<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999.
Commission file number 000-22150
LANDRY'S SEAFOOD RESTAURANTS, INC.
----------------------------------------------------------
(Exact name of the registrant as specified in its charter)
Delaware 74-0405386
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 Post Oak Blvd., Suite 1010, Houston, Texas 77056
-----------------------------------------------------
(Address of principal executive offices)
(713) 850-1010
-------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of May 6, 1999 there were
27,821,040 shares of $0.01 par value
common stock outstanding.
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
INDEX
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PAGE
PART I. FINANCIAL INFORMATION NUMBER
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Item 1. Financial Statements 2
Condensed Unaudited Consolidated Balance Sheets at March 31, 1999 and December 31, 1998 3
Condensed Unaudited Consolidated Statements of Income for the Three Months ended
March 31, 1999 and March 31, 1998 4
Condensed Unaudited Consolidated Statement of Stockholders' Equity for the Three
Months Ended March 31, 1999 5
Condensed Unaudited Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and March 31, 1998 6
Notes to Condensed Unaudited Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-20
- -----------------------------------------------------------------------------------------------------------------------
PART II. OTHER INFORMATION
- -----------------------------------------------------------------------------------------------------------------------
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
- -----------------------------------------------------------------------------------------------------------------------
Signatures 22
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying condensed unaudited consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the Company, all
adjustments (consisting only of normal recurring entries) necessary for fair
presentation of the Company's results of operations, financial position and
changes therein for the periods presented have been included.
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act, which
are intended to be covered by safe harbors created thereby. Stockholders are
cautioned that all forward-looking statements involve risks and uncertainty,
including without limitation, the ability of the Company to continue its
expansion strategy, changes in costs of food, labor and employee benefits, the
ability of the Company to acquire prime locations at acceptable lease or
purchase terms, seasonality of results, ability to make projected capital
expenditures, store unit sales and the ability to achieve projected quarterly
results, as well as general market conditions, competition, and pricing. All
statements, other than statements of historical facts, included or incorporated
by reference in this report that address activities, events or developments that
the Company expects or anticipates will or may occur in the future, including
such things as future capital expenditures (including the amount and nature
thereof), business strategy and measures to implement such strategy, competitive
strengths, goals, expansion and growth of the Company's business and operations,
plans, references to future success as well as other statements which include
words such as "anticipate," "believe," "plan," "estimate," "expect," and
"intend" and other similar expressions constitute forward-looking statements.
Although the Company believes that the assumptions underlying the forward-
looking statements contained herein are reasonable, any of the assumptions could
be inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
2
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 57,463,690 $ 35,183,405
Accounts receivable--trade and other 18,511,997 13,678,197
Deferred tax assets 2,330,000 2,330,000
Inventory 17,864,336 22,839,020
Other current assets 8,598,387 10,816,686
------------ ------------
Total current assets 104,768,410 84,847,308
------------ ------------
PROPERTY AND EQUIPMENT, net 408,813,264 398,568,419
GOODWILL, net of amortization of $1,283,000 and
$1,249,000, respectively 2,810,979 2,844,542
OTHER ASSETS, net 3,796,173 3,688,971
------------ ------------
Total assets $520,188,826 $489,949,240
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 16,342,980 $ 21,216,470
Accrued liabilities 23,751,430 19,588,812
Current portion of long-term notes and other obligations 84,857 81,672
------------ ------------
Total current liabilities 40,179,267 40,886,954
LONG-TERM NOTES AND OTHER OBLIGATIONS,
NON-CURRENT 75,130,365 35,153,100
DEFERRED INCOME TAXES AND OTHER LIABILITIES 5,239,698 5,237,111
------------ ------------
Total liabilities 120,549,330 81,277,165
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 2,000,000 shares
authorized, none outstanding ---- ----
Common stock, $0.01 par value, 60,000,000 shares
authorized, 28,842,290 and 30,345,290 issued and
outstanding, respectively 288,423 303,453
Additional paid-in capital 354,918,758 363,156,349
Retained earnings 44,432,315 45,212,273
------------ ------------
Total stockholders' equity 399,639,496 408,672,075
------------ ------------
Total liabilities and stockholders' equity $520,188,826 $489,949,240
============ ============
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
</TABLE>
3
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31,
1999 1998
------------ -----------
<S> <C> <C>
REVENUES $101,265,669 $90,044,954
OPERATING COSTS AND EXPENSES:
Cost of sales 31,693,385 27,488,230
Restaurant labor 30,161,439 22,917,819
Other restaurant operating expenses 24,330,420 19,285,812
Depreciation and amortization 5,242,025 4,132,238
General and administrative expenses 4,639,802 2,802,447
Pre-opening expenses 1,041,412 1,911,282
Special charge 3,675,000 ---
------------ -----------
Total operating costs and expenses 100,783,483 78,537,828
------------ -----------
OPERATING INCOME 482,186 11,507,126
OTHER (INCOME) EXPENSE:
Interest (income) expense, net (42,122) (207,525)
Other, net 160,537 (278,332)
------------ -----------
Total other (income) expense 118,415 (485,857)
------------ -----------
INCOME BEFORE INCOME TAXES & CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 363,771 11,992,983
PROVISION FOR INCOME TAXES 125,729 4,138,229
------------ -----------
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 238,042 7,854,754
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE --- 3,381,500
------------ -----------
NET INCOME $ 238,042 $ 4,473,254
============ ===========
EARNINGS PER SHARE INFORMATION
BASIC
Net income before cumulative effect of
accounting change $ 0.01 $ 0.29
Cumulative effect of accounting change --- (0.12)
------------ -----------
Net income $ 0.01 $ 0.17
============ ===========
Weighted average number of common shares
outstanding 29,700,000 26,700,000
DILUTED
Net income before cumulative effect of
accounting change $ 0.01 $ 0.28
Cumulative effect of accounting change --- (0.12)
------------ -----------
Net income $ 0.01 $ 0.16
============ ===========
Weighted average number of common share
equivalents outstanding 29,800,000 27,700,000
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
</TABLE>
4
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-In Retained
Shares Amount Capital Earnings Total
---------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 30,345,290 $303,453 $363,156,349 $45,212,273 $408,672,075
Net income --- --- --- 238,042 238,042
Exercise of stock options and
income tax benefit --- --- --- --- ----
Purchase of common stock held
for treasury (1,503,000) (15,030) (8,237,591) (1,018,000) (9,270,621)
---------- -------- ------------ ----------- ------------
Balance, March 31, 1999 28,842,290 $288,423 $354,918,758 $44,432,315 $399,639,496
========== ======== ============ =========== ============
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
</TABLE>
5
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 238,042 $ 4,473,254
Cumulative effect of change in accounting principle --- 3,381,500
------------ ------------
Net income before accounting change 238,042 7,854,754
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization 5,242,025 4,132,238
Change in assets and liabilities-net and other 1,650,568 6,841,445
------------ ------------
Total adjustments 6,892,593 10,973,683
------------ ------------
Net cash provided by operating activities 7,130,635 18,828,437
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions (15,452,977) (33,426,451)
Other assets, including goodwill (107,202) (161,329)
------------ ------------
Net cash used in investing activities (15,560,179) (33,587,780)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on notes payable and other
long-term obligations 39,980,450 (24,517,046)
Net amounts from sale (repurchase) of common stock (9,270,621) 102,431,472
Proceeds from exercise of stock options --- 6,689,000
------------ ------------
Net cash provided by (used in) financing activities 30,709,829 84,603,426
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 22,280,285 69,844,083
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 35,183,405 17,234,130
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 57,463,690 $ 87,078,213
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash payments during the period for--
Income taxes $ 139,000 $ 159,000
Interest $ 572,000 $ 730,000
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
</TABLE>
6
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements included herein have been prepared by
the Company without audit, except for the consolidated balance sheet as of
December 31, 1998. The financial statements include all adjustments, consisting
of normal, recurring adjustments and accruals, which the Company considers
necessary for fair presentation of its financial position and results of
operations. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. This information is contained in the
Company's December 31, 1998, consolidated financial statements filed with the
Securities and Exchange Commission on Form 10-K.
Goodwill And Non-Compete Agreements
Goodwill and non-compete agreements are amortized over 30 years and 15 years
(or the life of the related agreement), respectively. These amounts are included
in goodwill and other assets in the accompanying consolidated balance sheets,
respectively.
Earnings Per Share
Net income per common share has been computed in accordance with Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." Basic
Earnings Per Share is computed by dividing net income by the weighted average
number of shares of common stock outstanding during the year. Diluted Earnings
Per Share is computed using the average share price for the period in all cases
when applying the treasury stock method to potentially dilutive outstanding
options.
Cash Flow Reporting
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with original maturities of three months
or less to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results may differ from those estimates.
7
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Accounts Receivable Trade and Other
Accounts receivable at December 31, 1998, includes an estimated $6,100,000
recoverable from an insurance company related to property damage and business
interruption claims occurring in 1998. Such amounts will be collected during
1999.
Pre-opening Costs
Pre-opening costs include the direct and incremental costs incurred in
connection with the commencement of each restaurant's operations, which are
substantially comprised of training-related costs. Pre-opening costs were
historically capitalized and amortized using the straight-line method over 12
months. During the fourth quarter of 1998, the Company elected to adopt the
American Institute of Certified Public Accountants Statement of Position 98-5
"Reporting on the Costs of Start-Up Activities (SOP 98-5)." SOP 98-5 requires
companies to expense pre-opening costs as incurred and to expense previously
capitalized pre-opening costs as a cumulative effect of change in accounting
principle. SOP 98-5 required the Company to expense $5,162,500 of pre-opening
costs capitalized as of December 31, 1997 during the first quarter of 1998. The
expense of $5,162,500 is recorded net of a tax benefit of $1,781,000, as a
Cumulative Effect of Change in Accounting Principle in the amount of $3,381,500.
Additionally, in connection with the adoption of SOP 98-5, the Company expensed
restaurant pre-opening costs as incurred during 1998. Quarterly financial
statements for 1998 have been restated to reflect the 1998 fourth quarter
adoption of SOP 98-5.
8
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. Accrued Liabilities
Accrued liabilities are comprised of the following:
March 31, 1999 December 31, 1998
-------------- -----------------
Payroll and related costs..................... $ 6,097,396 $ 3,024,139
Taxes, other than payroll and income taxes.... 4,775,794 5,146,592
Deferred and state income taxes.............. 410,553 442,275
Store closings and special charges............ 8,260,464 7,513,001
Other......................................... 4,207,223 3,462,805
----------- -----------
$23,751,430 $19,588,812
=========== ===========
During the three months ended March 31, 1999, store closings and special
charges increased by approximately $1.5 million related to the termination of an
acquisition as discussed below, and decreased by approximately $.75 million due
to payments for costs, lease rentals and other expenses related to the fourth
quarter 1998 charge.
3. Debt
The Company has a $125.0 million unsecured credit facility from a syndicate
of banks which matures in June 2000, and is available for expansion,
acquisitions, and other general corporate purposes. Interest on the credit
facility is generally payable quarterly at the Eurodollar rate plus 0.6% or the
bank's base rate. The credit facility is governed by certain financial
covenants, including minimum tangible net worth, a maximum leverage ratio and a
minimum fixed charge coverage ratio. At March 31, 1999, the Company had $75.0
million outstanding under this credit facility at an approximate interest rate
of 5.7%. Amounts outstanding under the credit facility will be classified as a
current liability in balance sheets presented after June 1999, as the existing
credit agreement expires one year from that date. The Company expects to
renegotiate the credit agreement no later than the first quarter of 2000.
4. Stockholders' Equity
On November 19, 1998, the Company announced the authorization of an open
market stock buy back program for up to $50.0 million. This program, which
continues until December 31, 1999 (unless extended or canceled) has resulted in
the Company repurchasing approximately 2,408,000 common shares through May 6,
1999 for approximately $16.1 million.
On March 2, 1999, the Company announced the signing of a definitive merger
agreement to acquire another restaurant company. The merger agreement was
subsequently terminated on March 8, 1999. As a result of the termination, the
Company incurred a $3.675 million liability in connection with the transaction,
which was recorded as a special charge in the income statement for the three
months ended March 31, 1999.
9
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the amounts used to compute net income per common
share - diluted is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net Income........................................................................... $ 238,042 $ 4,473,254
=========== ===========
Weighted Average Common Shares Outstanding........................................... 29,700,000 26,700,000
Dilutive Common Stock Equivalents -- Stock Options................................... 100,000 1,000,000
----------- -----------
Weighted Average Common and Common Equivalent Shares Outstanding -- Diluted.......... 29,800,000 27,700,000
=========== ===========
Net Income Per Share -- Diluted...................................................... $ 0.01 $ 0.16
=========== ===========
Net Income Per Share, Before Special Charge and Change in Accounting Principle
-- Diluted.......................................................................... $ 0.09 $ 0.28
=========== ===========
</TABLE>
5. Contingencies
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. Management believes, based on discussions with
its legal counsel and in consideration of reserves recorded, that the outcome of
all pending legal actions will not have a material adverse effect upon the
consolidated financial position and results of operations of the Company.
6. Related Party Transactions
The Company entered into an agreement with 610 Loop Venture, LLC, a company
wholly owned by the Chairman and Chief Executive Officer of Landry's, whereby,
the Company would sell to 610 Loop Venture, a 4-acre undeveloped land tract at a
third-party appraised value of $5,360,000 (approximately $700,000 more than the
original purchase price paid by the Company), and 610 Loop Venture would
construct a condominium project on the land. The carrying cost of the land held
for sale is included in other current assets. Such condominium project would
contain, among other things, a hotel unit, owned by 610 Loop Venture, and a 4-
story, 83,000 square foot office facility. The office facility will be purchased
by Landry's for a third-party appraised value of approximately $14,840,000. At
the completion of the project, a condominium regime agreement will be entered
into between Landry's and 610 Loop Venture, which will operate and manage the
project. At the request of the Company, 610 Loop Venture and the Company have
executed an amendment to the contract delaying commencement of construction of
the condominium project, including the 4-story, 83,000 square foot office
facility, until April 1, 2000. The amendment further provides that the
Company shall enter into a ground lease agreement with 610 Loop Venture for
approximately one-third of the undeveloped tract. The ground lease agreement
provides for 610 Loop Venture's development of a retail
10
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
facility which is the initial phase of 610 Loop Venture's condominium project.
However, 610 Loop Venture cannot utilize any other portion of the undeveloped
tract and can take no action which in any manner may hinder, delay, impede or
increase the cost of construction to the Company for the building of the office
facility. The ground lease is for a term of five years with one option
renewal period and shall terminate upon 610 Loop Venture's purchase of the
entire 4-acre undeveloped land tract. Under the terms of the ground lease, 610
Loop Venture will pay the Company base rent and pro-rata real property taxes
and insurance in the amount of approximately $16,000 per month.
11
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
The Company owns and operates full-service, casual dining seafood
restaurants. As of March 31, 1999, the Company operated approximately 143
restaurants. In addition, the Company operates three limited-menu take-out
service units.
The Company, in the fourth quarter of 1998, decided to close eleven
underperforming restaurants, eight of which were closed in 1998, and three of
which were closed in 1999. The Company is in the process of selling its
leasehold or fee interest and terminating associated lease obligations for each
of the restaurants. In addition, the Company did not exercise one restaurant's
lease option renewal. Store closing costs related to the write-down of
associated property and equipment amounts to estimated realizable value, and
anticipated costs to be incurred related to lease terminations and employee
severance were recorded during the fourth quarter of 1998. In addition, the
Company reevaluated its strategic growth plan and, (i) reduced future unit
growth to approximately 9 to 12 new restaurants per year, (ii) abandoned
numerous potential restaurant sites, and (iii) abandoned efforts to build a
stand-alone office complex in Houston, Texas. These strategic changes resulted
in a reduction in employees, the sale of a duplicate corporate asset and the
abandonment of a strategic corporate transaction. The Company incurred a fourth
quarter 1998 charge that aggregated $37.6 million related to all such
activities.
Store closing and special charges include management's estimate of costs
which will be incurred in future periods based on various factors. Such factors
could change, resulting in additional costs or credits in future periods. The
Company expects the majority of cash payments to occur through 1999. The net
realizable value of the property, equipment and leasehold interests held for
sale, of approximately $3,443,000, is included in other current assets at
March 31, 1999.
From time to time one or more of the Company's restaurants may be
temporarily closed for remodeling and conversion to one of the Company's other
restaurant concepts in order to improve consumer appeal.
The Company's operations may be impacted by changes in federal and state
taxes and other federal and state governmental policies which include many
possible factors such as the level of minimum wages, the deductibility of
business and entertainment expenses, levels of disposable income and national
and regional economic growth. Increases to the federally mandated minimum wage
have increased the Company's labor costs.
The restaurant industry is intensely competitive and is affected by changes
in consumer tastes and by national, regional, and local economic conditions and
demographic trends. The performance of individual restaurants, including new
restaurants the Company may open or acquire, may be affected by factors such as
traffic patterns, demographic considerations, weather conditions, and the type,
number, and location of competing restaurants. The Company has many well-
established competitors with greater financial resources and longer histories of
operation than the Company, including competitors already established in regions
where the Company is planning to expand, as well as competitors planning to
expand in the same regions or into regions where the Company currently operates.
The Company faces significant competition from mid-priced, full-
12
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
service, casual dining restaurants offering seafood and other types and
varieties of cuisine. The Company's competitors include national, regional, and
local chains as well as local owner-operated restaurants. The Company also
competes with other restaurants and retail establishments for restaurant sites.
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act, which
are intended to be covered by safe harbors created thereby. Stockholders are
cautioned that all forward-looking statements involve risks and uncertainty,
including without limitation, the ability of the Company to continue its
expansion strategy, changes in costs of food, labor and employee benefits, the
ability of the Company to acquire prime locations at acceptable lease or
purchase terms, seasonality of results, ability to make projected capital
expenditures, store unit sales and the ability to achieve projected quarterly
results, as well as general market conditions, competition, and pricing. All
statements, other than statements of historical facts, included or incorporated
by reference in this report that address activities, events or developments that
the Company expects or anticipates will or may occur in the future, including
such things as future capital expenditures (including the amount and nature
thereof), business strategy and measures to implement such strategy, competitive
strengths, goals, expansion and growth of the Company's business and operations,
plans, references to future success as well as other statements which include
words such as "anticipate," "believe," "plan," "estimate," "expect," and
"intend" and other similar expressions constitute forward-looking statements.
Although the Company believes that the assumptions underlying the forward-
looking statements contained herein are reasonable, any of the assumptions could
be inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
13
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
RESULTS OF OPERATIONS
Restaurant Profitability
The following table sets forth the percentage relationship to revenues of
certain operating data for the periods indicated:
THREE MONTHS ENDED
------------------
MARCH 31,
---------
1999 1998
---- ----
REVENUES 100.0% 100.0%
COST OF SALES 31.3 30.5
RESTAURANT LABOR 29.8 25.5
OTHER RESTAURANT OPERATING EXPENSES (1) 24.0 21.4
----- -----
RESTAURANT LEVEL PROFIT (1) 14.9% 22.6%
===== =====
_____________________
(1) Excludes depreciation, amortization and pre-opening expenses.
Three Months Ended March 31, 1999 Compared to the Three Months Ended
March 31, 1998
Revenues increased $11,220,715, or 12.5%, from $90,044,954 to $101,265,669
for the three months ended March 31, 1999, compared to the three months ended
March 31, 1998. The increase in revenues was primarily attributable to revenues
from new restaurant openings. During the first quarter of 1999, the Company
implemented a new menu change for the Joe's Crab Shack restaurants, a new
manager bonus plan, and a new advertising and marketing campaign. These programs
have so far resulted in positive revenue results. Same store sales for the three
months ended March 31, 1999 were down approximately 1.5% from the same quarter
in 1998, as compared to a 3% decline in the fourth quarter of 1998. However,
January 1999 same store sales were the primary cause of the negative quarterly
statistic. The more recent same store sales trend line, coincident with the
increased advertising expenditures, was more positive in February and March.
Average weekly sales for all stores declined 2.8% in the first quarter of 1999.
While the Company's internal sales forecasts were exceeded during the first
quarter of 1999, restaurant level cash flow margins were below internal
forecasts. Management believes that the many restaurant level operational
changes that were instituted will, over a longer term, provide sustained sales
and profitability.
14
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
As a primary result of increased revenues, cost of sales increased
$4,205,155, or 15.3%, from $27,488,230 to $31,693,385 in the three months ended
March 31, 1999, compared to the same period in the prior year. Cost of sales as
a percentage of revenues for the three months ended March 31, 1999 increased to
31.3%, from 30.5% in 1998. The increase in cost of sales as a percentage of
revenues reflects new menu changes, temporarily increased inefficiencies and
training due to the new menu roll-out, reduced menu pricing in certain markets,
and higher product costs in 1999 as compared to 1998.
Restaurant labor expenses increased $7,243,620, or 31.6%, from $22,917,819
to $30,161,439 in the three months ended March 31, 1999, compared to the same
period in the prior year. Restaurant labor expenses as a percentage of revenues
for the three months ended March 31, 1999 increased to 29.8% from 25.5%. In
connection with the new menu roll-out and the planned advertising and
promotional campaign, the Company increased staffing levels and implemented
additional training programs. In addition, to combat what the Company believed
to be higher general manager turnover than normally experienced by the Company,
the Company raised the base salary of substantially all of its general managers
by approximately $10,000 per person.
Other restaurant operating expenses increased $5,044,608, or 26.2%, from
$19,285,812 to $24,330,420 in the three months ended March 31, 1999, compared to
the same period in the prior year, as a result of increased revenues. Such
expenses increased as a percentage of revenues to 24.0% in 1999 from 21.4% in
1998, as a primary result of declines in average restaurant revenues, increased
advertising and marketing expenditures, and temporary inefficiencies, costs and
effects of the new menu roll-out. The Company anticipates advertising and
marketing expenses to increase as a percentage of revenues throughout 1999.
During 1998 the Company elected to adopt the American Institute of Certified
Public Accountants Statement of Position 98-5 "Reporting on the Costs of Start-
Up Activities (SOP 98-5)." This new accounting standard requires companies to
expense pre-opening costs as incurred and to expense previously capitalized pre-
opening costs as a cumulative effect of change in accounting principle. As a
result of the adoption of SOP 98-5, the Company expensed $5,162,500, effective
January 1, 1998, of net pre-opening costs capitalized as of December 31, 1997.
The expense of $5,162,500, in the three months ended March 31, 1998, is recorded
net of a tax benefit of $1,781,000 as a Cumulative Effect of Change in
Accounting Principle in the net amount of $3,381,500. Additionally, in
connection with the adoption of SOP 98-5, the Company expensed $10,439,229 of
restaurant pre-opening costs as incurred during 1998, including $1,911,282 in
the three months ended March 31, 1998. Prior to the adoption of SOP 98-5, the
Company capitalized pre-opening costs and amortized such costs over the first
twelve months the applicable restaurant was open. The following is a summary of
the results of operations as previously reported and as restated to reflect the
adoption of SOP 98-5. All table numbers are in thousand's, except per share
data:
15
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
<TABLE>
<CAPTION>
SELECTED INCOME STATEMENT AMOUNTS RESTATED TO REFLECT THE ADOPTION
OF SOP 98-5 (PRE-OPENING COSTS) PREVIOUSLY RESTATED FOR
3 MONTHS ENDED MARCH 31, 1999 (IN $000'S, EXCEPT PER SHARE DATA): REPORTED SOP 98-5
- ----------------------------------------------------------------- ---------- ------------
<S> <C> <C>
*Depreciation and amortization.......................................... $ 6,203 $ 4,132
*Pre-opening expenses................................................... ---- 1,911
Operating income........................................................ 11,347 11,507
Net income before cumulative effect of change in accounting principle... 7,751 7,854
Cumulative effect of change in accounting principle..................... ---- 3,381
Net income.............................................................. 7,751 4,473
EPS.....................................................................
- -Basic (before cumulative effect of accounting change).................. $ 0.29 $ 0.29
- -Basic (after cumulative effect of accounting change)................... $ 0.29 $ 0.17
- -Diluted (before cumulative effect of accounting change)................ $ 0.28 $ 0.28
- -Diluted (after cumulative effect of accounting change)................. $ 0.28 $ 0.16
____________________
*Change resulting from pre-opening cost accounting change (adoption of SOP 98-5).
</TABLE>
Depreciation and amortization expense increased $1,109,787, or 26.9%, from
$4,132,238 to $5,242,025 in the three months ended March 31, 1999, compared to
the same period in the prior year. The dollar increase was primarily due to the
addition of new restaurants and purchases of new equipment. Depreciation and
amortization as a percentage of revenues for the three months ended March 31,
1999 increased to 5.2% from 4.6%, as the primary result of declines in average
restaurant revenues.
16
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
General and administrative expenses increased $1,837,355, or 65.6%, from
$2,802,447 to $4,639,802 in the three months ended March 31, 1999, compared to
the same period in the prior year, and increased as a percentage of revenues to
4.6% from 3.1%. The dollar increase resulted primarily from increased
personnel, particularly field operations support staff, salaries and travel to
support the Company's operations.
Pre-opening expenses in 1999 were $1,041,412 as compared to $1,911,282 in
1998. The Company opened five units during the three months ended March 31,
1999, at an average pre-opening expense of approximately $210,000 per unit.
Special charge of $3,675,000 ($2,370,000 net of tax) for the three months
ended March 31, 1999, was incurred in connection with the termination of a
proposed acquisition.
The decrease in net interest income and the increase in other income in the
three months ended March 31, 1999, as compared to the same period in the prior
year, was not deemed significant.
Provision for income taxes decreased by $4,012,500 from $4,138,229 in 1998
to $125,729 in 1999 primarily due to the change in the Company's income. The
provision for income taxes as a percentage of income before income taxes
remained constant at 34.5%.
Liquidity and Capital Resources
For the three months ended March 31, 1999 the capital expenditures of the
Company were approximately $15.4 million which were funded out of existing cash
balances, cash flow from operations and borrowings.
The Company has a $125.0 million credit facility from a syndicate of banks
which expires in June 2000. The line of credit is available for expansion,
acquisitions and general corporate purposes. At March 31, 1999, the Company had
$75.0 million outstanding under this credit facility at an approximate interest
rate of 5.7% and had cash and cash equivalent balances aggregating approximately
$57.5 million. These borrowings were used primarily to fund capital expenditures
and working capital. Amounts outstanding under the line of credit will be
classified as a current liability in the Company's balance sheets presented
after June 1999, as the existing credit agreement expires one year from that
date. The Company expects to renegotiate the credit agreement no later than the
first quarter of 2000.
17
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
During late 1998 the Company completed the majority of construction on a
development plan for a waterfront area in South Houston (the "Kemah
Development"). The Kemah Development includes up to eight restaurant sites, a
52-room hotel, connected public areas and plaza, four amusement/entertainment
rides, and light retail facilities. The Company currently operates six
restaurants, a 52-room hotel, amusement facilities, and retail shops, (some of
which are leased and operated by third parties). Two additional restaurants will
be constructed over the next few years, one of which was under construction as
of March 31, 1999.
Exclusive of any acquisitions or large real estate purchases, the Company
currently expects to incur capital expenditures of up to $50.0 million in 1999
(based upon approximately 9 to 12 new restaurants), depending upon the actual
number and timing of restaurant construction, the number of land purchases, the
amount spent on conversions, remodels, and the mix of leased, owned or
conversion type locations. The Company expects that its average per unit
investment, excluding real estate costs, capitalized interest costs and pre-
opening expenses, to approximate $2.0 million. However, individual unit
investment costs can vary from management's expectations due to a variety of
factors. Moreover, average unit investment costs are dependent upon many
factors, including competition for sites, location, construction costs, unit
size and the mix of conversions, build-to-suit, leased and fee-owned locations.
The Company currently anticipates that it will continue to purchase a portion of
its new restaurant locations, which are expected to be more costly than leased
locations. The Company may, from time to time, review opportunities for
investment in the hospitality, entertainment and food service management
industries. The Company believes that existing cash balances, cash generated
from operations and potential financing sources will be sufficient to satisfy
the Company's working capital and planned capital expenditures through 2000.
On November 19, 1998, the Company announced the authorization of an open
market stock buy back program for up to $50.0 million. This program, which
continues until December 31, 1999, unless extended or canceled, has resulted in
the Company repurchasing 2,408,000 common shares through May 6, 1999 for
approximately $16.1 million.
18
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
Seasonality and Quarterly Results
The Company's business is seasonal in nature, with revenues and, to a
greater degree, operating profits being lower in the first and fourth quarters
than in other quarters due to the Company's reduced winter volumes. The Company
has and continues to open restaurants in highly seasonal tourist markets and has
further noted that the Joe's Crab Shack concept restaurants tend to experience
even greater seasonality and sensitivity to weather. The Company anticipates a
decline in revenues from the initial ("honeymoon") volumes of new units.
Impact of Inflation
Management does not believe that inflation has had a significant effect on
the Company's operations during the past several years. Management believes the
Company has historically been able to pass on increased costs through menu price
increases, but there can be no assurance that it will be able to do so in the
future. Future increases in restaurant labor costs, land and construction costs
could adversely affect the Company's profitability and ability to expand.
Year 2000 Date Conversion
The Company recognizes the need to ensure that its operation will not be
adversely impacted by Year 2000 software failures. The Company is currently
working to resolve the potential impact of the Year 2000 on the processing of
date-sensitive data by the Company's computerized information systems. In 1998,
the Company began to evaluate, test and modify its computer information systems
to ensure proper processing of transactions relating to the Year 2000 and
beyond. Since all of the Company's critical business information systems are
vendor-supported software packages, this remediation process involves performing
normal software upgrades and some related hardware upgrades on those vendor
supported systems that are not already Year 2000 compliant. The Company expects
to complete the required upgrades and modifications by August 1999.
The amount charged to expense during the twelve months ended December 31,
1998, as well as the amounts anticipated to be charged to expense related to the
Year 2000 computer compliance modifications, have not been and are not expected
to be material to the Company's financial position, results of operations or
cash flows.
The Company is taking steps to resolve Year 2000 compliance issues that may
be created by customers, suppliers and financial institutions with whom the
Company does business. However, there can be no guarantee that the systems of
other entities will be converted on a timely basis.
19
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
The Company believes that in an emergency it could revert to the use of
manual systems that do not rely on computers and could perform the minimum
functions required to provide information reporting to maintain satisfactory
control of the business. Should the Company have to utilize manual systems, it
is uncertain that it could maintain the same level of operations, and this could
have a material adverse impact on the business. The Company intends to maintain
constant surveillance on this situation and will develop such contingency plans
as are required by the changing environment.
20
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which registrant is a
party or of which any of the property of the registrant is the subject, except
for claims in the ordinary course of business, none of which are considered
material.
ITEM 2. CHANGES IN SECURITIES Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable
ITEM 5. OTHER INFORMATION Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS -- 10.1 FIRST AMENDMENT TO CONTRACT OF SALE AND
DEVELOPMENT AGREEMENT.
27. FINANCIAL DATA SCHEDULE
(B) REPORTS ON FORM 8-K -- THE COMPANY FILED A FORM 8-K ON MARCH 9,
1999, TERMINATING THE MERGER AGREEMENT WITH CONSOLIDATED RESTAURANT
COMPANIES, INC.
21
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Landry's Seafood Restaurants, Inc.
(Registrant)
___________________________
Tilman J. Fertitta
Chairman of the Board of Directors
President and Chief Executive Officer
(Principal Executive Officer)
___________________________
Paul S. West
Vice President-Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: May 14, 1999
------------
22
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT TO CONTRACT OF SALE
AND DEVELOPMENT AGREEMENT
This First Amendment to Contract of Sale and Development Agreement ("First
Amendment") is entered into as of this 12th day of May, 1999, by and between 610
Loop Venture, L.L.C., a Texas Limited Liability Company ("Seller") and Landry's
Management, L.P., a Delaware Limited Partnership ("Purchaser").
RECITALS
WHEREAS, Seller and Purchaser entered into a Contract of Sale and
Development Agreement ("Agreement") dated August 17, 1998. All capitalized
terms used in this First Amendment and not otherwise defined in this First
Amendment shall have the meanings ascribed to them in the Agreement;
WHEREAS, due to market conditions, Purchaser has requested that Seller
delay commencement of construction of the Project at least until April 1, 2000;
WHEREAS, Seller advised Purchaser that Seller has its financing in place
and is ready to immediately close on the Land and commence construction of the
Project;
WHEREAS, Purchaser acknowledges that Seller will incur additional costs and
expenses if Seller closes on the Land without commencing construction of the
Project;
WHEREAS, notwithstanding the desire of Purchaser to delay the commencement
of the construction of the Project, Seller has entered on to the Property in
accordance with the Agreement to begin construction of retail facilities on that
portion of the Land which is described on Exhibit "A" attached hereto and made a
part hereof (the "Retail Site");
WHEREAS, Seller agrees to delay commencement of construction of the Project
as provided herein below;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Seller and Purchaser agree to amend
the Agreement as follows:
1. Seller and Purchaser agree that Seller shall delay commencement of
construction of the Project through and until April 1, 2000.
2. The Scheduled Completion Date shall now be September 30, 2002.
3. Purchaser shall enter into a ground lease (the "Lease") with Seller, in
the form attached hereto as Exhibit "B" and made a part hereof, so that
Seller may use the Retail Site notwithstanding the delay of the Project.
Seller shall not utilize any other portion of the Land, and shall take
no action concerning the Retail Site, which in any manner may hinder,
delay, or impede, or which will in any manner increase the costs
<PAGE>
of the construction of the Project. Upon completion of the Retail Site,
Seller may open its retail business to the general public and conduct or
operate its retail business in accordance with the Lease.
4. Rent under the Lease shall commence on the earlier of (i) the completion
of the improvements which Seller will construct on the Retail Site, or
(ii) November 1, 1999.
5. The closing of the sale of the Land shall be upon all of the same terms
and conditions as set forth in the Agreement; however, in addition to
such terms and conditions, at closing Purchaser shall assign to Seller
all of Purchaser's right, title and interest in and to the Lease, and
the rent under the Lease shall be prorated as of the day of closing.
6. The Primary Closing Date shall be changed to April 1, 2000.
7. The purchase price for the Land shall be the purchase price set forth in
the Agreement. If the Land is conveyed on the Deferred Closing Date,
then the Land price shall be adjusted by the sum of (i) all taxes,
assessments, and other direct expenses of owning and insuring the Land
incurred by Purchaser after the Primary Closing Date (collectively, the
"Ownership Costs") plus (ii) interest on the Land price from the Primary
Closing Date until the Deferred Closing Date, plus (iii) interest on the
Ownership Costs expended by Purchaser from the date, in each case, of
expenditure, until the Deferred Closing Date less (iv) (a) the rent paid
during such period under the Lease and (b) any ad valorem taxes paid
under the Lease with respect to the Retail Site (but excluding any such
ad valorem taxes which are attributable to the improvements placed by
Seller on the Retail Site). Interest will be calculated at a rate equal
to seven percent (7%) per annum. In the event Seller elects to do so, it
may pay the Ownership Costs as the same are incurred, in which event the
Land price shall not be adjusted for Ownership Costs or the interest
applicable to same.
8. The delay in the commencement date of the Project shall not alter or
change any other responsibility or obligation or either Seller or
Purchaser under the Agreement except as provided in this First
Amendment.
9. Except as provided herein, all other terms and conditions of the
Agreement shall remain in full force and effect.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
PURCHASER:
LANDRY'S MANAGEMENT, L.P.,
a Delaware Limited Partnership
By: LANDRY'S G.P., INC.,
a Delaware Corporation
By: _____________________________________
Name: Joe Max Taylor
Title: Authorized Signatory
SELLER:
610 LOOP VENTURE, LLC,
a Texas Limited Liability Company
By: _____________________________________
Name: Tilman J. Fertita
Title: Manager
-3-
<PAGE>
GROUND LEASE
By and Between
LANDRY'S MANAGEMENT, L.P., LANDLORD
and
610 LOOP VENTURE, L.L.C., TENANT
<PAGE>
GROUND LEASE
------------
This Ground Lease (the "Lease") is made and entered into effective as of
the 12th day of May, 1999 (the "Effective Date"), by and between LANDRY'S
MANAGEMENT, L.P., a Delaware limited partnership ("Landlord"), and 610 LOOP
VENTURE, L.L.C., a Texas limited liability company ("Tenant").
W I T N E S S E T H:
- - - - - - - - - -
1. PREMISES AND TERM.
(a) In consideration of the obligation of Tenant to pay rent as
hereinafter provided and in consideration of the other terms, provisions and
covenants hereof, Landlord hereby demises and leases to Tenant, and Tenant
hereby takes from Landlord, that certain tract of land located in Houston,
Harris County, Texas the same being more particularly described on Exhibit A
attached hereto and made a part hereof, together with the use of all rights,
privileges, easements and appurtenances belonging or in any way pertaining to
the Premises (all of the foregoing hereinafter collectively referred to as the
"Premises"), TO HAVE AND TO HOLD the same for a term (the "Term") commencing on
the Effective Date and continuing through, and including, May 31, 2004, unless
the Term is renewed in accordance with this Lease.
(b) Mention is made that, as of the Effective Date, Landlord also owns
real property which is adjacent to the Premises as depicted on Exhibit "B"
attached hereto and made a part hereof (the "Adjacent Land").
(c) As long as Tenant is not in default in the performance of its
covenants under this Lease, Tenant is hereby granted the option to renew the
Lease Term for one (1) additional period of five (5) additional years ("Renewal
Term"), to commence at the expiration of the initial Term of this Lease. Tenant
shall exercise such option to renew on the terms set forth in subsection (e) of
this
GROUND LEASE - Page 1
<PAGE>
Section 1. The renewal of this Lease shall be upon the same terms and conditions
of this Lease, except (i) the Base Rent during the Renewal Term shall be the
prevailing market Base Rent rate (hereinafter defined) for property similar to
the Premises at the time the Renewal Term commences, and (ii) Tenant shall have
no option to renew this Lease beyond the Renewal Term set out above.
(d) It is understood and agreed that the term "prevailing market Base
Rent Rate," as used herein, shall mean the then prevailing annual rental rate
being charged for comparable property, similarly located in Houston, Texas,
taking into consideration the highest and best uses then existing for the
Premises and all such similar properties.
(e) By not later than twelve (12) months prior to the expiration of the
Term, Tenant shall give written notice to Landlord of its desire to exercise
this option and request the prevailing market Base Rent Rate. Within fifteen
(15) days thereafter Landlord shall notify Tenant of the prevailing market Base
Rent Rate. If Tenant elects to exercise its option but concludes that the
prevailing market Base Rent Rate proposed by Landlord is higher than the
prevailing market Base Rental Rate, and Landlord and Tenant are not able to
agree upon a mutually acceptable prevailing market Base Rent Rate within the
following thirty (30) days, Tenant shall have the option, but not the obligation
(i) of revoking the exercise of its option, (ii) of accepting Landlord's
determination of the prevailing market Base Rental Rate, or (iii) of electing to
submit the issue to binding appraisal, in which event Tenant and Landlord will
each independently hire a Market Professional who shall determine the prevailing
market Base Rental Rate. If the prevailing market Base Rent Rate determined by
each of the two (2) Market Professionals differs by less than 5%, an average of
the two (2) rates shall be the prevailing market Base Rent Rate and if the
difference is more than 5%, then the two (2) Market Professionals shall choose a
third Market Professional to give a determination of the prevailing market Base
Rent Rate. The Base Rent Rate to be used for the
GROUND LEASE - Page 2
<PAGE>
applicable Renewal Term shall, in such event, be the numerical average of the
two prevailing market Base Rent Rates determined by the two Market Professionals
whose determinations are the closest to one another. The cost of the Market
Professionals shall be shared equally by the parties and his or her (their)
determination shall be binding and conclusive upon the parties. The term "Market
Professional," as used herein, shall mean an individual with a minimum of five
(5) years experience in commercial land brokerage and/or valuation in the
Greater Houston Area who is either a designated Member of the Appraisal
Institute ("MAI") or a Texas licensed real estate broker, and who has not been
engaged by either party during the preceding five-year period.
2. RENT. Tenant shall pay Base Rent (herein so called) to Landlord in the
amount of Twelve Thousand Dollars ($12,000.00) per month commencing on the
earlier of (i) November 1, 1999 or (ii) the date on which Tenant completes the
Improvements (hereinafter defined) on the Premises (the "Rent Commencement
Date"). Base Rent for a partial month during which the Improvements are
completed shall be prorated.
3. HOLDING OVER. Should Tenant or any sublessee, licensee or other occupant
of the Premises fail to vacate the Premises or any part thereof upon the
expiration of the Term, such failure to vacate shall constitute and be construed
as a tenancy at will, upon the same terms and conditions as set forth in this
Lease, except that Base Rent shall increase to one hundred fifty percent (150%)
of the daily Base Rent payable under this Lease immediately prior to the
expiration of the Term. However, under no circumstances shall inclusion of this
Section 3 be deemed an implied covenant by Landlord for Tenant or any
sublessees, licenses, or other occupant to hold over. Any payment of Base Rent
on account of any such holding over shall not exonerate Tenant from liability to
Landlord for the damages sustained by Landlord as a result of the breach by
Tenant of its obligation
GROUND LEASE - Page 3
<PAGE>
to vacate, and to cause all subtenants, licensees and other occupants to vacate
the Premises upon the expiration of the Term.
4. PERMITTED USE. Tenant may use the Premises solely for the purpose of
operating a retail automobile dealership and other lawful retail uses approved
by Landlord, which approval shall not be unreasonably withheld.
5. CONDITION OF PREMISES. The Premises are leased and accepted by Tenant AS
IS, WHERE IS AND WITH ALL FAULTS. Tenant acknowledges that Landlord has made no
representations or warranties, express or implied, regarding the Premises;
however, Landlord will, with respect to the Adjacent Land, (i) keep the grass
mowed, (ii) keep the same in a clean, neat and orderly condition, and (iii)
maintain any landscaping located thereon.
6. UTILITIES. Tenant shall pay all charges incurred for the use of utility
services at the Premises during the Term including, without limitation, gas,
electricity, water, sanitary sewer, storm sewer, cable television, and
telephone.
7. TAXES, ASSESSMENTS AND OTHER GOVERNMENTAL IMPOSITIONS.
(a) From and after the Effective Date, subject to Tenant's reimbursement
obligations as hereinafter provided, Landlord shall pay, or cause to be paid, as
they become due and payable all ad valorem real estate taxes, assessments and
other governmental impositions (collectively, "Taxes") levied against the
Premises and the Adjacent Land, Landlord shall not be obligated to pay taxes
levied or assessed against the Improvements or against any personal property of
Tenant or of any subtenant, licensee or other occupant of the Premises.
(b) Tenant shall be obligated, from and after the Rent Commencement
Date, to reimburse Landlord for Tenant's prorata share of Taxes, which prorata
share has been determined to be thirty-eight percent (38%) based on the relative
land areas of the Premises and the Adjacent
GROUND LEASE - Page 4
<PAGE>
Land. Tenant shall pay such prorata share to Landlord, as additional rent,
within ten (10) days after receipt by Tenant of an invoice for same together
with copies of the tax bills.
(c) Tenant shall pay all taxes levied or assessed against the
Improvements either directly to the taxing authorities, or to Landlord for
payment to the taxing authorities as directed by Landlord.
8. INSURANCE.
(a) From and after the Effective Date, Tenant shall maintain commercial
general liability insurance, including contractual liability coverage, insuring
against the tort liabilities assumed under this Lease, including death, bodily
injury and property damages in the amount of not less than FIVE MILLION AND
NO/100 DOLLARS ($5,000,000.00) in respect of any one occurrence. Tenant's
general liability insurance shall, as its pertains to Landlord's liability
insurance, be primary coverage.
(b) Tenant shall maintain fire and casualty extended coverage insurance
on the Improvements and all other property located on the Premises. Landlord
shall have no liability or obligation to Tenant or any third party with respect
to any casualty damage or destruction of the Improvements or any other property
located on the Premises.
(c) All insurance policies required to be maintained by Tenant hereunder
shall be with responsible insurance companies, authorized to do business in the
State of Texas, shall name Landlord as an additional insured, as its interests
may appear, and shall provide for cancellation only upon ten (10) days prior
written notice to Landlord. Tenant shall evidence such insurance coverage by
delivering to Landlord certificates issuing by the insurance companies
underwriting such risks.
9. REPAIRS. Tenant shall have sole responsibility for maintaining the
Premises and for making all the Improvements.
GROUND LEASE - Page 5
<PAGE>
10. IMPROVEMENTS.
(a) Tenant shall be permitted to construct parking areas, drive ways and
structures on the Premises (the "Improvements") as set forth in the
architectural plans which are described on Exhibit "C" attached hereto. Tenant
shall not substantially vary the size, design or location of the Improvements
without Landlord's prior written consent, which consent shall not be
unreasonably withheld, provided that such variation will not delay, hinder,
impede, or increase the cost of, the development of the Adjacent Land as
contemplated by Landlord.
(b) Tenant shall not be entitled to impose a lien on the Premises and,
in the event any mechanics or materialman's lien is filed as a result of any
work done on the Premises by Tenant, or by any contractor, subcontractor or
laborer, or as a result of any materials furnished, which in any way relate to
the Improvements or the use of the Premises, Tenant shall promptly cause such
lien to be discharged and Tenant shall indemnify and hold Landlord harmless of
and from any damages arising out of such lien.
11. DAMAGE BY FIRE OR OTHER CASUALTY. If the Improvements located on the
Premises, or any part thereof, should be destroyed or damaged by fire or other
casualty, Tenant shall immediately deliver written notice thereof to Landlord;
however, the Term of this Lease shall continue until the stated expiration date
of same, and Tenant shall have the obligation to repair, restore or replace
Improvements or to raze same and restore the Premises to the condition in which
they existed prior to the Effective Date. Under no circumstances shall Landlord
have any obligation to repair, restore or replace the Improvements nor any
furnishings, fixtures, equipment or other personal property located on the
Premises. Tenant assumes the risk of loss with respect to the Improvements and
all furniture, fixtures, equipment or other personal property located on the
Premises.
GROUND LEASE - Page 6
<PAGE>
12. CONDEMNATION. If all or any part of the Premises shall be acquired by
the right of condemnation or eminent domain for any public or quasi-public use
or purpose, or sold to a condemning authority under threat of condemnation or in
lieu thereof, then the Term of this Lease shall, with respect to the affected
portion of the Premises, cease and terminate as of the date of title vesting in
such proceeding or sale. Tenant shall not be entitled to any portion of such
award; however, Tenant shall be permitted to maintain a separate action against
the condemning authority for its relocation expenses.
13. LIABILITY AND INDEMNIFICATION. LANDLORD SHALL NOT BE LIABLE TO TENANT
OR TENANT'S EMPLOYEES, AGENTS, SUBTENANTS, LICENSEES, PATRONS OR INVITEES, OR
ANY PERSON WHOMSOEVER, FOR ANY LOSS, DAMAGE OR INJURY, INCLUDING WITHOUT
LIMITATION INJURY TO PERSON OR DAMAGE TO PROPERTY, OCCURRING ON OR ABOUT THE
PREMISES, EXCEPT TO THE EXTENT CAUSED SOLELY BY THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF LANDLORD OR LANDLORD'S EMPLOYEES OR AGENTS. TENANT AGREES TO
INDEMNIFY LANDLORD AND LANDLORD'S EMPLOYEES AND AGENTS, AND HOLD EACH OF THEM
HARMLESS, FROM ANY LOSS, CLAIM, DAMAGE, COST OR EXPENSE SUFFERED OR INCURRED BY
LANDLORD, ITS EMPLOYEES AND AGENTS BY REASON OF ANY ACT, OMISSION OR EVENT
OCCURRING ON OR ABOUT THE PREMISES, REGARDLESS OF CAUSE, EXCEPT TO THE EXTENT
SUCH DAMAGE OR INJURY WAS CAUSED SOLELY BY THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF LANDLORD OR LANDLORD'S EMPLOYEES OR AGENTS.
GROUND LEASE - Page 7
<PAGE>
14. WAIVER OF SUBROGATION. Landlord and Tenant severally waive any and
every claim which arises or may arise in its favor and against the other during
the Term for any and all loss of, or damage to, any of its property located
within or upon, or constituting a part of, the Premises, which loss or damage is
or could be covered by fire and extended coverage insurance. Inasmuch as the
above mutual waivers will preclude the assignment of any aforesaid claim by way
of subrogation (or otherwise) to an insurance company (or any other person),
Landlord and Tenant severally agree immediately to give to each insurance
company which has issued to it policies of insurance, written notice of the
terms of said mutual waivers, and to have said insurance policies properly
endorsed, if necessary, to prevent the invalidation of said insurance coverages
by reason of said waivers.
15. LANDLORD-TENANT RELATIONSHIP. It is further understood and agreed that
the Landlord shall in no event be construed or held to be a partner, joint
venturer or associate of the Tenant in the conduct of the Tenant's business, nor
shall Landlord be liable for any debts incurred by the Tenant in the Tenant's
business; but it is understood and agreed that the relationship is and at all
times shall remain that of Landlord and Tenant.
16. ASSIGNMENT AND SUBLETTING. Tenant shall not assign this Lease or sublet
the whole or any part of the Premises. Without the prior written consent of
Landlord, which consent shall not be unreasonably withheld. No assignment or
subletting, notwithstanding that Landlord shall have approved same, shall
relieve Tenant of its obligation hereunder.
17. NOTICES AND PAYMENTS. Any notice or document required or permitted to
be delivered hereunder or by law shall be deemed to be delivered, whether
actually received or not, when delivered in person, two (2) business days after
such item is deposited in the United States mail, postage prepaid, certified or
registered, return receipt requested, or one (1) business day after such item is
deposited with Federal Express or other generally recognized overnight
GROUND LEASE - Page 8
<PAGE>
courier, shipping charges prepaid, addressed to the appropriate party hereto at
its address set out below, or at such other address as it shall have theretofore
specified by written notice delivered at least thirty (30) days prior to the
effective date of change in accordance herewith:
LANDLORD: Landry's Management, L.P.
1400 Post Oak Boulevard, Ste. 1010
Houston, Texas 77056
Attention: Steven L. Scheinthal
TENANT: 610 Loop Venture, L.L.C.
1400 Post Oak Boulevard, Suite 1010
Houston, Texas 77056
Attention: Tilman J. Fertita
18. DEFAULT.
(a) Each of the following events shall be a "Tenant Event of Default"
under this Lease:
(1) Tenant shall fail to pay any charge, utility bill, insurance
premium or other monetary amount which it is required to pay hereunder when
the same shall become payable and shall not cure such default within five
(5) days after written notice thereof is given by Landlord to Tenant;
(2) Tenant shall fail to comply with any term, provision or covenant
of this Lease, other than the payment of rent, and shall not cure such
failure within thirty (30) days after written notice thereof is given by
Landlord to Tenant;
(3) Tenant shall be adjudged insolvent, make a transfer in fraud of
creditors or make an assignment for the benefit of creditors;
(4) Tenant shall file a petition under any section or chapter of the
Bankruptcy Reform Code of 1978, as amended, or under any similar law or
statute of the
GROUND LEASE - Page 9
<PAGE>
United States or any state thereof, or Tenant shall be adjudged bankrupt or
insolvent in proceedings filed against Tenant thereunder;
(5) A receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant and Tenant shall not have had
such appointment discharged within ninety (90) days after Tenant receives
written notice of such appointment.
(b) Upon the occurrence of any Tenant Event of Default, Landlord shall
have the option to pursue any one or more of the following remedies without any
notice or demand whatsoever:
(1) Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails so to do, Landlord
may, without prejudice to any other remedy which it may have, enter upon
and take possession of the Premises and expel or remove Tenant and any
other person who may be occupying the Premises, or any part thereof, by
force if necessary, without being liable to prosecution or for any claim
for damages; and Tenant agrees to pay to Landlord on demand the amount of
all reasonable losses and damages which Landlord may suffer by reason of
such termination;
(2) Enter upon and take possession of the Premises and expel or
remove Tenant and other persons who may be occupying the Premises, or any
part thereof, without being liable to prosecution or for any claim for
damages by Tenant, and do whatever Tenant is obligated to do under the
terms of this Lease; and Tenant agrees to reimburse Landlord on demand for
any reasonable and necessary expenses which Landlord may incur in thus
effecting compliance with Tenant's obligations hereunder.
(c) Pursuit of any of the foregoing remedies shall not preclude pursuit
of any of the other remedies herein provided or any other remedies provided by
law, nor shall pursuit of any
GROUND LEASE - Page 10
<PAGE>
remedy herein provided constitute a forfeiture or waiver of any damage accruing
to Landlord by reason of the violation of any of the terms, provisions and
covenants herein contained. Forbearance by Landlord to enforce one or more of
the remedies herein provided upon the occurrence of a Tenant Event of Default
shall not be deemed or construed to constitute a waiver of such default.
Exercise by Landlord of any one or more remedies hereunder granted or otherwise
available shall not be deemed to be a termination of this Lease or an acceptance
of surrender of the Premises by Tenant, whether by agreement or by operation of
law it being understood that such termination or surrender can be effected only
by the expressed written notice or agreement of Landlord.
19. MISCELLANEOUS.
(a) The captions used in this Lease are for convenience only and shall
not be deemed to amplify, modify or limit the provisions hereof.
(b) Words of any gender used in this Lease shall be construed to include
any other gender, and words in the singular shall include the plural and vice
versa, unless the context otherwise requires.
(c) This Lease shall be binding upon and shall inure to the benefit of
Landlord and Tenant and their respective heirs, legal representatives and
successors.
(d) The Exhibits annexed to this Lease are hereby incorporated by
reference in their entirety with the same force and effect as if they were set
forth in this Lease in their entirety. This Lease contains the entire agreement
of Landlord and Tenant with respect to the subject matter hereof and can be
altered, amended or modified only by written instrument executed by both of such
parties.
(e) It is expressly agreed by Landlord and Tenant that time is of the
essence with respect to this Lease. In the event the date for performance of an
obligation or delivery of any notice
GROUND LEASE - Page 11
<PAGE>
hereunder falls on a day other than a business day, then the date for such
performance or delivery of such notice shall be postponed until the next ensuing
business day. Any references to "business days" contained herein are references
to normal working business days (i.e., Monday through Friday of each calendar
week, exclusive of Federal holidays).
(f) If any term or provision or any portion thereof, of this Lease, or
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and each term
and provision of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
(g) This Lease may be signed in counterparts with the same force and
effect as if all required signatures were contained in a single, original
instrument.
(h) In the event of litigation between the parties to enforce this
Lease, the party bringing such action shall, if it is the prevailing party in
such action, be entitled to recover reasonable costs and expenses of suit,
including, without limitation, court costs, attorneys' fees, and discovery
costs.
(i) This Lease shall construed, interpreted, and enforced pursuant to
the applicable laws of the state in which the Premises are located.
IN WITNESS WHEREOF, the parties hereto have executed this Lease to be
effective as of the Effective Date.
LANDLORD: TENANT:
LANDRY'S MANAGEMENT, L.P., 610 LOOP VENTURE, L.L.C.,
a Delaware corporation a Texas limited liability company
By: LANDRY'S G.P., INC.,
a Delaware corporation, general partner
By: ___________________ By: ________________
Name: Joe Max Taylor Name: Tilman J. Fertita
Title: Authorized Signature Title: Manager
GROUND LEASE - Page 12
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<PERIOD-START> JAN-01-1999
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0
0
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