv) other guarantees by the Company or a
Subsidiary not otherwise permitted hereunder, provided that the amount thereof
shall be deemed a capital expenditure, subject to the limitation set forth in
Section 7.8.
7.8 Capital Expenditures. Make, in the aggregate
(by the Company and any Subsidiary) in any fiscal year, any expenditures for
fixed or capital assets whether by purchase or capitalized lease (including
such loans, advances, investments, recourse purchase money indebtedness and
guarantees as are deemed capital expenditures under Sections 7.1.3, 7.1.4,
7.1.5 and 7.1.6 of this Agreement), (i) $33,000,000 for the fiscal year ending
September 30, 2000, and (ii) in excess of an aggregate of 30% of Consolidated
Net Worth at the end of each subsequent fiscal year.
7.9 Mergers, Consolidations, Acquisitions. Except
with the prior written consent of the Bank, which consent shall not be
unreasonably withheld or delayed, merge into or consolidate with or into any
corporation (and, for purposes of this Section 7.9, the acquisition by the
Company or any Subsidiary, by lease, purchase or otherwise, of all or
substantially all of the assets of any corporation shall be deemed a merger of
such corporation with the Company or such Subsidiary), if such corporation is
not engaged in Restaurant-Related Businesses, except that the Company or any
Subsidiary may merge into, consolidate with or into or acquire any corporation
or corporations engaged in other than Restaurant-Related Businesses without the
prior consent of
39
<PAGE>
the Bank if the aggregate cost thereof or purchase price therefor, together with
the amount of any Investments in other than Restaurant-Related Businesses, does
not exceed $500,000.
7.10 Sales of Assets. Sell, lease, assign, transfer
or otherwise dispose of all or substantially all of its assets; except any
Subsidiary may sell, lease, assign or otherwise dispose of substantially all
of its assets.
7.11 Dividends, Redemptions. Declare or pay any
dividend, purchase, redeem or otherwise acquire for value any of its capital
stock now or hereafter outstanding or return any capital or make any
distribution of assets to stockholders, except that Subsidiaries may declare and
pay dividends, return capital and make distributions of assets to the Company
and the Company may (i) declare and pay cash dividends in any fiscal year, and
redeem shares of its capital stock in an aggregate amount not exceeding 20% of
Consolidated Operating Cash Flow for such fiscal year, and (ii) declare and pay
stock dividends.
7.12 Transactions with Affiliates. Enter into any
transaction, including, without limitation, the lease, purchase, sale or
exchange of property or the making of any loans or the entering into agreements
for any payments with respect to, or the making of any payment of, any fees,
charges or other expenses resulting from any allocation of general overhead,
management fees or other similar services, with any Affiliate of the Company or
any of the Subsidiaries except in the ordinary course of and pursuant to the
reasonable requirements of the business of the Company or such Subsidiary and
upon fair and reasonable terms no less favorable to the Company or such
Subsidiary than would obtain in a comparable arm's-length transaction with a
Person other than an Affiliate.
7.13 Sale of Subsidiary's Shares or Assets.
Sell any of the capital stock of any Subsidiary, or all, or substantially all,
of the assets of any Subsidiary, unless the net proceeds of any such sale are
used for working capital purposes of the Company or a Subsidiary.
40
<PAGE>
8. DEFAULTS AND REMEDIES.
8.1 Events of Default. In the case of the
occurrence of any of the following events for any reason whatsoever, and
whether such occurrence shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation of any
governmental body or otherwise (each herein sometimes called an "Event of
Default"):
8.1.1. the Company shall fail to make any
payment of principal of or interest on either of the Notes, or any commitment
fee, facility fee or deficiency fee within three (3) days after notice of a
default in such payment;
8.1.2. the Company or any Subsidiary shall
default in the performance or observance of any covenant or agreement contained
in Section 7 hereof;
8.1.3. the Company or any Subsidiary shall
default in the performance of any other covenant or agreement contained in this
Agreement which shall remain unremedied for a period of ten (10) days after
notice of the occurrence thereof;
8.1.4. an event of default or default
shall occur and be continuing under any other Loan Document;
8.1.5. any representation or warranty made
by or on behalf of the Company or any Subsidiary in this Agreement, either of
the Notes, in any other Loan Document or in any other certificate, agreement,
instrument or statement delivered to the Bank by or on behalf of the Company
shall at any time prove to have been incorrect when made in any material
respect;
8.1.6. the Company or any Subsidiary shall
default in the payment of principal of or interest on any Indebtedness for
borrowed money or the deferred purchase price of property (including any such
Indebtedness in the
41
<PAGE>
nature of a lease) or shall default in the performance or observance of the
terms of any instrument pursuant to which such Indebtedness was created or is
secured, the effect of which default is to cause or permit any holder of any
such Indebtedness to cause the same to become due prior to its stated maturity
(and whether or not such default is waived by the holder thereof);
8.1.7. Michael Weinstein shall not at
all times be active in the management of the Company, other than by reason of
his death or disability;
8.1.8. any judgment against the Company or
any Subsidiary or any attachment, levy or execution against any of its
properties for an amount in excess of $100,000 shall remain unpaid, or shall not
be released, discharged, dismissed, stayed or fully bonded for a period of
thirty (30) days or more after its entry, issue or levy, as the case may be;
8.1.9. the Company or any Subsidiary
shall become insolvent (however evidenced) or be unable, or admit in writing
its inability, to pay its debts as they mature; or
8.1.10. the Company or any Subsidiary
shall make an assignment for the benefit of creditors, or a trustee, receiver or
liquidator shall be appointed for the Company or any Subsidiary, or for any of
its property, or any proceedings by or against the Company or any Subsidiary
under any bankruptcy, reorganization, arrangement of debt, insolvency,
readjustment of debt, receivership, liquidation or dissolution law or statute
shall be commenced and which, if not consented to by the Company or such
Subsidiary, shall continue undischarged for a period of thirty (30) days;
8.1.11. If the Company shall suspend or
have suspended (voluntarily or involuntarily and for whatever reason) the
operation of a material portion of the business conducted by the Company
and the Subsidiaries; or
8.1.12. If (i) a reportable event (within
the meaning of Section 4043(b) of ERISA) (whether or not waived) shall have
occurred with respect to a Plan which
42
<PAGE>
could, in the opinion of the Bank, have a material adverse effect on the
financial condition of the Company or of any Subsidiary, (ii) the filing by the
Company, any Subsidiary or an administrator of any Plan of a notice of intent to
terminate such Plan in a "distress termination" under the provisions of Section
4041 of ERISA, (iii) the receipt of notice by the Company, any Subsidiary or an
administrator of a Plan that the PBGC has instituted proceedings to terminate
(or appoint a trustee to administer) such a Plan, (iv) any other event or
condition exists which might, in the opinion of the Bank, constitute grounds
under the provisions of Section 4042 of ERISA for the termination of (or the
appointment of a trustee to administer) any Plan by the PBGC, (v) a Plan shall
fail to maintain the minimum funding standard required by Section 412 of the
Internal Revenue Code for any plan year or a waiver of such standard is sought
or granted under the provisions of Section 412(d) of the Internal Revenue Code
which could, in the opinion of the Bank, have material adverse effect on the
financial condition of the Company or of any Subsidiary, (vi) the Company or any
Subsidiary has incurred, or is likely to incur, a liability under the provisions
of Sections 4062, 4063, 4064 or 4201 of ERISA which could, in the opinion of the
Bank, have a material adverse effect on the financial condition of the Company
or any Subsidiary; and in each case in clauses (i) through (vi) of this Section
8.1.12, such event or condition, together with all other such events or
conditions, if any, could subject the Company or any Subsidiary to any tax,
penalty or other liabilities in the aggregate material in relation to the
business, operations, property or financial or other condition of the Company or
any Subsidiary.
Then, if any event described in Section 8.1.10 above shall have occurred the
then extant Note shall immediately become due and payable, and if any event
described in any other subsection of this Section 8.1 shall have occurred, and
at any time thereafter, if any such event shall then be continuing, the Bank may
take either or both of the following actions by notice to the Company: (i)
declare the principal of and accrued interest on the Revolving Note or Term
Note, as applicable, and any other notes or evidences of Indebtedness of the
Company or any Subsidiary then held by the Bank, to be due and payable, both as
to principal and
43
<PAGE>
interest, without presentment, demand, protest or other notice of any kind, all
of which are hereby expressly waived, anything contained herein or in either of
the Notes or in such other note or evidence of Indebtedness to the contrary
notwithstanding; and (ii) declare the Commitment terminated immediately. Upon
termination of the Commitment under this Section 8.1, any accrued fees shall be
and become forthwith due and payable to the Bank without further notice.
8.2 Suits for Enforcement. In case any one or more
of such Events of Default shall occur and be continuing, the Bank, or any other
holder of either of the Notes may proceed, to the extent permitted by law, to
protect and enforce such holder's rights either by suit in equity or by action
at law, or both, whether for the specific performance of any covenant,
condition or agreement contained in this Agreement or either of the Notes or in
aid of the exercise of any power granted in this Agreement or either of the
Notes or proceed to enforce the payment of the such of the Revolving Note or
Term Note, as is extant, or to enforce any other legal or equitable right of the
holder of either of the Notes.
8.3 Remedies Cumulative. No right or remedy herein
or in any other agreement or instrument conferred upon the Bank or the holder
of either of the Notes is intended to be exclusive of any other right or
remedy, and each and every such right or remedy shall be cumulative and shall be
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or by statute or otherwise. Without limiting the
generality of the foregoing, if either of the Notes or any of the other
obligations of the Company to the Bank shall not be paid when due, whether at
the stated maturity thereof, by acceleration or otherwise, the Bank shall not be
required to resort to any particular security, right or remedy or to proceed in
any particular order of priority and the Bank shall have the right at any time
and from time to time, in any manner and in any order, to enforce its security
interests, liens, rights and remedies, or any of them, as it deems appropriate
in the circumstances including, without limitation, all of the rights and
remedies of a secured party under the
44
<PAGE>
Uniform Commercial Code of the State of New York and under the Uniform
Commercial Code of any other jurisdiction in which any of the Company's
Collateral or any Subsidiary's Collateral may be situated and apply the proceeds
of such collateral to such obligations of the Company and the Subsidiaries as it
determines in its sole discretion.
9. MISCELLANEOUS.
9.1 No Waiver. No failure on the part of the Bank to
exercise, and no delay in exercising, any right hereunder or under any of the
Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise by the Bank of any right hereunder or thereunder preclude any
other or further exercise thereof or the exercise of any other right. The rights
and remedies of the Bank hereunder and under the Loan Documents and under any
other present and future agreements between the Bank and the Company or any
Subsidiary are cumulative and not exclusive of any rights or remedies provided
by law, or under any of said Loan Documents or agreements, and all such rights
and remedies may be exercised successively or concurrently.
9.2 Costs and Expenses. The Company shall reimburse
the Bank for all costs and expenses incurred by it, and shall pay the
reasonable fees and disbursements of counsel to the Bank, in connection with the
preparation of this Agreement, the Notes and all other Loan Documents. The
Company shall also pay the costs and expenses incurred by the Bank, including
reasonable attorneys' fees, in connection with the enforcement of the Bank's
rights hereunder and under the Notes and the other Loan Documents. The Company
shall also pay any and all taxes (other than taxes on or measured by net income
of the holder of either of the Notes) incurred or payable in connection with the
execution and delivery of the Notes.
9.3 Amendments. No amendment, modification or
waiver of any provision of this Agreement, either of the Notes nor consent to
any departure by the Company therefrom shall be effective unless the same shall
be in writing and signed by the Bank and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
45
<PAGE>
9.4 Survival of Representations. All
representations and warranties made herein or in any other writing furnished to
the Bank shall survive the delivery of both of the Notes.
9.5 Construction. This Agreement and each of
the Notes shall be deemed to be contracts made under the laws of the State of
New York and shall be construed in accordance with the laws of said State
applicable to contracts made and to be performed entirely within such State.
9.6 Notices. All notices, approvals, consents,
requests, demands or other communications (collectively, "Communications")
to or upon the respective parties hereto shall be made in writing in one of the
following ways and shall be deemed to have been given, received and dated:
If by hand, immediately upon delivery; if by facsimile transmission, telex or
telegram, immediately upon receipt of answerback or confirmation; if by express
mail or any other overnight delivery service, one (1) day after dispatch; and
if by certified mail, return receipt requested, four (4) days after mailing.
All Communications are to be given to the following addresses (or to such other
address as any party may designate by Communication in accordance with this
Section):
If to the Bank: Bank Leumi USA
562 Fifth Avenue
New York, New York 10036
Attn: Mr. Richard Oleszewski
First Vice President
with a copy to: Warshaw Burstein Cohen
Schlesinger & Kuh LLP
555 Fifth Avenue
New York, New York 10017
Attn: Allen N. Ross, Esq.
If to the Company
or a Subsidiary: Ark Restaurants, Inc.
85 Fifth Avenue
New York, New York 10003
Attn: Michael Weinstein, President
46
<PAGE>
with a copy to: Shack & Siegel, P.C.
530 Fifth Avenue
New York, New York 10036
Attn: Paul Goodman, Esq.
9.7 Successors and Assigns. This Agreement shall
be binding upon the Company and its successors and assigns and the terms
hereof shall inure to the benefit of the Bank and its successor and assigns,
including a subsequent holder of either of the Notes.
9.8 Further Assurances. The Company agrees to
execute and deliver such further documents and to do such other acts and
things as the Bank may reasonably request in order further to effect the
purposes of this Agreement and the due performance by the Company of its
obligations hereunder.
9.9 Severability. The provisions of this Agreement
are severable, and if any provision shall be held invalid or unenforceable in
whole or in part in any jurisdiction, then such invalidity or unenforceability
shall not in any manner affect such provision in any other jurisdiction or any
other provision of this Agreement in any jurisdiction.
9.10 JURISDICTION; WAIVER OF JURY TRIAL. THE
COMPANY HEREBY IRREVOCABLY CONSENTS TO THE JURISDICTION OF ANY NEW YORK STATE OR
FEDERAL COURT LOCATED IN NEW YORK CITY OVER ANY ACTION OR PROCEEDING ARISING OUT
OF ANY DISPUTE BETWEEN THE COMPANY AND THE BANK WITH RESPECT TO THE SUBJECT
MATTER HEREOF AND THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF A COPY OF SUCH
PROCESS TO THE COMPANY AT THE ADDRESS SET FORTH ABOVE. IN THE EVENT OF
LITIGATION BETWEEN THE COMPANY AND THE BANK OVER ANY MATTER CONNECTED WITH THIS
AGREEMENT OR RESULTING FROM TRANSACTIONS HEREUNDER, THE RIGHT TO A TRIAL BY JURY
IS HEREBY WAIVED BY THE COMPANY AND THE BANK.
9.11 Bank's Right of Set-Off. Upon the occurrence
of an Event of Default or of any condition, event or act which, with notice or
lapse of time, or both, would
47
<PAGE>
constitute such an Event of Default, the Bank is hereby authorized at any time
or from time to time, without notice to the Company, any Subsidiary or any other
Person, any such notice being hereby expressly waived, to set off and to
appropriate and apply any and all deposits (generally or special) and any other
Indebtedness or property at any time held or owing by the Bank to or for the
credit or the account of the Company or any Subsidiary, whether or not related
to this Agreement or any transaction or occurrence hereunder, against and on
account of any and all obligations and liabilities of the Company or any
Subsidiary to the Bank, including (without limitation) all claims of any nature
or description arising out of or connected with this Agreement and/or either of
the Notes held by the Bank, irrespective of whether or not the Bank shall have
made any demand hereunder and although such obligations, liabilities or claims,
or any of them, shall be contingent or unmatured. In addition, as security for
any and all Indebtedness and other liabilities of the Company or any Subsidiary
to the Bank, whether direct or contingent, now existing or hereafter arising,
the Bank is hereby granted a lien and security interest in all property of the
Company or any Subsidiary held by the Bank, including, without limitation, all
property of every description, now or hereafter in the possession or custody of
or in transit to the Bank for any purpose, including safekeeping, collection or
pledge, for the account of the Company or any Subsidiary, or as to which the
Company or any Subsidiary may have any right or power. The rights and/or
remedies granted to the Bank under this Section 9.11 shall be in addition to,
and not in substitution for, any rights of set-off and banker's lien, to which
the Bank may otherwise be entitled.
9.12 Use of Accounting Terms. Except as otherwise
provided herein, accounting terms used herein shall be construed, calculations
hereunder shall be made and financial data required hereunder shall be
prepared, both as to classification of items and as to amounts, in accordance
with generally accepted accounting principles.
9.13 Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall constitute an original, and
all of which taken together shall constitute one and the same agreement.
48
<PAGE>
9.14 Headings. Section headings are for
convenience only and shall not affect the interpretation or construction of this
Agreement or either of the Notes.
IN WITNESS WHEREOF, the Company and the Bank have duly
executed this Agreement as of the date first above written.
ARK RESTAURANTS CORP.
By:__________________________
Robert Towers,
Executive Vice President
BANK LEUMI USA
By:___________________________
Iris Schechter,
Vice President
By:___________________________
Richard E. Oleszewski,
First Vice President
49
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Jurisdiction of
Subsidiary Incorporation
---------- -------------
<S> <C>
Columbus Cafe Corp. New York
SSWB Restaurants, Inc. New York
MEB Emporium Corp. New York
MEB Dining 18, Inc. New York
MEB On First, Inc. New York
Conis Realty Corp. New York
Ernie's Hackensack, Inc. New Jersey
Ark 47th St. Corp. New York
Ark 27th Street, Inc. New York
Ark Seventh Avenue South Corp. New York
Ark Rio Corp. New York
Ark Operating Corp. New York
Ark Sub-One Corp. New York
Ark 474 Corp. New York
Ark Twenty-Ninth Street Corp. New York
Ark Boston Corp. Massachusetts
Ark Union Station, Inc. District of Columbia
Ark D.C. Kiosk, Inc. District of Columbia
Ark Potomac Corporation District of Columbia
Washington Parties & Events Related Industries, Inc. District of Columbia
Aroc and Ark Corporation New York
Ark Bryant Park Corp. New York
Ark of the Seaport, Inc. New York
Ark Parties, Inc. New York
Tysons America Corp. Virginia
Ark JC Corp. Florida
Ark Oxnard Corp. California
Ark California Restaurants Corp. California
Ark JMR Corp. New York
Ark Fifth Avenue Corp. New York
Ark Islamorada Corp. Florida
Lutece, Inc. New York
La Femme Noire D.C. Incorporated District of Columbia
Ark Cafeteria Corp. New Jersey
Las Vegas Steakhouse Corp. Nevada
Las Vegas America Corp. Nevada
Las Vegas Festival Food Corp. Nevada
Ark WFC Corp. New York
Ark Las Vegas Restaurant Corp. Nevada
Ark Fulton Street Corp. New York
Ark Southfield Corp. Michigan
Ark Southwest D.C. Corp. District of Columbia
Las Vegas Downstairs Deli Corp. Nevada
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Las Vegas Mexico Corp. Nevada
Las Vegas Asia Corp. Nevada
Las Vegas Lutece Corp. Nevada
Las Vegas Venice Deli Corp. Nevada
Las Vegas Venice Food Corp. Nevada
AFC Restaurant, Inc. Nevada
Al's Pizza, Inc. Nevada
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Form S-8 Registration Statement
No. 33-48217 and Registration Statement No. 33-85724 of Ark Restaurants Corp. of
our report dated November 22, 1999, appearing in the Annual Report on Form 10-K
of Ark Restaurants Corp. for the year ended October 2, 1999.
Deloitte & Touche LLP
New York, New York
December 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated balance sheet of Ark Restaurants Corp. and its subsidiaries as of
October 2, 1999, and the related consolidated statement of operations, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> OCT-02-1999
<CASH> 333,621
<SECURITIES> 0
<RECEIVABLES> 3,073,615
<ALLOWANCES> 0
<INVENTORY> 1,916,436
<CURRENT-ASSETS> 6,815,851
<PP&E> 47,260,429
<DEPRECIATION> 18,162,614
<TOTAL-ASSETS> 47,379,103
<CURRENT-LIABILITIES> 9,860,055
<BONDS> 7,804,065
<COMMON> 52,084
0
0
<OTHER-SE> 29,461,888
<TOTAL-LIABILITY-AND-EQUITY> 47,379,103
<SALES> 110,800,913
<TOTAL-REVENUES> 110,800,913
<CGS> 29,301,303
<TOTAL-COSTS> 29,301,303
<OTHER-EXPENSES> 69,465,087
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 425,141
<INCOME-PRETAX> 7,070,339
<INCOME-TAX> 2,575,608
<INCOME-CONTINUING> 4,494,731
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 1.30
<EPS-DILUTED> 1.29
</TABLE>
