<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
(X) Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required) for the fiscal year ended April 30, 1998 or
( ) Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 No Fee Required) for the transition period from ______
to ______
Commission file number 1-10711
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SIZZLER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4307254
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
6101 West Centinela Avenue, Culver City, California 90230
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (310) 568-0135
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $.01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports 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. [X]YES[_]NO
The aggregate market value of the voting stock held by non-affiliates of the
registrant on June 30, 1998, computed by reference to the closing sale price of
such shares on such date was $67,190,827.
The number of shares outstanding of common stock, $0.01 par value, as of June
30, 1998, was 28,823,249.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [X]
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PART I
ITEM 1. BUSINESS.
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DESCRIPTION OF THE COMPANY.
Sizzler International, Inc. ("Sizzler" or the "Company") was incorporated on
January 18, 1991 in connection with a reorganization of its parent company
Collins Foods International, Inc. ("CFI") undertaken in contemplation of CFI's
merger with PepsiCo, Inc. As part of the reorganization, the Company's common
stock was distributed to stockholders of CFI. In addition, as part of the
transaction, the Company acquired the remaining outstanding shares of common
stock of its 66%-owned subsidiary Sizzler Restaurants International, Inc.
("SRI"), which became the Company's wholly-owned subsidiary.
On June 2, 1996, the Company and four subsidiaries filed for protection from
creditors under Chapter 11 of the federal Bankruptcy Code. The cases involving
the Company and its debtor subsidiaries were jointly administered under Case No.
96-16075AG before the U.S. Bankruptcy Court for the Central District of
California. The debtor subsidiaries consisted of SRI, which owned and operated
the Company's Sizzler restaurants in the U.S., Buffalo Ranch Steakhouses, Inc.
which owned and operated the Company's Buffalo Ranch Steakhouse restaurants, and
Tenly Enterprises, Inc. and Collins Properties, Inc., each of which held certain
U.S. operating and non-operating real properties. The Company's international
division businesses and assets, which were owned and operated by non-debtor
subsidiaries, were not subject to the U.S. Chapter 11 cases.
By September 23, 1997, the Company and its debtor subsidiaries had confirmed and
commenced the effective date of their respective plans of reorganization. The
interests of the stockholders of the Company were not impaired under these plans
of reorganization. In accordance with the plan of reorganization, SRI was
reorganized into the Sizzler USA group of companies, consisting of Sizzler USA,
Inc. ("Sizzler USA") and its subsidiaries.
The number of restaurants in operation by the Company and its franchisees at
April 30, 1998, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
April 30,
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1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Domestic Sizzler Restaurants
Company-operated 66 69 199
Franchised (including Latin America) 199 208 243
International Restaurants
Company-operated Sizzlers 31 39 44
Franchised Sizzlers 52 49 79
Company-operated KFCs 98 96 92
The Italian Oven 0 1 1
Buffalo Ranch Steakhouses 0 0 4
</TABLE>
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INFORMATION BY GEOGRAPHIC AREA AND INDUSTRY SEGMENT.
The Company is engaged in only one industry segment -- restaurant operations.
See Note 8 of "Notes to Consolidated Financial Statements" which are included in
this report for financial information relating to the Company's foreign
operations.
SIZZLER RESTAURANTS.
The Company operates 97 Sizzler restaurants worldwide. Sizzler restaurants
operate in the mid-scale dining market featuring a selection of grilled steak,
chicken and seafood entrees, sandwiches and specialty platters, as well as a
fresh fruit and salad bar in a family dining environment. Sizzler restaurants
follow a semi-service system, whereby guests place their order and pay upon
entering the restaurant and then are seated. This system combines the benefits
of convenience with the experience of a full service restaurant.
The Company also licenses another 251 Sizzler restaurants worldwide. Single-unit
franchise agreements for a Sizzler restaurant generally provide for a franchise
term of 20 years, payment of an initial franchise fee and payment of royalties
equal to a percentage of gross sales. Franchise agreements that relate to
restaurants developed pursuant to multi-unit development agreements and
restaurants owned by multi-unit operators may be subject to more favorable
financial terms. Franchisees are also generally required to contribute a
percentage of their gross sales to national and regional cooperative advertising
funds. Usually, the Company-operated and franchised restaurants operate in the
same manner.
Sizzler restaurants are typically free-standing buildings with an average size
of 5,000 to 6,000 square feet containing seating for 150 to 200 guests. Sizzler
restaurants are open seven days a week mostly for lunch and dinner. During
fiscal 1998, dinner sales accounted for approximately 65 percent of revenues,
and lunch accounted for most of the remainder.
During fiscal year 1998, Sizzler USA closed one restaurant domestically and sold
two restaurants to franchisees. Internationally, eight Company-operated Sizzlers
in Australia and New Zealand were closed.
KENTUCKY FRIED CHICKEN ("KFC").
The Company operates 98 KFC restaurants in Queensland, Australia under franchise
agreements with its franchisor. The term of these agreements vary from 8 to 23
years and require payment of royalties based on a percentage of sales. KFC
restaurants operate in the quick service segment of the market and offer unique
tasting chicken products, sandwiches and various side orders. During 1998 dinner
business accounted for approximately 64% of revenue and lunch accounted for the
remainder.
The KFC restaurants are typically free-standing buildings with floor areas
ranging from 1,875 to 2,500 square feet containing seating for 20 to 66 guests.
Sixty-seven percent of the restaurants offer a drive-through option while 14
percent of the restaurants are located in the food courts of large shopping
malls.
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The KFC restaurants are required to contribute a percentage of revenue to a
National Australian cooperative advertising fund administered by the franchisor
and are also required to contribute to local advertising initiatives.
SUPPLIERS.
The Company has entered into distribution arrangements with a number of
suppliers of food and other products used in its restaurants. From time to time
the Company makes advance purchases of selected commodity items to minimize
fluctuation of costs. Although wholesale commodity prices are subject to change
due to various economic conditions, the Company has in the past been able to
obtain sufficient supplies to carry on its businesses and the Company believes
that it will be able to do so in the future.
TRADEMARKS AND SERVICE MARKS.
The Company owns certain registered trademarks, trade names and service marks
domestically and internationally which are of material importance to the
business conducted by Sizzler. These include the trademarks of SIZZLER(R) and
others. Sizzler licenses the right to use certain trademarks, trade names and
service marks to its franchisees. The Company has licensed the right to use
certain trademarks, trade names and service marks which relate to the operation
of KFC(R) restaurants in Australia pursuant to the franchise agreements with the
franchisor.
RESEARCH AND DEVELOPMENT.
The Company continuously evaluates its menus and restaurant concepts. New
products are developed by the Company's research staff in conjunction with
outside consultants and food suppliers. Before introduction, new menu items are
rigorously tested and evaluated for guest acceptance, quality and profitability.
The Company intends to maintain its ongoing research programs relating to the
development of new food products and evaluation of marketing activities. The
costs associated with such research activities are not material to the Company.
SEASONALITY.
The Company's operations are subject to some seasonal fluctuation with the
summer months being slightly stronger followed by the spring months. The fall
and winter seasons are weaker due to climatic and other conditions which
negatively impact guest dining patterns, although the overall effect of
seasonality is moderated to a limited extent by the fact that the Australian
seasons fall in reverse of the seasons in the United States.
WORKING CAPITAL REQUIREMENTS.
The working capital requirements of the Company generally do not fluctuate
significantly during the year because revenues consist primarily of cash sales
and there is a rapid turnover of inventory. The Company does not carry
significant inventories of beef, poultry, seafood, produce or other food
products. Food products are ordered and delivered two or
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more times per week to individual restaurants. Individual restaurants maintain
supplies adequate to support their needs for two to five days.
COMPETITION.
The restaurant business is highly competitive and is affected by changes in the
public's eating habits and preferences, demographic and sociocultural patterns,
and local and national economic conditions affecting consumer spending habits.
The restaurants operated by the Company compete directly and indirectly with a
large number of national and regional restaurant operations, as well as with
locally owned restaurants and numerous other establishments that offer
moderately priced steak, chicken, salads and other menu items to the public. The
Company relies on innovative concept development, marketing techniques and
promotions and competes in terms of perceived value, the variety and quality of
menu items, service, and price. There are other companies engaged in restaurant
operations and franchising programs similar to the Company's that have
substantially greater financial resources and a higher volume of sales than the
Company.
ENVIRONMENTAL MATTERS.
Federal and state environmental regulations have not to date had a material
effect on the Company, but more stringent and varied requirements of local
government bodies with respect to zoning, land use and environmental factors
sometimes delay construction of new restaurants or remodels of existing
restaurants.
EMPLOYEES.
The Company employed approximately 2,400 persons at April 30, 1998, in the
United States and approximately 4,600 persons in Australia. Labor relations with
employees have traditionally been good. As is true with most restaurant
operations, the majority of the Company's employees work part time.
GOVERNMENT REGULATION.
Each of the Company's restaurants is subject to federal, state and local, as
well as Australian laws and regulations governing health, sanitation,
environmental matters, safety, the sale of alcoholic beverages and regulations
regarding wages, hiring and employment practices. The Company believes it has
all licenses and approvals material to the operation of its business, and that
its operations are in material compliance with applicable laws and regulations.
RISKS ATTENDANT TO FOREIGN OPERATIONS.
The Company operates Sizzler restaurants in Australia and New Zealand, as well
as KFC restaurants in Queensland, Australia. The Company also licenses the right
to operate Sizzler restaurants to others in a number of countries and U.S.
territories. Possible risks attendant to such operations include fluctuations in
currency exchange rates, higher rates of inflation, possible changes in tax
rates and structures, and possible foreign political and economic conditions.
The Company is not able to predict the likelihood of or degree of
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future changes in exchange rates, rates of inflation, tax rates and structures,
or other conditions.
ITEM 2. PROPERTIES.
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Through its subsidiaries, the Company owns or leases the real property on which
its restaurants are operated. A small number of franchised restaurants are also
located on property owned or leased by the Company.
The Company owns in fee a total of 30 operating Sizzler restaurant properties in
the United States, Australia and New Zealand. Sizzler restaurants typically are
free-standing buildings with an average size of 5,000 to 6,000 square feet. The
Company owns in fee 48 KFC properties. The KFC restaurants in Australia are
typically free-standing buildings with floor areas ranging from 1,875 to 2,500
square feet.
Approximately 60 percent of the restaurant locations operated by the Company are
leased. The leases generally are for primary terms of 15 to 20 years, with two
or three renewal options of five years each, and expire on various dates until
the year 2012. The Company has the right to extend many of these leases. The
Company has the option under some of these leases to purchase the facilities at
the end of the lease terms for varying amounts as specified in the respective
lease agreements.
ITEM 3. LEGAL PROCEEDINGS.
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There are various legal proceedings pending to which the Company is a party or
of which its property is the subject that involve ordinary routine litigation
incidental to the business, other than certain bankruptcy claims, which are
adequately reserved. None of these pending legal proceedings is considered
material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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Not Applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT AS OF JUNE 30, 1998
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James A. Collins 71 Chief Executive Officer of the Company since May
29, 1997. Chairman of the Board of the Company and
its predecessor CFI since 1968. Chief Executive
Officer of CFI (1968-1987). Chairman of the Board,
SRI (1982-1991).
Kevin W. Perkins 46 Executive Vice President of the Company and
President and Chief Executive Officer of
International Operations since May 29, 1997.
Director of the Company (1994 to present).
President and Chief Executive Officer of the
Company (1994-1997). President of the Company's
Sizzler Asia/Pacific Division (1988-1994).
Christopher R. Thomas 49 Executive Vice President of the Company since 1991.
President and Chief Executive Officer of Sizzler
USA since 1997. Chief Financial Officer of the
Company and its predecessor CFI (1985-1997).
Ryan S. Tondro 50 Vice President and Chief Financial Officer of the
Company since May 1997. Vice President, Controller
of the Company (1995-1997). Controller of the
Company (February 1995-August 1995). Vice
President, Finance and Controller of Washington
Inventory Service, a division of Huffy Corporation
(1993-1995). Vice President, Controller of Thrifty
Drug Stores (1978-1993).
Michael J. Raedeke 40 Vice President, Taxation and Internal Audit of the
Company since 1995. Director of Tax/Internal Audit
of the Company (1991-1995).
Ted Robinson 46 Vice President, Strategic and Financial Planning of
the Company since May 1997. Director of Financial
Planning of the Company (1987-1997).
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
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The Company's common stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "SZ". As of July 2, 1998, the approximate number of record
holders of the Company's common stock was 2,849. The high and low sales prices
for a share of the Company's common stock as reported on the NYSE, by quarter,
for the past two fiscal years are as follows:
<TABLE>
<CAPTION>
1998 1997
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High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $ 3.125 $ 2.250 $ 3.875 $ 2.625
Second Quarter 4.750 3.000 3.375 2.000
Third Quarter 4.000 2.250 3.625 2.500
Fourth Quarter 4.000 2.250 2.875 2.250
</TABLE>
COMMON STOCK DIVIDENDS
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The Company has not paid dividends since the third quarter of fiscal 1996. The
Company has no current plans to recommence payment of cash dividends. Future
dividends will depend on a number of factors, including earnings, financial
position, capital requirements and other relevant factors.
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ITEM 6. SELECTED FINANCIAL DATA
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The following table sets forth consolidated financial data with respect to the
Company and should be read in conjunction with the Consolidated Financial
Statements, including Notes thereto, which are included elsewhere herein.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED APRIL 30,
(In millions, except per share data) 1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
Systemwide sales $ 557.9 $ 677.9 $ 875.7 $ 937.7 $ 990.6
Revenues 242.3 299.9 436.2 462.2 487.5
Net income (loss) 5.4 0.6 (138.5)(b) 6.7 (94.9)(a)
Basic and diluted earnings
(loss) per share 0.19 0.02 (4.99)(b) 0.24 (3.26)(a)
Total assets 119.5 168.1 178.5 276.7 277.5
Long-term debt 35.5 0.3 (d) 7.0 (c) 17.1 20.9
Liabilities subject to compromise -- 83.9 (d) -- -- --
Total stockholders' investment 43.8 44.4 43.5 177.1 179.9
Dividends paid per share -- -- 0.08 0.16 0.16
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</TABLE>
(a) Includes an after-tax charge of $98.9 million, or $3.40 per share,
primarily related to the closure of under-performing Sizzler restaurants
and the write-off of intangible assets.
(b) Includes an after-tax charge of $108.9 million or $3.92 per share,
primarily related to the costs and asset write downs associated with
restaurant closings and reorganization. In addition to the restructuring
charge, the Company recorded a charge of $12.8 million or $0.46 per share
related to the adoption of SFAS 121, Accounting for the Impairment of Long-
Lived Assets and for Long- Lived Assets to be Disposed of, during fiscal
year 1996.
(c) This total does not include line of credit borrowings totaling $27.0
million which, as a result of acceleration of maturity, are presented as
current liabilities in the consolidated financial statements.
(d) Substantially all prepetition debt has been reclassified as "Liabilities
subject to compromise under reorganization proceedings."
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
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CONSOLIDATED SUMMARY
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On June 2, 1997, the Bankruptcy Court entered an order confirming the Chapter 11
plans of reorganization of the Company, SRI and Collins Properties, Inc.
("CPI"). The plans of reorganization for Tenly Enterprises, Inc. ("Tenly") and
Buffalo Ranch Steakhouses, Inc. ("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 $17 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 $75 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.
In the fourth quarter of fiscal 1996, the Company recorded a restructuring
charge of $108.9 million. The restructuring costs included predominantly
non-cash write offs of assets and related disposition costs associated with the
closure of 130 restaurants in the United States. Overall, the restructuring
charge reflects the efforts to redeploy capital to those core markets which are
expected to yield returns consistent with management's expectations and
objectives, and to eliminate the Company's investment in non-performing assets.
During fiscal 1997, the Company closed 130 U.S. restaurants not meeting
specified financial criteria. As a result of these activities, $105.4 million of
the reserves were utilized. As of April 30, 1998, the reserve balance was $3.5
million. Management continues to review all restaurants and market areas for
compatibility with long term goals.
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In addition to the restructuring charge, the 1996 consolidated financials
statements reflect an additional noncash charge of $12.8 million or $0.46 per
share related to the adoption of SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
The following analysis of financial condition and results of operations excludes
the previously described charges and reserves, unless otherwise specified.
The Company's revenues are generated from four primary sources: Domestic
Company-operated restaurant sales, domestic franchise revenues (including
franchise fees, royalties and rental income), international Company-operated
restaurant sales and international franchised restaurant revenues. 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.
Revenues totaled $242.3 million in fiscal 1998, a decrease of $57.6 million or
19.2 percent from 1997, compared with a decrease of $136.3 million or 31.2
percent in fiscal 1997 from fiscal 1996. The decline in fiscal 1998 is largely
attributable to the closure of nine Company-operated restaurants, the sale of
two Company-operated restaurants to franchisees and a net decrease of six
franchised Sizzler restaurants. During the same time period, the Company added
two KFC restaurants in Australia. Domestic revenues declined in fiscal 1998 by
$25.5 million or 20.8 percent from the prior year primarily due to a net
decrease of three Company-operated and nine franchised restaurants.
Internationally, the Company had a net decrease of eight Sizzler
Company-operated restaurants and a net increase of three franchised Sizzler
restaurants. International operations also added two KFC restaurants during the
fiscal year. The fiscal 1998 changes in international operations resulted in a
$32.1 million or 18.1 percent decrease in revenues.
Earnings before interest and taxes were $11.6 million in fiscal 1998, an
improvement of $12.5 million from a $0.9 million loss in fiscal 1997. This
increase was due to a $9.7 million improvement in domestic operations and a $3.1
million increase in international operations, partially offset by a $0.3 million
increase in corporate and other expenses. Domestic operations benefited from
cost reductions in the remaining restaurants and administrative expenses. The
increase in international earnings was primarily due to cost reductions and
higher check averages, offset by a 10.5 percent decrease in the Australian
dollar exchange rate.
DOMESTIC OPERATIONS
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Excluding franchise revenues, Company-operated restaurants contributed
approximately 38.3 percent of consolidated revenues. Fiscal 1998 revenues
decreased $23.6 million to $92.9 million or 20.3 percent when compared to the
prior year, primarily due to the closure of Company-operated restaurants. On a
comparative restaurant basis, for those restaurants open more than one year,
average sales per Sizzler restaurant fell 0.4 percent, average customers per
restaurant were 5.6 percent lower
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and the average customer check increased 5.5 percent over the prior year.
However, sales are continuing to show an upward trend as the fourth quarter
comparable sales increased by 2.2 percent and the average customer check
increased 8.6 percent from the prior year.
Earnings before interest and taxes improved by $11.3 million to $1.3 million in
fiscal 1998 from a loss of $10.0 million in fiscal 1997. The improvement was
primarily a result of improved labor scheduling, reductions in administrative
support staff and other cost reduction measures achieved during the year in the
restaurants as well as headquarters. As a percentage of revenues, occupancy and
labor costs declined 1.9 percent and 3.0 percent, respectively.
In fiscal 1997, revenues from domestic operations decreased $128.2 million to
$116.5 million when compared to the prior year. This decrease was attributed to
the closure of 130 restaurants and a decline in average sales per restaurant.
Losses before interest and taxes from domestic operations improved by $11.4
million to a loss of $10.0 million in fiscal 1997 compared to a loss of $21.4
million in fiscal 1996.
DOMESTIC FRANCHISE
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In 1998, domestic franchise revenues, including franchise fees, royalties and
rental income accounted for 1.8 percent of consolidated revenues. Revenues
declined $1.9 million or 30.5 percent versus fiscal 1997. Lower revenue is
primarily the result of a net reduction of nine franchised restaurants and the
impact of a temporary royalty abatement program pursuant to the plan of
reorganization. During fiscal 1998, two Company-operated restaurants were sold
to franchisees, eight new restaurants opened and 19 franchised restaurants were
closed for a net reduction of nine franchised restaurants. At April 30, 1998,
there were 199 domestic franchised restaurants in operation including ten
restaurants in Latin America and U.S. territories.
In 1997 domestic franchise revenues accounted for 2.0 percent of consolidated
revenues. Revenues decreased $2.6 million or 30.2 percent versus fiscal 1996.
The lower revenues resulted from the net reduction of 36 franchised restaurants
and a decline of 18.9 percent in average sales per domestic franchised
restaurant. At April 30, 1997, there were 208 domestic franchised restaurants in
operation.
INTERNATIONAL OPERATIONS
- ------------------------
International operations generated approximately 59.9 percent of consolidated
revenues in fiscal 1998. Revenues decreased by 18.1 percent or $32.1 million to
$145.2 million when compared to the prior year, primarily due to lower foreign
currency exchange rates and lower average sales. The closure of eight
Company-operated Sizzler restaurants offset by the addition of two KFC
restaurants also contributed to the decline in revenues. Earnings before
interest and taxes increased $3.1 million to $8.2 million or 62.2 percent during
fiscal 1998 due to improved margins and the implementation of cost cutting
programs. At April 30, 1998, the International operation
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included 83 Company-operated, joint ventured, and franchised Sizzlers and 98 KFC
restaurants.
Excluding franchise revenues, results from the Company-operated Sizzler
restaurants reflect a 32.2 percent decrease in revenues, or $22.5 million, to
$47.3 million from the prior fiscal year. This decrease reflects lower average
restaurant sales, restaurant closings and a decrease in the Australian dollar
exchange rate. On a comparative restaurant basis, sales in Australian dollars,
decreased 13.2 percent, the check average increased 4.7 percent and customer
counts decreased by 17.1 percent. At April 30, 1998, the Company operated 31
Sizzler restaurants versus 39 at the end of fiscal year 1997.
The Company's international franchise revenues decreased $1.7 million or 44.1
percent to $2.1 million in 1998 versus 1997, due primarily to the closure of 39
franchised restaurants at the end of the previous year and the previously
mentioned decline in the exchange rate. At April 30, 1998, there were 49
international franchised restaurants and three joint ventured restaurants in six
countries. During fiscal 1998, five franchised restaurants were opened in Japan,
Thailand and Indonesia and two restaurants were closed in South Korea and
Taiwan.
Revenues from the Company's KFC restaurants decreased $7.7 million to $94.8
million or 7.5 percent when compared to the prior year. This decrease reflects a
decrease in the Australian dollar exchange rate. On a comparative restaurant
basis, in Australian dollars, average restaurant sales and customer counts
decreased 1.3 and 6.7 percent, respectively, The average customer check
increased 5.7 percent, reflecting price increases. At April 30, 1998, the number
of KFC restaurants was 98 versus 96 last year.
In fiscal 1997, the Company's international operations accounted for
approximately 59.1 percent of consolidated revenues. Revenues decreased by 3.0
percent or $5.4 million, to $177.3 million when compared to fiscal 1996. This
reduction in revenues was primarily the result of a net reduction of five
Company-operated Sizzler restaurants offset by the addition of four KFC
restaurants.
In fiscal 1997, Company-operated Sizzlers recorded a 12.5 percent or $9.9
million decline in revenues to $69.8 million from fiscal 1996, primarily
reflecting lower average restaurant sales and restaurant closings offset by the
increase in the Australian dollar exchange rate. On a comparative restaurant
basis, sales in Australian dollars, check average and guest counts decreased by
16.2 percent, 2.0 percent and 14.5 percent, respectively, from levels of the
previous year. At April 30, 1997, the Company operated 39 Sizzler restaurants
versus 44 at April 30, 1996.
International franchise revenues increased $0.5 million or 16.3 percent to $3.8
million in 1997 versus 1996, due primarily to new restaurant openings in the
Asian/Pacific region. At April 30, 1997, there were 46 international franchised
restaurants and three joint ventured restaurants in six countries, versus 77
restaurants and two joint ventured restaurants in seven countries at April 30,
1996.
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Fiscal 1997 revenues of $102.6 million from the Company's KFC restaurants
increased $5.4 million or 5.5 percent when compared to the prior year. On a
comparative restaurant basis, average restaurant sales, in Australian dollars,
decreased 2.0 percent and the average guest check increased 2.8 percent,
however, guest counts decreased 4.7 percent, compared to fiscal 1996. At April
30, 1997, the number of KFC restaurants was 96 versus 92 at April 30, 1996.
Earnings before interest and taxes decreased $6.7 million to $5.0 million or
57.2 percent in fiscal 1997, compared to fiscal 1996.
CONSOLIDATED COSTS AND EXPENSES
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Consolidated costs and expenses, as a percentage of revenues, were 5.4 percent
lower in fiscal 1998. Payroll and related expenses, marketing expense and cost
of sales decreased 1.7 percent, 1.0 percent and 0.6 percent, as a percentage of
revenues, respectively.
Interest expense decreased in 1998 from 1997 by $1.7 million primarily due to
lower bankruptcy claim interest expense, partially offset by new borrowings. In
fiscal 1997, interest expense increased $4.6 million from 1996, due to increased
borrowings prior to bankruptcy filing and estimated accrued interest on
prepetition liabilities.
In fiscal 1997, consolidated costs and expenses, as a percentage of revenues,
were 0.5 percent lower than the previous year, primarily due to decreases in
payroll and related expense, occupancy costs and depreciation and amortization
expense. The lower costs reflect the closure of under-performing restaurants.
The provision for income taxes for fiscal 1998 was $2.2 million compared with a
benefit of $7.3 million in fiscal 1997. The benefit recorded in 1997 related to
the utilization of prior year foreign losses against foreign earnings generated
in fiscal 1997. The remaining prior year foreign losses were utilized against
fiscal 1998 foreign earnings, resulting in an effective tax rate of 29.3%. (See
Note 4 of Notes to Consolidated Financial Statements).
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
WORKING CAPITAL
- ---------------
The Company's primary source of liquidity is cash flows from operations which
was $1.6 million in fiscal 1998 compared to $2.0 million cash used in fiscal
1997. This increase is primarily due to improved U.S. and international
operations, partially offset by the non-payment of pre-bankruptcy liabilities in
fiscal 1997. The current ratio was 1.1 at April 30, 1998 and 1.5 at April 30,
1997. At April 30, 1998, working capital was $2.9 million compared to $15.9
million at the end of the prior year. The decrease in the
14
<PAGE>
current ratio and working capital is primarily due to payment of allowed claims
pursuant to the reorganization plan.
TOTAL ASSETS/CAPITAL EXPENDITURES
- ---------------------------------
Total assets decreased $48.6 million or 28.9 percent in fiscal 1998. Property
and equipment represented 66.3 percent of total assets at the end of fiscal 1998
and 62.4 percent at the end of fiscal 1997. In fiscal 1997, total assets
decreased $10.4 million or 5.9 percent from fiscal 1996 as a result of
restaurant closures.
Capital expenditures were $8.9 million in fiscal 1998, which included new
restaurant construction of $1.7 million and remodels of $7.2 million. The
Company anticipates continuing to grow International operations through
additional investment in Company- operated restaurants, joint ventures and the
development of the franchise system.
The Company anticipates capital expenditures in fiscal 1999 will be
approximately $10.0 million, which will be used for new KFC restaurants and
remodeling existing KFC and Sizzler restaurants.
In fiscal 1997, capital expenditures were $6.4 million, consisting of new
restaurant construction of $1.5 million and remodels of $4.9 million.
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.
INFLATION
- ---------
Increases in interest rates and the costs of labor, food and construction can
significantly affect the Company's operations. Management believes that the
current practices of maintaining adequate operating margins through a
combination of menu price increases and cost controls, careful management of
working capital and
15
<PAGE>
evaluation of property and equipment needs are its most effective tools for
coping with inflation.
OTHER
- -----
The Company is aware of industry concerns regarding the potential impact of
possible further increases in the minimum wage, the increased marketing of
prepared foods by grocery and convenience stores, customer resistance to
increases in menu prices, the growth of home delivery of prepared foods,
increased concerns over the nutritional value of foods and compliance with
existing or proposed health and safety legislation and other similar
contingencies. The Company is unable to predict the possible impact of such
factors on its business. In the past, the Company has been able to address
similar types of changes in the business climate and been able to pass any
associated higher costs along to its customers, because the changes have
generally impacted all restaurant companies.
YEAR 2000
- ---------
In fiscal 1998, the Company began a project to assess and modify its computer
systems as necessary to ensure continued effective operations in the year 2000
("Y2K") and beyond. A majority of the Company's computer systems has been
outsourced to a service provider who has given assurances to the Company that
its computer systems are Y2K compliant. In fiscal 1999, the Company will work
with its key vendors and suppliers to identify the nature and potential impact
of issues presented by the Y2K problem in completing transactions with their
businesses. The estimated cost of the Y2K project is not expected to be
material. The Company expects completion of the Y2K project by May 1999.
16
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPLEMENTARY DATA
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands of dollars, except per share data)
The following tables show comparative quarterly financial results during the
past two fiscal years. The first, second and fourth fiscal quarters normally
include twelve weeks of operations whereas the third fiscal quarter includes
sixteen weeks of operations. Fiscal 1998 was a fifty-three week year, therefore,
the fourth fiscal quarter includes thirteen weeks of operations.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
First Second Third Fourth
Fiscal 1998 Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Restaurants $58,270 $54,770 $68,311 $54,640
Franchise operations 1,316 1,737 1,762 1,527
------- ------- ------- -------
Revenues 59,586 56,507 70,073 56,167
Cost of sales 21,721 20,567 25,917 20,275
Labor and related expenses 15,853 14,945 18,898 14,930
Other operating expenses 11,835 11,847 14,808 10,667
General and administrative costs 4,407 3,801 4,310 4,177
------- ------- ------- -------
Earnings before interest, taxes and depreciation 5,770 5,347 6,140 6,118
Depreciation 2,819 2,931 3,430 2,589
------- ------- ------- -------
Earnings before interest and taxes 2,951 2,416 2,710 3,529
------- ------- ------- -------
Net income $ 1,487 $ 776 $ 755 $ 2,360
======= ======= ======= =======
Basic and diluted earnings per share $ 0.05 $ 0.03 $ 0.03 $ 0.08
=========================================================================================================
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Fiscal 1997 Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Restaurants $ 80,936 $ 65,660 $ 84,930 $ 58,535
Franchise operations 3,500 2,373 3,129 865
-------- -------- -------- --------
Revenues 84,436 68,033 88,059 59,400
Cost of sales 29,866 26,240 32,912 22,312
Labor and related expenses 24,414 19,043 24,344 17,337
Other operating expenses 18,028 13,869 19,629 14,430
General and administrative costs 7,047 5,893 7,577 1,675
-------- -------- -------- --------
Earnings before interest, taxes and depreciation 5,081 2,988 3,597 3,646
Depreciation 3,586 3,224 4,372 5,078
-------- -------- -------- --------
Earnings (loss) before interest and taxes 1,495 (236) (775) (1,432)
-------- -------- -------- --------
Net income (loss) $ 494 $ (622) $ (1,281) $ 1,974
======== ======== ======== ========
Basic and diluted earnings (loss) per share $ 0.02 $ (0.02) $ (0.04) $ 0.07
===============================================================================================================
</TABLE>
17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Sizzler International, Inc.:
We have audited the accompanying consolidated balance sheets of Sizzler
International, Inc. (a Delaware corporation) and subsidiaries as of April 30,
1998 and 1997, and the related consolidated statements of operations,
stockholders' investment and cash flows for each of the three years in the
period ended April 30, 1998. These financial statements and schedules referred
to below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sizzler International, Inc. and
subsidiaries as of April 30, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended April 30,
1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
June 16, 1998
18
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended April 30, 1998 1997 1996
- ---------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Restaurants $235,991 $290,061 $ 424,218
Franchise operations 6,342 9,867 11,976
- ---------------------------------------------- -------- ------- -----------
Total revenues 242,333 299,928 436,194
- ---------------------------------------------- -------- -------- -----------
Costs and Expenses
Cost of sales 88,480 111,330 158,587
Labor and related expenses 64,626 85,138 131,865
Other operating expenses 49,157 65,956 97,870
Depreciation and amortization 11,769 16,260 26,164
Non-recurring items - - 108,883
Impairment of long-lived assets - - 12,838
General and administrative expenses 16,695 22,192 32,232
- ---------------------------------------------- -------- -------- -----------
Total operating costs 230,727 300,876 568,439
- ---------------------------------------------- -------- -------- -----------
Interest expense 5,274 6,981 2,343
Investment income (1,271) (1,178) (991)
- ---------------------------------------------- -------- -------- -----------
Total costs and expenses 234,730 306,679 569,791
- ---------------------------------------------- -------- -------- -----------
Income (loss) before income taxes 7,603 (6,751) (133,597)
Provision (benefit) for income taxes 2,225 (7,316) 4,861
- ---------------------------------------------- -------- -------- -----------
Net income (loss) $ 5,378 $ 565 $(138,458)
============================================== ======== ======== ===========
Basic and diluted earnings (loss) per share $ 0.19 $ 0.02 $ (4.99)
============================================== ======== ======== ===========
Weighted average number of common
shares outstanding 28,879 28,967 27,773
============================================== ======== ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
April 30, 1998 1997
- ----------------------------------------------------- ---------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 21,167 $ 34,085
Receivables, net of reserves of $2,608 2,926 4,398
in 1998 and $3,547 in 1997
Inventories 4,333 5,464
Prepaid expenses and other current assets 1,281 2,323
- ----------------------------------------------------- -------- --------
Total current assets 29,707 46,270
- ----------------------------------------------------- -------- --------
Property and equipment, at cost
Land 22,252 30,583
Buildings and leasehold improvements 83,735 111,910
Equipment 62,942 71,819
Capital leases 2,616 3,147
Construction in progress 4,534 1,650
- ----------------------------------------------------- -------- --------
176,079 219,109
Less - Accumulated depreciation and amortization 96,869 114,234
- ----------------------------------------------------- -------- --------
Total property and equipment, net 79,210 104,875
- ----------------------------------------------------- -------- --------
Long-term notes receivable, net of reserves
of $772 in 1998 and $424 in 1997 1,268 1,619
Deferred income taxes 3,829 4,004
Intangible assets, net of accumulated amortization
of $696 in 1998 and $698 in 1997 2,162 1,430
Other assets, net of accumulated amortization
and reserves of $1 in 1998 and $6 in 1997 3,285 9,912
- ----------------------------------------------------- -------- --------
Total assets $119,461 $168,110
===================================================== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
April 30, 1998 1997
- ---------------------------------------------------- ----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Current portion of long-term debt $ 5,764 $ 94
Accounts payable 7,753 13,634
Other current liabilities 9,562 14,240
Income taxes payable 3,761 2,401
- ---------------------------------------------------- --------- ---------
Total current liabilities 26,840 30,369
- ---------------------------------------------------- --------- ---------
Long-term debt 35,497 329
Other liabilities 13,364 9,111
Liabilities subject to compromise
under reorganization proceedings -- 83,900
Commitments and contingencies -- --
Stockholders' investment
Preferred stock, authorized 1,000,000 shares,
$5 par value; no shares issued -- --
Common stock, authorized 50,000,000 shares at $.01
par value; outstanding 28,840,908 in 1998 and
28,898,003 shares in 1997 288 289
Additional paid-in capital 277,353 276,200
Accumulated deficit (229,583) (234,961)
Foreign currency translation adjustments (4,298) 2,873
- ---------------------------------------------------- --------- ---------
Total stockholders' investment 43,760 44,401
- ---------------------------------------------------- --------- ---------
Total liabilities and stockholders' investment $ 119,461 $ 168,110
==================================================== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (In thousands)
<TABLE>
<CAPTION>
For the Years Ended April 30, 1998 1997 1996
- ------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 5,378 $ 565 $(138,458)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 11,769 16,260 26,165
Deferred income tax provision (benefit) (925) (12,167) 103
Provision for bad debts 651 479 1,390
Non-recurring items and asset write down -- -- 121,721
Other (473) 791 2,450
- ------------------------------------------------------------------------- -------- -------- ---------
16,400 5,928 13,371
Changes in operating assets and liabilities:
Receivables 1,015 704 (243)
Inventories 1,131 1,421 (663)
Prepaid expenses and other current assets 950 (477) (199)
Accounts payable (5,881) 14,339 (1,928)
Accrued liabilities (10,681) (19,740) (6,974)
Income taxes payable 2,353 (1,329) (429)
Changes due to reorganization activities:
Payments of reorganization costs (6,442) (8,826) --
Interest expense accrued 2,773 6,000 --
- ------------------------------------------------------------------------- -------- -------- ---------
Net cash provided by (used in) operating activities 1,618 (1,980) 2,935
- ------------------------------------------------------------------------- -------- -------- ---------
INVESTING ACTIVITIES
Additions to property and equipment (8,931) (6,399) (24,437)
Disposal of property and equipment 28,896 21,370 1,087
Other, net (489) 739 (868)
- ------------------------------------------------------------------------- -------- -------- ---------
Net cash provided by (used in) investing activities 19,476 15,710 (24,218)
- ------------------------------------------------------------------------- -------- -------- ---------
FINANCING ACTIVITIES
Long-term borrowings 46,895 11,461 17,000
Reduction of long-term debt (4,865) (266) (1,911)
Dividends paid to stockholders -- -- (2,222)
Cash surrender value of life insurance -- -- 5,444
Payment of allowed claims pursuant to
the reorganization plan (75,159) -- --
Other, net (883) (56) (32)
- ------------------------------------------------------------------------- -------- -------- ---------
Net cash provided by (used in) financing activities (34,012) 11,139 18,279
- ------------------------------------------------------------------------- -------- -------- ---------
Net increase (decrease) in cash and cash equivalents (12,918) 24,869 (3,004)
- ------------------------------------------------------------------------- -------- -------- ---------
Cash and cash equivalents at beginning of year 34,085 9,216 12,220
- ------------------------------------------------------------------------- -------- -------- ---------
Cash and cash equivalents at end of year $ 21,167 34,085 $ 9,216
========================================================================= ======== ======== =========
Supplemental Cash Flow Disclosures
Cash paid during the year for:
Interest (net of amount capitalized) $ 2,481 1,175 $ 2,185
Income taxes 693 5,989 7,698
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Investment
(In thousands, except share data)
<TABLE>
<CAPTION>
Foreign
Additional Retained Currency
Shares Common Paid-In Earnings Translation
Outstanding Stock Capital (Deficit) Adjustments
- ------------------------------------------------ --------------------------------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1995 27,775,434 $ 278 $ 274,111 $ (94,846) $ (2,473)
Restricted stock repurchased (7,728) (32)
Net loss (138,458)
Dividends paid to stockholders (2,222)
Amortization of restricted stock 142
Cumulative translation adjustments 6,967
- ------------------------------------------------ ---------------------------------------------------------------------
Balance at April 30, 1996 27,767,706 278 274,221 (235,526) 4,494
Restricted stock repurchased (18,381) (1) (56)
Restricted stock canceled (311,958) (3)
Grant of restricted stock 1,457,000 15 651
Stock issued 3,636 10
Net income 565
Amortization of restricted stock 1,374
Cumulative translation adjustments (1,621)
- ------------------------------------------------ ---------------------------------------------------------------------
Balance at April 30, 1997 28,898,003 289 276,200 (234,961) 2,873
Restricted stock repurchased (7,022) (17)
Restricted stock canceled (55,833) (1)
Stock issued 5,760 14
Net income 5,378
Amortization of restricted stock 1,156
Cumulative translation adjustments (7,171)
- ------------------------------------------------ ------------- --------- -----------------------------------------
Balance at April 30, 1998 28,840,908 $ 288 $ 277,353 $ (229,583) $ (4,298)
================================================ ============= ========= =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
INTRODUCTION: As discussed in Note 2, the Company operated as a
debtor-in-possession under the provisions of Chapter 11 of the federal
bankruptcy laws from June 2, 1996 to September 22, 1997, when the reorganization
plans became effective. Consequently, the consolidated statements have been
prepared in accordance with Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code," issued by the American
Institute of Certified Public Accountants in November, 1980.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Sizzler International, Inc., and all majority-owned subsidiaries.
Intercompany accounts and transactions have been eliminated.
Certain financial statements, notes and supplementary data for the prior years
have been reclassified to conform with the 1998 presentation.
ACCOUNTING PERIOD: The Company utilizes a fifty-two, fifty-three week fiscal
year ending on the Sunday nearest to April 30. Fiscal year 1998 was a
fifty-three week year ending on May 3, 1998. For clarity of presentation, the
Company has described all periods presented as if the year ended April 30.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
FRANCHISE OPERATIONS: The Company recognizes initial franchise fees as income
when the franchised restaurant commences operation, at which time the Company
has substantially performed its obligations relating to such fees. Royalties
which are based upon a percentage of sales, are recognized as income on the
accrual basis. On a limited basis, franchisees have also entered into leases of
restaurant properties leased or owned by Sizzler. Royalty revenues, franchise
fees and rent payments from franchisees are included in "Franchise Operations"
in the Consolidated Statements of Operations.
MARKETING COSTS: Marketing costs are reported in the Other Operating Expenses
and include costs of advertising, marketing and promotional programs.
Promotional discounts
24
<PAGE>
are expensed as incurred and other marketing costs are charged to expense
ratably in relation to sales over the year in which incurred.
STOCK-BASED COMPENSATION: The Company uses the intrinsic value-based method of
measuring stock-based compensation cost which measures compensation cost as the
excess, if any, of the quoted market price of Sizzler's capital stock at the
grant date over the amount the employee must pay for the stock. The Company's
policy generally is to grant stock options at fair market value at the date of
grant.
COMMON STOCK AND NET INCOME OR LOSS PER SHARE: During the fiscal year ended
April 30, 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.
CASH AND CASH EQUIVALENTS: At April 30, 1998, cash and cash equivalents consist
primarily of short-term, money market accounts. At April 30, 1997, cash and cash
equivalents consist primarily of interest-bearing time deposits with original
maturities of 90 days or less, which are carried at cost, which approximates
fair value.
INVENTORIES: Inventories are valued at the lower of cost (first-in, first-out
method) or market, and primarily consist of food products.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost, which
includes interest capitalized during construction and costs relating to the
selection of sites for new restaurant locations, except for assets that have
been impaired, for which the carrying amount is reduced to the estimated fair
value.
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset or a
group of assets may not be recoverable. The Company considers a history of
operating losses to be its primary indicator of potential impairment. Assets are
grouped and evaluated for impairment at the lowest level for which there are
identifiable cash flows that are largely independent of the cash flows of other
groups of assets. The Company deems an asset to be impaired if a forecast of
undiscounted future operating cash flows directly related to the asset,
including disposal value, if any, is less than its carrying amount. If an asset
is determined to be impaired, the loss is measured as the amount by which the
carrying amount of the asset exceeds fair value. The Company generally measures
fair value by discounting estimated future cash flows. Considerable management
judgment is necessary to estimate discounted future cash flows. Accordingly,
actual results could vary significantly from such estimates.
25
<PAGE>
DEPRECIATION AND AMORTIZATION: Depreciation and amortization are provided over
the estimated useful lives of the assets using the straight-line method.
Estimated useful lives range from 10 to 30 years for buildings and 2 to 8 years
for equipment. Leasehold improvements are amortized primarily over the remaining
lives of the leases, generally 15 to 20 years.
PROPERTIES HELD FOR SALE OR LEASE: Properties held for sale or lease were
$2,637,000 at April 30, 1998 and $10,234,000 at April 30, 1997, and are included
in Other Assets. These assets represent excess land carried at estimated
realizable values.
INTANGIBLE ASSETS: Intangible assets are amortized on a straight-line basis over
appropriate periods ranging from 12 to 40 years. The Company continually
evaluates the recoverability of these intangible assets by assessing whether the
recorded value of the intangible assets will be recovered through future
expected operating results. The methodology used to assess the recoverability of
intangible and other long lived assets is to determine its expected net
realizable value based upon the historical trend and their expected impact on
future operating cash flows. During the fourth quarter of fiscal 1996, the
Company wrote off approximately $9.8 million of intangibles related to
repurchased Sizzler franchise rights associated with market closures.
OTHER CURRENT LIABILITIES: Other current liabilities include amounts accrued for
compensation and benefits, insurance, advertising, legal fees, rent, taxes and
others.
OTHER LIABILITIES: Other liabilities consist primarily of the Company's
Executive Supplemental Benefit Plan of $9,803,000 and restructuring reserve of
$3,513,000 in 1998 and restructuring reserve of $8,700,000 in 1997.
TRANSLATION OF FOREIGN CURRENCIES: The financial statements of the Company's
foreign operations are translated in accordance with the Statement of Financial
Accounting Standards No. 52. As a result, translation adjustments are included
in stockholders' investment. The functional currency used in the Company's
foreign operations is primarily the Australian dollar.
26
<PAGE>
NOTE 2 - BANKRUPTCY REORGANIZATION
- --------------------------------------------------------------------------------
Bankruptcy Proceedings
- ----------------------
On June 2, 1996, in response to continued domestic operating losses, 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. The
Company and four subsidiaries (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.
The debtor subsidiaries collectively owned and operated substantially all of the
Company's U.S. restaurant businesses and assets. The Company's international
division businesses and assets were owned and operated by separate subsidiaries
and were not subject to the U.S. Chapter 11 cases.
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 $17 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 $75 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.
27
<PAGE>
Reorganization Costs
- --------------------
The Company incurred severance, temporary staff, legal and professional costs
relating to the reorganization of $6,442 and $8,826 in fiscal 1998 and fiscal
1997, respectively. These reorganization costs were accrued in fiscal 1996 and
were therefore charged against established reserves in fiscal 1998 and fiscal
1997.
NOTE 3 - NON-RECURRING ITEMS
- --------------------------------------------------------------------------------
During the fourth quarter of fiscal 1996, the Company recorded a pre-tax
restructuring charge of $108.9 million or $3.92 per share. The restructuring
costs include predominantly non-cash write-offs of assets and related
disposition costs associated with the closure of 130 restaurants in the United
States.
The fiscal 1996 restructuring charge and the remaining balances of accrued
restructuring liabilities as of April 30, 1998 were (in thousands):
<TABLE>
<CAPTION>
Accrued
Total Restructuring
Restructuring Liabilities at
Expenses April 30, 1998
-------------- ----------------
<S> <C> <C>
Market and restaurant closures $ 92,100 $ 3,513
Closure of regional offices and reduction
of corporate headquarters 8,800 -
Guarantee of co-op advertising obligations 3,500 -
Franchise receivable 2,500 -
Severance 2,000 -
--------- -------
Total $ 108,900 $ 3,513
========= =======
</TABLE>
28
<PAGE>
NOTE 4 - INCOME TAXES
- --------------------------------------------------------------------------------
The Company files a consolidated United States income tax return which includes
all domestic subsidiaries in which it owns 80 percent or more of the voting
stock and 80 percent or more of the value of the outstanding stock. Foreign
withholding taxes have not been provided on the unremitted earnings totaling
$7,642,000 of the Company's foreign operations at April 30, 1998. It is the
Company's intention to reinvest such earnings permanently.
The components of the provision (benefit) for income taxes attributable to
income (loss) from operations consists of the following (in thousands):
<TABLE>
<CAPTION>
For the years ended April 30, 1998 1997 1996
- ---------------------------- ----------------------------------------
<S> <C> <C> <C>
Current
Federal $ - $ - $ -
State - - -
Foreign 3,150 4,851 4,758
------------------------------------
3,150 4,851 4,758
------------------------------------
Deferred
Federal - - -
State 450 - -
Foreign (1,375) (12,167) 103
------------------------------------
(925) (12,167) 103
------------------------------------
Total income tax provision (benefit) $ 2,225 $ (7,316) $4,861
------------------------------------
</TABLE>
A reconciliation of the statutory United States Federal income tax rate to the
Company's consolidated effective income tax rate follows:
<TABLE>
<CAPTION>
For the years ended April 30, 1998 1997 1996
- ----------------------------- ---------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of
related Federal income tax benefit 6.1 6.1 6.1
Tax credits, net -- 3.3 0.2
Goodwill write-off and
non-deductible amortization -- (3.3) (0.2)
Valuation allowance (11.8) (149.1) (45.0)
Other -- (0.4) 0.3
-----------------------------------
Effective tax rate 29.3% (108.4)% (3.6)%
===================================
</TABLE>
29
<PAGE>
Pre-tax income (loss) for domestic and foreign operations is as follows (in
thousands):
<TABLE>
<CAPTION>
For the years ended April 30, 1998 1997 1996
- ----------------------------- ------------------------------------
<S> <C> <C> <C>
Domestic $3,527 $(6,137) $(125,442)
Foreign 4,076 (614) (8,155)
----------------------------------
$7,603 $(6,751) $(133,597)
==================================
</TABLE>
The tax effects of temporary differences and carryforwards which give rise to
significant amounts of deferred tax assets and deferred liabilities are as
follows (in thousands):
<TABLE>
<CAPTION>
April 30, 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Deferred income $ 4,493 $ 5,195
Foreign tax credit carryover 10,304 6,006
Minimum tax credit carryover 1,849 1,849
Other credits 2,840 2,860
Operating reserves and accruals 65,601 74,010
-----------------------
Total gross deferred tax assets 85,087 89,920
Less valuation allowance (72,455) (73,990)
-----------------------
Net deferred tax assets 12,632 15,930
-----------------------
Deferred Tax Liabilities:
State income taxes (2,476) (2,933)
Property and equipment (3,969) (8,096)
Capital leases (776) (888)
Other (1,582) (9)
-----------------------
Total gross deferred tax liabilities (8,803) (11,926)
-----------------------
Net deferred tax assets $ 3,829 $ 4,004
=======================
</TABLE>
30
<PAGE>
Note 5 - Debt
- --------------------------------------------------------------------------------
A summary of debt outstanding as of April 30, 1998 and 1997, is as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Unsecured borrowings, at variable interest rates,
due through 2012 $ 2,608 $41,752
Mortgage notes payable, with interest rate of 10.015
percent, secured by land and building with an original
cost of approximately $600 at April 30, 1998 and
$1,707 at April 30, 1997, due through 2039 565 635
Other secured note, with a variable interest rate, due
through 2002 37,035 --
Capital lease obligations 1,053 2,373
- -----------------------------------------------------------------------------
41,261 44,760
Less - current portion 5,764 94
- -----------------------------------------------------------------------------
35,497 44,666
Less - liabilities subject to compromise -- 44,337
- -----------------------------------------------------------------------------
Long-term debt $35,497 $ 329
=============================================================================
</TABLE>
Payment of $5,542 long-term debt, excluding capital lease obligations is due in
fiscal 1999, $5,571 in 2000, $5,575 in 2001, $5,573 in 2002, and $17,947
thereafter.
On September 23, 1997, the Company obtained a $63.5 million AUD (approximately
$46.9 million US) bank facility from Westpac Banking Corporation (included in
`Other secured note' above) 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. The
Company is in compliance with all covenants and restrictions.
Management believes that the aggregate fair value of the Company's long-term
debt approximates the aggregate book value, as substantially all such debt is
comprised of variable-rate obligations.
31
<PAGE>
Note 6 - Stock Options and Restricted Stock
- --------------------------------------------------------------------------------
The Company has an Employee Stock Incentive Plan for certain officers and key
employees, and a stock option plan for non-employee directors. The maximum
number of shares that may be issued under these plans is 1,000,000 and 400,000
shares, respectively. Grants of options to employees and the periods during
which such options can be exercised are at the discretion of the Board of
Directors.
Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for
Stock- Based Compensation, permits stock compensation cost to be measured using
either the intrinsic value-based method per APB-25 or the fair-value method per
SFAS 123. The Company continues to use the intrinsic value-based method
prescribed by APB-25 for financial statement purposes. Had compensation cost for
these plans been determined consistent with SFAS 123, the Company's net income
and earnings per share would have been reduced to the following pro-forma
amounts.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Income (Loss): As Reported $5,378 $ 565 $(138,458)
Pro Forma $4,515 $ 99 $(138,577)
Basic and Diluted Earnings
(Loss) Per Share: As Reported $ 0.19 $0.02 $ (4.99)
Pro Forma $ 0.16 $0.00 $ (4.99)
------ ----- ---------
</TABLE>
Stock Options:
- -------------
The outstanding options become exercisable in varying amounts through 2005. A
summary of stock option transactions follows:
<TABLE>
<CAPTION>
For the years ended April 30,
-----------------------------------------------------
Shares Outstanding 1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at the beginning of the year 109,347 1,471,074 1,111,800
Options granted 164,040 -- 750,603
Options exercised -- -- --
Options canceled (43,864) (1,361,727) (391,329)
- --------------------------------------------------------------------------------------------------
Options outstanding at April 30 229,523 109,347 1,471,074
Options available for grant at April 30 1,235,950 366,305 149,620
- --------------------------------------------------------------------------------------------------
Total reserved shares 1,465,473 475,652 1,620,694
==================================================================================================
Options exercisable at April 30 97,483 73,226 540,101
==================================================================================================
Option prices per share:
Granted $0.281-$3.906 -- $3.875-$6.875
Exercised -- -- --
Canceled $5.625-$12.50 $5.00-$17.125 $5.00-$12.500
==================================================================================================
</TABLE>
32
<PAGE>
Restricted Stock Plan:
- ----------------------
Stock issued under the Company's stock incentive plan is delivered subject to
various conditions relating to corporate performance. Compensation expense
related to these options amounted to approximately $1,156,000 in 1998,
$1,374,000 in 1997 and $142,000 in 1996. A summary of restricted stock
transactions follows:
<TABLE>
<CAPTION>
For the years ended April 30,
----------------------------------------
Shares Outstanding 1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares restricted at beginning of the year 1,016,625 110,498 132,348
Shares granted -- 1,457,000 --
Shares released (434,456) (238,915) (21,850)
Shares canceled (55,833) (311,958) --
- ---------------------------------------------------------------------------------------
Shares restricted at April 30 526,336 1,016,625 110,498
=======================================================================================
</TABLE>
33
<PAGE>
Note 7 - Leases
- --------------------------------------------------------------------------------
The Company is a party to a number of noncancelable lease agreements involving
land, buildings and equipment. The leases are generally for terms of 15 to 20
years which expire on various dates through 2012. The Company has the right to
extend many of these leases. Certain leases require contingent rent, determined
as a percentage of sales, when annual sales exceed specified levels. The Company
is also a lessor and a sublessor of land, buildings and equipment.
The Company is a co-lessee or guarantor on leases of certain franchisees which
are not significant in amount.
Following is a schedule by year of future minimum lease commitments and sublease
rental income under all noncancelable leases (in thousands):
<TABLE>
<CAPTION>
Commitments
------------------------- -----------
Sublease
Capital Operating Rental
Years ended April 30, Leases Leases Income
- -------------------- ------------------------- -----------
<S> <C> <C> <C>
1999 $ 333 $ 9,608 $ 701
2000 291 8,796 699
2001 196 7,899 635
2002 101 7,158 635
2003 101 6,497 574
Thereafter 562 25,658 2,917
------------------------ ----------
Total minimum lease
commitments/receivables 1,584 $65,616 $6,161
======== ==========
Less amount representing interest 531
------
Present value of minimum lease payments 1,053
Less current portion of capital lease obligations 222
------
Long-term capital lease obligations $ 831
======
</TABLE>
Rent expense consists of (in thousands):
<TABLE>
<CAPTION>
----------------------------
Years ended April 30, 1998 1997 1996
- -------------------- ----------------------------
<S> <C> <C> <C>
Minimum rentals $11,594 $11,355 $20,470
Contingent rentals 489 623 764
Less sublease rentals 1,078 2,141 4,230
---------------------------
Net rent expense $11,005 $ 9,837 $17,004
===========================
</TABLE>
34
<PAGE>
Note 8 - Information by Industry Segment and Geographic Area
- --------------------------------------------------------------------------------
The Company is engaged in only one industry segment which is restaurant
operations. Operating profits exclude investment income, interest expense,
income taxes, non-recurring charges, and impairment of long-lived assets.
Identifiable assets are those assets used in the operations of each geographic
area.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues (in thousands):
- ------------------------
United States $ 97,127 40% $122,037 41% $252,872 58%
International 145,206 60 177,891 59 183,322 42
- -------------------------------------------------------------------------------------------
Total $242,333 100% $299,928 100% $436,194 100%
- -------------------------------------------------------------------------------------------
Operating Profits (Losses) (in thousands):
- ------------------------------------------
United States $ 3,422 29% $ (5,646) (596)% $(22,881) (217)%
International 8,184 71 4,698 496 12,357 117
- -------------------------------------------------------------------------------------------
Total $ 11,606 100% $ (948) 100% $(10,524) 100%
- -------------------------------------------------------------------------------------------
Identifiable Assets (in thousands):
- -----------------------------------
United States $ 45,896 38% $ 73,869 44% $ 77,648 43%
International 73,565 62 94,241 56 100,899 57
- -------------------------------------------------------------------------------------------
Total $119,461 100% $168,110 100% $178,547 100%
- -------------------------------------------------------------------------------------------
</TABLE>
Note 9 - Commitments and Contingencies
- --------------------------------------------------------------------------------
At April 30, 1998, there were no material commitments for capital projects.
The Company is a party to certain litigation arising in the ordinary course of
business which, in the opinion of management, should not have a material adverse
effect upon the consolidated financial position of the Company or its results of
operations.
35
<PAGE>
Note 10 - Employee Benefit Plans
- --------------------------------------------------------------------------------
The Company has a contributory employee profit sharing, savings and retirement
plan for all eligible employees. The annual employer contribution is determined
at the discretion of the Company's Board of Directors. The Company did not make
a contribution to the Employee Savings Plan in 1998, 1997 or 1996.
In addition, the Company has an Executive Supplemental Benefit Plan which
provides benefits upon retirement to certain employees. The present value of the
accumulated benefit obligation related to this plan at a six percent discount
rate totaled $9,803,000 at April 30, 1998 and $12,989,000 at April 30, 1997 and
April 30, 1996.
Note 11 - Earnings Per Share
- --------------------------------------------------------------------------------
During fiscal year 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.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED APRIL 30,
---------------------------------------
In thousands, except EPS 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator for both basic and diluted
EPS - Net income (loss) $ 5,378 $ 565 $(138,458)
------- ------- ---------
Denominator:
Denominator for basic EPS - weighted average
shares of common stock outstanding 28,864 28,967 27,773
Effect of dilutive stock options 15 -- (a) -- (a)
------- ------- ---------
Denominator for diluted EPS - adjusted
weighted average shares outstanding 28,879 28,967 27,773
------- ------- ---------
Basic and diluted earnings (loss) per share $ 0.19 $ 0.02 $ (4.99)
------- ------- ---------
</TABLE>
(a) No recognition has been given to common stock equivalents as they are
anti-dilutive.
36
<PAGE>
Note 12 - Valuation Accounts
- --------------------------------------------------------------------------------
The following is a summary of the activity in valuation accounts (in thousands):
<TABLE>
<CAPTION>
Balance at Balance
Beginning at End of
of Period Additions Deductions Period
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Reserve for doubtful accounts
- -----------------------------
Year ended April 30, 1998 $ 3,971 $1,169 $ 1,760 $ 3,380
======= ====== ======= =======
Year ended April 30, 1997 $10,291 $ 828 $ 7,148 $ 3,971
======= ====== ======= =======
Year ended April 30, 1996 $ 8,148 $3,824 $ 1,681 $10,291
======= ====== ======= =======
Reserve for excess properties
- -----------------------------
Year ended April 30, 1998 - - - -
======= ====== ======= =======
Year ended April 30, 1997 - - - -
======= ====== ======= =======
Year ended April 30, 1996 $55,382 - $55,382 -
======= ====== ======= =======
</TABLE>
37
<PAGE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosures.
- ---------------------
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Information required by this item with respect to the Company's directors is set
forth under the caption "Election of Directors" in the Company's Proxy Statement
for its Annual Meeting of the Stockholders. Such information is incorporated
herein by reference.
Information required by this item with respect to the Company's executive
officers is set forth in Part I of this Annual Report under the caption
"Executive Officers of the Registrant as of June 30, 1998".
Item 11. Executive Compensation
- --------------------------------
Information required by this item is set forth under the caption "Executive
Compensation" and "Election of Directors" in the Company's Proxy Statement for
its Annual Meeting of the Stockholders. Such information is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Information required by this item is set forth under the caption "Stock
Ownership of Management" in the Company's Proxy Statement for its Annual Meeting
of the Stockholders. Such information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
Information required by this item is set forth under the caption "Transactions
with Directors and Management" in the Company's Proxy Statement for its Annual
Meeting of the Stockholders. Such information is incorporated herein by
reference.
38
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) List of documents filed as part of the report:
(1) Financial Statements:
Report of Independent Public Accountants
Consolidated Statements of Operations of Sizzler International, Inc.
and Subsidiaries for each of the three years in the period ended April
30, 1998
Consolidated Balance Sheets of Sizzler International, Inc. and
Subsidiaries as of April 30, 1998 and 1997
Consolidated Statements of Stockholders' Investment of Sizzler
International, Inc. and Subsidiaries for each of the three years in
the period ended April 30, 1998.
Consolidated Statements of Cash Flows of Sizzler International, Inc.
and Subsidiaries for each of the three years in the period ended April
30, 1998.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules:
Schedules omitted because the required information is shown in the
consolidated financial statements or in the notes thereto, or the
amounts involved are not significant, or the required matter is not
applicable.
(3) Exhibits:
Number Description
- ------ -----------
2.1 Registrant's Sixth Amended Plan of Reorganization dated August 26,
1997, incorporated by reference to Exhibit 2.1 to the Registrant's
Form 8-K report filed October 8, 1997.
2.2 Sizzler Restaurants International, Inc.'s Second Amended Plan of
Reorganization, incorporated by reference to Exhibit 2.2 to the
Registrant's Form 10-K report for the fiscal year ended April 30,
1997.
2.3 Collins Properties, Inc.'s Plan of Reorganization, incorporated by
reference to Exhibit 2.3 to the Registrant's Form 10-K report for the
fiscal year ended April 30, 1997.
3.1 Certificate of Incorporation of Registrant, incorporated herein by
reference to Exhibit 3.1 to Amendment No. 1 to Registrant's Form S-4
Registration Statement Number 33-38412.
3.2 Bylaws of Registrant, incorporated herein by reference to Exhibit 3.2
to Amendment No. 2 to the Registrant's Form S-4 Registration Number
33-38412.
3.3 Certificate of Amendment of Bylaws of Registrant dated June 19, 1991,
incorporated herein by reference to Exhibit 3.3 to the Registrant's
Form 10-K report for the fiscal year ended April 30, 1995.
39
<PAGE>
4.1 Rights Agreement dated January 22, 1991 between The Bank of New York
and Registrant, incorporated herein by reference to Exhibit 4.1 to
Amendment No. 1 to the Registrant's Form S-4 Registration Statement
Number 33-38412.
4.2 Amendment to Rights Agreement dated March 20, 1996 between The Bank
of New York and the Registrant, incorporated herein by reference to
Exhibit 4.2 to the Registrant's Form 10-K report for the fiscal year
ended April 30, 1996.
4.3 Certificate of Designation of Series A Junior Participating Preferred
Stock of Registrant, incorporated herein by reference to Exhibit 4.2
to Amendment No. 1 to Registrant's Form S-4 Registration Statement
Number 33-38412.
10.1 Employee Savings Plan of Registrant, restated as of January 1, 1992,
incorporated herein by reference to Exhibit 10.2 to the Registrant's
Form 10-K report for the fiscal year ended April 30, 1995.
10.2 Amendment to Employee Savings Plan of Registrant, incorporated by
reference to Exhibit 2.2 to the Registrant's Form 10-K report for the
fiscal year ended April 30, 1997.
10.3 Registrant's Executive Supplemental Retirement Plan (effective May 1,
1985, and including amendments through May 1, 1993), incorporated
herein by reference to Exhibit 10.3 to the Registrant's Form 10-K
report for the fiscal year ended April 30, 1996.
10.4 Employment Agreement dated May 1, 1996 between Registrant and Kevin W.
Perkins, incorporated herein by reference to Exhibit 10.5 to the
Registrant's Form 10-K report for the fiscal year ended April 30,
1996.
10.5 Amendment to Employment Agreement dated September 25, 1996 between the
Registrant and Kevin W. Perkins, incorporated by reference to Exhibit
10.6 to the Registrant's Form 10-K report for the fiscal year ended
April 30, 1997.
10.6 Amendment to Employment Agreement dated January 1, 1997 between the
Registrant and Kevin W. Perkins, incorporated by reference to Exhibit
10.7 to the Registrant's Form 10-K report for the fiscal year ended
April 30, 1997.
10.7 Third Amendment to Employment Agreement dated May 5, 1997 between the
Registrant and Kevin W. Perkins, incorporated by reference to Exhibit
10.8 to the Registrant's Form 10-K report for the fiscal year ended
April 30, 1997.
10.8 Employment Agreement dated May 1, 1996 between Registrant and
Christopher R. Thomas, incorporated herein by reference to Exhibit
10.6 to the Registrant's Form 10-K report for the fiscal year ended
April 30, 1996.
10.9 Employment Agreement dated May 1, 1996 between Registrant and Ryan S.
Tondro, incorporated herein by reference to Exhibit 10.9 to the
Registrant's Form 10-K report for the fiscal year ended April 30,
1996.
10.10 Employment Agreement dated May 1, 1996 between Registrant and Michael
J. Raedeke, incorporated herein by reference to Exhibit 10.11 to the
Registrant's Form 10-K for the fiscal year ended April 30, 1996.
10.11 Consulting Agreement dated December 17, 1996 between Barry Krantz and
Collins Foods International Pty Ltd., incorporated by reference to
Exhibit 10.14 to the Registrant's Form 10-K report for the fiscal year
ended April 30, 1997.
40
<PAGE>
10.12 Paid Leave Plan and Trust and Summary Plan Description of
Registrant, as amended as of June 30, 1994, incorporated herein by
reference to Exhibit 10.5 to the Registrant's Form 10-K report for
the fiscal year ended April 30, 1995.
10.13 1997 Employee Stock Incentive Plan of Registrant, incorporated
herein by reference to Exhibit 99.1 to the Registrant's Form S-8
Registration Statement Number 333-476661 filed March 10, 1998.
10.14 1997 Non-Employee Directors Stock Incentive Plan of Registrant,
incorporated herein by reference to Exhibit 99.1 to Registrant's
Form S-8 Registration Statement No. 333-47659 filed March 10, 1998.
10.15 Form of Franchise Agreement between Sizzler USA Franchise, Inc. and
Franchisee, incorporated by reference to Exhibit 10.26 to the
Registrant's Form 10-Q report for the quarterly period ended
February 1, 1998.
10.16 Development Agreement dated October 4, 1996 between Kentucky Fried
Chicken Pty. Limited and Collins Foods International Pty Ltd.,
incorporated by reference to Exhibit 10.20 to the Registrant's Form
10-K report for the fiscal year ended April 30, 1997.
10.17 Master Franchise Agreement dated October 4, 1996 between Kentucky
Fried Chicken Pty Limited and Collins Foods International Pty Ltd.,
incorporated by reference to Exhibit 10.21 to the Registrant's Form
10-K report for the fiscal year ended April 30, 1997.
10.18 Form of Franchise Agreement between Kentucky Fried Chicken Pty
Limited and Collins Foods International Pty Ltd. relating to KFC
restaurant franchise, incorporated by reference to Exhibit 10.22 to
the Registrant's Form 10-K report for the fiscal year ended April
30, 1997.
10.19 Letter of Offer dated August 18, 1997 among certain subsidiaries of
the Registrant and Westpac Banking Corporation, incorporated by
reference to Exhibit 3.1 to the Registrant's Form 8-K report filed
October 8, 1997.
10.20 A $63,500,000 Bill Acceptance and Discount Facility dated as of
September 19, 1997 among certain subsidiaries of the Registrant and
Westpac Banking Corporation, incorporated by reference to Exhibit
3.2 to the Registrant's Form 8-K report filed October 8, 1997.
10.21 Unlimited Cross Guarantee and Indemnity and Negative Pledge with
Financial Ratio Covenants dated as of September 19, 1997 among
certain subsidiaries of the Registrant and Westpac Banking
Corporation, incorporated by reference to Exhibit 3.3 to the
Registrant's Form 8-K report filed October 8, 1997.
10.22 Subordination Deed dated as of September 24, 1997 among the
Registrant and certain of its subsidiaries and Westpac Banking
Corporation, incorporated by reference to Exhibit 3.4 to the
Registrant's Form 8-K report filed October 8, 1997.
10.23 Stock Pledge dated as of September 24, 1997 between the Registrant
and Westpac Banking Corporation, incorporated by reference to
Exhibit 3.5 to the Registrant's Form 8- K report filed October 8,
1997.
10.24 Form of Fixed and Floating Charge dated as of September 19, 1997
between various subsidiaries of the Registrant and Westpac Banking
Corporation, incorporated by reference to Exhibit 3.6 to the
Registrant's Form 8-K report filed October 8, 1997.
41
<PAGE>
10.25 Corporate headquarters lease agreement between Pacifica Plaza Office
Building and Sizzler USA Real Property, Inc..
21.00 Subsidiaries of Registrant
23.00 Consent of Arthur Andersen LLP
27.00 Financial Data Schedule
(b) Reports on Form 8-K
Registrant has filed no reports on Form 8-K during the last quarter of
its 1998 fiscal year.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant had duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: July 14, 1998 SIZZLER INTERNATIONAL, INC.
By: /s/ James A. Collins
------------------------
James A. Collins
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ James A. Collins Chairman of the Board July 14, 1998
- ------------------------
James A. Collins
/s/ Peter H. Dailey Director July 14, 1998
- ------------------------
Peter H. Dailey
/s/ Barry E. Krantz Director July 14, 1998
- ------------------------
Barry E. Krantz
42
<PAGE>
/s/ Phillip D. Matthews Director July 14, 1998
- -----------------------------
Phillip D. Matthews
/s/H. Wallace Merryman Director July 14, 1998
- -----------------------------
H. Wallace Merryman
/s/ Robert A. Muh Director July 14, 1998
- -----------------------------
Robert A. Muh
/s/ Carol A. Scott, Ph.D. Director July 14, 1998
- -----------------------------
Carol A. Scott, Ph.D.
/s/Charles F. Smith Director July 14, 1998
- -----------------------------
Charles F. Smith
/s/ Ryan S. Tondro Vice President and July 14, 1998
- ----------------------------- Chief Financial Officer
Ryan S. Tondro (principal financial and
accounting officer)
43
<PAGE>
EXHIBIT 10.25
STANDARD OFFICE LEASE - GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions")
1.1 PARTIES: This Lease, dated, for reference purposes only, October 20,
1997, is made by and between Pacifica Plaza Office Building, a California
Limited Partnership, (herein called "Lessor") and Sizzler USA Real Property,
Inc., a Delaware Corporation, doing business under the name of Sizzler
International, Inc., (herein called "Lessee").
1.2 PREMISES: Suite Number(s) 200, 2nd floors, consisting of approximately
35,975 feet, more or less, as defined in paragraph 2 and as shown on Exhibit
"A" hereto (the "Premises").
1.3 BUILDING: Commonly described as being located at 6101 West Centinela
Avenue in the City of Culver City, County of Los Angeles, State of California,
as more particularly described in Exhibit A-1 hereto, and as defined in
paragraph 2.
1.4 USE: General Offices, subject to paragraph 6.
1.5 TERM: Forty-seven and 1/2 (47-1/2) months commencing November 16, 1997
("Commencement Date") and ending October 31, 2001, as defined in paragraph 3.
1.6 BASE RENT: $34,176.25 per month, payable on the 1st day of each month,
per paragraph 4.1. See paragraph 50 of Lease Addendum.
1.7 BASE RENT INCREASE: On January 1, 2000 the monthly Base Rent payable
under paragraph 1.6 above shall be $42,450.50.
1.8 RENT PAID UPON EXECUTION: $153,253.50 for four (4) months rent (October
1998, December 1999, April 2000 and October 2001).
1.9 SECURITY DEPOSIT: None.
1.10 LESSEE'S SHARE OF OPERATING EXPENSE INCREASE: 33.9% as defined in
paragraph 4.2.
2. PREMISES, PARKING AND COMMON AREAS.
2.1. PREMISES: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the "Office
Building Project". Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
the real property referred to in the Basic Lease Provisions, paragraph 1.2, as
the "Premises," including rights to the Common Areas as hereinafter specified.
2.2 VEHICLE PARKING: So long as Lessee is not in default, and subject to the
rules and regulations attached hereto, and as established by Lessor from time to
time, Lessee shall be entitled to rent and use * parking spaces in the Office
Building Project at the monthly rate applicable from time to time for monthly
parking as set by Lessor and/or its licensee. * See paragraph 51 of Lease
Addendum.
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor shall
have the right, without notice, in addition to such other rights and remedies
that it may have, to remove or tow away the vehicle involved or charge the cost
to Lessee, which cost shall be immediately payable upon demand by Lessor.
2.2.2 The monthly parking rate per parking space with be $ * per
month at the commencement of the term of this Lease, and is subject to change
upon five (5) days prior written notice to Lessee. Monthly parking fees shall be
payable one month in advance prior to the first day of each calendar month.
* See paragraph 51 of Lease Addendum.
2.3 COMMON AREAS - DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and of
other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, ramps, driveways, landscaped areas and decorative walls.
2.4 COMMON AREAS - RULES AND REGULATIONS. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Lessor
or such other person(s) as Lessor may appoint shall have the exclusive control
and management of the Common Areas and shall have the right, from time to time,
to modify, amend and enforce said rules and regulations. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees, their agents, employees and invitees of the Office Building
Project.
2.5 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries of
the Office Building Project to be a part of the Common Areas, provided that
such other land and improvements have a reasonable and functional relationship
to the Office Building Project;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs, or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes in, to
or with respect to the Common Areas and Office Building Project as Lessor may,
in the exercise of sound business judgment deem to be appropriate.
3. TERM.
3.1 TERM. The term and Commencement Date of this Lease shall be as specified
in paragraph 1.5 of the Basic Lease Provisions.
3.2 DELAY IN POSSESSION. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of Lessee hereunder or extend the term thereof; but, in such
case, Lessee shall not be obligated to pay rent or perform any other obligation
of Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee, Lessee may, at Lessee's
Initials:
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option, by notice in writing to Lessor within ten (10) days thereafter, cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided, however, that, as to Lessee's obligations, Lessee first
reimburses Lessor for all costs incurred for Non-Standard improvements and, as
to Lessor's obligations, Lessor shall return any money previously deposited by
Lessee (less any offsets due Lessor for Non-Standard Improvements); and provided
further, that if such written notice by Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect.
3.2.1 POSSESSION TENDERED-DEFINED. Possession of the Premises shall be
deemed tendered to Lessee ("Tender of Possession") when (1) the improvements to
be provided by Lessor under this Lease are substantially completed, (2) the
Building utilities are ready for use in the Premises, (3) Lessee has reasonable
access to the Premises, and (4) ten (10) days shall have expired following
advance written notice to Lessee of the occurrence of the matters described in
(1), (2) and (3), above of this paragraph 3.2.1.
3.2.2 DELAYS CAUSED BY LESSEE. There shall be no abatement of rent,
and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be deemed
extended to the extent of any delays caused by acts or omissions of Lessee,
Lessee's agents, employees and contractors.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 UNCERTAIN COMMENCEMENT. In the event commencement of the Lease term is
defined as the completion of the improvements, Lessee and Lessor shall execute
an amendment to this Lease establishing the date of Tender of Possession (as
defined in paragraph 3.2.1) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. RENT.
4.1 BASE RENT. Subject to adjustment as hereinafter provided in paragraph
4.3, and except as may be otherwise expressly provided in this Lease, Lessee
shall pay to Lessor the Base Rent for the Premises set forth in paragraph 1.6 of
the Basic Lease Provisions, without offset or deduction. Lessee shall pay
Lessor upon execution hereof the advance Base Rent described in paragraph 1.8 of
the Basic Lease Provisions. Rent for any period during the term hereof which is
for less than one month shall be prorated based upon the actual number of days
of the calendar month involved. Rent shall be payable in lawful money of the
United States to Lessor at the address stated herein or to such other persons or
at such other places as Lessor may designate in writing.
4.2 OPERATING EXPENSE INCREASE: DELETED
4.3 RENT INCREASE: DELETED
Initials:
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5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder.
If Lessee fails to pay rent or other charges due hereunder, or otherwise
defaults with respect to any provision of this Lease, Lessor may use, apply or
retain all or any portion of said deposit for the payment of any rent or other
charge in default for the payment of any other sum to which Lessor may become
obligated by reason of Lessee's default, or to compensate Lessor for any loss or
damage which Lessor may suffer thereby. If Lessor so uses or applies all or any
portion of said deposit, Lessee shall within ten (10) days after written demand
therefor deposit cash with Lessor in an amount sufficient to restore said
deposit to the full amount then required of Lessee. If the monthly Base Rent
shall, from time to time, increase during the term of this Lease, Lessee shall,
at the time of such increase, deposit with Lessor additional money as a security
deposit so that the total amount of the security deposit held by Lessor shall at
all times bear the same proportion to the then current Base Rent as the initial
security deposit bears to the initial Base Rent set forth in paragraph 1.6 of
the Basic Lease Provisions. Lessor shall not be required to keep said security
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the purpose set
forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state existing
on the date that the Lease term commences, but without regard to alterations or
improvements made by Lessee or the use for which Lessee will occupy the
Premises, does not violate any covenants or restrictions of record, or any
applicable building code, regulation or ordinance in effect on such Lease term
Commencement Date. In the event it is determined that this warranty has been
violated, then it shall be the obligation of the Lessor, after written notice
from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such
violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises.
Lessee shall conduct its business in a lawful manner and shall not use or permit
the use of the Premises or the Common Areas in any manner that will tend to
create waste or a nuisance or shall tend to disturb other occupants of the
Office Building Project.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee in a clean condition on
the Lease Commencement Date (unless Lessee is already in possession) and Lessor
warrants to Lessee that the plumbing, lighting, air conditioning, and heating
system in the Premises shall be in good operating condition. In the event that
it is determined that this warranty has been violated, then it shall be the
obligation of Lessor, after receipt of written notice from Lessee setting forth
with specificity the nature of the violation, to promptly, at Lessor's sole
cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Office Building Project in their condition existing as of
the Lease Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and common areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in paragraph 9.5, there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Premises in good order, condition and repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Notwithstanding Lessor's obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices by Lessee. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, funishings and equipment.
Except as otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall panelling,
ceilings and plumbing on the Premises and in good operating condition.
7.3 ALTERATIONS AND ADDITIONS
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, Utility Installations or repairs in, on or
about the Premises, or the Office Building Project. As used in this paragraph
7.3 the term "Utility Installation" shall mean carpeting, window and wall
coverings, power panels, electrical distribution systems, lighting fixtures, air
conditioning, plumbing, and telephone and telecommunication wiring and
equipment. At the expiration of the term, Lessor may require the removal of any
or all of said alterations, improvements, additions or Utility Installations,
and the restoration of the Premises and the Office Building Project to their
prior condition, at Lessee's expense. Should Lessor permit Lessee to make its
own alterations, improvements, additions or Utility Installations, Lessee shall
use only such contractor as has been expressly approved by Lessor, and Lessor
may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien
and completion bond in an amount equal to one and one-half times the estimated
cost of such improvements, to insure Lessor against any liability for mechanic's
and materialmen's liens and to insure completion to the work. Should Lessee make
any alterations, improvements, additions or Utility Installations without the
prior approval of Lessor, or use a contractor not expressly approved by Lessor,
Lessor may, at any time during the term of this Lease, require that Lessee
remove any part or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the Office Building Project that Lessee shall desire
to make shall be presented to Lessor in written form, with proposed detailed
plans. If Lessor shall give its consent of Lessee's making such alteration,
improvement, addition or Utility Installation, the consent shall be deemed
conditioned upon Lessee acquiring a permit to do so from the applicable
governmental agencies, furnishing a copy thereof to Lessor prior to the
commencement of the work, and compliance by Lessee with all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in the Premises by Lessee, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy
Initials:
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FULL SERVICE-GROSS
PAGE 3 OF 10 PAGES
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any such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's reasonable attorneys' fees and costs in participating in such
action if Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made to the Premises by Lessee, including but not limited to, floor
coverings, panelings, doors, drapes, built-ins, moldings, sound attenuation, and
lighting and telephone or communication systems, conduit, wiring and outlets,
shall be made and done in a good and workmanlike manner and of good and
sufficient quality and materials and shall be the property of Lessor and remain
upon and be surrendered with the Premises at the expiration of the Lease term,
unless Lessor requires their removal pursuant to paragraph 7.3(a). Provided
Lessee is not in default, notwithstanding the provisions of this paragraph
7.3(e), Lessee's personal property and equipment, other than that which is
affixed to the Premises so that it cannot be removed without material damage to
the Premises or the Building, and other than Utility Installations, shall remain
the property of Lessee and may be removed by Lessee subject to the provisions of
paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and specifications
for any alterations, improvements, additions or Utility Installations.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, communication systems, and fire protection and detection systems, so
long as such installations do not unreasonably interfere with Lessee's use of
the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE - LESSEE. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard
form with Broad Form General Liability Endorsement (GLO404), or equivalent, in
an amount of not less than $1,000,000 per occurrence of bodily injury and
property damage combined or in a greater amount as reasonably determined by
Lessor and shall insure Lessee with Lessor as an additional insured against
liability arising out of the use, occupancy or maintenance of the Premises.
Compliance with the above requirement shall not, however, limit the liability of
Lessee hereunder.
8.2 LIABILITY INSURANCE - LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Project in an amount not less than $5,000,000.00 per
occurrence.
8.3 PROPERTY INSURANCE - LESSEE. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 PROPERTY INSURANCE - LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Office Building Project improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent, providing protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, plate glass, and such other perils as
Lessor deems advisable or may be required by a lender having a lien on the
Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in any
such policies carried by Lessor and shall have no right to any proceeds
therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance policies shall be
deemed an Operating Expense. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies carried by Lessor. Lessee shall
pay the entirety of any increase in the property insurance premium for the
Office Building Project over what it was immediately prior to the commencement
of the term of this Lease if the increase is specified by Lessor's insurance
carrier as being caused by the nature of Lessee's occupancy or any act or
omission of Lessee.
8.5 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be cancellable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with renewals thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this Lease
shall be endorsed to so provide.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and
against any and all claims for damage to the person or property of anyone or any
entity arising from Lessee's use of the Office Building Project, or from the
conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims,
costs and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees, or invitees, and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor by
reason of any such matter, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Office Building Project arising from
any cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.
8.9 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this paragraph 8
are adequate to cover Lessee's property or obligations under this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement Cost of
the building.
(c) "Premises Building Total Destruction" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost of
the Building.
(d) "Office Building Project Buildings" shall mean all of the buildings
on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean if
the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or more of the then Replacement
Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused by
an event required to be covered by the insurance described in paragraph 8. The
fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
Initials: _______
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FULL SERVICE - GROSS
PAGE 4 OF 10 PAGES
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9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is an Insured
Loss and which falls into the classification of either Premises Damage or
Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Leasee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is not an
Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense), which
damage prevents Lessee from making any substantial use of the Premises, Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) give written notice to Lessee within thirty (30) days
after the date of the occurrence of such damage of Lessor's intention to cancel
and terminate this Lease as of the date of the occurrence of such damage, in
which event this Lease shall terminate as of the date of the occurrence of such
damage.
9.3 PREMISES BUILDING TOTAL DESTRUCTION; OFFICE BUILDING PROJECT TOTAL
DESTRUCTION. Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, which falls into the classifications of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Lessee's fixtures, equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the last twelve
(12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Damage during the
last twelve (12) months of the term of this Lease. If Lessee duly exercises such
option during said twenty (20) day period, Lessor shall, at Lessor's expense,
repair such damage, but not Lessee's fixtures, equipment or tenant improvements,
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said twenty (20) day
period, then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said twenty (20) day period by giving written notice to Lessee
of Lessor's election to do so within ten (10) days after the expiration of said
twenty (20) day period, notwithstanding any term or provision in the grant of
option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9, and any part of the Premises are
not usable (including loss of use due to loss of access or essential services),
the rent payable hereunder (including Lessee's Share of Operating Expense
Increase) for the period during which such damage, repair or restoration
continues shall be abated, provided (1) the damage was not the result of the
negligence of Lessee, and (2) such abatement shall only be to the extent the
operation and profitability of Lessee's business as operated from the Premises
is adversely affected. Except for said abatement of rent, if any, Lessee shall
have no claim against Lessor for any damage suffered by reason of any such
damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises or
the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repaid within six (6) months after
such occurrence, Lessee may at Lessee's option cancel and terminate this Lease
by giving Lessor written notice of Lessee's election to do so at any time prior
to the commencement or completion, respectively, of such repair or restoration.
In such event this Lease shall terminate as of the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any such
restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as defined
in paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying any
increase in real property tax specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax," or (ii) the nature of which was hereinbefore included within the
definition of "real property tax," of (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or, if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a change
in ownership, as defined by applicable local statutes for property tax purposes,
of the Office Building Project or which is added to a tax or charge herein
before included within the definition of real property tax by reason of such
change of ownership, or (v) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the improvements or property, the taxes for which
are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. UTILITIES.
11.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating, ventilation,
air conditioning, and janitorial service as reasonably required, reasonable
amounts of electricity for normal lighting and office machines, water for
reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
11.2 SERVICES EXCLUSIVE TO LESSEE. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately
metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's
Share or a reasonable proportion to be determined by Lessor of all charges
jointly metered with other premises in the Building.
11.3 HOURS OF SERVICE. Said services and utilities shall be provided during
generally accepted business days and hours or such other days or hours as may
hereafter be set forth. Utilities and services required at other times shall be
subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof.
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11.4 EXCESS USAGE BY LESSEE. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.
11.5 INTERRUPTIONS. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by operation
of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all
or any part of Lessee's interest in the Lease or in the Premises, without
Lessor's prior written consent, which Lessor shall not unreasonably withhold.
Lessor shall respond to Lessee's request for consent hereunder in a timely
manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall include
the transfer or transfers aggregating: (a) if Lessee is a corporation, more than
twenty-five percent (25%) of the voting stock of such corporation, or (b) if
Lessee is a partnership, more than twenty-five percent (25%) of the profit and
loss participation in such partnership.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate";
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease and (b) Lessor shall
be given written notice of such assignment and assumption. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, no assignment or subletting shall
release Lessee of Lessee's obligations hereunder or alter the primary liability
of Lessee to pay the rent and other sums due Lessor hereunder including Lessee's
Share of Operating Expense Increase, and to perform all other obligations to be
performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such assignment
or subletting, nor the acceptance of rent, shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for the breach of any of the terms or
conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed by
third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent
and such action shall not relieve such persons from liability under this Lease
or said sublease; however, such persons shall not be responsible to the extent
any such amendment or modification enlarges or increases the obligations of the
Lessee or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied upon
by Lessor in giving its consent to an assignment or subletting was materially
false shall, at Lessor's election, render Lessor's said consent null and void.
12.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless
of Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly incorporated
therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublessee as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublease shall, by reason of entering into a
sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed
and agreed to conform and comply with each and every obligation herein to be
performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation to
do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 LESSOR'S EXPENSES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
12.6 CONDITIONS TO CONSENT. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation of
the Premises shall include the failure to occupy the Premises for a continuous
period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or
subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
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(d) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b) and (c), above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's
noncompliance is such that more than thirty (30) days are reasonably required
for its cure, then Lessee shall not be deemed to be in default if Lessee
commenced such cure within said thirty (30) day period and thereafter diligently
pursues such cure to completion. To the extent permitted by law, such thirty
(30) day notice shall constitute the sole and exclusive notice required to be
given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. (S)101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty
(60) days; (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, or its successor in interest or by any guarantor of Lessee's
obligation hereunder, was materially false.
13.2 REMEDIES. In the event of any material default or breach of this Lease
by Lessee, Lessor may at any time thereafter, with or without notice or demand
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time such award exceeds the amount of such
rental loss for the same period that lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
pursues the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operation Expense Increase or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly, if any installment
of Base Rent, Operating Expense Increase, or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof or the Office Building
Project are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs; provided that if so
much of the Premises or the Office Building Project are taken by such
condemnation as would substantially and adversely affect the operation and
profitability of Lessee's business conducted from the Premises, Lessee shall
have the option, to be exercised only in writing within thirty (30) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within thirty (30) days after the condemning authority shall
have taken possession), to terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent and Lessee's
Share of Operating Expense Increase shall be reduced in the proportion that the
floor area of the Premises taken bears to the total floor area of the Premises.
Common Areas taken shall be excluded from the Common Areas usable by Lessee and
no reduction of rent shall occur with respect thereto or by reason thereof.
Lessor shall have the option in its sole discretion to terminate this Lease as
of the taking of possession by the condemning authority, by giving written
notice to Lessee of such election within thirty(30) days after receipt of notice
of a taking by condemnation of any part of the Premises or the Office Building
Project. Any award for the taking of all or any part of the Premises or the
Office Building Project under the power of eminent domain or any payment made
under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of or
damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by the Lessee. For that purpose the
cost of such improvements shall be amortized over the original term of this
Lease excluding any options. In the event that this Lease is not terminated by
reason of such condemnation, Lessor shall to the extent of severance damages
received by Lessor in connection with such condemnation, repair any damage to
the Premises caused by such condemnation except to the extent that Lessee has
been reimbursed therefor by the condemning authority. Lessee shall pay any
amount in excess of such severance damages required to complete such repair.
15. BROKER'S FEE.
(a) The brokers involved in this transaction are Pacifica Holding Company
------------------------
as "listing broker" and none as "cooperating broker," licensed real estate
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broker(s). A "cooperating broker" is defined as any broker other than the
listing broker entitled to a share of any commission arising under this Lease.
Upon execution of this Lease by both parties, Lessor shall pay to said brokers
jointly, or in such separate shares as they may mutually designate in writing, a
fee as set forth in a separate agreement between Lessor and said broker(s), or
in the event there is no separate agreement between Lessor and said broker(s),
the sum of $ none, for brokerage services rendered by said broker(s) to Lessor
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in this transaction.
(b) Lessor further agrees that (i) if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or (ii) if Lessee acquires any rights
to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (iii) if Lessee remains in possession of
the Premises after the expiration of the term of this Lease after having failed
to exercise an Option, or (iv) if said broker(s) are the procuring cause of any
other lease or sale entered into between the parties pertaining to the Premises
and/or any adjacent property in which Lessor has an interest, or (v) if the Base
Rent is increased, whether by agreement or operation of an escalation clause
contained herein, then as to any of said transactions or rent increases, Lessor
shall pay said broker(s) a fee in accordance with the schedule of said broker(s)
in effect at the time of execution of this Lease. Said fee shall be paid at the
time such increased rental is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also on
behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this paragraph 15. Each listing and cooperating broker
shall be a third party beneficiary of the provisions for this paragraph 15 to
the extent of their interest in any commission arising under this Lease and may
enforce that right directly against Lessor; provided, however, that all brokers
having a right to any part of such total commission shall be a necessary party
to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that neither
has had any dealings with any person, firm broker or finder (other that the
person(s), if any, whose names are set forth in paragraph 15(a), above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorneys' fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less than
ten (10) days' prior written notice from the other party ("requesting party")
execute, acknowledge and deliver to the requesting party a statement in writing
(i) certifying that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date
Initials: ___________
___________
(C) 1984 American Industrial Real Estate Association
FULL SERVICE - GROSS
PAGE 7 OF 10 PAGES
<PAGE>
to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such statement
within such time shall be a material default of this Lease by the party who is
to respond, without any further notice to such party, or it shall be conclusive
upon such party that (i) this Lease is in full force and effect, without
modification except as may be represented by the requesting party, (ii) there
are no uncured defaults in the requesting party's performance, and (iii) if
Lessor is the requesting party, not more than one month's rent has been paid in
advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor's such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such title
or interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense Increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No
prior or contemporaneous agreement or understanding pertaining to any such
matter shall be effective. This Lease may be modified in writing only, signed by
the parties in interest at the time of the modification. Except as otherwise
stated in this Lease, Lessee hereby acknowledges that neither the real estate
broker listed in paragraph 15 hereof nor any cooperating broker on this
transaction nor the Lessor or any employee or agents of any of said persons has
made any oral or written warranties or representations to Lessee relative to the
condition or use by Lessee of the Premises or the Office Building Project and
Lessee acknowledges that Lessee assumes all responsibility regarding the
Occupational Safety Health Act, the legal use and adaptability of the Premises
and the compliance thereof with all applicable laws and regulations in effect
during the term of this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to Lessee
or to Lessor at the address noted below or adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required, or forty-eight hours following
deposit in the mail, postage prepaid, whichever first occurs. Either party may
by notice to the other specify a different address for notice purposes except
that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent so
accepted, regardless of Lessor's knowledge of such preceding breach at the time
of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be two hundred percent (200%) of the rent payable immediately preceding
the termination date of this Lease, and all Options, if any, granted under the
terms of this Lease shall be deemed terminated and be of no further effect
during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee hall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
30. SUBORDINATION.
(a) This Lease, and any Option or right of first refusal granted hereby, at
Lessor's option, shall be subordinate to any ground lease, mortgage, deed of
trust, or any other hypothecation or security now or hereafter placed upon the
Office Building Project and to any and all advances made on the security thereof
and to all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Lessee's right to quiet possession
of the Premises shall not be disturbed if Lessee is not in default and so long
as Lessee shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms. If
any mortgage, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. ATTORNEY'S FEES.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the same
or a separate suit, and whether or not such action is pursued to decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notice of default
and consultations in connection therewith, whether or not a legal transaction is
subsequently commenced in connection with such default.
32. LESSOR'S ACCESS.
32.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purpose of inspecting the same, performing any
services required of Lessor, showing the same to prospective purchasers, lenders
or lessees, taking such safety measures, erecting such scaffolding or other
necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
Initials
----------
----------
(C) 1984 American Industrial Real Estate Association
FULL SERVICE-GROSS
PAGE 8 OF 10 PAGES
<PAGE>
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forceable or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
therewith.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in
violation of this paragraph shall constitute a material default of this Lease.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. CONSENTS. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance alleged in
said notice of default is cured, or (ii) during the period of time commencing on
the day after a monetary obligation to Lessor is due from Lessee and unpaid
(without any necessity for notice thereof to Lessee) and continuing until the
obligation is paid, or (iii) in the event that Lessor has given to Lessee three
or more notices of default under paragraph 13.1(c), or paragraph 13.1(d),
whether or not the defaults are cured, during the 12 month period of time
immediately prior to the time that Lessee attempts to exercise the subject
Option, (iv) if Lessee has committed any non-curable breach, including without
limitation those described in paragraph 13.1(b), or is otherwise in default of
any of the terms, covenants or conditions of this Lease.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(d) within thirty (30)
days after the date that Lessor give notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessor gives to Lessee three or more notices of default under paragraph
13.1(c), or paragraph 13.1(d), whether or not the defaults are cured, or (iv) if
Lessee has committed any non-curable breach, including without limitation those
described in paragraph 13.1(b), or is otherwise in default of any of the terms,
covenants and conditions of this Lease.
40. SECURITY MEASURES -- LESSOR'S RESERVATIONS.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole
option, from providing security protection for the Office Building Project or
any part thereof, in which event the cost thereof shall be included within the
definition of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than 90 days
prior written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business
as long as such exclusive does not conflict with any rights expressly given
herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Office Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building
or the Office Building Project or their name(s) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the roof
of the Building.
41. EASEMENTS.
41.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of Parcel Maps and restriction, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sigh any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
Initials:
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(C) 1984 American Industrial Real Estate Association -------
FULL SERVICE -- GROSS
PAGE 9 OF 10 PAGES
<PAGE>
43. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
45. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. LENDER MODIFICATION. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. MULTIPLE PARTIES. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
48. WORK LETTER. This Lease is supplemented by that certain Work Letter of even
date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. ATTACHMENTS. Attached hereto are the following documents which constitute
a part of this Lease:
Lease Addendum including paragraphs 50 - 53
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION
OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS
OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO;
THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE.
LESSOR LESSEE
Pacifica Plaza Office Building Sizzler USA Real Property, Inc.
- ----------------------------------- -------------------------------------
By /s/ Robert Leonard By
--------------------------------- -----------------------------------
Robert Leonard Christopher R. Thomas
Its General Partner Its President
------------------------- ---------------------------
By By /s/ Michael B. Green
--------------------------------- -----------------------------------
Michael B. Green
Its Its Secretary
------------------------- ----------------------------
Executed at Executed at Los Angeles CA
------------------------ --------------------------
on November 13, 1997 on November 12, 1997
--------------------------------- -----------------------------------
Address Address 12655 W. Jefferson Bl, L.A.CA
---------------------------- -----------------------------
(C) 1984 American Industrial Real Estate Association FULL SERVICE-GROSS
PAGE 10 OF 10 PAGES
For these forms write or call the American Industrial Real Estate Association,
700 South Flower Street, Suite 600, Los Angeles CA 90017. (213) 687-8777.
(C) 1984 - By American Industrial Real Estate Association. All rights reserved.
No part of these words may be reproduced in any form without permission in
writing.
<PAGE>
STANDARD OFFICE LEASE
FLOOR PLAN
[SECOND FLOOR AREA CALCS]
EXHIBIT A
<PAGE>
SITE PLAN
EXHIBIT "A-1"
<PAGE>
LEASE ADDENDUM
This Lease Addendum is to the Lease dated October 20, 1997 by and between
Pacifica Plaza Office Building ("Lessor") and Sizzler USA Real Property, Inc.,
("Lessee") for office space located at 6101 West Centinela Avenue, Culver City,
California.
50. The Base Rent is predicated upon terms of a sublease negotiated between
Lessee and Digital Equipment Corporation ("DEC"), a tenant in the Building.
In lieu of a sublease between Lessee and DEC, Lessor and DEC have agreed to
reduce DEC's leased Premises by 35,975 square feet (the entire second
floor) and DEC will pay to Lessor the difference between DEC's scheduled
rent (plus utilities) and Lessee's rent through the Term of the Lease as
per the Rent Reduction Analysis attached hereto as Exhibit A-3.
The Base Rent shall be as per the following schedule:
<TABLE>
<CAPTION>
Period Base Monthly Rent
------ -----------------
<S> <C>
November 1997 - January 1998 Rent Abated
February 1998 $17,088.12
March 1998 - March 1999 $34,176.25
April 1999 - May 1999 $17,088.12
June 1999 - December 1999 $34,176.25
January 2000 $38,313.38
February 2000 - October 2001 $42,450.50
</TABLE>
Note: The Base Rent for the four (4) months of October 1998, December 1999,
April 2000 and October 2001 has been prepaid upon execution of this
Lease. Due to the mid-month Commencement Date of November 16, 1997,
the 18th month abated rent shall be adjusted to one-half (1/2) rent
for the two (2) months of April and May, 1999.
51. Lessee shall have seventy-two (72) assigned parking spaces in the garage,
and one hundred and eight (108) parking spaces in common in the surface
lot. Visitor parking shall be in common with the other tenants in the
Building. Parking charges shall be abated during the initial Term of the
Lease.
52. Lessee shall have the right, at its sole cost and expense, including the
maintenance and repair thereof, to construct and/or install one (1)
monument sign by using the existing concrete base adjacent to the entry on
Centinela Avenue, or replacing this sign with a new monument sign at a
different location as agreed by Lessor and Lessee.
53. This Lease has been prepared by Pacifica Holding Company, a California
Corporation, at the request of the Lessor and Lessee, who are herein
referred to as "the Parties" without regard to number or gender. The
Parties have been advised to have this document reviewed by their own
independent council, and confirm that in signing this document, they have
not relied on acts or conduct of Pacifica Holding Company, and its agents
with regard to interpretation or meaning of this document. The parties
jointly and severally waive any and all claims, actions, demands, and loss
against Pacifica Holding Company, its agents, employees, and each of them,
that a Party may incur by reason of any act, error, or omission in the
preparation of this document and in its interpretation and meaning, whether
or not the interpretation and meaning is the result of determination by a
court or arbitration panel of competent jurisdiction. The preceding waiver
provisions have been negotiated by and between the Parties on the one part,
and Pacifica Holding Company on the other part.
LESSOR LESSEE
Pacifica Plaza Office Building: Sizzler USA Real Property, Inc.:
By /s/ Robert Leonard By /s/ Christopher R. Thomas
-------------------------------- --------------------------------
Robert Leonard Christopher R. Thomas
Its General Partner Its President
------------------------- ---------------------------
Date 11/13/97 Date November 12, 1997
------------------------------ -----------------------------
<PAGE>
DEC CULVER CITY RENT REDUCTION ANALYSIS
[LOGO OF STUDLEY]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CALENDAR MONTH MASTER LEASE NEGOTIATED REMAINING
RENT REDUCTION RENT
START 11/1/97 START 11/16/97
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Nov-97 $96,673.50 $0.00 $96,673.50
Dec-97 $96,673.50 $0.00 $96,673.50
Jan-98 $96,673.50 $0.00 $96,673.50
Feb-98 $96,673.50 ($17,088.12) $79,585.38
Mar-98 $96,673.50 ($34,176.25) $62,497.25
Apr-98 $96,673.50 ($34,176.25) $62,497.25
May-98 $96,673.50 ($34,176.25) $62,497.25
Jun-98 $96,673.50 ($34,176.25) $62,497.25
Jul-98 $96,673.50 ($34,176.25) $62,497.25
Aug-98 $96,673.50 ($34,176.25) $62,497.25
Sep-98 $96,673.50 ($34,176.25) $62,497.25
Oct-98 $96,673.50 ($34,176.25) $62,497.25
Nov-98 $100,304.33 ($34,176.25) $66,128.08
Dec-98 $100,304.33 ($34,176.25) $66,128.08
Jan-99 $100,304.33 ($34,176.25) $66,128.08
Feb-99 $100,304.33 ($34,176.25) $66,128.08
Mar-99 $100,304.33 ($34,176.25) $66,128.08
Apr-99 $100,304.33 ($17,088.12) $83,216.21
May-99 $100,304.33 ($17,088.12) $83,216.21
Jun-99 $100,304.33 ($34,176.25) $66,128.08
Jul-99 $100,304.33 ($34,176.25) $66,128.08
Aug-99 $100,304.33 ($34,176.25) $66,128.08
Sep-99 $100,304.33 ($34,176.25) $66,128.08
Oct-99 $100,304.33 ($34,176.25) $66,128.08
Nov-99 $104,064.35 ($34,176.25) $69,888.10
Dec-99 $104,064.35 ($34,176.25) $69,888.10
Jan-00 $104,064.35 ($38,313.38) $65,750.97
Feb-00 $104,064.35 ($42,450.50) $61,613.85
Mar-00 $104,064.35 ($42,450.50) $61,613.85
Apr-00 $104,064.35 ($42,450.50) $61,613.85
May-00 $104,064.35 ($42,450.50) $61,613.85
Jun-00 $104,064.35 ($42,450.50) $61,613.85
Jul-00 $104,064.35 ($42,450.50) $61,613.85
Aug-00 $104,064.35 ($42,450.50) $61,613.85
Sep-00 $104,064.35 ($42,450.50) $61,613.85
Oct-00 $104,064.35 ($42,450.50) $61,613.85
Nov-00 $107,966.93 ($42,450.50) $65,516.43
Dec-00 $107,966.93 ($42,450.50) $65,516.43
Jan-01 $107,966.93 ($42,450.50) $65,516.43
Feb-01 $107,966.93 ($42,450.50) $65,516.43
Mar-01 $107,966.93 ($42,450.50) $65,516.43
Apr-01 $107,966.93 ($42,450.50) $65,516.43
May-01 $107,966.93 ($42,450.50) $65,516.43
Jun-01 $107,966.93 ($42,450.50) $65,516.43
Jul-01 $107,966.93 ($42,450.50) $65,516.43
Aug-01 $107,966.93 ($42,450.50) $65,516.43
Sep-01 $107,966.93 ($42,450.50) $65,516.43
Oct-01 $107,966.93 ($42,450.50) $65,516.43
- --------------------------------------------------------------------------------
TOTAL $4,908,109.32 ($1,664,563.24) $3,243,546.08
- --------------------------------------------------------------------------------
</TABLE>
EXHIBIT "A-2"
<PAGE>
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
Dated: October 20, 1997
----------------------------
By and Between Pacifica Plaza Office Building and Sizzler USA Real Property,
----------------------------------------------------------------
Inc., a Delaware Corp
---------------------
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of the Office
Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or interfere
with other lessees or persons having business within the Office Building
Project.
4. Lessee shall not keep animals or birds within the Office Building Project,
and shall not bring bicycles, motorcycles or other vehicles into areas not
designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet rooms,
plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
premises or Office Building Project.
9. Lessee shall not suffer or permit any thing in or around the Premises or
Building that causes excessive vibration or floor loading in any part of the
Office Building Project.
10. Furniture, significant freight and equipment shall be move into or out of
the building only with the Lessor's knowledge and consent, and subject to such
reasonable limitations, techniques and timing, as may be designated by Lessor.
Lessee shall be responsible for any damage to the Office Building Project
arising from any such activity.
11. Lessee shall not employ any service or contractor for services or work to be
performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of
_______P.M. and _____ A.M. of the following day. If Lessee uses the Premises
during such periods, Lessee shall be responsible for securely locking any doors
it may have opened for entry.
13. Lessee shall return all keys at the termination of its tenancy and shall be
responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used by Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted cigars or
cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other than
as provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines upon the
Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing, cooking or food
preparation.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
21. Lessor reserves the right to waive any one of these rules or regulations,
and/or as to any particular Lessee, and any such waiver shall not constitute a
waiver of any other rule or regulation or any subsequent application thereof to
such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than full
size, passenger automobiles herein called "Permitted Size Vehicles." Vehicles
other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles."
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of Lessor
and be returned to Lessor by the holder thereof upon termination of the holder's
parking privileges. Lessee will pay such replacement charge as is reasonably
established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces from
floor to floor, within one floor, and/or to reasonably adjacent offsite
location(s), and to reasonably allocate them between compact and standard size
spaces, as long as the same complies with applicable laws, ordinances and
regulations.
6. Users of the parking area will obey all posted signs and park only in the
areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is required
to park and lock his own vehicle. Lessor will not be responsible for any damage
to vehicles, injury to persons or loss of property, all of which risks are
assumed by the party using the parking area.
8. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees, agents and
invitees comply with the applicable parking rules, regulations, laws and
agreements.
11. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and non-discriminatory rules and regulations as it may deem necessary
for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a license only
and no bailment is intended or shall be created hereby.
Initials:__________
__________
(C) 1984 American Industrial Real Estate Association
FULL SERVICE-GROSS
EXHIBIT B
PAGE 1 OF 1 PAGES
<PAGE>
GUARANTY OF LEASE [LOGO OF AIR]
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
WHEREAS, Pacifica Plaza Office Building, a California Limited Partnership,
----------------------------------------------------------------
hereinafter referred to as "Lessor," and Sizzler USA Real Property, Inc., a
----------------------------------
Delaware Corporation, hereinafter referred to as "Lessee," are about to execute
- --------------------
a document entitled "Lease" dated October 20, 1997 concerning the premises
----------------
commonly known as Suite 200, 6101 W. Centinela Ave., Culver City, CA 90230
--------------------------------------------------------
wherein Lessor will lease the premises to Lessee, and
WHEREAS, Sizzler International, Inc. hereinafter referred to as
---------------------------
"Guarantors" have a financial interest in Lessee, and
WHEREAS, Lessor would not execute the Lease if Guarantors did not execute
and deliver to Lessor this Guarantee of Lease.
NOW THEREFORE, for and in consideration of the execution of the foregoing
Lease by Lessor and as a material inducement to Lessor execute said Lease.
Guarantors hereby jointly, severally, unconditionally and irrevocably guarantee
the prompt payment by Lessee of all rentals and all other sums payable by Lessee
under said Lease and the faithful and prompt performance by Lessee of each and
every one of the terms, conditions and covenants of said Lease to be kept and
performed by Lessee.
It is specifically agreed and understood that the terms of the foregoing
Lease may be altered, affected, modified or changed by agreement between Lessor
and Lessee, or by a course of conduct, and said Lease may be assigned by Lessor
or any assignee of Lessor without consent or notice to Guarantors and that this
Guaranty shall thereupon and thereafter guarantee the performance of said Lease
as so changed, modified, altered or assigned.
This Guaranty shall not be released, modified or affected by failure or
delay on the part of Lessor to enforce any of the rights or remedies of the
Lessor under said Lease, whether pursuant to the terms thereof or at law or in
equity.
No notice of default need be given to Guarantors, it being specifically
agreed and understood that the guarantee of the undersigned is a continuing
guarantee under which Lessor may proceed forthwith and immediately against
Lessee or against Guarantors following any breach or default by Lessee or for
the enforcement of any rights which Lessor may have as against Lessee pursuant
to or under the terms of the within Lease or at law or in equity.
Lessor shall have the right to proceed against Guarantors hereunder
following any breach or default by Lessee without first proceeding against
Lessee and without previous notice to or demand upon either Lessee or
Guarantors.
Guarantors hereby waive (a) notice of acceptance of this Guaranty, (b)
demand of payment, presentation and protest, (c) all right to assert or plead
any statute of limitations as to or relating to this Guaranty and the Lease, (d)
any right to require the Lessor to proceed against the Lessee or any other
Guarantor or any other person or entity liable to Lessor, (e) any right to
require Lessor to apply to any default any security deposit or other security it
may hold under the Lease, (f) any right to require Lessor to proceed under any
other remedy Lessor may have before proceeding against Guarantors, (g) any right
of subrogation.
Guarantors do hereby subrogate all existing or future indebtedness of
Lessee to Guarantors to the obligations owed to Lessor under the Lease and this
Guaranty.
Any married woman who signs this Guaranty expressly agrees that recourse
may be had against her separate property for all of her obligations hereunder.
The obligations of Lessee under the Lease to execute and deliver estoppel
statements and financial statements, as therein provided, shall be deemed to
also require the Guarantors hereunder to do and provide the same relative to
Guarantors.
The term "Lessor" whenever hereinabove used refers to and means the Lessor
in the foregoing Lease specifically named and also any assignee of said Lessor,
whether by outright assignment or by assignment for security, and also any
successor to the interest of said Lessor or of any assignee in such Lease or any
party thereof, whether by assignment or otherwise. So long as the Lessor's
interest in or to the leased premises or the rests, issues and profits
therefrom, or in, to or under said Lease, are subject to any mortgage or deed of
trust or assignment for security, no acquisition by Guarantors of the Lessor's
interest in the leased premises or under said Lease shall affect the continuing
obligation of Guarantors under this Guaranty which shall nevertheless continue
in full force and effect for the benefit of the mortgagee, beneficiary, trustee
or assignee under such mortgage, deed of trust or assignment, of any purchase at
sale by judicial foreclosure or under private power of sale, and of the
successors and assigns of any such mortgagee, beneficiary, trustee, assignee or
purchaser.
The term "Lessee" whenever hereinabove used refers to and means the Lessee
in the foregoing Lease specifically named and also any assignee or sublessee of
said Lease and also any successor to the interests of said Lessee, assignee or
sublessee of such Lease or any part thereof, whether by assignment, sublease or
otherwise.
In the event any action be brought by said Lessor against Guarantors
hereunder to enforce the obligation of Guarantors hereunder, the unsuccessful
party in such action shall pay to the prevailing party therein a reasonable
attorney's fee which shall be fixed by the court.
If this Form has been filled in it has been prepared for submission to your
attorney for his approval. No representation or recommendation is made by the
real estate broker or its agents or employees as to the legal sufficiency,
legal effect, or tax consequences of this Form or the transaction relating
thereto.
Executed at Los Angeles, Calif Sizzler International, Inc.
------------------------ --------------------------------
on November 12, 1997
--------------------------------- --------------------------------
Christopher R. Thomas
President
Address 12655 W. Jefferson Bl
---------------------------- --------------------------------
Los Angeles, CA 90066 "GUARANTORS"
----------------------------
1977 - American Industrial Real Estate Association.
All right reserved. No part of these works may be reproduced in any form without
permission in writing.
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are
utilizing the most current from: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION. 345 So. Figueroa St M 1 Los Angeles CA 90071 (213) 687 8777
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT 21
PARENTS AND SUBSIDIARIES
- ------------------------
James A. Collins, Chairman of the Board, owned of record and beneficially, at
June 30, 1998, 3,800,840 shares of the Company's common stock, representing
approximately 13 percent of the Company's total shares outstanding and may be
considered a "parent" of the Company as such term is defined by the rules and
regulations of the Securities and Exchange commission under the Securities Act
of 1933, as amended.
Set forth below is a list of all of the Company's subsidiaries as of June 30,
1998:
Jurisdiction of
Name of Subsidiary Incorporation
- -----------------------------------------------------------------
Buffalo Ranch Australia Pty, Ltd. Australia
Buffalo Ranch Steakhouses, Inc. California
CFI Insurers, Ltd. Bermuda
Collins Finance and Management Pty, Ltd. Australia
Collins Foods Australia Pty, Ltd. Australia
Collins Foods International, Pty, Ltd. Nevada
Collins International, Inc. Delaware
Collins Properties, Inc. Delaware
Collins Property Development Pty, Ltd. Australia
Curly's of Springfield, P.A., Inc. Pennsylvania
Dalton's Roadhouse, Inc. California
F.R. Group #3756, Inc. Maryland
F.R. Group #3799, Inc. Maryland
Furnace Concepts Australia Corp. Nevada
Furnace Concepts International, Inc. Nevada
Gulliver's Australia Pty, Ltd. Australia
J.S.S. Restaurants Ltd. Canada
Josephina's, Inc. California
Mexican Concepts, Inc. California
Restaurant Concepts International, Inc. Nevada
Restaurant Concepts of Australia Pty, Ltd. Nevada
Rustler No. 3, Inc. Maryland
Scott's & Sizzler Ltd. Canada
<PAGE>
Jurisdiction of
Name of Subsidiary Incorporation
- ----------------------------------------------------------------
SizHarCo, Inc. Maryland
SizMoCo, Inc. Maryland
Sizzler Australia Pty, Ltd. Australia
Sizzler Family Steak Houses, Inc. Nevada
Sizzler Franchise Development, Ltd. Bermuda
Sizzler Holdings of Canada, Inc. Canada
Sizzler International Marks, Inc. Delaware
Sizzler New Zealand Limited Nevada
Sizzler of N.Y., Inc. New York
Sizzler of VA., Inc. Virginia
Sizzler Restaurant Services, Inc. Nevada
Sizzler USA Restaurants, Inc. Delaware
Sizzler Restaurants Management, Inc. California
Sizzler South Pacific Pty, Ltd. Nevada
Sizzler Southeast Asia, Inc. Nevada
Sizzler Steak Seafood Salad (S) Pte. Ltd. Singapore
Sizzler USA Franchise, Inc. Delaware
Sizzler USA Real Property, Inc. Delaware
Sizzler USA. Inc. Delaware
Tenly Enterprises, Inc. Pennsylvania
The Italian Oven Australia Pty, Ltd. Australia
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT 23
----------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
To Sizzler International, Inc.
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement file Number 33-39414.
ARTHUR ANDERSEN LLP
Los Angeles, California
July 14, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-03-1998
<PERIOD-START> APR-28-1997
<PERIOD-END> MAY-03-1998
<CASH> 21,167
<SECURITIES> 0
<RECEIVABLES> 5,534
<ALLOWANCES> 2,608
<INVENTORY> 4,333
<CURRENT-ASSETS> 29,707
<PP&E> 176,079
<DEPRECIATION> 96,869
<TOTAL-ASSETS> 119,461
<CURRENT-LIABILITIES> 26,840
<BONDS> 0
0
0
<COMMON> 288
<OTHER-SE> 43,472
<TOTAL-LIABILITY-AND-EQUITY> 119,461
<SALES> 235,991
<TOTAL-REVENUES> 242,333
<CGS> 88,480
<TOTAL-COSTS> 88,480
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,274
<INCOME-PRETAX> 7,603
<INCOME-TAX> 2,225
<INCOME-CONTINUING> 5,378
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,378
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
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