<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended FEBRUARY 1, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
COMMISSION FILE NUMBER 1-10711
SIZZLER INTERNATIONAL, INC.
________________________________________________________________________________
(Exact Name of Registrant as specified in its Charter)
DELAWARE 95-4307254
________________________________________________________________________________
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6101 WEST CENTINELA AVENUE, SUITE 200, CULVER CITY, CALIFORNIA 90230
________________________________________________________________________________
(Address of Principal Executive Offices, including zip code)
(310) 568-0135
____________________________________________________________
(Registrant's telephone number, including area code)
12655 West Jefferson Boulevard, Los Angeles, California 90066
_____________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 13, 1998
- ---------------------------- -------------------------------------
COMMON STOCK $0.01 PAR VALUE 28,850,908 SHARES
<PAGE>
PART I. FINANCIAL INFORMATION
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
February 1, April 30,
ITEM 1. FINANCIAL STATEMENTS 1998 1997
- ---------------------------- ---------------- ----------------
(Unaudited) (Audited)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 26,952 $ 34,085
Receivables, net of reserves of $1,683 at
February 1, 1998 and $3,547 at April 30, 1997 3,979 4,398
Inventories 4,671 5,464
Prepaid expenses and other current assets 996 2,323
------- -------
Total current assets 36,598 46,270
Property and equipment, net 83,696 104,875
Long-term notes receivable, net of reserves of $334
at February 1, 1998 and $424 at April 30, 1997 1,459 1,619
Deferred income taxes 2,895 4,004
Intangible assets, net of accumulated amortization of $5,735
at February 1, 1998 and $698 at April 30, 1997 2,268 1,430
Other assets, net of accumulated amortization and reserves
of $6 at April 30, 1997 4,606 9,912
-------- --------
Total assets $131,522 $168,110
======== ========
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
2
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
February 1, April 30,
1998 1997
---------------- ---------------
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
<S> <C> <C>
Current portion of long-term debt $ 5,686 $ 94
Accounts payable 9,566 13,634
Other current liabilities 13,148 14,240
Income taxes payable 2,543 2,401
------- -------
Total current liabilities 30,943 30,369
Long-term Liabilities:
Long-term debt, net of current portion 39,945 329
Other liabilities 18,601 9,111
Liabilities subject to compromise under
reorganization proceedings - 83,900
------- -------
Total long-term liabilities 58,546 93,340
Stockholders' Investment:
Capital stock -
Preferred, authorized 1,000,000 shares, $5 par value;
no shares issued - -
Common, authorized 50,000,000 shares, $0.01 par value;
outstanding 28,850,908 shares at February 1, 1998
and 28,898,003 shares at April 30, 1997 289 289
Additional paid-in capital 277,054 276,200
Accumulated deficit (231,943) (234,961)
Cumulative foreign currency translation adjustments (3,367) 2,873
------- --------
Total stockholders' investment 42,033 44,401
Total liabilities and stockholders' investment $131,522 $168,110
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
--------------------------------------
FEBRUARY 1, FEBRUARY 2,
1998 1997
- ----------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
REVENUES
Restaurants $68,311 $84,930
Franchise operations 1,762 3,129
- ----------------------------------------------------------------------------------------------------
Total revenues 70,073 88,059
- ----------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 25,917 32,912
Labor and related expenses 18,898 24,344
Other operating expenses 14,808 19,629
Depreciation and amortization 3,430 4,372
General and administrative expenses 4,310 7,577
- ----------------------------------------------------------------------------------------------------
Total operating costs 67,363 88,834
- ----------------------------------------------------------------------------------------------------
Interest expense 1,593 295
Investment income (270) (338)
- -----------------------------------------------------------------------------------------------------
Total costs and expenses 68,686 88,791
- ----------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 1,387 (732)
Provision for income taxes 632 549
- ----------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 755 $(1,281)
====================================================================================================
Basic and diluted earnings (loss) per share $ 0.03 $ (0.04)
====================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FORTY WEEKS ENDED
---------------------------------------
FEBRUARY 1, FEBRUARY 2,
1998 1997
- ----------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
REVENUES
Restaurants $181,351 $231,526
Franchise operations 4,815 9,002
- ----------------------------------------------------------------------------------------------------
Total revenues 186,166 240,528
- ----------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 68,205 89,018
Labor and related expenses 49,696 67,801
Other operating expenses 38,490 51,526
Depreciation and amortization 9,180 11,182
General and administrative expenses 12,518 20,517
- ----------------------------------------------------------------------------------------------------
Total operating costs 178,089 240,044
- ----------------------------------------------------------------------------------------------------
Interest expense 4,078 779
Investment income (997) (852)
- -----------------------------------------------------------------------------------------------------
Total costs and expenses 181,170 239,971
- ----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 4,996 557
Provision for income taxes 1,978 1,966
- ----------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 3,018 $ (1,409)
====================================================================================================
Basic and diluted earnings (loss) per share $ 0.11 $ (0.05)
====================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FORTY WEEKS ENDED
------------------------------------------
FEBRUARY 1, FEBRUARY 2,
1998 1997
------------------------------------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 3,018 $(1,409)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 9,180 11,182
Deferred income taxes - 143
Provision for bad debts 501 387
Other (346) 658
- ----------------------------------------------------------------------------------------------------------
12,353 10,961
Changes in operating assets and liabilities:
Receivables 376 30
Inventories 793 1,054
Prepaid expenses and other current assets 1,235 (2,699)
Accounts payable (4,068) 15,849
Accrued liabilities (6,990) (27,931)
Income taxes payable 1,272 (2,458)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 4,971 (5,194)
- ---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property and equipment (5,767) (4,584)
Disposal of property and equipment 24,292 19,503
Other, net (1,919) (225)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 16,606 14,694
- ---------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of long-term debt 46,895 11,310
Reduction of long-term debt (2,992) (184)
Payment of allowed claims pursuant
to the reorganization plan (72,613) -
Other, net - (60)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (28,710) 11,066
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (7,133) 20,566
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 34,085 9,216
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $26,952 $29,782
=========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
6
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
AS OF FEBRUARY 1, 1998
1. The condensed consolidated financial statements have been prepared by
Sizzler International, Inc. (the "Company"), without audit, in accordance
with generally accepted accounting principles. Pursuant to the rules and
regulations of the Securities and Exchange Commission, certain information
and footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting
principles have been omitted or condensed. In the opinion of management,
the condensed interim consolidated financial statements include all
adjustments necessary for a fair presentation of financial position and
results of operations for the periods presented. The results of operations
for the periods presented should not necessarily be considered indicative
of operations for the full year. Certain reclassifications have been made
to prior period financial statements in order to conform to the current
period presentation. It is recommended that these condensed consolidated
financial statements be read in conjunction with the financial statements
and the notes thereto included in the Company's 1997 annual report on Form
10-K.
2. During the fiscal quarter ended February 1, 1998, the Company adopted
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings
Per Share (EPS), which replaced the previously reported primary and fully-
diluted EPS. Basic EPS is computed as net income (loss) divided by the
weighted average number of common shares outstanding for the period.
Diluted EPS is similar to the previously reported fully-diluted EPS. All
EPS amounts for the periods presented have been restated to conform to the
requirements of SFAS 128.
The following table sets forth the computation of basic and diluted EPS:
<TABLE>
<CAPTION>
Sixteen Weeks Ended Forty Weeks Ended
February 1, February 2, February 1, February 2,
Dollars in thousands, except EPS 1998 1997 1998 1997
- -------------------------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Numerator for both basic and
diluted EPS - Net income (loss) $755 $(1,281) $3,018 $(1,409)
========== ========== ========== ==========
Denominator:
Denominator for basic EPS - weighted
average shares of common stock
outstanding 28,850,908 29,047,613 28,869,065 28,985,570
Effect of dilutive stock options 9,005 - 4,048 -
---------- ---------- ---------- ----------
Denominator for diluted EPS -
adjusted weighted average shares
outstanding 28,859,913 29,047,613 28,873,113 28,985,570
========== ========== ========== ==========
Basic and diluted earnings per share $0.03 $(0.04) $0.11 $(0.05)
========================= ===========================
</TABLE>
7
<PAGE>
3. On June 2, 1996, the Company enacted a comprehensive restructuring strategy
designed to return the U.S. operations to profitability. This strategy
included the closure of under-performing restaurants in the U.S. and filing
for bankruptcy protection through a Chapter 11 proceeding. On June 2, 1996,
the Company and four subsidiaries, Sizzler Restaurants International, Inc.
("SRI"), Buffalo Ranch Steakhouses, Inc. ("BRSH"), Tenly Enterprises, Inc.
("Tenly"), and Collins Properties, Inc. ("CPI"), became debtors-in-
possession subject to the supervision of the U.S. Bankruptcy Court of the
Central District of California (the "Bankruptcy Court") under Chapter 11 of
the federal bankruptcy code.
On June 2, 1997, the Bankruptcy Court entered an order confirming the
Chapter 11 plans of reorganization of the Company, SRI and CPI. The plans
of reorganization for Tenly and BRSH were confirmed on February 24, 1997.
On September 23, 1997, the reorganization plans became effective and the
Company and its subsidiaries emerged from the bankruptcy proceedings.
The Company's plan of reorganization provided for full payment of allowed
creditors' claims, including interest, over five years, from the operations
of its international division. In September 1997, the Company obtained
sufficient financing from Westpac Banking Corporation to pay its creditors'
allowed claims in full including interest. All allowed claims for CPI,
Tenly and BRSH have also been paid in full. SRI's plan provided for full
payment of allowed unsecured creditors' claims (estimated at approximately
$20 million) through the formation of a creditor trust. SRI's installment
payments to the trust will be evidenced by a four-year note. The note will
bear interest at the floating annual rate of prime plus one percent through
the first year, prime plus two percent for the next two years, and prime
plus three percent for the fourth year. SRI will secure the note with a
pledge of the stock of its subsidiaries and with substantially all of the
domestic division's operating assets.
The Company and its subsidiaries have paid approximately $73 million in
pre-petition claims and interest and reinstated the remaining pre-petition
liabilities. Remaining bankruptcy liabilities were reclassified from
"Liabilities subject to compromise under reorganization proceedings" to the
appropriate liability captions of the consolidated balance sheet.
8
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CHAPTER 11 BANKRUPTCY REORGANIZATION
- ------------------------------------
On June 2, 1997, the Bankruptcy Court entered an order confirming the Chapter 11
plans of reorganization of the Company, SRI and CPI. The plans of reorganization
for Tenly and BRSH were confirmed on February 24, 1997, On September 23, 1997,
the reorganization plans became effective and the Company and its subsidiaries
emerged from the bankruptcy proceedings.
The Company's plan of reorganization provided for full payment of allowed
creditors' claims, including interest, over five years, from the operations of
its international division. In September 1997, the Company obtained sufficient
financing from Westpac Banking Corporation to pay its creditors' allowed claims
in full including interest. All allowed claims for CPI, Tenly and BRSH have also
been paid in full. SRI's plan provided for full payment of allowed unsecured
creditors' claims (estimated at approximately $20 million) through the formation
of a creditor trust. SRI's installment payments to the trust will be evidenced
by a four-year note. The note will bear interest at the floating annual rate of
prime plus one percent through the first year, prime plus two percent for the
next two years, and prime plus three percent for the fourth year. SRI will
secure the note with a pledge of the stock of its subsidiaries and with
substantially all of the domestic division's operating assets.
The Company and its subsidiaries have paid approximately $73 million in pre-
petition claims and interest and reinstated the remaining pre-petition
liabilities. Remaining bankruptcy liabilities were reclassified from
"Liabilities subject to compromise under reorganization proceedings" to the
appropriate liability captions of the consolidated balance sheet.
MATERIAL CHANGES IN RESULTS OF OPERATIONS - SIXTEEN WEEKS
- ---------------------------------------------------------
ENDED FEBRUARY 1, 1998 VERSUS FEBRUARY 2, 1997
- ----------------------------------------------
Domestic Company-operated restaurant sales and franchised restaurant revenues
(including franchise fees, royalties and rental income) and international
Company-operated restaurant sales and franchised restaurant revenues represent
the Company's primary sources of revenue. The addition or closure of
restaurants, both Company-operated and franchised, and the sales volume of
comparable restaurants (those restaurants open more than one year) are important
factors to consider in evaluating the Company's results.
Total revenues were $70.1 million for the third quarter of fiscal 1998, which
represents a decrease of $18.0 million, or 20.4 percent, compared to the third
quarter of the prior fiscal year. This decrease is primarily due to the closure
of 12 Company-operated restaurants, the sale of four Company-operated
restaurants to franchisees and a net decrease of 44 franchised Sizzler
restaurants. During the same period, the Company added four KFC restaurants in
Australia. Revenues declined domestically by $5.1 million or 15.9 percent.
International revenues decreased by $12.9 million or 23.0 percent compared to
the third quarter of the prior year.
Earnings before interest and taxes were $2.7 million for the third quarter of
fiscal 1998, an increase of $3.5 million compared to the prior year. In the
international operations, earnings before interest and taxes increased $0.6
million. Domestically, earnings
9
<PAGE>
before interest and taxes improved from a loss of $2.0 million in the prior
year, to income of $0.5 million in the current fiscal quarter, primarily due to
the impact of closing under-performing units. Pretax income for the third
quarter of fiscal 1998 increased $2.1 million to $1.4 million or 2.0 percent of
revenues. The third quarter of fiscal 1997 showed a pretax loss of $732,000 or
0.8 percent of revenues.
INTERNATIONAL OPERATIONS
- ------------------------
International revenues accounted for 61.5 percent of consolidated revenues.
Sales from Company-operated restaurants of $42.6 million were $12.0 million or
21.9 percent lower than the prior year primarily due to lower foreign currency
exchange rates, comparable restaurant sales declines and the closure of under-
performing Sizzlers, partially offset by the addition of four KFC restaurants.
On a comparative restaurant basis, sales in Australian dollars for Company-
operated Sizzler restaurants and customer counts decreased 9.3 percent and 13.3
percent, respectively, due to the increasingly competitive casual dining market.
The average guest check increased 4.6 percent. The KFC restaurants decreased 0.4
percent in average restaurant sales and 6.6 percent in the average number of
customers per restaurant, primarily due to the discontinuance of breakfast
service. The average customer check has increased 6.7 percent, reflecting price
increases since the third quarter of the prior year.
Earnings before interest and taxes increased $0.6 million or 26.5 percent
compared to the same quarter in the prior year. In Australian dollars, earnings
before interest and taxes increased $2.2 million or 133.9 percent. Labor and
related expense decreased 1.0 percent, other controllable expense decreased 0.6
percent, general and administrative expense decreased 0.5 percent and other
costs decreased 0.8 percent, as a percentage of revenues.
DOMESTIC OPERATIONS
- -------------------
Domestic restaurant operations accounted for 36.7 percent of the Company's
consolidated revenues. Sales from Company-operated restaurants reflect a
decrease of $4.7 million or 15.3 percent to $25.7 million when compared to the
prior year. This decline is due to the closure of one Company-operated
restaurant and the transfer of four restaurants to franchisees since the third
quarter of last year.
On a comparative restaurant basis, average sales per restaurant increased 0.3
percent, average customers per restaurant declined 6.6 percent and the average
customer check increased 7.3 percent.
Domestic franchise revenues, including franchise fees, royalties and rental
income, accounted for 1.8 percent of consolidated revenues. Compared to the
prior year, revenues decreased $0.5 million or 26.5 percent. The revenue decline
reflects the impact of a temporary royalty abatement program, of which the first
phase expired October 31, 1997, and a net reduction of 11 franchised
restaurants. Management expects that strategies being tested and implemented by
the Company will also improve sales and profits for domestic franchisees.
10
<PAGE>
Domestically, earnings before interest and taxes improved $2.6 million to $0.5
million, from a loss of $2.0 million in the same period last year. This increase
primarily reflects a reduction in general and administrative expense of 6.4
percent, as a percentage of revenue, along with the closing of under-performing
units, offset by the impact of the royalty abatement program estimated at
$350,000 for the current quarter.
CONSOLIDATED COSTS AND EXPENSES
- -------------------------------
Consolidated costs and expenses, as a percentage of revenues, decreased 2.8
percentage points from the prior year. This decrease is primarily the result of
lower payroll and related expenses, reflecting the closure of unprofitable
restaurants, and lower general and administrative expense, and food costs.
Interest expense was $1.6 million in fiscal 1998 and $295,000 in 1997.
The effective income tax rate decreased primarily due to the utilization of loss
carryforwards to offset domestic earnings.
MATERIAL CHANGES IN RESULTS OF OPERATIONS FORTY WEEKS ENDED FEBRUARY 1, 1998
- ----------------------------------------------------------------------------
VERSUS FEBRUARY 2, 1997
- -----------------------
Total revenues were $186.2 million for the first forty weeks of fiscal 1998,
which represents a decrease of $54.4 million, or 22.6 percent, compared to the
first forty weeks of the prior fiscal year. This decrease is primarily due to
the closure of 12 Company-operated restaurants, the sale of four Company-
operated restaurants to franchisees and a net decrease of 44 franchised Sizzler
restaurants. Also impacting the decrease is the royalty abatement program which
decreased franchise revenues by an estimated $1.5 million. During the same
period, the Company added four KFC restaurants in Australia. Revenues declined
domestically by $27.2 million or 27.3 percent. International revenues decreased
by $27.2 million or 19.3 percent compared to the first forty weeks of the prior
year.
Earnings before interest and taxes were $8.1 million for the first forty weeks
of fiscal 1998, an increase of $7.6 million compared to the prior year. In the
international operations, earnings before interest and taxes were unchanged at
$5.6 million, net of a 9.0 percent decrease in the Australian dollar exchange
rate from last year. Domestically, earnings before interest and taxes improved
from a loss of $4.8 million in the prior year, to income of $3.3 million in the
current fiscal year, primarily due to lower general and administrative expense
and reduced labor and related costs, along with the impact of closing under-
performing units. Pretax income for the first forty weeks of
11
<PAGE>
fiscal 1998 increased $4.4 million to $5.0 million or 2.7 percent of revenues.
During the first forty weeks of fiscal 1997, pretax income was $557,000.
INTERNATIONAL OPERATIONS
- ------------------------
International restaurant sales accounted for 60.2 percent of consolidated
revenues for the first forty weeks of fiscal 1998. Sales from Company-operated
restaurants of $112.1 million were $25.3 million or 18.4 percent lower than the
prior year primarily due to lower foreign currency exchange rates, comparable
restaurant sales declines and the closure of under-performing Sizzlers,
partially offset by the addition of four KFC units. Since the third quarter of
fiscal 1997, international operations had a net reduction of 11 Company-operated
and 33 franchised Sizzler restaurants. Eight franchised restaurants were opened
in Thailand, Indonesia and Japan while a total of 41 franchised restaurants were
closed, 39 in Australia, one in South Korea and one in Indonesia. As of February
1, 1998, the international operation included 32 Company-operated, three joint
ventured, and 50 franchised Sizzler restaurants, 98 KFC restaurants and one The
Italian Oven restaurant.
On a comparative restaurant basis, sales in Australian dollars for Company-
operated Sizzler restaurants and customer counts decreased 14.5 percent and 17.6
percent, respectively, due to the increasingly competitive casual dining market.
The average guest check increased 3.7 percent. The KFC restaurants decreased 1.9
percent in average restaurant sales and 7.4 percent in the average number of
customers per restaurant primarily due to the discontinuance of breakfast
service. The average customer check has increased 5.9 percent, reflecting price
increases since the third quarter of the prior year.
International franchise revenues accounted for 1.0 percent of consolidated
revenues. The Company's international franchise revenues decreased $1.9 million
or 51.3 percent due to the restaurant closures mentioned above. At February 1,
1998, there were 53 international franchised and joint-ventured Sizzler
restaurants in Japan, Taiwan, Thailand, South Korea, Singapore and Indonesia,
versus 86 restaurants in eight countries at February 2, 1997.
In Australian dollars, earnings before interest and taxes increased $2.0 million
or 34.7 percent. Labor and related expense decreased 0.92 percent, as a
percentage of revenues, due to the implementation of cost cutting programs.
DOMESTIC OPERATIONS
- -------------------
Domestic restaurant operations accounted for 37.2 percent of the Company's
consolidated revenues. Sales reflect a decrease of $24.9 million or 26.4 percent
to $69.2 million when compared to the prior year. This decline is due to the
closure of one Company-operated restaurant and the transfer of four restaurants
to franchisees since the third quarter of last year. At February 1, 1998, the
number of domestic Company-operated restaurants was 66 versus 71 restaurants at
February 2, 1997.
12
<PAGE>
On a comparative restaurant basis, average sales per restaurant decreased 1.1
percent, average customers per restaurant declined 5.4 percent while the average
customer check increased 4.5 percent. However, sales trends are continuing to
show improvement as the sales decrease was 11.1 percent in the prior year.
Management is aggressively implementing a plan to sustain its operations' return
to profitability. The key components of the plan include: 1) the recent
introduction of a new steak line which includes USDA Choice steaks; 2) continue
to upgrade the menu, focusing on redefining Sizzler as a popularly priced grill-
based restaurant with a great salad bar; 3) improve restaurant operations; 4)
implementing a new marketing strategy focused on new menu introductions and 5)
refresh restaurant facilities including new signage.
Domestic franchise revenues, including franchise fees, royalties and rental
income, accounted for 1.6 percent of consolidated revenues. Compared to the
prior year, revenues decreased $2.3 million or 43.2 percent. The revenue decline
reflects a net reduction of 11 franchised restaurants and the impact of a
temporary royalty abatement program, of which the first phase expired October
31, 1997. Management expects that strategies being tested and implemented by the
Company will also improve sales and profits for domestic franchisees. As of
February 1, 1998, the number of domestic franchised restaurants was 199,
including 11 Latin American restaurants, versus 210 restaurants at February 2,
1997.
Domestically, earnings before interest and taxes improved $8.1 million to $3.3
million, from a loss of $4.8 million in the same period last year. This increase
primarily reflects reductions in general and administrative expense and labor
and related expense of 5.3 percent and 1.7 percent, respectively, as a
percentage of revenue. Offsetting these decreases in expense was a decrease in
franchise revenue of an estimated $1.5 million due to the royalty abatement
program. The closing of under-performing units also impacted the increase in
earnings before interest and taxes.
CONSOLIDATED COSTS AND EXPENSES
- -------------------------------
Consolidated costs and expenses, as a percentage of revenues, decreased 2.5
percentage points from the prior year. This decrease is primarily the result of
lower payroll and related expenses, general and administrative expense and food
costs, offset by higher interest expense. Interest expense was $4.1 million in
fiscal 1998 and $0.8 million in fiscal 1997, reflecting interest on new
borrowings and general unsecured bankruptcy claims.
The effective income tax rate decreased primarily due to the utilization of loss
carryforwards to offset domestic earnings.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
WORKING CAPITAL
- ---------------
The Company's principal source of working capital is cash provided by operations
which amounted to $12.4 million for the first forty weeks of fiscal 1998 versus
$11.0 million for the same period of the prior year.
The Company's working capital at February 1, 1998 was $5.7 million including
cash and cash equivalents of $27.0 million. At April 30, 1997, working capital
was $15.9 million.
TOTAL ASSETS / CAPITAL EXPENDITURES
- -----------------------------------
At February 1, 1998, total assets were $131.5 million, a decrease of $36.6
million or 21.8 percent from April 30, 1997. During the first forty weeks of
fiscal year 1998, $6.4 million of domestic excess properties were sold.
Properties held for sale were $3.9 million at February 1, 1998 and $10.2 million
at April 30, 1997. Property and equipment represented approximately 63.6 percent
of total assets at February 1, 1998 and 62.4 percent at April 30, 1997.
Capital expenditures were $5.8 million for the first forty weeks of fiscal 1998,
including new restaurant construction of $1.2 million and replacements of $4.6
million. The Company anticipates continuing to build its international
operations through additional investment in Company-operated restaurants and the
development of the franchise system. Domestically, no new unit growth is planned
in fiscal 1998. Instead, the Company will focus on the previously mentioned
revitalization program. The Company has entered into certain commitments for
capital expenditures necessary to efficiently operate and to improve the
profitability of existing businesses.
DEBT
- ----
On September 23, 1997, the Company obtained a $63.5 million AUD (approximately
$46.9 million US) bank facility from Westpac Banking Corporation in order to
refinance the claims of the Company's unsecured creditors. The Westpac loan
provides for a five-year term at an interest rate equal to the Australian
interbank borrowing rate, plus a margin. The margin will be based on a formula
tied to the Company's international operations ratio of debt to earnings before
interest and taxes, and will vary between 1.25% and 2.25%. The Westpac loan
involved the collateralization of the Company's principal operating assets of
its international division. The Westpac loan is subject to a number of financial
covenants and other restrictions.
Based on current levels of operations and anticipated sales growth, management
believes that cash flow from operations will be sufficient to meet all of its
debt service requirements when due and to fund its capital expenditure and
working capital requirements.
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SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. On November 18, 1997 Sizzler International, Inc. held its annual meeting of
stockholders.
b. The following directors were elected as members of the Board at the meeting:
<TABLE>
<CAPTION>
Term
Expires For Withheld
-------- --- --------
<S> <C> <C> <C>
Barry E. Krantz 2000 26,692,291 237,567
Phillip D. Matthews 1999 26,715,467 214,391
H. Wallace Merryman 2000 26,675,840 254,018
Robert A. Muh 1999 26,392,682 537,176
Kevin W. Perkins 2000 26,646,111 283,747
Carol A. Scott 1999 26,705,464 224,394
</TABLE>
The following directors' terms of office continued after the meeting:
<TABLE>
<CAPTION>
Term
Expires
-------
<S> <C>
James A. Collins 1998
Peter H. Dailey 1998
Charles F. Smith 1998
</TABLE>
c. The Company's 1997 Employee Stock Incentive Plan was approved by the
stockholders. 22,177,875 votes were cast in favor of the plan, 4,578,996
votes were cast against with 172,987 abstentions.
The Company's 1997 Non-Employee Director Stock Incentive Plan was approved
by the stockholders. 22,276,507 votes were cast in favor of the plan,
4,368,955 votes were cast against with 284,396 abstentions.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit 10.26 - Form of Franchise Agreement between Sizzler USA Franchise,
Inc. and Franchisee.
Exhibit 27 - Financial Data Schedule
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<PAGE>
SIGNATURES
Pursuant to the requirement 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.
SIZZLER INTERNATIONAL, INC.
Registrant
Date: March 16, 1998 /s/James A. Collins
---------------------------------------
James A. Collins
Chief Executive Officer
Date: March 16, 1998 /s/Ryan S. Tondro
--------------------------------------
Ryan S. Tondro
Vice President
(Principal Financial Officer)
16
<PAGE>
EXHIBIT 10.26
SIZZLER USA FRANCHISE, INC.
FRANCHISE AGREEMENT
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Section Page
- ------- ----
<S> <C>
1. DEFINITIONS............................................................. 1
2. GRANT OF FRANCHISE...................................................... 6
3. TERM OF AGREEMENT AND OPTION............................................ 7
4. PAYMENTS AND FEES....................................................... 8
5. THE SYSTEM.............................................................. 9
6. RESTAURANT OPERATIONS................................................... 12
7. ADVERTISING............................................................. 15
8. DEFAULT AND TERMINATION................................................. 16
9. POST-TERMINATION OBLIGATIONS............................................ 17
10. OWNERSHIP AND TRANSFER................................................. 18
11. FRANCHISE RELATIONSHIP................................................. 19
12. GENERAL PROVISIONS..................................................... 21
</TABLE>
i
<PAGE>
SIZZLER
FRANCHISE AGREEMENT
This Franchise Agreement ("Agreement") is dated as of the Effective Date by
and between Sizzler USA Franchise, Inc., a Delaware corporation ("Sizzler"), and
the Franchisee (a "Party" or, sometimes collectively, the "Parties").
Capitalized terms used in this Agreement without definition in context shall
have the same meanings, if any, given to such terms in Article 1 of this
Agreement.
PREAMBLES
1. Sizzler owns the Marks and has developed and owns the System.
2. Sizzler is engaged in the business of licensing the Marks and
Proprietary Information and granting franchises to others to operate Sizzler
Restaurants utilizing the System.
3. Franchisee's Application to become a Sizzler Franchisee has been
approved by Sizzler in reliance upon all of the representations made and
information contained in that Application.
4. The Parties intend this Agreement to establish the basis for ensuring
uniform standards of quality, performance, operation, and reputation of
Franchisee's Sizzler Restaurant; enhancing and protecting the Marks and
Proprietary Information; ensuring the full and fair collection of Franchisee's
financial obligations to Sizzler; and, generally, providing an objective
contractual basis for a fair and mutually satisfactory business relationship
between the Parties.
THEREFORE, the Parties agree as follows:
1. DEFINITIONS
These terms shall have the following meanings in this Agreement:
1.1 "Affiliates" shall mean all corporations affiliated with Sizzler, including
its parent, subsidiaries, and brother/sister companies, and each of their
respective officers, directors, employees, and agents.
1.2 "Agent" shall mean any officer, director, employee, attorney, or other
person authorized to act on behalf of a Party.
1.3 "Approved Menu Items" shall mean menu items approved by Sizzler, in its
sole discretion, for sale in connection with the Business, in accordance
with the Standards.
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1.4 "Approved Products" shall mean products or services approved by Sizzler, in
its sole discretion, for use or sale in connection with the Business, in
accordance with the Standards.
1.5 "Approved Suppliers" shall mean vendors which have been approved by Sizzler
in accordance with the Standards.
1.6 "Business" shall mean the business operated by Franchisee on the Premises
pursuant to this Agreement, regardless where food is served.
1.7 "Claims" shall mean all claims, demands, suits, causes of action
(regardless of merit), liens, losses, costs, expenses, (including
Professionals' Fees, pursuant to Section 12.4 of this Agreement), damages,
and liabilities, of any nature whatsoever, however caused or incurred,
whether in preparation for, response to, or conduct or settlement (whether
before or after filing of any court or other proceeding) of actual
litigation.
1.8 "Communications" shall mean any directions, instructions, or other
communications from Sizzler to Franchisee, by whatever means, of various
forms of information including, without limitation, Proprietary Information
and other information relating to the System and the operation of the
Business.
1.9 "Criteria" shall mean Sizzler's criteria and qualifications, as in effect
from time to time, for prospective purchasers of a new Sizzler restaurant
franchise.
1.10 "Effective Date" shall mean the date set forth in Schedule A, on which all
rights and obligations of the Parties shall be effective.
1.11 "Expiration Date" shall mean the date set forth in Schedule A, on which
all rights granted to Franchisees pursuant to this Agreement shall expire.
1.12 "Franchise" shall mean the franchise and licenses granted under this
Agreement.
1.13 "Franchise Documents" shall mean a Sizzler Franchise Agreement and all
other ancillary agreements and legal instruments used by Sizzler from time
to time in connection with the granting of franchises for Sizzler
Restaurants.
1.14 "Franchisee" shall mean the individual, corporation, partnership, or other
legal person which is the signatory to this Agreement, identified in
Schedule A.
1.15 "Franchisee Obligations" shall mean all obligations of Franchisee under
this Agreement, and all obligations of Franchisee and any Franchisee
Principal to Sizzler or any of its Affiliates under any other agreement
relating to the Franchise, the Marks, the Proprietary Information, the
System or the Business.
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<PAGE>
1.16 "Franchisee Principal(s)" or "Principal(s)" shall mean Franchisee, if
Franchisee is an individual, or any officer, director, or holder of a
beneficial interest of ten percent (10%) or more of the ownership of any
corporation directly or indirectly controlling Franchisee, if Franchisee is
a corporation; or the general partners or any limited partner (including
any corporation and the officers, directors, and holders of any beneficial
interest of ten percent (10%) or more of the ownership of a corporation
that controls, directly or indirectly, any general or limited partner), if
Franchisee is a partnership.
1.17 "General Release" shall mean a general release by Franchisee and all
Franchisee Principals, in a form satisfactory to Sizzler, generally
releasing any and all Claims against Sizzler and its Affiliates, and their
respective Agents, that may have arisen out of this Agreement or the
relationship between the Parties prior to the date of the release.
1.18 "Good Cause" shall include, but not be limited to, Franchisee's failure to
comply with any lawful requirement of this Agreement after being given
notice of Franchisee's failure to comply and a reasonable opportunity,
which in no event need be longer than thirty (30) days, to cure such
failure.
1.19 "Good Standing" shall mean, with reference to the Franchisee, that the
Franchisee is not in default under the Agreement.
1.20 "Gross Sales" shall mean all money, cash receipts, credit extended, and/or
other things of value, including but not limited to gross sales charges,
received or earned by Franchisee from the operation of the Business. Gross
Sales shall not include (a) bona fide refunds, credits, or allowances, (b)
taxes required to be collected by Franchisee in connection with the
operation of the Business, which taxes are added to the price of goods sold
or services rendered in the operation of the Business and actually paid to
appropriate governmental authorities, (c) revenues from vending machine
sales at the Premises, or (d) other adjustments permitted by Sizzler, from
time to time in its sole discretion.
1.21 "Incapacity" shall mean the inability of Principal(s) to operate or
oversee the operation of the Business on a regular basis, by reason of
death or any continuing physical, mental, or emotional disability, chemical
dependency, or any other limitation, determined in accordance with the
Standards.
1.22 "Initial Franchise Fee" shall be the amount specified in Schedule A.
1.23 "Manuals" shall mean the set of materials, however published and
delivered, which sets forth the Standards, Approved Menu Items, Approved
Products, services, Approved Suppliers, and other Proprietary Information
relating to the operation of a Sizzler Restaurant, including all
Communications, amendments, supplements,
3
<PAGE>
bulletins, notices, and memoranda relating to such materials which may be
provided to Franchisee by Sizzler in its sole discretion, from time to
time.
1.24 "Mark" or "Marks" shall mean the trademark and service mark Sizzler(R), in
approved form or style as set forth in the Manuals or Communications
relating to the Marks, as well as all other trademarks, service marks,
trade names, slogans, designs, packaging, trade dress, or other
descriptive, distinctive, or identifying characteristics which may be
licensed, adopted and used by Sizzler for use in the System, as set forth
from time to time.
1.25 "Minimum Advertising Expenditure Level" shall be the percentage of Gross
Sales specified in Schedule A that Franchisee is obligated to spend on
local advertising.
1.26 "National Advertising Fund" shall mean the non-profit mutual benefit
corporation which administers the national advertising program.
1.27 "National Advertising Fund Fee" shall be the percentage of Gross Sales
specified in Schedule A that Franchisee is obligated to pay to the National
Advertising Fund, or Sizzler on behalf of the National Advertising Fund.
1.28 "Network" shall mean the network of all Sizzler Restaurants operated by
all Sizzler Franchisees and Affiliates.
1.29 "Option" shall mean the option granted to the Franchisee under Section 3.2
of this Agreement to enter into the then-current forms of Franchise
Documents upon the Expiration Date of this Franchise Agreement.
1.30 "Premises" shall mean the premises of the Sizzler Restaurant operated by
Franchisee pursuant to this Agreement.
1.31 "Professionals' Fees" shall mean all costs of auditors, accountants,
attorneys (including the costs of Sizzler's in-house counsel, calculated at
outside counsel rates for attorneys of comparable background and
experience), consultants, or expert witnesses incurred in connection with
the enforcement of any obligation under this Agreement, including the
collection of any amounts owed to Sizzler by Franchisee or defense of any
Claims.
1.32 "Proprietary Information" shall mean all information, in any form,
relating to the System or the operation of a Sizzler Restaurant which (a)
is not generally available and known to the general public, (b) has not
been disclosed to Franchisee on a non-confidential basis by a third party,
(c) has not been developed independently by Franchisee, or (d) has not been
publicly disclosed by a duly authorized representative of Sizzler. Sizzler
Proprietary Information shall include, but not be limited to, the contents
of the Manuals, marketing and sales information and plans, operations,
specifications, procedures, Approved Menu Items, Approved
4
<PAGE>
Products, Approved Suppliers, pricing information, and other items,
tangible or intangible, which relate to the System, as modified from time
to time by Sizzler in its sole discretion, which modifications shall not
materially modify any term or condition of this Agreement.
1.33 "Qualified for Option Exercise" shall mean, with reference to Franchisee,
that Franchisee
a. is in Good Standing;
b. has substantially complied, and has caused its Franchisee Principals
to substantially comply, with the Franchisee Obligations;
c. qualifies under the Criteria; and
d. has satisfactorily completed, or has caused designated Franchisee
personnel to satisfactorily complete, Sizzler's Option training
program in accordance with the Manuals.
1.34 "Regional Advertising Fund" shall mean any non-profit mutual benefit
corporation established by Sizzler for a defined geographical area within
the United States which administers a regional advertising program for such
defined geographical area.
1.35 "Regional Advertising Fund Fee" shall mean the percentage of Gross Sales
that Franchisee is obligated to pay to a Regional Advertising Fund in
respect of each Business located within such Regional Advertising Fund's
defined geographical area.
1.36 "Royalty Fee" shall be the percentage of Gross Sales specified in Schedule
A.
1.37 "Sizzler" shall mean Sizzler USA Franchise, Inc., a Delaware corporation,
the franchisor under this Agreement, and its successors and assigns
pursuant to this Agreement.
1.38 "Sizzler Restaurant" shall mean a restaurant utilizing the Marks and the
System.
1.39 "Standards" shall mean the standards, policies, procedures, and
requirements relating to the System, the Marks, Approved Menu Items,
Approved Products, and Approved Suppliers as set forth in the Manuals.
1.40 "System" shall mean the Marks, the Proprietary Information, the Standards,
and all techniques, know-how, standards, specifications, procedures and
other methods of doing business used in the development and operation of
Sizzler Restaurants, including recipes, menus, interior and exterior decor,
and marketing, advertising,
5
<PAGE>
management techniques, as developed and modified from time to time, and as
set forth in the Manuals.
1.41 "Transfer" shall mean any act by Franchisee to sell, assign, transfer,
convey, give away, or encumber all or any part of its interest in this
Agreement, or its interest in the franchise granted by this Agreement, or a
controlling interest in any proprietorship, partnership, or corporation
that owns any interest in this Agreement, the Business, or in the
Franchise, to any person.
1.42 "Transfer Fee" shall be the fee payable by Franchisee to Sizzler for the
training, supervision, administrative costs, Professionals Fees, and other
expenses of Sizzler in connection with any Transfer, in the amount set
forth in Schedule A.
2. GRANT OF FRANCHISE
2.1 Subject to all terms and conditions of this Agreement and to the continuing
good faith performance of such terms and conditions by Franchisee during
the term of this Agreement, Sizzler grants to Franchisee a nonexclusive
franchise:
a. to adopt and use the Sizzler System to operate a Sizzler Restaurant at
the Premises specified in Schedule A; and
b. to operate the Business continuously during normal business hours, in
accordance with the terms and conditions of this Agreement.
2.2 Sizzler grants to Franchisee the following nonexclusive licenses, to be
used by Franchisee only during the term of this Agreement and only in
conjunction with the franchise granted by Section 2.1 of this Agreement:
a. a nonexclusive license to use the Marks in strict accordance with the
Standards;
b. a nonexclusive license to use the Proprietary Information in strict
accordance with the Standards.
2.3 During the term of this Agreement, Sizzler will not operate, or grant any
franchise or other right for any other person to operate, any Sizzler
Restaurant within One and One-Half (1.5) miles of the Business. You are
granted no exclusivity regarding customers by this Section 2.3, and nothing
in this Agreement prevents Sizzler, its Affiliates, or any other Franchisee
from serving or soliciting customers in your exclusive area, or any area.
2.4 The franchise and licenses granted to Franchisee by this Agreement are
nonexclusive. Subject only to Section 2.3, Sizzler shall have, at all
times throughout the term of this Agreement and at all places, the
unqualified right to
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<PAGE>
open and operate, or to franchise and license others to open and operate,
businesses utilizing the System and Marks.
3. TERM OF AGREEMENT AND OPTION
3.1 The term of this Agreement shall commence on the Effective Date and shall
continue, unless earlier terminated in accordance with Article 8 of this
Agreement, to the Expiration Date.
3.2 Subject to the terms and conditions of Article 3 of this Agreement, Sizzler
grants Franchisee an Option to execute the then-current forms of Franchise
Documents upon the Expiration Date of this Agreement.
3.3 Exercise of the Option shall be subject to the following conditions:
a. Sizzler has not given notice to the Franchisee under Section 3.5 of
this Agreement on or before the time the Option is exercised;
b. Franchisee is Qualified for Option Exercise at the time the Option is
exercised;
c. Franchisee has complied with the Option exercise procedures described
in Section 3.4 on or before the times indicated;
d. At least ninety (90) days before the Expiration Date, the Premises
have been remodeled, refurbished, upgraded, and modernized in
accordance with the System as then current.
3.4 Franchisee shall exercise the Option by:
a. Giving notice of its intention to exercise the option to Sizzler not
less than six (6) months and not more than nine (9) months before the
Expiration Date;
b. Executing and delivering the then-current forms of Franchise Documents
within thirty (30) days of delivery to Franchisee;
c. Executing and delivering a General Release effective as of the
Expiration Date; and
d. Paying to Sizzler a Option fee equal to Fifty Percent of the then-
current Initial Franchise Fee, but not less than Fifteen Thousand
Dollars ($15,000).
3.5 If Sizzler elects not to allow exercise of the Option by the Franchisee,
then Sizzler shall give Franchisee written notice specifying the reasons of
its election not to
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<PAGE>
allow exercise of the Option by the Franchisee not later than ninety (90)
days prior to the Expiration Date.
4. PAYMENTS AND FEES
4.1 Upon execution of the Agreement, Franchisee shall pay to Sizzler the
Initial Franchise Fee. The Initial Franchise Fee is payable in full at the
time of, and deemed fully earned by Sizzler and nonrefundable upon,
Franchisee's execution of this Agreement.
4.2 During the term of this Agreement, Franchisee shall pay to Sizzler the
Royalty Fee.
4.3 During the term of this Agreement, Franchisee shall spend for local
advertising an amount at least equal to the Minimum Advertising Expenditure
Level, subject to the provisions set forth in Article 7.
4.4 During the term of this Agreement, Franchisee shall pay to the National
Advertising Fund, or Sizzler on behalf of the National Advertising Fund,
the National Advertising Fund Fee.
4.5 All amounts due to Sizzler shall be payable at such times and in accordance
with such methods as Sizzler may prescribe, from time to time, in the
Manuals.
4.6 Any amount owing by Franchisee for Royalty Fees, National Advertising Fund
Fees, advertising expenditures, or to Sizzler for any other purpose
whatsoever, if not paid when due, whether such amount has been shown on any
report required to be submitted by Franchisee or has subsequently been
determined by verification, examination, or audit to have been due for any
month or other applicable accounting period, shall bear interest from the
date such amount was due until paid, at the lesser of one and one-half
percent (1.5%) per month of delinquency or the maximum rate permitted by
law. Franchisee acknowledges that this provision does not constitute
Sizzler's agreement to accept any payments after the due date or a
commitment by Sizzler to extend credit for or otherwise to finance
Franchisee's operation of the Sizzler Restaurant.
4.7 Notwithstanding any designation by Franchisee, Sizzler shall have the sole
discretion to apply any receipts from or on the accounts of Franchisee for
any Franchisee indebtedness arising out of the obligations created by this
Agreement.
4.8 Franchisee shall maintain an accounting and record keeping system, in
accordance with the standards and specifications set forth in the Manuals,
which shall provide for basic accounting information necessary to prepare
financial statements, a general ledger, and reports required by this
Agreement and the Manuals. Franchisee shall maintain adequate and
verifiable records and supporting
8
<PAGE>
documentation relating to such accounting information, in accordance with
the standards and specifications set forth in the Manuals.
4.9 Franchisee shall submit to Sizzler, within five (5) days of the end of each
calendar month, a statement of Gross Sales for the previous calendar month,
containing all information required and in the format prescribed in the
Manuals.
4.10 Franchisee shall make available upon request to Sizzler copies of
Franchisee's annual federal income tax returns and quarterly (or other
periodic) sales tax returns, including all schedules, exhibits, and tables
included in such returns, within thirty (30) days of the date of filing
each such return. In the event that such returns are not filed by
Franchisee in a timely manner, Franchisee shall make available upon request
to Sizzler copies of all extensions of time filed and granted within thirty
(30) days of each such filing or granting of such extension(s).
4.11 Sizzler or its designated agents shall have the right at all reasonable
times to inspect, at its expense, Franchisee's books and records. Sizzler
also shall have the right, at any time, to conduct an independent audit of
Franchisee's books and records, by auditors selected by Sizzler and at
Sizzler's expense. In the event any such inspection or audit discloses any
under-reporting of Gross Sales for any period which exceeds two percent
(2%) of Franchisee's Gross Sales during any applicable period, then
Franchisee shall pay to Sizzler, within ten (10) days of receipt of a
demand based on the report, the amount(s) due as a result of such under-
statement, plus all Professionals Fees associated with such inspection or
audit.
5. THE SYSTEM
5.1 Franchisee acknowledges and shall not contest the validity of the Marks and
acknowledges that the Marks are the sole and exclusive property of Sizzler.
All goodwill associated with the Marks, including any goodwill which might
be generated by Franchisee, all other Sizzler Franchisees, or any
Affiliates, shall be and remain the sole property of Sizzler. Franchisee
shall not oppose or seek to cancel any registration of any of the Marks, in
the United States or elsewhere, or aid or abet others in such activities,
during or after the term of this Agreement. Franchisee agrees and
acknowledges that all use by Franchisee of the Marks on goods or in
connection with rendering services, has inured and shall inure solely to
the benefit of Sizzler. In connection with the use of the Marks,
Franchisee shall not in any manner represent that it has any ownership in
the Marks or any registrations of the Marks.
5.2 Franchisee acknowledges that it is familiar with the standards and high
quality of the use by Sizzler and others authorized by Sizzler of the Marks
in the operationof Sizzler Restaurants, and agrees that it will maintain
this standard in its use of the Marks.
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5.3 Franchisee shall use the Marks solely for the purposes of and to the extent
of the rights, licenses, and franchise granted by this Agreement and only
in accordance with this Agreement and the Manuals. When using the Marks,
Franchisee shall comply substantially with all laws pertaining to service
marks and trademarks in force at any time in any jurisdiction in which
Franchise uses the Marks. This provision includes compliance with laws and
regulations pertaining to the proper use and designation of trademarks.
5.4 Franchisee shall not use the Marks, or any colorable imitation or similar
mark, directly or indirectly, for any purpose whatsoever, other than the
purposes intended by this Agreement, at any time during or after expiration
or termination of this Agreement.
5.5 Franchisee shall not license, sublicense, or grant in any manner, any
interest in the Marks to any person at any time during the term of, or
after expiration or termination of, this Agreement. Any such act by
Franchisee shall constitute irreparable harm to Sizzler and other Sizzler
Franchisees and shall constitute a material breach of this Agreement.
5.6 Franchisee shall notify Sizzler immediately of any apparent infringement of
or challenge to Franchisee's use of any of the Marks or claim by any person
of any rights in any of the Marks. Sizzler shall have sole discretion to
take such action, if any, as it deems appropriate, and Franchisee shall
cooperate with Sizzler in all activities reasonably required by Sizzler to
preclude or terminate unauthorized use of the Marks or any confusingly
similar name or Mark. Franchisee shall not be liable for attorneys fees,
court costs, or other legal expenses incurred by Sizzler in pursuit of
infringement actions. Any and all damages or other amounts recovered in
any such action or proceeding shall be the sole property of Sizzler.
5.7 Sizzler, in its sole discretion from time to time, may determine that use
of certain Marks should be modified or discontinued throughout the Network,
and/or that the Network shall use one or more additional or substitute
trade names, trademarks, service marks, or other commercial symbols, or any
items of trade dress or decor. Subject to all other terms and conditions
of this Agreement, Franchisee shall comply with Sizzler's directions within
a reasonable time after notice to Franchisee by Sizzler.
5.8 Sizzler shall indemnify and hold harmless Franchisee against all Claims
arising from Franchisee's use of the Marks in accordance with this
Agreement and the Manuals.
5.9 Sizzler shall deliver to Franchisee a current version of the Manuals, which
Sizzler shall update and revise, from time to time during the term of this
Agreement, in its sole discretion. Franchisee shall insure that its copy
of the Manuals is maintained in its most current version at all times. In
the event of any dispute as to the
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contents of the Manuals, the terms of the master copy maintained by Sizzler
shall be controlling. The Manuals and the Proprietary Information shall
remain, at all times, the sole property of Sizzler.
5.10 Franchisee shall maintain the confidentiality, both during and after the
term of this Agreement, of all Proprietary Information disclosed to
Franchisee by Sizzler pursuant to this Agreement, and not disclose,
duplicate, or otherwise use any Sizzler Proprietary Information in any
unauthorized manner. Franchisee shall not use any Proprietary Information
for any purpose or in any business activity other than the operation of the
Business, or in any manner not contemplated by this Agreement, unless such
use has been specifically authorized or approved in writing by Sizzler.
5.11 During the term of this Agreement, unless otherwise expressly permitted by
Sizzler in writing, neither Franchisee nor any Franchisee Principal(s),
shall:
a. engage in, or own any interest (except as a passive investor of less
than five percent (5%) of total debt and equity) in, any mid-scale
casual dining concept featuring steak, seafood, and poultry, or any
business or other activity that would compete with the Sizzler
Restaurant, any other location in the Sizzler Network, or otherwise
conflict with the performance of Franchisee's obligations under this
Agreement, except as a Sizzler Franchisee; or
b. divert or attempt to divert any business or any customers of the
Sizzler Restaurant to any other person or entity, by direct or
indirect inducement or otherwise, or do or perform, directly or
indirectly, any other act injurious or prejudicial to the goodwill
associated with Sizzler, the Marks, or the Sizzler Network; or
c. solicit any person for employment with Franchisee who is at that time
employed by Sizzler, an Affiliate or another Sizzler Franchisee, or
otherwise directly or indirectly induce or seek to induce such person
to leave his or her employment.
5.12 For a period of one (1) year following expiration or termination of this
Agreement, neither Franchisee nor any Franchisee Principal(s), shall:
a. engage in, or own any interest (except as a passive investor of less
than five percent (5%) of total debt and equity) in, any mid-scale
casual dining concept featuring steak, seafood, and poultry, or any
business or other activity, in the Standard Metropolitan Statistical
Area ("SMSA") where the Sizzler Restaurant was located, that would
compete with the former Sizzler Restaurant or any other location in
the Network, except as a Sizzler Franchisee; or
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b. divert or attempt to divert any business or any customers of the
Sizzler Restaurant to any other person or entity in the SMSA where the
Sizzler Restaurant was located, by direct or indirect inducement or
otherwise, or do or perform, directly or indirectly, any other act
injurious or prejudicial to the goodwill associated with Sizzler, the
Marks, or the Sizzler Network; or
c. solicit any person for employment who is at that time employed by
Sizzler, an Affiliate or another Sizzler Franchisee, or otherwise
directly or indirectly induce or seek to induce such person to leave
his or her employment.
5.13 Sizzler shall continue to develop the System as it deems appropriate in
its sole discretion, and shall deliver the product of such activities to
Franchisee, from time to time.
5.14 Sizzler shall provide Standards for the testing and evaluation of products
and/or services for designation as Approved Menu Items and/or Approved
Products, as set forth in the Manuals. Subject to Sizzler's prior written
consent, Franchisee may conduct such tests in the Business, at Franchisee's
sole expense, in accordance with the Standards.
5.15 Sizzler shall provide such other ongoing consultation, advice, and
assistance as Sizzler, in its sole discretion, deems appropriate to promote
development of the System and to assist Franchisee in the operation of the
Business, the performance of Franchisee's obligations under this Agreement,
and the maintenance of the Standards and reputation of the Network.
6. RESTAURANT OPERATIONS
6.1 Franchisee shall comply with all terms and conditions of this Agreement,
and the Standards, in the operation of the Sizzler Business.
6.2 Sizzler shall make available, at no charge to Franchisee, standard plans
and specifications for the exterior and interior design and layout of a
Sizzler Restaurant and fixtures, furnishings, equipment, signs fixtures
suppliers list. Franchisee is responsible for compliance with local
building standards and zoning requirements and may adapt the plans and
specifications to conform thereto upon prior written consent of Sizzler.
Franchisee shall adapt, at Franchisee's expense, the standard plans and
specifications to the Premises. Franchisee shall be solely responsible for
maintaining suitable Premises during the term of this Agreement and for all
lease payments for such Premises. Sizzler does not guarantee any such
payments, and Franchisee may not act in any way which might bind or
obligate, or attempt to bind or obligate, Sizzler to the terms of any
premises lease.
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6.3 In order to maintain the quality and standards of the Sizzler System,
Franchisee, or Franchisee's Principal(s) as the case may be, shall:
a. Attend and successfully complete Sizzler's initial training program
and such other training courses as Sizzler may prescribe, from time to
time.
b. Maintain a competent, conscientious, well-trained staff, including
Sizzler-trained and certified Manager(s) on the Premises at all times
during operating hours which are set forth in the Manuals.
c. Maintain the condition and appearance of the Premises, consistent with
the Standards and improve the Premises from time to time as may be
required or necessary, including, but not limited to, replacement of
worn or obsolete furniture, equipment, fixtures, or decor, and
maintenance and repair of exterior and interior areas, in accordance
with the Standards.
d. Remodel and upgrade the Premises to then-current Standards for new
Sizzler Restaurants, pursuant to notice from Sizzler not less than
eight (8) months prior to Network-wide implementation of the new
Standards. Franchisee acknowledges that such remodeling and upgrades
may be required periodically during the term of this Agreement, but
not more frequently than every five (5) years since the adoption of
Network-wide changes to such Standards, based upon test results
satisfactory to Sizzler, in its sole discretion. Franchisee shall
complete such remodeling and upgrades within the time periods set
forth in the notice from Sizzler. However, notwithstanding the five
(5) years limitation, Sizzler may require such remodeling and upgrades
of the Premises (i) at the time of any Transfer during the term of
this Agreement; and (ii) at the time of the exercise by Franchisee of
its Option, pursuant to Section 3.3 of this Agreement.
e. Use the Premises only for the purpose of operating a Sizzler
Restaurant, and not for any other purpose.
f. Provide to Sizzler a copy of the lease for the Premises and any
amendments or modifications to such lease, during the term of this
Agreement.
g. Operate the Business in conformity with this Agreement and the
Manuals.
h. Utilize only Approved Menu Items, Approved Products and Approved
Suppliers in the operation of the Business.
i. Complete and submit to Sizzler, on a timely basis, all prescribed
forms and reports, in accordance with the policies and procedures in
the Manuals.
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j. Obtain and utilize point-of-sale computer systems specified in the
Manuals.
k. Comply at all times with all federal, state, and municipal laws,
regulations, bylaws, orders, rulings, permits, and licensing
requirements relating to, and pay promptly any and all taxes,
assessments, fees, fines, and penalties arising out of, the operation
of the Business.
l. Respond promptly to any and all customers' inquiries or complaints and
resolve all reasonable complaints to the customer's satisfaction.
m. Notify Sizzler in writing within two (2) days of the commencement of
any action, suit, or legal proceeding by any person, or of the
issuance of any order, writ, injunction, award, or decree of any
court, agency, or other governmental instrumentality, including any
citation or notice of any health code violation, or the assertion of
any material claim which names Sizzler, or which relates to the
operation or financial condition of the Business or the reputation of
the Network.
n. Obtain and maintain in force, at its sole expense, a policy or
policies of insurance, in such form(s) and for such limits as Sizzler
may require in its sole discretion, as set forth in the Manuals. All
such insurance policies shall name Sizzler as an additional insured
and shall provide that Sizzler shall receive thirty (30) days prior
written notice of termination, expiration, or cancellation of any such
policies; if Franchisee fails to comply with the obligations of this
Section 6.3 (n), then Sizzler shall have the right to procure such
insurance and Franchisee shall reimburse Sizzler for all related costs
incurred.
6.4 Franchisee shall permit duly authorized representatives of Sizzler to
review advertising which Franchisee creates that uses the Marks and also to
inspect the Premises, at all reasonable times, for purposes of determining
compliance with this Agreement and ensuring uniform standards of quality,
performance, operation and reputation in the use of the Marks in
Franchisee's advertising and the operation of the Business and enhancing
and protecting the Marks and Proprietary Information.
6.5 From time to time, Sizzler may offer training programs for Franchisee
Principal(s) and managers. The content, fees, duration, and location of
such training shall be in Sizzler's sole discretion. A description of such
training will be as set forth in the Manuals.
6.6 All expenses incurred by Franchisee and its employees in attending all
Sizzler training programs, including, without limitation, travel, room and
board, and employee compensation and insurance, shall be Franchisee's sole
responsibility.
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<PAGE>
7. ADVERTISING
Franchisee acknowledges the value of advertising and the importance of the
standardization of advertising and promotion to the furtherance of the goodwill
and the public image of the Network. Therefore, it is agreed as follows:
7.1 Sizzler, or its designee, shall develop, in its sole discretion, all
creative concepts, advertising campaigns, and marketing and promotional
materials used in the Network. Franchisee shall utilize only Sizzler-
approved concepts, campaigns, and materials, in accordance with this
Agreement, the Manuals, and Sizzler Communications.
7.2 As provided for in Section 4.3, Franchisee shall spend for local
advertising an amount at least equal to the Minimum Advertising Expenditure
Level. It is understood that such expenditures must be made by Franchisee
within each calendar or accounting year. Franchisee shall supply Sizzler
with such copies and other proof of advertising as Sizzler may reasonably
request.
7.3 At any time during the term of this Agreement, Sizzler shall have the right
to establish a Regional Advertising Fund within any defined geographical
area within the United States. Each of Sizzler's Franchisees shall be a
member of and participate in each Regional Advertising Fund so established
whose geographical area includes Businesses operated by the Franchisee. As
a member, a Franchisee has the right to cast one vote for each Business
located within the Regional Advertising Fund's relevant defined
geographical area. A Franchisee shall pay a Regional Advertising Fund Fee
of at least three percent (3%) in respect of each Business that is located
within the defined geographical area to the Regional Advertising Fund. All
payments to the Regional Advertising Fund shall be paid to the Regional
Advertising Fund, or Sizzler on behalf of such Regional Advertising Fund,
at the option of Sizzler, and except as provided in this Section, shall be
in addition to all other sums and charges provided for in this Agreement
and all payments for a particular month shall be payable at such times and
in accordance with such methods as Sizzler may prescribe, from time to
time, in the Manuals. All Sizzler Restaurants operated by an Affiliate of
Sizzler and located in an area for which there is a Regional Advertising
Fund shall pay the same Regional Advertising Fund Fee as Sizzler
Restaurants operated by Franchisees. Franchisee hereby agrees to be a
member of, participate in, and pay a Regional Advertising Fund Fee to any
Regional Advertising Fund in existence as of the Effective Date for any
Business that is located within the defined geographical area that
encompasses such Regional Advertising Fund. All amounts paid by Franchisee
to the Regional Advertising Fund may be credited against the amounts
required to be spent for local advertising designated in Section 7.2 above.
Franchisee shall abide by the by-laws and any other rules of any Regional
Advertising Fund of which it is a member.
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<PAGE>
8. DEFAULT AND TERMINATION
8.1 Any default by Franchisee under any agreement with Sizzler or any of its
Affiliates shall be deemed a default under this Agreement.
8.2 Except as otherwise provided in this Article 8, Sizzler may terminate this
Agreement before the Expiration Date only for Good Cause.
8.3 Sizzler may terminate this Agreement effective immediately upon delivery of
notice of termination to Franchisee without an opportunity to cure if,
during the term of this Agreement, any of the following events occurs:
a. The discovery by Sizzler that Franchisee made a material
misrepresentation in the application or otherwise relating to the
acquisition of Franchisee's Franchise or entering into this Agreement,
or that Franchisee or the Business has engaged in conduct reflecting
materially and unfavorably upon the operation and reputation of
Sizzler, the Marks, or the Network; or
b. Franchisee is convicted of or pleads no contest to a felony or other
criminal or civil offense involving charges of moral turpitude or that
is otherwise likely to affect adversely the reputation of Sizzler, the
Marks, or the Network; or
c. Franchisee makes any unauthorized use, disclosure, or duplication of
any Proprietary Information; or
d. Franchisee abandons, surrenders, or transfers control of, or fails or
refuses to actively operate the Business continuously for five (5)
consecutive days during any twelve (12) months period unless the
Business has been closed temporarily for a purpose approved by
Sizzler; or
e. Franchisee surrenders or transfers control of the operation of the
Business, makes or attempts to make a Transfer not in accordance with
Article 10 of this Agreement, or fails or refuses to assign this
Agreement or the interest in Franchisee of a deceased or disabled
controlling owner as required by Section 10.6 of this Agreement; or
f. Franchisee ceases to be entitled to possession of the Premises; or
g. Franchisee files any petition or action for relief under any
bankruptcy, insolvency, reorganization, moratorium, creditor
composition law, or any other law for the relief of or relating to
debtor's; or an involuntary petition is filed under any bankruptcy law
against Franchisee, or receives an appointment of a receiver or
trustee, or makes any assignment for the benefit of creditors, or
fails to vacate or dismiss within sixty (60) days after
16
<PAGE>
filing any such proceedings commenced against Franchisee by a third
party; or
h. Franchisee repeatedly fails to submit when due reports or other
information or supporting records, to pay when due any payments due to
Sizzler and/or its Affiliates, or to any Approved Supplier, or
otherwise fails to comply with this Agreement, whether or not such
failures to comply are corrected after notice is delivered to
Franchisee; or
i. Franchisee commits any other material breach of this Agreement.
8.4 If Franchisee is in substantial compliance with this Agreement and Sizzler
materially breaches this Agreement and fails to cure such breach within a
reasonable time after written notice thereof is delivered to Sizzler,
Franchisee may terminate this Agreement. Such termination shall be
effective thirty (30) days after delivery to Sizzler of notice that such
breach has not been cured and Franchisee elects to terminate this
Agreement. A termination of this Agreement by Franchisee for any reason
other than breach of this Agreement by Sizzler and Sizzler's failure to
cure such breach, within a reasonable time after Sizzler's receipt of
written notice from Franchisee, shall be deemed a termination without
cause.
9. POST-TERMINATION OBLIGATIONS
9.1 Upon expiration or termination of this Agreement for any reason, Franchisee
shall, at its expense:
a. Within fifteen (15) days after the effective date of such expiration
or termination, pay to Sizzler all liquidated and ascertainable sums
owing from Franchisee to Sizzler, including all damages, costs,
expenses, and Professionals' Fees incurred by Sizzler as a result of
the termination or expiration; and
b. Immediately and permanently discontinue the use of the Marks, the
System, the Proprietary Information, and any other materials which may
in any way indicate that Franchisee ever operated a Sizzler
Restaurant; and
c. Immediately and permanently remove, destroy, or obliterate all signs
containing any of the Marks. If Franchisee fails to remove items
bearing the Marks within a reasonable time following termination, then
Sizzler or its agents shall have the right to enter the Premises to
remove items bearing the Marks, with the costs of such removal to be
borne by Franchisee; and
d. Immediately return to Sizzler all copies of the Manuals, all
Proprietary Information, and all other materials relating to the
System; and
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<PAGE>
e. Take such action as may be required to cancel all assumed names or
equivalent registrations relating to Franchisee's use of any Marks;
and
f. In the event Franchisee continues to operate or subsequently begins to
operate any other business, not to use any reproduction, counterfeit,
or copy of the marks, or any colorable imitation of the Marks, either
in connection with such other business or the promotion of such
business, which would be likely to cause confusion, mistake, or
deception, or to dilute Sizzler's exclusive rights in and to the
Marks. Franchisee shall make such modifications or alterations to the
Premises immediately upon termination or expiration of this Agreement,
as may be reasonably necessary to prevent any association between the
Network and any business subsequently operated by Franchisee or
others, subject to all other terms and conditions of this Agreement.
Franchisee shall make such specific additional changes to the Premises
as Sizzler may reasonably request for that purpose, including, without
limitation, removal of all signage and any other distinctive physical
and structural features identifying the System.
9.2 Immediately upon the expiration or termination of this Agreement, for any
reason, all rights granted to Franchisee pursuant to this Agreement shall
terminate.
9.3 All obligations of Sizzler and Franchisee which expressly or by their
nature survive the expiration or termination of this Agreement shall
continue in full force and effect subsequent to and notwithstanding such
expiration or termination and until they are satisfied or by their nature
expire.
10. OWNERSHIP AND TRANSFER
10.1 This Agreement may be transferred by Sizzler to any person that assumes
all of Sizzler's obligations under this Agreement.
10.2 Subject to all terms and conditions of this Agreement, Franchisee may make
a Transfer of this Agreement subject to the following conditions and
requirements:
a. Franchisee, or any partner (if Franchisee is a partnership), or
shareholder (if Franchisee is a corporation) of Franchisee, shall not
Transfer by operation of law or otherwise, the Franchise or any
interest in the Franchise, or this Agreement, without the prior
written consent of Sizzler. Franchisee may not fractionalize the
Franchise without the prior written consent of Sizzler. Any purported
Transfer without the prior written consent of Sizzler shall be null
and void and shall constitute a material breach under this Agreement.
18
<PAGE>
b. Sizzler shall not unreasonably withhold its consent to any Transfer of
this Agreement when requested; provided, however, that such Transfer
shall be subject to compliance with the procedures, conditions, and
requirements set forth in the Manuals.
10.3 Franchisee shall pay to Sizzler the Transfer Fee.
10.4 Franchisee shall give not less than thirty (30) days written notice of any
proposed Transfer to Sizzler. Franchisee's notice must be accompanied by
payment of the Transfer Fee and delivery of all other required documents,
as set forth in the Manuals. The thirty (30) days notice period shall
commence only after Sizzler's written confirmation of receipt of all
materials required by this Article 10 and Franchisee's compliance with all
procedures, conditions, and requirements set forth in the Manuals.
10.5 In the event of any proposed Transfer, Sizzler shall have a right of first
refusal, exercisable in accordance with the requirements and procedures set
forth in the Manuals within thirty (30) days of receipt of Franchisee's
notice of proposed Transfer pursuant to Section 10.4 of this Agreement and
all material information relating to the proposed Transfer, to acquire the
interest proposed to be transferred, on identical terms and conditions as
the proposed transferee; if any such terms and conditions are modified
subsequent to Franchisee's notice pursuant to Section 10.4, then Franchisee
shall provide notice of such modifications and the thirty (30) day period
shall restart. In the event that the proposed transferee offers non-cash
consideration for the transfer, Sizzler shall have the right to substitute
an equivalent amount of cash in lieu of such non-cash consideration in
exercise of Sizzler's right of first refusal.
10.6 In the event of the Incapacity of an individual Franchisee or any
Franchisee Principal(s), the heirs, beneficiaries, devisees, or legal
representatives of such person, within ninety (90) days of such event,
shall apply to Sizzler for the right to continue to operate the Business
for the remaining term of this Agreement, which right shall be granted upon
the fulfillment of all of the conditions set forth in Section 10.2 of this
Agreement, except that the right of first refusal granted in Section 10.5
shall not apply to such situations.
10.7 The rights and obligations of Sizzler shall inure to the benefit of and
bind Sizzler's heirs, executors, assigns and successors, and the rights and
obligations of Franchisee shall inure to the benefit of and bind
Franchisee's heirs, executors, assigns and successors.
11. FRANCHISE RELATIONSHIP
11.1 Franchisee is an independent contractor. Franchisee is in no way
authorized to make any contract, agreement, warranty, or representation on
behalf of Sizzler, or
19
<PAGE>
to create any obligation, express or implied, on behalf of Sizzler. This
Agreement does not constitute either Party as an agent, legal
representative, joint venturer, partner, employer, employee, or servant of
the other Party for any purpose whatsoever.
11.2 Nothing contained in this Agreement shall be interpreted as a guarantee of
success in the Business. Sizzler does not make any representation or
warranty, express or implied, as to the potential success of the business
venture contemplated by this Agreement. The success of the Business is
speculative and depends, to a large extent, upon the ability of Franchisee
as an independent business operator and the active participation of
Franchisee in the operation of the Business and the Sizzler Restaurant, as
well as other factors.
11.3 Franchisee represents and acknowledges as follows:
a. Franchisee has not received, or relied upon, any representation,
warranty, or guaranty, express or implied, as to the revenues,
profits, or success of the business venture contemplated by this
Agreement, including any oral or written representations that Sizzler
will (1) provide customers or locate customers for Franchisee; (2)
purchase any portion of Franchisee's products or services; (3)
guarantee to Franchisee that Franchisee will derive income in excess
of any price paid for this franchise, or refund any portion of such
payment; or (4) provide any sales program or marketing plan which will
enable Franchisee to derive income in excess of any price paid for
this franchise.
b. Franchisee has received, read and understood this Agreement and
Sizzler's Uniform Franchise Offering Circular. Franchisee has no
knowledge of any representations by Sizzler or its Affiliates that are
contrary to the statements made in Sizzler's Uniform Franchise
Offering Circular or to the terms of this Agreement. Sizzler has fully
and adequately explained the provisions of each of these documents to
Franchisee's satisfaction; and Sizzler has accorded Franchisee ample
time and opportunity to consult with its own advisors about the
potential benefits and risks of entering into this Agreement.
c. Franchisee has received (i) a copy of this Agreement and all Exhibits
to this Agreement, at least five (5) days prior to the date on which
this Agreement was executed and (ii) the disclosure document required
by the Trade Regulation Rule of the Federal Trade Commission entitled
Disclosure Requirements and Prohibitions Concerning Franchising and
Business Opportunity Ventures (the "FTC Rule"), at least ten (10)
business days prior to the date on which this Agreement was executed.
20
<PAGE>
d. Other than the information contained in Sizzler's Uniform Franchise
Offering Circular, no other representation has induced Franchisee to
execute this Agreement, and there are no representations, inducements,
promises, or agreements, oral or otherwise, between the Parties not
embodied in this Agreement, which are of any force or effect with
reference to this Agreement or otherwise.
12. GENERAL PROVISIONS
12.1 Franchisee shall defend and indemnify and hold harmless Sizzler, and
Sizzler's Affiliates, at Franchisee's sole cost and expense, from and
against any and all Claims, arising out of rights and obligations of the
Parties pursuant to this Agreement.
12.2 No failure of Sizzler to exercise any power reserved to it by this
Agreement, or to insist upon strict compliance by Franchisee with any
obligation or condition of this Agreement, and no custom or practice of the
Parties in variance with the terms of this Agreement, shall constitute a
waiver of Sizzler's right to demand exact compliance with any term or
condition of this Agreement. Waiver by Sizzler of any particular default
by Franchisee shall not be binding unless in writing and executed by and
shall not affect or impair Sizzler's right with respect to any subsequent
default of the same or of a different nature.
12.3 Any and all notices required or permitted under this Agreement shall be in
writing and shall be personally delivered, faxed, delivered by overnight
air courier, or mailed by certified mail, return receipt requested, to the
respective Parties at the addresses set forth in Exhibit A, as amended from
time to time by written notice to the other Party. Any notice by certified
mail shall be deemed to have been given three (3) days after the date and
time of mailing. Any notice delivered by overnight air courier shall be
deemed to have been given one (1) day after the date and time of sending.
Any notice personally delivered or sent by fax is deemed given upon
delivery or completion of transmission.
12.4 In the event that either Party to this Agreement is required to employ
legal counsel or to incur other expenses to enforce any obligation of the
other Party under this Agreement, or to defend against any Claims by reason
of the other Party's failure to perform any obligation imposed upon such
other Party by this Agreement, and provided that legal action is filed and
a final order in such action or the settlement of such action establishes
the other Party's default under this Agreement, then that Party shall be
entitled to recover from the other Party the amount of all Professionals'
Fees and all other expenses incurred in enforcing such obligation or in
defending against such Claims, whether incurred prior to, or in preparation
for, or in contemplation of the filing of such action or thereafter.
21
<PAGE>
12.5 Each section, subsection, part, term, and/or provision of this Agreement
shall be considered severable, and if, for any reason, any section,
subsection, part, term, and/or provision of this Agreement is determined
in a final order by a court of competent jurisdiction to be invalid and
contrary to, or in conflict with, any existing or future law or
regulation, then such determination shall not impair the operation of or
affect the remaining sections, subsections, portions, parts, terms,
and/or provisions of this Agreement, and, to the fullest extent possible,
such remainder shall continue to be given full force and effect and to
bind the Parties to this Agreement, and any invalid or illegal sections,
subsections, portions, parts, terms, and/or provisions shall be deemed
not part of this Agreement; provided, however, that if Sizzler determines
that such finding of invalidity or illegality adversely affects the basic
consideration of this Agreement, then Sizzler, at its option, may
terminate this Agreement.
12.6 No amendment, change, or variance from this Agreement shall be binding on
either Party unless executed in writing by both Parties.
12.7 All captions used in this Agreement are intended solely for the
convenience of the Parties, and none shall be deemed to affect the
meaning or construction of any provision of this Agreement. The Preambles
are not incorporated into this Agreement. Pronouns are used without
regard to gender or number. References to numbers of days refer to
calendar days. References to "including" are not exclusive and should be
read as "including, without limitation."
12.8 This Agreement may be executed in multiple counterparts, and each copy so
executed shall be deemed an original.
12.9 This Agreement shall be interpreted and construed under the laws of the
State of California, excluding its conflicts of laws principles, except
to the extent governed by the United States Trademark Act of 1946 (LANHAM
ACT, 15 U.S.C. (S)(S)1051 et seq.).
12.10 Any action commenced for the purpose of interpreting or enforcing any
term or condition of this Agreement shall be commenced in either the
United States District Court for the Central District of California or
the Superior Court of the State of California for the County of Los
Angeles. The Parties submit to and accept the jurisdiction and venue of
these courts and agree to be bound by any judgments and orders rendered
by these courts.
12.11 No right or remedy conferred upon or reserved to Sizzler or Franchisee by
this Agreement is intended to be, nor shall be deemed, exclusive of any
other right or remedy provided in this Agreement or otherwise provided or
permitted by law or equity, but each shall be cumulative of every other
right or remedy.
22
<PAGE>
12.12 Sizzler expressly reserves any and all rights not explicitly granted to
Franchisee by the terms and conditions of this Agreement.
12.13 This Agreement, and any Exhibits attached to this Agreement, shall be
construed together and constitute the entire, full, and complete
agreement between Sizzler and Franchisee concerning the subject matter of
this Agreement, and shall supersede all prior agreements.
IN WITNESS WHEREOF, the Parties, intending to be legally bound, have duly
executed, sealed, and delivered this Agreement effective on the day and year
first above written.
Sizzler USA Franchise, Inc.: Franchisee:_______________________
__________________________________
By: ____________________________ By: ____________________________
Title: _________________________ Title: _________________________
Date: _________________________ Date: __________________________
23
<PAGE>
SIZZLER
FRANCHISE AGREEMENT
SCHEDULE A
Sizzler - Address:
Franchisee - Name:
Business Address:
Premises Address:
Effective Date:
Expiration Date:
Initial Franchise Fee: $30,000.00
Royalty Fee: 3%
Minimum Advertising Expenditure Level: 4% (Sizzler has the option to increase
this level by 1% after 5 years)
National Advertising Fund Fee: 0.50% (Sizzler has the option to increase
this fee by 0.50% after 5 years)
Transfer Fee: $3,000.00
24
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-03-1998
<PERIOD-START> APR-28-1997
<PERIOD-END> FEB-01-1998
<CASH> 26,952
<SECURITIES> 0
<RECEIVABLES> 5,662
<ALLOWANCES> 1,683
<INVENTORY> 4,671
<CURRENT-ASSETS> 36,598
<PP&E> 185,244
<DEPRECIATION> 101,548
<TOTAL-ASSETS> 131,522
<CURRENT-LIABILITIES> 30,943
<BONDS> 39,945
0
0
<COMMON> 289
<OTHER-SE> 41,744
<TOTAL-LIABILITY-AND-EQUITY> 131,522
<SALES> 181,351
<TOTAL-REVENUES> 186,166
<CGS> 68,205
<TOTAL-COSTS> 68,205
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,078
<INCOME-PRETAX> 4,996
<INCOME-TAX> 1,978
<INCOME-CONTINUING> 3,018
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,018
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
