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 28, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No. 0-24502
ROCK BOTTOM RESTAURANTS, INC.
(Exact name of the registrant as specified in its charter)
Delaware 84-1265838
(State of incorporation) (I.R.S. Employer Identification No.)
248 Centennial Parkway, Suite # 100, Louisville, Colorado 80027
(Address of principal executive offices) (Zip Code)
(303) 664-4000
(Registrant's telephone number
including area code)
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 twelve 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
---- ----
As of May 12, 1999, the Registrant had outstanding 8,048,855 shares of common
stock, par value $.01 per share.
<PAGE>
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
THREE MONTHS ENDED MARCH 28, 1999
Page
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-
March 28, 1999 and December 27, 1998 1-2
Condensed Consolidated Statements of Operations-
Three Months Ended March 28, 1999 and March 29, 1998 3
Condensed Consolidated Statements of Cash Flows- 4
Three Months Ended March 28, 1999 and March 29, 1998
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-14
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
Signature page 19
<PAGE>
Page 1 of 2
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 28, December 27,
ASSETS 1999 1998
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,022,812 $ 449,496
Accounts receivable 512,502 605,823
Income taxes receivable -- 89,392
Inventories 2,307,137 2,532,074
Prepaids and other current assets 702,404 740,516
Current deferred income taxes, net 689,744 689,744
----------- -----------
Total current assets 5,234,599 5,107,045
----------- -----------
PROPERTY AND EQUIPMENT:
Land 5,527,087 5,527,087
Buildings and leasehold improvements 62,727,762 60,318,706
Furniture, fixtures and equipment 48,855,331 47,101,540
Construction-in-progress 4,782,329 5,624,740
Accumulated depreciation and amortization (26,094,543) (24,139,857)
----------- -----------
Total property and equipment, net 95,797,966 94,432,216
----------- -----------
ASSETS HELD FOR DISPOSITION 1,542,127 1,542,127
----------- -----------
OTHER ASSETS 159,098 210,139
----------- -----------
DEFERRED INCOME TAXES, net 1,205,334 1,205,334
----------- -----------
TOTAL ASSETS $103,939,124 $102,496,861
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
Page 2 of 2
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 28, December 27,
LIABILITIES AND STOCKHOLDERS'EQUITY 1999 1998
----------------------------------- ----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable-
Trade $ 4,837,658 $ 4,187,581
Construction projects 650,648 1,551,036
Accrued payroll and payroll taxes 2,200,350 2,451,729
Accrued taxes other than income tax 937,521 819,628
Other accrued expenses 3,344,170 2,958,702
Current portion of accrued restructuring charges 371,018 430,978
Current portion of long-term debt 114,606 179,184
Current portion of obligations under capital leases 206,778 224,825
Revolving line of credit 21,100,000 19,050,000
----------- -----------
Total current liabilities 33,762,749 31,853,663
LONG-TERM DEBT 2,159,844 2,195,349
OBLIGATIONS UNDER CAPITAL LEASES 2,243,285 2,255,905
ACCRUED RESTRUCTURING CHARGES 762,469 769,227
----------- ------------
Total liabilities 38,928,347 37,074,144
----------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value, 5,000,000 shares
authorized, none issued and outstanding -- --
Common stock - $.01 par value, 15,000,000 shares
authorized, 8,045,796 and 8,056,085 shares issued and
outstanding 80,457 80,560
Additional paid-in capital 58,190,043 58,287,943
Retained earnings 7,426,047 7,789,248
Deferred compensation (685,770) (735,034)
----------- ------------
Total stockholders' equity 65,010,777 65,422,717
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $103,939,124 $ 102,496,861
=========== ============
</TABLE>
See accompanying notes.
<PAGE>
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 28, 1999 AND MARCH 29, 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
-------- --------
(restated - Note 3)
<S> <C> <C>
REVENUES:
Old Chicago restaurants $ 18,358,679 $ 18,388,367
Brewery restaurants 22,481,368 20,205,888
----------- -----------
Total revenues 40,840,047 38,594,255
----------- -----------
OPERATING EXPENSES:
Cost of sales 10,182,449 9,719,388
Restaurant salaries and benefits 13,842,256 12,818,925
Operating expenses 8,337,243 7,685,745
Selling expenses 1,244,131 1,273,582
General and administrative 2,832,508 2,638,374
Depreciation and amortization 2,176,641 2,168,967
Start-up costs 677,177 246,917
Other operating expenses, net 114,507 234,376
----------- -----------
Total operating expenses 39,406,912 36,786,274
----------- -----------
INCOME FROM OPERATIONS 1,433,135 1,807,981
Equity in joint venture earnings -- 175,000
Interest income 1,184 1,012
Interest expense (513,175) (584,132)
Acquisition transaction costs (984,973) --
----------- -----------
(LOSS) INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (63,829) 1,399,861
Income tax expense 299,372 454,955
----------- -----------
(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (363,201) 944,906
Cumulative effect of change in accounting for
start-up costs, net of income taxes of $764,532 -- (1,250,037)
----------- -----------
NET LOSS $ (363,201) $ (305,131)
=========== ===========
BASIC NET LOSS PER COMMON SHARE:
(Loss) income before cumulative effect of accounting change $ (.05) $ .12
Cumulative effect of accounting change -- (.16)
------ -----
Basic net loss per share $ (.05) $ (.04)
====== =====
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 8,046,000 8,056,000
========= =========
DILUTED NET LOSS PER COMMON SHARE:
(Loss) income before cumulative effect of accounting change $ (.05) $ .12
Cumulative effect of accounting change -- (.16)
------ -----
Diluted net loss per share $ (.05) $ (.04)
====== =====
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 8,046,000 8,056,000
========= =========
</TABLE>
See accompanying notes.
<PAGE>
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 28, 1999 AND MARCH 29, 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
-------- --------
(restated - Note 3)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (363,201) $ (305,131)
Adjustments to reconcile net loss to net cash provided by
operating activities-
Cumulative effect of accounting change -- 2,014,569
Equity in joint venture earnings -- (175,000)
Depreciation and amortization 2,176,641 2,168,967
Amortization of deferred compensation, net of
cancellations 16,596 16,268
Net loss on disposition of assets 114,525 --
Decrease in receivables 182,713 266,049
Decrease in inventories 224,937 143,488
Decrease (increase) in prepaids and other assets 78,182 (255,129)
Decrease in accounts payable (250,311) (2,635,623)
Decrease in accrued restructuring costs (66,718) (323,070)
Increase in accrued expenses 251,982 1,117,672
----------- -----------
Net cash provided by operating activities 2,365,346 2,033,060
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (3,711,280) (4,322,748)
Proceeds from sale of property -- 900,000
Advances to officers and affiliates, net -- 1,232
----------- -----------
Net cash used in investing activities (3,711,280) (3,421,516)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit 9,300,000 8,750,000
Repayments of line of credit (7,250,000) (9,850,000)
Repayments of long-term debt (100,083) (27,783)
Borrowings under other financing -- 1,100,000
Repayments of capital lease obligations (30,667) (136,217)
----------- -----------
Net cash provided by (used in) financing activities 1,919,250 (164,000)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 573,316 (1,552,456)
CASH AND CASH EQUIVALENTS, beginning of period 449,496 1,622,537
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,022,812 $ 70,081
=========== ===========
See accompanying notes.
</TABLE>
<PAGE>
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1999
(Unaudited)
(1) UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes
that the disclosures included herein are adequate to make the information
presented not misleading. A description of the Company's accounting
policies and other financial information is included in the audited
consolidated financial statements as filed with the Securities and
Exchange Commission in the Company's Form 10-K for the year ended
December 27, 1998.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position of the Company as of March 28, 1999
and the results of operations and cash flows for the periods presented.
All such adjustments, except for acquisition transaction costs, are of a
normal recurring nature. The results of operations for the quarter ended
March 28, 1999 are not necessarily indicative of the results that may be
achieved for a full fiscal year and cannot be used to indicate financial
performance for the entire year.
(2) TRANSACTION WITH RB CAPITAL
On March 18, 1999, the Company entered into an Agreement and Plan of
Merger with RB Capital, Inc., a newly formed corporation organized by the
Company's Chairman of the Board, President and Chief Executive Officer,
and RBR Acquisition Corp., a wholly-owned subsidiary of RB Capital,
whereby RB Capital, through RBR Acquisition, will acquire the Company in
a cash merger with the Company as the surviving corporation. Closing of
the proposed transaction is subject to stockholder approval at a special
meeting anticipated to be held during the third quarter of 1999, the
receipt by RB Capital of funding sufficient to consummate the merger, and
other customary conditions and regulatory approvals. Costs incurred by
the Company in connection with this transaction were $984,973 for the
three months ended March 28, 1999.
(3) PREOPENING AND START-UP COSTS
Prior to fiscal 1998, direct incremental costs incurred prior to opening
new restaurants were capitalized and amortized over a period of one year
after operations commenced. These costs consisted primarily of payroll,
employee recruiting and training, and initial opening expenses. During
the fourth quarter of 1998, the Company adopted the provisions of AICPA
Statement of Position No. 98-5, "Reporting on the Costs of Start-up
Activities" ("SOP 98-5"), which requires the Company to expense
preopening and other start-up expenses when incurred. Consequently, the
results of operations for the quarter ended March 29, 1998, as previously
reported on Form 10-Q, have been restated to reflect the adoption of SOP
98-5 as if occurring in the first quarter of 1998. As a result, income
from operations and net income (loss) have been restated from the
previously reported amounts by $625,104 (increase) and $828,107
(decrease), respectively, or $(.10) (decrease) per basic and diluted
share. Additionally, the charge for the cumulative effect of an
accounting change of $1,250,037 (net of income taxes of $764,532)
included a write-off of previously capitalized preopening costs of
$1,520,253 and other capitalized start-up costs of $494,316.
(4) EARNINGS PER SHARE
The Company's only potentially dilutive security is stock options. During
the three months ended March 28, 1999 and March 29, 1998, options
totaling 1,100,114 and 1,020,087, respectively, were excluded from the
calculation of diluted net loss per share since the result would have
been anti-dilutive.
(5) COMPREHENSIVE INCOME
Comprehensive income, as defined, includes all changes in equity (net
assets) during a period from non-owner sources. For the three months
ended March 28, 1999 and March 29, 1998, the Company's net loss equaled
its comprehensive loss.
<PAGE>
(6) ASSETS HELD FOR DISPOSITION
Assets held for disposition represents the net book value of property and
equipment held for sale or disposition. Included in this amount is
$1,234,482 related to land, building and improvements for the Old Chicago
restaurant in Salem, Oregon, which was closed in July 1998, and $307,645
for a parking lot located in Houston, Texas which is currently listed for
sale. During April 1999, the Company closed on the sale of the property
located in Salem, Oregon, and used net proceeds of approximately $1.2
million to pay down the revolving credit facility. The net book value of
all remaining assets held for disposition approximates the estimated net
realizable value.
(7) REVOLVING LINE OF CREDIT
The Company's $40 million bank revolving credit facility (the "Credit
Facility") matures on July 27, 1999, and during the first quarter of
1999, the Company began negotiations with the lender to extend the
maturity date to July 2000. On April 1, 1999, the Company executed a
fourth amendment to its Credit Facility primarily to revise certain
covenant calculations to reflect adoption of SOP 98-5 and to waive
certain potential covenant violations arising out of execution of the
merger agreement with RB Capital.
(8) RECLASSIFICATIONS
Certain amounts in the accompanying 1998 financial statements have been
reclassified to conform to the current period presentation.
(9) NEW PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"),
which provides guidance on accounting for the cost of such software. The
Company adopted SOP 98-1 effective December 28, 1998, the first day of
its 1999 fiscal year. Adoption did not have a material effect on the
Company's financial statements.
(10) SUBSEQUENT EVENTS
During April 1999, the Company sold the land and building for the two
brewery restaurants in Warrenville, Illinois and Phoenix, Arizona for
approximately $5.5 million, then leased the properties back under
long-term lease agreements. Proceeds from the sales allocable to the
buildings of approximately $3.2 million will be accounted for as
financings and reported as long-term obligations. As a result, the total
cost of the buildings will continue to be included in property and
equipment and depreciated over the terms of the related leases. The sale
of the Warrenville property was to a partnership in which one of the
Company's directors has an interest, and the related lease agreement
contains terms that are no less favorable than could be obtained from an
unrelated party.
During May 1999, the Company closed on the sale of the land and building
for three Old Chicago restaurants located in Colorado, and executed
long-term agreements to lease back each property.
Net proceeds received from all sale transactions of approximately $8.5
million were used to pay down the Credit Facility.
<PAGE>
(11) SEGMENT INFORMATION
The Company operates in two segments: Brewery and Old Chicago restaurant
segments. Management has chosen to organize the Company around these
segments based on differences in the menus, production element
(microbrewed beer) associated with the Brewery restaurants, operating
margins, and expected return on investment. The following provides
information on the Company's segments as of and for each of the three
months ended March 28, 1999 and March 29, 1998:
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
Brewery Old Chicago Brewery Old Chicago
<S> <C> <C> <C> <C>
Sales $ 22,481,368 $ 18,358,679 $ 20,205,888 $ 18,388,367
Net operating contribution $ 2,485,492 $ 2,049,577 $ 2,707,551 $ 2,122,803
Identifiable assets $ 65,787,327 $ 32,841,653 $ 58,274,131 $ 36,197,119
</TABLE>
Net operating contribution represents sales less direct and indirect
operating expenses, including depreciation and amortization and excluding
corporate overhead and corporate activities. Additionally, the increase
in brewery identifiable assets from $61,864,568 at December 27, 1998 to
$65,787,327 at March 28, 1999 is due primarily to capital expenditures
for new restaurants.
The following is a reconciliation of segment information to consolidated
information as of and for the three months ended March 28, 1999 and March
29, 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Segment net operating contribution $ 4,535,069 $ 4,830,354
Corporate depreciation and amortization (154,919) (149,623)
Corporate general and administrative (2,832,508) (2,638,374)
Other operating expenses, net (114,507) (234,376)
------------ -----------
Consolidated income from operations $ 1,433,135 $ 1,807,981
============ ===========
Segment identifiable assets $ 98,628,980 $ 94,471,250
Corporate assets 5,310,144 13,193,205
------------ ------------
Consolidated total assets $ 103,939,124 $ 107,664,455
============ ============
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Cautionary Statement under the "Safe Harbor" Provision of the Private
Securities Litigation Reform Act of 1995
Certain statements contained in this report are not historical facts,
and are forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual results or performance of the company to
differ materially from such forward-looking statements. Such statements include
statements regarding:
-Restaurant expansion plans for 1999 and 2000;
-Repositioning of the brewery concept to improve operations;
-Ability of the company to compete effectively within the
restaurant industry;
-Impact of SOP 98-5 on future quarterly earnings;
-Efforts to improve sales trends in certain brewery restaurants;
-The company's marketing strategy during the second and third
quarters of 1999;
-Estimated construction costs for new restaurants opening during
1999;
-Estimated capital expenditures in 1999;
-Ability of the company to extend its revolving credit facility;
-Ability of the company to develop an implementation plan for all
Year 2000 issues.
Factors that could cause actual results to differ materially include,
among others: availability of suitable restaurant locations; availability of
financing on acceptable terms to fund future growth; increasing costs associated
with new restaurant construction, or delays in opening new restaurants; ability
to hire and train increasing numbers of restaurant management, staff and other
personnel for new restaurants; acceptance in new markets; fluctuations in
consumer demand and tastes including a decrease in consumers' preference for
higher quality, more flavorful beer; competitive conditions in the company's
markets; greater than anticipated preopening expenses incurred during 1999;
general economic conditions; adverse weather conditions; operating restrictions
and costs associated with governmental regulations; regulatory limitations
regarding common ownership of breweries and restaurants in certain states;
greater than anticipated acquisition transaction costs; ability to identify all
systems within the company impacted by Year 2000 issues and to provide the
necessary financial and personnel resources to address all such issues; and
other risks detailed in the company's reports and other filings under the
Securities Exchange Act of 1934.
In addition to the foregoing, certain statements contained in this
report with respect to the proposed transaction with RB Capital are
forward-looking statements that involve known and unknown risks and
uncertainties that may cause actual results or performance of the company to
differ materially. Such statements include the statement regarding the
anticipated date for the stockholders meeting. Factors that could cause actual
results to differ materially include, among others, delays in receiving required
regulatory and other approvals, adverse economic or market conditions, the
ability of RB Capital to obtain funding necessary to consummate the proposed
transaction, and failure of stockholders to approve the merger.
Due to 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. In addition, the company
disclaims any intent or obligation to update these forward-looking statements,
whether as a result of new information, future events, or otherwise.
<PAGE>
Overview
As of May 11, 1999, the company operated 39 Old Chicago restaurants and
24 brewery restaurants, including two brewery restaurants that opened in
Bellevue, Washington and Phoenix, Arizona during March and April 1999,
respectively. Additional restaurant openings planned for 1999 include a Rock
Bottom Restaurant & Brewery restaurant in San Diego, California and one in
Arlington, Virginia, and an Old Chicago restaurant in each of Denver, Colorado
and Omaha, Nebraska. Upon completion of the four brewery restaurant openings in
1999, the company will defer opening any new brewery restaurants until at least
the third quarter of 2000. During this period of suspended growth, management
will focus on repositioning the concept's niche in the casual dining segment by
reintroducing excitement and energy into both the food and beverage alcohol
programs.
Although the company has slowed new restaurant expansion over the last
several years, the company still plans to open six restaurant in each of 1999
and 2000, most of which the company anticipates will be located in existing
markets. The company may not, however, be able to identify suitable restaurant
sites, purchase sites or obtain leases on acceptable terms, or open new
restaurants on anticipated dates. Additionally, due to the maturation of the
company's existing restaurant base and the possible effects of opening
additional restaurants in close proximity, revenues of certain of the company's
restaurants may be lower in future periods than previously experienced. New
restaurants also typically incur certain increased costs in the process of
achieving operational efficiencies during the first several months of operation.
Restaurant salaries and benefits and preopening costs are two examples of these
increased costs.
The company plans to lease sites for a majority of its future
restaurant locations, and presently leases the sites for a majority of its
existing restaurants. However, as of December 27, 1998, the company owned the
land and building for five Old Chicago restaurants (including Salem, Oregon
which closed July 1998) and four brewery restaurants (including Phoenix, Arizona
which opened April 1999). Subsequent to March 28, 1999, the company sold the
land and building for three of the Old Chicago restaurants located in Greeley,
Longmont and Grand Junction, Colorado (the "Colorado Properties"), and sold the
land, building and certain equipment for the Old Chicago restaurant located in
Salem, Oregon. Additionally, the company also sold the land and building for the
brewery restaurants located in Warrenville, Illinois and Phoenix, Arizona
subsequent to March 28, 1999. With the exception of the property in Salem,
Oregon, the company has executed long-term agreements to lease back each
property. As of May 12, 1999, the company owns the land and building for one Old
Chicago restaurant and one brewery restaurant in Addison, Texas, and one brewery
restaurant in Chicago, Illinois. See "Liquidity and Capital Resources."
The company operates in an extremely competitive environment.
Competitive factors include price-value, service, location, quality, selection
and atmosphere. Many competitors of the company are well established and have
substantially greater financial and other resources than does the company. Also,
the restaurant industry generally, and the company in particular, is affected by
changes in consumer tastes, national, regional or local economic conditions,
weather conditions, demographic trends and traffic patterns.
During the fourth quarter of 1998, the company made a change in
accounting principle by adopting of 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 the company to expense start-up and
preopening costs as they are incurred. Prior to adoption of SOP 98-5, the
<PAGE>
company, like most other casual dining restaurant companies, deferred these
costs and amortized them over the 12 months following the opening of each
restaurant. Adoption of SOP 98-5 was made retroactive to the first quarter of
1998 and required restatement of the March 29, 1998 results of operations
previously reported on Form 10-Q. The one-time charge for the cumulative effect
of this accounting change of $1.3 million, net of taxes, or $0.16 per share, was
recorded to expense preopening and other start-up costs incurred in 1997 but
deferred into fiscal 1998. Future quarterly earnings will fluctuate due to the
timing of new restaurant openings and the corresponding impact from adoption of
SOP 98-5.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), which provides
guidance on accounting for the cost of such software. Adoption of SOP 98-1
during the first quarter of 1999 did not have a material effect on the company's
financial statements.
Proposed Transaction with RB Capital
In November 1998, Mr. Frank Day, the company's Chairman, President and
Chief Executive Officer, informed the company's Board of Directors (the "Board")
that he and certain other directors of the company (the "Founders") were in the
preliminary stages of exploring the feasibility of acquiring the company. In
view of possible conflicts of interest in connection with RB Capital's proposal
to acquire the company, during November 1998 the Board unanimously determined
that it was advisable to form a Special Committee of the Board. The Special
Committee, comprised of disinterested directors, was formed for the purpose of
evaluating and negotiating the terms of any potential acquisition proposal,
including any affiliate-led proposal.
Mr. Day formed RB Capital in late November 1998, and on January 13,
1999, RB Capital submitted a proposal to a Special Committee of the company's
Board to acquire substantially all of the equity interests in Rock Bottom not
held by the Founders in a cash merger for $9.50 per share. On January 27, 1999,
the company announced that it had received three indications of interest to
acquire the company, including the acquisition proposal submitted by RB Capital.
RB Capital continued to negotiate with the Special Committee over the next
several weeks, and on March 18, 1999, the company announced that it had entered
into a definitive agreement to be acquired by RB Capital for $10.00 per share
cash consideration. The merger requires approval by the holders of a majority of
the company's outstanding shares of, and is expected to be voted upon during the
third quarter of 1999. Consummation of the merger is also subject to customary
closing conditions and required regulatory approvals.
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the
percentage relationship to restaurant revenues of certain income statement data
and certain restaurant data:
<TABLE>
<CAPTION>
Percentage of Revenues
Three Months Ended
March 28, March 29,
1999 1998
---- ----
(restated)
<S> <C> <C>
Income Statement Data:
Revenues:
Old Chicago restaurants ..................................... 45.0% 47.6%
Brewery restaurants.......................................... 55.0% 52.4%
------- -------
Total revenues..................................... 100.0% 100.0%
------ ------
Operating Expenses:
Cost of sales................................................ 24.9% 25.2%
Restaurant salaries and benefits............................. 33.9% 33.2%
Operating expenses........................................... 20.4% 19.9%
Selling expenses ............................................ 3.1% 3.3%
General and administrative................................... 6.9% 6.8%
Depreciation and amortization................................ 5.3% 5.6%
Start-up costs............................................... 1.7% 0.7%
Other operating expenses, net................................ 0.3% 0.6%
------ ------
Total operating expenses........................... 96.5% 95.3%
----- -----
Income From Operations............................................ 3.5% 4.7%
Equity in joint venture earnings.................................. 0.0% 0.4%
Interest (expense) income, net.................................... (1.3%) (1.5%)
Acquisition transaction costs..................................... (2.4%) 0.0%
------ ------
(Loss) Income Before Income Taxes and
Cumulative Effect of Accounting Change.......................... (0.2%) 3.6%
(Loss) Income Before Cumulative Effect of Accounting Change....... (0.9%) 2.4%
Net Loss.......................................................... (0.9%) (0.8%)
======== ========
Restaurant Data:
Restaurants open (end of period):
Old Chicago restaurants .................................... 39 40
Brewery restaurants......................................... 23 19
---- ----
Total.............................................. 62 59
==== ====
Restaurant operating weeks:
Old Chicago restaurants...................................... 507 525
Brewery restaurants.......................................... 289 258
--- ---
Total.............................................. 796 783
=== ===
</TABLE>
<PAGE>
Quarter Ended March 28, 1999 as compared to Quarter Ended March 29, 1998
Revenues. Revenues increased $2.2 million (5.8%) to $40.8 million in
the quarter ended March 28, 1999 from $38.6 million for the comparable quarter
in 1998. This increase is due primarily to revenues generated by the four new
brewery restaurants that have opened since the end of the first quarter of 1998,
offset by a decrease in revenues of approximately $1.1 million for two
restaurants closed during the third quarter of 1998. Additionally, comparable
restaurant sales for the first quarter of 1999 were up nearly 1.0%. When
computing comparable restaurant sales, restaurants open for at least six full
quarters are compared from year to year.
As the company opened four new brewery restaurants during 1998 and no
new Old Chicago restaurants, revenues from the company's brewery restaurants, as
a percentage of total revenues, increased to 55.0% in the quarter ended March
28, 1999 from 52.4% in the quarter ended March 29, 1998. Additionally, brewery
restaurants generate greater average weekly sales than Old Chicago restaurants.
The company expects that the percentage of revenues contributed by the brewery
restaurants will continue to increase as the 1999 expansion plan includes four
brewery restaurants and two Old Chicago restaurants.
Average weekly sales for the Old Chicago restaurants during the
first quarter of 1999 were $36,210 as compared to $35,025 during the first
quarter of 1998, an increase of 3.4%. Comparable restaurant sales also increased
and were up 3.7%. The improvement in sales trends is due largely to the
company's efforts toward improving overall execution in each of its Old Chicago
restaurants. This has been accomplished through an increased focus on service
standards, food quality and consistency, menu merchandising, local restaurant
marketing promotions and hiring and training of new staff.
Average weekly sales for the brewery restaurants during the first
quarter of 1999 of $77,790 were comparable to the first quarter of 1998.
Comparable restaurant sales, however, were down 2.7% during the first quarter of
1999. Excluding the estimated impact from adverse weather conditions during the
early part of 1999, such decrease is due primarily to a decrease in beverage
alcohol sales. Although the microbrewed beer industry has been experiencing a
slower growth rate than in previous years, management attributes the decrease in
beverage alcohol sales primarily to an increase in competitive pressures in
certain markets, particularly from other established restaurant concepts. In
response to this trend, the company is undertaking several programs aimed at
generating higher beverage alcohol sales, thereby increasing the energy and
activity in the restaurant and ultimately potentially increasing food sales.
Such programs include adding a second bar area in newer brewery restaurants,
particularly those in suburban locations, and greater merchandising of the
overall beer program through activities such as happy hour, live music venues,
and seasonal or specialty beer promotions tied to community events.
Cost of Sales. Cost of sales, which consists of food, beverage, and
merchandise costs, increased $0.5 million (4.8%) to $10.2 million in the first
quarter of 1999, and decreased as a percentage of revenues to 24.9% in the first
quarter of 1999 as compared to 25.2% in the first quarter of 1998. In December
1998, the company changed primary food suppliers with the expectation of
reducing freight costs and improving overall menu quality through greater
adherence to purchasing specifications and guidelines. The improvement in cost
of sales as percentage of revenues during the first quarter of 1999 is due
primarily to this change in suppliers, as well as to reengineering the menu in
both concepts to increase average margin per guest. These improvements were
offset by a significant increase in the cost of cheese, one of the company's
primary menu ingredients, during the first few months of 1999 as compared to
1998. The company also continues to refine its "best practices" initiative that
is focused on streamlining food preparation procedures and introducing higher
margin menu items.
<PAGE>
Restaurant Salaries and Benefits. Restaurant salaries and benefits,
which consist of restaurant management and hourly employee wages, payroll taxes,
and group health insurance, increased $1.0 million (8.0%) to $13.8 million in
the first quarter of 1999 from $12.8 million in the first quarter of 1998.
Restaurant salaries and benefits as a percentage of revenues increased to 33.9%
in 1999 as compared to 33.2% in 1998 primarily due to two factors. The first is
due to a temporary increase in kitchen labor in the Old Chicago restaurants as a
result of new menus implemented during the first quarter of 1999. Several new
items included in this menu have helped to increase average margin per guest,
but also require a certain amount of time to achieve labor preparation
efficiencies. The second factor is an increase in staff labor costs in the
brewery restaurants primarily due to higher wage rates.
Operating Expenses. Operating expenses, which include occupancy costs,
utilities, repairs, maintenance and linen, increased $0.7 million (8.5%) to $8.3
million in the first quarter of 1999 from $7.7 million for the same period in
1998. As a percentage of revenues, such expenses increased to 20.4% in the first
quarter of 1999 from 19.9% in the first quarter of 1998. This increase is due
primarily to greater expenses during 1999 for repairs and maintenance as the
company has undertaken a comprehensive program to repair and upgrade existing
assets. Such program may result in slight increases to operating expenses during
the remainder of the fiscal year. The remaining first quarter 1999 variance is
due to a temporary increase in supplies, printing and other related costs
associated with the new menus implemented in the Old Chicago restaurants.
Selling Expenses. Selling expenses decreased $29,000 (2.3%) in the
first quarter of 1999 from the same period in 1998. As a percentage of revenues,
such expenses decreased to 3.1% in the first quarter of 1999 from 3.3% for the
same period in 1998. This decrease is due primarily to an increased use of lower
cost local restaurant marketing promotions as compared to more expensive company
wide promotions that utilize extensive radio and print media. Although the
company's marketing strategy will continue to emphasize local restaurant
marketing promotions, selling expenses are expected to increase during the
second and third quarters of 1999 due to an increased use of these programs.
General and Administrative ("G&A"). G&A expenses increased
approximately $194,000 (7.4%) to $2.8 million in the first quarter of 1999
compared to $2.6 million in the first quarter of 1998, and increased as a
percentage of revenues to 6.9% in the first quarter of 1999 from 6.8% for the
same quarter in 1998. Such increase is due primarily to certain non-recurring
severance payments made to a former executive officer.
Depreciation and Amortization ("D&A"). Depreciation expense and
amortization of intangible assets during the first quarter of 1999 was
comparable to the first quarter of 1998, and as a percentage of revenues
decreased to 5.3% in 1999 as compared to 5.6% in 1998. Such decrease is
partially due to the increase in sales trends for the Old Chicago restaurants,
and partially due to reduced amortization expense of corporate intangible assets
resulting from the company's sale of its equity investment in Trolley Barn
Brewery, Inc.
Start-Up Costs. Adoption of SOP 98-5 requires the company to expense
start-up costs associated with opening new restaurants as they are incurred.
Accordingly, the amount expensed each quarter will fluctuate with the number and
type of restaurant (Old Chicago or brewery restaurant) opened in any given
period. During the first quarter of 1999, the company incurred start-up costs
for two brewery restaurants as compared to only one brewery restaurant during
the same period of 1998.
Other Operating Expenses. During the first quarter of 1998, other
operating expenses consisted primarily of severance payments made to employees
in connection with four restaurant closures, and a loss on disposition of
certain computer equipment. During the first quarter of 1999, other operating
expenses consist primarily of a loss on disposition of certain fixed assets.
Equity in Joint Venture Earnings. The 1998 equity in joint venture
earnings represents the company's 50% equity interest in net after-tax earnings
of Trolley Barn, its joint venture partner in the southeastern United States.
The company sold this interest back to Trolley Barn during November 1998 for
$7.0 million and used the net proceeds to pay down the existing credit facility.
Interest Expense. Interest expense for the first quarter of 1999
decreased approximately $71,000 from the first quarter of 1998. Such decrease
was due to a reduction of approximately $6.0 million in the company's average
long-term debt outstanding.
Acquisition Transaction Costs. Acquisition transaction costs of
$984,973 during the first quarter of 1999 primarily represent legal and other
outside professional fees incurred related to the Special Committee's
activities.
Income Tax Expense. The income tax provision for the first quarter of
1999 was calculated to exclude acquisition transaction costs as a tax-deductible
item. As a result, income subject to taxes in the first quarter of 1999 is
$921,144, and the income tax expense of $299,372 results in an effective tax
rate of 32.5%. The effective tax rate associated with the income tax provision
in 1998 was also 32.5%.
<PAGE>
Liquidity and Capital Resources
The company requires capital principally for the development and
construction of new restaurants and for capital expenditures at existing
restaurants. The company has financed its expansion over the last three years
principally through cash flow from operations, borrowings under its credit
facility and capital lease obligations. As is common in the restaurant industry,
the company has generally operated with negative working capital as it receives
trade credit based upon negotiated terms in purchasing food and supplies, and
does not have significant receivables or inventory. The following table presents
a summary of the company's cash flows for the three months ended March 28, 1999,
and March 29, 1998:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
1999 1998
------------------------------
<S> <C> <C>
Net cash provided by operating activities $2,365,346 $ 2,033,060
Net cash used in investing activities (3,711,280) (3,421,516)
Net cash provided by (used in) financing activities 1,919,250 (164,000)
Increase (decrease) in cash and cash equivalents 573,316 (1,552,456)
Cash and cash equivalents, end of period 1,022,812 70,081
</TABLE>
Net cash used in investing activities during the first quarter of 1999
and 1998 primarily represents capital expenditures related to the opening of new
brewery restaurants and maintenance capital expenditures in existing
restaurants. Additionally, during the first quarter of 1998, the company sold
the land and building for its brewery restaurant in Des Moines, Iowa to a
partnership in which one of the company's directors has an interest. The
property was then leased back by the company under a long-term lease with terms
no less favorable than could be obtained from an unrelated party. Proceeds
allocable to the land were reported as a sale and are included in cash flows
from investing activities for the respective period. Proceeds allocable to the
building of $1.1 million were accounted for as a financing and are included in
cash flows from financing activities and reported on the accompanying condensed
consolidated balance sheet as long-term obligations. During the second quarter
of 1999, the company completed similar sale and lease transactions for the
brewery restaurants located in Warrenville, Illinois and Phoenix, Arizona. Net
proceeds from these transactions of approximately $5.4 million were used to pay
down the company's existing credit facility.
Subsequent to March 28, 1999, the company sold the land and building
for the three Colorado Properties and executed long-term lease agreements for
each property. The company also sold the land, building and certain equipment
for the Old Chicago restaurant located in Salem, Oregon. Net proceeds from all
sale transactions of approximately $4.4 million were used to pay down the
company's existing credit facility.
Cash flows from financing activities primarily represent borrowings and
repayments under the company's $40 million bank revolving credit facility , as
amended through June 1998 (the "Credit Facility"), and a financing obligation
for the brewery restaurant opened in Des Moines. As of March 28, 1999, $21.1
million was outstanding under the Credit Facility, and is included in current
liabilities in the accompanying Condensed Consolidated Balance Sheet as the
Credit Facility matures on July 27, 1999. During the first quarter of 1999, the
company began negotiations with the Credit Facility lender to exercise its right
to extend the maturity date for a period of one year to July 2000. Although
approval by the lender is required prior to receiving this extension, management
is not aware of any circumstances or conditions that would warrant such approval
not being granted. Additionally, during April 1999, the company executed a
fourth amendment to the Credit Facility primarily to revise certain covenant
calculations to reflect adoption of SOP 98-5 and to waive certain potential
covenant violations arising out of execution of the merger agreement with
RB Capital.
The company estimates that total capital expenditures for 1999,
excluding preopening costs, and excluding proceeds from the sale of the land and
building for the Warrenville and Phoenix properties, will be approximately $17.9
million. This estimate includes $12.4 million in estimated total costs for the
four new brewery restaurants and $1.5 million in estimated costs for the two new
Old Chicago restaurants. The estimated average cash investment for the two new
Old Chicago restaurants of $750,000 will increase to approximately $1.0 million
in the future as the 1999 estimated costs have benefited from the redeployment
of certain assets from the three Old Chicago restaurants closed during 1998.
These estimated capital expenditures may not be sufficient for completion of
current development plans or may increase in the future.
<PAGE>
Year 2000 Compliance
The Year 2000 will have an impact on the abilities of certain computer
systems to accurately process information. This impact is a result of computer
programs being written using two digits rather than four to define the
applicable year, therefore time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000.
During 1997, the company began a review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue. As the
company's information technology ("IT") systems primarily consist of either
third-party software programs purchased by the company or use of outside vendors
to process financial information, the company is relying on the abilities of
these third parties to attain Year 2000 compliance with their systems. The
company has obtained representation of Year 2000 compliance from vendors for
approximately 60% of these systems, including the accounting and point-of-sale
systems. For the remaining 40% of the IT systems, the company anticipates that
it will either receive representation from such vendors that the systems are
Year 2000 compliant, upgrade or modify the systems with Year 2000 compatible
programs, or seek replacement systems. The company is currently in the process
of evaluating its various options for its non-compliant Year 2000 IT systems,
and expects to complete such evaluation during the third quarter of 1999. The
company believes it has identified its mission-critical systems, and has either
received representation from vendors that such systems are Year 2000 compliant,
or is taking the appropriate action necessary to achieve Year 2000 compliance.
Additionally, the company has completed its assessment and remediation for all
office computer hardware in the restaurants and the corporate office.
The company has also begun an investigation and assessment of its
non-IT systems (i.e. embedded technology such as microprocessors in kitchen
equipment, elevators, etc.), and of the Year 2000 readiness of its critical
suppliers. For non-IT systems, the company expects to complete the assessment by
the third quarter of 1999, and then to make a determination as to the process
for testing, verifying and remedying any non-compliant systems. To assess the
readiness of its suppliers, the company is in the process of sending
informational questionnaires to critical vendors, and will review responses to
obtain assurance that such vendors have achieved Year 2000 readiness, or have
developed plans to do so. To the extent that these vendors are unable to provide
sufficient evidence of Year 2000 compliance by the third quarter of 1999, the
company will seek to obtain replacement vendors.
Costs incurred to date related to Year 2000 compliance have not had a
material impact on the company's financial condition or results of operations.
Management does not have an estimate for future costs that may be incurred to
achieve Year 2000 compliance. Management expects, but makes no assurance, that
future Year 2000 costs will not have a material adverse effect on the company's
financial condition or results of operations. Such expectation does not consider
any costs that may be incurred by the company for failure of third-party
software vendors, suppliers, or other third parties, including providers of
public utilities or services, to achieve Year 2000 compliance in a timely
manner.
Although certain systems have been identified that can be remedied with
manual processes, a comprehensive contingency plan has not yet been formulated
in the event that non-compliant IT and non-IT systems (or their replacements),
critical suppliers or other third parties do not become year 2000 compliant. The
company plans to formulate a contingency plan during the second and third
quarters of 1999 to address the possibility that its non-compliant IT and non-IT
systems may not achieve Year 2000 compliance, and anticipates that such steps
will mitigate the risk of business interruption. Such contingency plan may not
eliminate all risks of business interruption. Additionally, the company is
unable to predict with certainty whether the consequences associated with the
failure of its suppliers, third-party software vendors, or other third parties
to achieve Year 2000 readiness will have a material adverse impact on its
financial condition, results of operations or liquidity.
<PAGE>
Seasonality and Quarterly Results
The company's sales and earnings fluctuate seasonally. Historically,
the company's highest earnings have occurred in the second and third quarters,
and are more susceptible to adverse weather conditions in the first and fourth
quarters. In addition, quarterly results have been and, in the future are likely
to be, substantially affected by the timing of new restaurant openings. Because
of the seasonality of the company's business and the impact of new restaurant
openings, results in any quarter are not necessarily indicative of the results
that may be achieved for a full fiscal year and cannot be used to indicate
financial performance for the entire year.
Impact of Inflation
Although the company does not believe inflation has materially affected
operating results during the past three years, inflationary pressures could
result in substantial increases in costs and expenses, particularly food,
supplies, labor and operating expenses. Additionally, increasing minimum wage
rates have the potential to impact all aspects of the company's business due to
higher labor rates experienced by its suppliers and vendors. These labor rates
could translate into higher costs for goods and services purchased by the
company. All such increases in costs and expenses could have a significant
impact on the company's operating results to the extent that such increases
cannot be passed along to customers.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------
10.1 Lease Agreement dated January 29,
1999, between Walnut Brewery, Inc.
and LAGOMORPH LLC.
10.2 First Amendment to Lease Agreement
dated January 29, 1999, between
Walnut Brewery, Inc. and LAGOMORPH
LLC.
10.3 Second Amendment to Lease Agreement
dated January 29, 1999, between
Walnut Brewery, Inc. and LAGOMORPH
LLC.
10.4 Third Amendment to Lease Agreement
dated April 2, 1999, between
Walnut Brewery, Inc. and LAGOMORPH
LLC.
10.5 Fourth Amendment to Loan Agreement
for $40,000,000 Revolving Line of
Credit from Norwest Bank Colorado,
National Association, First Security
Bank, N.A., U.S. Bank and Suntrust
Bank, Central Florida, N.A. to Rock
Bottom Restaurants, Inc., dated
April 1, 1999.
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by
this report.
<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.
ROCK BOTTOM RESTAURANTS, INC.
(Registrant)
May 12, 1999 By: /s/ WILLIAM S. HOPPE
--------------------
William S. Hoppe
Executive Vice President, Chief
Administrative Officer and
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------ ----------------------
10.1 Lease Agreement dated January 29,
1999, between Walnut Brewery, Inc.
and LAGOMORPH LLC.
10.2 First Amendment to Lease Agreement
dated January 29, 1999, between
Walnut Brewery, Inc. and LAGOMORPH
LLC.
10.3 Second Amendment to Lease Agreement
dated January 29, 1999, between
Walnut Brewery, Inc. and LAGOMORPH
LLC.
10.4 Third Amendment to Lease Agreement
dated April 2, 1999, between
Walnut Brewery, Inc. and LAGOMORPH
LLC.
10.5 Fourth Amendment to Loan Agreement
for $40,000,000 Revolving Line of
Credit from Norwest Bank Colorado,
National Association, First Security
Bank, N.A., U.S. Bank and Suntrust
Bank, Central Florida, N.A. to Rock
Bottom Restaurants, Inc., dated
April 1, 1999.
27 Financial Data Schedule
RESTAURANT LEASE
28256 Diehl Road
Warrenville, Illinois 60555
LAGOMORPH, L.L.C.,
an Illinois limited liability company,
as Landlord,
and
WALNUT BREWERY, INC.,
a Colorado corporation d/b/a Rock Bottom Brewery,
as Tenant
<PAGE>
ARTICLE 1.
SUMMARY OF FUNDAMENTAL LEASE TERMS
1.01 TENANT'S NAME: Walnut Brewery, Inc., a Colorado corporation
d/b/a Rock Bottom Brewery
1.02 LEASED PREMISES: 28256 Diehl Road
Warrenville, IL 60555
1.03 TENANT'S NAME,
ADDRESS, PHONE
AND FAX: Walnut Brewery, Inc., a Colorado corporation
d/b/a Rock Bottom Brewery
248 Centennial Parkway, Suite 100
Louisville, CO 80027
Attn: Lease and Property Management
Phone: (303) 664-4109
Fax: (303) 664-4195
1.04 LANDLORD'S NAME,
ADDRESS, PHONE &
FAX: Lagomorph,L.L.C., an Illinois limited liability company
1115 N. Elm Street
P.O. Box 216
West Liberty, IA 52776
Phone: (319) 627-4101
Fax: (319) 627-4403
1.05 AGENT/MANAGER'S
NAME, ADDRESS,
PHONE & FAX: Same name, phone and address as no 1.04.
1.06 SQUARE FOOTAGE
LEASED: Approximately 10,990 square feet.
1.07 DATE LEASE SIGNED: _______________, 1999
1.08 LEASE COMMENCEMENT
DATE: Upon closing of the sale of the Property and Premises
to Landlord as set forth in the Purchase and Sale
Agreement between Landlord and Rock Bottom Restaurants,
Inc., dated January ___, 1999.
<PAGE>
1.09 DATE RENT
COMMENCES: On the day of the closing as set forth in paragraph
1.08, above
1.10 INITIAL LEASE TERM: Twenty (20) years.
1.11 INITIAL TERM ENDS: On the last day of the two hundred fortieth (240th)full
month after the Lease Commencement Date.
1.12 BASE RENT: Initial Term
------------
Year 1: $287,000 Year 2: $292,740
Year 3: $298,595 Year 4: $304,567
Year 5: $310,658 Year 6: $316,871
Year 7: $323,209 Year 8: $329,673
Year 9: $336,266 Year 10: $342,992
Year 11: $349,851 Year 12: $356,848
Year 13: $363,985 Year 14: $371,265
Year 15: $378,690 Year 16: $386,264
Year 17: $393,989 Year 18: $401,869
Year 19: $409,907 Year 20: $418,105
1st Option 2nd Option
---------- ----------
Year 1: $426,467 Year 1: $470,854
Year 2: $434,996 Year 2: $480,271
Year 3: $443,696 Year 3: $489,876
Year 4: $452,570 Year 4: $499,674
Year 5: $461,621 Year 5: $509,667
3rd Option 4th Option
---------- ----------
Year 1: $519,861 Year 1: $573,968
Year 2: $530,258 Year 2: $565,448
Year 3: $540,863 Year 3: $597,157
Year 4: $551,680 Year 4: $609,100
Year 5: $562,714 Year 5: $621,282
1.13 ADDITIONAL RENT: Check applicable item(s), if any:
____X____ Tenant's Common Area Maintenance, per
the Governing Documents (as hereinafter
defined,including Section 6 of the Easements)
____X____ Real Estate Taxes
____X____ Insurance
<PAGE>
1.14 UTILITIES: Paid by Landlord:None
Paid by Tenant: As applicable to the
Leased Premises, heat, water, gas,
steam, telephone, sewer and
electricity consumed on the
Premises.
1.15 MAINTENANCE
RESPONSIBILITIES: Tenant shall be responsible for all maintenance and
repairs.
1.16 INSURANCE COVERAGE: By Tenant: As required by the Declaration covering the
Property, but in no event less than $2,000,000 combined
single limit of liability for bodily injury and
property damage with an annual aggregate of $2,000,000,
together with all risk property insurance (hereinafter
"Tenant's Property Insurance") covering fire and
extended coverage, vandalism and malicious mischief,
sprinkler leakage and all other perils included in a
standard Special Causes of Loss or All Risk form for no
less than eighty percent (80%) of the replacement value
of all of Tenant's property located on or within
the Premises, together with the same insurance for
replacement of the Premises themselves, for not less
than on hundred percent of the replacement value of the
Premises, excluding footings and foundation,
with Tenant's customary deductibles.
By Landlord: Such insurance as Landlord deems
appropriate to insure itself for claims for bodily
injury and property damage liability.
1.17 RENEWAL OPTIONS: Four (4) terms of sixty (60) months each.
1.18 PARKING: Included within the Leased Premises.
1.19 DOCUMENTS TO WHICH
PROPERTY IS SUBJECT:
1) The Declaration of Protective Covenants, Conditions, Restrictions
and Easements dated April 24, 1997, and recorded April 25, 1997, as
Document No. R97-057644 of the Real Property Records of DuPage County,
Illinois ("CCR");
2) The Declaration of Easements, Covenants and Restrictions dated
April 24, 1997 and recorded April 25, 1997, as Document No. R97-057647 of
the Real Property Records of DuPage County, Illinois ("Easements");
<PAGE>
3) The First Amendment to Declaration of Easements, Covenants and
Restrictions Cantera Subarea "G" dated April 1, 1998, and recorded April 2,
1998, as Document No. R98-061045 of the Real Property Records of DuPage
County, Illinois ("Easements Amendment");
4) The Stormwater Facility and Detention Easement Agreement dated
April 24, 1997, and recorded April 25, 1997, as Document No. R97-057645 of
the Real Property Records of DuPage County, Illinois ("Stormwater
Agreement");
5) The First Amendment to Stormwater Facility and Detention Easement
Agreement dated March 11, 1998, and recorded March 27, 1998 as Document No.
R98-055465 of the Real Property Records of DuPage County, Illinois
("Stormwater Agreement Amendment");
6) The Restrictive Use and Development Agreement, Lot 3, Plat of
Resubdivision of Lot 1 in Cantera Subarea "G" dated May 13, 1998, and
recorded May 15, 1998, as Document No. R98-092970 of the Real Property
Records of DuPage County, Illinois ("Restrictive Agreement"); and
7) The City Traffic Regulations Agreement dated June 6, 1997 between
Seller and the City ("Traffic Agreement").
The CCR, the Easements Amendment, the Stormwater Agreement, the
Stormwater Agreement Amendment, the Restrictive Agreement and the
Traffic Agreement are collectively referred to herein as the "Governing
Documents."
ARTICLE 2.
GRANT, TERM and OPTIONS TO EXTEND
2.01 LEASED PREMISES. Landlord demises and leases to Tenant, and Tenant leases
from Landlord, the Building outlined in red on Exhibit A and referred to as
28256 Diehl Road, Warrenville, Illinois 60555 (the "Leased Premises" or the
"Premises"), which is located on the real property whose legal description is
set forth in Exhibit B attached hereto (said real property and the buildings and
improvements located thereon are from time to time herein called the
"Property"). The Leased Premises consist of approximately 10,990 square feet
within the Building and a total of _____ (___) square feet of real property
within the boundary lines of Exhibit B.
Tenant shall be entitled to occupy and use such portion of the Property to
construct and operate a patio or sidewalk cafe for the service of food and
beverages to guests. There shall be no additional Rent or Additional Rent
charged for the Patio area, but the same shall be included in the definition of
Leased Premises for purposes of insurance, Tenant maintenance and liability
matters under this Lease.
<PAGE>
2.02 GRANT OF USE OF COMMON AREAS. The use and occupation by Tenant of the
Leased Premises shall include the use, in common with others entitled thereto,
of the common areas of the "Entire Premises," as defined in the Easements, as
applicable, including, without limitation, employees' parking areas, service
roads, loading facilities, sidewalks, and customer vehicle parking areas,
elevators, corridors, stairways, and such other facilities as may be designated
from time to time by Landlord, subject, however, to the terms and conditions of
this Lease.
2.03 POSSESSION/COMMENCEMENT DATE. Landlord shall deliver possession of the
Premises to Tenant in accordance with the terms of the Purchase and Sale
Agreement between Landlord and Rock Bottom Restaurants, Inc., dated January ___,
1999. The date of delivery of possession shall herein be referred to as the
Lease Commencement Date.
2.04 COMMENCEMENT OF RENTAL. Tenant's obligation to pay rent shall commence on
the Lease Commencement Date.
2.05 TERM OF LEASE. The term of this Lease shall be two hundred forty (240)
months, commencing with the Lease Commencement Date determined in accordance
with the terms of paragraph 2.03, above. If the Lease Commencement Date is other
than the first day of the month, the first year of the Lease Term shall be
deemed to be extended to include such partial month and the following twelve
months, so as to end on the last day of the month.
2.06 OPTIONS TO RENEW. Provided Tenant shall not then be in material default
hereunder, Tenant shall have the option to extend the term of the Lease for four
(4) additional terms of sixty (60) months each upon the same terms and
conditions herein contained. To exercise its option(s) hereunder, Tenant shall
deliver notice of said election to Landlord at least Ninety (90) days prior to
the expiration of the then existing term hereof. The Rent during such
extension(s) shall be as set forth in paragraph 1.12, above.
ARTICLE 3.
RENT
3.01 ANNUAL RENTAL. Annual rental hereunder shall be payable in advance in equal
monthly installments on the first day of each and every month throughout the
Lease term at the office of Landlord as set forth in paragraph 1.04 hereof, or
at such other place as Landlord shall designate to Tenant in writing, without
prior demand. Rental for any fractional month shall be prorated and likewise
payable in advance.
3.02 TAX AND INSURANCE ADJUSTMENT. Tenant shall, for each Lease Year, pay to
Landlord as additional rent real estate taxes and assessments that accrue during
the term of the Lease and all insurance for the Property. Landlord shall notify
Tenant of the amount of such assessment and Tenant shall pay Landlord such
amounts within thirty (30) days from the date of notice to it by Landlord.
Additionally, with respect to taxes:
<PAGE>
(a) Right to Contest Assessments. Tenant may, at its expense, contest
any and all such real estate taxes in the name of and on behalf of the
Landlord.
(b) Municipal, County, State or Federal Taxes. Tenant shall pay,
before delinquency, all municipal, county and state or federal taxes
assessed against any leasehold interest of Tenant or any fixtures,
furnishings, equipment, stock-in-trade or other personal property of any
kind owned, installed or used in or on the Property.
(c) Rental Taxes. Tenant shall not be responsible for any income,
inheritance or estate taxes imposed on Landlord or the income of Landlord.
ARTICLE 4.
CONDITION OF PREMISES AT COMMENCEMENT OF LEASE
4.01 LANDLORD'S AND TENANT'S WORK. Intentionally omitted.
4.02 ACCEPTANCE OF LEASED PREMISES. Tenant's taking possession of the Premises
at the Lease Commencement Date shall be deemed to be an acceptance of the Leased
Premises.
4.03 WARRANTIES. In connection with this Lease, except as specifically set
forth in this Lease, Landlord makes no warranties or representations concerning
the condition of the Premises at the Lease Commencement Date. The Premises were
constructed by Rock Bottom Restaurants, Inc., and sold to Landlord on a
sale/leaseback transaction. The warranties with respect to the Property and
Premises are contained within the Purchase and Sale Agreement between the
Landlord and Rock Bottom Restaurants, Inc., dated January ___, 1999, and in
Landlord's warranty and covenant of quiet and peaceable possession hereinafter
set forth.
ARTICLE 5.
USE OF PREMISES
AND
CONDUCT OF BUSINESS BY TENANT
5.01 USE OF PREMISES. Tenant shall use the Leased Premises for the purpose
of a brewpub and/or sit down restaurant with full service bar and entertainment,
including live and/or background music, and for any other purpose or use allowed
by state and local laws, ordinances or regulations. During the term of this
Lease and any extensions hereof, so long as Tenant operates a restaurant as
described above, neither Landlord nor its affiliates shall lease space in the
Property or in any property or premise within ten (10) miles of the Property to
any other bar and/or restaurant which operates in a similar manner specifically,
but not limited to, a "brewpub" or "brewery/restaurant" that involves the
brewing of beer on or adjacent to the property or premise in question.
<PAGE>
5.02 CONDUCT OF BUSINESS BY TENANT. Tenant shall operate the business in the
Premises in accordance with all applicable codes, regulations, statutes and
ordinances applicable to the Premises and Tenant's business, and in accordance
with the Governing Documents and all covenants, declarations and restrictions
imposed on the Premises by the Shopping Center of which the Premises are a part,
and shall indemnify Landlord against any costs or damages which Landlord may
incur which are a result of Tenant having failed to so operate its business in
the Premises.
ARTICLE 6.
COMMON AREAS
6.01 CONTROL OF COMMON AREAS BY LANDLORD. Intentionally omitted.
ARTICLE 7.
ALTERATIONS, ADDITIONS, AWNINGS, BILLIARD TABLES,
GAMING DEVICES, LIENS AND SIGNAGE
7.01 ALTERATIONS AND ADDITIONS. After completion of the initial construction
project by Rock Bottom Restaurants, Inc., (Tenant's parent corporation), Tenant
shall not, without Landlord's prior written consent, either make or cause to be
made any alterations, additions, or improvements to the Property or to any
exterior signs, shades or awnings which in any one instance involve a cost in
excess of $50,000. Landlord's consent shall not be unreasonably withheld so long
as such alterations do not diminish the value of the Property, it being the
understanding and agreement of the parties that alterations or modifications
which are consistent with a commercial use of the Property or the Premises will
not be deemed to reduce the value of the Property. In the event Landlord's
consent is required under this paragraph 7.01, Tenant shall present to Landlord
plans and specifications for such work at the time approval is sought, and prior
to commencement of construction. Any plans and specifications not expressly
disapproved by Landlord, in writing, stating all reasons for such disapproval,
on or before the fifteenth (15th) day after submission by Tenant shall be deemed
approved. In any event, Landlord's consent shall not be unreasonably withheld,
conditioned or delayed so long as such alterations do not diminish the value of
the Property, it being the understanding and agreement of the parties that
alterations or modifications which are consistent with a commercial use of the
Property or the Premises will not be deemed to reduce the value of the Property.
Tenant shall appoint its own designer, architect and contractor for the any work
to be performed on the Premises or the Building by Tenant.
As a further condition to Landlord's consent to alterations, additions,
or improvements, Tenant shall, as required or permitted by Illinois law, advise
all subcontractors, suppliers, materialmen, and laborers that they shall not
have the right to file a Mechanic's Lien against the Property owned by the
Landlord. The Tenant hereby agrees to hold the Landlord harmless from any and
all liabilities of every kind and description which may arise out of or be
connected in any way with said alterations, additions, or improvements. Before
commencing any work in connection with alterations, additions, or improvements,
the Tenant, if requested by Landlord, and only in those instances when
Landlord's consent is required hereunder, shall furnish the Landlord with
certificates of insurance from all contractors performing labor or furnishing
materials insuring the Landlord against liabilities which are customarily
covered by such insurance and which may arise out of or be connected in any way
with said additions, alterations, or improvements, except such liabilities as
may arise from the negligent act or failure to act of Landlord, its agents,
representatives, employees or servants.
<PAGE>
7.02 AWNINGS, CANOPIES, BILLIARD TABLES, SILOS, SATELLITE DISHES AND SIGNS
(a) SIGNS, AWNINGS, SILOS & CANOPIES: All signs, awnings, canopies,
decorations, lettering, advertising matter, or other items installed by
Tenant shall at all times be maintained by Tenant, at its expense, in good
condition and repair. Tenant shall be allowed, but is not required, to
install awnings on the exterior of the Premises. Tenant shall be allowed,
but is not required, to install a silo on or near the Premises.
(b) BILLIARD TABLES/GAMING DEVICES: Landlord has no objection to the
use of billiard/pool tables, or such gaming devices or arrangements as are
permitted by law, in the Leased Premises. Tenant shall provide such support
as is necessary for billiard/pool tables to prevent any structural damage
to the Premises from said tables.
(c) SATELLITE DISHES: Landlord has no objection to the placement of
satellite reception dish(es) and equipment on the roof of the Property.
Tenant shall be responsible for the repair of any damage to the roof
resulting from the installation, maintenance, repair and/or removal of the
dish(es). If the roof of the Premises is subject to a warranty, any item
installed on the roof by Tenant shall be installed, maintained and removed
in accordance with such reasonable requirements as Landlord and/or
Landlord's roofing contractor shall require so as to maintain such warranty
in full force and effect.
7.03 MECHANICS' LIENS. Tenant shall promptly pay its contractors and materialmen
for all work done and performed for Tenant, so as to prevent the assertion or
imposition of liens upon or against the Leased Premises, and should any such
lien be asserted or filed, Tenant shall bond against or discharge the same
within thirty (30) business days after receipt by Tenant of written request by
Landlord. The Tenant hereby agrees to hold the Landlord harmless from any and
all liabilities of every kind and description which may arise out of or be
connected in any way with said alterations, additions, or improvements. Tenant
is authorized, but not required, to post the property, if permissible under
local or state law, so as to prevent the assertion of liens against the
Premises. Landlord will cooperate with Tenant if Tenant elects to post the
Premises. Nothing in this paragraph 7.03 shall be construed to prohibit Tenant
from contesting any lien or amount claimed thereunder which Tenant deems
objectionable.
ARTICLE 8.
MAINTENANCE OF LEASED PREMISES AND SURRENDER
8.01 MAINTENANCE, REPAIR, AND REPLACEMENT BY TENANT. Tenant shall, at its
expense, at all times repair, maintain, and replace the Building and the
Premises, and maintain the same in conformity with governmental regulations in
good order, condition, and repair, including, without limitation (a) the roof,
walls, foundation, and all structural parts; (b) the interior of the Property,
together with exterior entrances, all glass, and all window moldings, (c) all
fixtures, partitions, interior ceilings, floor coverings, and utility lines
within the Leased Premises; (d) all doors, door openers, trade equipment and
machinery, appliances, signs, and appurtenances thereof; and, (e) landscaping,
outside lighting, and parking lot, in conformity with governmental regulations
in good order, condition and repair, with Tenant failing to do so constituting a
default hereunder. The within obligations shall also include, without
limitation, Tenant's obligation to comply with and perform the requirements of
the Governing Documents, including Section 6 of the Easements and Section 14 of
the CCR governing the Property of which the Premises are a part. If Tenant
refuses or neglects to commence or complete repairs, maintenance or replacements
promptly and adequately, Landlord may make or complete said repairs, maintenance
or replacements and Tenant shall pay the cost hereof to Landlord upon demand.
10
<PAGE>
8.02 MAINTENANCE BY LANDLORD. Intentionally omitted.
8.03 SURRENDER OF PREMISES. At the expiration of the tenancy hereby created,
Tenant shall peaceably surrender the Leased Premises, including all alterations,
additions, improvements, and repairs made thereto (but excluding, without
limitation, all trade fixtures, decorations, hoods, furniture, equipment, signs,
and other personal property, installed by Tenant), broom clean and in good
condition and repair, reasonable wear and tear, and damage by casualty,
excepted. Tenant shall remove all its trade fixtures and any of its other
property not required to be surrendered to Landlord before surrendering the
Premises as aforesaid, and shall repair any damage to the Leased Premises caused
by such removal. Any personal property remaining in the premises thirty (30)
days after the expiration of the Lease period shall be deemed abandoned by
Tenant and Landlord may claim the same and shall in no circumstances have any
liability to Tenant therefor.
ARTICLE 9.
INSURANCE AND INDEMNITY
9.01 CASUALTY INSURANCE.
(a) Tenant shall, at its cost and expense, at all times during the
Term of this Lease and any extensions hereof, maintain bodily injury and
property damage liability insurance covering the Building and the Premises
for any customarily insurable act or omission of Tenant, its employees,
agents, representatives, assigns, guests, invitees, persons in privity with
Tenant, or licensees. Such insurance policy shall be written for not less
than $2,000,000 combined single limit of liability for bodily injury and
property damage with an annual aggregate of $2,000,000, and shall include
Landlord as an Additional Insured. Tenant shall deliver to Landlord a
certificate of such insurance which shall also contain a 30-day prior
written notice of cancellation provision.
<PAGE>
(b) Tenant shall also carry during the Term of this Lease and any
extensions hereof, all risk property insurance (herein "Tenant's Property
Insurance") covering fire and extended coverage, vandalism and malicious
mischief, sprinkler leakage and all other perils included in a standard
Special Causes of Loss or All Risk form for at least one hundred percent
(100%) of the replacement value of the Building (less footings and
foundations) and of all of Tenant's property located on or within the
Premises, with Tenant's customary deductibles. Tenant shall deliver to
Landlord a certificate of such insurance which shall also contain a 30-day
prior written notice of cancellation provision. Landlord and Landlord's
lender shall be named as Additional Insureds, as their interests may
appear, with respect to such insurance. Landlord agrees it shall not have
any right, title or interest in and to Tenant's Property Insurance or any
proceeds therefrom to the extent such insurance insures Tenant's personal
property.
(c) The limits on such insurance shall be re-indexed no more
frequently than once every five (5) years so as to conform to the industry
standard and to the limits carried by other brewpub/restaurants operated by
Tenant. Such insurance shall be provided by a company or companies with an
A.M. Best rating of not less than A X, and authorized to do business in the
State of Illinois.
(d) Tenant shall also maintain such liquor liability or "dram shop"
insurance as is required by law.
(e) If the requirements of the Governing Documents require insurance
of a greater amount and/or having more coverage than prescribed herein, the
requirements of the Governing Documents shall control.
9.02 INDEMNIFICATION CLAUSE. Each party hereto will indemnify, defend and
hold the other party harmless from and against any and all claims, losses,
expenses, costs, judgments, and/or demands arising from the conduct of the other
party with regard to the possession by Tenant of the Premises and/or on account
of any operation or action by Landlord or Tenant and/or from and against all
claims arising from any breach or default on the part of the other party, or any
act of negligence on behalf of the other party, its agents, contractors,
servants, employees, licensees, or invitees, or any accident, injury, or death
of any person or damage to any property in or about the Premises.
9.03 WAIVER OF SUBROGATION. Landlord and Tenant agree that if the interest or
item on which they are required to obtain insurance in connection with the
transaction contemplated hereby shall be damaged or destroyed during the term or
any extension of this Lease by a peril insurable under this Lease, and whether
or not such damage or destruction was caused by the neglect of the other party,
neither party shall have liability to the other or to any insurer of the other
for, or in respect of, such damage or destruction to the extent covered by such
insurance. The waiver of subrogation hereby set forth shall extend only to the
risks insured by the insurance policies required hereby. The foregoing language
notwithstanding, in the event property of one party is damaged or destroyed by
the negligent act or negligent failure to act of the other party, the party at
fault shall be liable to the damaged party for the "deductible" or retainage
amount applicable to the insurance policy of the damaged party.
<PAGE>
9.04 ADDITIONAL RENT. If Tenant shall not comply with its covenants made in
this Article 9, Landlord may cause insurance as aforesaid to be issued, in such
event Tenant agrees to pay as additional rent, the premium for such insurance
upon Landlord's demand.
ARTICLE 10.
UTILITIES
10.01 UTILITY CHARGES. Tenant shall be solely responsible for and promptly
pay all charges, including any deposits required by a third-party provider, for
water, gas, steam, sewer, electricity, or any other utility or service used or
consumed on the Leased Premises.
ARTICLE 11.
ASSIGNMENT AND SUBLETTING
11.01 CONSENT NOT REQUIRED. Tenant may voluntarily, or by operation of law,
assign this Lease in whole or in part, and may sublet all or any part of the
Leased Premises without the prior written consent of Landlord.
11.02 TRANSFERS PERMITTED. In the event that Tenant wishes to sublet the
premises or assign this Lease, in whole or in part, Tenant shall forthwith
notify Landlord in writing of Tenant's desire to sublet the Premises or assign
this Lease, including a summary of the proposed terms, or a copy of any offer,
as the case may be. Landlord shall have fifteen (15) days within which to accept
or reject said assignment or sublease. Any proposed sublease or assignment not
specifically disapproved by Landlord, in writing and specifying all reasons for
such disapproval and delivered to Tenant within said fifteen (15) days, shall be
deemed approved. The foregoing limitation notwithstanding, Landlord acknowledges
that Tenant is a wholly owned subsidiary of Rock Bottom Restaurants, Inc., the
shares of which are publicly traded. Sales of stock via public trading shall not
be deemed a "sale, transfer or other disposition" within the meaning of this
Article 11. Further, Tenant may sublet all or any portion of the Leased
Premises, or assign this Lease, to any corporation or other entity which is a
subsidiary of, or fifty percent (50%) or more of whose shares are owned by
Tenant or Rock Bottom Restaurants, Inc., without the consent of Landlord. In the
event of such a transfer, Tenant will notify Landlord of the name, address and
phone number of the sublessee or assignee. In addition, in the event of such a
transfer, Tenant and Guarantor shall remain liable to Landlord under the terms
of this Lease for the performance by the sublessee or assignee. Any assignment,
subletting, mortgaging or hypothecation permitted hereunder or to which the
Landlord has consented shall be by written instrument under which the assignee
or sublessee shall agree for the benefit of Landlord to be bound by and to
perform this Lease.
11.03 TRANSFERS BY LANDLORD. Landlord shall have the right to sell, convey,
transfer or assign all or any part of its interest in the real property and the
buildings of which the Leased Premises are a part or its interest in this Lease.
All covenants and obligations of Landlord under this Lease, except those already
in existence on the date of conveyance, shall cease as to Landlord upon the
execution of such conveyance, transfer or assignment, but such covenants and
obligations shall run with the land and shall be binding upon the subsequent
owner or owners thereof or of this Lease. All obligations incurred or in
existence prior to the date of transfer shall survive said transfer and remain
the obligation of Landlord.
<PAGE>
11.04 FAILURE TO OPERATE. Tenant acknowledges and agrees that it is bound by the
terms of Section 2.6 of the Restrictive Agreement which provides that
"Developer," as defined in the Restrictive Agreement, has the right to purchase
Tenant's "Leasehold Estate," as defined in the Restrictive Agreement, should
Tenant fail to continuously operate and keep open to the public all of the
Premises for a period in excess of one hundred eighty (180) consecutive calendar
days ("Developer's Right to Purchase").
11.05 NO RELEASE OF GUARANTOR. Any wording or implication herein to the
contrary notwithstanding, any assignment or subletting under this Article 11
shall not operate to release or waive the obligations of Tenant or any Guarantor
under this Lease.
ARTICLE 12.
GOVERNMENT REGULATIONS
12.01 GOVERNMENTAL REGULATIONS. Tenant shall, at its sole cost and expense,
comply with all of the requirements pertaining to the operation of its business
as imposed by county, municipal, state, federal and other governmental
authorities which have jurisdiction over the Premises or Tenant, now in force or
which may hereafter be in force; provided, however, requirements imposed on the
Property in general or the Leased Premises in general, and not required because
of the nature of Tenant's business, shall be complied with at the cost of
Landlord. The foregoing language notwithstanding, Tenant agrees that any
requirements of the Americans with Disabilities Act shall be met at Tenant's
expense; likewise, a requirement imposed on the Property in general or the
Leased Premises in general, and not imposed because of the nature of Tenant's
business, but compliance with which is triggered by a request by Tenant to
remodel or otherwise change the Property, and such request requires a building
permit, shall be met at the expense of Tenant.
ARTICLE 13.
DESTRUCTION OF LEASED PREMISES
13.01 TOTAL OR PARTIAL DESTRUCTION. If the Leased Premises shall be
partially or totally destroyed by fire or other casualty insurable under full
standard fire and extended risk insurance, so as to become partially or totally
untenantable, the same (unless Landlord shall elect not to rebuild as
hereinafter provided) shall be repaired and restored by and at the cost of
Tenant, and Rent shall continue during such period of repair and restoration for
the longer of six (6) months or the period for which Tenant's business
interruption insurance makes payments to Tenant as a result of such destruction
and interruption of Tenant's business. Thereafter, a just and proportionate part
of the rent, as provided for hereinafter, shall be abated until the Leased
Premises are so restored.
<PAGE>
Landlord and Tenant agree to take all reasonable steps to make the proceeds of
their respective casualty insurance coverages available to Tenant so that Tenant
may fulfill its reconstruction obligations hereunder. Landlord and Tenant
additionally agree to take all reasonable steps to mutually assure that the
reconstruction proceeds so as not to trigger the "Developer's Right to Purchase"
under Section 2.6 of the Restrictive Agreement.
If more than one-third (1/3) of the building in which the Leased Premises are
located shall be destroyed or damaged by fire or other casualty, and if the
unexpired portion of the term of this Lease shall be two (2) years or less at
the date of the damage, then Landlord may elect not to repair or rebuild by
giving written notice within thirty (30) days after such occurrence of its
election to terminate this Lease; otherwise, Tenant shall commence and pursue
such reconstruction diligently to completion.
In the event that Landlord shall exercise the right heretofore given to
terminate, then this Lease shall cease as of the date of such damage or
destruction, and all rent or other charges payable by Tenant shall be prorated
to the date of such damage or destruction. In the event that this Lease is not
canceled, then the Rent shall continue during such period of repair and
restoration for the longer of six (6) months or the period for which Tenant's
business interruption insurance makes payments to Tenant as a result of such
destruction and interruption of Tenant's business. Thereafter, a just and
proportionate part of the rent shall be abated until the Leased Premises are so
restored.
13.02 PARTIAL DESTRUCTION OF PROPERTY. In the event that sixty percent (60) or
more of the gross leasable area in the Property shall be damaged or destroyed by
fire or other cause during the last two (2) years of the Lease, or during the
last two (2) years of any extended term, notwithstanding that the Leased
Premises may be unaffected by such fire or other cause, Landlord or Tenant shall
have the right, to be exercised by notice in writing delivered to the other
party, within thirty (30) days after said occurrence, to cancel and terminate
this Lease. Upon the giving of such notice to Tenant, the term of this Lease
shall expire as of the date of the damage, and Tenant shall vacate the Leased
Premises and surrender the same to Landlord pursuant to the terms of the lease,
allowing a reasonable period of time for the closing of Tenant's business and
the removal of Tenant's property from the premises.
ARTICLE 14.
EMINENT DOMAIN
14.01 TOTAL CONDEMNATION. If the whole of the Leased Premises shall be
acquired or condemned by eminent domain for any public or quasi-public use or
purpose, or be conveyed in lieu of any such taking, or if a part of the Leased
Premises shall be so acquired or condemned, and if such partial taking or
acquisition renders the Leased Premises unsuitable for the business of Tenant,
in Tenant's reasonable business judgment, then the term of this Lease shall
cease and terminate as of the date of the taking, and all rentals shall be paid
up to that date.
14.02 PARTIAL CONDEMNATION. In the event of a partial taking, or conveyance
of the Leased Premises in lieu thereof, which is not extensive enough to render
the Leased Premises unsuitable for the business of Tenant, in Tenant's
reasonable business judgment, the Landlord, shall promptly restore the Leased
Premises to a condition comparable to its condition immediately prior to such
taking (less the portion lost in the taking), and this Lease shall continue in
full force and effect. In such case, all rents due hereunder shall, from the
date of said taking or conveyance, be abated on a fair and equitable basis to
the extent of any reduction, if any, in the area of the Leased Premises
resulting from such taking and not restored, and also taking into account the
impact, if any, of the loss of parking in the Property.
<PAGE>
14.03 DAMAGES. In the event of any condemnation, taking, or conveyance
in lieu thereof, as hereinbefore provided, whether whole or partial, Tenant
shall not be entitled to any part of the award or price, as damages or
otherwise, awarded to Landlord for such condemnation, taking, or conveyance,
except to the extent provided in paragraph 14.04. Tenant hereby expressly waives
any right or claim to any part thereof and assigns to Landlord its interest
therein; provided, however, that where the taking is such as results in a
termination of the Lease pursuant to other provisions of this Article, then and
in that event, notwithstanding anything herein to the contrary, Landlord shall
not be entitled to that portion, if any, of an award made to or for the benefit
of Tenant for loss of Tenant's business or depreciation to and cost of removal
of its stock, trade fixtures and equipment which Tenant is entitled to remove.
Tenant shall have no claim against Landlord for the value of any unexpired term
of this Lease.
14.04 TENANT'S DAMAGES. The foregoing language notwithstanding, Tenant shall
have the right to claim and recover from the condemning authority (but not from
Landlord) such compensation as may be separately awarded to Tenant in Tenant's
own name and right on account of all damages suffered by Tenant of any nature
whatsoever, including, without limitation, court costs and attorney's fees, by
reason of the condemnation and including without limitation any cost which
Tenant may incur in removing its property from the Leased Premises or restoring
all or any portion of the Leased Premises to their former condition.
ARTICLE 15.
DEFAULT OF TENANT
15.01 DEFAULT. Any one or more of the following shall constitute an "Event of
Default" under this Lease:
(a) failure of Tenant to pay any Rent, Additional Rent or other charge
due hereunder within ten (10) days after receipt by Tenant of written
notice that the same has not been paid; or ,
(b) Tenant's failure to perform any other of the terms, conditions or
covenants of this Lease to be observed or performed by Tenant for more than
thirty (30) days after receipt of written notice thereof; or, if such
performance cannot reasonably be completed within said thirty (30)days,
failure to commence the performance within said thirty (30) days and pursue
the same diligently to completion, or ,
(c) if Tenant shall file or have filed against it any bankruptcy
proceedings, or take or have taken against it in any court pursuant to any
statute, either of the United States or of any state, a petition of
bankruptcy or insolvency, or for reorganization or for the appointment of a
receiver or trustee of all or a portion of Tenant's property, or if Tenant
makes an assignment for the benefit of creditors, or petitions for or
enters into an arrangement; and shall not withdraw, or have withdrawn, said
filing or petition within sixty (60) days of the date of filing; or ,
<PAGE>
(d) if Tenant shall abandon the Leased Premises (other than during
periods of repair or renovation, or as a result of casualty, force majeur,
or other events beyond the reasonable control of Tenant) and shall fail to
pay sums due hereunder in a timely manner, or suffer this Lease to be taken
under any writ of execution.
If an Event of Default occurs, the Landlord shall, upon proper observance of all
requirements of law, have the right to enter the Leased Premises and take
possession thereof and of all permanent improvements thereon and may remove all
persons and property from the Leased Premises by force, summary action, or
otherwise, and such property may be removed and stored in a public warehouse or
elsewhere at the cost of and for the account of Tenant.
Tenant agrees to quit and deliver up possession of the Property, including
permanent improvements to the Property, when this Lease terminates.
15.02 REMEDIES. If an Event of Default occurs, the Landlord may elect to
re-enter, as herein provided, or take possession pursuant to legal proceedings
or pursuant to any notice provided for herein, and Landlord may either terminate
this Lease, or may from time to time and without terminating this Lease make
such alterations and repairs as may be reasonably and commercially necessary in
order to relet the Premises and relet said Premises or any part thereof for such
term or terms (which may be for a term extending beyond the term of this Lease)
and at such rental or rentals and upon such other terms and conditions as
Landlord in its reasonable business judgment and discretion may deem advisable.
Upon each such reletting all rentals received by Landlord from such reletting
shall be applied first to the payment of any indebtedness other than rent due
hereunder from Tenant to Landlord; second to the payment of reasonable costs and
expenses of such reletting, including reasonable brokerage fees and reasonable
attorneys' fees, and of reasonable costs of such alterations and repairs; third
to the payment of rent due and unpaid hereunder; and the residue, if any, shall
be held by Landlord and applied in payment of future rent as the same may become
due and payable hereunder from Tenant. If such rentals received from such
reletting during any month are less than that to be paid during that month by
Tenant hereunder, Tenant shall be liable for the payment of such deficiency to
Landlord. Such deficiency shall be calculated and become payable monthly. No
such re-entry or the taking of possession of the Leased Premises by Landlord
shall be construed as an election on its part to terminate this Lease or to
accept a surrender thereof unless a written notice of such intention is given to
Tenant. Notwithstanding any such reletting without termination, Landlord may at
any time thereafter elect to terminate this Lease for such previous breach.
Should Landlord at any time terminate this Lease for any Event of Default, in
addition to any other remedies it may have, it may recover from Tenant the
reasonable cost of recovering the Leased Premises. Any reletting shall be done
in such reasonable and commercially prudent manner as Landlord may deem proper.
Tenant agrees that this lease is a lease of "real property in a Property" and
that a debtor in possession and/or trustee in bankruptcy acting pursuant to the
provisions of the revised bankruptcy code, may assume this lease only if, in
addition to such other conditions of this lease and of applicable law, said
debtor in possession/trustee shall provide Landlord with such written assurances
of future performance as are acceptable to Landlord. Any closing of Tenant's
business, or alteration in the size of the premises, by said debtor in
possession/trustee shall be deemed to be a material disruption in the tenant mix
and balance of the Property.
<PAGE>
15.03 LEGAL EXPENSES. If suit shall be brought for recovery of possession
of the Leased Premises, and/or the recovery of rent or any other amount due
under provisions of this Lease, or because of the breach of any other covenant
herein contained on the part of the Tenant to be kept or performed, and the
breach shall be established, Tenant shall pay to Landlord, in addition to all
other sums and relief available to Landlord, all reasonable expenses incurred
therefor, including reasonable attorneys' fees to the maximum extent permitted
by law.
If suit shall be brought for the breach of any covenant herein contained on the
part of the Landlord to be kept or performed, and the breach shall be
established, Landlord shall pay to Tenant, in addition to all other sums and
relief available to Tenant, all expenses incurred therefor, including reasonable
attorneys' fees to the maximum extent permitted by law.
15.04 FAILURE TO PAY, INTEREST ON AMOUNT DUE. If either party at any time
shall fail to pay any taxes, assessments, or liens, or to make any payment or
perform any act required by this Lease to be made or performed by it, the party
not required to make the payment or perform the act, without waiving or
releasing the non-performing party from any obligation or default under this
Lease, may (but shall be under no obligation to) at any time thereafter make
such payment or perform such act for the account and at the expense of the
non-performing party. All sums so paid and all costs and expenses so incurred
shall accrue interest at a rate equal to the "prime" rate charged by Norwest
Bank of Denver to its best commercial customers, plus three (3) percentage
points, per year, simple, from the date of payment or incurring thereof by the
party making the payment or performing the obligation of the non-performing
party and shall be paid to the performing party upon demand.
15.05 LIMITATION ON DAMAGES. Any language in this Article 15 or in this Lease
to the contrary notwithstanding, and except as specifically provided in this
Article, neither Landlord nor Tenant shall be liable, each to the other, for
punitive, exemplary, or consequential damages as a result of the breach of such
party's obligations hereunder.
ARTICLE 16.
ACCESS BY LANDLORD
16.01 RIGHT OF ENTRY. Upon forty-eight (48) hours' prior written notice,
Landlord or Landlord's agents shall have the right to enter the Leased Premises
at all reasonable times to examine the same and to make such repairs as may be
reasonably necessary and as Landlord is required to make under the terms of this
Lease, and Landlord shall be allowed to take all material into and upon said
Premises that may be required therefor without the same constituting an eviction
of Tenant in whole or in part. Nothing herein contained, however, shall be
deemed or construed to impose upon Landlord any obligation, responsibility or
liability whatsoever for the care, maintenance or repair of the building or any
part hereof, except as otherwise herein specifically provided. During the six
(6) months prior to the expiration of the term of this Lease or any renewal
term, Landlord may exhibit the Premises to prospective tenants. Except in the
case of emergency repairs necessary to prevent or mitigate damage to the
Premises or injury to persons, Landlord shall not exercise any rights under this
paragraph during Tenant's usual "busy" times, being the lunch and dinner periods
of the day.
<PAGE>
ARTICLE 17.
TENANT'S PROPERTY
17.01 TAXES ON TENANT'S PERSONAL PROPERTY. Tenant shall be responsible for and
shall pay before delinquency all municipal, county, or state taxes assessed
during the term of this Lease against any personal property of any kind owned by
or placed in, upon, or about the Leased Premises by Tenant.
17.02 LOSS AND DAMAGE. Landlord shall not be liable for any injury or
damage to persons or property resulting from fire, explosion, falling plaster,
steam, gas, electricity, water, rain or snow, or leaks from any part of the
Leased Premises, or from the pipes, appliances or plumbing works, or from the
roof, street or subsurface, or from any other place, or by dampness or by any
other cause of whatsoever nature, and whether originating in the Leased Premises
or elsewhere, unless the same be caused by the negligent act or negligent
failure to act of Landlord, or Landlord's agents, representatives, employees, or
others in privity with Landlord. The terms of this paragraph notwithstanding,
Landlord shall not be liable by way of subrogation if the claim is barred or
waived under the waiver of subrogation provisions of this Lease. All property of
Tenant kept or stored on the Leased Premises shall be so kept or stored at the
risk of the Tenant only, and Tenant hereby holds Landlord harmless from any
claims arising out of damage to the same, including subrogation claims by
Tenant's insurance carrier, a waiver of which shall be obtained in advance by
Tenant.
17.03 NOTICE BY TENANT. Tenant shall give reasonable notice to Landlord in
case of fire or accidents, or of defects in the Leased Premises or in the
building of which the Leased Premises are a part.
ARTICLE 18.
NOTICE PROVISIONS
18.01 NOTICES. Any notice by Tenant to Landlord must be served either:
(a) by certified mail, postage prepaid, addressed to Landlord at the
place designated for the payment of rent, or at such other address as
Landlord may designate from time to time by written notice; or,
(b) by personal service upon Landlord at such address; or,
(c) by nationally recognized overnight courier service to such
address; or,
(d) by facsimile transmission to the facsimile number provided to
Tenant in writing.
<PAGE>
Until otherwise notified in writing, Tenant shall pay all rent reserved herein
and all other sums required under this Lease at, and the information for notice
is:
Lagomorph , L.L.C., an Illinois limited liability company
Attn: David E. Carpenter
1115 N. Elm Street
P.O. Box 216
West Liberty, Iowa 52776
Phone: (319) 627-4101
Fax: (319) 627-4403
Any notice by Landlord to Tenant must be served either by certified mail,
postage prepaid, addressed to Tenant at its home office at 248 Centennial
Parkway, Suite 100, Louisville, CO 80027, Attn: Lease and Property Management
and to Tenant's General Manager at the Leased Premises, or at such other address
or addresses as Tenant may designate from time to time by written notice to
Landlord; or, by personal service on Tenant at said addresses; or by nationally
recognized overnight courier service to such addresses; or, by facsimile
transmission to the facsimile number provided to Landlord in writing. Tenant's
facsimile number is (303) 664-4199.
Notice via certified or registered mail shall be deemed delivered the earlier of
actual delivery or three (3) days after deposit in the mail as described above.
Notice by personal service shall be deemed delivered upon actual receipt. Notice
by nationally recognized overnight courier service shall be deemed delivered the
earlier of actual delivery or two (2) days after deposit with the courier
service. Notice by facsimile shall be deemed delivered on the date transmitted
if transmitted before 12 noon; otherwise, on the next regular business day after
the date of transmission. A business day for the purpose of this Lease means any
day other than Saturday, Sunday or the following national holidays: New Year's
Day, Martin Luther King Day, President's' Day, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans Day, Thanksgiving and Christmas.
Upon receipt of any communication from third parties requiring any response by
Landlord, Tenant agrees to exercise reasonable efforts to transmit said
communication to Landlord in sufficient time for Landlord to comply with the
requirements of said communication.
ARTICLE 19.
SUBORDINATION, NONDISTURBANCE, ATTORNMENT,
ESTOPPEL AND PLEDGE OF TENANT'S INTEREST
19.01 SUBORDINATION OF LEASE TO LANDLORD'S LENDERS. Tenant agrees that this
Lease and the estate of Tenant hereby created may be made subject and
subordinate to the lien of any mortgage, mortgages, deeds of trust or similar
encumbrances hereafter placed upon the Leased Premises. Notwithstanding anything
set out in this Lease to the contrary, in the event the holder of any mortgage
or deed of trust elects to have this Lease superior to its mortgage or deed of
trust, then, upon Tenant being notified to that effect by such encumbrance
holder, this Lease shall be deemed prior to the lien of said mortgage or deed of
trust, whether this Lease is adopted prior to or subsequent to the date of said
<PAGE>
mortgage or deed of trust; provided, however, neither the holder of the
encumbrance nor any person or entity claiming by or through said holder may
disrupt, terminate or otherwise interfere with Tenant's quiet possession of the
Premises so long as Tenant keeps and performs the covenants of Tenant hereunder.
The agreements herein shall be self-operative and no further instrument of
subordination shall be required. However, upon demand by the holder of any
mortgage covering all or any part of the Property, Tenant shall forthwith
execute, acknowledge and deliver an agreement in favor of and in the form
customarily used by such encumbrance holder. The foregoing language
notwithstanding, Tenant shall not be required to sign, nor presumed to have
signed or agreed to, any document hereunder which is not accurate or does not
contain in form reasonably satisfactory to Tenant language which provides that
notwithstanding the subordination of the Lease to the encumbrance in question,
neither the holder of the encumbrance nor any person or entity claiming by or
through said holder may disrupt, terminate or otherwise interfere with Tenant's
quiet possession of the Premises so long as Tenant keeps and performs the
covenants of Tenant hereunder.
Landlord reserves the right, without notice to or consent of Tenant, to assign
this Lease and/or any and all rents hereunder as security for the payment of any
mortgage loan, deed of trust loan, or other method of financing or refinancing.
If the Property is presently encumbered by a mortgage, deed of trust or other
encumbrance, it shall be a condition of Tenant's liability hereunder that
Landlord obtain from the holders of any such encumbrance(s) a non-disturbance
agreement reasonably acceptable in form and substance to Tenant, conforming with
the terms of this paragraph 19.01.
19.02 ESTOPPEL CERTIFICATE. Tenant agrees, no more frequently than once per
year, upon not less than ten (10) business days' prior notice by Landlord, to
execute, acknowledge and deliver to Landlord, a statement in writing addressed
to Landlord or other party designated by Landlord certifying that this Lease is
in full force and effect (or, if there have been modifications, that the same is
in full force and effect as modified and stating the modifications), stating the
actual commencement and expiration dates of the Lease, stating the dates to
which rent, and other charges, if any, have been paid, that the Leased Premises
have been completed on or before the date of such certificate and that all
conditions precedent to the Lease taking effect have been carried out, that
Tenant has accepted possession, that the lease term has commenced, Tenant is
occupying the Leased Premises and is open for business, and stating whether or
not to the best of Tenant's knowledge and belief there exists any default by
either party in the performance of any covenant, agreement, term, provision or
condition contained in this Lease, and, if so, specifying each such default of
which the signer may have knowledge and the claims or offsets, if any, claimed
by the Tenant, it being intended that any such statement delivered pursuant
hereto may be relied upon by Landlord or a purchaser of Landlord's interest and
by any mortgagee or prospective mortgagee of any mortgage affecting the Leased
Premises or the Property.
Landlord agrees, no more frequently than once per year, upon not less than ten
(10) business days' prior notice by Tenant, to execute, acknowledge and deliver
to Tenant, a statement in writing addressed to Tenant or other party designated
by Tenant certifying that this Lease is in full force and effect (or, if there
have been modifications, that the same is in full force and effect as modified
<PAGE>
and stating the modifications), stating the actual commencement and expiration
dates of the Lease, stating the dates to which Rent, and other charges, if any,
have been paid, that the Leased Premises have been completed on or before the
date of such certificate and that all conditions precedent to the Lease taking
effect have been carried out, that Tenant has accepted possession, that the
lease term has commenced, Tenant is occupying the Leased Premises and is open
for business, and stating whether or not to the best of Landlord's knowledge and
belief there exists any default by either party in the performance of any
covenant, agreement, term, provision or condition contained in this Lease, and,
if so, specifying each such default of which the signer may have knowledge and
the claims or offsets, if any, claimed by the Landlord, it being intended that
any such statement delivered pursuant hereto may be relied upon by Tenant or any
person to whom Tenant may deliver such certificate.
19.03 ATTORNMENT. Tenant agrees that no foreclosure of a mortgage affecting the
Leased Premises, nor the institution of any suit, action, summary or other
proceeding against the Landlord herein, or any successor Landlord, or any
foreclosure proceeding brought by the holder of any such mortgage to recover
possession of such property, shall by operation of law or otherwise result in
cancellation or termination of this Lease or the obligations of the Tenant
hereunder, and upon the request of the holder of any such mortgage, Tenant
covenants and agrees to execute an instrument in writing satisfactory to such
party or parties or to the purchaser of the mortgaged premises in foreclosure
whereby Tenant attorns to such successor in interest. The foregoing language
notwithstanding, Tenant shall not be required to sign, nor presumed to have
signed or agreed to, any document hereunder which does not contain in form
reasonably satisfactory to Tenant language which provides that notwithstanding
the attornment document, neither the holder of the document nor any person or
entity claiming by or through said holder may disrupt, terminate or otherwise
interfere with Tenant's quiet possession of the Property or the Premises so long
as Tenant keeps and performs the covenants of Tenant hereunder.
19.04 PLEDGE OF PERSONAL PROPERTY AND/OR LEASE INTEREST. The foregoing
language notwithstanding, Landlord acknowledges that Tenant may seek financing
or funding which requires it to encumber the personal property owned by Tenant,
as well as similar property from other restaurant operations, by way of a first
and prior security interest in the collateral for the benefit of an
institutional lender. In such event, Landlord shall execute such documents as
are reasonably required by such lender to evidence subordination of Landlord's
security interest, if any, in accordance with this paragraph.
ARTICLE 20.
MISCELLANEOUS PROVISIONS
20.01 ACCORD AND SATISFACTION. No payment by Tenant or receipt by Landlord of a
lesser amount than the monthly rent installments herein stipulated shall be
deemed to be other than on account of the earliest stipulated rent.
20.02 APPLICABLE LAW. This Lease and the rights and obligations of the parties
arising hereunder shall be construed in accordance with the laws of the State of
Illinois.
<PAGE>
20.03 CAPTIONS AND SECTION NUMBERS. The headings which have been used
throughout this Lease have been inserted for convenience of reference only and
do not constitute matter to be construed in interpreting this Lease. Words of
any gender used in this Lease shall be held and construed to include any other
gender and words in a singular number shall be held to include the plural, and
vice versa, unless the context requires otherwise. The words "herein," "hereof,"
"hereunder," and other similar compounds of the word "here" when used in this
Lease shall refer to the entire Lease and not to any particular provision or
section. If the last day of any time period stated herein shall fall on a
Saturday, Sunday, or legal holiday, then the duration of such time period shall
be extended so that it shall end on the next succeeding day which is not a
Saturday, Sunday, or legal holiday.
20.04 COVENANTS AND RESTRICTIONS. Subject to the undertakings imposed upon
Landlord pursuant to paragraph 12.01 regarding Governmental Regulations and
Article 13 regarding Destruction of Leased Premises, Tenant shall undertake to
see that the Property and the Premises and the operation of Tenant's business
thereon and therein shall at all times comply with the Governing Documents and
any other covenants, declarations or other restrictions as may be applicable to
the Property and Premises from time to time and Tenant shall bear all costs
associated with such compliance, including costs for "Off-site Improvements" or
"Late Night Lighting Cost," as such terms are defined in Sections 4.9 and 7.2 of
the Easements, respectively.
20.05 COUNTERPARTS. This Lease may be executed in several counterparts, each of
which shall be full effected as an original and all of which together shall
constitute one and the same instrument.
20.06 ENTIRE AGREEMENT. The Lease, the Exhibits and any Rider set forth
all the covenants, promises, agreements, conditions and understandings between
Landlord and Tenant concerning the Leased Premises and there are no covenants,
promises, agreements, conditions or understandings, either oral or written,
between them other than as herein set forth. All prior communications,
negotiations, arrangements, representations, agreements and understandings,
whether oral, written or both, between the parties hereto, and their
representatives, are merged herein and extinguished, this Lease superseding and
canceling the same. Except as herein otherwise provided, no subsequent
alteration, amendment, change or addition to this Lease shall be binding upon
Landlord or Tenant unless reduced to writing and executed by the party against
which such subsequent alteration, amendment, change or modification is to be
enforced. If any provision contained in any Exhibit or Rider hereto is
inconsistent with any printed provisions of this Lease the provision contained
in such Exhibit or Rider shall supersede said printed provision.
20.07 EXHIBITS. All references to Exhibits contained herein are references to
Exhibits attached hereto, all of which are made a part hereof for all purposes
the same as if set forth herein verbatim, it being expressly understood that if
any Exhibit attached hereto which is to be executed and delivered contains
blanks, the same shall be completed correctly and in accordance with the terms
and provisions contained herein and as contemplated herein prior to or at the
time of execution and delivery thereof.
<PAGE>
20.08 FACSIMILE SIGNATURES. Facsimile copies bearing copies of the
signatures of Landlord and Tenant shall be binding upon the parties until such
time as each party has received a copy of this Lease bearing original
signatures.
20.09 FORCE MAJEURE. In the event that either party hereto shall be delayed
or hindered in or prevented from the performance of any act required hereunder
by reason of strikes, lockouts, labor troubles, inability to procure materials,
failure of power, restrictive governmental laws or regulations, riots,
insurrection, war, or other reason of a like nature not the fault of the party
delayed in performing work or doing acts required under the terms of this Lease,
then the time allowed for performance of such act shall be extended by a period
a equivalent to the period of such delay. The provisions of this Section 20.09
shall not operate to excuse Tenant, or Landlord as the case may be, from the
prompt payment of Rent or any other payments required by the respective parties
under the terms of this Lease.
20.10 GUARANTOR. This Lease is Guaranteed by Rock Bottom Restaurants, Inc.,
pursuant to the Guaranty attached hereto as Exhibit C.
20.11 HAZARDOUS MATERIALS: Neither Landlord nor Tenant will store, use, or
dispose of any hazardous, toxic, corrosive, explosive, reactive or radioactive
matter in, on, or about the Premises or the Property. Landlord and Tenant will
comply with all applicable environmental laws and permitting requirements
impacting the operations on the Leased Premises. Tenant shall indemnify and hold
harmless the Landlord from any claims or actions, including, without limitation,
costs, reasonable attorneys' fees and costs of remediation, arising out of
Tenant's use, storage or disposal of toxic or hazardous materials on or in the
Leased Premises.
20.12 NO PARTNERSHIP OR OTHER ASSOCIATION. Landlord does not, in any way or
for any purpose, become a partner of Tenant in the conduct of its business or
otherwise, or joint venturer or a member of a joint enterprise with Tenant.
20.13 NOTICE TO LANDLORD OF DEFAULT. In the event of any act or omission by
Landlord which would give Tenant the right to terminate this Lease, or make any
claim against Landlord for the payment of money, Tenant will not make such claim
or exercise such right until it has given written notice of such act or omission
to the Landlord, and after fifteen (15) days shall have elapsed following the
giving of such notice, during which Landlord has not commenced diligently to
remedy such act or omission or to cause the same to be remedied.
20.14 PARTIAL INVALIDITY. If any one or more of the provisions of this Lease,
or the applicability of any such provision to a specific situation, shall be
held invalid or unenforceable, such provision shall be modified to the minimum
extent necessary to make it or its application valid and enforceable, and the
validity and enforceability of all other provisions of this Lease and all other
applications of any such provisions shall not be affected thereby.
20.15 PRELIMINARY NEGOTIATIONS. This Lease is executed in conjunction
with the Purchase and Sale Agreement dated January ____, 1999, between
Lagomorph, L.L.C. or assigns and Rock Bottom Restaurants, Inc. Tenant's
obligations under this Lease are contingent or conditioned only upon the closing
of the transaction contemplated by said Purchase and Sale Agreement. If for any
reason said transaction does not close, and Landlord does not acquire title to
the Property, the Lease shall be of no force or effect, and each party shall be
released from any obligation hereunder.
<PAGE>
20.16 QUIET ENJOYMENT, LANDLORD'S COVENANT. Upon payment by Tenant of the rents
herein provided, and upon the observance and performance of all the covenants,
terms and conditions on Tenant's part to be observed and performed, Tenant shall
peaceably and quietly hold and enjoy the Leased Premises for the term hereby
demised without hindrance or interruption by Landlord or any other person or
persons lawfully or equitably claiming by, through, or under Landlord. In that
regard, and notwithstanding any other language herein to the contrary, when
exercising its rights and performing its obligations under this Lease, Landlord
shall take no action which shall interfere with the conduct of Tenant's
business, cause inconvenience to Tenant's customers, increase Tenant's cost of
doing business or cost for common area maintenance and expenses, or change or
interfere with the ingress/egress provided to and from the Leased Premises, or
change, decrease or interfere with Tenant's signage, without Tenant's prior
written consent, which consent shall be given or withheld in Tenant's reasonable
business judgment. The within limitation shall not apply to actions taken by
Landlord to enforce its rights after a default and failure to cure by Tenant,
and shall not apply to the extent Landlord and Tenant are governed by the
Governing Documents and other rules, regulations, covenants, restrictions, etc.
applicable to the Property and the Premises.
20.17 REAL ESTATE COMMISSIONS. Landlord and Tenant warrant to each other they
have not dealt with any broker or Realtor with respect to this transaction.
20.18 RECORDING. A certificate or memorandum of this Lease, prepared by
Landlord, may at the option and expense of Landlord, be recorded. Tenant shall
execute any such certificate or memorandum which accurately reflects the general
non-monetary terms of this Lease upon request by Landlord; provided, however, no
such certificate or memorandum shall state the amount of rent or other charges
payable by Tenant to Landlord under this Lease.
20.19 TENANT'S ASSERTION OF LANDLORD'S RIGHTS. So long as Tenant is not in
default under the terms of the within Lease, Landlord assigns to Tenant, at
Tenant's expense, Landlord's right to claim for a revision of any "Statement"
regarding common area maintenance, as defined in Section 6.4 of the Easements.
20.20 WASTE. Tenant shall not allow nor commit waste on or about the Premises.
20.21 NO WAIVER CUMULATIVE RIGHTS. The various rights and remedies contained
in this Lease shall not be exclusive of any other right or remedy, but shall,
except as specifically set forth otherwise, be cumulative and in addition to any
other remedy now or hereafter existing at law, in equity, or by statute. No
delay or omission of any exercise of any right by either party shall impair any
such right, or constitute or give rise to a waiver of any right or of any
default or any acquiescence therein. One or more waivers of any covenant or
condition of this Lease by either party shall not constitute or give rise to any
waiver of any subsequent rights under the same covenant or condition. The
consent or approval by either party to or of any act or thing requiring consent
or approval shall not be deemed to waive or render unnecessary consent to
approval of any subsequent similar act.
<PAGE>
ARTICLE 21.
HOLDING OVER; SUCCESSORS
21.01 HOLDING OVER. In the event Tenant remains in possession of the Leased
Premises after the expiration of the tenancy created hereunder, and without the
execution of a new lease, Tenant, at the option of Landlord, shall be deemed to
be occupying the Leased Premises as a tenant from month to month, at one hundred
fifty percent (150%) of the Base Rent for the last Lease Year of the term,
subject to all the other conditions, provisions and obligations of this Lease
insofar as the same are applicable to month-to-month tenancy.
21.02 SUCCESSORS AND ASSIGNS. Except as otherwise herein provided, this Lease
and all the covenants, terms, provisions and conditions herein contained shall
inure to the benefit of and be binding upon the heirs, representatives,
successors and assigns of each party hereto, and all covenants herein contained
shall run with the land and bind any and all successors in title to Landlord.
TENANT: LANDLORD:
WALNUT BREWERY, INC., LAGOMORPH, L.L.C.,
a Colorado corporation, an Illinois limited liability company
By: By:
--------------------- --------------------
William S. Hoppe, President David E. Carpenter, Manager
FIRST AMENDMENT
That certain Restaurant Lease of 28256 Diehl Road, Warrenville, IL 60555 between
Lagomorph, L.L.C., an Illinois limited liability company, as Landlord, and
Walnut Brewery, Inc., a Colorado corporation d/b/a Rock Bottom Brewery, as
Tenant, is hereby amended as follows:
1. As a preamble within Article 1, above Article 1.01, the following is added:
"The following is intended as a summary of the fundamental terms of the
Lease. In the event of any conflict between the summary and the terms of
the Lease, the terms of the Lease shall control:"
2. The first line of Article 1.16 is changed from "As required by the
Declaration . . . " to "As required by the Governing Documents . . ."
3. The postamble to Article 1.19, which defines "Governing Documents" is
revised to include Easements as a Governing Document.
4. Article 9.01(d) is revised to add the words "and Tenant shall cause
Landlord to be named as an additional insured thereunder."
All other terms of the Restaurant Lease remain unmodified and in force.
TENANT: LANDLORD:
WALNUT BREWERY, INC., LAGOMORPH, L.L.C.,
a Colorado corporation an Illinois limited liability company
By: By:
William S. Hoppe, President David E. Carpenter, Manager
Date: Date:
SECOND AMENDMENT
That certain Restaurant Lease of 28265 Diehl Road, Warrenville, IL 60555 between
Lagomorph, L.L.C., an Illinois limited liability company, as Landlord, and
Walnut Brewery, Inc., a Colorado corporation d/b/a Rock Bottom Brewery, as
Tenant, is hereby amended as follows:
Article 11.04 is deleted in its entirety and replaced with the following:
11.04 FAILURE TO OPERATE. Landlord and Tenant acknowledge and agree that
the parties are bound by the terms of Section 2.6 of the Restrictive
Agreement which provides that "Developer," as defined in the
Restrictive Agreement, has the right to purchase Tenant's "Leasehold
Estate," as defined in the Restrictive Agreement, should Tenant fail
to continuously operate and keep open to the public all of the
Property for a period in excess of one hundred eighty (180)
consecutive calendar days ("Developer's Right to Purchase").
Notwithstanding anything in this Lease to the contrary, Landlord and
Tenant agree that Landlord's approval or consent shall not be required
to any transfer or assignment pursuant to an exercise of Developer's
Right to Purchase by the "Developer" under the Restrictive Agreement.
However, Developer shall provide notice to Landlord that a transfer or
assignment has occurred under Developer's right to purchase.
All other terms of the Restaurant Lease remain unmodified and in force.
TENANT: LANDLORD:
By: By:
--------------------------- ---------------------------
William S. Hoppe, President David E. Carpenter, Manager
Date: Date:
---------------- -----------------
THIRD AMENDMENT
That certain Restaurant Lease of 28265 Diehl Road, Warrenville, IL 60555 between
Lagomorph, L.L.C., an Illinois limited liability company, as Landlord, and
Walnut Brewery, Inc., a Colorado corporation d/b/a Rock Bottom Brewery, as
Tenant, is hereby amended as follows:
1. Article 1.10 is deleted in its entirety and replaced with the following:
1.10 INITIAL LEASE TERM: Twelve (12) years.
2. Article 1.11 is deleted in its entirety and replaced with the following:
1.11 INITIAL TERMS ENDS: On the last day of the one hundred
forty-fourth (144th) full month after the
Lease Commencement Date.
3. Article 1.12 is deleted in its entirety and replaced with the following:
1.12 BASE RENT
Initial Term
------------
Year 1: $287,000 Year 2: $293,458
Year 3: $300,061 Year 4: $306,812
Year 5: $313,715 Year 6: $320,774
Year 7: $327,991 Year 8: $335,371
Year 9: $342,917 Year 10: $350,633
Year 11: $358,522 Year 12: $366,589
1st Option 2nd Option
---------- ----------
Year 1: $374,837 Year 1: $418,948
Year 2: $383,271 Year 2: $428,374
Year 3: $391,895 Year 3: $438,012
Year 4: $400,713 Year 4: $447,867
Year 5: $409,729 Year 5: $457,944
3rd Option 4th Option
---------- ----------
Year 1: $468,248 Year 1: $523,351
Year 2: $478,784 Year 2: $535,126
Year 3: $489,557 Year 3: $547,166
Year 4: $500,572 Year 4: $559,477
Year 5: $511,835 Year 5: $572,065
4. The words "two hundred forty (240) months" in the first line of Article
2.05 will be deleted and replaced with the words "one hundred forty-four
(144) months."
5. The words "Ninety (90) days" in the fourth line of Article 2.06 will be
deleted and replaced with the words "one year."
6. The following sentence will be added at the end of Article 11.01: "Any
assignment, subletting, mortgaging or hypothecation shall be by written
instrument under which the assignee or sublessee shall agree for the
benefit of Landlord to be bound by and to perform this Lease."
7. Article 11.02 is deleted in its entirety.
All other terms of the Restaurant Lease remain unmodified and in force.
TENANT: LANDLORD:
By: By:
--------------------------- ---------------------------
William S. Hoppe, President David E. Carpenter, Manager
Date: Date:
---------------- -----------------
FOURTH AMENDMENT TO LOAN AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AGREEMENT (this "Amendment") executed to
be effective as of April 1, 1999 is among ROCK BOTTOM RESTAURANTS, INC, a
Delaware corporation ("Borrower"), the LENDERS (as such term is defined in the
Loan Agreement described below) and NORWEST BANK COLORADO, NATIONAL ASSOCIATION,
a national banking association, as agent for the Lenders ("Agent").
RECITALS
A. Borrower, the Lenders and the Agent are parties to a Loan Agreement,
dated as of July 2, 1996, and amended by an Amendment to Loan Agreement dated
February 24, 1997, a Second Amendment to Loan Agreement dated July 28, 1997, and
a Third Amendment to Loan Agreement dated July 29, 1998 (as amended, and as it
may hereafter be amended, restated or supplemented from time to time, the "Loan
Agreement"), providing for a revolving line of credit Loan from the Lenders to
the Borrower in the amended maximum amount of $40,000,000. Capitalized terms
that are used but not defined herein have the meanings set forth in the Loan
Agreement.
B. Borrower has requested and the Lenders have agreed to (i) waive the
potential violation of certain provisions in the Loan Agreement arising out of
Borrower entering into the Merger Agreement (as defined below); (ii) modify the
definition of Operating Cash Flow and Capital Expenditures to take into account
certain changes in the method Borrower accounts for Pre-Opening Costs (as
defined below); (iii) modify certain provisions of the Loan Agreement with
respect to sale-leaseback transactions; and (iv) consent to the sale of certain
property in Houston, Texas.
C. The parties desire to enter into this Amendment to reflect the
changes described above.
AGREEMENT
IN CONSIDERATION of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Borrower, the Lenders and the Agent agree as follows:
1. Limited Waivers.
a. Lenders hereby waive any violation of Section 7.6 (Mergers and
Consolidations) or Section 7.13 (Transactions with Affiliates) of the Loan
Agreement arising solely out of Borrower entering into the Agreement and
Plan of Merger, dated as of March 18, 1999, among Borrower, RB Capital,
Inc. and RBR Acquisition Corp. (the "Merger Agreement"); provided that,
notwithstanding anything to the contrary in the Merger Agreement: (i) the
waiver set forth herein is limited solely to entering into the Merger
<PAGE>
Agreement and not to the consummation of any transactions contemplated by
the Merger Agreement; (ii) the Borrower agrees not to consummate the
transactions contemplated by the Merger Agreement without simultaneously
repaying the Loan in full and terminating the Loan Agreement; and (iii)
this waiver is limited solely to the covenants set forth above. Nothing
herein is intended to or shall waive any other Event of Default or
Unmatured Event of Default.
b. Lenders hereby waive any violation of Section 7.15 (Amendments to
Organizational Documents) of the Loan Agreement arising out of the
amendments to the bylaws of the Borrower attached hereto as Schedule I.
2. Amendments to Loan Agreement.
a. The definition of "Operating Cash Flow" in Section 1.1 of the Loan
Agreement is hereby amended and restated in its entirety to read as follows
and the following definition of "Pre-Opening Costs" is added to Section 1.1
of the Loan Agreement in appropriate alphabetical order:
"Operating Cash Flow" means, from and after January 1, 1998,
net income after taxes, plus depreciation, amortization, interest
expense, non-cash fees and/or any extraordinary or non-cash expenses
paid, plus Pre-Opening Costs (to the extent not included in the
foregoing), less any extraordinary, non-operating or non-cash income,
as determined in accordance with GAAP. Prior to January 1, 1998,
"Operating Cash Flow" means net income after taxes, plus depreciation,
amortization, interest expense, non-cash fees and/or any extraordinary
or non-cash expenses paid, less any extraordinary, non-operating or
non-cash income, as determined in accordance with GAAP.
"Pre-Opening Costs" means costs incurred prior to the opening
of any new restaurant facility for payroll, employee recruiting and
training and initial opening expenses directly related to the opening
of such new restaurant facility.
b. Section 5.1(e) of the Loan Agreement is deleted.
c. Section 7.4 of the Loan Agreement (Capital Expenditures) is amended
by adding the following sentence to the end of Section 7.4:
For purposes of determining Borrower's compliance with this
Section 7.4 at all times after January 1, 1998, Capital Expenditures
shall include Pre-Opening Costs and the limitations set forth herein
shall apply to Capital Expenditures and Pre-Opening Costs in the
aggregate.
<PAGE>
d. Section 7.11(c) of the Loan Agreement is hereby amended and
restated in its entirety to read as follows:
(c) sale-leaseback transactions; provided that (i) the
sale-leaseback transaction is with an unaffiliated third party on fair
and reasonable terms as reasonably determined by the Agent (which
determination may, at Agent's option, be based on a certificate from
Borrower) or (ii) if it is with an affiliated party, Agent determines
that it is on terms substantially similar to the terms available from
an unaffiliated third party (which determination may, at Agent's
option, be based on a certificate from Borrower).
e. Section 4.2 of the loan agreement is amended by deleting the phrase
"Fee Properties" and substituting in its place the phrase "Fee Properties
or any other real property on which the Agent or a Lender has a lien as
security for the Loan" in order to allow releases of properties other than
the Fee Properties in the event of a sale-leaseback transaction.
f. Exhibit D to the Loan Agreement is hereby replaced with Exhibit D
attached hereto and Exhibit D attached hereto is substituted in place of
Exhibit D to the Loan Agreement as locations where the Collateral is
located. Borrower hereby represents, warrants and certifies that (a) each
Subsidiary set forth on Exhibit D (as amended by this Amendment) conducts
operations only at the locations set forth below such Subsidiary's name on
Exhibit D (as amended by this Amendment) and Borrower or such Subsidiary
own all of the Collateral located at such location, and (b) the Collateral
is not located in any location, and neither Borrower nor any Subsidiary
conducts any operations in any location other than those listed on Exhibit
D of the Loan Agreement (as amended by this Amendment).
3. Sale of Facility. Lenders hereby consent to Borrower entering into a
contract to sell and selling the parking lot property located in Houston, Texas.
4. Conditions Precedent. All of Lenders' obligations under this Amendment are
conditioned upon and subject to satisfaction of all of the following conditions
precedent in a manner acceptable to Agent:
a. Borrower shall pay all Loan Expenses incurred by the Agent in
connection with the transactions contemplated by this Amendment;
b. as of the date of this Amendment, taking into consideration the
changes contemplated by this Amendment, there was and is no Event of
Default or Unmatured Event of Default, other than the potential Events of
Default being waived pursuant to paragraph 1 above (the "Waived Defaults");
and
c. The representations and warranties set forth in Paragraph 6 below
shall be true and correct in all respects.
5. Further Assurances. Borrower shall execute all documents and instruments
and take all actions or cause any other party to execute all documents and
instruments and take all actions as the Agent may reasonably require to effect
the transactions contemplated by this Amendment.
<PAGE>
6. Representations and Warranties.
a. Borrower hereby represents and warrants to the Lenders that as of
the date of this Amendment (taking into consideration the transactions
contemplated by this Amendment), all of Borrower's representations and
warranties contained in the Loan Documents are true, accurate and complete
in all material respects, and no Event of Default or Unmatured Event of
Default has occurred under any Loan Document (as amended concurrent
herewith), other than the Waived Defaults.
b. Without limiting the generality of the foregoing, Borrower
represents and warrants to the Lenders that the execution and delivery of
this Amendment has been authorized by all necessary action on the part of
Borrower, that each person executing this Amendment on behalf of Borrower
is duly authorized to do so, and that this Amendment constitutes the legal,
valid, binding and enforceable obligation of Borrower (subject to the same
limitations of enforceability as set forth in the Loan Agreement).
7. Loan Documents.
a. The Lenders, the Agent, and the Borrower agree that all of the Loan
Documents (including the covenant compliance certificate and any other
certificate) shall be amended to reflect the amendments set forth herein.
b. All references in any document to the Loan Agreement hereafter
refer to the Loan Agreement as amended pursuant to this Amendment.
c. All references in the Loan Agreement to the Loan Documents, or any
particular Loan Document, hereby refer to such Loan Documents as amended
pursuant to the amendments executed concurrent herewith.
8. Continuation of the Loan Agreement. Except as specified in this Amendment,
the provisions of the Loan Agreement remain in full force and effect, and if
there is a conflict between the terms of this Amendment and those of the Loan
Agreement, the terms of this Amendment control.
9. Miscellaneous.
a. This Amendment shall be governed by and construed under the laws of
the State of Colorado and shall be binding upon and inure to the benefit of
the parties hereto and their successors and permissible assigns.
b. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall
constitute one instrument.
<PAGE>
c. This Amendment and all documents to be executed and delivered
hereunder may be delivered in the form of a facsimile copy, subsequently
confirmed by delivery of the originally executed document.
d. Time is of the essence hereof with respect to the dates, terms and
conditions of this Amendment and the documents to be delivered pursuant
hereto.
e. This Amendment constitutes the entire agreement between Borrower,
the Agent, and the Lenders concerning the subject matter of this Amendment.
This Amendment may not be amended or modified orally, but only by a written
agreement executed by Borrower, the Agent and the Lenders and designated as
an amendment or modification of the Loan Agreement.
f. If any provision of this Amendment is held to be invalid, illegal
or unenforceable, the validity, legality and enforceability of the
remaining provisions of this Amendment shall not be impaired thereby.
g. The section headings herein are for convenience only and shall not
affect the construction hereof.
h. Execution of this Amendment is not intended to and shall not
constitute a waiver by the Lenders of any Event of Default or Unmatured
Event of Default (other than the Waived Defaults).
EXECUTED as of the date first set forth above.
LENDERS:
NORWEST BANK COLORADO, NATIONAL ASSOCIATION,
a national banking association
By:
-------------------
Karen W. Turner
Vice President
<PAGE>
FIRST SECURITY BANK, N.A., a
national banking association (f/k/a First Security Bank of
Idaho, N.A.)
By:
------------------
Mary Monroe
Vice President
U.S. BANK NATIONAL ASSOCIATION (f/k/a U.S. Bank of Idaho)
By:
------------------
James Henken
Vice President
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By:
------------------
Vipul Patel
Vice President
UMB BANK, N.A.
By:
-----------------
Terry Dierks
Senior Vice President
AGENT:
NORWEST BANK COLORADO, NATIONAL ASSOCIATION,
a national banking association
By:
-----------------
Karen W. Turner
Vice President
<PAGE>
BORROWER:
ROCK BOTTOM RESTAURANTS, INC., a
Delaware corporation
By:
------------------
William S. Hoppe
Executive Vice President and Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S INTERIM UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 28, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-END> MAR-28-1999
<CASH> 1,022,812
<SECURITIES> 0
<RECEIVABLES> 512,502
<ALLOWANCES> 0
<INVENTORY> 2,307,137
<CURRENT-ASSETS> 5,234,599
<PP&E> 121,892,509
<DEPRECIATION> (26,094,543)
<TOTAL-ASSETS> 103,939,124
<CURRENT-LIABILITIES> 33,762,749
<BONDS> 23,374,450
0
0
<COMMON> 80,457
<OTHER-SE> 64,930,320
<TOTAL-LIABILITY-AND-EQUITY> 103,939,124
<SALES> 40,840,047
<TOTAL-REVENUES> 40,840,047
<CGS> 10,182,449
<TOTAL-COSTS> 39,406,912
<OTHER-EXPENSES> <F1> 984,973
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 513,175
<INCOME-PRETAX> (63,829)
<INCOME-TAX> 299,372
<INCOME-CONTINUING> (363,201)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (363,201)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
