[FAMILY STEAK HOUSES OF FLORIDA, INC. LETTERHEAD]
Dear Shareholders:
Over the last few days several of you have called me or our proxy solicitor
and asked what are the Company's strategic plans to strengthen our Company and
enhance shareholder value. You have received letters from Glen Ceiley, who is
attempting a takeover of our Company, in which he lists the alternatives he is
considering. Although I address these issues in the Annual Report, this is an
important enough issue that you need to know what the Company's plans are and
what we are doing as you decide how to respond to Ceiley's takeover attempt.
WHERE WE CAME FROM
As many of you will recall, this Board and management team were put in
place in the spring of 1994, the darkest days of our Company's history. The
Company was laboring under a massive debt structure that was in default for
non-payment of $1 million and numerous covenant defaults. Most of this debt was
owed to The Travelers and carried an interest rate of 11.21%. The terms of our
loan agreements prohibited the Company from building new restaurants or making
the capital investments that our restaurants required. We were past due on
franchise payments to our franchisor. Several restaurants were losing money.
Morale was at an all time low among shareholders, employees and management.
Consultants brought in by prior management recommended filing a Chapter 11
bankruptcy petition. This was the situation when this Board and management team
took over the Company.
WHAT WE HAVE ACCOMPLISHED
The current Board and management team moved quickly to address the most
pressing problems facing our Company. As you may recall, we went through the
painful process of closing several restaurants. We negotiated a restructuring of
our debt with The Travelers to reduce the interest rate to 9.0% and cure
existing defaults. We converted past due franchise fees into a promissory note
that we have since paid in full. We negotiated a reduction in our franchise fee
that will save our Company an estimated $3 million by the year 2001. We
initiated a remodeling program for many of our most outdated restaurants and
installed Scatter Bars in 14 restaurants. Most recently, we have replaced our
old lenders with new, long-term financing that is on very favorable terms. We
have obtained a line of credit to permit the construction of new restaurants. We
have built and opened one new restaurant this year and have a contract on a
second new restaurant site. These are the first new restaurants we have opened
in more than four years. In 1995, the first full year this Board and management
team were in place, we showed profits of $1.3 million, a $3 million turnaround
from the $1.7 million in losses in 1994. We also showed a profit in 1996 and, as
shown in the enclosed earnings release, profits are up for the first quarter of
1997.
<PAGE>
WHERE WE ARE GOING
At the first annual meeting of shareholders this Board and management team
presided over, we announced a plan. In 1994 we told you that we were going to
get our financial house in order. We believe that task has been successfully
accomplished. We told you we were going to remodel our older restaurants. We've
remodeled some and we have others that we are currently remodeling. We told you
that we were going to return this Company to a growth mode. We're doing that now
with the opening of new restaurants. We told you that we were going to restore
good relations with our franchisor. Our relationship with Ryan's Family Steak
Houses, Inc. has never been better and I think if you ask Charlie Way, the
President and CEO of our franchisor, he'll tell you the same thing. In fact, we
are now using our franchisor's site selection and construction teams to identify
sites and build new restaurants. We told you that we were going to return this
Company to profitability. I'm pleased to say that we have shown profits eight
out of the last nine quarters and with strong first quarter earnings we look
forward to our third straight year of profitability.
We are on course with our plans to increase earnings - a tried and true way
to increase stock price. As we look ahead, these are your Board's plans for the
Company:
o Build new restaurants.
o Remodel older stores to fight competition.
o Replace lesser performing restaurants with new restaurants in higher volume
sites.
o Seek out new sources of capital to fund continued growth.
What is Ceiley's plan? To sell our restaurants and our real estate? And
what kind of company would you own then? If Ceiley succeeds in his takeover
efforts, you may be left with an investment in a company that you won't
recognize because it won't be a restaurant company. We don't think his plan that
will enhance shareholder value for this business - he readily and repeatedly
admits that he knows nothing about our business. He is not putting any new money
into our Company. We believe what our Company needs is new capital to fund our
growth so that we are not relying on increased indebtedness. We were working on
just such a plan when Ceiley interrupted us.
Read the enclosed earnings release. The Company is on the right track.
Don't give the Company to Ceiley now. Let us finish the job we've started.
o Do not return the GOLD consent card sent to you by Bisco, even to vote
against their proposal. If you have already done so, please mark the
REVOCATION box on the enclosed WHITE revocation of consent card, sign and
date the form and return it in the postage-paid envelope provided.
o Do not tender your shares to Bisco. If you have already done so, you can
have your shares returned to you by completing the YELLOW Notice of
Withdrawal previously mailed to you.
o If your shares are held through a bank or broker, please contact your
representative at that firm and request the representative to execute the
WHITE revocation of consent card on your behalf.
<PAGE>
If you require any assistance, please call our proxy solicitor, Corporate
Investor Communications, at (800) 932-8498.
Thank you.
Sincerely,
Family Steak Houses of Florida, Inc.
/s/ Lewis E. Christman, Jr.
-----------------------------------
Lewis E. Christman, Jr.
President and CEO
<PAGE>
Contact: Edward B. Alexander
Vice President of Finance
(904) 249-4l97 May 12, 1997
For Immediate Release
FAMILY STEAK HOUSES OF FLORIDA, INC.
REPORTS INCREASED FIRST QUARTER EARNINGS
----------------------
NEPTUNE BEACH, FLORIDA - Family Steak Houses of Florida, Inc. (NASDAQ:RYFL),
today reported earnings for the first quarter of 1997.
First quarter 1997 sales increased 1.9% to $10,559,100 from $10,359,700 for the
same period in 1996.
Net earnings for the first quarter were $352,800 compared to $261,100 for the
same period in 1996. Earnings per share for the first quarter of 1997 were 3
cents compared to 2 cents for the first quarter of 1996.
<PAGE>
Family Steak Houses
Consolidated Statements of Earnings of Florida, Inc.
(Unaudited) For The Quarters Ended
----------------------
April 2, April 3,
1997 1996
---------- ----------
Sales $ 10,559,100 $ 10,359,700
Cost and expenses:
Food and beverage 4,088,200 4,150,200
Payroll and benefits 2,897,400 2,783,300
Depreciation and amortization 415,100 425,300
Other operating expenses 1,517,200 1,524,900
General and administrative expenses 587,800 528,800
Franchise fees 316,600 310,600
Loss from disposition of equipment 17,300 18,600
------------ ------------
9,839,600 9,741,700
Earnings from operations 719,500 618,000
Interest and other income 112,000 121,100
Interest expense (390,500) (391,000)
------------ ------------
Earnings before income taxes 441,000 348,100
Provision for income taxes 88,200 87,000
------------ ------------
Net earnings $ 352,800 $ 261,100
============ ============
Net earnings per common and
equivalent share $ 0.03 $ 0.02
============ ============
Weighted average common shares and equivalents 11,638,000 12,122,000
============ ============
