SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the quarterly period ended September 10, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission File Number: 0-22786
TIMBER LODGE STEAKHOUSE, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Minnesota 41-1810126
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4021 Vernon Avenue South
St. Louis Park, Minnesota 55416
(Address of Principal Executive Offices)
(612) 929-9353
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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
As of October 10, 1997 there were outstanding 3,622,917 shares of the
issuer's Common Stock, $.01 par value per share.
<PAGE>
TABLE OF CONTENTS
Page
----
PART I
ITEM 1. FINANCIAL STATEMENTS............................................. 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................... 5
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................. 9
SIGNATURES................................................................ S-1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TIMBER LODGE STEAKHOUSE, INC.
BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 10, JANUARY 1,
1997 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................. $ 728,045 $ 1,178,373
Accounts receivable ................................... 184,039 136,576
Inventory ............................................. 262,075 203,268
Pre-opening costs ..................................... 371,143 168,933
Deferred tax assets ................................... 64,300 64,300
Prepaid expenses and other current assets ............. 653,939 366,240
------------ ------------
Total current assets ............................... 2,263,541 2,117,690
Property and equipment, net ................................ 12,868,444 10,970,370
Note receivable, related party ............................. 346,000 396,000
Deferred tax assets ........................................ 23,200 23,200
Other assets ............................................... 248,760 190,182
------------ ------------
Total assets ....................................... $ 15,749,945 $ 13,697,442
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................... $ 1,499,849 $ 1,127,673
Short-term borrowing .................................. 1,379,986 --
Accrued salaries and wages ............................ 328,127 262,346
Sales tax payable ..................................... 173,305 136,327
Gift certificates payable ............................. 179,398 535,997
Income tax payable .................................... 199,508 295,690
Accrued expenses and other liabilities ................ 46,332 97,569
------------ ------------
Total current liabilities .......................... 3,806,505 2,455,602
Deferred rent .............................................. 1,176,818 1,248,224
------------ ------------
Total liabilities .................................. 4,983,323 3,703,826
Shareholders' equity:
Common stock, $0.01 par value:
Authorized shares -- 10,000,000
Issued shares -- 3,612,583 at September 10, 1997 and
3,566,833 at January 1, 1997 ................... 36,126 35,668
Additional paid-in capital ............................ 8,847,768 8,793,814
Retained earnings ..................................... 1,882,728 1,164,134
------------ ------------
Total shareholders' equity ......................... 10,766,622 9,993,616
------------ ------------
Total liabilities and shareholders' equity ................. $ 15,749,945 $ 13,697,442
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
<PAGE>
TIMBER LODGE STEAKHOUSE, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED THIRTY-SIX WEEKS ENDED
SEPTEMBER 10, SEPTEMBER 11, SEPTEMBER 10, SEPTEMBER 11,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ............................... $ 6,335,297 $ 4,798,921 $ 17,471,290 $ 13,815,768
Costs and expenses:
Food and beverage costs ............ 2,357,749 1,794,490 6,528,248 5,210,380
Labor and benefits costs ........... 1,806,711 1,390,174 4,999,679 3,967,807
Restaurant operating expenses ...... 620,815 422,177 1,737,541 1,203,308
Occupancy costs .................... 687,065 549,066 1,847,700 1,488,773
------------ ------------ ------------ ------------
Restaurant costs and expenses ... 5,472,340 4,155,907 15,113,168 11,870,268
------------ ------------ ------------ ------------
Restaurant operating income ............. 862,957 643,014 2,358,122 1,945,500
General and administrative .............. 322,980 335,013 1,038,270 965,858
Amortization of pre-opening costs ....... 97,066 72,017 231,965 189,277
------------ ------------ ------------ ------------
Operating income ................... 442,911 235,984 1,087,887 790,365
Interest expense ........................ 65,358 8,774 113,608 13,313
Interest and other (income) expense ..... (15,544) (14,385) (52,315) (59,573)
------------ ------------ ------------ ------------
Income before income taxes .............. 393,097 241,595 1,026,594 836,625
Income taxes ....................... 118,000 43,350 308,000 167,300
------------ ------------ ------------ ------------
Net income .............................. $ 275,097 $ 198,245 $ 718,594 $ 669,325
============ ============ ============ ============
Net income per share .................... $ 0.08 $ 0.06 $ 0.20 $ 0.19
============ ============ ============ ============
Weighted average number of common and
common equivalent shares outstanding.. 3,665,907 3,572,500 3,662,717 3,573,310
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
<PAGE>
TIMBER LODGE STEAKHOUSE, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
THIRTY-SIX WEEKS ENDED
SEPTEMBER 10, SEPTEMBER 11,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income .......................................... $ 718,594 $ 669,325
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ................................ 760,697 611,725
Amortization ................................ 231,965 189,277
Deferred rent ............................... (71,406) 367,206
Changes in operating assets and liabilities:
Receivables ............................. (47,463) (23,295)
Inventories ............................. (58,807) (32,187)
Pre-opening costs ....................... (434,175) (310,082)
Prepaid expenses and other current assets (287,699) (53,476)
Accounts payable ........................ 372,176 (3,642)
Accrued salaries and wages .............. 65,781 70,251
Sales tax payable ....................... 36,978 53,455
Gift certificates payable ............... (356,599) (225,360)
Income taxes payable .................... (96,182) 179,347
Other accrued expenses .................. (51,237) 23,313
------------ ------------
Net cash provided by (used in) operating activities . 782,623 1,515,857
INVESTING ACTIVITIES
Purchases of property and equipment ................. (2,658,771) (3,436,567)
Other assets ........................................ (58,578) 19,454
------------ ------------
Net cash used in investing activities ............... (2,717,349) (3,417,113)
FINANCING ACTIVITIES
Proceeds from short-term borrowings ................. 1,379,986 370,000
Exercise of stock options ........................... 61,725 --
Principal collected on long term note ............... 50,000 10,000
Common stock repurchased ............................ (7,313) (10,100)
------------ ------------
Net cash provided by financing activities ........... 1,484,398 369,900
Net decrease in cash and cash equivalents ........... (450,328) (1,531,356)
Cash and cash equivalents at beginning of year ...... 1,178,373 2,020,096
------------ ------------
Cash and cash equivalents at end of period .......... $ 728,045 $ 488,740
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
<PAGE>
TIMBER LODGE STEAKHOUSE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 10, 1997
(unaudited)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying condensed Financial
Statements contain all normal recurring adjustments necessary for a fair
presentation. The results of operations for the thirty-six week period ended
September 10, 1997 are not necessarily indicative of the results to be expected
for the full year.
The significant accounting policies followed by the Company are set forth
in the Notes to Financial Statements in the Company's 1996 Annual Report and
Form 10-KSB filed with the Securities and Exchange Commission. These condensed
Financial Statements should be read in conjunction with the Financial Statements
in the 1996 Annual Report and Form 10-KSB.
2. NET INCOME PER SHARE
The net income per share is computed using the weighted average number of
shares of common stock equivalents, outstanding during the periods presented.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, EARNINGS PER SHARE, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
128 on the calculation of primary and fully diluted earnings per share for these
quarters is not expected to be material.
3. RECLASSIFICATION
Certain prior year items have been reclassified to conform with the
current year presentation.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following table sets forth the percentage relationship to net sales
of certain items included in the Company's statements of operations.
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED THIRTY-SIX WEEKS ENDED
----------------------- -----------------------
SEPT. 10, SEPT. 11, SEPT. 10, SEPT. 11,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ............................... 100.0 % 100.0 % 100.0 % 100.0 %
Costs and expenses:
Food and beverage costs ............ 37.2 37.4 37.4 37.7
Labor and benefits costs ........... 28.5 29.0 28.6 28.7
Restaurant operating expenses ...... 9.8 8.8 9.9 8.7
Occupancy costs .................... 10.9 11.4 10.6 10.8
------- ------- ------- -------
Restaurant costs and expenses . 86.4 86.6 86.5 85.9
------- ------- ------- -------
Restaurant operating income ............. 13.6 13.4 13.5 14.1
General and administrative .............. 5.1 7.0 5.9 7.0
Amortization of pre-opening costs ....... 1.5 1.5 1.3 1.4
------- ------- ------- -------
Operating income .................... 7.0 4.9 6.2 5.7
Interest expense ........................ 1.0 0.2 0.7 0.1
Interest and other (income)/expense ..... (0.2) (0.3) (0.3) (0.4)
------- ------- ------- -------
Income before income taxes .............. 6.2 5.0 5.9 6.0
Income taxes ....................... 1.9 .9 1.8 1.2
------- ------- ------- -------
Net income .............................. 4.3 % 4.1 % 4.1 % 4.8 %
======= ======= ======= =======
Number of restaurants
open at end of period ................... 15 12
</TABLE>
<PAGE>
TWELVE WEEKS ENDED SEPTEMBER 10, 1997, COMPARED TO TWELVE WEEKS ENDED SEPTEMBER
11, 1996.
NET SALES. Total sales for the twelve weeks ended September 10, 1997
increased 32.0% to $6,335,297 compared to $4,798,921 for the same period last
year. The increase is attributable to the four new restaurants opened since the
beginning of the third quarter of fiscal 1996. Same store sales, for stores open
at least 18 months, were up 8.7%. This increase is due primarily to television
advertising that ran for a four-week period in July and August of 1997 in the
Minneapolis / St. Paul market. Seven of the ten restaurants in the same store
sales comparison are in the Twin Cities of Minneapolis / St. Paul.
COSTS AND EXPENSES. Cost of restaurant sales, consisting of food and
beverage costs, were down .2% to a level of 37.2% compared to last year at 37.4%
as a percent of net sales. The Company received some rebates and price
adjustments from food suppliers in the third quarter of 1997 that in the prior
year were received in the fourth quarter.
Labor and related benefit costs decreased .5% to 28.5% compared to
29.0% for the same period last year. Hourly labor productivity gains were
achieved during the quarter in the more established restaurants. These
restaurants also benefited from the revenue increases in the same store sales
increase of 8.7% for the period.
Restaurant operating expenses and occupancy costs include all other
unit-level costs, the major components of which are rents, real estate taxes,
utilities, store supplies, repairs and maintenance and other related occupancy
costs. Restaurant operating expenses and occupancy costs combined increased .5%
to 20.7% of net sales compared to 20.2% for the same period last year. The
increase is attributable primarily to a change in charging the service fees for
credit card transactions to the individual restaurants as part of restaurant
operating expenses in fiscal 1997. In the prior year these expenses were part of
general and administrative expenses, and in both periods, represent
approximately 1.0% of net sales.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased 1.9% to 5.1% of net sales compared to 7.0% for the same
period last year. This decrease is attributable to the change in classification
of credit card fees mentioned in the previous paragraph, increased revenues and
the absence of costs for the chief financial officer position which was vacant
for much of the third quarter of 1997.
AMORTIZATION OF PRE-OPENING COSTS. Amortization of pre-opening costs
were constant at 1.5% of net sales for both periods. The Company amortizes
pre-opening costs for new restaurants over a twelve month period commencing with
the first full period after the restaurant's opening.
INTEREST AND OTHER INCOME. Interest was paid on short term borrowings
via a line of credit and construction loan the Company has with a local bank.
The increase in short term borrowings was used to meet the Company's working
capital needs and funding construction of the Company's new St. Cloud, Minnesota
restaurant, as well as construction in progress on new restaurants in Crystal,
Minnesota and Arlington Heights, Illinois.
Interest income was earned on marketable securities and a promissory
note related to the Q. Cumbers sale. Interest income for both periods was
approximately at the same dollar amounts.
PROVISION FOR INCOME TAXES. The Company's effective tax rate is
estimated at 30% compared to 20% for the same period last year. The increase in
the effective tax rate is a result of the Company receiving refunds of taxes
previously provided for in 1996, that resulted from net loss carryforwards from
1995 operations. The company's tax rate is impacted by tax credits for FICA tax
paid on tips received by restaurant employees.
<PAGE>
NET INCOME. The Company's net income was $275,097 or $.08 per share
compared to $198,245 or $.06 per share for the same period last year.
THIRTY-SIX WEEKS ENDED SEPTEMBER 10, 1997, COMPARED TO THIRTY-SIX WEEKS ENDED
SEPTEMBER 11, 1996.
NET SALES. Total sales for the thirty-six weeks ended September 10,
1997 increased 26.5% to $17,471,290 compared to $13,815,768 for the same period
last year. The increase is attributable to opening six new restaurants since the
beginning of 1996. Same store sales for stores open at least 18 months were up
5.4% year-to-date 1997.
COSTS AND EXPENSES. Cost of restaurant sales consisting of food and
beverage decreased .3% to 37.4% compared to 37.7% for the same period last year.
The Company experienced lower produce costs in 1997 vs. last year that offset an
increase in beef prices in 1997.
Labor and related benefit costs were 28.6% as a percentage of sales
compared to 28.7% for the same period last year. Labor productivity improvements
were achieved year-to-date commensurate with the same store sales increase but
were somewhat offset by an increase in payroll related taxes and benefit costs.
Restaurant operating expenses and occupancy costs combined were 20.5%
year-to-date compared to 19.5% for the same period last year. The increase is
attributable principally to the change in classification of credit card fees
previously discussed.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased 1.1% to 5.9% of net sales compared to 7.0% for the same
period last year. The decrease is due to the higher level of revenues in 1997,
the reclassification of credit card fees to the store level in 1997, and the
vacancy during much of the third quarter of fiscal 1997 at the chief financial
officer position. The Company has increased its spending in 1997 for both
television and radio advertising when compared to spending levels in fiscal
1996.
AMORTIZATION OF PRE-OPENING COSTS. Amortization of pre-opening costs
decreased to 1.3% of sales compared to 1.4% for the same period last year. This
modest change is driven by revenue growth in 1997.
INTEREST EXPENSE AND OTHER INCOME. Interest was paid on short term
borrowings via a line of credit and construction loan the Company has with a
local bank. Short term borrowings were used to meet working capital needs while
interest was paid on equipment financing agreements and a construction loan to
build new restaurants.
Interest income was earned on marketable securities and a promissory
note related to the Q. Cumbers sale.
PROVISION FOR INCOME TAXES. The Company's effective tax rate is
estimated at 30% compared to a 20% rate for same period last year.
NET INCOME. The Company's net income year-to-date was $718,594 or $.20
per share compared to $669,325 or $.19 for the same period last year.
<PAGE>
FOURTH QUARTER 1997 ESTIMATES
Effective September 1, 1997 the federal minimum wage was raised to
$5.15 an hour. This is an increase of 8.4% over the federal minimum wage of
$4.75 an hour that became effective October 1, 1996. Minnesota is one of the few
states that does not permit "tip credit" (the practice of employers paying
tipped employees below the minimum wage, with tips from customers making up the
balance of the minimum wage obligation). Because nine of the Company's fifteen
restaurants are located in Minnesota, the Company has made selective price
increases to its Minnesota menu effective September 12, 1997 to offset the
impact of this wage cost increase. The Company estimates the effect of these
selective price increase to be in the range of 1.5% to 2.0% for its Minnesota
operations, and these price increases should maintain the levels of restaurant
operating income.
The Company is planning to open two more restaurants late in the
fourth quarter of 1997, one in Crystal, Minnesota (a Minneapolis suburb) and one
in Arlington Heights, Illinois (a Chicago suburb).
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has leased its restaurant sites under
non-cancelable leases for periods of six to twenty years, with renewal options
of between three and ten years. The Company plans to continue leasing sites for
expansion in the foreseeable future.
On September 23, 1997, Timber Lodge Steakhouse, Inc. entered into a
sale and leaseback financing agreement with AEI Fund Management, Inc. of St.
Paul, Minnesota. The agreement covers up to four restaurants / parcels within
the next eighteen (18) months. Among other provisions, the agreement obligates
Timber Lodge to a twenty (20) year rental / lease term, with two (2) five-year
options to renew. Beginning in the third (3rd) lease year and every lease year
thereafter for each of the four (4) restaurants / parcels, including any renewal
terms, such annual rent will increase by an amount equal to 1.925% of the prior
period's scheduled annual rent. The first of the four restaurants to participate
in this financing arrangement is scheduled for the St. Cloud, Minnesota
restaurant which opened in May of 1997. A closing date for AEI's purchase of the
restaurant / parcel is planned for late November 1997.
For the thirty-six week period ended September 10, 1997, the Company
generated $783,000 of cash from its operating activities and obtained $1,484,000
in cash from financing activities, with borrowings from its bank of $1,380,000
representing the primary source of financing funds. The Company spent $2,717,000
on new restaurant construction during this period and the total cash balance
decreased $450,000.
On September 10, 1997, the Company had a cash balance of $728,000 and a
negative working capital balance of $1,543,000. The Company is working with its
bank to increase the line of credit facility.
The Company believes that cash generated from operations and the cash
that will be provided from the sale / leaseback transactions with AEI will
provide the necessary cash to repay the bank construction loan and fund
operations for at least the next twelve months.
<PAGE>
MANAGEMENT CHANGES
William J. Birmingham joined Timber Lodge Steakhouse, Inc. on September
2, 1997 as Chief Financial Officer. Mr. Birmingham filled the vacancy that was
created when the former CFO, Robert G. Cornell, left the Company earlier in the
summer of 1997. From July 1996 to May 1997 Mr. Birmingham served as Chief
Financial Officer for XOX Corporation, a St. Paul, Minnesota - based software
company that provides proprietary software for geometric computing. From January
1995 to March 1996, he served as Chief Financial Officer for B-Tree Verification
Systems, Inc., a Minneapolis - based company that provides test stations that
validate the software in devices containing embedded microprocessors. From
December 1992 through December 1994, he was Chief Financial Officer of Waters
Instruments, Inc., Rochester, Minnesota, a company that manufactures
electro-mechanical devices for the medical, computer, communications and
agriculture markets. Prior to this time, Mr. Birmingham was Chief Financial
Officer of a startup medical device company in Minneapolis (f/k/a Cherne
Medical) and had an extended career with 3M Company, St. Paul, Minnesota
involving financial and marketing management positions. Mr. Birmingham received
both a Masters and Bachelors degree from the University of Wisconsin, Madison
and is a Certified Public Accountant.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No. Exhibit
----------- -------
10.3 Financing agreement between AEI Fund Management,
Inc. and the Company dated September 23, 1997.
27.1 Financial Data Schedule filed herewith
electronically.
(b) No reports on Form 8-K have been filed during the quarter for which
this report was filed.
<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 thereunto duly authorized.
TIMBER LODGE STEAKHOUSE, INC.
Date: October 20, 1997 By: /s/ Dermot F. Rowland
-----------------------------------
Dermot F. Rowland
Its: Chief Executive Officer
Date: October 20, 1997 By: /s/ William J. Birmingham
-----------------------------------
William J. Birmingham
Its: Chief Financial Officer
MULTI-SITE AGREEMENT
FOR
TIMBER LODGE STEAKHOUSE INC.
AEI FUND MANAGEMENT, INC.
1300 Minnesota World Trade Center
30 East Seventh Street
St. Paul, MN 55101
<PAGE>
MULTI-SITE
SALE LEASEBACK
FINANCING AGREEMENT
FOR
TIMBER LODGE STEAKHOUSE, INC.
(the "Agreement")
This Agreement, made and entered into this 23rd day of September, 1997,
by and between Timber Lodge Steakhouse, Inc. (the "Seller/Lessee") and AEI Fund
Management, Inc. or its assigns ("AEI").
WITNESSETH THAT:
Whereas, Seller/Lessee, or its affiliates (those parties in which 10%
or more of the capital stock is owned or controlled by Seller/Lessee) or
controlling persons or entities (those parties owning or controlling 10% or more
of Seller/Lessee's capital stock), (collectively, also known as "Seller/Lessee"
or "Principals") intends to develop certain parcels of real estate for use as
Timber Lodge Steakhouse restaurants and desires to have AEI purchase such
parcels and the improvements thereon (collectively, the "Parcels", and
individually a "Parcel"), and simultaneously lease such Parcels back to
Seller/Lessee; and
Whereas, AEI desires to consider such Parcels for purchase and if
purchased, to lease such Parcels back to Seller/Lessee, under terms and
conditions hereinafter provided;
NOW, THEREFORE, for Ten Dollars ($10.00) paid by Seller/Lessee to AEI,
and other good and valuable consideration, receipt of which is hereby
acknowledged, it is agreed by and between the parties that:
ARTICLE 1. SCOPE OF AGREEMENT.
1.1 AEI agrees to purchase, by sale/leaseback transactions, from
Seller/Lessee up to four (4) Parcels within the next eighteen (18) months, the
purchase of each Parcel being subject to AEI's standard credit site, and other
due diligence review and conditions precedent. Each
Lessee Initial: /s/ WJB
Commitment For: (Timber Lodge Steakhouse, Inc.)
<PAGE>
sale/leaseback transaction shall be upon the same terms and conditions as agreed
to by the parties for the first sale/leaseback transaction between AEI and
Seller/Lessee under this Agreement, except as to the purchase price for a
Parcel, which amount may differ, and such other facts and circumstances as shall
be reflected in the documents particular to a specific Parcel, including matters
of local law. Seller/Lessee shall be obligated to provide up to four (4) Parcels
to AEI to the extent Seller/Lessee finances the development of such Parcels
through sale/leaseback transactions. Parcels developed for Seller/Lessee as
build-to-suits by independent developers who owned fee title to the Parcel
before Seller/Lessee identified the Parcel, ground lease Parcels, and any Parcel
which Seller/Lessee retains fee title, are excluded from this agreement.
1.2 Seller/Lessee shall give AEI not less than sixty (60) days notice
as to the availability of a Parcel prior to the date Seller/Lessee desires to
sell and leaseback such Parcel from AEI. Such notice shall include:
1. a site development plan;
2. the estimated development budget; (including the purchase
price for the land, the improvements on the Parcel and
Seller's overhead allocation equal to $5,000.00 per Parcel for
up to four (4) Parcels);
3. a copy of the purchase agreement for the land, including the
purchase date and cost of the land to Seller/Lessee;
4. the anticipated opening date of the business which will occupy
the leased premises;
5. demographic and site information;
6. color photographs of the site and the surrounding properties;
7. a profit/loss pro forma for the proposed business to be
conducted on the Parcel;
8. financial statements of Seller/Lessee and all guarantors as
outlined on Exhibit "A" attached hereto; and
9. a list of competing businesses and a location map showing each
competitor located within three miles of the Parcel, including
the estimated sales from those competitors, if available.
1.3 AEI reserves the right to perform a site inspection of each Parcel
prior to or after issuing a purchase commitment. Within five (5) business days
of receipt of an invoice from AEI, Seller/Lessee shall reimburse AEI for its
actual out of pocket costs of performing such site
Lessee Initial: /s/ WJB
Commitment For: (Timber Lodge Steakhouse, Inc.)
<PAGE>
inspection, not to exceed $1,500.00 per Parcel. Such costs may, at
Seller/Lessee's option, be included as a funded project cost and reimbursed by
AEI.
1.4 AEI shall have fifteen (15) business days from receipt of notice of
availability of a Parcel, and receipt of those items specified in Article 1.2
hereof, to issue a purchase commitment or a development financing and leasing
commitment. If AEI rejects a Parcel, AEI shall advise Seller/Lessee of such
decision in writing.
1. If AEI issues a purchase commitment, it shall contain the
terms upon which AEI will purchase the specific Parcel (including but not
limited to the terms of Article 2 hereof), which Seller/Lessee shall then
execute and return to AEI within ten (10) business days. Seller/Lessee shall,
upon returning such purchase commitment to AEI, remit a commitment fee of one
percent (1.0%) of the estimated amount for which AEI will be expected to pay for
the purchase of the Parcel not including the amount funded by AEI for Seller's
overhead allocation, such fee to be adjusted at the closing of the transaction
to accurately reflect total project costs not including the amount funded by AEI
for Seller's overhead allocation funded by AEI. At Seller/Lessee's option, such
fee may be reimbursed to Seller/Lessee as a funded project cost upon AEI's
acquisition of the Parcel.
2. If AEI issues a development financing and leasing
commitment, it shall contain the terms upon which AEI will purchase the specific
Parcel and provide development financing (including but not limited to the terms
of Article 2 hereof), which Seller/Lessee shall then execute and return to AEI
within ten (10) business days. Seller/Lessee shall, upon returning such
development financing and leasing commitment to AEI, remit a commitment fee of
one and one-half percent (1.5%) of the estimated amount for which AEI will be
expected to pay for the purchase of the Parcel and the anticipated improvements
thereon not including the amount funded by AEI for Seller/Lessee's overhead
allocation, such fee to be adjusted at the upon the final disbursement of the
transaction to accurately reflect total project costs not including the amount
funded by AEI for Seller/Lessee's overhead allocation funded by AEI. At
Seller/Lessee's option, such fee may be reimbursed to Seller/Lessee as a funded
project cost upon the final disbursement of the transaction.
Lessee Initial: /s/ WJB
Commitment For: (Timber Lodge Steakhouse, Inc.)
<PAGE>
1.5 If AEI does not elect to issue a purchase commitment or development
financing and leasing commitment for any Parcel for which it receives proper
notice hereunder, Seller/Lessee shall be released from all further obligations
to AEI hereunder with respect to such single Parcel only.
ARTICLE 2. PURCHASE PRICE AND TERMS OF PURCHASE
2.1 The purchase price for each Parcel shall be equal to the actual
total project cost of the Parcel, to include those costs described on Exhibit
"B" attached hereto and approved by AEI, not to exceed the AEI approved MAI
appraised value (the "Purchase Price").
2.2. Each lease shall be an absolute triple net lease.
2.3 The initial annual rent for the first two (2) lease years for the
Northern, IL Parcel purchased hereunder shall be ten and three quarters percent
(10.75%), for the St. Cloud Parcel purchased hereunder shall be ten and sixty
six hundredths percent (10.66%), and for the third and fourth Parcels purchased
hereunder shall be ten and five hundred thirty-five thousandths percent
(10.535%) of the total of the Parcels' Purchase Price less the amount funded by
AEI for Seller's overhead allocation. Beginning in the third (3rd) lease year
and every lease year thereafter for each of the four (4) Parcels, including any
renewal terms, such annual rent will increase by an amount equal to one and nine
hundred twenty-five thousandths percent (1.925%) of the prior period's scheduled
annual rent.
2.4 The term of the lease shall be twenty (20) years, with two (2)
five-year options to renew.
2.5 For each Parcel which AEI issues a purchase commitment, AEI may
agree to provide Seller/Lessee, upon Seller/Lessee's' request with:
1. land acquisition and construction loan financing, subject
to AEI's then standard credit, site, and other due diligence review and approval
standards and procedures, up to the amount of the Purchase Price, at an
annualized interest rate of seven and one quarter percent (7.25%) or one percent
(1.0%) under the prime rate on the date AEI issues the construction loan
commitment, whichever is greater, commencing from the date of disbursement. Upon
approval by AEI to provide construction loan financing, Seller/Lessee shall,
upon returning the signed
Lessee Initial: /s/ WJB
Commitment For: (Timber Lodge Steakhouse, Inc.)
<PAGE>
purchase commitment to AEI, also execute a construction loan commitment and
remit a nonrefundable out-of-pocket construction loan commitment fee in an
amount equal to one percent (1.0%) of the amount of the construction financing
requested. At Seller/Lessee's option, such fee may be reimbursed to
Seller/Lessee as a funded project cost upon AEI's acquisition of the Parcel, or
2. development financing, subject to AEI's then standard
credit, site, and other due diligence review and approval standards and
procedures, up to the amount of the Purchase Price, at an annualized rental rate
and interest rate of seven and one quarter percent (7.25%) or one percent (1.0%)
under the prime rate on the date AEI issues the development financing and
leasing commitment, whichever is greater, commencing from the date of
disbursement. Such rate shall be adjusted to the applicable rental rate one
hundred and twenty days (120) after AEI's acquisition of the Parcel. Upon
approval by AEI to provide development financing, Seller/Lessee shall, upon
returning the signed development financing and leasing commitment to AEI, remit
a non-refundable out-of-pocket commitment fee in an amount equal to one and
one-half percent (1.5%) of the amount of the development financing requested. At
Seller/Lessee's option, such fee may be reimbursed to Seller/Lessee as a funded
project cost upon AEI's acquisition of the Parcel.
2.6 Seller/Lessee shall pay for all expenses incident to the closing of
each transaction contemplated hereunder, including AEI's outside attorney's
fees. AEI's attorney fees shall be capped at twelve thousand five hundred
dollars ($12,500.00) per Parcel, unless Seller/Lessee shall default under the
purchase agreement, construction loan commitment, loan or lease documents,
development financing documents, or extraordinary events occur. If such
extraordinary events occur the cap for legal fees shall cease and Seller/Lessee
shall pay all actual legal expenses. All other actual closing costs shall be
paid in full by Seller/Lessee. Such costs may, at Seller/Lessee's option, be
included as project costs and funded by AEI in the Purchase Price.
ARTICLE 3. CLOSING DATE.
Seller/Lessee shall provide AEI not less than sixty (60) days notice
prior to: (a) its intended date to close on the construction financing for the
Parcel, or (b) in the event AEI does not provide the construction financing for
the Parcel, the anticipated completion date of the sale of the Parcel to AEI and
leaseback by Seller/Lessee (the "Closing Date"). It is contemplated that
Lessee Initial: /s/ WJB
Commitment For: (Timber Lodge Steakhouse, Inc.)
<PAGE>
the Closing Date shall be as close as is reasonably practical to the opening of
the business at the Parcel, but not to exceed thirty (30) days from the actual
opening date.
ARTICLE 4. CONTINGENCY.
The issuance of a purchase commitment for a specific Parcel is subject
to AEI's review and approval of the financial statements of Seller/Lessee, and
all due diligence required by Article 1.2 and Article 1.3 hereof.
ARTICLE 5. REMEDIES.
If Seller/Lessee shall fail to offer to AEI a Parcel which
Seller/Lessee sells as a sale/leaseback transaction to another party, then AEI
shall be entitled to recover from Seller/Lessee, as liquidated damages, the sum
of 7.0% of the Seller's gross proceeds from the sale of such Parcel and any
capital improvements or fixtures (not trade fixtures) placed thereon by Seller
or for Seller's use.
ARTICLE 6. NOTICE.
All notices provided for herein shall be in writing and shall be deemed
to have been given when delivered personally, or by registered or certified
mail, or nationally recognized overnight carrier, return receipt requested,
postage prepared, addressed as follows:
If to Seller/Lessee, at: Timber Lodge Steakhouse, Inc.
4021 Vernon Avenue South
St. Louis Park, MN 55416
Attention: Dermot Rowland
If to AEI, at: AEI Fund Management, Inc.
1300 Minnesota World Trade Center
30 East Seventh Street
St. Paul, Minnesota 55101
Attention: Robert P. Johnson
Lessee Initial: /s/ WJB
Commitment For: (Timber Lodge Steakhouse, Inc.)
<PAGE>
or addressed to any such party at such address as such party shall hereinafter
furnish by notice to the other parties.
ARTICLE 7. MISCELLANEOUS.
7.1 This Agreement shall be construed according to the laws of the
State of Minnesota and the parties agree to be governed by the jurisdiction of,
and consent to venue of any action to enforce this agreement in, the State of
Minnesota.
7.2 AEI shall have the right, at any time, to assign its interest
herein with respect to this entire Agreement or any individual Parcel, in whole
or in part.
7.3 In the event it becomes necessary for either party to bring suit to
enforce the terms or conditions hereof, the prevailing party shall have the
right to recover reasonable attorney's fees and costs from the other party.
7.4 This Agreement shall expire upon the earlier of AEI's issuance of a
purchase commitment for the total number of Parcels contemplated under this
Agreement, or at the end of thirty-six (36) months from the date hereof.
7.5 In the event Seller/Lessee and AEI do not reach mutual agreement on
the documents contemplated to be executed by either party for the first
transaction contemplated hereunder, this Agreement may be terminated at the
option of either party. Once documents have been mutually agreed upon between
the two parties for the first transaction, then Seller/Lessee may object only to
those changes made to the documents since the most immediate prior transaction.
Seller/Lessee shall, in such event, reimburse AEI for its out-of-pocket expenses
incurred for the first transaction, including, but not limited to, attorney's
fees.
7.6 Each lease will provide an option for Seller/Lessee to repurchase
the Parcel as follows:
AEI would grant Seller/Lessee an option for Seller/Lessee to
repurchase each Parcel at any time during the eighth (8th)
lease year. The purchase price will be determined by
compounding AEI's acquisition cost as reported in its Form 10K
Financial Statement as filed with the Securities and Exchange
Commission (SEC)
Lessee Initial: /s/ WJB
Commitment For: (Timber Lodge Steakhouse, Inc.)
<PAGE>
by five percent (5.0%) lease per year, prorated for the
partial lease year during lease year eight (8), plus all
transaction costs.
7.7 This Agreement is null and void unless executed and returned to AEI
by September 23, 1997.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
AEI FUND MANAGEMENT, INC.
("AEI")
By: /s/ Robert P. Johnson Dated: 9-23-97
--------------------------------- ---------------
Robert P. Johnson, President
TIMBER LODGE STEAKHOUSE, INC.
("Seller/Lessee")
By: /s/ William J. Birmingham Dated: 23 Sept. 1997
--------------------------------- ---------------
Lessee Initial: /s/ WJB
Commitment For: (Timber Lodge Steakhouse, Inc.)
<PAGE>
EXHIBIT "A"
FINANCIAL DOCUMENTATION REQUIREMENTS
Prior to Closing, the following must be received and approved by AEI, along with
those items specified more fully in the Sale and Leaseback Financing Commitment.
I. Lessee's prior three (3) fiscal years' Form 10-K reports as filed with
the Securities and Exchange Commission.
II. Lessee's prior three fiscal years' Annual Shareholder Reports.
III. Lessee's Form 10-Q reports filed with the Securities and Exchange
Commission during its current and prior two fiscal year periods.
IV. Lessee's internally generated per store annual financial statements for
the current and year-to-date periods. Said financial statements shall
include at a minimum, a balance sheet and statement of income. Cash
flow statements and statements of stockholder's equity should also be
provided if available.
V. Lessee's internally generated per store financial statements for each
of its prior two fiscal year periods. Said financial statements shall
include at a minimum, a balance sheet and statement of income. Cash
flow statements and statements of stockholder's equity should also be
provided if available.
VI. Pro forma of first year's operations for the property to be purchased.
VII. Itemized budget of total project cost for the property to be purchased.
- --------------------------------------------------------------------------------
Lessee's financial statements, and any additional financial information
requested by AEI shall be prepared in accordance with current GAAP guidelines
and signed by an authorized officer who must certify to the accuracy thereof.
The certification language must read as follows:
"THE UNDERSIGNED HEREBY CERTIFIES AND WARRANTS THAT THE INFORMATION
CONTAINED IN THESE FINANCIAL STATEMENTS IS TRUE AND CORRECT,
UNDERSTANDS THAT AEI IS RELYING UPON SUCH INFORMATION AS AN INDUCEMENT
FOR ENTERING INTO A PURCHASE TRANSACTION WITH THE UNDERSIGNED, AND
EXPRESSLY REPRESENTS THAT AEI MAY HAVE RELIANCE UPON SUCH INFORMATION."
- --------------------------------------------------------------------------------
Lessee Initial: /s/ WJB
Commitment For: (Timber Lodge Steakhouse, Inc.)
<PAGE>
EXHIBIT "B"
(COSTS WHICH MAY BE INCLUDED IN THE PURCHASE.)
1. Land Costs or Site Acquisition Costs at Seller's or Lessee's actual
cost from unaffiliated parties.
2. Demolition Costs and Site Preparation Costs.
3. Architectural and Engineering Fees paid to non-affiliates.
4. Outside Labor Costs for construction of the improvements on the Parcel.
5. Material Costs.
6. Soil Report and Environmental Report Costs.
7. Surveying Costs paid to non-affiliates.
8. Building permits, use permits and other governmental charges.
9. Contractor Fees to non-affiliates.
10. Builders' Risk Insurance and Public Liability Insurance Premiums during
the construction period.
11. Utility Charges during construction.
12. Construction Interest.
13. AEI's Commitment Fee(s).
14. Title Insurance Fees and Charges.
15. Recording Fees and Registration or Conveyancing Taxes, Fees, or
Charges.
16. Any fees or costs incurred by AEI in qualifying to hold title in the
state where the Parcel is located.
17. Appraisal Fees paid to non-affiliates.
18. Attorneys' Fees of Lessee.
19. Attorneys' Fees of AEI.
20. AEI's Site Inspection Fees.
21. Attached, Permanent Equipment, not including signage, up to nine
percent (9.0%) of Purchase of the Price.
22. Seller's overhead allocation equal to $5,000 per Parcel.
Lessee Initial: /s/ WJB
Commitment For: (Timber Lodge Steakhouse, Inc.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TIMBER LODGE
STEAKHOUSE'S BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000912287
<NAME> TIMBER LODGE STEAKHOUSE, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-02-1997
<PERIOD-END> SEP-10-1997
<CASH> 728,045
<SECURITIES> 0
<RECEIVABLES> 184,039
<ALLOWANCES> 0
<INVENTORY> 262,075
<CURRENT-ASSETS> 2,263,541
<PP&E> 12,868,444
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,749,945
<CURRENT-LIABILITIES> 3,806,505
<BONDS> 0
0
0
<COMMON> 36,126
<OTHER-SE> 8,847,768
<TOTAL-LIABILITY-AND-EQUITY> 15,749,945
<SALES> 17,471,290
<TOTAL-REVENUES> 17,471,290
<CGS> 15,113,168
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113,608
<INCOME-PRETAX> 1,026,594
<INCOME-TAX> 308,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 718,594
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0
</TABLE>
