November 16, 1998
OFIS Filer Support
SEC Operations Center
6842 General Green Way
Alexandria, VA 22312-2413
Dear Sirs:
Pursuant to regulations of the Securities and Exchange Commission,
submitted herewith for filing on behalf of Family Steak Houses of Florida,
Inc. is the Company's Quarterly Report on Form 10-Q for the Fiscal Quarter
ended September 30, 1998.
This filing is being effected by direct transmission to the Commission's Edgar
System.
Very truly yours,
Loretta C. Abbey
Controller
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter ended September 30, 1998
Commission File No. 0-14311
FAMILY STEAK HOUSES OF
FLORIDA, INC.
Incorporated under the laws of IRS Employer Identification
Florida No. 59-2597349
2113 FLORIDA BOULEVARD
NEPTUNE BEACH, FLORIDA 32266
Registrant's Telephone No. (904) 249-4197
Indicate by check mark whether the registrant has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No_____
Title of each class Number of shares outstanding
Common Stock 2,371,600
$.01 par value As of November 5, 1998
FAMILY STEAK HOUSES OF FLORIDA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to
Form 10-Q, and do not include all the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation of the results for the interim periods have been
included. Operating results for the thirteen and thirty-nine week
periods ended September 30, 1998 are not necessarily indicative of
the results that may be expected for the fiscal year ending December
30, 1998. For further information, refer to the financial statements
and footnotes included in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany profits, transactions and balances have been
eliminated.
Note 2. Earnings Per Share
Basic earnings per share for the thirteen weeks ended September 30,
1998 and October 1, 1997 were computed based on the weighted average
number of common shares outstanding. Diluted earnings per share for
those periods have been computed based on the weighted allowance
number of common shares outstanding, giving effect to all dilutive
potential common shares that were outstanding during the period.
Dilutive shares are represented by shares under option and stock
warrants.
Note 3. Legal Proceedings
The Company leases the premises where its Clearwater, Florida
restaurant is located. On May 13, 1997, the Company received notice
from Aetna Life Insurance Company, the mortgage holder of the
property at which the Company's Clearwater, Florida restaurant is
located, that Aetna intended to foreclose on the property due to a
default by the landlord on the mortgage. In October 1998, Aetna was
granted a Motion for Summary Judgment of Foreclosure by the Circuit
Court of the Sixth Judicial Court in Pinellas County. The Company
subsequently agreed not to appeal the Circuit Court's ruling in
exchange for Aetna's agreement not to initiate any eviction
proceedings prior to May 30, 1999. After May 1999, either the
Company or Aetna may terminate the lease agreement with 30 days
notice. If Aetna decided to terminate the lease in 1999, this would
result in a write-off of approximately $300,000 of leasehold
improvements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Quarter Ended September 30, 1998 versus October 1, 1997
The Company experienced an increase in sales during the third
thirteen weeks of 1998 as compared to the same period in 1997. Same-
store sales (average unit sales in restaurants that have been open
for at least 18 months and operating during comparable weeks during
the current and prior year) in the third quarter of 1998 increased
2.6% from the same period in 1997, compared to a decrease of 9.3%
from 1997 as compared to 1996.
Management believes that the increase in same-store sales is
primarily due to significant increases in sales at certain
restaurants remodeled by the Company. These remodels included
installation of scatter bars at three restaurants, which resulted in
same-store sales gains at these locations in excess of 20%. These
increases were somewhat offset by decreases in sales at other
Company restaurants caused by the effects of increasing competition,
including several new or remodeled restaurants opened by competitors
in areas close to Company restaurants. Management is seeking to
improve sales trends by focusing on improved restaurant operations
and devising competitive strategies to offset the effects of new
competition. Management plans to sell restaurants which are not
meeting sales and profit expectations, and has listed six
restaurants for sale. Proceeds from any sales of restaurants would
be used either to reduce long-term debt or build new restaurants
with more competitive facilities in superior locations.
Due primarily to the negative effects of increasing competition
on the Company's sales and profitability, in March 1998 the Company
announced that it had retained an investment banking firm
specializing in the restaurant industry to assist the Company in
identifying and evaluating strategic opportunities which would
enhance shareholder value. The Company intends to continue to
evaluate strategic opportunities recommended by the investment
banking firm, and to pursue such strategies it deems appropriate.
However, there can be no assurance that a restructuring or
transaction will result from this process.
Historically, the third and fourth quarters of each fiscal year
are less profitable for the Company than the first and second
quarters. Even if the recent improved sales trends continue, the
Company is likely to incur losses in the fourth quarter.
The costs and expenses of the Company's restaurants include
food and beverage, payroll and benefits, depreciation and
amortization, repairs, maintenance, utilities, supplies,
advertising, insurance, property taxes and rents. 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 decreased to
90.2% in the third quarter of 1998, from 91.9% in the same quarter
of 1997.
Food and beverage costs as a percentage of sales decreased to
39.4% in the third quarter of 1998 from 40.9% in the same period of
1997, primarily due to lower beef prices compared to the same period
in 1997, upgraded buffet menus and low-priced lunch specials
implemented in 1997, and sales price increases implemented after the
third quarter of 1997.
Payroll and benefits as a percentage of sales increased to
28.7% in the third quarter of 1998 from 28.5% in the same quarter of
1997, primarily due to increased performance-based bonuses paid to
restaurants managers in 1998.
Other operating expenses as a percentage of sales decreased to
16.6% in the third quarter of 1998 from 17.5% in 1997, primarily due
to lower repair and maintenance costs, and to reduced costs for
rental of equipment. Depreciation and amortization increased as a
percentage of sales in the third quarter of 1998 compared to 1997,
as a result of additions to property and equipment over the last 12
months.
General and administrative expenses as a percentage of sales
were 6.5% in the third quarter of 1998, a decrease from 8.2% in the
same quarter of 1997, which included costs associated with the Bisco
takeover attempt in 1997, and an accrual of costs for sales tax due
under a Florida sales tax audit in 1997. Interest expense increased
from $401,100 during the third quarter of 1997 to $430,200 in 1998.
The increase was due primarily to interest costs associated with
additional borrowing under the Company's credit facility in 1998.
The effective income tax benefit rates for the quarters ended
September 30, 1998 and October 1, 1997 were 16.5% and 21.1%,
respectively.
Net loss for the third quarter of 1998 was $303,300, compared
to $471,600 in 1997. Loss per share assuming dilution was $.13 for
1998, compared to a loss of $.21 in 1997.
Nine Months Ended September 30, 1998 versus October 1, 1997
For the nine months ended September 30, 1998, total sales
increased 1.8% compared to the same period of 1997. Same-store sales
increased .2% for the nine months ended September 30, 1998.
Food and beverage costs, as a percentage of sales, for the nine
month period ended September 30, 1998 were 39.1%, compared to 39.6%
for the same period in 1997. The decrease was primarily due to sales
price increases implemented by the Company and to lower beef prices
during a portion of 1998. Payroll and benefits decreased from 28.3%
in 1997 to 28.0% in 1998, primarily due to the elimination of state
unemployment taxes by the State of Florida for the 1998 calendar
year.
For the nine months ended September 30, 1998, other operating
expenses, as a percentage of sales, decreased to 15.7% from 15.8% in
1997. Depreciation and amortization increased as a percentage of
sales for the nine month period ended September 30, 1998, compared
to the same period of 1997, due to additions to property, plant and
equipment over the last 12 months.
For the nine months ended September 30, 1998, general and
administrative expenses, as a percentage of sales, decreased to 6.2%
of sales from 7.1% for the same period in 1997, which included costs
incurred in 1997 associated with the Bisco takeover attempt in 1997.
Interest expense increased for the first nine months of 1998 to
$1,238,600 from $1,190,000 for the same period in 1997.
The effective income tax rates for the nine-month periods ended
September 30, 1998 and October 1, 1997 were 10.2% and 21.4%
respectively.
Net loss for the nine months ended September 30, 1998 was
$115,300 or $.05 per share assuming dilution, compared to net loss
of $372,900 or $.16 per share assuming dilution for the same period
in 1997.
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.
Operating results for the quarter ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the
fiscal year ending December 30, 1998.
Recent Developments
Possible Delisting of Securities from The Nasdaq Stock Market.
The Company's common stock is currently listed on the Nasdaq
National Market. On August 22, 1997, the Securities and Exchange
Commission approved changes to the listing and maintenance
requirements of the National Market. The Company's qualification for
continued listing on this market would require that (i) the Company
maintain at least $4.0 million in net tangible assets, (ii) the
minimum bid price of the Common Stock be $1.00 or more per share,
(iii) there be at least 750,000 shares in the public float, valued
at a minimum of $5.0 million or more, (iv) the Common Stock have at
least two active market makers and (v) the Common Stock be held by
at least 400 holders.
On August 12, 1998 the Company received notice from Nasdaq that
it was not in compliance with the public float requirement.
According to Nasdaq, if the Company's public float did not reach the
required $5.0 million for 10 consecutive trading days before
November 9, 1998, the Company's stock would be delisted from the
Nasdaq National Market. As of November 9, the Company's public float
was approximately $1,864,000, and had not reached the minimum
requirement for the 10-day period. On November 5, 1998, the Company
requested a hearing to maintain its listing on the NASDAQ National
Market. There can be no assurance that such a hearing will be
successful, or that the Company will be able to maintain its listing
on the Nasdaq National Market.
If the Company is unsuccessful at the hearing, the Company's
securities may be delisted from the Nasdaq National Market. In such
event, trading in the Common Stock would thereafter be conducted on
the Nasdaq SmallCap Market, in the over-the-counter markets in the
so-called "pink sheets" or the National Association of Securities
Dealers, Inc.'s "Electronic Bulletin Board". Consequently, the
liquidity of the Company's securities could be impaired, not only in
the number of shares that could be bought and sold, but also as a
result of delays in the timing of the transactions, a reduction in
the number and quality of security analysts' and the news media's
coverage of the Company, lower prices for the Company's securities
than might otherwise be attained and a larger spread between the bid
and asked prices for the Company's securities.
In addition, if the Company's securities were to be delisted
from the Nasdaq National Market, the Company's securities could
become subject to Rule 15g-9 under the Exchange Act relating to
penny stocks, which imposes additional sales practice requirements
on broker-dealers which sell such securities to persons other than
established customers and "accredited investors" (generally,
individuals with net worth in excess of $1,000,000 or annual incomes
exceeding $200,000, or $300,000 together with their spouses).
Commission regulations define a "penny stock" to be any equity
security that is not listed on The Nasdaq Stock Market or a national
securities exchange and that has a market price (as therein defined)
of less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to certain exceptions. If the Company's
securities were subject to the rules on penny stocks, the market
liquidity for the Company's securities could be adversely affected.
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. As a result, working capital
requirements for continuing operations are not significant.
At September 30, 1998, the Company had a working capital
deficit of $201,200, compared to a working capital deficit of
$1,794,700 at December 31, 1997. The reduction in the deficit was
primarily due to proceeds from issuance of long term debt, and to
increased cash generated from operations during 1998.
Cash provided by operating activities increased to $1,730,000
in the first nine months of 1998 from $984,800 in the same period of
1997. This increase is primarily due to improved results from
operations, and as a result of increases in certain current assets
and decreases in current liabilities caused by timing differences in
transactions which occurred in 1998.
The Company spent $2,599,400 in the first nine months of 1998
for land, leasehold improvements and restaurant renovation and
equipment. Capital expenditures for 1998 and 1997, based on present
costs and plans for expansion, are estimated to be $4,300,000 and
$5,200,000 respectively. The Company projects that cash generated
from operations and funding available under its financing agreement
with Franchise Finance Corporation of America ("FFCA") will be
sufficient to fund these expenditures.
In December 1996, the Company entered into a $15.36 million
Loan Agreement with FFCA Mortgage Corporation ("FFCA"). The Loan
Agreement governs seventeen Promissory Notes payable to FFCA. Each
Note is secured by a mortgage on a Company restaurant property. The
Promissory Notes provide for a term of twenty years and an interest
rate equal to the thirty-day LIBOR rate plus 3.75%, adjusted
monthly. The Loan Agreement provides for various covenants,
including the maintenance of prescribed debt service coverages. As
of September 30, 1998, the outstanding balance due under the loan
was $14,459,400.
The Company used the proceeds of the FFCA loan to retire its
Notes with Cerberus Partners, L.P. ("Cerberus") and its loans with
the Daiwa Bank Limited and SouthTrust Bank of Alabama, N.A. In
addition, the Company retired Warrants for 210,000 shares of the
Company's common stock previously held by Cerberus. Cerberus
continues to hold Warrants to purchase 140,000 shares of the
Company's common stock at an exercise price of $2.00 per share.
Also in December 1996, the Company entered into a separate loan
agreement with FFCA under which it borrowed an additional $2,590,000
in 1998. This additional financing is evidenced by three additional
Promissory Notes secured by mortgages on three Company restaurant
properties. The terms and conditions of this loan agreement are
substantially identical to those of the loan agreement described
above. As of September 30, 1998, the outstanding balance under this
loan was $2,580,500.
In October 1998, the Company received two commitments for new
financing from FFCA. One commitment was for construction financing
for two new restaurants to be built in 1999. Terms of this
commitment include funding of a maximum of $1,600,000 per
restaurant, with an expiration date of October 1, 1999. The second
commitment provides for funding of a maximum of $3,000,000, secured
by mortgages on three Company restaurant properties, with an
expiration date of March 31, 1999. Other terms and conditions of
these loan agreements are substantially identical to those of the
$15.36 million Loan Agreement described above.
Proceeds from the two new loan commitments should be sufficient
to satisfy the Company's capital requirements through the end of
1999. The Company's ability to build additional restaurants or make
other capital improvements after 1999 is dependent on its ability to
secure additional new financing.
Information Systems and the Year 2000
General. The Company uses and is dependent upon a significant
number of computer software programs and operating systems to
conduct its business. Such programs and systems include those
developed and maintained by the Company, software and systems
purchased from outside vendors and software and systems used by the
Company's third party providers. The Company recognizes that the
Year 2000 issue is one of the most complex data processing problems
faced by businesses worldwide.
State of Readiness. The Company's approach to Year 2000 compliance
includes a standard set of methods and tools to coordinate and drive
the project to completion. The approach consists of six phases:
1. Assessment - Defining each system and process to determine
if there are date dependencies and how to resolve them.
2. Remediation - Implementing the steps identified in the
assessment phase to repair date errors.
3. Testing - Developing and implementing test scripts to
determine if remediated code is correct.
4. Implementation - Moving all approved changes from testing
into production.
5. Check-Off - Formally acknowledging that each process has
been implemented and is functioning correctly.
6. Clean Management - Employing procedures and practices to
prevent the reintroduction of non-compliant applications,
products and processes into the operating environment,
once Year 2000 compliance has been achieved.
Testing and remediation of critical systems is underway and the
Company believes that there are no material impediments to its goal
of Year 2000 readiness.
The Company has relationships with vendors, customers and other
third parties that rely on software and systems that may not be Year
2000 compliant. With respect to such third parties, Year 2000
compliance matters will not be within the Company's direct control.
There can be no assurance that Year 2000 compliance failures by such
third parties will not have a material adverse effect on the
Company's results of operations, although the Company is in contact
with these third parties in connection with its contingency
planning.
Cost of Year 2000 Efforts. The Company acknowledges that some
level of modification or replacement of hardware and software is
necessary in order to make the Company's systems "Year 2000
Compliant". The Company presently estimates these remediation costs
to be approximately $100,000. Alternatively, if the Company were to
choose to modernize all of its existing software, which would
include Year 2000 compliance, the cost could range as high as
$500,000. No decision has been made by the Company as to the extent
of software replacement. The Company expects to expense remediation
costs as they are incurred, with the exception of new hardware and
software purchases, which will be capitalized. The Company has not
incurred significant remediation costs prior to September 30, 1998.
The source of funds for Year 2000 remediation is in the Company's
financing commitment from FFCA Mortgage Corporation described under
"Liquidity and Capital Resources".
Year 2000 remediation costs are based on management's best
estimates; however, there can be no guarantee that these estimates
will be achieved, and actual results could differ materially from
those plans.
Risks. The worst case Year 2000 scenario, disregarding the
Company's remediation efforts and contingency planning, is a failure
of the Company's ability to obtain necessary food and beverage
supplies from non-compliant suppliers in a timely manner and/or a
failure of HVAC and other facility systems due to undetected
embedded chips. Such failures would result in material disruption in
the Company's operations.
The Company does not presently anticipate any material Year 2000
failures nor does the Company anticipate any material adverse impact
to its business, financial condition, or prospects as a result of
the Year 2000. The foregoing description of a worst case Year 2000
scenario is furnished in response to and in compliance with the
Statement of the Commission Regarding Disclosure of Year 2000 Issues
and Consequences by Public Companies, Investment Advisors,
Investment Companies, and Municipal Securities Issuers, Securities
Act Rel. No. 33-7448 (July 30, 1998).
Contingency Planning. The Company's Year 2000 Program is based on
the assumption that 100% impact coverage is neither feasible nor
practical. It is impossible that the Company or third parties on
which the Company depends may have unplanned system difficulties
during the transition through 2000, or that third parties may not
successfully manage the change to 2000. Therefore, an integral part
of the Company's Year 2000 Program is the development of contingency
plans in anticipation of systems or third party failure. These
contingency plans are in the process of being developed.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See discussions under "Legal Proceedings".
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this
report on Form 10-Q, and this list comprises the Exhibit
Index.
No. Exhibit
10.01 $3 million loan commitment from FFCA, Acquisition
Corporation dated October 2, 1998.
10.02 Commitment for construction financing for two
restaurants from FFCA Acquisition Corporation, dated
October 2, 1998.
27.01 Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
FAMILY STEAK HOUSES OF FLORIDA, INC.
(Registrant)
/s/ Lewis E. Christman
Date: November 13, 1998 Lewis E. Christman, Jr.
President and CEO
/s/ Edward B. Alexander
Date: November 13, 1998 Edward B. Alexander
Vice President of Finance
(Principal Financial and Accounting
Officer)
EX-10.01
October 2, 1998
VIA TELECOPY AND
AIRBORNE EXPRESS
Mr. Ed Alexander
Family Steak Houses of Florida, Inc.
2113 Florida Boulevard
Neptune Beach, FL 32266
Dear Ed:
Family Steak Houses of Florida, Inc. ("Borrower") has advised FFCA
Acquisition Corporation ("FFCA") that Borrower desires to obtain
mortgage financing for up to two (2) new Ryan's restaurants
(individually, a "Property" and collectively, the "Properties") during
the next twelve (12) months. For each Property, Borrower desires to
obtain a construction/long term mortgage loan secured by a first lien
mortgage or deed of trust, as determined by FFCA, on the Property which
will be owned by Borrower in fee (individually, a "Mortgage Loan" and
collectively the "Mortgage Loans").
Upon Borrower's acceptance of this commitment letter (this
"Commitment"), FFCA commits to make to Borrower up to two (2) Mortgage
Loans, all on the terms set forth in this Commitment.
A. Basic Commitment Terms.
Background: This Commitment outlines certain basic terms and
conditions of the Mortgage Loans; however, it is not
meant to define all of the terms and conditions of the
Mortgage Loans, which will be set forth more fully in
a separate term sheet (the "Term Sheet") and the final
documentation for each Mortgage Loan. The Mortgage
Loans are subject to, among other things, the approval
by FFCA's in-house site review and valuation
department of the Properties and the Loan Amount (as
defined below), Borrower's compliance with all of the
requirements set forth in this Commitment and the
receipt by FFCA of all documents and other information
requested by FFCA and its counsel.
Acceptance: Borrower may accept this Commitment by signing and
returning a copy of this Commitment, together with a
check for the Fee (as defined below), to FFCA within 10
days of the date hereof.
Fee: Borrower shall pay FFCA a $6,000.00 fee for this
Commitment.
Refundability of Fee: Although the Fee shall be nonrefundable and fully
earned when received by FFCA, all or part of the Fee
may be applied to the Property Commitment Fees as
described in the Property Commitment Fee Section
below.
Mortgage Loan
Processing: Borrower will notify FFCA as soon as Borrower has
identified a Property. Such notice shall include a
copy of the proposed purchase agreement, a description
of the Property, including the proposed improvements
(the "Improvements"), a budget for the proposed
Improvements, a description and cost estimate for the
equipment and any other documents and information
available regarding the Property (the "Property
Notice"). Upon receipt of the Property Notice, FFCA's
in-house site review and inspection department will
inspect the Property identified by Borrower. If the
identified Property is approved by FFCA, FFCA will
prepare a Term Sheet in the form attached hereto as
Exhibit A outlining the specific terms and conditions
upon which FFCA would be willing to enter into the
Mortgage Loan. FFCA will not order a title insurance
commitment or instruct its counsel to begin preparing
any of the documentation, until Borrower has accepted
the Term Sheet and returned it to FFCA.
Commitment Term: The term of this Commitment shall commence on the
date this Commitment is accepted and automatically
expire and be of no further force or effect after
October 1, 1999. Any Property Notice received by
FFCA after such date shall be ineffective.
Loan Amount Cap: Notwithstanding anything herein to the contrary, in no
event shall FFCA be obligated to fund a Mortgage Loan
where the Loan Amount for the Property (including
financed soft costs and closing costs) exceeds the sum
of $1,600,000.00.
Property Locations: Each of the Properties shall be located in Florida.
B. Basic Loan Terms.
Property Commitment
Fee: For each Mortgage Loan, Borrower shall pay FFCA an
underwriting and processing fee equal to the sum of
one percent (1%) of the Loan Amount. Borrower shall
be entitled to a $3,000.00 credit towards the Property
Commitment Fee owing under each Term Sheet. One-
half of the balance of the Property Commitment Fee
shall be due upon Borrower's acceptance of a Term
Sheet; the balance of the Property Commitment Fee
shall be due at the Closing.
Documentation: Prior to Closing, FFCA shall provide Borrower with
FFCA's proposed form of promissory note ("Note"), loan
agreement ("Loan Agreement"), mortgage or deed of
trust, as determined by FFCA, and security agreement
("Deed of Trust"), assignment of leases and rents,
environmental indemnity, UCC-1 financing statements,
disbursement agreement (the "Disbursement
Agreement") and such other documents as may be
reasonably required by FFCA or the title company
(collectively, the "Loan Documents"). Each Deed of
Trust shall (a) grant FFCA a first priority lien
against the Property and the furniture, machinery and
other equipment of Borrower at the Property, (b)
contain such representations, warranties, covenants
and agreements as are customary in loan Mortgage Loans
of this type, (c) provide that Borrower will indemnify
FFCA against all claims, suits and costs whatsoever
relating to the Property, (d) provide that Borrower
shall be responsible for all maintenance, utilities,
insurance, taxes, assessments and other expenses
associated with the Property, (e) provide that the
Property shall be operated pursuant to a franchise
agreement with Ryan's Properties, Inc. ("Franchisor"),
and (f) provide that the Property shall not be sold,
leased, or further encumbered without the prior written
consent of FFCA. At the Closing, with respect to each
Property, Borrower shall (i) provide FFCA with proof of
insurance relating to the Property, (ii) provide FFCA
with a satisfactory title insurance commitment, ALTA
as-built survey, phase I environmental report and/or
environmental insurance, opinion of counsel,
certification of Borrower, non-foreign certificate,
and (iii) execute the Loan Documents.
Loan Amount: Subject to the Loan Amount Cap set forth above, the
sum of (i) the fair market value of the land as
determined by FFCA's in-house site inspection and
review department, (ii) the actual and reasonable cost
to construct the Improvements, as determined by
FFCA's in-house site inspection and review
department, (iii) the Property Commitment Fee, and (iv)
such soft costs and closing costs as FFCA may
approve in its sole discretion.
Development Price: After Borrower purchases the land, FFCA will fund the
sum of (i) the actual and reasonable hard costs
incurred to construct the Improvements as determined by
FFCA's in-house site inspection department, and (ii)
Borrower's actual and reasonable out-of-pocket soft
costs relating to the construction of the Improvements
as may be approved as to category and amount by FFCA,
in its reasonable discretion.
Basic Construction
Funding Terms: The Disbursement Agreement shall provide that FFCA
will agree to fund the Development Price in progress
payments through the title company, and Borrower will
agree to complete the Improvements as provided therein.
Note Terms: Interest shall accrue at a variable rate, adjusting on
the fifteenth (15th) day of each month equal to the
30-day London Interbank Offered Rate then in effect plus
3.75%, provided, however, in no event shall the interest
rate accruing under the Note be less than 8.50% per
annum. Principal and interest shall be paid in equal
monthly installments due on the first day of each month
based upon a twenty (20) year amortization schedule
and term.
Prepayment: Borrower may prepay the Note at each Property on ten
days written notice to FFCA, in whole, but not in part,
on any regularly scheduled payment date without
premium or penalty.
Fixed Charge
Coverage: Borrower shall be required to achieve and maintain an
annual Fixed Charge Coverage Ratio (as defined
below) at each Property equal to or greater than
1.25:1. If Borrower does not achieve such annual Fixed
Charge Coverage Ratio within 30 days following notice
from FFCA, Borrower shall be required to either (i)
prepay the Note or Notes having the lowest Fixed
Charge Coverage Ratio (as determined on an individual
basis) by an amount sufficient to raise the Fixed
Charge Coverage Ratio to 1.25:1 and Borrower and FFCA
shall amend such Note or Notes to re-amortize the
payment schedule thereunder, (ii) substitute another
property or properties acceptable to FFCA for those
having the lowest Fixed Charge Coverage Ratio (as
determined on an individual basis), such that after
such substitution, the aggregate Fixed Charge Coverage
Ratio based upon the results of the prior year's
operation, shall equal or exceed 1.25:1, or (iii)
prepay the Note or Notes having the lowest Fixed
Charge Coverage Ratio (as determined on an individual
basis) in full. For purposes hereof, the term "Fixed
Charge Coverage Ratio" shall mean the ratio of (a) net
income before non-recurring items and after corporate
overhead allocation (equal to 3% of gross sales)
plus depreciation and amortization expense, operating
lease payments and interest expense, to (b) the sum of
any loan payments, equipment loan payments and
operating lease payments which are associated with the
Property. The Loan Agreement will provide that FFCA
may elect at any time to amend such aggregate test
such that it applies to all loans from FFCA to
Borrower, or to such groups of such loans as may be
selected by FFCA from time to time, so long as such
amendments do not have the effect of materially
reducing the aggregate fixed charge coverage ratio of
any remaining group of properties not included in any
newly create group of properties.
Closing Costs: Borrower shall pay its attorneys' fees, FFCA's in-house
site inspection expenses, FFCA's attorneys' fees, the
cost of the phase I environmental report and/or
environmental insurance, and all other Mortgage Loan
closing costs, including, without limitation, all
mortgage and stamp taxes, construction consultant fees,
soil report expenses, disbursement agent costs, survey
expenses, title insurance premiums, and escrow, filing
and recording fees.
C. Other Material Mortgage Loan Terms.
Financial Statements: Within forty-five days following the end of each
quarter during the Commitment Term, Borrower shall
provide FFCA with Borrower's financial statements for
the preceding quarter.
Non-Disclosure: Prior to the closing, neither Borrower nor FFCA shall
make any public disclosure of this Commitment or the
Mortgage Loans proposed by this Commitment without the
prior written consent of the other party hereto, except
as required by law or judicial action.
Securitization: The Loan Documents shall provide that FFCA may, at any
time, sell, transfer or assign any Note, Deed of Trust
and any of 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 Mortgage Loan, 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"). Borrower
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
Borrower 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,
Borrower 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 Mortgage Loans 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 Borrower or the Mortgage Loans contemplated
by this Commitment. Borrower consents to FFCA
providing the Disclosures, as well as any other
information which FFCA may now have or hereafter
acquire with respect to the Property or the financial
condition of Borrower, 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 Borrower shall each pay their own attorneys
fees and other out-of-pocket expenses incurred in
connection with the performance of their respective
obligations under this Paragraph.
Cross-Default and
Cross-Collateralization:The Mortgage Loan Documents between FFCA and Borrower
with respect to the Mortgage Loans shall be cross-
defaulted and cross-collateralized with all other loan
agreements, notes, mortgages, deeds of trust and other
agreements now or hereafter entered into between (or,
in the case of notes and guaranties, in favor of) (i)
FFCA, Franchise Finance Corporation of America or any
of its other subsidiaries and affiliates, on the one
hand, and (ii) Borrower or any of its subsidiaries or
affiliates, on the other hand.
Net Worth Covenant: The Loan Documents shall require that Borrower at all
times maintain a net worth of at least $2,500,000.00.
D. Other Matters.
THE FOREGOING SUMMARY OF BASIC TERMS AND CONDITIONS IS NOT MEANT TO BE
NOR SHOULD IT BE CONSTRUED AS AN ATTEMPT TO DEFINE ALL OF THE TERMS AND
CONDITIONS REGARDING THE MORTGAGE LOANS. INSTEAD, IT IS INTENDED ONLY TO
OUTLINE CERTAIN BASIC POINTS OF THE BUSINESS UNDERSTANDING AROUND WHICH LEGAL
DOCUMENTATION WILL BE STRUCTURED. THE OUTLINED TERMS AND CONDITIONS ARE
SUBJECT TO FINAL DOCUMENTATION SATISFACTORY TO ALL PARTIES AND COMPLETE LEGAL
REVIEW AND APPROVAL OF ALL PERTINENT MATTERS.
This Commitment and the Mortgage Loans contemplated hereby and the
obligation of FFCA to consummate the Mortgage Loans described in this
Commitment shall be subject to, in FFCA's sole judgment, there being no adverse
material change in (i) Borrower's financial condition, (ii) the franchise loan
securitization capital markets or (iii) FFCA's ability to successfully complete
a securitization therein. Furthermore, this Commitment shall not be assignable
by Borrower or relied upon by any third party without the prior written consent
of FFCA, and shall be governed by the internal laws of the State of Arizona,
without giving effect to conflict of law principles. This Commitment may be
assigned by FFCA without the consent of Borrower. This Commitment (i)
supersedes any previous discussions, agreements and/or proposal/commitment
letters relating to the Mortgage Loans, including the commitment letter dated
September 15, 1998 and (ii) may only be amended by a written agreement executed
by FFCA and Borrower. FFCA reserves the right to cancel this Commitment in
the event Borrower has made any misrepresentations or has withheld any
information with regard to the Mortgage Loans.
ANY ACTION ARISING OUT OF THIS COMMITMENT SHALL BE PROSECUTED ONLY IN
THE STATE OR FEDERAL COURTS LOCATED IN THE STATE OF ARIZONA. FFCA AND
BORROWER WAIVES ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY
ACTION ARISING OUT OF THIS COMMITMENT. BORROWER WAIVES ANY RIGHT BORROWER
HAS OR MAY HAVE TO SEEK OR RECOVER FROM FFCA OR ANY OF ITS AFFILIATES,
OFFICERS, DIRECTORS AND EMPLOYEES ANY AWARD OF SPECIAL, INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH ANY DEFAULT BY FFCA
UNDER THIS COMMITMENT.
Please indicate your acceptance of this Commitment by having a copy of
this Commitment signed and returned to FFCA to the attention of Margaret J.
Craft, FFCA Acquisition Corporation, 17207 North Perimeter Drive, Scottsdale,
Arizona 85255, together with a check in the sum of $6,000.00 payable to "FFCA
Acquisition Corporation", within ten (10) days from the date hereof or this
Commitment will automatically expire.
FFCA Acquisition Corporation,
a Delaware corporation
Rob Roach
Senior Vice President
Corporate Finance
ACCEPTED AND AGREED TO on this _____ day of _____________, 1998.
Family Steak Houses of Florida, Inc.,
a Florida corporation
By_____________________________
Printed Name____________________
Title___________________________
EXHIBIT A
TERM SHEET
This Term Sheet is subject to the terms and conditions of that
certain commitment letter dated October 2, 1998, between FFCA Acquisition
Corporation ("FFCA"), as lender, and Family Steak Houses of Florida,
Inc. ("Borrower"), as borrower (the "Commitment Letter"). In the
event of any conflict between the provisions of the Commitment Letter and
the terms of this Term Sheet, the terms of the Commitment Letter shall
prevail. Any capitalized terms used herein without definition shall have
the same meaning given in the Commitment Letter.
Date: __________________________, 19___
Lender: FFCA.
Borrower: Borrower.
Property Location: ______________________________
FFCA Store Number: ______________________________
Property Legal Description: See attached Exhibit "A".
Loan Amount: $_____________________________
Property Commitment Fee: $_____________ (including $3,000.00
Credit).
Interest Rate: Interest shall accrue under each Note
at a variable rate equal to the 30-day
LIBOR rate in effect ten (10) days
prior to the anticipated Final
Disbursement of each Mortgage Loan
(which date shall be established by a
letter from FFCA to Borrower) plus
3.75%, provided, however, in no event
shall the interest rate accruing under
the Note be less than 8.50% per annum
(the "Variable Rate") which shall
adjust on the fifteenth day of each
month thereafter.
Outside Closing Date: __________________________
It is expressly acknowledged that the Mortgage Loan is subject
to Borrower satisfying all of the conditions and requirements contained in
the Commitment Letter.
ACCEPTED AND AGREED TO this ____ day of __________, 199__.
FFCA: BORROWER:
FFCA ACQUISITION CORPORATION, FAMILY STEAK HOUSES OF
a Delaware corporation FLORIDA, INC., a Florida
corporation
By ________________________ By _______________________
Printed Name: ______________ Printed Name ______________
Title ______________________ Title _____________________
EX-10.02
October 2, 1998
VIA TELECOPY AND
AIRBORNE EXPRESS
Mr. Edward Alexander
Family Steak Houses of Florida, Inc.
2113 Florida Boulevard
Neptune Beach, FL 32266
Re: Your Unit Nos. 121, 122 and 132
Dear Ed:
Family Steak Houses of Florida, Inc. ("Borrower") has advised FFCA
Acquisition Corporation ("FFCA") that Borrower desires to obtain three
(3) mortgage loans (individually, a "Mortgage Loan" and collectively,
the "Mortgage Loans") with respect to sites described above (individually, a
"Property" and collectively, the "Properties"). Each of the Mortgage Loans
shall be secured by a first lien mortgage or deed of trust, as determined by
FFCA, on the land, building and equipment at each Property.
Upon Borrower's acceptance of this commitment letter (this "Commitment"),
FFCA commits to make to Borrower three (3) Mortgage Loans, all on the terms
set forth in this Commitment.
A. Basic Commitment Terms.
Background: This Commitment outlines certain basic terms and
conditions of the Mortgage Loans; however, it is not
meant to define all of the terms and conditions of
the Mortgage Loans, which will be set forth more
fully in the final documentation. The Mortgage Loans
are subject to, among other things, the approval by
FFCA's in-house site review and valuation department
of the Properties and the Loan Amount (as defined
below), Borrower's compliance with all of the
requirements set forth in this Commitment and the
receipt by FFCA of all documents and other
information requested by FFCA and its counsel.
Acceptance: Borrower may accept this Commitment by signing and
returning a copy of this Commitment, together with a
check for one-half of the Fee (as defined below), to
FFCA within 10 days of the date hereof.
Fee: Borrower shall pay FFCA a $30,000.00 valuation,
underwriting and processing fee (1.00% of the Loan
Amount) for this Commitment. $15,000.00 shall be due
upon Borrower's acceptance of this Commitment; and
the balance of the Fee is due at the Closing.
Refundability of Fee: Although the Fee shall be deemed fully earned
when received by FFCA, the portion of the Fee
paid herewith shall be refundable in full and
this Commitment shall expire if (i) FFCA's in-
house site review and valuation department does
not approve the Properties and the Loan Amount,
or (ii) Borrower and FFCA are unable to agree
upon an alternative Loan Amount. If both the
Properties and the Loan Amount are approved by
FFCA, FFCA will promptly send Borrower a
transaction approval letter, and the Fee will
automatically become nonrefundable on such date.
If FFCA does not approve the Properties, the
portion of the Fee paid herewith will promptly
be returned to Borrower. If FFCA approves the
Properties but not the Loan Amount, Borrower
will be contacted by FFCA and given the
opportunity to go forward with the Mortgage Loan
based upon the lower Loan Amount approved by
FFCA. If Borrower agrees upon the lower Loan
Amount, Borrower and FFCA will execute a letter
amendment to this Commitment, and the Fee will
thereupon become nonrefundable. If Borrower
does not agree to the lower Loan Amount, the
portion of the Fee paid herewith will be
promptly refunded to Borrower.
Mortgage Loan
Processing: FFCA's in-house site inspection department has not
inspected the Properties. FFCA will not order title
insurance commitments or instruct its counsel to begin
preparing the Loan Documents (as such term is defined
below) until Borrower has accepted this Commitment.
The closing of the Mortgage Loans (the "Closing") must
occur no later than the Outside Closing Date (as
defined below), or this Commitment will expire.
Outside Closing Date: March 31, 1999.
B. Basic Loan Terms.
Documentation: Prior to the Closing, with respect to each Property,
FFCA's counsel will prepare and submit to Borrower
FFCA's proposed form of loan agreement (the "Loan
Agreement"), promissory note (the "Note"), deed of
trust or mortgage, as determined by FFCA, and
security agreement (the "Deed of Trust"), assignment
of leases and rents, environmental indemnity, UCC-1
financing statements and such other documents as may
be reasonably requested by FFCA or the title company
(collectively, the "Loan Documents"). Each Deed of
Trust shall (a) grant FFCA a first priority lien
against the Property and the furniture, machinery and
other equipment of Borrower at the Property, (b)
contain such representations, warranties, covenants and
agreements as are customary in loan transactions of
this type, (c) provide that Borrower will indemnify
FFCA against all claims, suits and costs whatsoever
relating to the Property, (d) provide that Borrower
shall be responsible for all maintenance, utilities,
insurance, taxes, assessments and other expenses
associated with the Property, (e) provide that the
Property shall be operated pursuant to a franchise
agreement with Ryan's Properties, Inc. ("Franchisor"),
and (f) provide that the Property shall not be sold,
leased, or further encumbered without the prior written
consent of FFCA. At the Closing, with respect to each
Property, Borrower shall (i) provide FFCA with proof of
insurance relating to the Property, (ii) provide FFCA
with a satisfactory title insurance commitment, ALTA
as-built survey, phase I environmental report and/or
environmental insurance, opinion of counsel,
certification of Borrower, non-foreign certificate,
and (iii) execute the Loan Documents.
Loan Amount: $3,000,000.00 (inclusive of financed soft costs and
closing costs) in the aggregate for all Properties,
which amount shall be allocated among the Properties
based upon the respective valuations ascribed to the
Properties by FFCA's in-house site inspection and
valuation department. It will not be required that
all of the Mortgage Loans close at the same time.
Note Terms: Interest shall accrue at a variable rate, adjusting
on the fifteenth (15th) day of each month equal to
the 30-day London Interbank Offered Rate then in
effect plus 3.75%, provided, however, in no event
shall the interest rate under a Note ever be less
than 8.50% per annum. Principal and interest shall
be paid in equal monthly installments due on the
first day of each month based upon a twenty (20) year
amortization schedule and term.
Prepayment: Borrower may prepay the Note on ten days written
notice to FFCA, in whole, but not in part, on any
regularly scheduled payment date, without premium or
penalty.
Fixed Charge
Coverage: Borrower shall be required to achieve and maintain an
aggregate annual Fixed Charge Coverage Ratio (as
defined below) at the Properties equal to or greater
than 1.25:1. If Borrower does not achieve such
annual Fixed Charge Coverage Ratio within 30 days
following notice from FFCA, Borrower shall be
required to either (i) prepay the Note or Notes
having the lowest Fixed Charge Coverage Ratio (as
determined on an individual basis) by an amount
sufficient to raise the Fixed Charge Coverage Ratio
to 1.25:1 and Borrower and FFCA shall amend such Note
or Notes to re-amortize the payment schedule
thereunder, (ii) substitute another property or
properties acceptable to FFCA for those having the
lowest Fixed Charge Coverage Ratio (as determined on
an individual basis), such that after such
substitution, the aggregate Fixed Charge Coverage
Ratio based upon the results of the prior year's
operation, shall equal or exceed 1.25:1, or (iii)
prepay the Note or Notes having the lowest Fixed
Charge Coverage Ratio (as determined on an individual
basis) in full. For purposes hereof, the term
"Fixed Charge Coverage Ratio" shall mean the ratio
of (a) net income before non-recurring items and
after corporate overhead allocation (equal to 3% of
gross sales) plus depreciation and amortization
expense, operating lease payments and interest
expense, to (b) the sum of any loan payments,
equipment loan payments and operating lease payments
which are associated with the Properties. The Loan
Agreement will provide that FFCA may elect at any time
to amend such aggregate test such that it applies to
all loans from FFCA to Borrower, or to such groups of
such loans as may be selected by FFCA from time to
time, so long as such amendments do not have the
effect of materially reducing the aggregate fixed
charge coverage ratio of any remaining group of
properties not included in any newly created group of
properties.
Closing Costs: Borrower shall pay its attorneys' fees, FFCA's in-
house site inspection expenses, FFCA's attorneys'
fees, the cost of the phase I environmental report
and/or environmental insurance, and all other
Mortgage Loan closing costs, including, without
limitation, all mortgage and stamp taxes, title
insurance premiums, and escrow, filing and recording
fees.
C. Other Material Transaction Terms.
Non-Disclosure: Prior to the Closing, neither Borrower nor FFCA shall
make any public disclosure of this Commitment or the
transactions proposed by this Commitment without the
prior written consent of the other party hereto,
except as required by law or judicial action.
Securitization: The Loan Documents shall provide that FFCA may, at any
time, sell, transfer or assign any Note, Deed of Trust
and any of 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"). Borrower
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 Borrower 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, Borrower 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 Borrower or the transactions contemplated
by this Commitment. Borrower consents to FFCA
providing the Disclosures, as well as any other
information which FFCA may now have or hereafter
acquire with respect to the Property or the financial
condition of Borrower, 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 Borrower shall each pay their own attorneys
fees and other out-of-pocket expenses incurred in
connection with the performance of their respective
obligations under this Paragraph.
Cross-Default and
Cross-Collateralization:The Mortgage Loan Documents between FFCA and
Borrower with respect to the Mortgage Loans
shall be cross-defaulted and cross-collateralized
with all other loan agreements, notes, mortgages, deeds
of trust and other agreements now or hereafter entered
into between (or, in the case of notes and guaranties,
in favor of) (i) FFCA, Franchise Finance Corporation
of America or any of its other subsidiaries and
affiliates, on the one hand, and (ii) Borrower or any
of its subsidiaries or affiliates, on the other hand.
Net Worth Covenant: The Loan Documents shall require that Borrower at all
times maintain a net worth of at least $2,500,000.00.
Contingency: Prior to the Closing, Borrower shall execute
Amendments to the Loan Agreements for Borrower's
Units 110, 119 and 127 which are satisfactory to
FFCA to reflect that the Fixed Charge Coverage
Ratio of such Properties and the Properties
covered by this Commitment shall be 1.25:1 in
the aggregate.
D. Other Matters.
THE FOREGOING SUMMARY OF BASIC TERMS AND CONDITIONS IS NOT MEANT TO
BE NOR SHOULD IT BE CONSTRUED AS AN ATTEMPT TO DEFINE ALL OF THE TERMS
AND CONDITIONS REGARDING THE MORTGAGE LOANS. INSTEAD, IT IS INTENDED
ONLY TO OUTLINE CERTAIN BASIC POINTS OF THE BUSINESS UNDERSTANDING AROUND
WHICH LEGAL DOCUMENTATION WILL BE STRUCTURED. THE OUTLINED TERMS AND
CONDITIONS ARE SUBJECT TO FINAL DOCUMENTATION SATISFACTORY TO ALL PARTIES
AND COMPLETE LEGAL REVIEW AND APPROVAL OF ALL PERTINENT MATTERS.
This Commitment and the Mortgage Loans contemplated hereby and the
obligation of FFCA to consummate the Mortgage Loans described in this
Commitment shall be subject to, in FFCA's sole judgment, there being no
adverse material change in (i) Borrower's financial condition, (ii) the
franchise loan securitization capital markets or (iii) FFCA's ability to
successfully complete a securitization therein. Furthermore, this
Commitment shall not be assignable by Borrower or relied upon by any
third party without the prior written consent of FFCA, and shall be
governed by the internal laws of the State of Arizona, without giving
effect to conflict of law principles. This Commitment may be assigned by
FFCA without the consent of Borrower. This Commitment (i) supersedes any
previous discussions, agreements and/or proposal/commitment letters
relating to the Mortgage Loans, including the commitment letter dated
September 15, 1998 and (ii) may only be amended by a written agreement
executed by FFCA and Borrower. FFCA reserves the right to cancel this
Commitment in the event Borrower has made any misrepresentations or has
withheld any information with regard to the Mortgage Loans.
ANY ACTION ARISING OUT OF THIS COMMITMENT SHALL BE PROSECUTED ONLY
IN THE STATE OR FEDERAL COURTS LOCATED IN THE STATE OF ARIZONA. FFCA AND
BORROWER WAIVES ANY RIGHT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY
ACTION ARISING OUT OF THIS COMMITMENT. BORROWER WAIVES ANY RIGHT
BORROWER HAS OR MAY HAVE TO SEEK OR RECOVER FROM FFCA OR ANY OF ITS
AFFILIATES, OFFICERS, DIRECTORS AND EMPLOYEES ANY AWARD OF SPECIAL,
INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH ANY
DEFAULT BY FFCA UNDER THIS COMMITMENT.
Please indicate your acceptance of this Commitment by having a copy
of this Commitment signed and returned to FFCA to the attention of
Margaret J. Craft, FFCA Acquisition Corporation, 17207 North Perimeter
Drive, Scottsdale, Arizona 85255, together with a check in the sum of
$15,000.00 payable to "FFCA Acquisition Corporation", within ten (10)
days from the date hereof or this Commitment will automatically expire.
FFCA Acquisition Corporation,
a Delaware corporation
Rob Roach
Senior Vice President
Corporate Finance
ACCEPTED AND AGREED TO on this ____ day of __________, 1998.
Family Steak Houses of Florida, Inc.,
a Florida corporation
By_____________________________
Printed Name____________________
Title___________________________
Family Steak Houses of Florida, Inc.
Consolidated Results of Operations
(Unaudited)
<TABLE>
For The Quarters Ended
-----------------------------
<CAPTION> September 30, October 1,
1998 1997
-------------- ------------
<C> <C>
<S>
Sales $9,497,800 $8,660,100
Cost and expenses:
Food and beverage 3,739,000 3,544,000
Payroll and benefits 2,726,000 2,466,600
Depreciation and amortization 524,700 430,100
Other operating expenses 1,579,400 1,518,100
General and administrative expenses 619,800 710,500
Franchise fees 284,500 259,500
Loss from disposition of equipment 30,200 33,700
-------------- ------------
9,503,600 8,962,500
-------------- ------------
(Loss) earnings from operations (5,800) (302,400)
Interest and other income 72,700 105,600
Interest expense (430,200) (401,100)
-------------- ------------
Loss before income taxes (363,300) (597,900)
Benefit for income taxes (60,000) (126,300)
-------------- ------------
Net loss ($303,300) ($471,600)
============== ============
Basic loss per share ($0.13) ($0.21)
============== ============
Diluted loss per share ($0.13) ($0.21)
============== ============
See accompanying notes to consolidated financial statements.
</TABLE>
Family Steak Houses of Florida, Inc.
Consolidated Results of Operations
(Unaudited)
<TABLE>
For The Nine Months Ended
-----------------------------
<CAPTION> September 30, October 1,
1998 1997
-------------- ------------
<C> <C>
<S>
Sales $29,192,200 $28,666,400
Cost and expenses:
Food and beverage 11,410,000 11,360,900
Payroll and benefits 8,186,000 8,112,000
Depreciation and amortization 1,407,000 1,275,300
Other operating expenses 4,579,700 4,532,800
General and administrative expenses 1,823,500 2,042,500
Franchise fees 874,700 859,300
Loss from disposition of equipment 113,700 112,000
------------- -----------
28,394,600 28,294,800
------------- -----------
(Loss) earnings from operations 797,600 371,600
Interest and other income 312,600 344,000
Interest expense (1,238,600) (1,190,000)
------------- -----------
Loss before income taxes (128,400) (474,400)
Benefit for income taxes (13,100) (101,500)
------------- -----------
Net loss ($115,300) ($372,900)
============= ===========
Basic loss per share ($0.05) ($0.17)
============= ===========
Diluted loss per share ($0.05) ($0.16)
============= ===========
See accompanying notes to consolidated financial statements.
</TABLE>
Family Steak Houses of Florida, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION> September 30, December 31,
1998 1997
------------ -----------
<C> <C>
<S>
ASSETS
Current assets:
Cash and cash equivalents $2,820,700 $696,000
Investments 644,000 600,300
Receivables 88,500 93,200
Current portion of mortgages 69,500 124,900
Income taxes receivable 5,800 297,900
Inventories 257,800 280,500
Prepaid and other current assets 263,400 311,200
------------ -----------
Total current assets 4,149,700 2,404,000
Mortgages receivable 256,000 308,700
Property and equipment:
Land 9,681,400 9,088,300
Buildings and improvements 22,148,400 19,908,900
Equipment 12,487,100 13,151,600
------------ -----------
44,316,900 42,148,800
Accumulated depreciation (16,895,700) (15,848,500)
------------ -----------
Net property and equipment 27,421,200 26,300,300
Property held for sale 289,600 552,800
Other assets, principally deferred charges,
net of accumulated amortization 866,800 767,000
------------ -----------
$32,983,300 $30,332,800
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,327,100 $1,287,000
Accrued liabilities 2,669,800 2,630,300
Current portion of long-term debt 351,000 278,900
Current portion of obligation under capital lease 3,000 2,500
------------ -----------
Total current liabilities 4,350,900 4,198,700
Long-term debt 16,688,900 14,402,800
Obligation under capital lease 1,053,700 1,056,000
Deferred revenue 27,900 30,800
------------ -----------
Total liabilities 22,121,400 19,688,300
Shareholders' equity:
Preferred stock of $.01 par;
authorized 10,000,000 shares;
none issued -- --
Common stock of $.01 par;
authorized 4,000,000 shares;
outstanding 2,371,600 in 1998 and 2,216,200 24,100 22,200
Additional paid-in capital 8,586,800 8,256,100
Retained earnings 2,251,000 2,366,200
------------ -----------
Total shareholders' equity 10,861,900 10,644,500
------------ -----------
$32,983,300 $30,332,800
============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
Family Steak Houses of Florida, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
For the Nine Months Ended
---------------------------
<CAPTION> September 30, October 1,
1998 1997
------------- ------------
<C> <C>
<S>
Operating activities:
Net loss ($115,300) ($372,900)
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 1,407,000 1,275,300
Directors' fees in the form of
stock options 22,500 15,000
Amortization of loan fees 18,800 16,500
Loss on disposition of equipment 113,700 112,000
Decrease (increase) in:
Receivables 4,700 31,400
Income taxes receivable 292,100 (198,900)
Inventories 22,700 (56,700)
Prepaids and other
current assets 47,800 (123,000)
Other assets (160,700) (50,900)
Increase (decrease) in:
Accounts payable 40,100 334,100
Accrued liabilities 39,500 86,600
Income taxes payable -- (84,800)
Deferred revenue (2,900) 1,100
------------ -----------
Net cash provided by operating activities 1,730,000 984,800
------------ -----------
Investing activities:
Proceeds from notes receivable 108,100 762,100
Sale of investments (43,700) (453,200)
Proceeds from sale of property
held for sale 263,200 --
Capital expenditures (2,599,400) (2,126,900)
------------ -----------
Net cash used by investing activities (2,271,800) (1,818,000)
------------ -----------
Financing activities:
Payments on long-term debt (231,800) (272,400)
Construction draw on capital lease -- 500,100
Proceeds from issuance of long-term debt 2,590,000 --
Payments on capital lease (1,800) (2,000)
Proceeds from the issuance of common stock 310,100 50,600
------------ -----------
Net cash provided by financing activities 2,666,500 276,300
------------ -----------
Net increase (decrease) in cash and cash equivalents 2,124,700 (556,900)
Cash and cash equivalents - beginning of period 696,000 1,750,800
------------ -----------
Cash and cash equivalents - end of period $2,820,700 $1,193,900
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $1,205,600 $1,173,500
============ ===========
Cash paid during the period for income taxes $0 $181,000
============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This financial data schedule contains summary financial information extracted
from the Company's 1998 Form 10-Q for the Quarter ended September 30, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 2820700
<SECURITIES> 644000<F1>
<RECEIVABLES> 69500
<ALLOWANCES> 0
<INVENTORY> 257800
<CURRENT-ASSETS> 4149700
<PP&E> 44316900
<DEPRECIATION> 16895700
<TOTAL-ASSETS> 32983300
<CURRENT-LIABILITIES> 4350900
<BONDS> 0
0
0
<COMMON> 24100
<OTHER-SE> 10861900
<TOTAL-LIABILITY-AND-EQUITY> 32983300
<SALES> 29192200
<TOTAL-REVENUES> 29192200
<CGS> 11410000
<TOTAL-COSTS> 28394600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1238600
<INCOME-PRETAX> (128400)
<INCOME-TAX> (13100)
<INCOME-CONTINUING> (115300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (115300)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
<FN>
<F1>Represents investments in certificates of deposits with maturities of less
than one year.
</FN>
</TABLE>
