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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
(x ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended January 1, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File No. 0-14311
FAMILY STEAK HOUSES OF FLORIDA, INC.
(exact name of registrant as specified in its charter)
Florida No. 59-2597349
(State of Incorporation) (I.R.S. Employer Identification)
2113 Florida Boulevard
Neptune Beach, Florida 32266
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (904) 249-4197
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES (X) NO__
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
YES__ NO (X)
As of March 7, 1997, 10,954,960 shares of Common Stock of the registrant were
outstanding. The aggregate market value of such voting Common Stock (based upon
the closing sale price of the registrant's Common Stock on the NASDAQ National
Market System on March 7, 1997, as reported in The Wall Street Journal) held by
non-affiliates of the registrant was approximately $10,758,319.
Documents Incorporated by Reference
Portions of the registrant's 1996 Annual Report to Shareholders
are incorporated by reference into Part II. Portions of the Proxy Statement for
the registrant's 1997 Annual Meeting of Shareholders are incorporated by
reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS
General
Family Steak Houses of Florida, Inc. ("Family" or the "Company"), is the
sole franchisee of Ryan's Family Steak House restaurants ("Ryan's restaurants")
in the State of Florida.
The Company's first Ryan's restaurant was opened in Jacksonville, Florida,
in May 1982. As of January 1, 1997, the Company operated 25 Ryan's restaurants
in Florida, including nine in north Florida and sixteen in central and west
Florida.
A Ryan's restaurant is a family-oriented restaurant serving high-quality,
reasonably-priced food in a casual atmosphere with server-assisted service.
Ryan's restaurants serve lunch and dinner seven days a week and offer a variety
of charbroiled entrees, including various cuts of beef, chicken, and seafood.
Most of the restaurants serve a brunch on weekends only. Each restaurant
features a diverse selection of items from either a series of "scatter bars" or
a 65-foot, self-service, all-you-can-eat Mega Bartm, and a separate fresh bakery
and dessert bar. In addition to traditional salad bar items, the scatter bars or
Mega Barstm offer hot meats, pre-made salads, soups, baked potatoes with
toppings, cheeses and a variety of vegetables.
The Company believes that its operating strategy of selling top-quality
meals at reasonable prices, at food costs to the Company which are higher than
the industry average, creates a perception of value to its customers.
The Company operates its Ryan's restaurants under a Franchise Agreement
with Ryan's Family Steak Houses, Inc., ("Ryan's", or the "Franchisor") which
grants the Company the right to operate Ryan's Family Steak House restaurants
throughout North and Central Florida.
Company History
The Company was formed by the combination, effective February 1986, of six
limited partnerships, each of which owned and operated a Ryan's restaurant
franchise. In April 1986, the Company issued 4,266,000 shares of its common
stock in exchange for the assets and liabilities of the predecessor partnerships
and 1,134,000 shares of its common stock to Eddie L. Ervin, Jr., in
consideration for Mr. Ervin assigning to the Company all of his rights under the
Franchise Agreement, as defined below. The Company completed its initial public
offering of 4,500,000 shares of its common stock in 1986 resulting in net
proceeds to the Company of approximately $4,145,000.
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Franchise Agreement
The Company operates its Ryan's restaurants under a Franchise Agreement
between the Company and the Franchisor dated as of September 16, 1987, which
Franchise Agreement amended and consolidated all previous franchise agreements
(as amended, the "Franchise Agreement"). The Franchise Agreement extends through
December 31, 2010 and provides for two additional ten-year renewal options. The
renewal options are subject to certain conditions, including the condition that
the Company has fully and faithfully performed its obligations under the
Franchise Agreement during its original term. Under the terms of the Franchise
Agreement, the Company has the right to use the registered mark "Ryan's Family
Steak House" and the right to use the Franchisor's techniques in the operation
of Ryan's Family Steak House restaurants.
In 1996, the Company and the Franchisor amended the Franchise Agreement.
The amended agreement requires the Company to pay a royalty fee of 3.0% through
December 2001 and 4.0% thereafter on the gross receipts of each Ryan's Family
Steak House restaurant. Total royalty fee expenses were $1,138,600, $1,263,200,
and $1,561,100 for the years ended January 1, 1997, January 3, 1996 and December
28, 1994, respectively.
The Franchise Agreement requires the Company to operate a minimum number of
Ryan's restaurants on December 31 of each year. Failure to operate the minimum
number could result in the loss of exclusivity rights to the Ryan's concept in
the Company's Florida territory. The following schedule outlines the number of
Ryan's restaurants required to be operated by the Company on December 31 of each
year under the Franchise Agreement:
Number of
Restaurants Required to
End of Fiscal Year be in Operation
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1997 25
1998 26
1999 27
2000 28
2001 and subsequent years Increases by one each year
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Prior to July 1994, the Company held exclusive franchise rights to build
Ryan's restaurants in the State of Florida, with the exception of Panama City,
Florida and Escambia County, Florida, where the Franchisor has the right to
operate Ryan's restaurants. In July 1994 the Company relinquished the franchise
rights to most counties in northwest Florida and south Florida in exchange for
forgiveness of $500,000 in past due royalty fees. The Company has the right to
repurchase the exclusive franchise rights to these counties for $500,000 at any
time prior to June 30, 1998. In addition, the Franchisor agreed not to develop
any Ryan's restaurants in the south Florida territory prior to June 30, 1996.
Ryan's has not developed any restaurants in Florida as of March 13, 1997.
In July 1994, the Company executed and delivered a note to the Franchisor
for payment of $800,000 in past due royalty fees. (See Note 5 to the
Consolidated Financial Statements in the Company's 1996 Annual Report to
Shareholders).
The Franchise Agreement contains provisions relating to the operation of
the Company's Ryan's restaurants. Upon the Company's failure to comply with such
provisions, the Franchisor may terminate the Franchise Agreement if such default
is not cured within 30 days of notice from the Franchisor. Termination of the
Franchise Agreement would result in the loss of the Company's right to use the
"Ryan's Family Steak House" name and concept and could result in the sale of the
physical assets of the Company to the Franchisor pursuant to a right of first
refusal. Termination of the Company's rights under the Franchise Agreement may
result in the disruption, and possibly the discontinuance, of the Company's
operations. The Company believes that it has operated and maintained each of its
Ryan's Family Steak House restaurants in accordance with the operational
procedures and standards set forth in the Franchise Agreement, as amended.
Operations of Ryan's Restaurants
Format. As of March 5, 1997, 24 of the Company's Ryan's Restaurants are
located in free-standing buildings which vary in size from 7,500 to 12,000
square feet. One of the Company's Ryan's restaurants is located in a mall. Each
restaurant is constructed of brick or stucco walls, interior and exterior, with
exposed woodwork. The interior of each Ryan's restaurant contains a dining room,
a customer ordering area, and a kitchen. The dining rooms seat a total of
between 270 and 500 persons and highlight centrally located, illuminated scatter
bars or Mega Bars[tm] and a fresh bakery bar. Each Ryan's restaurant has parking
for approximately 100 to 175 cars on lots of overall size of approximately
50,000 to 70,000 square feet.
The Ryan's restaurants operate seven days a week. Typical hours of
operation are from 11:00 a.m. to 9:00 p.m., Sunday through Thursday, and from
11:00 a.m. to 10:00 p.m., Friday and Saturday. Restaurants that open for brunch
open at 8:00 a.m. Saturday and Sunday. In a Ryan's restaurant, the customer
enters the restaurant, orders from the menu, and then enters the dining room.
Beverages are brought to the table by servers. Entrees are cooked to order. The
customer ordering the salad bar is given unlimited access to the scatter bars or
Mega Barstm and the bakery dessert bar. Customers receive table service of the
entree and beverage refills. For the year ended January 1, 1997, the average
weekly customer count per restaurant was approximately 5,200 and the average
cost of a meal, with beverage, was approximately $5.90.
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Restaurant Management and Supervision. The Company manages the Ryan's
restaurants pursuant to a standardized operating and control system together
with comprehensive recruiting and training of personnel to maintain food and
service quality. In each Ryan's restaurant, the management group consists of a
general manager, a manager and one to three assistant managers, depending on
sales volume. The Company requires at least two members of the management group
on duty during all peak serving periods. Management- level personnel usually
begin employment at the manager trainee or assistant manager level, depending on
prior restaurant management experience. All new management-level personnel must
complete the Company's six-week training period prior to being placed in a
management position.
Each restaurant management group reports to a supervisor. Presently, the
supervisors each oversee the operations of six to seven restaurants. The
supervisors report directly to the Vice President of Operations. Communication
and support from all departments in the Company are designed to assist the
supervisors in responding promptly to local problems and opportunities.
All restaurant managers and supervisors participate in incentive programs
based upon the profitability of their restaurants and upon the achievement of
certain pre-set goals. The Company believes these incentive programs enable it
to operate more efficiently and to attract qualified managers.
Purchasing, Quality and Cost Control. The Company has a centralized
purchase control program which is designed to ensure uniform product quality in
all restaurants. The program also helps to maintain reduced food, beverage, and
supply costs. The Company purchases approximately 90% of the products used by
the Company's restaurants through the centralized purchase control program. USDA
choice grain-fed beef, the Company's primary commodity, is closely monitored by
the Company for advantageous purchasing and quality control. The Company
purchases beef through various producers and brokers both on a contract basis
and on a spot basis. Beef and other products are generally delivered directly to
the restaurants three times weekly, except for fresh produce, which is delivered
three to five times per week. The Company believes that satisfactory sources of
supply are available for all the items it regularly uses.
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The Franchise Agreement requires that all suppliers to Ryan's restaurants
are subject to approval by the Franchisor. Through its relationship with the
Franchisor, the Company has obtained favorable pricing on the purchase of food
products from several suppliers. In June 1995, the Company renewed its agreement
with Kraft Foodservice, Inc. to serve as its primary supplier. Kraft was
subsequently purchased by Alliant Foodservice, Inc. The Alliant agreement has a
five-year term and is cancellable at any time with 60 days notice.
The Company maintains centralized financial and accounting controls for its
restaurants. On a daily basis, restaurant managers forward customer counts,
sales information and supplier invoices to Company headquarters. On a weekly
basis, restaurant managers forward summarized sales reports and payroll data.
Physical inventories of all food and supply items are taken weekly, and meat is
inventoried daily.
Development
General. The Company operated 25 Ryan's restaurants as of March 5, 1997.
Site Location and Construction. The Company considers the specific location
of a restaurant to be important to its long-term success. The site selection
process focuses on a variety of factors, including trade area demographics (such
as population density and household income level), an evaluation of site
characteristics (such as visibility, accessibility, and traffic volume), and an
analysis of the potential competition. In addition, site selection is influenced
by the general proximity of a site to other Ryan's restaurants in order to
improve the efficiency of the Company's field supervisors and potential
marketing programs. The Company generally locates its restaurants near or
adjacent to residential areas in an effort to capitalize on repeat business from
such areas as opposed to transient business.
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The Company constructs its Ryan's restaurants using its contracting
subsidiary. Management believes that by performing site selection and restaurant
construction internally, the Company can maintain better control of site
selection, real estate cost and construction performance. While the Company has
not required performance and payment bonds, it undertakes to closely supervise
and monitor all construction and confirm payment of subcontractors and
suppliers. New Ryan's restaurants generally are completed within three months of
the date on which construction is commenced.
Management of New Restaurants. When a new Ryan's restaurant is opened, the
principal restaurant management positions are staffed with personnel who have
prior experience in a management position at another of the Company's
restaurants and who have undergone special training. Prior to opening, all staff
personnel at the new location undergo one week of intensive training conducted
by a training team. Such training includes preopening drills in which test meals
are served to the invited public. Both the staff at the new location and
personnel experienced in store openings at other locations participate in the
training and drills.
Joint Venture
In December 1994, the Company formed a new subsidiary, Family Steak JV,
Inc. which acquired a 50% ownership in a Florida limited liability company,
Cross Creek Barbeque, L.C. ("Cross Creek"), for the purpose of opening a new
restaurant. The Company contributed certain furnishings, fixtures, and equipment
owned by its Wrangler's Roadhouse, Inc. subsidiary ("Wrangler's") to Cross Creek
and the other 50% owner of Cross Creek contributed the cash necessary to remodel
and open the new Cross Creek restaurant. As a result of unsatisfactory
operational performance, the Company sold its interest in the Cross Creek
restaurant in July 1995. Wrangler's leased the land and building to Cross Creek
until May 1996, when it sold them at a gain of approximately $5,000.
Proprietary Trade Marks
The name "Ryan's Family Steak House," along with all ancillary signs,
building design and other symbols used in conjunction with the name, and the
name "Mega Bar", are the primary trademarks and service marks of the Franchisor.
Such marks are registered in the United States. All of these registrations and
the goodwill associated with the Franchisor's trademarks are of material
importance to the Company's business and are licensed to the Company under the
Franchise Agreement.
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<PAGE>
Competition
The food service business in Florida is highly competitive and is often
affected by changes in the taste and eating habits of the public, economic
conditions affecting spending habits, local demographics, traffic patterns and
local and national economic conditions. The principal bases of competition in
the industry are the quality and price of the food products offered. Location,
speed of service and attractiveness of the facilities are also important
factors. The Company's restaurants are in competition with restaurants operated
or franchised by national, regional and local restaurant companies offering a
similar menu, many of which have greater resources than the Company. The Company
also is in competition with specialty food outlets and other vendors of food.
The amount of new competition near Company restaurants increased
significantly in 1996, and is expected to continue to increase in 1997. The
increased competition had a significant negative impact on sales in 1996.
Management has developed a plan to attempt to reduce the negative impact on
sales from new competition in 1997, but there can be no assurance that sales
trends will improve. In addition, the Franchisor has the right to operate
restaurants in several other west Florida and south Florida counties.
Employees
As of January 1, 1997, the Company employed approximately 1,400 persons, of
whom approximately 50% are considered by management as part-time employees. No
labor unions currently represent any of the Company's employees. The Company has
not experienced any work stoppages attributable to labor disputes and considers
employee relations to be good.
Executive Officers
The following persons were executive officers of the Company effective
January 1, 1997:
Lewis E. Christman, Jr., age 77, has been President and Chief Executive
Officer of the Company since April 1994. Mr. Christman was hired as a consultant
to oversee and direct the Company's purchasing program in January 1994 and has
been a Director of the Company since May 1993. In addition, Mr. Christman serves
as President of each of the Company's subsidiaries. Mr. Christman has been a
partner in East Coast Marketing since 1990. From 1979 to 1989, Mr. Christman
served as Chairman of the Board of Neptune Marketing, Inc., a food brokerage
company.
8
<PAGE>
Edward B. Alexander, age 38, has been Vice President of Finance since
December 1996, and was Secretary and Treasurer of the Company from November 1990
to December 1996. In addition, Mr. Alexander was appointed to the Board of
Directors in May 1996, and serves as Secretary of each of the Company's
subsidiaries. Mr. Alexander served as controller of the Company from January
1989 to April 1990. From April 1985 until December 1988, Mr. Alexander was
employed as controller for Mac Papers, Inc., a wholesale paper products
distributor. Prior to April 1985, Mr. Alexander served as a senior accountant
for the accounting firm of Touche Ross & Co.
Michael J. Walters, age 34, has been Secretary of the Company since
December 1996. Mr. Walters has served as Controller of the Company since
September 1990. From May 1987 to September 1990, Mr. Walters was employed as an
accountant for the accounting firm of Deloitte & Touche.
Government Regulation
The Company is subject to the Fair Labor Standards Act which governs such
matters as minimum wage requirements, overtime and other working conditions. A
large number of the Company's restaurant personnel are paid at or slightly above
the federal minimum wage level and, accordingly, any change in such minimum wage
will affect the Company's labor costs. The Company is also subject to the Equal
Employment Opportunity Act and a variety of federal and state statutes and
regulations. The Company's restaurants are constructed to meet local and state
building requirements and are operated in accordance with state and local
regulations relating to the preparation and service of food.
The Company believes that it is in substantial compliance with all
applicable federal, state and local statutues, regulations and ordinances and
that compliance has had no material effect on the Company's capital
expenditures, earnings or competitive position, and such compliance is not
expected to have a material adverse effect upon the Company's operations. The
Company, however, cannot predict the impact of possible future legislation or
regulation on its operations.
Sources and Availability of Raw Materials
The Company procures its food and other products from a variety of
suppliers, and follows a policy of obtaining its food and products from several
major suppliers under competitive terms. A substantial portion of the beef used
by the Company is obtained from one supplier, although the Company believes
comparable beef meeting its specifications is available in adequate quantities
from other suppliers. To ensure against interruption in the flow of food
supplies due to unforeseen or catastrophic events, to take advantage of
favorable purchasing opportunities, and to insure that meat received by the
Company is properly aged, the Company maintains a two to six week supply of
beef.
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Working Capital Requirements
Substantially all of the Company's revenues are derived from cash sales.
Inventories are purchased on credit and are converted rapidly to cash. The
Company does not maintain significant receivables and inventories. Therefore,
with the exception of debt service, working capital requirements for continuing
operations are not significant.
In December 1996, the Company entered into a Loan Agreement with FFCA
Mortgage Corporation ("FFCA"). The Loan Agreement governs eighteen Promissory
Notes payable to FFCA. Each note is secured by a mortgage on a Company
restaurant property with a total outstanding principal balance of $15,360,000 as
of January 1, 1997. The Promissory Notes provide for a term of twenty years and
an interest rate equal to the thirty-day LIBOR rate plus 3.75%, adjusted
monthly. The Loan Agreement provides for various covenants, including the
maintenance of prescribed debt service coverages.
The Company used the proceeds of the Promissory Notes to retire its notes
with Cerberus Partners, L.P. and its loan with the Daiwa Bank Limited and
SouthTrust Bank of Alabama, N.A. The Company realized a discount on the
retirement of the Cerberus notes, which was partially offset by unamortized debt
issuance costs. The resulting gain of $348,500 net of income taxes, has been
accounted for as an extraordinary item. In addition, the Company retired
Warrants for 1,050,000 shares of the Company's common stock previously held by
Cerberus. Cerberus continues to hold Warrants to purchase 700,000 shares of the
Company's common stock at an exercise price of $.40 per share.
Also in December 1996, the Company entered into a separate loan agreement
with FFCA under which it may borrow up to an additional $4,640,000 in 1997. This
additional financing would be evidenced by four additional Promissory Notes
secured by mortgage on four Company restaurant properties. The terms and
interest rate of this loan agreement are identical to the loan agreement
described above.
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Seasonality
The Company's operations are subject to some seasonal fluctuations.
Revenues per restaurant generally increase from January through April and
decline from September through December.
Research
The Company relies primarily on the Franchisor to maintain ongoing research
programs relating to the development of new products and evaluation of marketing
activities. Although research and development activities are important to the
Company, no expenditures for research and development have been incurred by the
Company.
Customers
No material part of the Company's business is dependent upon a single
customer or a few customers.
Information as to Classes of Similar Products or Services
The Company operates in only one industry segment. All significant revenues
and pre-tax earnings relate to retail sales of food to the general public
through restaurants owned and operated by the Company. The Company has no
operations outside the continental United States.
ITEM 2. PROPERTIES
Location Date Opened
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Jacksonville May 1982
Jacksonville May 1983
Jacksonville November 1983
Orange Park May 1984
Jacksonville May 1985
Jacksonville July 1985
Ocala September 1986
Neptune Beach November 1986
Lakeland February 1987
Lakeland March 1987
Winter Haven August 1987
Apopka September 1987
Gainesville December 1987
Hudson February 1988
New Port Richey May 1988
Tampa June 1988
Tallahassee August 1988
Daytona Beach September 1988
Tampa November 1988
Orlando January 1989
Orlando February 1989
Clearwater August 1989
Melbourne November 1989
Lake City March 1991
Brooksville January 1997
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As of March 5, 1997, the Company operated 25 Ryan's restaurants. The
specific rate at which the Company is able to open new restaurants will be
determined by its ability to locate suitable sites on satisfactory terms, raise
the necessary capital, secure appropriate governmental permits and approvals and
recruit and train management personnel.
As of January 1, 1997, the Company owned the real property on which 22 of
its restaurants were located. Eighteen of these properties were subject to
mortgages securing the FFCA Notes.
The Company leases the real property on which three of its restaurants are
located. Those restaurants are located in Jacksonville, Florida, Clearwater,
Florida and Brooksville, Florida.
The executive offices of the Company, consisting of approximately 3,500
square feet, are leased at a monthly rental rate of $2,680, plus sales tax, from
Barbara Smith, the wife of the late William Stanley Smith, Jr., a former officer
and director of the Company. The Company paid $34,254 in rental payments to Mr.
and Mrs. Smith in fiscal year 1996.
The Company currently leases 2,800 square feet of mixed warehouse and
office space from Eddie L. Ervin, Jr., a former officer and director of the
Company. The aggregate monthly payment due is approximately $1,495, plus sales
tax. The Company paid $20,065 in rental payments to Mr. Ervin in fiscal year
1996.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various pending legal proceedings arising in
the normal course of business. In the opinion of management, based on the advice
of legal counsel, the ultimate disposition of these claims and litigation will
not have material adverse effect on the financial position or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information contained under the caption "Common Stock Data" in the
Company's 1996 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained under the caption "Five-Year Financial Summary"
in the Company's 1996 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's 1996
Annual Report to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company and the Report of
Independent Certified Public Accountants as contained in the Company's 1996
Annual Report to Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors contained under the caption "Election
of Directors" in the Company's Proxy Statement for the 1997 Annual Meeting of
Shareholders, which will be filed with the Securities and Exchange Commission
prior to May 1, 1997, is incorporated herein by reference.
Securities and Exchange Commission Rules under Section 16(a) of the
Securities Exchange Act of 1934 require the Company's officers and directors,
and persons who own more than 10% of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and the National Association of Securities
Dealers and to furnish the Company with copies of all Section 16(a) forms they
file.
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Based solely on its review of the copies of such forms received by it or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the 1996 fiscal
year, all filing requirements applicable to its officers, directors, and
greater-than-10% beneficial owners were complied with on a timely basis, except
as set forth under the caption "Compliance with Section 16(a) of the Securities
Exchange Act of 1934" in the Company's Proxy Statement for the 1996 Annual
Meeting of Shareholders, which will be filed with the Securities and Exchange
Commission prior to May 1, 1997, which is incorporated herein by reference.
The information regarding executive officers is set forth in Item 1 of this
report under the caption "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "Executive Pay" in the
Company's Proxy Statement for the 1997 Annual Meeting of Shareholders, which
will be filed with the Securities and Exchange Commission prior to May 1, 1997,
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement for the 1996
Annual Meeting of Shareholders, which will be filed with the Securities and
Exchange Commission prior to May 1, 1997, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Election of Directors -
Certain Relationships and Related Transactions" in the Company's Proxy Statement
for the 1996 Annual Meeting of Shareholders, which will be filed with the
Securities and Exchange Commission prior to May 1, 1997, is incorporated herein
by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
(a)1. The financial statements listed below are filed with this report on
Form 10-K or are incorporated herein by reference from the Company's
1996 Annual Report to Shareholders. With the exception of the pages
listed below, the 1996 Annual Report to Shareholders is not deemed
"filed" as a part of this report on Form 10-K.
Page
Reference
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Form 1996
10-K Annual Report
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Consent of Independent Certified
Public Accountants F-1
Independent Auditors' Report 24
Consolidated Statements of Operations 10
Consolidated Balance Sheets 11
Consolidated Statements of Share-
holders' Equity 12
Consolidated Statements of Cash Flows 13
Notes to Consolidated Financial
Statements 14
(a)2. No financial statement schedules have been included since the required
information is not applicable or the information required is included
in the financial statements or the notes thereto.
(a)3. The following exhibits are filed as part of this report on Form 10-K,
and this list comprises the Exhibit Index.
No. Exhibit
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3.01 Articles of Incorporation of Family Steak Houses of Florida, Inc.
(Exhibit 3.01 to the Company's Registration Statement on Form S-1,
Registration No. 33-1887, is incorporated herein by reference.)
3.02 Bylaws of Family Steak Houses of Florida, Inc. (Exhibit 3.02 to the
Company's Registration Statement on Form S-1, Registration No.
33-1887, is incorporated herein by reference.)
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3.03 Articles of Amendment to the Articles of Incorporation of Family Steak
Houses of Florida, Inc. (Exhibit 3.03 to the Company's Registration
Statement on Form S-1, Registration No. 33-1887, is incorporated
herein by reference.)
3.04 Articles of Amendment to the Articles of Incorporation of Family Steak
Houses of Florida, Inc. (Exhibit 3.04 to the Company's Registration
Statement on Form S-1, Registration No. 33-1887, is incorporated
herein by reference.)
3.05 Amended and Restated Bylaws of Family Steak Houses of Florida, Inc.
(Exhibit 4 to the Company's Form 8-A, filed with the Commission on
March 19, 1997, is incorporated herein by reference.)
3.06 Shareholder Rights Agreement, dated March 19, 1997, by and between
Family Steak Houses of Florida, Inc. and Chase Mellon Shareholder
Services, LLC (Exhibit 1 to the Company's Form 8- A, filed with the
Commission on March 19, 1997, is incorporated herein by reference.)
3.07 Articles of Amendment to the Articles of Incorporation of Family Steak
Houses of Florida, Inc. (Exhibit 3 to the Company's Form 8-A, is
incorporated herein by reference.)
4.01 Specimen Stock Certificate for shares of the Company's Common Stock
(Exhibit 4.01 to the Company's Registration Statement on Form S-1,
Registration No. 33-1887, is incorporated herein by reference.)
10.01 Amended Franchise Agreement between Family Steak Houses of Florida,
Inc. and Ryan's Family Steak Houses, Inc., dated September 16, 1987.
(Exhibit 10.01 to the Company's Registration Statement on Form S-1,
filed with the Commission on October 2, 1987, Registration No.
33-17620, is incorporated herein by reference.)
10.02 Lease regarding the restaurant located at 3549 Blanding Boulevard,
Jacksonville, Florida (Exhibit 10.03 to the Company's Registration
Statement on Form S-1, Registration No. 33-1887, is incorporated
herein by reference.)
10.03 Lease, dated May 18, 1989, between the Company and Stoneybrook
Associates, Ltd., for a restaurant located in Clearwater, Florida.
(Exhibit 10.25 to the Company's Registration Statement on Form S-1,
filed with the Commission on September 29, 1989, Registration No.
33-17620, is incorporated herein by reference.)
16
<PAGE>
10.04 Amended and Restated Warrant to Purchase Shares of Common Stock, void
after October 1, 2003, which represents warrants issued to The Phoenix
Insurance Company, The Travelers Indemnity Company, and The Travelers
Insurance Company, (subsequently transferred to Cerberus Partners,
L.P.) (Exhibit 10.07 to the Company's Annual Report on Form 10-K,
filed with the Commission on March 28, 1995, is incorporated herein by
reference).
10.05 Warrant to Purchase Shares of Common Stock, void after October 1,
2003, which represents warrants issued to The Phoenix Insurance
Company, The Travelers Indemnity Company, and The Travelers Insurance
Company. (subsequently transferred to Cerberus Partners, L.P.)
(Exhibit 10.08 to the Company's Annual Report on Form 10-K, filed with
the Commission on March 28, 1995, is incorporated herein by
reference).
10.06 Lease dated March 1, 1994 between the Company and Eddie L. Ervin, Jr.,
for corporate office and warehouse space in Neptune Beach, Florida.
(Exhibit 10.15 to the Company's Annual Report on Form 10-K, filed with
the Commission on March 28, 1995, is incorporated herein by
reference).
10.07 Lease dated March 1, 1994 between the Company and William Stanley
Smith, Jr., for executive offices in Neptune Beach, Florida. (Exhibit
10.16 to the Company's Annual Report on Form 10-K, filed with the
Commission on March 28, 1995, is incorporated herein by reference).
10.08 Amendment of Franchise Agreement between Ryan's Family Steak Houses,
Inc. and the Company dated July 11, 1994. (Exhibit 10.17 to the
Company's Annual Report on Form 10-K, filed with the Commission on
March 28, 1995, is incorporated herein by reference).
10.09 Agreement between the Company and Kraft Foodservice, Inc., as the
Company's primary food product distribution. (Exhibit 10.06 to the
Company's Annual Report on Form 10-Q, filed with the Commission on
August 9, 1995, is incorporated herein by reference).
10.10 Employment agreement between the Company and Edward B. Alexander,
dated as of October 1, 1996. (Exhibit 10.01 to the Company's Quarterly
Report on Form 10-Q, filed with the Commission on November 18, 1996,
is incorporated herein by reference).
17
<PAGE>
10.11 Lease Agreement between the Company and CNL American Properties Fund,
Inc., dated as of September 18, 1996. (Exhibit 10.02 to the Company's
Quarterly Report on Form 10-Q, filed with the Commission on November
18, 1996 is hereby incorporated by reference).
10.12 Construction Addendum between the Company and CNL American Properties
Fund, Inc., dated as of September 18, 1996. (Exhibit 10.03 to the
Company's Quarterly Report on Form 10-Q, filed with the Commission on
November 18, 1996 is hereby incorporated by reference).
10.13 Rent Addendum to Lease Agreement between the Company and CNL American
Properties Fund, Inc., dated as of September 18, 1996. (Exhibit 10.04
to the Company's Quarterly Report on Form 10-Q, filed with the
Commission on November 18, 1996 is hereby incorporated by reference).
10.14 Amendment of Franchise Agreement between the Company and Ryan's
Family Steak Houses, Inc. dated October 3, 1996.
10.15 Employment agreement between the Company and Lewis E. Christman, Jr.,
dated as of December 30, 1996. (Exhibit 2 to the Company's Schedule
14D-9, filed with the Commission on March 19, 1997 is hereby
incorporated by reference.)
10.16 Consulting agreement between the Company and Robert J. Martin, dated
as of January 8, 1997. (Exhibit 4 to the Company's Schedule 14D-9,
filed with the Commission on March 19, 1997 is hereby incorporated by
reference.)
10.17 $15.36m Loan Agreement, between the Company and FFCA Mortgage
Corporation, dated December 18, 1996.
10.18 $4.64m Loan Agreement, between the Company and FFCA Mortgage
Corporation, dated December 18, 1996.
10.19 Form of Promissory Note between the Company and FFCA Mortgage
Corporation, dated December 18, 1996.
18
<PAGE>
10.20 Form of Mortgage between the Company and FFCA Mortgage Corporation,
dated December 18, 1996 (Exhibit 5 to the Company's Schedule 14D-9,
filed with the Commission on March 19, 1997 is hereby incorporated by
reference.)
10.21 Form of Environmental Agreement between the Company and FFCA Mortgage
Corporation, dated March 18, 1996.
13.01 1996 Annual Report to Shareholders.
21.01 Family Rustic Investments, Inc., a Florida corporation, Steak House
Construction Corporation, a Florida corporation, Wrangler's Roadhouse,
Inc., a Florida corporation and Steak House Realty Corporation, a
Florida corporation, are wholly owned subsidiaries of the Company.
23.0l Consent of Independent Certified Public Accountants - Deloitte &
Touche LLP.
27.00 Financial data schedules (electronic filing only).
(b) None.
(c) See (a)3. above for a list of all exhibits filed herewith and the Exhibit
Index.
(d) None.
19
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' CONSENT
We consent to the incorporation by reference in this Annual Report of Family
Steak Houses of Florida, Inc. on Form 10-K of our report dated February 27,
1997, appearing in the 1996 Annual Report to Shareholders of Family Steak Houses
of Florida, Inc.
We additionally consent to the incorporation by reference in Registration
Statement No. 33-11684 pertaining to the 1986 Employee Incentive Stock Option
Plan of Family Steak Houses of Florida, Inc. on Form S-8 of our report dated
February 27, 1997 appearing in and incorporated by reference in this Annual
Report on Form 10-K of Family Steak Houses of Florida, Inc. for the year ended
January 1, 1997.
We further consent to the incorporation by reference in Registration Statement
No. 33-12556 pertaining to the 1986 Stock Option Plan for Non-Employee Directors
of Family Steak Houses of Florida, Inc. on Form S-8 of our report dated February
27, 1997 appearing in and incorporated by reference in this Annual Report on
Form 10-K of Family Steak Houses of Florida, Inc. for the year ended January 1,
1997.
We further consent to the incorporation by reference in Registration Statement
No. 33-62101 pertaining to the 1996 Long Term Incentive Plan of Family Steak
Houses of Florida, Inc. on Form S-8 of our report dated February 27, 1997
appearing in and incorporated by reference in this Annual Report on Form 10-K of
Family Steak Houses of Florida, Inc. for the year ended January 1, 1997.
Deloitte & Touche LLP
Jacksonville, Florida
March 25, 1997
F-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FAMILY STEAK HOUSES OF FLORIDA, INC.
Date: March 26, 1997 BY: /s/ Lewis E. Christman, Jr.
---------------------------
Lewis E. Christman, Jr., President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant in the
capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Lewis E. Christman, Jr. President (Principal March 26, 1997
Lewis E. Christman, Jr. Executive Officer
and Director)
/s/ Edward B. Alexander Vice President and Director March 26, 1997
Edward B. Alexander (Principal Financial and
Accounting Officer)
/s/ Robert J. Martin Director March 26, 1997
Robert J. Martin
/s/ Michael J. Walters Controller March 26, 1997
Michael J. Walters
/s/ Joseph M. Glickstein, Jr. Director March 26, 1997
Joseph M. Glickstein, Jr.
/s/ Richard M. Gray Director March 26, 1997
Richard M. Gray
EXHIBIT 10.14
AMENDMENT NO. 2
This Amendment is made as of the 3rd day of October, 1996, to that certain
Agreement between Ryan's Properties, Inc. and Family Steak Houses of Florida,
Inc., dated July 11, 1994, and amended on October 17, 1995 (as amended to date,
the "Agreement"):
The second sentence of Section 5 entitled "Royalty Fees" shall be deleted
and replaced with the following:
The three percent (3%) rate will remain in effect through December 31,
2001, at which time the rate will change to four percent (4%).
In all other respects the Agreement shall remain unchanged.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
on their behalf by a person thereunto duly authorized, as of the date first
above written.
RYAN'S PROPERTIES, INC.
/s/ CHARLES D. WAY
---------------
By: Charles D. Way
Title: President and Chief Executive Officer
FAMILY STEAK HOUSES OF FLORIDA, INC.
/s/ LEWIS E. CHRISTMAN, JR.
-----------------------
By: Lewis E. Christman, Jr.
Title: President and Chief Executive Officer
Exhibit 10.17 $15.36m Loan Agreement
================================================================================
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made as of , 1996, by and between
FFCA MORTGAGE CORPORATION, a Delaware corporation ("FFCA"), whose address is
17207 North Perimeter Drive, Scottsdale, Arizona 85255, and FAMILY STEAK HOUSES
OF FLORIDA, INC., a Florida corporation ("Debtor"), whose address is 2113
Florida Boulevard, Neptune Beach, Florida 32266.
PRELIMINARY STATEMENT:
Unless otherwise expressly provided herein, all defined terms used in this
Agreement shall have the meanings set forth in Section 1. Debtor has requested
from FFCA, and applied for, the Loans to provide refinancing for the Premises,
and for no other purpose whatsoever. Each Loan will be evidenced by a Note and
secured by a first priority security interest in the corresponding Premises
pursuant to a Mortgage. FFCA has committed to make the Loans pursuant to the
terms and conditions of the Commitment, this Agreement and the other Loan
Documents.
AGREEMENT:
In consideration of the mutual covenants and provisions of this Agreement,
the parties agree as follows:
1. Definitions. The following terms shall have the following meanings for
all purposes of this Agreement:
"Closing" shall have the meaning set forth in Section 4.
"Closing Date" means the date specified as the closing date in Section 4.
"Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq.,
as amended.
"Commitment" means that certain Commitment Letter dated September 27, 1996
between FFCA and Debtor, and any amendments or supplements thereto.
"Counsel" means legal counsel to Debtor, licensed in the state(s) in which
(i) the Premises are located, (ii) Debtor is incorporated or formed and (iii)
Debtor maintains principal places of business, as selected by Debtor as the case
may be, and approved by FFCA.
<PAGE>
"Environmental Condition" means any condition with respect to soil, surface
waters, groundwaters, land, stream sediments, surface or subsurface strata,
ambient air and any environmental medium comprising or surrounding the Premises,
whether or not yet discovered, which could or does result in any damage, loss,
cost, expense, claim, demand, order or liability to or against Debtor or FFCA by
any third party (including, without limitation, any government entity),
including, without limitation, any condition resulting from the operation of
Debtor's business and/or the operation of the business of any other property
owner or operator in the vicinity of the Premises and/or any activity or
operation formerly conducted by any person or entity on or off the Premises.
"Environmental Indemnity Agreements" means that certain Environmental
Indemnity Agreement to be executed by Debtor for the benefit of FFCA for each of
the Premises substantially in the form of Exhibit E attached to this Agreement.
"Environmental Laws" means any present and future federal, state and local
laws, statutes, ordinances, rules, regulations and the like, as well as common
law, relating to protection of human health or the environment, relating to
Hazardous Materials, relating to liability for or costs of Remediation or
prevention of Releases or relating to liability for or costs of other actual or
threatened danger to human health or the environment. "Environmental Laws"
includes, but is not limited to, the following statutes, as amended, any
successor thereto, and any regulations promulgated pursuant thereto, and any
state or local statutes, ordinances, rules, regulations and the like addressing
similar issues: the Comprehensive Environmental Response, Compensation and
Liability Act; the Emergency Planning and Community Right-to-Know Act; the
Hazardous Materials Transportation Act; the Resource Conservation and Recovery
Act (including but not limited to Subtitle I relating to underground storage
tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act;
the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational
Safety and Health Act; the Federal Water Pollution Control Act; the Federal
Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the
National Environmental Policy Act; and the River and Harbors Appropriation Act.
"Environmental Laws" also includes, but is not limited to, any present and
future federal, state and local laws, statutes, ordinances, rules, regulations
and the like, as well as common law: conditioning transfer of property upon a
negative declaration or other approval of a governmental authority of the
environmental condition of the property; requiring notification or disclosure of
Releases or other environmental condition of the Premises to any governmental
authority or other person or entity, whether or not in connection with transfer
of title to or interest in property; imposing conditions or requirements in
connection with permits or other authorization for lawful activity; relating to
nuisance, trespass or other causes of action related to the Premises; and
relating to wrongful death, personal injury, or property or other damage in
connection with any physical condition or use of the Premises.
"Event of Default" has the meaning set forth in Section 10.
-2-
<PAGE>
"Fee" means an underwriting, site assessment, valuation, processing and
commitment fee equal to 1.5% of the sum of the aggregate Loan Amounts for all of
the Premises, which Fee shall be payable as set forth in Section 3.
"Franchisor" means Ryan's Properties, Inc., a Delaware corporation, and its
successors.
"Hazardous Materials" means (a) any toxic substance or hazardous waste,
substance or related material, or any pollutant or contaminant; (b) radon gas,
asbestos in any form which is or could become friable, urea formaldehyde foam
insulation, transformers or other equipment which contains dielectric fluid
containing levels of polychlorinated biphenyls in excess of federal, state or
local safety guidelines, whichever are more stringent, or any petroleum product;
(c) any substance, gas, material or chemical which is or may be defined as or
included in the definition of "hazardous substances," "toxic substances,"
"hazardous materials," hazardous wastes" or words of similar import under any
Environmental Laws; and (d) any other chemical, material, gas or substance the
exposure to or release of which is or may be prohibited, limited or regulated by
any governmental or quasi-governmental entity or authority that asserts or may
assert jurisdiction over the Premises or the operations or activity at the
Premises, or any chemical, material, gas or substance that does or may pose a
hazard to the health and/or safety of the occupants of the Premises or the
owners and/or occupants of property adjacent to or surrounding the Premises.
"Loan" or "Loans" means, as the context requires, the loan for each of the
Premises described in Section 2 and in the amount set forth in Exhibit A. Each
Loan will be evidenced by a Note and secured by a Mortgage.
"Loan Amount" or "Loan Amounts" means, as the context requires, with
respect to each of the Premises, the loan amounts individually and in the
aggregate described in Section 2 and as set forth on the attached Exhibit A.
"Loan Documents" means, collectively, this Agreement, the Notes, the
Mortgages, the Environmental Indemnity Agreements, the UCC-1 Financing
Statements, the Commitment and all other documents executed in connection
therewith or contemplated thereby.
"Mortgage" means the mortgage, assignment of rents and leases, security
agreement and fixture filing to be executed for each of the Premises
substantially in the form of Exhibit C attached to this Agreement.
"Note" or "Notes" means, as the context requires, the promissory notes
evidencing the Loan substantially in the form attached hereto as Exhibit B. A
Note will be executed by Seller for each of the Premises in the principal amount
set forth in Exhibit A.
"Permitted Exceptions" means those exceptions to title approved in writing
by FFCA pursuant to Section 9.
-3-
<PAGE>
"Premises" means the parcels of real estate described in Exhibit A attached
hereto, all rights, privileges and appurtenances associated therewith, and all
buildings, fixtures and other improvements now or hereafter located thereon
(whether or not affixed to such real estate).
"Release" means any presence, release, deposit, discharge, emission,
leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying,
escaping, dumping, disposing or other movement of Hazardous Materials.
"Remediation" means any response, remedial, removal, or corrective action,
any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate
any Hazardous Material, any actions to prevent, cure or mitigate any Release,
any action to comply with any Environmental Laws or with any permits issued
pursuant thereto, any inspection, investigation, study, monitoring, assessment,
audit, sampling and testing, laboratory or other analysis, or any evaluation
relating to any Hazardous Materials.
"Reports" means the phase I environmental reports (and phase II
environmental reports if the same are recommended by such phase I reports
regarding any of the Premises) to be prepared as contemplated by Section 9.E.
hereof regarding each of the Premises, which Reports shall be satisfactory in
form and substance to FFCA in its sole discretion.
"Threatened Release" means a substantial likelihood of a Release which
requires action to prevent or mitigate damage to the soil, surface waters,
groundwaters, land, stream sediments, surface or subsurface strata, ambient air
or any other environmental medium comprising or surrounding the Premises which
may result from such Release.
"Title Company" means the title insurance company described in Section 4.
"UCC-1 Financing Statements" means such UCC-1 Financing Statements as FFCA
shall require to be executed and delivered by Debtor with respect to the
Premises.
2. Transaction. On the terms and subject to the conditions set forth in the
Loan Documents, FFCA agrees to make the Loans to Debtor. The aggregate Loan
Amount shall be $15,360,000, allocated among the Premises as set forth on the
attached Exhibit A. The Loans will be evidenced by the Notes and secured by the
Mortgages. Debtor shall repay the outstanding principal amount of the Loans
together with interest thereon in the manner and in accordance with the terms
and conditions of the Notes and the other Loan Documents. The Notes will mature
on the twentieth anniversary of this Agreement. The Loans shall be advanced at
the Closing in cash or its equivalent subject to any prorations and adjustments
required by this Agreement.
3. Underwriting, Site Assessment, Valuation, Processing and Commitment Fee.
Debtor paid FFCA a portion of the Fee in connection with the Loans for the
Premises and four other Premises subject to that certain loan agreement by and
-4-
<PAGE>
between Debtor and FFCA of even date herewith in the amount of $150,000 pursuant
to the Commitment, and such portion was deemed fully earned when received.
Although the Fee was deemed fully earned when received by FFCA, the portion of
the Fee paid pursuant to the Commitment shall be refundable in full and the
Commitment shall expire (i) if FFCA's in-house site review and valuation
department does not approve all of the Premises and the Loan Amounts, or (ii) if
FFCA disapproves of the Loan Amounts and Debtor and FFCA are unable to agree
upon alternative Loan Amounts. The remainder of the Fee shall be paid at the
Closing and shall be deemed nonrefundable and fully earned upon the Closing. The
Fee shall be applied by FFCA in payment of (i) the Phase I environmental reports
to be delivered pursuant to Section 9.E, (ii) the customary fees and expenses of
FFCA's attorneys and (iii) FFCA's in house site inspection costs and fees. The
balance of the Fee remaining after payment of such fees, expenses and costs
constitutes FFCA's underwriting, site assessment, valuation, processing and
commitment fee. In the event the transaction set forth in this Agreement fails
to close for any reason, FFCA shall retain a portion of the Fee received by FFCA
in an amount equal to FFCA's reasonable out-of-pocket costs and expenses
incurred in connection with the transaction contemplated herein and shall refund
the amount of the Fee remaining after payment of such costs and expenses to
Debtor.
4. Closing. (a) The Loan shall be closed (the "Closing") within 30 days
following the satisfaction of all of the terms and conditions contained in this
Agreement, but in no event shall the date of the Closing be extended beyond
December 15, 1996 (the "Closing Date"), unless such extension shall be approved
by FFCA in its sole discretion.
(b) FFCA has ordered a title insurance commitment for each of the Premises
from Lawyers Title Insurance Corporation or an alternative title company
approved by FFCA ("Title Company"). Prior to the Closing Date, the parties
hereto shall deposit with Title Company all documents and moneys necessary to
comply with their obligations under this Agreement. Title Company shall not
cause the transaction to close unless and until it has received written
instructions from FFCA to do so. Except for the fees, expenses and costs to be
paid from the Fee by FFCA pursuant to Section 3, all costs of such transaction
(the "Costs") shall be borne by Debtor, including, without limitation, the cost
of title insurance, the attorneys' fees of Debtor, attorneys' fees and expenses
of FFCA (but only to the extent FFCA's reasonable attorneys' fees and/or
expenses exceed the customary fees and/or expenses due to extended document
negotiations and/or revisions and/or extraordinary closing issues), the cost of
the surveys, stamp taxes, transfer fees, escrow and recording fees and site
inspection fees for the Premises. Debtor may apply a portion of the Loan Amount
toward the payment of the Costs. All real and personal property and other
applicable taxes and assessments and other charges relating to the Premises
which are due and payable on or prior to the Closing Date as well as taxes and
assessments due and payable subsequent to the Closing Date but which Title
Company requires to be paid at Closing as a condition to the issuance of the
title insurance policy described in Section 9.C, shall be paid by Debtor at or
prior to the Closing, and all other taxes and assessments shall be paid by
Debtor. The closing documents shall be dated as of the Closing Date.
-5-
<PAGE>
Debtor and FFCA hereby employ Title Company to act as escrow agent in
connection with this transaction. Debtor and FFCA will deliver to Title Company
all documents, pay to Title Company all sums and do or cause to be done all
other things necessary or required by this Agreement, in the reasonable judgment
of Title Company, to enable Title Company to comply herewith and to enable any
title insurance policy provided for herein to be issued. Title Company is
authorized to pay, from any funds held by it for FFCA's or Debtor's respective
credit all amounts necessary to procure the delivery of such documents and to
pay, on behalf of FFCA and Debtor, all charges and obligations payable by them,
respectively. Debtor will pay all charges payable by it to Title Company. Title
Company is authorized, in the event any conflicting demand is made upon it
concerning these instructions or the escrow, at its election, to hold any
documents and/or funds deposited hereunder until an action shall be brought in a
court of competent jurisdiction to determine the rights of Debtor and FFCA or to
interplead such documents and/or funds in an action brought in any such court.
Deposit by Title Company of such documents and funds, after deducting therefrom
its charges and its expenses and attorneys' fees incurred in connection with any
such court action, shall relieve Title Company of all further liability and
responsibility for such documents and funds. Title Company's receipt of this
Agreement and opening of an escrow pursuant to this Agreement shall be deemed to
constitute conclusive evidence of Title Company's agreement to be bound by the
terms and conditions of this Agreement pertaining to Title Company. Disbursement
of any funds shall be made by check, certified check or wire transfer, as
directed by FFCA. Title Company shall be under no obligation to disburse any
funds represented by check or draft, and no check or draft shall be payment to
Title Company in compliance with any of the requirements hereof, until it is
advised by the bank in which such check or draft is deposited that such check or
draft has been honored. Title Company is authorized to act upon any statement
furnished by the holder or payee, or a collection agent for the holder or payee,
of any lien on or charge or assessment in connection with the Premises,
concerning the amount of such charge or assessment or the amount secured by such
lien, without liability or responsibility for the accuracy of such statement.
The employment of Title Company as escrow agent shall not affect any rights of
subrogation under the terms of any title insurance policy issued pursuant to the
provisions thereof.
5. Representations and Warranties of FFCA. The representations and
warranties of FFCA contained in this Section are being made to induce Debtor to
enter into this Agreement and consummate the transactions contemplated herein,
and Debtor has relied, and will continue to rely, upon such representations and
warranties from and after the execution of this Agreement and the Closing. FFCA
represents and warrants to Debtor as follows:
A. Organization of FFCA. FFCA has been duly formed, is validly
existing and has taken all necessary action to authorize the execution,
delivery and performance by FFCA of this Agreement.
B. Authority of FFCA. The person who has executed this Agreement on
behalf of FFCA is duly authorized so to do.
-6-
<PAGE>
C. Enforceability. Upon execution by FFCA, this Agreement shall
constitute the legal, valid and binding obligation of FFCA, enforceable
against FFCA in accordance with its terms.
All representations and warranties of FFCA made in this Agreement shall be
and will remain true and complete as of the Closing Date as if made and restated
in full as of such date, and shall survive the Closing.
6. Representations and Warranties of Debtor. The representations and
warranties of Debtor contained in this Section are being made to induce FFCA to
enter into this Agreement and consummate the transactions contemplated herein,
and FFCA has relied, and will continue to rely, upon such representations and
warranties from and after the execution of this Agreement and the Closing.
Debtor represents and warrants to FFCA as follows:
A. Information and Financial Statements. Debtor has delivered to FFCA
financial statements (either audited financial statements or, if Debtor
does not have audited financial statements, certified financial statements)
and certain other information concerning itself, which financial statements
and other information are true, correct and complete in all material
respects; and no material adverse change has occurred with respect to any
such financial statements and other information provided to FFCA since the
date such financial statements and other information were prepared or
delivered to FFCA. Debtor understands that FFCA is relying upon such
financial statements and information and Debtor represents that such
reliance is reasonable. All such financial statements were prepared in
accordance with generally accepted accounting principles consistently
applied and accurately reflect as of the date of this Agreement and the
Closing Date, the financial condition of each individual or entity to which
they pertain.
B. Organization and Authority of Debtor. (1) Debtor is duly organized
or formed, validly existing and in good standing under the laws of its
state of incorporation or formation, and qualified as a foreign
corporation, partnership or limited liability company to do business in any
jurisdiction where such qualification is required. All necessary corporate,
partnership or limited liability company action has been taken to authorize
the execution, delivery and performance of this Agreement and of the other
documents, instruments and agreements provided for herein.
(2) The persons who have executed this Agreement on behalf of Debtor
are duly authorized so to do.
C. Enforceability of Documents. Upon execution by Debtor respectively,
this Agreement and the other documents, instruments and agreements to be
executed in connection with this Agreement, shall constitute the legal,
valid and binding obligations of Debtor, respectively, enforceable against
Debtor in accordance with their respective terms.
-7-
<PAGE>
D. Litigation. Except as set forth on Exhibit F (the "Litigation"),
there are no suits, actions, proceedings or investigations pending or
threatened against or involving Debtor or the Premises before any court,
arbitrator, or administrative or governmental body. If any or all of the
Litigation is resolved unfavorably to Debtor, such resolution will not
result in any material adverse change in the contemplated business,
condition or worth or operations of Debtor or the Premises.
E. Absence of Breaches or Defaults. Debtor is not, and the
authorization, execution, delivery and performance of this Agreement and
the documents, instruments and agreements provided for herein will not
result, in any breach or default under any other document, instrument or
agreement to which Debtor are a party or by which Debtor, the Premises or
any of the property of Debtor is subject or bound. The authorization,
execution, delivery and performance of this Agreement and the documents,
instruments and agreements provided for herein will not violate any
applicable law, statute, regulation, rule, ordinance, code, rule or order.
F. Utilities. At the Closing Date, the Premises will be served by
ample public utilities to permit full utilization of the Premises for their
intended purpose and all utility connection fees and use charges will have
been paid in full.
G. Intended Use and Zoning; Compliance With Laws. Debtor intends to
use the Premises solely for the operation of Franchisor restaurants, and
related ingress, egress and parking, and for no other purposes. Such
intended use will not violate any zoning or other governmental requirement
applicable to the Premises. The Premises substantially comply with all
applicable statutes, regulations, rules, ordinances, codes, licenses,
permits, orders and approvals of any governmental agencies, departments,
commissions, bureaus, boards or instrumentalities of the United States, the
states in which the Premises are located and all political subdivisions
thereof, including, without limitation, all health, building, fire, safety
and other codes, ordinances and requirements, all applicable standards of
the National Board of Fire Underwriters and the Americans With Disabilities
Act of 1990.
H. Area Development; Wetlands. No condemnation or eminent domain
proceedings affecting the Premises have been commenced or, to the best of
Debtor's knowledge, are contemplated. To the best of Debtor's knowledge,
the areas where the Premises are located have not been declared blighted by
any governmental authority. The Premises and/or the real property bordering
the Premises is not designated by any applicable federal, state and/or
local governmental authority as a wetlands.
I. Licenses and Permits; Access. Prior to the Closing Date, Debtor
shall have all required licenses and permits, both governmental and
private, to use and operate the Premises in the intended manner. There are
adequate rights of access to public roads and ways available to the
Premises to permit full utilization of the Premises for their intended
purposes and all such public roads and ways have been completed and
dedicated to public use.
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J. Condition of Premises. As of the Closing Date, the Premises,
including the equipment located thereon, will be of good workmanship and
materials, fully equipped and operational, in good condition and repair,
free from structural defects, clean, orderly and sanitary, safe, well-lit,
landscaped, decorated, attractive and well-maintained.
K. Environmental. Debtor is fully familiar with the present use of the
Premises, and, after due inquiry, Debtor has become generally familiar with
the prior uses of the Premises. Except as set forth in the Reports, no
Hazardous Materials have been used, handled, manufactured, generated,
produced, stored, treated, processed, transferred or disposed of at or on
the Premises, except in compliance with all applicable Environmental Laws,
and no Release or Threatened Release has occurred at or on the Premises.
The activities, operations and business undertaken on, at or about the
Premises, including, but not limited to, any past or ongoing alterations or
improvements at the Premises, are and have been at all times, in compliance
with all Environmental Laws. No further action is required to remedy any
Environmental Condition or violation of, or to be in full compliance with,
any Environmental Laws, and no lien has been imposed on the Premises in any
federal, state or local governmental or quasi-governmental entity in
connection with any Environmental Condition, the violation or threatened
violation of any Environmental Laws or the presence of any Hazardous
Materials on or off the Premises.
There is no pending or threatened litigation or proceeding before any
court, administrative agency or governmental body in which any person or
entity alleges the violation or threatened violation of any Environmental
Laws or the presence, Release, Threatened Release or placement on or at the
Premises of any Hazardous Materials, or of any facts which would give rise
to any such action, nor has Debtor (a) received any notice (and Debtor has
no actual or constructive knowledge) that any governmental or
quasi-governmental authority or any employee or agent thereof has
determined, threatens to determine or requires an investigation to
determine that there has been a violation of any Environmental Laws at, on
or in connection with the Premises or that there exists a presence,
Release, Threatened Release or placement of any Hazardous Materials on or
at the Premises, or the use, handling, manufacturing, generation,
production, storage, treatment, processing, transportation or disposal of
any Hazardous Materials at or on the Premises; (b) received any notice
under the citizen suit provision of any Environmental Law in connection
with the Premises or any facilities, operations or activities conducted
thereon, or any business conducted in connection therewith; or (c) received
any request for inspection, request for information, notice, demand,
administrative inquiry or any formal or informal complaint or claim with
respect to or in connection with the violation or threatened violation of
any Environmental Laws or existence of Hazardous Materials relating to the
Premises or any facilities, operations or activities conducted thereon or
any business conducted in connection therewith.
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L. Title to Premises; First Priority Lien. Title to the Premises is
vested in Debtor, free and clear of all liens, encumbrances, charges and
security interests of any nature whatsoever, except the Permitted
Exceptions. Upon Closing, FFCA shall have a first priority lien on the
Premises pursuant to the Mortgages and the UCC-1 Financing Statements.
M. No Other Agreements and Options. Neither Debtor nor the Premises
are subject to any commitment, obligation, or agreement, including, without
limitation, any right of first refusal, option to purchase or lease granted
to a third party, which could or would prevent or hinder FFCA in making the
Loans or prevent or hinder Debtor from fulfilling its obligations under
this Agreement or the other Loan Documents.
N. No Mechanics' Liens. There are no outstanding accounts payable,
mechanics' liens, or rights to claim a mechanics' lien in favor of any
materialman, laborer, or any other person or entity in connection with
labor or materials furnished to or performed on any portion of the
Premises; no work has been performed or is in progress nor have materials
been supplied to the Premises or agreements entered into for work to be
performed or materials to be supplied to the Premises prior to the date
hereof, which will not have been fully paid for on or before the Closing
Date or which might provide the basis for the filing of such liens against
the Premises or any portion thereof; Debtor shall be responsible for any
and all claims for mechanics' liens and accounts payable that have arisen
or may subsequently arise due to agreements entered into for and/or any
work performed on, or materials supplied to the Premises prior to the
Closing Date; and Debtor shall and does hereby agree to defend, indemnify
and forever hold FFCA and FFCA's designees harmless from and against any
and all such mechanics' lien claims, accounts payable or other commitments
relating to the Premises.
O. No Reliance. Debtor acknowledges that FFCA is not affiliated with,
and has no business relationship with, Franchisor, other than
landlord/tenant and/or creditor/debtor relationships unrelated to the
transaction set forth in this Agreement, and that FFCA did not prepare or
assist in the preparation of any of the projected financial information
used by Debtor in analyzing the economic viability and feasibility of the
transaction contemplated by this Agreement. Furthermore, Debtor
acknowledges that it has not relied upon, nor may it hereafter rely upon,
the analysis undertaken by FFCA in determining the amount of the Loans, and
such analysis will not be made available to Debtor.
P. Franchisor Provisions. Prior to the Closing Date, Debtor will have
entered into franchise, license and/or area development agreements with
Franchisor for the conduct of business at the Premises. Such franchise,
license and/or area development agreements will be in full force and
effect, will permit Debtor to operate the Premises as Franchisor
restaurants, and will have terms which will not expire before the scheduled
maturity date of the Notes.
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All representations and warranties of Debtor made in this Agreement shall
be and will remain true and complete as of and subsequent to the Closing Date as
if made and restated in full as of such time and shall survive the Closing.
7. Covenants. Debtor covenants to FFCA from and after the Closing Date
as follows:
A. Inspections. Debtor shall, at all reasonable times, (i) provide
FFCA and FFCA's officers, employees, agents, advisors, attorneys,
accountants, architects, and engineers with access to the Premises, all
drawings, plans, and specifications for the Premises in possession of
Debtor, all engineering reports relating to the Premises in the possession
of Debtor, the files and correspondence relating to the Premises, and the
financial books and records, including lists of delinquencies, relating to
the ownership, operation, and maintenance of the Premises, and (ii) allow
such persons to make such inspections, tests, copies, and verifications as
FFCA considers necessary.
B. Fixed Charge Coverage Ratio. Until such time as all of Debtor's
obligations under the Notes and the other Loan Documents are paid,
satisfied and discharged in full, on each December 31 (or such other date
on which Debtor's fiscal year ends) while the Notes are outstanding:
(i) Debtor shall maintain an aggregate Fixed Charge Coverage
Ratio calculated for all of the Premises of at least 1.15:1; and
(ii) No more than six of the Premises shall have a Fixed Charge
Coverage Ratio calculated for each of the Premises below 1.0:1.
For purposes of this Section, the term "Fixed Charge Coverage Ratio" shall
mean with respect to all of the Premises in the aggregate or individually,
as applicable, and the twelve month period of time immediately preceding
the date of determination, the ratio calculated for such period of time of
(a) the sum of Net Income, Depreciation and Amortization, Interest Expense
and Operating Lease Expenses, less a corporate overhead allocation in an
amount equal to 3% of Gross Sales, to (b) the sum of the FFCA Payments and
the Equipment Payment Amount.
For purposes of this Section, the following terms shall be defined as set
forth below:
"Capital Lease" shall mean any lease of any property (whether real,
personal or mixed) by Debtor with respect to the applicable Premises which
lease would, in conformity with generally accepted accounting principles
consistently applied, be required to be accounted for as a capital lease on
the balance sheet of Debtor.
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"Debt" shall mean with respect to Debtor, the applicable Premises and
the period of determination (i) indebtedness for borrowed money, (ii)
obligations evidenced by bonds, indentures, notes or similar instruments,
(iii) obligations to pay the deferred purchase price of property or
services, (iv) obligations under leases which shall have been or should be,
in accordance with generally accepted accounting principles consistently
applied, recorded as "Capital Leases", and (v) obligations under direct or
indirect guarantees in respect of, and obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to assure a
creditor against loss in respect of, indebtedness or obligations of others
of the kinds referred to in clauses (i) through (iv) above.
"Depreciation and Amortization" shall mean the depreciation and
amortization accruing during any period of determination with respect to
the applicable Premises as determined in accordance with generally accepted
accounting principles consistently applied.
"Equipment Payment Amount" shall mean for any period of determination
the sum of all amounts payable during such period of determination under
all (i) leases for equipment located at the applicable Premises, and (ii)
all loans secured by equipment located at the applicable Premises.
"FFCA Payments" shall mean for any period of determination, the sum of
all amounts payable under the applicable Note(s).
"Gross Sales" shall mean the sales or other income arising from all
business conducted on the applicable Premises during the period of
determination, less sales tax and any amounts received from not-for-profit
sales of all non-food items approved for use in connection with promotional
campaigns, if any, by Franchisor.
"Interest Expense" shall mean for any period of determination, the sum
of all interest accrued or which should be accrued in respect of all Debt
of Debtor allocable to the applicable Premises, as the case may be, and all
business operations thereon during such period (including interest
attributable to Capital Leases), as determined in accordance with generally
accepted accounting principles consistently applied.
"Net Income" shall mean with respect to Debtor and with respect to the
period of determination, the net income or net loss of Debtor adjusted for
nonrecurring gains and losses allocable to the applicable Premises as the
case may be, and to such period (before provision or benefit for income
taxes or charges equivalent to income taxes allocable to such period, as
determined in accordance with generally accepted accounting principles
consistently applied but before provision for corporate overhead expense
allocable to the applicable Premises and to such period).
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"Operating Lease Expense" shall mean the expenses incurred by Debtor
under any operating leases with respect to of the applicable Premises
and/or the business operations thereon during the period of determination
in accordance with generally accepted accounting principles consistently
applied.
C. Net Worth. At all times while the obligations of Debtor to FFCA
pursuant to the Loan Documents are outstanding, Debtor shall maintain a net
worth of at least $2,000,000, as determined in accordance with generally
accepted accounting principles consistently applied.
8. Transaction Characterization. This Agreement is a contract to extend a
financial accommodation (as such term is used in the Code) for the benefit of
Debtor. It is the intent of the parties hereto that the business relationship
created by this Agreement, the Notes, the Mortgages and the other Loan Documents
is solely that of creditor and debtor and has been entered into by both parties
in reliance upon the economic and legal bargains contained in the Loan
Documents. None of the agreements contained in the Loan Documents is intended,
nor shall the same be deemed or construed, to create a partnership between
Debtor and FFCA, to make them joint venturers, to make Debtor an agent, legal
representative, partner, subsidiary or employee of FFCA, nor to make FFCA in any
way responsible for the debts, obligations or losses of Debtor.
9. Conditions of Closing. The obligation of FFCA to consummate the
transaction contemplated by this Agreement is subject to the fulfillment or
waiver of each of the following conditions:
A. Title. Title to the Premises shall be vested in Debtor, free of all
liens, encumbrances, restrictions, encroachments and easements, except as
otherwise specifically provided herein or agreed to in writing by FFCA
("Permitted Exceptions"), and the liens created by the Mortgages and the
UCC-1 Financing Statements. Upon Closing, FFCA will obtain a valid and
perfected first priority lien upon and security interest in the Premises.
B. Condition of Premises. FFCA shall have inspected and approved the
Premises, the Premises and the equipment located thereon shall be in good
condition and repair and of good workmanship and materials, and the
Premises shall be fully equipped and operational, clean, orderly, sanitary,
safe, well-lit, landscaped, decorated, attractive and with a suitable
layout, physical plant, traffic pattern and location, all as determined by
FFCA in its sole discretion.
C. Evidence of Title. FFCA shall have received for each of the
Premises a preliminary title report and irrevocable commitment to insure
title by means of a mortgagee's, ALTA extended coverage policy of title
insurance (or its equivalent, in the event such form is not issued in the
jurisdiction where the Premises is located) issued by Title Company showing
good and marketable title in the Premises in Debtor, committing to insure
FFCA's first priority lien upon and security interest in the Premises
subject only to Permitted Exceptions and containing such endorsements as
FFCA may require.
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D. Survey. FFCA shall have received a current ALTA survey of each of
the Premises, the form and substance of which shall be satisfactory to FFCA
in its sole discretion. Debtor shall have provided FFCA with evidence
satisfactory to FFCA that the location of the Premises is not within the
100-year flood plain or identified as a special flood hazard area as
defined by the Federal Insurance Administration.
E. Environmental. FFCA shall have received the Reports for each of the
Premises, the form, substance and conclusions of which shall be
satisfactory to FFCA in its sole discretion.
F. Compliance With Representations, Warranties and Covenants. All
obligations of Debtor under this Agreement shall have been fully performed
and complied with, and no event shall have occurred or condition shall
exist which would, upon the Closing Date, or, upon the giving of notice
and/or passage of time, constitute a breach or default hereunder or under
the Loan Documents, the franchise, license and/or area development
agreements with Franchisor for the Premises or any other agreement between
or among FFCA, Debtor or Franchisor pertaining to the subject matter
hereof, and no event shall have occurred or condition shall exist or
information shall have been disclosed by Debtor or discovered by FFCA which
has had or would have a material adverse effect on the Premises, Debtor or
FFCA's willingness to consummate the transaction contemplated by this
Agreement, as determined by FFCA in its sole and absolute discretion.
G. Proof of Insurance. Debtor shall have delivered to FFCA copies of
insurance policies, showing that all insurance required by the Loan
Documents and providing coverage and limits satisfactory to FFCA are in
full force and effect.
H. Opinion of Counsel to Debtor. Debtor shall have caused Counsel to
prepare and deliver an opinion substantially in the form attached as
Exhibit D.
I. Availability of Funds. FFCA presently has sufficient funds to
discharge its obligations under this Agreement. In the event that the
transaction contemplated by this Agreement does not close on or before the
Closing Date, FFCA does not warrant that it will thereafter have sufficient
funds to consummate the transaction contemplated by this Agreement.
J. Franchise Agreement. FFCA shall have received a certificate from
Franchisor in form and substance acceptable to FFCA that the franchise,
license and/or area development agreements between Debtor and Franchisor
with respect to the Premises are valid, binding and in full force and
effect, with terms that will not expire before the scheduled maturity date
of the Notes, and no events have occurred which could constitute a default
under the Loan Documents, and Franchisor waives all rights of first refusal
set forth in such agreement as to FFCA and its successors and assigns.
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K. Closing Documents. At or prior to the Closing Date, FFCA and/or
Debtor, as may be appropriate, shall execute and deliver or cause to be executed
and delivered to Title Company or FFCA, as may be appropriate, all documents
required to be delivered by this Agreement, and such other documents, payments,
instruments and certificates, as FFCA may require in form acceptable to FFCA,
including, without limitation, the following:
(1) Notes;
(2) Mortgages;
(3) Franchisor's Certificates;
(4) Proof of Insurance;
(5) Opinion of Counsel to Debtor;
(6) UCC-1 Financing Statements; and
(7) Environmental Indemnity Agreements.
Upon fulfillment or waiver of all of the above conditions, FFCA shall deposit
funds necessary to close this transaction with the Title Company and this
transaction shall close in accordance with the terms and conditions of this
Agreement.
10. Default and Remedies. A. Each of the following shall be deemed an event
of default by Debtor (an "Event of Default"):
(1) If any material representation or warranty of Debtor is false in
any material respect when made or becomes false in any material respect
prior to the Closing Date, or, in the event any such representation or
warranty is continuing after the Closing, if any such representation or
warranty becomes false in any respect at any time, or if Debtor renders any
false statement or account;
(2) If any principal, interest or other monetary sum due under the
Notes, the Mortgages or any other Loan Document is not paid within five
days after the date when due;
(3) If Debtor fails to observe or perform any of the other material
covenants, conditions, or obligations of this Agreement or any other Loan
Document within the applicable grace or cure period;
(4) If Debtor becomes insolvent within the meaning of the Code, files
or notifies FFCA that it intends to file a petition under the Code,
initiates a proceeding under any similar law or statute relating to
bankruptcy, insolvency, reorganization, winding up or adjustment of debts
(collectively, an "Action"), becomes the subject of either a petition under
the Code or an Action, or is not generally paying its debts as the same
become due;
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(5) If there is a breach or default under any other agreement or
instrument, including, without limitation, promissory notes and guaranties,
between, among or by (1) Debtor, any general or limited partnership
organized in accordance with the laws of any state of the United States or
its territories of which Debtor, or any partner, officer, director or
shareholder of Debtor is a holder of a general or limited partnership
interest, or any corporation or other entity affiliated with Debtor or by
any partner, officer, director or shareholder of Debtor and, or for the
benefit of, (2) FFCA or any corporation, partnership, joint venture,
limited liability company, association or other form of entity affiliated
with FFCA; or
(6) If any event occurs or condition exists which does or would upon
the Closing Date constitute a material breach or default under any of the
Loan Documents or any other agreement between Debtor and FFCA pertaining to
the subject matter hereof.
B. If any Event of Default occurs pursuant to subsection A(2) above, FFCA
shall not be entitled to exercise its remedies set forth in subsection E below
unless and until FFCA shall have given Debtor notice thereof and a period of
five days from the delivery of such notice shall have elapsed without such Event
of Default being cured.
C. If any event occurs pursuant to subsection A(3) subsequent to the
Closing and does not involve a breach of the Fixed Charge Coverage Ratio or the
payment of any monetary sum, is not willful or intentional, does not place any
rights or property of FFCA in immediate jeopardy, and is within the reasonable
power of Debtor to promptly cure after receipt of notice thereof, all as
determined by FFCA in its reasonable discretion, then such event shall not
constitute an Event of Default hereunder, unless otherwise expressly provided
herein, unless and until FFCA shall have given Debtor notice thereof and a
period of 30 days shall have elapsed, during which period Debtor may correct or
cure such event, upon failure of which an Event of Default shall be deemed to
have occurred hereunder without further notice or demand of any kind. If such
nonmonetary event cannot reasonably be cured within such 30-day period, as
determined by FFCA in its reasonable discretion, and Debtor is diligently
pursuing a cure of such event, then Debtor shall have a reasonable period to
cure such event, which shall not exceed 90 days after receiving notice of the
event from FFCA. If Debtor shall fail to correct or cure such event within such
90-day period, an Event of Default shall be deemed to have occurred hereunder
without further notice or demand of any kind.
D. If Debtor breaches either of the Fixed Charge Coverage Ratio
requirements of Section 7.B., such breach shall not constitute an Event of
Default if Debtor, within 30 days from the delivery of a notice from FFCA to
Debtor of such failure, pays to FFCA the applicable FCCR Amount (as defined
below), which payments shall be made without prepayment premium or penalty).
Promptly after Debtor's payment of the FCCR Amount, Debtor and FFCA agree to
execute an amendment to the applicable Note(s) in form and substance acceptable
to FFCA reducing the principal amount payable to FFCA under such Note(s) and
reamortizing the principal amount of such Note(s) over the then remaining term
of such Note(s). Debtor shall be responsible for the payment of FFCA's
reasonable out-of-pocket attorneys' fees incurred in connection with the
preparation of such amendments.
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For purposes of this section, FCCR Amount shall have the following
meanings:
(i) With respect to a breach of Section 7.B(i), that sum or those sums
of money which, when subtracted from the outstanding principal balance of
such of the Notes as selected by Debtor, and assuming the reamortization of
the adjusted principal amount of such Notes over the then-remaining term of
such Notes, will result in an aggregate Fixed Charge Coverage Ratio
calculated for all of the Premises of at least 1.15:1; and
(ii) With respect to a breach of Section 7.B(ii), that sum or those
sums of money which, when subtracted from the outstanding principal amount
of the Note(s) corresponding to one or more of the Premises which has or
have a Fixed Charge Coverage Ratio which is below 1.0:1, and assuming the
reamortization of the adjusted principal amount of such Note(s) over the
then remaining term of such Note(s), will result in no more than six of the
Premises then having a Fixed Charge Coverage Ratio below 1.0:1. Debtor
shall be responsible for determining which of the Note(s) corresponding to
Premises with a Fixed Charge Coverage Ratio below 1.0:1 for which the FCCR
Amount shall be paid.
E. Upon the occurrence of an Event of Default, subject to the limitation
set forth in subsection B, FFCA shall be entitled to exercise, at its option,
concurrently, successively or in any combination, all remedies set forth in the
Loan Documents and otherwise available at law or in equity, including without
limitation any one or more of the following (provided, however, the remedies set
forth in the following subitems (1) and (2) shall only be applicable to any such
breach or default occurring prior to the Closing):
(1) To terminate this Agreement by giving written notice to Debtor, in
which case neither party shall have any further obligation or liability,
except such liabilities as Debtor may have for such breach or default;
(2) To proceed with the Closing and direct Title Company to apply such
portion of the Loans as FFCA may deem necessary to cure any such breach or
default;
(3) To bring an action for damages against Debtor;
(4) To bring an action to require Debtor specifically to perform its
obligations hereunder; and/or
(5) To recover from Debtor all sums loaned and/or advanced by FFCA to
Debtor pursuant to the Loan Documents and all expenses, including
attorneys' fees, paid or incurred by FFCA as a result of such Event of
Default.
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11. Assignments. A. FFCA may assign in whole or in part its rights under
this Agreement, including, without limitation, any Transfer, Participation
and/or Securitization (all as defined in Section 13.P). In the event of any
unconditional assignment of FFCA's entire right and interest hereunder, FFCA
shall automatically be relieved, from and after the date of such assignment, of
liability for the performance of any obligation of FFCA contained herein.
B. Debtor shall not, without the prior written consent of FFCA, which
consent shall not be unreasonably withheld, sell, assign, transfer, mortgage,
convey, encumber or grant any easements or other rights or interests of any kind
in the Premises, any of Debtor's rights under this Agreement or any interest in
Debtor, whether voluntarily, involuntarily or by operation of law or otherwise,
including, without limitation, by merger, consolidation, dissolution or
otherwise, except, subsequent to the Closing, as expressly permitted by the
Mortgage.
12. Indemnity. Except for the gross negligence or willful misconduct of
FFCA, Debtor shall indemnify, hold harmless and defend FFCA and its directors,
officers, shareholders, employees, successors, assigns, agents, contractors,
subcontractors, experts, licensees, affiliates, lessees, lenders, mortgagees,
trustees and invitees, as applicable (collectively, the "Indemnified Parties"),
from and against any and all losses, costs, claims, liabilities, damages and
expenses, including, without limitation, reasonable attorneys' fees, arising as
the result of an Environmental Condition and/or a breach of any of the
representations, warranties, covenants, agreements or obligations of Debtor set
forth in this Agreement. Without limiting the generality of the foregoing, such
indemnity shall include, without limitation, any engineering, governmental
inspection and reasonable attorneys' fees and expenses that the Indemnified
Parties may incur by reason of any representation set forth in this Agreement
being false, or by reason of any investigation or claim of any governmental
agency in connection therewith.
13. Miscellaneous Provisions.
A. Notices. All notices, consents, approvals or other instruments
required or permitted to be given by either party pursuant to this
Agreement shall be in writing and given by (i) hand delivery, (ii)
facsimile, (iii) express overnight delivery service or (iv) certified or
registered mail, return receipt requested, and shall be deemed to have been
delivered upon (a) receipt, if hand delivered, (b) transmission, if
delivered by facsimile, (c) the next business day, if delivered by express
overnight delivery service, or (d) the third business day following the day
of deposit of such notice with the United States Postal Service, if sent by
certified or registered mail, return receipt requested; provided, however,
if a notice is deposited with the United States Postal Service pursuant to
this item (d), such notice shall also be sent in accordance with at least
one of the other methods set forth in this Section 13(A). Notices shall be
provided to the parties and addresses (or facsimile numbers, as applicable)
specified below:
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If to Debtor: Family Steak Houses of Florida, Inc.
2113 Florida Boulevard
Neptune Beach, FL 32266
Attention: Edward B. Alexander
Telephone: (904) 249-4197
Telecopy: (904) 249-1466
If to FFCA: Dennis L. Ruben, Esq.
Senior Vice President and General Counsel
FFCA Mortgage Corporation
17207 North Perimeter Drive
Scottsdale, AZ 85255
Telephone: (602) 585-4500
Telecopy: (602) 585-2226
B. Real Estate Commission. FFCA and Debtor represent and warrant to
each other that they have dealt with no real estate or mortgage broker,
agent, finder or other intermediary in connection with the transactions
contemplated by this Agreement. FFCA and Debtor shall indemnify and hold
each other harmless from and against any costs, claims or expenses,
including attorneys' fees, arising out of the breach of their respective
representations and warranties contained within this Section.
C. Waiver and Amendment. No provisions of this Agreement shall be
deemed waived or amended except by a written instrument unambiguously
setting forth the matter waived or amended and signed by the party against
which enforcement of such waiver or amendment is sought. Waiver of any
matter shall not be deemed a waiver of the same or any other matter on any
future occasion.
D. Captions. Captions are used throughout this Agreement for
convenience of reference only and shall not be considered in any manner in
the construction or interpretation hereof.
E. FFCA's Liability. Notwithstanding anything to the contrary provided
in this Agreement, it is specifically understood and agreed, such agreement
being a primary consideration for the execution of this Agreement by FFCA,
that (i) there shall be absolutely no personal liability on the part of any
shareholder, director, officer or employee of FFCA, with respect to any of
the terms, covenants and conditions of this Agreement or the other Loan
Documents, (ii) Debtor waives all claims, demands and causes of action
against FFCA's officers, directors, employees and agents in the event of
any breach by FFCA of any of the terms, covenants and conditions of this
Agreement or the other Loan Documents to be performed by FFCA and (iii)
Debtor shall look solely to the assets of FFCA for the satisfaction of each
and every remedy of Debtor in the event of any breach by FFCA of any of the
terms, covenants and conditions of this Agreement or the other Loan
Documents to be performed by FFCA, such exculpation of liability to be
absolute and without any exception whatsoever.
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F. Severability. The provisions of this Agreement shall be deemed
severable. If any part of this Agreement shall be held unenforceable, the
remainder shall remain in full force and effect, and such unenforceable
provision shall be reformed by such court so as to give maximum legal
effect to the intention of the parties as expressed therein.
G. Construction Generally. This is an agreement between parties who
are experienced in sophisticated and complex matters similar to the
transaction contemplated by this Agreement and is entered into by both
parties in reliance upon the economic and legal bargains contained herein
and shall be interpreted and construed in a fair and impartial manner
without regard to such factors as the party which prepared the instrument,
the relative bargaining powers of the parties or the domicile of any party.
Debtor and FFCA were each represented by legal counsel competent in
advising them of their obligations and liabilities hereunder.
H. Other Documents. Each of the parties agrees to sign such other and
further documents as may be appropriate to carry out the intentions
expressed in this Agreement.
I. Attorneys' Fees. In the event of any judicial or other adversarial
proceeding between the parties concerning this Agreement, the prevailing
party shall be entitled to recover its attorneys' fees and other costs in
addition to any other relief to which it may be entitled. References in
this Agreement to the attorneys' fees and/or costs of FFCA shall mean both
the fees and costs of independent outside counsel retained by FFCA with
respect to this transaction and the fees and costs of FFCA's in-house
counsel incurred in connection with this transaction.
J. Entire Agreement. This Agreement and the other Loan Documents,
together with any other certificates, instruments or agreements to be
delivered in connection therewith, constitute the entire agreement between
the parties with respect to the subject matter hereof, and there are no
other representations, warranties or agreements, written or oral, between
Debtor and FFCA with respect to the subject matter of this Agreement.
Notwithstanding anything in this Agreement to the contrary, upon the
execution and delivery of this Agreement by Debtor and FFCA, the Commitment
shall be deemed null and void and of no further force and effect and the
terms and conditions of this Agreement shall control notwithstanding that
such terms may be inconsistent with or vary from those set forth in the
Commitment.
K. Forum Selection; Jurisdiction; Venue; Choice of Law. Debtor
acknowledges that this Agreement was substantially negotiated in the State
of Arizona, the Agreement was signed by FFCA in the State of Arizona and
delivered by Debtor in the State of Arizona, all payments under the Notes
-20-
<PAGE>
will be delivered in the State of Arizona and there are substantial
contacts between the parties and the transactions contemplated herein and
the State of Arizona. For purposes of any action or proceeding arising out
of this Agreement, the parties hereto hereby expressly submit to the
jurisdiction of all federal and state courts located in the State of
Arizona and Debtor consents that it may be served with any process or paper
by registered mail or by personal service within or without the State of
Arizona in accordance with applicable law. Furthermore, Debtor waives and
agrees not to assert in any such action, suit or proceeding that it is not
personally subject to the jurisdiction of such courts, that the action,
suit or proceeding is brought in an inconvenient forum or that venue of the
action, suit or proceeding is improper. It is the intent of the parties
hereto that all provisions of this Agreement shall be governed by and
construed under the laws of the State of Arizona. To the extent that a
court of competent jurisdiction finds Arizona law inapplicable with respect
to any provisions hereof, then, as to those provisions only, the laws of
the state where the Premises are located shall be deemed to apply. Nothing
in this Section shall limit or restrict the right of FFCA to commence any
proceeding in the federal or state courts located in the state in which the
Premises are located to the extent FFCA deems such proceeding necessary or
advisable to exercise remedies available under this Agreement or the other
Loan Documents.
L. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original.
M. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of Debtor and FFCA and their respective successors and
permitted assigns, including, without limitation, any United States
trustee, any debtor in possession or any trustee appointed from a private
panel.
N. Survival. Except for the conditions of Closing set forth in
Sections 2 and 9, which shall be satisfied or waived as of the Closing
Date, all representations, warranties, agreements, obligations and
indemnities of Debtor and FFCA set forth in this Agreement shall survive
the Closing.
O. Waiver of Jury Trial and Punitive, Consequential, Special and
Indirect Damages. DEBTOR AND FFCA HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH
RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR
COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR
ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO.
THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL
BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.
FURTHERMORE, DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT
DAMAGES FROM FFCA WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY
ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR AGAINST FFCA OR
ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO.
THE WAIVER BY DEBTOR OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE,
CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE
PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.
-21-
<PAGE>
P. Transfers, Participations and Securitization. A material inducement
to FFCA's willingness to complete the transactions contemplated by the Loan
Documents is Debtor's agreement that FFCA may, at any time, sell, transfer
or assign the Notes, Mortgages and the other Loan Documents, and any or all
servicing rights with respect thereto (each, a "Transfer"), or grant
participations therein (each, a "Participation"), or complete an asset
securitization vehicle selected by FFCA, in accordance with all
requirements which may be imposed by the investors or the rating agencies
involved in such securitized financing transaction, as selected by FFCA, or
which may be imposed by applicable securities, tax or other laws or
regulations, including, without limitation, laws relating to FFCA's status
as a real estate investment trust (each, a "Securitization").
Debtor agrees to cooperate in good faith with FFCA in connection with
any Transfer, Participation and/or Securitization, including, without
limitation, (i) providing such documents, financial and other data, and
other information and materials (the "Disclosures") which would typically
be required with respect to Debtor by a purchaser, transferee, assignee,
servicer, participant, investor or rating agency involved with respect to
such Transfer, Participation and/or the Securitization, as applicable;
provided, however, Debtor shall not be required to make Disclosures of any
confidential information or any information which has not previously been
made public unless required by applicable federal or state securities laws;
and (ii) amending the terms of the transactions evidenced by the Loan
Documents to the extent necessary so as to satisfy the requirements of
purchasers, transferees, assignees, servicers, participants, investors or
selected rating agencies involved in any such Transfers, Participations or
Securitization, so long as such amendments would not have a material
adverse effect upon Debtor or the transactions contemplated hereunder.
Debtor consents to FFCA providing the Disclosures, as well as any
other information which FFCA may now have or hereafter acquire with respect
to the Premises or the financial condition of Debtor, to each purchaser,
transferee, assignee, servicer, participant, investor or rating agency
involved with respect to each Transfer, Participation and/or
Securitization, as applicable. FFCA and Debtor shall each pay their own
reasonable attorneys fees and reasonable other out-of-pocket expenses
incurred in connection with the performance of their respective obligations
under this Section.
-22-
<PAGE>
IN WITNESS WHEREOF, Debtor and FFCA have entered into this Agreement as of
the date first above written.
FFCA:
Witness /s/PAULA J. MASIULEWICZ FFCA MORTGAGE CORPORATION,
-------------------- a Delaware corporation
Paula J. Masiulewicz
Witness /s/ANN L. HALPERN By /s/ROB ROACH
-------------- ------------
Ann L. Halpern Rob Roach
Its SVP
DEBTOR:
Witness /s/EDWARD B. ALEXANDER FAMILY STEAK HOUSES OF FLORIDA, INC.,
------------------- a Florida corporation
Edward B. Alexander
Witness /s/J. MICHAEL HUGHES By /s/LEWIS E. CHRISTMAN, JR.
----------------- -----------------------
J. Michael Hughes Lewis E. Christman, Jr.
Its President & CEO
-23-
<PAGE>
STATE OF ARIZONA ]
] SS.
COUNTY OF MARICOPA ]
I HEREBY CERTIFY that on this day, before me, an officer duly authorized in
the State aforesaid and in the County aforesaid to take acknowledgements, the
foregoing instrument was acknowledged before me by Rob Roach, the Senior Vice
President of FFCA Mortgage Corporation, a Delaware corporation, freely and
voluntarily under authority duly vested in him by said corporation and that the
seal affixed thereto is the true corporate seal of said corporation. He is
personally known to me or has produced as identification.
WITNESS my hand and official seal in the County and State last aforesaid
this 6th day of December, 1996.
/s/MARGARET J. CRAFT
-----------------
Margaret J. Craft
Notary Public
Typed, printed or stamped name of
Notary Public
My Commission Expires:
July 14, 1999
-24-
<PAGE>
STATE OF FLORIDA ]
] SS.
COUNTY OF DUVAL ]
I HEREBY CERTIFY that on this day, before me, an officer duly authorized in
the State aforesaid and in the County aforesaid to take acknowledgements, the
foregoing instrument was acknowledged before me by Lewis E. Christman, the
President and CEO of Family Steak Houses of Florida, Inc., a Florida
corporation, freely and voluntarily under authority duly vested in him by said
corporation and that the seal affixed thereto is the true corporate seal of said
corporation. He is personally known to me or has produced as identification.
----------------
WITNESS my hand and official seal in the County and State last aforesaid
this 4th day of December, 1996.
/s/STEPHANIE GRIFFITH
-----------------
Stephanie Griffith
Notary Public
Typed, printed or stamped name of
Notary Public
My Commission Expires:
August 24, 2000
-25-
<PAGE>
Exhibit 10.18 $4.64m Loan Agreement
================================================================================
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made as of , 1996, by and between
FFCA MORTGAGE CORPORATION, a Delaware corporation ("FFCA"), whose address is
17207 North Perimeter Drive, Scottsdale, Arizona 85255, and FAMILY STEAK HOUSES
OF FLORIDA, INC., a Florida corporation ("Debtor"), whose address is 2113
Florida Boulevard, Neptune Beach, Florida 32266.
PRELIMINARY STATEMENT:
Unless otherwise expressly provided herein, all defined terms used in this
Agreement shall have the meanings set forth in Section 1. Debtor has requested
from FFCA, and applied for, the Loans to provide refinancing for the Premises,
and for no other purpose whatsoever. Each Loan will be evidenced by a Note and
secured by a first priority security interest in the corresponding Premises
pursuant to a Mortgage. FFCA has committed to make the Loans pursuant to the
terms and conditions of the Commitment, this Agreement and the other Loan
Documents.
AGREEMENT:
In consideration of the mutual covenants and provisions of this Agreement,
the parties agree as follows:
1. Definitions. The following terms shall have the following meanings for
all purposes of this Agreement:
"Closing" means the consummation of each Loan.
"Closing Date" means, with respect to each Premises, the date FFCA makes
the Loan for such Premises.
"Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq.,
as amended.
"Commitment" means that certain Commitment Letter dated September 27, 1996
between FFCA and Debtor, and any amendments or supplements thereto.
"Counsel" means legal counsel to Debtor, licensed in the state(s) in which
(i) the Premises are located, (ii) Debtor is incorporated or formed and (iii)
Debtor maintains principal places of business, as selected by Debtor as the case
may be, and approved by FFCA.
<PAGE>
"Environmental Condition" means any condition with respect to soil, surface
waters, groundwaters, land, stream sediments, surface or subsurface strata,
ambient air and any environmental medium comprising or surrounding the Premises,
whether or not yet discovered, which could or does result in any damage, loss,
cost, expense, claim, demand, order or liability to or against Debtor or FFCA by
any third party (including, without limitation, any government entity),
including, without limitation, any condition resulting from the operation of
Debtor's business and/or the operation of the business of any other property
owner or operator in the vicinity of the Premises and/or any activity or
operation formerly conducted by any person or entity on or off the Premises.
"Environmental Indemnity Agreements" means that certain Environmental
Indemnity Agreement to be executed by Debtor for the benefit of FFCA for each of
the Premises substantially in the form of Exhibit E attached to this Agreement.
"Environmental Laws" means any present and future federal, state and local
laws, statutes, ordinances, rules, regulations and the like, as well as common
law, relating to protection of human health or the environment, relating to
Hazardous Materials, relating to liability for or costs of Remediation or
prevention of Releases or relating to liability for or costs of other actual or
threatened danger to human health or the environment. "Environmental Laws"
includes, but is not limited to, the following statutes, as amended, any
successor thereto, and any regulations promulgated pursuant thereto, and any
state or local statutes, ordinances, rules, regulations and the like addressing
similar issues: the Comprehensive Environmental Response, Compensation and
Liability Act; the Emergency Planning and Community Right-to-Know Act; the
Hazardous Materials Transportation Act; the Resource Conservation and Recovery
Act (including but not limited to Subtitle I relating to underground storage
tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act;
the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational
Safety and Health Act; the Federal Water Pollution Control Act; the Federal
Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the
National Environmental Policy Act; and the River and Harbors Appropriation Act.
"Environmental Laws" also includes, but is not limited to, any present and
future federal, state and local laws, statutes, ordinances, rules, regulations
and the like, as well as common law: conditioning transfer of property upon a
negative declaration or other approval of a governmental authority of the
environmental condition of the property; requiring notification or disclosure of
Releases or other environmental condition of the Premises to any governmental
authority or other person or entity, whether or not in connection with transfer
of title to or interest in property; imposing conditions or requirements in
connection with permits or other authorization for lawful activity; relating to
nuisance, trespass or other causes of action related to the Premises; and
relating to wrongful death, personal injury, or property or other damage in
connection with any physical condition or use of the Premises.
"Event of Default" has the meaning set forth in Section 10.
"Fee" means an underwriting, site assessment, valuation, processing and
commitment fee equal to 1.5% of the Loan Amounts for each of the Premises, which
Fee shall be payable as set forth in Section 3.
-2-
<PAGE>
"Franchisor" means Ryan's Properties, Inc., a Delaware corporation, and its
successors.
"Hazardous Materials" means (a) any toxic substance or hazardous waste,
substance or related material, or any pollutant or contaminant; (b) radon gas,
asbestos in any form which is or could become friable, urea formaldehyde foam
insulation, transformers or other equipment which contains dielectric fluid
containing levels of polychlorinated biphenyls in excess of federal, state or
local safety guidelines, whichever are more stringent, or any petroleum product;
(c) any substance, gas, material or chemical which is or may be defined as or
included in the definition of "hazardous substances," "toxic substances,"
"hazardous materials," hazardous wastes" or words of similar import under any
Environmental Laws; and (d) any other chemical, material, gas or substance the
exposure to or release of which is or may be prohibited, limited or regulated by
any governmental or quasi-governmental entity or authority that asserts or may
assert jurisdiction over the Premises or the operations or activity at the
Premises, or any chemical, material, gas or substance that does or may pose a
hazard to the health and/or safety of the occupants of the Premises or the
owners and/or occupants of property adjacent to or surrounding the Premises.
"Loan" or "Loans" means, as the context requires, the loan for each of the
Premises described in Section 2 and in the amount not to exceed that set forth
in Exhibit A. Each Loan will be evidenced by a Note and secured by a Mortgage.
"Loan Amount" or "Loan Amounts" means, as the context requires, the maximum
loan amount set forth on the attached Exhibit A for each of the Premises.
"Loan Documents" means, collectively, this Agreement, the Notes, the
Mortgages, the Environmental Indemnity Agreements, the UCC-1 Financing
Statements, the Commitment and all other documents executed in connection
therewith or contemplated thereby.
"Mortgage" means the mortgage, assignment of rents and leases, security
agreement and fixture filing to be executed for each of the Premises
substantially in the form of Exhibit C attached to this Agreement.
"Note" or "Notes" means, as the context requires, the promissory notes
evidencing the Loan substantially in the form attached hereto as Exhibit B. A
Note will be executed by Seller for each of the Premises in the principal amount
set forth in Exhibit A.
"Notice" has the meaning set forth in Section 2.
"Permitted Exceptions" means those exceptions to title approved in writing
by FFCA pursuant to Section 9.
"Premises" means the parcels of real estate described in Exhibit A attached
hereto, all rights, privileges and appurtenances associated therewith, and all
buildings, fixtures and other improvements now or hereafter located thereon
(whether or not affixed to such real estate).
-3-
<PAGE>
"Release" means any presence, release, deposit, discharge, emission,
leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying,
escaping, dumping, disposing or other movement of Hazardous Materials.
"Remediation" means any response, remedial, removal, or corrective action,
any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate
any Hazardous Material, any actions to prevent, cure or mitigate any Release,
any action to comply with any Environmental Laws or with any permits issued
pursuant thereto, any inspection, investigation, study, monitoring, assessment,
audit, sampling and testing, laboratory or other analysis, or any evaluation
relating to any Hazardous Materials.
"Reports" means the phase I environmental reports (and phase II
environmental reports if the same are recommended by such phase I reports
regarding any of the Premises) to be prepared as contemplated by Section 9.E.
hereof regarding each of the Premises, which Reports shall be satisfactory in
form and substance to FFCA in its sole discretion.
"Threatened Release" means a substantial likelihood of a Release which
requires action to prevent or mitigate damage to the soil, surface waters,
groundwaters, land, stream sediments, surface or subsurface strata, ambient air
or any other environmental medium comprising or surrounding the Premises which
may result from such Release.
"Title Company" means the title insurance company described in Section 4.
"UCC-1 Financing Statements" means such UCC-1 Financing Statements as FFCA
shall require to be executed and delivered by Debtor with respect to the
Premises.
2. Transaction. On the terms and subject to the conditions set forth in the
Loan Documents, FFCA agrees to make the Loans to Debtor. The maximum Loan Amount
for each of the Premises is set forth on the attached Exhibit A. Each Loan will
be evidenced by a Note and secured by a Mortgage. Debtor shall repay the
outstanding principal amount of the Loans together with interest thereon in the
manner and in accordance with the terms and conditions of the Notes and the
other Loan Documents. The Notes will mature on the twentieth anniversary
thereof. The Loans shall be advanced at the Closing in cash or its equivalent
subject to any prorations and adjustments required by this Agreement.
Debtor shall deliver a notice to FFCA when it desires FFCA to make a Loan
at least 45 days prior to the date Debtor desires to receive the Loan Amount
(each, a "Notice"). Debtor shall indicate in each Notice the Loan Amount that
Debtor desires to borrow for each Premises. Each Loan Amount shall be advanced
in a single funding. FFCA shall not be obligated to fund any Loan for a Premises
for which Debtor has not delivered a Notice to FFCA prior to October 20, 1997,
nor shall FFCA be obligated to fund any Loan for which Debtor has delivered a
Notice to FFCA prior to October 20, 1997 but Debtor does not satisfy the
conditions precedent set forth in this Agreement for the funding of such Loan
prior to December 5, 1997.
-4-
<PAGE>
3. Underwriting, Site Assessment, Valuation, Processing and Commitment Fee.
Debtor paid FFCA a portion of the Fee in connection with the Loans for the
Premises and eighteen other Premises subject to that certain loan agreement by
and between Debtor and FFCA of even date herewith in the amount of $150,000
pursuant to the Commitment and such portion was deemed fully earned when
received. Debtor shall pay FFCA the remaining portion of the Fee at the time of
the Closing of each Loan. The Fee shall be deemed fully earned upon such
Closing. The Fee for each Loan shall be applied by FFCA in payment of (i) the
Phase I environmental report to be delivered pursuant to Section 9.E for the
corresponding Premises, (ii) the customary fees and expenses of FFCA's attorneys
for such Loan, and (iii) FFCA's in house site inspection costs and fees incurred
with respect to such Loan. The balance of the Fee remaining after payment of
such fees, expenses and costs constitutes FFCA's underwriting, site assessment,
valuation, processing and commitment fee for such Loan.
4. Closing. FFCA will order a title insurance commitment for each of the
Premises from Lawyers Title Insurance Corporation or an alternative title
company approved by FFCA ("Title Company"). Prior to each Closing Date, the
parties hereto shall deposit with Title Company all documents and moneys
necessary to comply with their obligations under this Agreement. Title Company
shall not cause each Loan to close unless and until it has received written
instructions from FFCA to do so. Except for the fees, expenses and costs to be
paid from the Fee by FFCA pursuant to Section 3, all costs of each Loan (the
"Costs") shall be borne by Debtor, including, without limitation, the cost of
title insurance, the attorneys' fees of Debtor, attorneys' fees and expenses of
FFCA (but only to the extent FFCA's reasonable attorneys' fees and/or expenses
exceed the customary fees and/or expenses due to extended document negotiations
and/or revisions and/or extraordinary closing issues), the cost of the surveys,
stamp taxes, transfer fees, escrow and recording fees and site inspection fees
for the Premises. Debtor may apply a portion of each Loan Amount toward the
payment of the corresponding Costs. All real and personal property and other
applicable taxes and assessments and other charges relating to the Premises
which are due and payable on or prior to the Closing Date as well as taxes and
assessments due and payable subsequent to the Closing Date but which Title
Company requires to be paid at Closing as a condition to the issuance of the
title insurance policy described in Section 9.C, shall be paid by Debtor at or
prior to the Closing, and all other taxes and assessments shall be paid by
Debtor. The closing documents shall be dated as of the Closing Date.
Debtor and FFCA hereby employ Title Company to act as escrow agent in
connection with this transaction. Debtor and FFCA will deliver to Title Company
all documents, pay to Title Company all sums and do or cause to be done all
other things necessary or required by this Agreement, in the reasonable judgment
of Title Company, to enable Title Company to comply herewith and to enable any
title insurance policy provided for herein to be issued. Title Company is
authorized to pay, from any funds held by it for FFCA's or Debtor's respective
credit all amounts necessary to procure the delivery of such documents and to
pay, on behalf of FFCA and Debtor, all charges and obligations payable by them,
respectively. Debtor will pay all charges payable by it to Title Company. Title
Company is authorized, in the event any conflicting demand is made upon it
concerning these instructions or the escrow, at its election, to hold any
documents and/or funds deposited hereunder until an action shall be brought in a
court of competent jurisdiction to determine the rights of Debtor and FFCA or to
interplead such documents and/or funds in an action brought in any such court.
-5-
<PAGE>
Deposit by Title Company of such documents and funds, after deducting therefrom
its charges and its expenses and attorneys' fees incurred in connection with any
such court action, shall relieve Title Company of all further liability and
responsibility for such documents and funds. Title Company's receipt of this
Agreement and opening of an escrow pursuant to this Agreement shall be deemed to
constitute conclusive evidence of Title Company's agreement to be bound by the
terms and conditions of this Agreement pertaining to Title Company. Disbursement
of any funds shall be made by check, certified check or wire transfer, as
directed by FFCA. Title Company shall be under no obligation to disburse any
funds represented by check or draft, and no check or draft shall be payment to
Title Company in compliance with any of the requirements hereof, until it is
advised by the bank in which such check or draft is deposited that such check or
draft has been honored. Title Company is authorized to act upon any statement
furnished by the holder or payee, or a collection agent for the holder or payee,
of any lien on or charge or assessment in connection with the Premises,
concerning the amount of such charge or assessment or the amount secured by such
lien, without liability or responsibility for the accuracy of such statement.
The employment of Title Company as escrow agent shall not affect any rights of
subrogation under the terms of any title insurance policy issued pursuant to the
provisions thereof.
5. Representations and Warranties of FFCA. The representations and
warranties of FFCA contained in this Section are being made to induce Debtor to
enter into this Agreement and consummate the transactions contemplated herein,
and Debtor has relied, and will continue to rely, upon such representations and
warranties from and after the execution of this Agreement and each Closing. FFCA
represents and warrants to Debtor as follows as of the date of this Agreement
and each Closing Date:
A. Organization of FFCA. FFCA has been duly formed, is validly
existing and has taken all necessary action to authorize the execution,
delivery and performance by FFCA of this Agreement.
B. Authority of FFCA. The person who has executed this Agreement on
behalf of FFCA is duly authorized so to do.
C. Enforceability. Upon execution by FFCA, this Agreement shall
constitute the legal, valid and binding obligation of FFCA, enforceable
against FFCA in accordance with its terms.
All representations and warranties of FFCA made in this Agreement shall be
and will remain true and complete as of each Closing Date as if made and
restated in full as of such date, and shall survive each Closing.
6. Representations and Warranties of Debtor. The representations and
warranties of Debtor contained in this Section are being made to induce FFCA to
enter into this Agreement and consummate the transactions contemplated herein,
and FFCA has relied, and will continue to rely, upon such representations and
warranties from and after the execution of this Agreement and each Closing.
Debtor represents and warrants to FFCA as follows as of the date of this
Agreement and each Closing Date:
-6-
<PAGE>
A. Information and Financial Statements. Debtor has delivered to FFCA
financial statements (either audited financial statements or, if Debtor
does not have audited financial statements, certified financial statements)
and certain other information concerning itself, which financial statements
and other information are true, correct and complete in all material
respects; and no material adverse change has occurred with respect to any
such financial statements and other information provided to FFCA since the
date such financial statements and other information were prepared or
delivered to FFCA. Debtor understands that FFCA is relying upon such
financial statements and information and Debtor represents that such
reliance is reasonable. All such financial statements were prepared in
accordance with generally accepted accounting principles consistently
applied and accurately reflect as of the date of this Agreement and the
Closing Date, the financial condition of each individual or entity to which
they pertain.
B. Organization and Authority of Debtor. (1) Debtor is duly organized
or formed, validly existing and in good standing under the laws of its
state of incorporation or formation, and qualified as a foreign
corporation, partnership or limited liability company to do business in any
jurisdiction where such qualification is required. All necessary corporate,
partnership or limited liability company action has been taken to authorize
the execution, delivery and performance of this Agreement and of the other
documents, instruments and agreements provided for herein.
(2) The persons who have executed this Agreement on behalf of Debtor
are duly authorized so to do.
C. Enforceability of Documents. Upon execution by Debtor respectively,
this Agreement and the other documents, instruments and agreements to be
executed in connection with this Agreement, shall constitute the legal,
valid and binding obligations of Debtor, respectively, enforceable against
Debtor in accordance with their respective terms.
D. Litigation. Except as set forth on Exhibit F (the "Litigation"),
there are no suits, actions, proceedings or investigations pending or
threatened against or involving Debtor or the Premises before any court,
arbitrator, or administrative or governmental body. If any or all of the
Litigation is resolved unfavorably to Debtor, such resolution will not
result in any material adverse change in the contemplated business,
condition or worth or operations of Debtor or the Premises.
E. Absence of Breaches or Defaults. Debtor is not, and the
authorization, execution, delivery and performance of this Agreement and
the documents, instruments and agreements provided for herein will not
result, in any breach or default under any other document, instrument or
agreement to which Debtor are a party or by which Debtor, the Premises or
any of the property of Debtor is subject or bound. The authorization,
execution, delivery and performance of this Agreement and the documents,
instruments and agreements provided for herein will not violate any
applicable law, statute, regulation, rule, ordinance, code, rule or order.
-7-
<PAGE>
F. Utilities. The Premises are served by ample public utilities to
permit full utilization of the Premises for their intended purpose and all
utility connection fees and use charges will have been paid in full.
G. Intended Use and Zoning; Compliance With Laws. Debtor intends to
use the Premises solely for the operation of Franchisor restaurants, and
related ingress, egress and parking, and for no other purposes. Such
intended use will not violate any zoning or other governmental requirement
applicable to the Premises. The Premises substantially comply with all
applicable statutes, regulations, rules, ordinances, codes, licenses,
permits, orders and approvals of any governmental agencies, departments,
commissions, bureaus, boards or instrumentalities of the United States, the
states in which the Premises are located and all political subdivisions
thereof, including, without limitation, all health, building, fire, safety
and other codes, ordinances and requirements, all applicable standards of
the National Board of Fire Underwriters and the Americans With Disabilities
Act of 1990.
H. Area Development; Wetlands. No condemnation or eminent domain
proceedings affecting the Premises have been commenced or, to the best of
Debtor's knowledge, are contemplated. To the best of Debtor's knowledge,
the areas where the Premises are located have not been declared blighted by
any governmental authority. The Premises and/or the real property bordering
the Premises is not designated by any applicable federal, state and/or
local governmental authority as a wetlands.
I. Licenses and Permits; Access. Debtor has all required licenses and
permits, both governmental and private, to use and operate the Premises in
the intended manner. There are adequate rights of access to public roads
and ways available to the Premises to permit full utilization of the
Premises for their intended purposes and all such public roads and ways
have been completed and dedicated to public use.
J. Condition of Premises. The Premises, including the equipment
located thereon, is of good workmanship and materials, fully equipped and
operational, in good condition and repair, free from structural defects,
clean, orderly and sanitary, safe, well-lit, landscaped, decorated,
attractive and well-maintained.
K. Environmental. Debtor is fully familiar with the present use of the
Premises, and, after due inquiry, Debtor has become generally familiar with
the prior uses of the Premises. Except as set forth in the Reports, no
Hazardous Materials have been used, handled, manufactured, generated,
produced, stored, treated, processed, transferred or disposed of at or on
the Premises, except in compliance with all applicable Environmental Laws,
and no Release or Threatened Release has occurred at or on the Premises.
The activities, operations and business undertaken on, at or about the
Premises, including, but not limited to, any past or ongoing alterations or
improvements at the Premises, are and have been at all times, in compliance
with all Environmental Laws. No further action is required to remedy any
Environmental Condition or violation of, or to be in full compliance with,
any Environmental Laws, and no lien has been imposed on the Premises in any
federal, state or local governmental or quasi-governmental entity in
connection with any Environmental Condition, the violation or threatened
violation of any Environmental Laws or the presence of any Hazardous
Materials on or off the Premises.
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There is no pending or threatened litigation or proceeding before any
court, administrative agency or governmental body in which any person or
entity alleges the violation or threatened violation of any Environmental
Laws or the presence, Release, Threatened Release or placement on or at the
Premises of any Hazardous Materials, or of any facts which would give rise
to any such action, nor has Debtor (a) received any notice (and Debtor has
no actual or constructive knowledge) that any governmental or
quasi-governmental authority or any employee or agent thereof has
determined, threatens to determine or requires an investigation to
determine that there has been a violation of any Environmental Laws at, on
or in connection with the Premises or that there exists a presence,
Release, Threatened Release or placement of any Hazardous Materials on or
at the Premises, or the use, handling, manufacturing, generation,
production, storage, treatment, processing, transportation or disposal of
any Hazardous Materials at or on the Premises; (b) received any notice
under the citizen suit provision of any Environmental Law in connection
with the Premises or any facilities, operations or activities conducted
thereon, or any business conducted in connection therewith; or (c) received
any request for inspection, request for information, notice, demand,
administrative inquiry or any formal or informal complaint or claim with
respect to or in connection with the violation or threatened violation of
any Environmental Laws or existence of Hazardous Materials relating to the
Premises or any facilities, operations or activities conducted thereon or
any business conducted in connection therewith.
L. Title to Premises; First Priority Lien. Title to the Premises is
vested in Debtor, free and clear of all liens, encumbrances, charges and
security interests of any nature whatsoever, except the Permitted
Exceptions. Upon each Closing, FFCA shall have a first priority lien on the
Premises which is the subject of such Closing pursuant to the corresponding
Mortgage and the UCC-1 Financing Statements.
M. No Other Agreements and Options. Neither Debtor nor the Premises
are subject to any commitment, obligation, or agreement, including, without
limitation, any right of first refusal, option to purchase or lease granted
to a third party, which could or would prevent or hinder FFCA in making the
Loans or prevent or hinder Debtor from fulfilling its obligations under
this Agreement or the other Loan Documents.
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N. No Mechanics' Liens. There are no outstanding accounts payable,
mechanics' liens, or rights to claim a mechanics' lien in favor of any
materialman, laborer, or any other person or entity in connection with
labor or materials furnished to or performed on any portion of the
Premises; no work has been performed or is in progress nor have materials
been supplied to the Premises or agreements entered into for work to be
performed or materials to be supplied to the Premises prior to the date
hereof, which will not have been fully paid for on or before each Closing
Date or which might provide the basis for the filing of such liens against
the Premises or any portion thereof; Debtor shall be responsible for any
and all claims for mechanics' liens and accounts payable that have arisen
or may subsequently arise due to agreements entered into for and/or any
work performed on, or materials supplied to the Premises prior to each
Closing Date; and Debtor shall and does hereby agree to defend, indemnify
and forever hold FFCA and FFCA's designees harmless from and against any
and all such mechanics' lien claims, accounts payable or other commitments
relating to the Premises.
O. No Reliance. Debtor acknowledges that FFCA is not affiliated with,
and has no business relationship with, Franchisor, other than
landlord/tenant and/or creditor/debtor relationships unrelated to the
transaction set forth in this Agreement, and that FFCA did not prepare or
assist in the preparation of any of the projected financial information
used by Debtor in analyzing the economic viability and feasibility of the
transaction contemplated by this Agreement. Furthermore, Debtor
acknowledges that it has not relied upon, nor may it hereafter rely upon,
the analysis undertaken by FFCA in determining the amount of the Loans, and
such analysis will not be made available to Debtor.
P. Franchisor Provisions. Debtor has entered into franchise, license
and/or area development agreements with Franchisor for the conduct of
business at the Premises. Such franchise, license and/or area development
agreements are in full force and effect, permit Debtor to operate the
Premises as Franchisor restaurants, and have terms which will not expire
before the scheduled maturity date of the Notes.
All representations and warranties of Debtor made in this Agreement shall
be and will remain true and complete as of and subsequent to each Closing Date
as if made and restated in full as of such time and shall survive each Closing.
7. Covenants. Debtor covenants to FFCA as follows from and after the date
of this Agreement with respect to the following subsection A and from and after
the Closing of the first Loan with respect to each of the following subsections
B and C:
A. Inspections. Debtor shall, at all reasonable times, (i) provide
FFCA and FFCA's officers, employees, agents, advisors, attorneys,
accountants, architects, and engineers with access to the Premises, all
drawings, plans, and specifications for the Premises in possession of
Debtor, all engineering reports relating to the Premises in the possession
of Debtor, the files and correspondence relating to the Premises, and the
financial books and records, including lists of delinquencies, relating to
the ownership, operation, and maintenance of the Premises, and (ii) allow
such persons to make such inspections, tests, copies, and verifications as
FFCA considers necessary.
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<PAGE>
B. Fixed Charge Coverage Ratio. Until such time as all of Debtor's
obligations under the outstanding Notes and the other Loan Documents are
paid, satisfied and discharged in full, on each December 31 (or such other
date on which Debtor's fiscal year ends) while such Notes are outstanding:
(i) Debtor shall maintain an aggregate Fixed Charge Coverage
Ratio calculated for all of the Premises for which Closings have
occurred of at least 1.15:1; and
(ii) If Closings for at least three Loans have occurred, no more
than one of the corresponding Premises shall have a Fixed Charge
Coverage Ratio calculated for each such Premises below 1.0:1. If
Closings for at least four of the Loans have occurred, no more than
two of the corresponding Premises shall have a Fixed Charge Coverage
Ratio calculated for each such Premises below 1.0:1.
For purposes of this Section, the term "Fixed Charge Coverage Ratio" shall
mean with respect to all of the Premises for which Closings have occurred
in the aggregate or individually, as applicable, and the twelve month
period of time immediately preceding the date of determination, the ratio
calculated for such period of time of (a) the sum of Net Income,
Depreciation and Amortization, Interest Expense and Operating Lease
Expenses, less a corporate overhead allocation in an amount equal to 3% of
Gross Sales, to (b) the sum of the FFCA Payments and the Equipment Payment
Amount.
For purposes of this Section, the following terms shall be defined as set
forth below:
"Capital Lease" shall mean any lease of any property (whether real,
personal or mixed) by Debtor with respect to the applicable Premises which
lease would, in conformity with generally accepted accounting principles
consistently applied, be required to be accounted for as a capital lease on
the balance sheet of Debtor.
"Debt" shall mean with respect to Debtor, the applicable Premises and
the period of determination (i) indebtedness for borrowed money, (ii)
obligations evidenced by bonds, indentures, notes or similar instruments,
(iii) obligations to pay the deferred purchase price of property or
services, (iv) obligations under leases which shall have been or should be,
in accordance with generally accepted accounting principles consistently
applied, recorded as "Capital Leases", and (v) obligations under direct or
indirect guarantees in respect of, and obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to assure a
creditor against loss in respect of, indebtedness or obligations of others
of the kinds referred to in clauses (i) through (iv) above.
"Depreciation and Amortization" shall mean the depreciation and
amortization accruing during any period of determination with respect to
the applicable Premises as determined in accordance with generally accepted
accounting principles consistently applied.
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<PAGE>
"Equipment Payment Amount" shall mean for any period of determination
the sum of all amounts payable during such period of determination under
all (i) leases for equipment located at the applicable Premises, and (ii)
all loans secured by equipment located at the applicable Premises.
"FFCA Payments" shall mean for any period of determination, the sum of
all amounts payable under the applicable Note(s).
"Gross Sales" shall mean the sales or other income arising from all
business conducted on the applicable Premises during the period of
determination, less sales tax and any amounts received from not-for-profit
sales of all non-food items approved for use in connection with promotional
campaigns, if any, by Franchisor.
"Interest Expense" shall mean for any period of determination, the sum
of all interest accrued or which should be accrued in respect of all Debt
of Debtor allocable to the applicable Premises, as the case may be, and all
business operations thereon during such period (including interest
attributable to Capital Leases), as determined in accordance with generally
accepted accounting principles consistently applied.
"Net Income" shall mean with respect to Debtor and with respect to the
period of determination, the net income or net loss of Debtor adjusted for
nonrecurring gains and losses allocable to the applicable Premises as the
case may be, and to such period (before provision or benefit for income
taxes or charges equivalent to income taxes allocable to such period, as
determined in accordance with generally accepted accounting principles
consistently applied but before provision for corporate overhead expense
allocable to the applicable Premises and to such period).
"Operating Lease Expense" shall mean the expenses incurred by Debtor
under any operating leases with respect to of the applicable Premises
and/or the business operations thereon during the period of determination
in accordance with generally accepted accounting principles consistently
applied.
C. Net Worth. At all times while the obligations of Debtor to FFCA
pursuant to the Loan Documents are outstanding, Debtor shall maintain a net
worth of at least $2,000,000, as determined in accordance with generally
accepted accounting principles consistently applied.
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<PAGE>
8. Transaction Characterization. This Agreement is a contract to extend a
financial accommodation (as such term is used in the Code) for the benefit of
Debtor. It is the intent of the parties hereto that the business relationship
created by this Agreement, the Notes, the Mortgages and the other Loan Documents
is solely that of creditor and debtor and has been entered into by both parties
in reliance upon the economic and legal bargains contained in the Loan
Documents. None of the agreements contained in the Loan Documents is intended,
nor shall the same be deemed or construed, to create a partnership between
Debtor and FFCA, to make them joint venturers, to make Debtor an agent, legal
representative, partner, subsidiary or employee of FFCA, nor to make FFCA in any
way responsible for the debts, obligations or losses of Debtor.
9. Conditions of Each Closing. The obligation of FFCA to consummate each of
the Closings is subject to the fulfillment or waiver of each of the following
conditions with respect to the corresponding Premises and Loan:
A. Title. Title to the Premises shall be vested in Debtor, free of all
liens, encumbrances, restrictions, encroachments and easements, except as
otherwise specifically provided herein or agreed to in writing by FFCA
("Permitted Exceptions"), and the liens created by the Mortgages and the
UCC-1 Financing Statements. Upon Closing, FFCA will obtain a valid and
perfected first priority lien upon and security interest in the Premises.
B. Condition of Premises. FFCA shall have inspected and approved the
Premises, the Premises and the equipment located thereon shall be in good
condition and repair and of good workmanship and materials, and the
Premises shall be fully equipped and operational, clean, orderly, sanitary,
safe, well-lit, landscaped, decorated, attractive and with a suitable
layout, physical plant, traffic pattern and location, all as determined by
FFCA in its sole discretion.
C. Evidence of Title. FFCA shall have received for the Premises a
preliminary title report and irrevocable commitment to insure title by
means of a mortgagee's, ALTA extended coverage policy of title insurance
(or its equivalent, in the event such form is not issued in the
jurisdiction where the Premises is located) issued by Title Company showing
good and marketable title in the Premises in Debtor, committing to insure
FFCA's first priority lien upon and security interest in the Premises
subject only to Permitted Exceptions and containing such endorsements as
FFCA may require.
D. Survey. FFCA shall have received a current ALTA survey of the
Premises, the form and substance of which shall be satisfactory to FFCA in
its sole discretion. Debtor shall have provided FFCA with evidence
satisfactory to FFCA that the location of the Premises is not within the
100-year flood plain or identified as a special flood hazard area as
defined by the Federal Insurance Administration.
E. Environmental. FFCA shall have received the Reports for the
Premises, the form, substance and conclusions of which shall be
satisfactory to FFCA in its sole discretion.
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<PAGE>
F. Compliance With Representations, Warranties and Covenants. All
obligations of Debtor under this Agreement shall have been fully performed
and complied with, and no event shall have occurred or condition shall
exist which would, upon the Closing Date, or, upon the giving of notice
and/or passage of time, constitute a breach or default hereunder or under
the Loan Documents, the franchise, license and/or area development
agreements with Franchisor for the Premises or any other agreement between
or among FFCA, Debtor or Franchisor pertaining to the subject matter
hereof, and no event shall have occurred or condition shall exist or
information shall have been disclosed by Debtor or discovered by FFCA which
has had or would have a material adverse effect on the Premises, Debtor or
FFCA's willingness to consummate the transaction contemplated by this
Agreement, as determined by FFCA in its sole and absolute discretion.
G. Proof of Insurance. Debtor shall have delivered to FFCA copies of
insurance policies, showing that all insurance required by the Loan
Documents and providing coverage and limits satisfactory to FFCA are in
full force and effect.
H. Opinion of Counsel to Debtor. Debtor shall have caused Counsel to
prepare and deliver an opinion substantially in the form attached as
Exhibit D.
I. Availability of Funds. FFCA presently has sufficient funds to
discharge its obligations under this Agreement. In the event that the
transaction contemplated by this Agreement does not close on or before the
Closing Date, FFCA does not warrant that it will thereafter have sufficient
funds to consummate the transaction contemplated by this Agreement.
J. Franchise Agreement. FFCA shall have received a certificate from
Franchisor in form and substance acceptable to FFCA that the franchise,
license and/or area development agreement(s)s between Debtor and Franchisor
with respect to the Premises are valid, binding and in full force and
effect, with terms that will not expire before the scheduled maturity date
of the corresponding Note(s), and no events have occurred which could
constitute a default under the Loan Documents, and Franchisor waives all
rights of first refusal set forth in such agreement as to FFCA and its
successors and assigns.
K. Closing Documents. At or prior to the Closing Date, FFCA
and/or Debtor, as may be appropriate, shall execute and deliver or cause to
be executed and delivered to Title Company or FFCA, as may be appropriate,
all documents required to be delivered by this Agreement, and such other
documents, payments, instruments and certificates, as FFCA may require in
form acceptable to FFCA, including, without limitation, the following:
(1) Notes;
(2) Mortgages;
(3) Franchisor's Certificates;
(4) Proof of Insurance;
(5) Opinion of Counsel to Debtor;
(6) UCC-1 Financing Statements; and
(7) Environmental Indemnity Agreements.
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<PAGE>
Upon fulfillment or waiver of all of the above conditions, FFCA shall deposit
funds necessary to close this transaction with the Title Company and this
transaction shall close in accordance with the terms and conditions of this
Agreement.
10. Default and Remedies. A. Each of the following shall be deemed an event
of default by Debtor (an "Event of Default"):
(1) If any material representation or warranty of Debtor is false in
any material respect when made or becomes false in any material respect
prior to each Closing Date, or, in the event any such representation or
warranty is continuing after any Closing, if any such representation or
warranty becomes false in any respect at any time, or if Debtor renders any
false statement or account;
(2) If any principal, interest or other monetary sum due under any of
the Notes, the Mortgages or any other Loan Document is not paid within five
days after the date when due;
(3) If Debtor fails to observe or perform any of the other material
covenants, conditions, or obligations of this Agreement or any other Loan
Document within the applicable grace or cure period;
(4) If Debtor becomes insolvent within the meaning of the Code, files
or notifies FFCA that it intends to file a petition under the Code,
initiates a proceeding under any similar law or statute relating to
bankruptcy, insolvency, reorganization, winding up or adjustment of debts
(collectively, an "Action"), becomes the subject of either a petition under
the Code or an Action, or is not generally paying its debts as the same
become due;
(5) If there is a breach or default under any other agreement or
instrument, including, without limitation, promissory notes and guaranties,
between, among or by (1) Debtor, any general or limited partnership
organized in accordance with the laws of any state of the United States or
its territories of which Debtor, or any partner, officer, director or
shareholder of Debtor is a holder of a general or limited partnership
interest, or any corporation or other entity affiliated with Debtor or by
any partner, officer, director or shareholder of Debtor and, or for the
benefit of, (2) FFCA or any corporation, partnership, joint venture,
limited liability company, association or other form of entity affiliated
with FFCA; or
(6) If any event occurs or condition exists which does or would upon
each Closing Date constitute a material breach or default under any of the
Loan Documents or any other agreement between Debtor and FFCA pertaining to
the subject matter hereof.
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B. If any Event of Default occurs pursuant to subsection A(2) above, FFCA
shall not be entitled to exercise its remedies set forth in subsection E below
unless and until FFCA shall have given Debtor notice thereof and a period of
five days from the delivery of such notice shall have elapsed without such Event
of Default being cured.
C. If any event occurs pursuant to subsection A(3) subsequent to the
Closing and does not involve a breach of the Fixed Charge Coverage Ratio or the
payment of any monetary sum, is not willful or intentional, does not place any
rights or property of FFCA in immediate jeopardy, and is within the reasonable
power of Debtor to promptly cure after receipt of notice thereof, all as
determined by FFCA in its reasonable discretion, then such event shall not
constitute an Event of Default hereunder, unless otherwise expressly provided
herein, unless and until FFCA shall have given Debtor notice thereof and a
period of 30 days shall have elapsed, during which period Debtor may correct or
cure such event, upon failure of which an Event of Default shall be deemed to
have occurred hereunder without further notice or demand of any kind. If such
nonmonetary event cannot reasonably be cured within such 30-day period, as
determined by FFCA in its reasonable discretion, and Debtor is diligently
pursuing a cure of such event, then Debtor shall have a reasonable period to
cure such event, which shall not exceed 90 days after receiving notice of the
event from FFCA. If Debtor shall fail to correct or cure such event within such
90-day period, an Event of Default shall be deemed to have occurred hereunder
without further notice or demand of any kind.
D. If Debtor breaches either of the Fixed Charge Coverage Ratio
requirements of Section 7.B., such breach shall not constitute an Event of
Default if Debtor, within 30 days from the delivery of a notice from FFCA to
Debtor of such failure, pays to FFCA the applicable FCCR Amount (as defined
below), which payments shall be made without prepayment premium or penalty).
Promptly after Debtor's payment of the FCCR Amount, Debtor and FFCA agree to
execute an amendment to the applicable Note(s) in form and substance acceptable
to FFCA reducing the principal amount payable to FFCA under such Note(s) and
reamortizing the principal amount of such Note(s) over the then remaining term
of such Note(s). Debtor shall be responsible for the payment of FFCA's
reasonable out-of-pocket attorneys' fees incurred in connection with the
preparation of such amendments.
For purposes of this section, FCCR Amount shall have the following
meanings:
(i) With respect to a breach of Section 7.B(i), that sum or those sums
of money which, when subtracted from the outstanding principal balance of
such of the Notes as selected by Debtor, and assuming the reamortization of
the adjusted principal amount of such Notes over the then-remaining term of
such Notes, will result in an aggregate Fixed Charge Coverage Ratio
calculated for all of the Premises of at least 1.15:1; and
(ii) With respect to a breach of Section 7.B(ii), that sum or those
sums of money which, when subtracted from the outstanding principal amount
of the Note(s) corresponding to one or more of the Premises which has or
have a Fixed Charge Coverage Ratio which is below 1.0:1, and assuming the
reamortization of the adjusted principal amount of such Note(s) over the
then remaining term of such Note(s), will result in no more than six of the
Premises then having a Fixed Charge Coverage Ratio below 1.0:1. Debtor
shall be responsible for determining which of the Note(s) corresponding to
Premises with a Fixed Charge Coverage Ratio below 1.0:1 for which the FCCR
Amount shall be paid.
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E. Upon the occurrence of an Event of Default, subject to the limitation
set forth in subsection B, FFCA shall be entitled to exercise, at its option,
concurrently, successively or in any combination, all remedies set forth in the
Loan Documents and otherwise available at law or in equity, including without
limitation any one or more of the following (provided, however, the remedies set
forth in the following subitems (1) and (2) shall only be applicable to any such
breach or default occurring prior to each Closing, as applicable):
(1) To terminate this Agreement by giving written notice to Debtor, in
which case neither party shall have any further obligation or liability,
except such liabilities as Debtor may have for such breach or default;
(2) To proceed with the Closing and direct Title Company to apply such
portion of the Loans as FFCA may deem necessary to cure any such breach or
default;
(3) To bring an action for damages against Debtor;
(4) To bring an action to require Debtor specifically to perform its
obligations hereunder; and/or
(5) To recover from Debtor all sums loaned and/or advanced by FFCA to
Debtor pursuant to the Loan Documents and all expenses, including
attorneys' fees, paid or incurred by FFCA as a result of such Event of
Default.
11. Assignments. A. FFCA may assign in whole or in part its rights under
this Agreement, including, without limitation, any Transfer, Participation
and/or Securitization (all as defined in Section 13.P). In the event of any
unconditional assignment of FFCA's entire right and interest hereunder, FFCA
shall automatically be relieved, from and after the date of such assignment, of
liability for the performance of any obligation of FFCA contained herein.
B. Debtor shall not, without the prior written consent of FFCA, which
consent shall not be unreasonably withheld, sell, assign, transfer, mortgage,
convey, encumber or grant any easements or other rights or interests of any kind
in the Premises, any of Debtor's rights under this Agreement or any interest in
Debtor, whether voluntarily, involuntarily or by operation of law or otherwise,
including, without limitation, by merger, consolidation, dissolution or
otherwise, except, subsequent to each Closing, as expressly permitted by the
applicable Mortgage.
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12. Indemnity. Except for the gross negligence or willful misconduct of
FFCA, Debtor shall indemnify, hold harmless and defend FFCA and its directors,
officers, shareholders, employees, successors, assigns, agents, contractors,
subcontractors, experts, licensees, affiliates, lessees, lenders, mortgagees,
trustees and invitees, as applicable (collectively, the "Indemnified Parties"),
from and against any and all losses, costs, claims, liabilities, damages and
expenses, including, without limitation, reasonable attorneys' fees, arising as
the result of an Environmental Condition and/or a breach of any of the
representations, warranties, covenants, agreements or obligations of Debtor set
forth in this Agreement. Without limiting the generality of the foregoing, such
indemnity shall include, without limitation, any engineering, governmental
inspection and reasonable attorneys' fees and expenses that the Indemnified
Parties may incur by reason of any representation set forth in this Agreement
being false, or by reason of any investigation or claim of any governmental
agency in connection therewith.
13. Miscellaneous Provisions.
A. Notices. All notices, consents, approvals or other instruments
required or permitted to be given by either party pursuant to this
Agreement shall be in writing and given by (i) hand delivery, (ii)
facsimile, (iii) express overnight delivery service or (iv) certified or
registered mail, return receipt requested, and shall be deemed to have been
delivered upon (a) receipt, if hand delivered, (b) transmission, if
delivered by facsimile, (c) the next business day, if delivered by express
overnight delivery service, or (d) the third business day following the day
of deposit of such notice with the United States Postal Service, if sent by
certified or registered mail, return receipt requested; provided, however,
if a notice is deposited with the United States Postal Service pursuant to
this item (d), such notice shall also be sent in accordance with at least
one of the other methods set forth in this Section 13(A). Notices shall be
provided to the parties and addresses (or facsimile numbers, as applicable)
specified below:
If to Debtor: Family Steak Houses of Florida, Inc.
2113 Florida Boulevard
Neptune Beach, FL 32266
Attention: Edward B. Alexander
Telephone: (904) 249-4197
Telecopy: (904) 249-1466
If to FFCA: Dennis L. Ruben, Esq.
Senior Vice President and General Counsel
FFCA Mortgage Corporation
17207 North Perimeter Drive
Scottsdale, AZ 85255
Telephone: (602) 585-4500
Telecopy: (602) 585-2226
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B. Real Estate Commission. FFCA and Debtor represent and warrant to
each other that they have dealt with no real estate or mortgage broker,
agent, finder or other intermediary in connection with the transactions
contemplated by this Agreement. FFCA and Debtor shall indemnify and hold
each other harmless from and against any costs, claims or expenses,
including attorneys' fees, arising out of the breach of their respective
representations and warranties contained within this Section.
C. Waiver and Amendment. No provisions of this Agreement shall be
deemed waived or amended except by a written instrument unambiguously
setting forth the matter waived or amended and signed by the party against
which enforcement of such waiver or amendment is sought. Waiver of any
matter shall not be deemed a waiver of the same or any other matter on any
future occasion.
D. Captions. Captions are used throughout this Agreement for
convenience of reference only and shall not be considered in any manner in
the construction or interpretation hereof.
E. FFCA's Liability. Notwithstanding anything to the contrary provided
in this Agreement, it is specifically understood and agreed, such agreement
being a primary consideration for the execution of this Agreement by FFCA,
that (i) there shall be absolutely no personal liability on the part of any
shareholder, director, officer or employee of FFCA, with respect to any of
the terms, covenants and conditions of this Agreement or the other Loan
Documents, (ii) Debtor waives all claims, demands and causes of action
against FFCA's officers, directors, employees and agents in the event of
any breach by FFCA of any of the terms, covenants and conditions of this
Agreement or the other Loan Documents to be performed by FFCA and (iii)
Debtor shall look solely to the assets of FFCA for the satisfaction of each
and every remedy of Debtor in the event of any breach by FFCA of any of the
terms, covenants and conditions of this Agreement or the other Loan
Documents to be performed by FFCA, such exculpation of liability to be
absolute and without any exception whatsoever.
F. Severability. The provisions of this Agreement shall be deemed
severable. If any part of this Agreement shall be held unenforceable, the
remainder shall remain in full force and effect, and such unenforceable
provision shall be reformed by such court so as to give maximum legal
effect to the intention of the parties as expressed therein.
G. Construction Generally. This is an agreement between parties who
are experienced in sophisticated and complex matters similar to the
transaction contemplated by this Agreement and is entered into by both
parties in reliance upon the economic and legal bargains contained herein
and shall be interpreted and construed in a fair and impartial manner
without regard to such factors as the party which prepared the instrument,
the relative bargaining powers of the parties or the domicile of any party.
Debtor and FFCA were each represented by legal counsel competent in
advising them of their obligations and liabilities hereunder.
H. Other Documents. Each of the parties agrees to sign such other and
further documents as may be appropriate to carry out the intentions
expressed in this Agreement.
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I. Attorneys' Fees. In the event of any judicial or other adversarial
proceeding between the parties concerning this Agreement, the prevailing
party shall be entitled to recover its attorneys' fees and other costs in
addition to any other relief to which it may be entitled. References in
this Agreement to the attorneys' fees and/or costs of FFCA shall mean both
the fees and costs of independent outside counsel retained by FFCA with
respect to this transaction and the fees and costs of FFCA's in-house
counsel incurred in connection with this transaction.
J. Entire Agreement. This Agreement and the other Loan Documents,
together with any other certificates, instruments or agreements to be
delivered in connection therewith, constitute the entire agreement between
the parties with respect to the subject matter hereof, and there are no
other representations, warranties or agreements, written or oral, between
Debtor and FFCA with respect to the subject matter of this Agreement.
Notwithstanding anything in this Agreement to the contrary, upon the
execution and delivery of this Agreement by Debtor and FFCA, the Commitment
shall be deemed null and void and of no further force and effect and the
terms and conditions of this Agreement shall control notwithstanding that
such terms may be inconsistent with or vary from those set forth in the
Commitment.
K. Forum Selection; Jurisdiction; Venue; Choice of Law. Debtor
acknowledges that this Agreement was substantially negotiated in the State
of Arizona, the Agreement was signed by FFCA in the State of Arizona and
delivered by Debtor in the State of Arizona, all payments under the Notes
will be delivered in the State of Arizona and there are substantial
contacts between the parties and the transactions contemplated herein and
the State of Arizona. For purposes of any action or proceeding arising out
of this Agreement, the parties hereto hereby expressly submit to the
jurisdiction of all federal and state courts located in the State of
Arizona and Debtor consents that it may be served with any process or paper
by registered mail or by personal service within or without the State of
Arizona in accordance with applicable law. Furthermore, Debtor waives and
agrees not to assert in any such action, suit or proceeding that it is not
personally subject to the jurisdiction of such courts, that the action,
suit or proceeding is brought in an inconvenient forum or that venue of the
action, suit or proceeding is improper. It is the intent of the parties
hereto that all provisions of this Agreement shall be governed by and
construed under the laws of the State of Arizona. To the extent that a
court of competent jurisdiction finds Arizona law inapplicable with respect
to any provisions hereof, then, as to those provisions only, the laws of
the state where the Premises are located shall be deemed to apply. Nothing
in this Section shall limit or restrict the right of FFCA to commence any
proceeding in the federal or state courts located in the state in which the
Premises are located to the extent FFCA deems such proceeding necessary or
advisable to exercise remedies available under this Agreement or the other
Loan Documents.
L. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original.
-20-
<PAGE>
M. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of Debtor and FFCA and their respective successors and
permitted assigns, including, without limitation, any United States
trustee, any debtor in possession or any trustee appointed from a private
panel.
N. Survival. Except for the conditions of each Closing set forth in
Sections 2 and 9, which shall be satisfied or waived as of the applicable
Closing Date, all representations, warranties, agreements, obligations and
indemnities of Debtor and FFCA set forth in this Agreement shall survive
each Closing.
O. Waiver of Jury Trial and Punitive, Consequential, Special and
Indirect Damages. DEBTOR AND FFCA HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH
RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR
COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR
ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO.
THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL
BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.
FURTHERMORE, DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT
DAMAGES FROM FFCA WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY
ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR AGAINST FFCA OR
ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO.
THE WAIVER BY DEBTOR OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE,
CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE
PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.
P. Transfers, Participations and Securitization. A material inducement
to FFCA's willingness to complete the transactions contemplated by the Loan
Documents is Debtor's agreement that FFCA may, at any time, sell, transfer
or assign the Notes, Mortgages and the other Loan Documents, and any or all
servicing rights with respect thereto (each, a "Transfer"), or grant
participations therein (each, a "Participation"), or complete an asset
securitization vehicle selected by FFCA, in accordance with all
requirements which may be imposed by the investors or the rating agencies
involved in such securitized financing transaction, as selected by FFCA, or
which may be imposed by applicable securities, tax or other laws or
regulations, including, without limitation, laws relating to FFCA's status
as a real estate investment trust (each, a "Securitization").
-21-
<PAGE>
Debtor agrees to cooperate in good faith with FFCA in connection with
any Transfer, Participation and/or Securitization, including, without
limitation, (i) providing such documents, financial and other data, and
other information and materials (the "Disclosures") which would typically
be required with respect to Debtor by a purchaser, transferee, assignee,
servicer, participant, investor or rating agency involved with respect to
such Transfer, Participation and/or the Securitization, as applicable;
provided, however, Debtor shall not be required to make Disclosures of any
confidential information or any information which has not previously been
made public unless required by applicable federal or state securities laws;
and (ii) amending the terms of the transactions evidenced by the Loan
Documents to the extent necessary so as to satisfy the requirements of
purchasers, transferees, assignees, servicers, participants, investors or
selected rating agencies involved in any such Transfers, Participations or
Securitization, so long as such amendments would not have a material
adverse effect upon Debtor or the transactions contemplated hereunder.
Debtor consents to FFCA providing the Disclosures, as well as any
other information which FFCA may now have or hereafter acquire with respect
to the Premises or the financial condition of Debtor, to each purchaser,
transferee, assignee, servicer, participant, investor or rating agency
involved with respect to each Transfer, Participation and/or
Securitization, as applicable. FFCA and Debtor shall each pay their own
reasonable attorneys fees and reasonable other out-of-pocket expenses
incurred in connection with the performance of their respective obligations
under this Section.
-22-
<PAGE>
IN WITNESS WHEREOF, Debtor and FFCA have entered into this Agreement as of
the date first above written.
FFCA:
Witness /s/PAULA J. MASIULEWICZ FFCA MORTGAGE CORPORATION,
-------------------- a Delaware corporation
Paula J. Masiulewicz
Witness /s/ANN L. HALPERN By /s/ROB ROACH
-------------- ------------
Ann L. Halpern Rob Roach
Its SVP
DEBTOR:
Witness /s/EDWARD B. ALEXANDER FAMILY STEAK HOUSES OF FLORIDA, INC.,
------------------- a Florida corporation
Edward B. Alexander
Witness /s/J. MICHAEL HUGHES By /s/LEWIS E. CHRISTMAN, JR.
----------------- -----------------------
J. Michael Hughes Lewis E. Christman, Jr.
Its President & CEO
-23-
<PAGE>
STATE OF ARIZONA ]
] SS.
COUNTY OF MARICOPA ]
I HEREBY CERTIFY that on this day, before me, an officer duly authorized in
the State aforesaid and in the County aforesaid to take acknowledgements, the
foregoing instrument was acknowledged before me by Rob Roach, the Senior Vice
President of FFCA Mortgage Corporation, a Delaware corporation, freely and
voluntarily under authority duly vested in him by said corporation and that the
seal affixed thereto is the true corporate seal of said corporation. He is
personally known to me or has produced as identification.
WITNESS my hand and official seal in the County and State last aforesaid
this 6th day of December, 1996.
/s/MARGARET J. CRAFT
-----------------
Margaret J. Craft
Notary Public
Typed, printed or stamped name of
Notary Public
My Commission Expires:
July 14, 1999
-24-
<PAGE>
STATE OF FLORIDA ]
] SS.
COUNTY OF DUVAL ]
I HEREBY CERTIFY that on this day, before me, an officer duly authorized in
the State aforesaid and in the County aforesaid to take acknowledgements, the
foregoing instrument was acknowledged before me by Lewis E. Christman, the
President and CEO of Family Steak Houses of Florida, Inc., a Florida
corporation, freely and voluntarily under authority duly vested in him by said
corporation and that the seal affixed thereto is the true corporate seal of said
corporation. He is personally known to me or has produced as identification.
----------------
WITNESS my hand and official seal in the County and State last aforesaid
this 4th day of December, 1996.
/s/STEPHANIE GRIFFITH
-----------------
Stephanie Griffith
Notary Public
Typed, printed or stamped name of
Notary Public
My Commission Expires:
August 24, 2000
-25-
<PAGE>
TOTAL LOAN AMOUNT FOR ALL PREMISES
$4,640,000.00
Exhibit 10.19 Form of Promissory Note
================================================================================
PROMISSORY NOTE
Dated as of , 1996
$** Scottsdale, Arizona
FAMILY STEAK HOUSES OF FLORIDA, INC., a Florida corporation ("Debtor"), for
value received, hereby promises to pay to FFCA MORTGAGE CORPORATION, a Delaware
corporation ("FFCA"), whose address is 17207 North Perimeter Drive, Scottsdale,
Arizona 85255, or order, on or before **, as herein provided, the principal sum
of ** ($**), plus accrued interest thereon, as herein provided.
Initially capitalized terms which are not otherwise defined in this Note
shall have the following meanings:
"Applicable Margin" means an annual percentage equal to 3.75%.
"Adjustable Rate" means an annual interest rate equal to the sum of
the Adjustable Rate Basis plus the Applicable Margin.
"Adjustable Rate Basis" means, for any Interest Period, the annual
interest rate (rounded upward to the nearest 1/16th of one percent)
determined by FFCA, at approximately 9:00 a.m., Central time, on the
Adjustable Rate Reset Date, to be the offered quotations that appear on the
Reuter's Screen LIBO page for dollar deposits in the London interbank
market for a length of time approximately equal to the Interest Period. If
at least two such offered quotations appear on the Reuter's Screen LIBO
page, the Adjustable Rate Basis shall be the arithmetic mean (rounded
upward to the nearest 1/16th of one percent) of all such offered
quotations, as determined by FFCA. If the Reuter's Screen LIBO page is not
available or has been discontinued, the Adjustable Rate Basis shall be the
rate per annum that FFCA determines to be the arithmetic mean (rounded as
aforesaid) of the per annum rates of interest at which deposits in dollars
in an amount approximately equal to the principal amount of and for a
length of time approximately equal to the Interest Period, are offered in
immediately available funds in the London interbank market at 11:00 a.m.,
London time, on the Adjustable Rate Reset Date. Notwithstanding the
provisions of the foregoing three sentences, if the annual interest rate
charged to FFCA under its then existing LIBOR based credit facility (the
"FFCA Credit Facility") is determined by a methodology other than as
described in such sentences, the Adjustable Rate Basis shall be determined
in accordance with the methodology for determining the annual interest rate
under the FFCA Credit Facility.
<PAGE>
"Adjustable Rate Reset Date" means the fifteenth day of each calendar
month, or the next succeeding Business Day if such day is not a Business
Day, prior to the next Interest Period.
"Business Day" means any day on which FFCA is open for business in the
State of Arizona, other than a Saturday, Sunday or a legal holiday.
"Interest Period" means (i) initially, the period beginning on the
date of this Note and ending on the last day of the calendar month in which
such date occurs, and (ii) thereafter, the period beginning on the first
day of the calendar month and ending on the last day of such calendar
month.
"Maturity Date" means the first day of .
"Payment Period" means the period beginning on the first day of
January and ending on the last day of December of the same calendar year.
"Payment Reset Calculation" means the level monthly payment calculated
by the full amortization of the outstanding principal amount of this Note
on the Payment Reset Date at the Adjustable Rate as determined on each
December 15th prior to the next Payment Period over the remaining
originally scheduled term of this Note.
"Payment Reset Date" means the first day of January of each calendar
year or the next succeeding Business Day if such day is not a Business Day.
Debtor shall pay interest on the outstanding principal amount of this Note
at the Adjustable Rate, on the basis of a 360-day year for the actual number of
days elapsed, in arrears.
Debtor shall pay consecutive level monthly installments on the first day of
each calendar month during the term of this Note prior to the Maturity Date. The
initial level monthly payments for the first Payment Period shall be equal to
$** until the first Payment Reset Date, at which time, and on each succeeding
Payment Reset Date thereafter, the level monthly payment to be paid by Debtor
shall be adjusted for the next succeeding Payment Period based on the Payment
Reset Calculation. All outstanding principal and unpaid accrued interest shall
be paid on the Maturity Date.
Each payment of principal and interest hereunder shall be applied first
toward any past due payments under this Note (including payment of all costs (as
herein defined)), then to accrued interest at the Adjustable Rate and the
balance, after payment of such accrued interest, if any, shall be applied to the
unpaid principal balance of this Note; provided, however, each payment hereunder
while a default under this Note has occurred and is continuing shall be applied
as FFCA in its sole discretion may determine. After application of any monthly
payment in the above manner, in the event that the outstanding principal amount
of this Note exceeds 110% of the original principal balance of this Note, Debtor
shall prepay, without premium or penalty, on the first day of the next
succeeding calendar month after each such occurrence, a principal amount equal
to the difference between the outstanding principal balance of this Note and the
original principal balance of this Note (the "Negative Amortization Amount").
-2-
<PAGE>
FFCA shall notify Debtor in writing on or before the twenty-fifth day of
each calendar month during the term of this Note of FFCA's determination of the
Negative Amortization Amount, if any, payable on the first day of the next
succeeding calendar month. FFCA shall also notify Debtor in writing on or before
the twenty-fifth day of each December during the term of this Note of FFCA's
determination of the level monthly payment to be paid by Debtor based on the
Payment Reset Calculation for the next Payment Period.
Debtor may prepay the Note in whole, but not in part, on the fifteenth day
of any month, without a prepayment premium or penalty, provided Debtor provides
FFCA with at least thirty days advance notice of Debtor's intention to prepay
this Note.
Upon execution of this Note, Debtor shall establish arrangements whereby
all payments of principal and interest hereunder are transferred by wire or
other means directly from Debtor's bank account to such account as FFCA may
designate or as FFCA may otherwise designate.
If any installment or payment due under this Note remains unpaid for five
(5) days after written notice thereof to Debtor, or upon the occurrence of an
event of default under (i) the mortgage, assignment of rents and leases,
security agreement and fixture filing encumbering the real property legally
described on the attached Exhibit A (the "Premises"), dated as of even date
herewith executed by Debtor for the benefit of FFCA (the "Mortgage"), (ii) any
of the other Loan Documents (as defined in the Mortgage), or (iii) any other
document further securing this Note, then, in any of such events, time being of
the essence hereof, FFCA may declare the entire unpaid principal balance of this
Note, accrued interest, if any, and all other sums due under this Note, the
Mortgage, the other Loan Documents and any other document further securing this
Note, due and payable at once without written notice to Debtor.
All past-due principal and/or interest shall bear interest at the lesser of
the highest rate for which the undersigned may legally contract, or the
applicable Adjustable Rate plus 5% per annum, whichever is less (the "Default
Rate"), and such Default Rate shall continue to apply following a judgment in
favor of FFCA under this Note. If Debtor fails to make any payment or
installment due under this Note within five days of its due date, Debtor shall
pay to FFCA in addition to any other sum due FFCA under this Note or any other
Loan Document a late charge equal to 10% of such past-due payment or
installment.
All payments of principal and interest due hereunder shall be made (i)
without deduction of any present and future taxes, levies, imposts, deductions,
charges or withholdings, which amounts shall be paid by Debtor, and (ii) without
any other right of abatement, reduction, setoff, defense, counterclaim,
interruption, deferment or recoupment for any reason whatsoever. Debtor will pay
the amounts necessary such that the gross amount of the principal and interest
received by FFCA is not less than that required by this Note.
-3-
<PAGE>
No delay or omission on the part of FFCA in exercising any remedy, right or
option under this Note shall operate as a waiver of such remedy, right or
option. In any event, a waiver on any one occasion shall not be construed as a
waiver or bar to any such remedy, right or option on a future occasion.
Debtor hereby waives presentment, demand for payment, notice of dishonor,
notice of protest, and protest, and all other notices or demands in connection
with delivery, acceptance, performance, default or endorsement of this Note.
All notices, consents, approvals or other instruments required or permitted
to be given by either party pursuant to this Note shall be in writing and given
by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service
or (iv) certified or registered mail, return receipt requested, and shall be
deemed to have been delivered upon (a) receipt, if hand delivered, (b)
transmission, if delivered by facsimile, (c) the next business day, if delivered
by express overnight delivery service, or (d) the third business day following
the day of deposit of such notice with the United States Postal Service, if sent
by certified or registered mail, return receipt requested. Notices shall be
provided to the parties and addresses (or facsimile numbers, as applicable)
specified below:
If to Debtor: Family Steak Houses of Florida, Inc.
2113 Florida Boulevard
Neptune Beach, FL 32266
Attention: Edward B. Alexander
Telephone: (904) 249-4197
Telecopy: (904) 249-1466
If to FFCA: Dennis L. Ruben, Esq.
Senior Vice President and General Counsel
FFCA Mortgage Corporation
17207 North Perimeter Drive
Scottsdale, AZ 85255
Telephone: (602) 585-4500
Telecopy: (602) 585-2226
or to such other address or such other person as either party may from time to
time hereafter specify to the other party in a notice delivered in the manner
provided above.
Should any indebtedness represented by this Note be collected at law or in
equity, or in bankruptcy or other proceedings, or should this Note be placed in
the hands of attorneys for collection after default, Debtor shall pay, in
addition to the principal and interest due and payable hereon, all costs of
collecting or attempting to collect this Note (the "Costs"), including
reasonable attorneys' fees and expenses of FFCA (including those fees and
expenses incurred in connection with any appeal and those of FFCA's in-house
counsel) whether or not a judicial action is commenced by FFCA.
-4-
<PAGE>
This Note may not be amended or modified except by a written agreement duly
executed by Debtor and FFCA.
Notwithstanding anything to the contrary contained in any of the Loan
Documents, the obligations of Debtor to FFCA under this Note and any other Loan
Documents are subject to the limitation that payments of interest and late
charges to FFCA shall not be required to the extent that receipt of any such
payment by FFCA would be contrary to provisions of applicable law limiting the
maximum rate of interest that may be charged or collected by FFCA. The portion
of any such payment received by FFCA that is in excess of the maximum interest
permitted by such provisions of law shall be credited to the principal balance
of this Note or if such excess portion exceeds the outstanding principal balance
of this Note, then such excess portion shall be refunded to Debtor. All interest
paid or agreed to be paid to FFCA shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and/or spread throughout the full term of
this Note (including, without limitation, the period of any renewal or extension
thereof) so that interest for such full term shall not exceed the maximum amount
permitted by applicable law.
It is the intent of the parties hereto that the business relationship
created by this Note and the other Loan Documents is solely that of creditor and
debtor and has been entered into by both parties in reliance upon the economic
and legal bargains contained in the Loan Documents. None of the agreements
contained in the Loan Documents, is intended, nor shall the same be deemed or
construed, to create a partnership between FFCA and Debtor, to make them joint
venturers, to make Debtor an agent, legal representative, partner, subsidiary or
employee of FFCA, nor to make FFCA in any way responsible for the debts,
obligations or losses of Debtor. Debtor acknowledges that FFCA (or any partner
of FFCA) and Franchisor (as defined in the Mortgage) are not affiliates, agents,
partners or joint venturers, nor do they have any other legal, representative or
fiduciary relationship.
FFCA, by accepting this Note, and Debtor acknowledge and warrant to each
other that each has been represented by independent counsel and Debtor has
executed this Note after being fully advised by said counsel as to its effect
and significance. This Note shall be interpreted and construed in a fair and
impartial manner without regard to such factors as the party which prepared the
instrument, the relative bargaining powers of the parties or the domicile of any
party.
Debtor acknowledges that this Note was substantially negotiated in the
State of Arizona, the executed Note was delivered in the State of Arizona, all
payments under this Note will be delivered in the State of Arizona and there are
substantial contacts between the parties and the transactions contemplated
herein and the State of Arizona. For purposes of any action or proceeding
arising out of this Note, the parties hereto expressly submit to the
jurisdiction of all federal and state courts located in the State of Arizona.
Debtor consents that it may be served with any process or paper by registered
mail or by personal service within or without the State of Arizona in accordance
with applicable law. Furthermore, Debtor waives and agrees not to assert in any
such action, suit or proceeding that it is not personally subject to the
jurisdiction of such courts, that the action, suit or proceeding is brought in
an inconvenient forum or that venue of the action, suit or proceeding is
improper. It is the intent of Debtor and FFCA that all provisions of this Note
shall be governed by and construed under the laws of the State of Arizona.
Nothing contained in this paragraph shall limit or restrict the right of FFCA to
commence any proceeding in the federal or state courts located in the state in
which the Premises is located to the extent FFCA deems such proceeding necessary
or advisable to exercise remedies available under the Loan Documents.
-5-
<PAGE>
FFCA, BY ACCEPTING THIS NOTE, AND DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO
ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM
BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH
RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS NOTE, THE
RELATIONSHIP OF FFCA AND DEBTOR, DEBTOR'S USE OR OCCUPANCY OF THE PREMISES,
AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY.
THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY
JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.
FURTHERMORE, DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE
RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES
FROM FFCA WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION,
PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR AGAINST FFCA OR ITS
SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS
NOTE OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY DEBTOR
OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT
DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF
THEIR BARGAIN.
This obligation shall bind Debtor and its successors and assigns, and the
benefits hereof shall inure to FFCA and its successors and assigns. FFCA may
assign its rights under this Note as set forth in Section 13.P of the Loan
Agreement dated as of the date of this Note between FFCA and Debtor.
-6-
<PAGE>
IN WITNESS WHEREOF, Debtor has executed and delivered this Note effective
as of the date first set forth above.
FAMILY STEAK HOUSES OF FLORIDA,
INC., a Florida corporation
By
Name
Title
EXHIBIT A
PREMISES
EXHIBIT C
MORTGAGE
RETURN TO:
Lawyers Title Insurance Corporation
40 East Mitchell Drive
Suite 100
Phoenix, Arizona 85012
Attention: Sheila Layne
THIS INSTRUMENT PREPARED BY:
Kutak Rock
Sixteenth Floor
3300 North Central Avenue
Phoenix, Arizona 85012
EXHIBIT 10.21 Form of Environmental Agreement
================================================================================
ENVIRONMENTAL INDEMNITY AGREEMENT
THIS ENVIRONMENTAL INDEMNITY AGREEMENT, dated as of , 1996 (the
"Agreement"), is made by FAMILY STEAK HOUSES OF FLORIDA, INC., a Florida
corporation, whose address is 2113 Florida Boulevard, Neptune Beach, Florida
32266 ("Debtor"), in favor of FFCA MORTGAGE CORPORATION, a Delaware corporation,
whose address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255
("FFCA").
PRELIMINARY STATEMENT
This Agreement is executed and delivered by Debtor to FFCA pursuant to that
certain Loan Agreement dated as of the date of this Agreement between Debtor and
FFCA (the "Loan Agreement").
AGREEMENT
1. Definitions. The following terms shall have the following meanings for
all purposes of this Agreement:
"De Minimis Amounts" shall mean, with respect to any given level of
hazardous substance or solid waste, that level or quantity of hazardous
substance or solid waste in any form or combination of forms which does not
constitute a violation of any Environmental Laws and is customarily employed in,
or associated with, similar businesses located in the county in which the
Premises is located.
"Environmental Laws" means any present and future federal, state and local
laws, statutes, ordinances, rules, regulations and the like, as well as common
law, relating to protection of human health or the environment, relating to
Hazardous Materials, relating to liability for or costs of Remediation or
prevention of Releases or relating to liability for or costs of other actual or
threatened danger to human health or the environment. "Environmental Laws"
includes, but is not limited to, the following statutes, as amended, any
successor thereto, and any regulations promulgated pursuant thereto, and any
state or local statutes, ordinances, rules, regulations and the like addressing
similar issues: the Comprehensive Environmental Response, Compensation and
Liability Act; the Emergency Planning and Community Right-to-Know Act; the
Hazardous Materials Transportation Act; the Resource Conservation and Recovery
Act (including but not limited to Subtitle I relating to underground storage
tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act;
the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational
Safety and Health Act; the Federal Water Pollution Control Act; the Federal
Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the
National Environmental Policy Act; and the River and Harbors Appropriation Act.
"Environmental Laws" also includes, but is not limited to, any present and
future federal, state and local laws, statutes, ordinances, rules, regulations
<PAGE>
and the like, as well as common law: conditioning transfer of property upon a
negative declaration or other approval of a governmental authority of the
environmental condition of the property; requiring notification or disclosure of
Releases or other environmental condition of the Premises to any governmental
authority or other person or entity, whether or not in connection with transfer
of title to or interest in property; imposing conditions or requirements in
connection with permits or other authorization for lawful activity; relating to
nuisance, trespass or other causes of action related to the Premises; and
relating to wrongful death, personal injury, or property or other damage in
connection with any physical condition or use of the Premises.
"Hazardous Materials" means (a) any toxic substance or hazardous waste,
substance or related material, or any pollutant or contaminant; (b) radon gas,
asbestos in any form which is or could become friable, urea formaldehyde foam
insulation, transformers or other equipment which contains dielectric fluid
containing levels of polychlorinated biphenyls in excess of federal, state or
local safety guidelines, whichever are more stringent, or any petroleum product;
(c) any substance, gas, material or chemical which is or may be defined as or
included in the definition of "hazardous substances," "toxic substances,"
"hazardous materials," hazardous wastes" or words of similar import under any
Environmental Laws; and (d) any other chemical, material, gas or substance the
exposure to or release of which is or may be prohibited, limited or regulated by
any governmental or quasi-governmental entity or authority that asserts or may
assert jurisdiction over the Premises or the operations or activity at the
Premises, or any chemical, material, gas or substance that does or may pose a
hazard to the health and/or safety of the occupants of the Premises or the
owners and/or occupants of property adjacent to or surrounding the Premises.
"Indemnified Parties" means FFCA and any person or entity who is or will
have been involved in the origination of the loan evidenced by the Loan
Agreement with respect to the Premises (the "Loan"), any person or entity who is
or will have been involved in the servicing of the Loan, any person or entity in
whose name the encumbrance created by the Mortgage (as defined in the Loan
Agreement) is or will have been recorded, persons and entities who may hold or
acquire or will have held a full or partial interest in the Loan (including, but
not limited to, investors or prospective investors in the securities
contemplated by Section 5.18 of the Mortgage, as well as custodians, trustees
and other fiduciaries who hold or have held a full or partial interest in the
Loan for the benefit of third parties), as well as the respective directors,
officers, shareholders, partners, members, employees, agents, servants,
representatives, contractors, subcontractors, affiliates, subsidiaries,
participants, successors and assigns of any and all of the foregoing (including
but not limited to any other person or entity who holds or acquires or will have
held a participation or other full or partial interest in the Loan or the
Premises, whether during the term of the Loan or as a part of or following a
foreclosure of the Loan and including, but not limited to, any successors by
merger, consolidation or acquisition of all or a substantial portion of FFCA's
assets and business).
"Losses" means any and all claims, suits, liabilities (including, without
limitation, strict liabilities), actions, proceedings, obligations, debts,
damages, losses, costs, expenses, diminutions in value, fines, penalties,
charges, fees, expenses, judgments, awards, amounts paid in settlement and
damages of whatever kind or nature (including, without limitation, attorneys'
fees and other costs of defense).
-2-
<PAGE>
"Premises" means the parcel or parcels of real property described on the
attached Exhibit A, including all buildings, improvements, structures and
fixtures located thereon, and certain items of machinery, appliances and other
equipment located thereon or therein or utilized in connection therewith.
"Release" means any presence, release, deposit, discharge, emission,
leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying,
escaping, dumping, disposing or other movement of Hazardous Materials.
"Remediation" means any response, remedial, removal, or corrective action,
any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate
any Hazardous Material, any actions to prevent, cure or mitigate any Release,
any action to comply with any Environmental Laws or with any permits issued
pursuant thereto, any inspection, investigation, study, monitoring, assessment,
audit, sampling and testing, laboratory or other analysis, or any evaluation
relating to any Hazardous Materials.
"Reports" means the phase I and phase II environmental reports to be
prepared regarding each of the Premises, which Reports shall be satisfactory in
form and substance to FFCA in its sole discretion.
2. Representations and Warranties. Debtor represents and warrants to FFCA,
which representations and warranties shall survive the execution and delivery of
this Agreement, as follows:
(a) Except as set forth in the Reports, the Premises and Debtor are
not in violation of or subject to any existing, pending or threatened
investigation or inquiry by any governmental authority or to any remedial
obligations under any Environmental Laws, and this representation and
warranty would continue to be true and correct following disclosure to the
applicable governmental authorities of all relevant facts, conditions and
circumstances, if any, pertaining to the Premises. If any such
investigation or inquiry is subsequently initiated, Debtor will promptly
notify FFCA.
(b) Debtor has not obtained and is not required to obtain any permits,
licenses or similar authorizations to construct, occupy, operate or use any
buildings, improvements, fixtures and equipment forming a part of the
Premises by reason of any Environmental Laws.
(c) Debtor has taken all reasonable steps to determine and has
determined to its reasonable satisfaction that:
-3-
<PAGE>
(i) no Hazardous Materials have been disposed of or otherwise
Released on or about the Premises;
(ii) the Premises does not contain Hazardous Materials or
underground storage tanks;
(iii) there is no threat of any Release migrating to the
Premises;
(iv) there is no past or present non-compliance with
Environmental Laws, or with permits issued pursuant thereto, in
connection with the Premises;
(v) Debtor does not know of, and has not received, any written or
oral notice or other communication from any person or entity
(including but not limited to a governmental entity) relating to
Hazardous Materials or Remediation thereof, of possible liability of
any person or entity pursuant to any Environmental Law, other
environmental conditions in connection with the Premises, or any
actual or potential administrative or judicial proceedings in
connection with any of the foregoing; and
(vi) Debtor has truthfully and fully provided to FFCA, in
writing, any and all information relating to conditions in, on, under
or from the Premises that is known to Debtor and that is contained in
Debtor's files and records, including but not limited to any reports
relating to Hazardous Materials in, on, under or from the Premises
and/or to the environmental condition of the Premises.
3. Covenants. Debtor covenants to FFCA from and after the execution and
delivery of this Agreement as follows:
(a) all uses and operations on or of the Premises, whether by Debtor
or any other person or entity, shall be in compliance with all
Environmental Laws and permits issued pursuant thereto;
(b) there shall be no Releases in, on, under or from the Premises;
(c) there shall be no Hazardous Materials in, on, or under the
Premises, except in De Minimis Amounts;
(d) Debtor shall keep the Premises free and clear of all liens and
other encumbrances imposed pursuant to any Environmental Law, whether due
to any act or omission of Debtor or any other person or entity (the
"Environmental Liens");
(e) Debtor shall, at its sole cost and expense, fully and
expeditiously cooperate in all activities pursuant to Section 4 below,
including but not limited to providing all relevant information and making
knowledgeable persons available for interviews;
-4-
<PAGE>
(f) Debtor shall, at its sole cost and expense, perform any
environmental site assessment or other investigation of environmental
conditions in connection with the Premises, pursuant to any reasonable
written request of FFCA (including but not limited to sampling, testing and
analysis of soil, water, air, building materials and other materials and
substances whether solid, liquid or gas), and share with FFCA the reports
and other results thereof, and FFCA and other Indemnified Parties shall be
entitled to rely on such reports and other results thereof, (provided,
however, Debtor shall not be obligated and FFCA shall not request that
Debtor be obligated to perform a Phase II environmental study of the
Premises unless such study is recommended in a Phase I environmental report
prepared in connection with the Premises);
(g) Debtor shall, at its sole cost and expense, comply with all
reasonable written requests of FFCA to (1) reasonably effectuate
Remediation of any condition (including but not limited to a Release) in,
on, under or from the Premises; (2) comply with any Environmental Law; (3)
comply with any directive from any governmental authority; and (4) take any
other reasonable action necessary or appropriate for protection of human
health or the environment;
(h) Debtor shall not do or allow any tenant or other user of the
Premises to do any act that materially increases the dangers to human
health or the environment, poses an unreasonable risk of harm to any person
or entity (whether on or off the Premises), impairs or may impair the value
of the Premises, is contrary to any requirement of any insurer, constitutes
a public or private nuisance, constitutes waste, or violates any covenant,
condition, agreement or easement applicable to the Premises; and
(i) Debtor shall immediately notify FFCA in writing of (A) any
presence of Releases or threatened Releases in, on, under, from or
migrating towards the Premises; (B) any non-compliance with any
Environmental Laws related in any way to the Premises; (C) any actual or
potential Environmental Lien; (D) any required or proposed Remediation of
environmental conditions relating to the Premises; and (E) any written or
oral notice or other communication which Debtor becomes aware from any
source whatsoever (including but not limited to a governmental entity)
relating in any way to Hazardous Materials or Remediation thereof, possible
liability of any person or entity pursuant to any Environmental Law, other
environmental conditions in connection with the Premises, or any actual or
potential administrative or judicial proceedings in connection with
anything referred to in this Agreement.
4. Actions by FFCA. FFCA and any other person or entity designated by FFCA,
including but not limited to any receiver, any representative of a governmental
entity, and any environmental consultant, shall have the right, but not the
obligation, to enter upon the Premises at all reasonable times to assess any and
all aspects of the environmental condition of the Premises and its use,
including but not limited to conducting any environmental assessment or audit
(the scope of which shall be determined in FFCA's sole and absolute discretion)
and taking samples of soil, groundwater or other water, air, or building
materials, and conducting other invasive testing. Debtor shall cooperate with
and provide access to FFCA and any such person or entity designated by FFCA.
-5-
<PAGE>
5. Indemnification. Debtor shall, at its sole cost and expense, protect,
defend, indemnify, release and hold harmless the Indemnified Parties from and
against any and all Losses (excluding Losses arising out of FFCA's gross
negligence or wilful misconduct) and costs of Remediation (whether or not
performed voluntarily), engineers' fees, environmental consultants' fees, and
costs of investigation (including but not limited to sampling, testing, and
analysis of soil, water, air, building materials and other materials and
substances whether solid, liquid or gas) imposed upon or incurred by or asserted
against any Indemnified Parties, and directly or indirectly arising out of or in
any way relating to any one or more of the following: (i) any presence of any
Hazardous Materials in, on, above, or under the Premises; (ii) any past, present
or threatened Release in, on, above, under or from the Premises; (iii) any
activity by Debtor, any person or entity affiliated with Debtor or any tenant or
other user of the Premises in connection with any actual, proposed or threatened
use, treatment, storage, holding, existence, disposition or other Release,
generation, production, manufacturing, processing, refining, control,
management, abatement, removal, handling, transfer or transportation to or from
the Premises of any Hazardous Materials at any time located in, under, on or
above the Premises; (iv) any activity by Debtor, any person or entity affiliated
with Debtor or any tenant or other user of the Premises in connection with any
actual or proposed Remediation of any Hazardous Materials at any time located
in, under, on or above the Premises, whether or not such Remediation is
voluntary or pursuant to court or administrative order, including but not
limited to any removal, remedial or corrective action; (v) any past, present or
threatened non compliance or violations of any Environmental Laws (or permits
issued pursuant to any Environmental Law) in connection with the Premises or
operations thereon, including but not limited to any failure by Debtor, any
person or entity affiliated with Debtor or any tenant or other user of the
Premises to comply with any order of any governmental authority in connection
with any Environmental Laws; (vi) the imposition, recording or filing or the
threatened imposition, recording or filing of any Environmental Lien encumbering
the Premises; (vii) any administrative processes or proceedings or judicial
proceedings in any way connected with any matter addressed in this Section;
(viii) any past, present or threatened injury to, destruction of or loss of
natural resources in any way connected with the Premises, including but not
limited to costs to investigate and assess such injury, destruction or loss;
(ix) any acts of Debtor or other users of the Premises in arranging for disposal
or treatment, or arranging with a transporter for transport for disposal or
treatment, of Hazardous Materials owned or possessed by such Debtor or other
users, at any facility or incineration vessel owned or operated by another
person or entity and containing such or similar Hazardous Materials; (x) any
acts of Debtor or other users of the Premises, in accepting any Hazardous
Materials for transport to disposal or treatment facilities, incineration
vessels or sites selected by Debtor or such other users, from which there is a
Release, or a threatened Release of any Hazardous Material which causes the
incurrence of costs for Remediation; (xi) any personal injury, wrongful death,
or property damage arising under any statutory or common law or tort law theory,
including but not limited to damages assessed for the maintenance of a private
or public nuisance or for the conducting of an abnormally dangerous activity on
or near the Premises; and (xii) any misrepresentation or inaccuracy in any
representation or warranty or material breach or failure to perform any
covenants or other obligations pursuant to this Agreement.
-6-
<PAGE>
6. Release. Debtor fully and completely releases, waives and covenants not
to assert any claims, liabilities, actions, defenses, challenges, contests or
other opposition against FFCA, however characterized, known or unknown, foreseen
or unforeseen, now existing or arising in the future, relating to this Agreement
and any Hazardous Materials, Releases and/or Remediation on, at or affecting the
Premises.
7. Independent Obligations; Conflict. The obligations of Debtor and the
rights and remedies of FFCA set forth in this Agreement are independent from
those of Debtor pursuant to the Loan Agreement, the Mortgage, the Note (as
defined in the Loan Agreement) and the other Loan Documents (as defined in the
Loan Agreement), and shall survive the termination, expiration and/or release of
the Loan Agreement, the Note, the Mortgage and the other Loan Documents and/or
the judicial or nonjudicial foreclosure of the Mortgage by FFCA or the delivery
of a deed-in-lieu of foreclosure by Debtor to FFCA. In the event any of the
terms and provisions of this Agreement are in conflict with the terms and
conditions of any other Loan Document, the terms and conditions of this
Agreement shall control as to such conflict.
8. Forum Selection; Jurisdiction; Venue; Choice of Law. Debtor acknowledges
that this Agreement was substantially negotiated in the State of Arizona and
delivered by Debtor in the State of Arizona and there are substantial contacts
between the parties and the transactions contemplated herein and the State of
Arizona. For purposes of any action or proceeding arising out of this Agreement,
the parties hereto hereby expressly submit to the jurisdiction of all federal
and state courts located in the State of Arizona and Debtor consents that it may
be served with any process or paper by registered mail or by personal service
within or without the State of Arizona in accordance with applicable law.
Furthermore, Debtor waives and agrees not to assert in any such action, suit or
proceeding that it is not personally subject to the jurisdiction of such courts,
that the action, suit or proceeding is brought in an inconvenient forum or that
venue of the action, suit or proceeding is improper. It is the intent of the
parties hereto that all provisions of this Agreement shall be governed by and
construed under the laws of the State of Arizona. To the extent that a court of
competent jurisdiction finds Arizona law inapplicable with respect to any
provisions hereof, then, as to those provisions only, the law of the state where
the Premises is located shall be deemed to apply. Nothing in this Section shall
limit or restrict the right of FFCA to commence any proceeding in the federal or
state courts located in the state where the Premises is located to the extent
FFCA deems such proceeding necessary or advisable to exercise remedies available
under this Agreement.
9. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of FFCA and Debtor and their respective successors and permitted
assigns, including, without limitation, any United States trustee, any
debtor-in-possession or any trustee appointed from a private panel; provided,
however, Debtor's right to assign this Agreement shall be limited as set forth
in the Loan Agreement.
-7-
<PAGE>
10. Severability. The provisions of this Agreement shall be deemed
severable. If any part of this Agreement shall be held unenforceable, the
remainder shall remain in full force and effect, and such unenforceable
provision shall be reformed by such court so as to give maximum legal effect to
the intention of the parties as expressed therein.
11. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect
Damages. FFCA, BY ACCEPTING THIS AGREEMENT, AND DEBTOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY
WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR
COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS
SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT, THE RELATIONSHIP OF FFCA AND DEBTOR, DEBTOR'S USE OR OCCUPANCY OF THE
PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY
REMEDY. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A
TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.
FURTHERMORE, DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE
RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES
FROM FFCA WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION,
PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR AGAINST FFCA OR ITS
SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY
DEBTOR OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND
INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL
ASPECT OF THEIR BARGAIN.
12. Time of the Essence. Time is of the essence in the performance of each
and every obligation under this Agreement.
13. Notices. All notices, demands, designations, certificates, requests,
offers, consents, approvals, appointments and other instruments given pursuant
to this Agreement (collectively called "Notices") shall be in writing and given
by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service
or (iv) certified or registered mail, return receipt requested and shall be
deemed to have been delivered upon (a) receipt, if hand delivered, (b)
transmission, if delivered by facsimile, (c) the next business day, if delivered
by express overnight delivery service, or (d) the third business day following
the day of deposit of such notice with the United States Postal Service, if sent
by certified or registered mail, return receipt requested. Notices shall be
provided to the parties and addresses (or facsimile numbers, as applicable)
specified below:
-8-
<PAGE>
If to Debtor: Family Steak Houses of Florida, Inc.
2113 Florida Boulevard
Neptune Beach, Florida 32266
Attention: Edward B. Alexander
Telephone: (904) 249-4197
Telecopy: (904) 249-1466
If to FFCA: Dennis L. Ruben, Esq.
Senior Vice President and General Counsel
FFCA Mortgage Corporation
17207 North Perimeter Drive
Scottsdale, AZ 85255
Telephone: (602) 585-4500
Telecopy: (602) 585-2226
or to such other address or such other person as either party may from time to
time hereafter specify to the other party in a notice delivered in the manner
provided above. Whenever in this Agreement the giving of Notice is required, the
giving thereof may be waived in writing at any time by the person or persons
entitled to receive such Notice.
14. Amendments; Waivers. This Agreement may not be modified except by an
instrument in writing executed by Debtor and FFCA and no requirement hereof may
be waived at any time except by a writing signed by the party against whom such
waiver is sought to be enforced, nor shall any waiver be deemed a waiver of any
subsequent breach or default.
15. Headings. The headings appearing in this Agreement have been inserted
for convenient reference only and shall not modify, define, limit or expand the
express provisions of this Agreement.
-9-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
day and year first above written.
DEBTOR
FAMILY STEAK HOUSES OF FLORIDA,
INC., a Florida corporation
By
WITNESS Printed Name
Title
Printed Name
WITNESS
Printed Name
<PAGE>
STATE OF ]
] SS.
COUNTY OF ]
I HEREBY CERTIFY that on this day, before me, an officer duly authorized in
the State aforesaid and in the County aforesaid to take acknowledgements, the
foregoing instrument was acknowledged before me by , the of Family Steak Houses
of Florida, Inc., a Florida corporation, freely and voluntarily under authority
duly vested in him by said corporation and that the seal affixed thereto is the
true corporate seal of said corporation. He is personally known to me or has
produced as identification.
WITNESS my hand and official seal in the County and State last
aforesaid this day of , 1996.
Notary Public
Typed, printed or stamped name of
Notary Public
My Commission Expires:
EXHIBIT A
LEGAL DESCRIPTION
EXHIBIT F
LITIGATION
<TABLE>
<CAPTION>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
Five Year Financial Summary
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 (**) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Income Statement Data: (in thousands, except per share data)
Sales $ 37,978 $ 42,105 $ 44,849 $ 48,525 $ 49,693
Cost and expenses:
Food and beverage 15,089 16,591 18,174 19,534 20,153
Payroll and benefits 10,538 11,412 12,097 13,372 13,303
Depreciation and amortization 1,663 1,720 1,961 2,560 2,544
Other operating expenses 6,046 6,417 6,412 7,055 6,607
General and administrative expenses 2,128 2,348 2,899 2,159 1,903
Franchise fees 1,139 1,263 1,561 2,207 2,406
(Income) costs from closed restaurants-- (303) 1,392 2,557 --
Loss on disposition of equipment 57 198 86 21 --
-------- -------- -------- -------- --------
36,660 39,646 44,582 49,465 46,916
Earnings (loss) from operations 1,318 2,459 267 (940) 2,777
Interest and other income 465 536 123 79 69
Gain on sale of property held for resale -- 31 -- -- --
Gain on sale of restaurant -- 159 -- -- --
Write-down of property held for resale -- -- (465) (91) --
Interest expense (1,516) (1,694) (1,980) (2,110) (2,380)
-------- -------- -------- -------- --------
Earnings (loss) before income taxes, effect of
accounting change and extraordinary item 267 1,491 (2,055) (3,062) 466
Provision (benefit) for income taxes 53 147 (274) (978) 175
-------- -------- -------- -------- --------
Earnings (loss) before accounting change and
extraordinary item 214 1,344 (1,781) (2,084) 291
Cumulative effect of accounting change -- -- -- -- 90
-------- -------- -------- -------- --------
Net earnings (loss) before extraordinary item 214 $ 1,344 $ (1,781) $ (2,084) $ 381
Extraordinary item - gain on early extinguishment of
debt, net of income taxes of $ 88,700 348 -- -- -- --
-------- -------- -------- -------- --------
Net earnings (loss) 562 1,344 (1,781) (2,084) 381
======== ======== ======== ======== ========
Per common and equivalent share:
Earnings (loss) before accounting change and extraordinary item $ 0.02 $ 0.11 $ (0.17) $ (0.19) $ 0.03
Cumulative effect of accounting chang -- -- -- -- 0.01
Extraordinary item - gain on early extinguishment of debt 0.03 -- -- -- --
-------- -------- -------- -------- --------
Net earnings (loss) $ 0.05 $ 0.11 $ (0.17) $ (0.19) $ 0.04
======== ======== ======== ======== ========
Weighted average common shares and equivalents 11,838 11,831 10,773 10,952 10,704
======== ======== ======== ======== ========
Selected Balance Sheet Data:
Land and net property and equipment $ 26,349 $ 26,837 $ 26,896 $ 29,505 $ 32,045
Total assets 32,803 31,260 32,809 35,095 37,523
Long-term debt 15,107 14,420 16,305 14 16,335
Current portion of long-term debt 334 1,580 851 17,269 2,809
Shareholders' equity 11,998 11,460 9,993 11,743 13,800
Selected Operating Data:
Current ratio 0.9 0.4 0.6 0.1 0.3
Working capital (deficit) $ (617) $ (3,285) $ (2,673) $(20,089) $ (4,633)
Cash provided by operating activities 1,645 2,135 3,096 3,979 3,284
Property and equipment additions 1,768 2,600 1,796 1,558 648
** Fifty-three week period.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Shown for the years indicated are (i) items in the statements of operations as a
percent of total sales, (ii) operating expense items in the statements of
operations as a percent of sales and (iii) the number of restaurants open at the
end of each year.
- --------------------------------------------------------------------------------------------------------
Percentage
Change Versus
Prior Year
-------------
1996 1995
vs vs
1996 1995 1994 1995 1994
- --------------------------------------------------------------------------------------------------------
Sales $37,977,600 $42,105,400 $44,848,800 (9.8)% (6.1)%
- --------------------------------------------------------------------------------------------------------
Net Change
In Percentage
1996 1995
Percent of Sales vs vs
1996 1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost and expenses:
Operating expenses 87.8% 85.8% 86.2% 2.0 (0.4)
General and administrative expenses 5.6 5.6 6.5 0.0 (0.9)
Franchise fees 3.0 3.0 3.5 0.0 (0.5)
Closed restaurant costs -- (0.7) 3.1 0.7 (3.8)
Loss on disposition of property and equipment 0.1 0.5 0.2 (0.4) 0.3
---- ---- ---- --- ----
96.5 94.2 99.5 2.3 (5.3)
---- ---- ---- --- ----
Earnings from operations 3.5 5.8 0.5 (2.3) 5.3
Interest and other income 1.2 1.4 0.3 (0.2) 1.1
Gain on sale of restaurant -- 0.4 -- (0.4) 0.4
Write-down of property held for resale -- -- (1.0) 0.0 1.0
Interest expense (4.0) (4.0) (4.4) 0.0 0.4
---- ---- ---- --- ----
Earnings (loss) before income taxes and
extraordinary item 0.7 3.6 (4.6) (2.9) 8.2
Provision (benefit) for income taxes 0.1 0.4 (0.6) (0.3) 1.0
---- ---- ---- --- ----
Net earnings (loss) before
extraordinary item 0.6 3.2 (4.0) (2.6) 7.2
Extraordinary item - gain on early
extinguishment of debt,
net of income taxes of $88,700 0.9 -- -- 0.9 --
---- ---- ---- --- ----
Net earnings (loss) 1.5% 3.2% (4.0)% (1.7)% 7.2%
==== ==== ==== === ====
Operating expenses:
Food and beverage 39.7% 39.4% 40.5% 0.3% (1.1)%
Payroll and benefits 27.8 27.1 27.0 0.7 0.1
Depreciation and amortization 4.4 4.1 4.4 0.3 (0.3)
Other operating expenses 15.9 15.2 14.3 0.7 0.9
---- ---- ---- --- ----
87.8% 85.8% 86.2% 2.0% (0.4)%
==== ==== ==== === ====
Restaurants open at end of year 24 24 24
==== ==== ====
</TABLE>
5
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
1996 Compared to 1995
For the year ended January 1, 1997, total sales decreased 9.8% compared to 1995,
due to declines in same-store sales and one less week in fiscal year 1996
compared to 1995. The sales decline in 1996 compared to 1995 consisted of the
following components:
- --------------------------------------------------------------------------------
% Change
from 1995
1996 1995 Change Total Sales
- --------------------------------------------------------------------------------
Same-Store Sales $37,977,600 $41,361,900 $(3,384,300) (8.0%)
Extra Week Sales* - 0 - 743,500 (743,500) (1.8%)
----------- ----------- ----------- ----
Total Sales $37,977,600 $42,105,400 $(4,127,800) (9.8%)
=========== =========== =========== ====
- --------------------
* 1995 was a 53-week period, 1996 was a 52-week period.
Management believes that the decrease in comparable store sales is primarily due
to the effects of increasing competition, including several new or remodeled
restaurants opened by competitors in areas close to Company restaurants.
Management plans to attempt to improve sales trends by focusing on improved
restaurant operations, remodeling several restaurants and increasing marketing
expenditures.
The operating expenses of the Company's restaurants include food and beverage,
payroll and benefits, depreciation and amortization, repairs, maintenance,
utilities, supplies, advertising, insurance, property taxes, rents and licenses.
The Company's food, beverage, payroll and benefit costs are believed to be
higher than the industry average as a percentage of sales as a result of the
Company's philosophy of providing customers with high value of food and service
for every dollar a customer spends. In total, food and beverage, payroll and
benefits, depreciation and amortization and other operating expenses as a
percentage of sales increased to 87.8% from 85.8% in 1995, primarily due to the
decline in comparable store sales.
Food and beverage costs as a percentage of sales increased to 39.7% in 1996 from
39.4% in 1995, primarily due to higher produce and dairy product costs. Payroll
and benefits as a percentage of sales increased from 27.1% in 1995 to 27.7% in
1996, primarily due to the decline in comparable store sales. Other operating
expenses as a percentage of sales increased from 15.2% in 1995 to 15.9% in 1996,
primarily due to higher repair and maintenance costs and the decline in
comparable store sales. Depreciation and amortization increased as a percentage
of sales in 1996 compared to 1995, as a result of the decline in comparable
store sales.
General and administrative expenses as a percentage of sales were 5.6% in 1996
and 1995. Franchise fees were 3.0% of sales in 1996 and 1995 in accordance with
the Company's amended Franchise Agreement with Ryan's Family Steak Houses, Inc.
(the "Franchisor"). (See note 3 to the financial statements).
In 1995, the Company recognized $303,200 in income from the favorable settlement
of two closed restaurant leases. The remaining lease costs at the time of store
closure were included in closed restaurant costs in 1993. No such events
occurred in 1996.
During the first week of fiscal 1995, the Company closed and sold a restaurant
located in Jacksonville, Florida. The Company received approximately 20% of the
purchase price in cash and recorded a mortgage receivable for the balance of the
sale. The Company recognized a gain on the sale of approximately $152,000 in
1995. Total gains on sales of property were $159,000 in 1995. There were no
significant sales of real estate in 1996.
6
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
Interest expense decreased from $1,693,800 during 1995 to $1,516,300 in 1996.
The decrease was due primarily to lower outstanding principal balances,
resulting from principal payments made throughout the last twelve months.
The effective income tax rates for the year ended January 1, 1997 and January 3,
1996 were 20.1% and 9.9%, respectively. Certain deferred tax assets were
utilized in both years, resulting in lower than statutory effective rates for
1996 and 1995.
In December 1996, the Company realized a gain on early extinguishment of debt of
$348,500, net of income taxes. The gain was accounted for as an extraordinary
item (see Note 5 to the financial statements).
Net earnings for 1996 were $562,200, compared to $1,344,200 in 1995. Earnings
per share were $.05 for 1996, compared to $.11 in 1995.
1995 Compared to 1994
For the year ended January 3, 1996, total sales decreased 6.1% compared to 1994,
due to declines in same-store sales and lost revenues from closed restaurants.
The sales decline in 1995 compared to 1994 consisted of the following
components:
- --------------------------------------------------------------------------------
% Change
from 1994
1995 1994 Change Total Sales
- --------------------------------------------------------------------------------
Closed Restaurants $0 $2,310,500 $(2,310,500) (5.2%)
Same-Store Sales 41,361,900 42,538,300 (1,176,400) (2.6%)
Extra Week Sales* 743,500 0 743,500 1.7%
---------- ---------- ---------- ----
Total Sales $42,105,400 $44,848,800 $(2,743,400) (6.1%)
=========== =========== =========== ====
- --------------------
* 1995 was a 53-week period, 1994 was a 52-week period.
Food and beverage costs as a percentage of sales decreased to 39.4% in 1995 from
40.5% in 1994, primarily due to lower beef costs and sales price increases
implemented in 1994 and 1995. Payroll and benefits as a percentage of sales
increased from 27.0% in 1994 to 27.1% in 1995, primarily due to increases in
compensation to restaurant managers. Other operating expenses as a percentage of
sales increased from 14.3% in 1994 to 15.2% in 1995, primarily due to higher
advertising costs and the decline in same-store sales. Depreciation and
amortization decreased as a percentage of sales in 1995 compared to 1994, as a
result of certain assets becoming fully depreciated or amortized. General and
administrative expenses as a percentage of sales decreased to 5.6% in 1995 from
6.5% in 1994, primarily due to professional services expenses incurred in 1994
associated with the Company's debt restructuring negotiations. Franchise fees
decreased beginning in 1994 in accordance with the Company's amended Franchise
Agreement with the Franchisor. (See note 3 to the financial statements).
In April 1994, the Company closed a restaurant in Ft. Pierce, Florida resulting
in pre-tax charges to 1994 earnings totaling $986,000. The charge consisted of a
write-down in value of the property as determined by appraisal and other costs
associated with closing the restaurant. Also in 1994, the Company closed its
Wrangler's Roadhouse location, resulting in write-downs of property and
equipment totaling $355,000. Total closed restaurant costs in 1994 were
$1,392,400. In 1995 the Company recognized $303,200 in income from the favorable
settlement of two closed restaurant leases. The remaining lease costs at the
time of store closure were included in closed restaurant costs in 1993.
7
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
During the first week of fiscal 1995, the Company closed and sold a restaurant
located in Jacksonville, Florida. The Company received approximately 20% of the
purchase price in cash and recorded a mortgage receivable for the balance of the
sale. The Company recognized a gain on this sale of approximately $152,000 in
1995. Total gains on sales of property were $159,000 in 1995.
Interest and other income increased due to the recognition of interest income in
1995 from two mortgages and due to income from toy vending machines installed in
Company restaurants in 1995.
Interest expense decreased from $1,980,100 during 1994 to $1,693,800 in 1995.
The decrease was due primarily to lower outstanding principal balances,
resulting from principal payments made throughout the last twelve months, and
due to a lower interest rate on the Company's obligations to Cerberus Partners,
L.P. (notes formerly held by The Travelers Insurance Company).
The effective income tax rates for the year ended January 3, 1996 and December
28, 1994 were 9.9% and (13.3%), respectively. The 1994 benefit was less than the
statutory tax rate due to the uncertainty of realization of certain deferred tax
assets at that time. Certain of these assets were utilized in 1995, resulting in
the reduced effective rate for 1995.
Net earnings for 1995 were $1,344,200, compared to a net loss of $1,785,900 in
1994. Earnings per share were $.11 for 1995, compared to a loss per share of
$.17 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Substantially all of the Company's revenues are derived from cash sales.
Inventories are purchased on credit and are converted rapidly to cash.
Therefore, the Company does not carry significant receivables or inventories
and, other than the repayment of debt, working capital requirements for
continuing operations are not significant.
At January 1, 1997, the Company had a working capital deficit of $616,800
compared to a working capital deficit of $3,284,900 at January 3, 1996. The
decrease in the working capital deficit in 1996 was primarily due to a reduction
in the current portion of long-term debt and cash provided by the new loan
agreement described below.
Cash provided by operating activities decreased to $1,645,000 from $2,135,300 in
1995, primarily due to lower earnings in 1996. Cash provided by operating
activities decreased from $3,095,800 in 1994 to $2,135,300 in 1995 due to
reductions in accrued liabilities in 1995 as a result of timing differences in
payments.
The Company spent approximately $1,356,000 in 1996, $2,600,000 in 1995 and
$1,656,000 in 1994 for new restaurant construction, restaurant remodeling and
equipment. Capital expenditures for 1997 and 1998, based on present costs and
plans for capital improvements, are estimated to be $4,100,000 and $3,100,000
respectively. The Company projects that proceeds from the Company's financing
agreements (described below), sales leaseback financing and cash generated from
operations will be sufficient to fund these improvements.
In December 1996, the Company entered into a Loan Agreement with FFCA Mortgage
Corporation ("FFCA"). The Loan Agreement governs eighteen Promissory Notes
payable to FFCA totalling $15,360,000 at January 1, 1997. Each Note is secured
by a mortgage on a Company restaurant property. The Promissory Notes provide for
a term of twenty years and an interest rate equal to the thirty-day LIBOR rate
plus 3.75%, adjusted monthly. The Loan Agreement provides for various covenants,
including the maintenance of prescribed debt service coverages.
The Company used the proceeds of the FFCA loan to retire its notes with Cerberus
Partners, L.P., ("Cerberus") and its loans with The Daiwa Bank Limited and
SouthTrust Bank of Alabama, N.A. The Company realized a discount on the
retirement of the Cerberus notes, which was partially offset by unamortized debt
issuance costs. The resulting gain of $348,500, net of income taxes, has been
accounted for as an extraordinary item. In addition, the Company retired
Warrants for 1,050,000 shares of the Company's common stock previously held by
Cerberus. Cerberus continues to hold Warrants to purchase 700,000 shares of the
Company's common stock at an exercise price of $.40 per share.
8
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
Also in December 1996, the Company entered into a separate loan agreement with
FFCA under which it may borrow up to an additional $4,640,000 in 1997. This
additional financing would be evidenced by four additional Promissory Notes
secured by mortgages on four Company restaurant properties. The term and
interest rate of this loan agreement are identical to the loan agreement
described above.
IMPACT OF INFLATION
Costs of food, beverage, and labor are the expenses most affected by inflation
in the Company's business. Although inflation has not had a significant impact
on the Company in the past, there can be no assurance that it will not in the
future. A significant portion of the Company's employees are paid by the
federally established statutory minimum wage. On August 8, 1996, President
Clinton signed into law a bill which raised the federally mandated minimum wage
by $.50 per hour on October 1, 1996, and by an additional $.40 per hour on
September 1, 1997.
The Company raised sales prices approximately 3.0% in order to offset the effect
of higher payroll and benefit costs. Sales prices were increased approximately
2.5% in 1995 and 4.0% in 1994.
9
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------
For The Years Ended
----------------------------------------------------
January 1, January 3, December 28,
1997 1996 1994
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Sales $37,977,600 $42,105,400 $44,848,800
Cost and expenses:
Food and beverage 15,089,500 16,591,300 18,173,900
Payroll and benefits 10,537,500 11,411,700 12,096,500
Depreciation and amortization 1,662,500 1,719,900 1,961,300
Other operating expenses 6,046,000 6,417,100 6,412,300
General and administrative expenses 2,127,600 2,348,200 2,898,600
Franchise fees 1,138,600 1,263,200 1,561,100
(Income) costs from closed restaurants -- (303,200) 1,392,400
Loss on disposition of equipment 57,400 197,800 86,200
---------- ---------- ----------
36,659,100 39,646,000 44,582,300
---------- ---------- ----------
Earnings from operations 1,318,500 2,459,400 266,500
Interest and other income 465,100 535,600 123,300
Gain on sale of restaurant -- 158,600 --
Gain on sale of property held for resale -- 31,500 --
Write-down of property held for resale -- -- (465,000)
Interest expense (1,516,300) (1,693,800) (1,980,100)
---------- ---------- ----------
Earnings (loss) before income taxes
and extraordinary item 267,300 1,491,300 (2,055,300)
Provision (benefit) for income taxes 53,600 147,100 (274,400)
---------- ---------- ----------
Net earnings (loss) before extraordinary item 213,700 1,344,200 (1,780,900)
Extraordinary item - gain on early extinguishment
of debt, net of income taxes of $88,700 348,500 -- --
---------- ---------- ----------
Net earnings (loss) $ 562,200 $ 1,344,200 $ (1,780,900)
========== ========== ============
Per common share and equivalents:
Net earnings (loss) before extraordinary item $ 0.02 $ 0.11 $ (0.17)
Extraordinary item - gain on early extinguishment of debt 0.03 -- --
---------- ---------- ----------
Net earnings (loss) $ 0.05 $ 0.11 $ (0.17)
========== ========== ==========
Weighted average common shares and equivalents 11,838,000 11,831,000 10,773,000
========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
10
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Consolidated Balance Sheets
- ----------------------------------------------------------------------------------------------------
January 1, January 3,
1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,750,800 $ 711,400
Investments 1,093,100 600,300
Receivables 566,100 73,900
Current portion of mortgages receivable 120,600 155,700
Inventories 202,300 247,400
Prepaids and other current assets 247,200 256,600
------------ ------------
Total current assets 3,980,100 2,045,300
Mortgages receivable 1,089,100 1,262,700
Property and equipment:
Land 9,089,200 9,342,200
Buildings and improvements 19,676,500 18,774,500
Equipment 12,240,400 11,940,900
------------ ------------
41,006,100 40,057,600
Accumulated depreciation (14,656,200) (13,220,900)
------------ ------------
Net property and equipment 26,349,900 26,836,700
Property held for resale 552,800 552,800
Other assets, principally deferred charges,
net of accumulated amortization 831,600 562,200
------------ ------------
$ 32,803,500 $ 31,259,700
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,183,000 $ 1,250,700
Accounts payable - construction 411,800 --
Accrued liabilities 2,582,100 2,494,100
Income taxes payable 84,800 5,400
Current portion of long-term debt 332,700 1,580,000
Current portion of obligation under capital lease 2,500 --
------------ ------------
Total current liabilities 4,596,900 5,330,200
Long-term debt 15,107,200 14,420,400
Obligation under capital lease 1,058,600 --
Deferred revenue 43,100 49,400
------------ ------------
Total liabilities 20,805,800 19,800,000
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred stock of $.01 par; authorized 10,000,000 shares;
none issued -- --
Common stock of $.01 par; authorized 20,000,000 shares;
outstanding 10,920,700 in 1996
and 10,845,000 shares in 1995 109,200 108,500
Additional paid-in capital 8,098,400 8,123,300
Retained earnings 3,790,100 3,227,900
------------ ------------
Total shareholders' equity 11,997,700 11,459,700
------------ ------------
$ 32,803,500 $ 31,259,700
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
11
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
For the Years ended January 1, 1997, January 3, 1996 and December 28, 1994
- -------------------------------------------------------------------------------------------------------------------
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 29, 1993 10,632,800 $ 106,300 $ 7,972,300 $ 3,664,600 $11,743,200
Net loss (1,780,900) (1,780,900)
Issuance of common stock under
Incentive Stock Option Plan 92,400 1,000 1,000
Directors' fees in the form of stock
options 30,000 30,000
---------- ----------- ----------- ----------- -----------
Balance, December 28, 1994 10,725,200 107,300 8,002,300 1,883,700 9,993,300
Net earnings 1,344,200 1,344,200
Issuance of common stock under
Incentive Stock Option Plan 119,800 1,200 1,200
Issuance of warrants 81,000 81,000
Directors' fees in the form of stock
options 40,000 40,000
---------- ----------- ----------- ----------- -----------
Balance, January 3, 1996 10,845,000 108,500 8,123,300 3,227,900 11,459,700
Net earnings 562,200 562,200
Issuance of common stock under
Incentive Stock Option Plan 75,700 700 18,100 18,800
Retirement of warrants (63,000) (63,000)
Directors' fees in the form of stock
options 20,000 20,000
---------- ----------- ----------- ----------- -----------
Balance, January 1, 1997 10,920,700 $ 109,200 $ 8,098,400 $ 3,790,100 $11,997,700
========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements
</TABLE>
12
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------------------------------------------
For the Years Ended
January 1, January 3, December 28,
1997 1996 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net earnings (loss) $ 562,200 $ 1,344,200 $ (1,780,900)
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Depreciation and amortization 1,662,500 1,719,900 1,961,300
Directors' fees in the form of stock options 20,000 40,000 30,000
Amortization of loan discount 51,000 74,700 132,000
Amortization of loan fees 89,800 85,400 96,600
Gain on early extinguishment of debt (437,200) -- --
Loss on disposition of property and equipment 57,400 197,800 86,200
Closed restaurant costs -- (303,200) 1,392,400
Write-down of property held for resale -- -- 465,000
Gain on sale of restaurant -- (158,600) --
Gain on sale of property held for resale -- (31,500) --
Loss from joint venture -- 5,400 --
Decrease (increase) in:
Receivables (16,100) 27,800 80,800
Inventories 45,100 63,100 (12,300)
Income taxes receivable -- 332,200 (6,300)
Prepaids and other current assets 9,400 218,900 (196,500)
Other assets (492,500) (275,900) (43,100)
Increase (decrease) in:
Accounts payable (67,700) (212,200) (109,400)
Accrued liabilities 88,000 (794,000) 1,091,500
Income taxes payable 79,400 5,400 --
Deferred revenue (6,300) (5,800) 25,000
Other non-current liabilities -- (198,300) (116,500)
------------ ------------ ------------
Net cash provided by operating activities 1,645,000 2,135,300 3,095,800
------------ ------------ ------------
Investing activities:
Proceeds from sale of property and equipment 548,600 107,900 114,100
Principal receipts on notes receivable 208,700 84,400 --
Purchase of investments (492,800) -- (405,700)
Capital expenditures (1,356,400) (2,599,600) (1,655,800)
Proceeds from sale of property held for resale -- 518,000 --
Proceeds from sale of investments -- 110,400 --
------------ ------------ ------------
Net cash used by investing activities (1,091,900) (1,778,900) (1,947,400)
------------ ------------ ------------
Financing activities:
Payments on long-term debt (15,414,500) (1,249,300) (1,059,500)
Retirement of warrants (63,000) -- --
Proceeds from the issuance on long-term debt 15,360,000 -- --
Proceeds from capital lease 585,000 -- --
Proceeds from the issuance of common stock 18,800 1,200 1,000
------------ ------------ ------------
Net cash provided (used) by financing activities 486,300 (1,248,100) (1,058,500)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 1,039,400 (891,700) 89,900
Cash and cash equivalents - beginning of year 711,400 1,603,100 1,513,200
------------ ------------ ------------
Cash and cash equivalents - end of year $ 1,750,800 $ 711,400 $ 1,603,100
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $ 63,000 $ 139,200 $ --
============ ============ ============
Cash paid during the year for interest $ 1,386,600 $ 1,670,800 $ 1,482,900
============ ============ ============
Non-cash transactions:
Notes receivable as partial proceeds $ -- $ 932,800 $ 570,000
Interest forgiven in lieu of loan closing costs incur -- 251,600 --
Warrants issued in connection with loan restructure -- 81,000 --
Accrued interest reclassed to long-term debt -- 100,000 --
Equipment and other current assets
contributed to investment in JV -- -- 100,000
Franchise rights exchanged in lieu of franchise fees -- -- 500,000
Note payable issued in lieu of franchise fees -- -- 800,000
------------ ------------ ------------
$ -- $ 1,365,400 $ 1,970,000
============ ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
13
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
Organization
The Company was organized under the laws of the State of Florida in September
1985 and is the sole franchisee of Ryan's Family Steak House restaurants in the
State of Florida.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Steak House Construction, Family Rustic
Investments, Steak House Realty Corporation, and Wrangler's Roadhouse, Inc. All
significant intercompany transactions and balances have been eliminated.
Fiscal Year
The fiscal year consists of a fifty-two or fifty-three week period ending on the
Wednesday nearest to December 31. Fiscal year 1995 consisted of fifty-three
weeks. Fiscal years 1996 and 1994 consisted of fifty-two weeks.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company has a cash management program which provides for the investment of
excess cash balances in short-term investments. These investments are stated at
cost which approximates market value and consist of money market instruments.
Investments
Investments represent certificates of deposit or bankers' acceptances with
maturities of less than one year. These investments are pledged with various
entities to support the Company's workers' compensation liability, and certain
utilities bonds. Interest rates on the certificates vary from 4.64% to 5.35%.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of ingredients and supplies.
Property and Equipment
Property and equipment are stated at cost. Maintenance, repairs and betterments
which do not enhance the value of or increase the life of the assets are charged
to costs and expenses as incurred. Depreciation is provided for financial
reporting purposes principally on the straight-line method over the following
estimated lives: buildings - 25 years, land improvements - 25 years and
equipment - 5-8 years. Leasehold improvements are amortized over the life of the
related lease.
14
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
Property Held For Resale
Property held for resale consists of property parcels held for sale. These
parcels are stated at the lower of cost or estimated net realizable value.
Deferred Charges
Certain costs incidental to the opening of a restaurant, consisting primarily of
employee training costs, are capitalized for each store opened and are amortized
over one year. Other deferred charges and related amortization periods are as
follows: financing costs - term of the related loan, and initial franchise
rights - 40 years.
Earnings Per Share
Earnings per share are computed based on the weighted average number of common
and common equivalent shares outstanding. Common equivalent shares are
represented by shares under option and outstanding warrants.
Income Taxes
Deferred income taxes are provided for temporary differences between financial
reporting basis and tax basis of the Company's assets and liabilities using
presently enacted income tax rates.
New Accounting Standards
Effective January 4, 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS No. 121)
which requires that long-lived assets and certain intangibles to be held and
used by the Company be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of SFAS No. 121 did not have a material impact on the
Company.
Effective January 4, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123). SFAS No. 123 establishes a fair value
based method of accounting for stock-based employee compensation plans; however,
it also allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees". Under the fair value based method, compensation cost is measured
at the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. The Company has elected to
continue to account for its employee stock compensation plans under APB Opinion
No. 25 with pro forma disclosures of net earnings and earnings per share, as if
the fair value based method of accounting defined in SFAS No. 123 has been
applied.
Reclassifications
Certain items in the prior year financial statements have been reclassified to
conform to the 1996 presentation.
15
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
NOTE 2. CLOSED RESTAURANT COSTS
In April 1994, the Company closed a restaurant in Ft. Pierce, Florida and
recorded a restaurant closing reserve. The April 1994 restaurant closing
resulted in pre-tax charges to 1994 earnings totaling $986,000, reflecting a
reduction in market value of the property as determined by appraisal, in
addition to costs associated with closing the restaurant. Also in 1994, the
Company closed its Wrangler's Roadhouse location, resulting in write-downs of
property and equipment totaling $355,000. Total closed restaurant costs in 1994
were $1,392,400. In 1995, the Company recognized $303,200 income from favorable
settlements of two closed restaurant leases. These closed restaurant costs had
been recorded in 1993, when the decision to close the respective restaurants was
made.
The decisions to close certain restaurants were made as a result of poor
operating performance. Closed restaurant costs include loss on the sale of a
closed restaurant property, losses on leasehold improvements and equipment,
provisions for future obligations on restaurant leases and other costs of
closure.
NOTE 3. FRANCHISE AGREEMENT
In October 1996, the Company amended its Franchise Agreement with Ryan's Family
Steak Houses, Inc. The amended agreement requires the Company to pay a monthly
royalty fee of 3.0% through December 2001, and 4.0% thereafter of the gross
receipts of each Ryan's Family Steak House restaurant. Total royalty fee
expenses were $1,138,600, $1,263,200 and $1,561,100 for the years ended January
1, 1997, January 3, 1996 and December 28, 1994.
The Franchise Agreement requires the Company to operate a minimum number of
Ryan's restaurants on December 31 of each year. Failure to operate the minimum
number could result in the loss of exclusive franchise rights to the Ryan's
concept in Florida.
The following schedule outlines the number of Ryan's restaurants required to be
operated by the Company as of December 31 each year under the amended franchise
agreement:
- --------------------------------------------------------------------------------
Number of
Restaurants Required to
End of Fiscal Year be in Operation
- --------------------------------------------------------------------------------
1997 25
1998 26
1999 27
2000 28
2001 and subsequent years Increases by one each year
Prior to July 1994 the Company held exclusive franchise rights to build Ryan's
restaurants in the State of Florida, with the exception of Panama City, Florida
and Escambia County, Florida, where the Franchisor has the right to operate
Ryan's restaurants. Under the Franchise Agreement, as amended in July 1994, the
Company relinquished the franchise rights to most counties in northwest Florida
and south Florida to the Franchisor for $500,000 in forgiveness of past due
royalty fees. The Company has the right to repurchase the exclusive franchise
rights to those counties for $500,000 at any time prior to June 30, 1998.
In conjunction with the execution of the July 1994 amendment to the Franchise
Agreement, the Company executed and delivered a note to the Franchisor for
payment of $800,000 in past due royalty fees. (See Note 5.)
16
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
Note 4. ACCRUED LIABILITIES
Accrued liabilities is summarized as follows:
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Payroll and payroll taxes $ 561,500 $ 457,800
Workers' compensation claims 1,427,000 1,247,700
Property taxes 9,300 211,500
Other 584,300 577,100
---------- ----------
$2,582,100 $2,494,100
========== ==========
The Company self-insures workers' compensation losses up to certain limits. The
estimated liability for workers' compensation claims represents an estimate for
the ultimate cost of uninsured losses which are unpaid as of the balance sheet
date. These estimates are continually reviewed and adjustments to the Company's
estimated claim liabilities, if any, are reflected in current operations.
<TABLE>
<CAPTION>
Note 5. LONG-TERM DEBT
Long-term debt is summarized as follows:
- --------------------------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Secured notes payable to FFCA Mortgage Corporation, monthly
principal and interest payments totaling $141,900
beginning February 1997, interest at thirty day LIBOR
rate +3.75% (9.375% at January 1,1997) $15,360,000 $ --
Secured 9.0% Senior Notes payable to Cerberus Partners,
L.P. (payable to The Travelers Insurance Company and
certain of its affiliates prior to August 1995), interest
payable monthly, principal payments of $65,000, paid
in full in December 1996. -- 11,478,000
Secured bank term loan, monthly principal payments of
$67,100 through March 1995, then $41,250 beginning April
1995 with interest at prime plus .50%, paid
in full in December 1996 -- 4,163,000
Unsecured note payable to Franchisor, monthly principal
payments of $25,000 beginning August 1994 through
March 1997, interest at 6.0% 75,000 350,000
Other 4,900 9,400
----------- -----------
15,439,900 16,000,400
Less current portion: (332,700) (1,580,000)
----------- -----------
$15,107,200 $14,420,400
=========== ===========
</TABLE>
17
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
Total maturities of long-term debt are as follow:
1997 $ 332,700
1998 279,300
1999 307,400
2000 338,900
2001 412,000
Thereafter 13,769,600
----------
$15,439,900
===========
In December 1996, the Company entered into a Loan Agreement with FFCA Mortgage
Corporation ("FFCA"). The Loan Agreement governs eighteen Promissory Notes
payable to FFCA totalling $15,360,000 at January 1, 1997. Each Note is secured
by a mortgage on a Company restaurant property. The Promissory Notes provide for
a term of twenty years and an interest rate equal to the thirty-day LIBOR rate
plus 3.75%, adjusted monthly. The Loan Agreement provides for various covenants,
including the maintenance of prescribed debt service coverages.
The Company used the proceeds of the FFCA Loan to retire its notes with Cerberus
Partners, L.P., ("Cerberus") and its loans with The Daiwa Bank Limited and
SouthTrust Bank of Alabama, N.A. The Company realized a discount on the
retirement of the Cerberus notes, which was partially offset by unamortized debt
issuance costs. The resulting gain of $348,500 net of income taxes, has been
accounted for as an extraordinary item. In addition, the Company retired
Warrants for 1,050,000 shares of the Company's common stock previously held by
Cerberus. Cerberus continues to hold Warrants to purchase 700,000 shares of the
Company's common stock at an exercise price of $.40 per share.
Also in December 1996, the Company entered into a separate loan agreement with
FFCA under which it may borrow up to an additional $4,640,000 in 1997. This
additional financing would be evidenced by four additional Promissory Notes
secured by mortgages on four Company restaurant properties. The terms and
interest rate of this loan agreement are identical to the loan agreement
described above.
NOTE 6. INCOME TAXES
The provision (benefit) for income taxes is comprised of the following:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Current:
Federal $142,300 $147,100 $(274,400)
State -- -- --
-------- ------- --------
$142,300 147,100 (274,400)
Deferred -- -- --
-------- ------- --------
Provision (benefit) for income taxes $142,300 $147,100 $(274,400)
======== ======== =========
18
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income taxes for the years ended January 1, 1997, January 3, 1996 and December
28, 1994 differ from the amount computed by applying the federal statutory
corporate rate to earnings before income taxes. The differences are reconciled
as follows:
- ------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax provision (benefit) at statutory rate $ 245,500 $ 522,000 $(719,400)
Increase (decrease) in taxes due to:
Effect of graduated tax rates (7,000) (14,900) 20,600
State tax net of federal benefit 38,600 53,700 (74,000)
Change in deferred tax asset valuation allowance (109,400) (426,000) 530,100
Other (25,400) 12,300 (31,700)
--------- --------- ---------
Provision (benefit) for
income taxes $ 142,300 $ 147,100 $(274,400)
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
The components of deferred taxes at January 1, 1997 and January 3, 1996 are
summarized below:
- ----------------------------------------------------------------------------------------
January 1, January 3,
1997 1996
- ----------------------------------------------------------------------------------------
Deferred tax assets:
<S> <C> <C>
Capital loss not currently deductible $ 46,100 $ 46,100
Excess tax over book basis- Property held for re-sale 164,700 164,700
Federal and state tax credits 375,100 471,900
Accruals not currently deductible 547,900 476,200
Unearned revenue, previously taxed 22,500 30,500
State net operating loss -- 14,300
--------- -------
Total deferred tax asset 1,156,300 1,189,400
Valuation Allowance (141,800) (251,200)
--------- -------
1,014,500 938,200
--------- -------
Deferred tax liability:
Excess of tax over book depreciation and amortization 1,014,500 938,200
Net deferred taxes $ 0 $ 0
========= =======
</TABLE>
At January 1, 1997, the Company's federal and state tax credit was comprised of
alternative minimum tax credits of $375,100, which have no expiration date.
NOTE 7. CAPITAL STOCK, OPTIONS AND WARRANTS
The Company has a stock option plan for non-employee directors pursuant to which
up to an aggregate of 540,000 shares of the common stock are authorized to be
granted. All options expire five years after the date of grant or one year after
completion of term as a director.
The Company also had an employee incentive stock option plan pursuant to which
up to an aggregate of 900,000 shares of the common stock were authorized to be
granted. All options expire ten years after the date of grant or 90 days after
termination of employment. This plan expired as of November 30, 1995. All
options outstanding under this plan as of November 30, 1995 remain exercisable
pursuant to terms of the plan.
In 1995 the Company's shareholders approved a new employee incentive stock
option plan pursuant to which an additional 1,000,000 shares of common stock are
authorized to be granted. All options expire ten years after the date of grant
or 90 days after termination of employment.
19
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
If compensation cost for stock option grants had been determined based on the
fair value at the grant dates for 1996 and 1995 consistent with the method
prescribed by SFAS No. 123, the Company's net earnings and earnings per share
would have been adjusted to the pro forma amounts indicated below:
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Net Earnings As reported $562,200 $1,344,200
Pro forma 490,262 1,256,435
Earnings per share As reported $ .05 $ .11
Pro forma .04 .11
Under SFAS No. 123, the fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weight-average assumptions used for grants in 1996 and 1995, respectively:
dividend yield of 0 and 0 percent, expected volatility of 134 and 128 percent,
risk-free interest rates of 6.5 and 5.6 percent, and expected lives of 10 and 10
years.
<TABLE>
<CAPTION>
The following table summarizes the changes in the total number of stock option
shares outstanding during the two years ended January 1, 1997.
- ---------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------
Options Weighted Average Options Weighted Average
Exercise Price Exercise Price
<S> <C> <C>
Options outstanding
at beginning of year 1,310,200 $ .62 510,446 $ .81
Options granted 139,432 .53 1,075,552 .50
Options exercised (75,682) .25 (119,852) .01
Options forfeited (404,750) .71 (155,946) .71
Options outstanding
at end of year 969,200 .60 1,310,200 .62
----------- ----------
Options exercisable
at end of year 449,050 .70 472,850 .71
=========== ==========
Weighted average fair value of
options granted during the year $ 36,16 $ 326,761
Common shares reserved for
future grants at end of year 766,447 -- 747,947 --
</TABLE>
The following table summarizes information about fixed stock options outstanding
at January 1, 1997:
Year Exercise Options Options Weighted Average
Granted Price $ Outstanding Exercisable Remaining Life
------- ------- ----------- ----------- --------------
1987 $5.75 1,500 1,500 0.1
1988 3.63 5,500 5,500 1.1
1989 2.88 15,000 15,000 2.5
1991 0.81 59,000 59,000 4.3
1992 1.13 20,000 20,000 5.1
1993 0.63 38,000 28,500 6.3
1994 0.25 92,000 46,000 8.0
1995 1.07 25,000 25,000 8.0
1995 0.40 412,500 206,250 8.7
1995 0.75 169,200 42,300 8.7
1996 0.56 131,500 0 10.0
------- -------
969,200 449,050
======= =======
Remaining non-exercisable options as of January 1, 1997 become exercisable as
follows:
1997 210,800
1998 201,300
1999 75,175
2000 32,875
-------
520,150
=======
20
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
Cerberus Partners, L.P., hold detachable warrants to purchase 700,000 shares of
the Company's common stock at $.40 per share at any time prior to October 1,
2003. The estimated fair value of the warrants retired as of December 18, 1996
(the date of the retirement of the Cerberus Notes) of $63,000 was recorded as a
decrease to additional paid-in capital and included in the gain from early
retirement of debt.
The Company's Board of Directors is authorized to set the various rights and
preferences for the Company's Preferred Stock, including voting, conversion,
dividend and liquidation rights and preferences, at the time shares of Preferred
Stock are issued. As of January 1, 1997 there were no shares of Preferred Stock
issued.
RIGHTS PLAN
On March 18, 1997, Family Steak Houses of Florida, Inc. ("FSH") entered into a
Rights Agreement (the "Rights Agreement") with ChaseMellon Shareholder Services,
LLC and declared a dividend of rights to purchase Junior Participating Preferred
Stock of the Company ("Rights") to shareholders of record as of March 19, 1997.
Each Right will initially entitle the registered holder to purchase from FSH a
unit consisting of one one-hundredth of a share (a "Unit") of Junior
Participating Preferred Stock of the Company ("Preferred Stock") at $5.00 per
Unit, subject to adjustment (the "Purchase Price"). The description and terms of
the Rights are contained in the Rights Agreement. As long as the Rights are
attached to the common stock of FSH ("FSH Common Stock") and in certain other
circumstances specified in the Rights Agreement, one Right (as such number may
be adjusted pursuant to the provisions of the Rights Agreement) shall be deemed
to be delivered with each share of FSH Common Stock issued or transferred by FSH
in the future.
The Rights will be exercisable and will trade separately from the FSH Common
Stock upon the tenth business day after (i) the date of public announcement that
a person or group have become the beneficial owners of 15% or more of the
outstanding shares of FSH Common Stock (an "Acquiring Person"), or (ii) such
later date determined by the Board of Directors after the first public
announcement of a tender or exchange offer, which, upon consummation, would
result in a person or a group being the beneficial owner of 15% or more of the
outstanding shares of common stock, or (iii) after a majority of the Board who
are not officers of FSH have determined that a person is an Adverse Person (as
defined in the Rights Agreement).
If (i) a person becomes the beneficial owner of 15% or more of the then
outstanding shares of FSH Common Stock or voting power (except pursuant to
certain business combinations or an offer for all outstanding shares of FSH
Common Stock and all other voting securities which the independent and
disinterested directors of FSH determine to be fair to and otherwise in the best
interests of FSH and its shareholders) or (ii) any person is determined to be an
Adverse Person, then each holder of a Right (with the exception of an Adverse or
Acquiring Person) will thereafter have the right to receive, upon exercise, FSH
Common Stock having a value equal to no less than two times the exercise price
of the Right, which is $5.00, subject to adjustment.
FSH may redeem each Right for $0.001 at any time before the earliest of (i) ten
business days after a person or group becomes an Acquiring Person, (ii) ten
business days after the Board's determination that a person is an Adverse
Person, or (iii) March 17, 2007.
NOTE 8. PROFIT SHARING AND RETIREMENT PLAN
Employees of the Company participate in a profit sharing and retirement plan
covering substantially all full-time employees at least twenty-one years of age
and with more than one year of service. The plan was established in August 1991.
Contributions are made to the plan at the discretion of the Company's Board of
Directors. No contributions have been made since the inception of the plan.
The profit sharing plan includes a 40l(K) feature by which employees can defer,
by payroll deduction only, l% to l5% of their annual compensation not to exceed
$9,500 in 1996.
21
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
The plan provides for a Company matching contribution of $.25 per dollar of the
first 6% of employee deferral. The Company's matching contribution was $32,050
in 1996, $43,173 in 1995 and $38,400 in 1994. Employees vest in Company
contributions based on the following schedule:
- --------------------------------------------------------------------------------
Years of Service Vesting Percentage
- --------------------------------------------------------------------------------
Less than 3 0%
3 20%
4 40%
5 60%
6 80%
7 l00%
NOTE 9. INVESTMENT IN JOINT VENTURES
In December 1994, the Company formed a new subsidiary, Family Steak JV, Inc.
which acquired a 50% ownership in a limited liability company, Cross Creek
Barbeque, L.C. ("Cross Creek"), for the purpose of opening a new restaurant. The
Company contributed the equipment to Cross Creek and the other 50% owner of
Cross Creek contributed the cash necessary to remodel and open the new Cross
Creek restaurant. As a result of unsatisfactory operating performance, the
Company sold its interest in the Cross Creek restaurant in July 1995. A Company
subsidiary leased the land and building to Cross Creek until May 1996, when it
sold them at a gain of approximately $5,000.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Lease Obligations
At January 1, 1997, the Company is committed under the terms and conditions of
real and personal property operating leases for minimum rentals aggregating
$2,294,000 plus insurance, common area expenses and taxes. The Company has
various renewal options on these leases covering periods of five to twenty
years.
In September 1996, the Company entered into a twenty year lease agreement with
two five year renewal options for a restaurant building. The total costs of the
assets covered by the lease amount to $1,087,400 at January 1, 1997. Interest is
computed at an annual rate of 10.65%.
Future minimum lease obligations are under noncancelable capital lease and
operating leases consist of the following as of January 1, 1997:
- --------------------------------------------------------------------------------
Capital Operating
Lease Leases
- --------------------------------------------------------------------------------
1997 $115,400 $ 268,600
1998 115,400 259,500
1999 115,400 209,900
2000 115,400 162,300
2001 115,400 113,100
Future years 2,180,600 1,280,600
--------- ---------
Total minimum lease payments $2,757,600 $2,294,000
==========
Amounts representing interest (1,696,500)
----------
Present value of net minimum
payments 1,061,100
Current portion (2,500)
----------
Long-term capitalized lease obligations $1,058,600
==========
22
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
Rental expense for operating leases for the years ended January 1, 1997, January
3, 1996 and December 28, 1994 was approximately $380,500, $419,200 and $447,100
respectively. Contingent rental payments, for the years ended January 1, 1997,
January 3, 1996 and December 28, 1994 were approximately $0, $5,500 and $7,000
respectively.
Legal Matters
The Company, in the normal course of business, is subjected to claims and
litigation with respect to store operations. In the opinion of management, based
on the advice of legal counsel the ultimate disposition of these claims and
litigation will not have a material effect on the financial position or results
of operations of the Company.
NOTE 11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
In 1995, the Company adopted Statement of Financial Accounting Standards No.
107, "Disclosures About Fair Value of Financial Instruments" ("SFAS No. 107").
This statement addresses disclosure of estimated fair values of certain
financial instruments. The estimated fair value amounts have been determined by
the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required to
interpret market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Cash Equivalents - For those short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Investments - The Company's investments consist of certificates of deposit and
bankers' acceptances for which the carrying amount is a reasonable estimate of
fair value.
Mortgage Receivables - The fair value of mortgage receivables is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities. The Company believes the carrying amount is a reasonable
estimate of fair value.
Debt - Interest rates that are currently available to the Company for issuance
of debt with similar terms and remaining maturities are used to estimate fair
value for debt instruments. The Company believes the carrying amount is a
reasonable estimate of such fair value.
NOTE 12. SUBSEQUENT EVENTS (UNAUDITED)
On March 6, 1997 the Company received notification of an unsolicited tender
offer from Bisco Industries, Inc. to purchase up to 2,600,000 shares of the
Company's outstanding common stock at $.90 per share. On March 19, 1997 the
Company's Board of Directors and management completed their evaluation of the
offer and determined the offer inadequate and not in the best interest of the
shareholders.
23
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Family Steak Houses of Florida, Inc.
We have audited the accompanying consolidated balance sheets of Family Steak
Houses of Florida, Inc. and subsidiaries as of January 1, 1997 and January 3,
1996 and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended January
1, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Family Steak Houses of Florida,
Inc. and subsidiaries as of January 1, 1997 and January 3, 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended January 1, 1997 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the Consolidated Financial Statements, in 1996 the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" and No. 123, "Accounting for Stock-Based
Compensation".
Deloitte & Touche LLP
Jacksonville, Florida
February 27, 1997
24
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
COMPANY'S REPORT ON FINANCIAL STATEMENTS
Family Steak Houses of Florida, Inc. has prepared and is responsible for the
accompanying consolidated financial statements and related consolidated
financial information included in this report. These consolidated financial
statements were prepared in accordance with generally accepted accounting
principles and are appropriate in the circumstances. These consolidated
financial statements necessarily include amounts determined using management's
best judgements and estimates.
Family Steak Houses of Florida, Inc. maintains accounting and other control
systems which the Company believes provides reasonable assurance that assets are
safeguarded and that the books and records reflect the authorized transactions
of the Company, although there are inherent limitations in all internal control
structure elements, as well as cost/benefit considerations.
Family Steak Houses of Florida, Inc.'s independent certified public accountants,
Deloitte & Touche LLP, have audited the accompanying consolidated financial
statements for 1996. The objective of their audit, performed in accordance with
generally accepted auditing standards, is to express an opinion on the fairness,
in all material respects, of the Company's consolidated financial position,
results of its operations and its cash flows in accordance with generally
accepted accounting principles. They consider the internal control structure to
the extent considered necessary to determine the audit procedures required for
the purpose of expressing their opinion on the consolidated financial
statements.
25
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
Corporate Listing Family Steak Houses of Florida, Inc.
Corporate Officer and Directors
Lewis E. Christman, Jr. (photo)
President, Chief Executive
Officer, Director
Edward B. Alexander (photo)
Chief Financial Officer and Director
Michael J. Walters (photo)
Corporate Secretary
Robert Martin (photo)
Director
Consultant to the Company
Joseph M. Glickstein, Jr. (photo)
Director
Partner, Glickstein & Glickstein
Richard M. Gray (photo)
Director
Partner, Gray & Kelley
26
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
Independent Certified Public Accountants
Deloitte & Touche LLP
Suite 2801, Independent Square
One Independent Drive
Jacksonville, FL 32202-5034
General Counsel
Mahoney Adams & Criser, P.A.
3400 Barnett Center
50 North Laura Street
P.O. Box 4099
Jacksonville, FL 32201
Transfer Agent/Rights Agent
Chase Mellon Shareholder Services
Four Station Square
Third Floor
Pittsburg, PA 15219-1173
Executive Office
Family Steak Houses of Florida, Inc.
2113 Florida Boulevard
Neptune Beach, FL 32266
Form 10-K
A copy of the Company's Annual Report on Form 10-K
for fiscal 1996, as filed
with the Securities and Exchange Commission, may
be obtained by writing to:
Corporate Secretary
Family Steak Houses of Florida, Inc.
2113 Florida Boulevard
Neptune Beach, FL 32266
Annual Meeting
The annual meeting will be held at:
Sea Turtle Inn
One Ocean Boulevard
Atlantic Beach, FL 32233
Tuesday, June 17 at 10:00 a.m.
27
<PAGE>
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
Common Stock Data
The Company's common stock is traded on the NASDAQ National Market System under
the trading symbol "RYFL". As of March 5, 1997, there were approximately 2,703
shareholders of record, not including individuals holding shares in street
names. The closing sale price for the Company's stock on March 5, 1997 was $.88.
The Company has never paid cash dividends on its common stock and is not allowed
to pay dividends under its loan agreements. Management of the Company presently
intends to retain all available funds for expansion of the business.
The quarterly high and low closing prices of the Company's common stock are as
shown below:
Market Price of Common Stock
----------------------------
1996 1995
Quarter High Low High Low
------- ---- --- ---- ---
First 31/32 5/8 15/16 9/32
Second 29/32 9/16 15/16 9/16
Third 3/4 17/32 1 11/16
Fourth 23/32 7/16 1 3/16 5/8
28
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the company's
1996 10-K and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-1997
<PERIOD-END> JAN-01-1997
<CASH> 1,750,800
<SECURITIES> 1,093,100<F1>
<RECEIVABLES> 686,700
<ALLOWANCES> 0
<INVENTORY> 202,300
<CURRENT-ASSETS> 3,980,100
<PP&E> 41,006,100
<DEPRECIATION> (14,656,200)
<TOTAL-ASSETS> 32,803,500
<CURRENT-LIABILITIES> 4,596,900
<BONDS> 0
0
0
<COMMON> 109,200
<OTHER-SE> 11,888,500
<TOTAL-LIABILITY-AND-EQUITY> 32,803,500
<SALES> 37,977,600
<TOTAL-REVENUES> 37,977,600
<CGS> 15,089,500
<TOTAL-COSTS> 36,659,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,516,300)
<INCOME-PRETAX> 267,300
<INCOME-TAX> 53,600
<INCOME-CONTINUING> 213,700
<DISCONTINUED> 0
<EXTRAORDINARY> 348,500
<CHANGES> 0
<NET-INCOME> 562,200
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
<FN>
<F1>Represents investments in certificates of deposits with maturities of less than
one year.
</FN>
</TABLE>
