-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NOnxVSLTuExn/Bp14popLmiFV+6ClWfmTEFkr3R1CXjA01G1BRBcj9ESD+YGB2Ny SS/w8PyfW56xNfEcv0ZW+A== 0000355622-03-000005.txt : 20030331 0000355622-03-000005.hdr.sgml : 20030331 20030331145729 ACCESSION NUMBER: 0000355622-03-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030101 FILED AS OF DATE: 20030331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RYANS FAMILY STEAKHOUSES INC CENTRAL INDEX KEY: 0000355622 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 570657895 STATE OF INCORPORATION: SC FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-10943 FILM NUMBER: 03629587 BUSINESS ADDRESS: STREET 1: 405 LANCASTER AVE STREET 2: PO BOX 100 CITY: GREER STATE: SC ZIP: 29652 BUSINESS PHONE: 8648791000 MAIL ADDRESS: STREET 1: 405 LANCASTER AVE STREET 2: P O BOX 100 CITY: GREER STATE: SC ZIP: 29652 10-K 1 k10k2002.txt 2002 10K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 1, 2003 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 Number 0-10943 RYAN'S FAMILY STEAK HOUSES, INC. (Exact name of registrant as specified in its charter) South Carolina 57-0657895 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 405 Lancaster Avenue, Greer, South Carolina 29650 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (864) 879-1000 Securities registered pursuant to Section 12(b) of the Act: None None (Title of class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00 Par Value (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2. Yes [ X ] No [ ] The aggregate market value of the voting stock held by non-affiliates (shareholders holding less than 20% of the outstanding common stock, excluding directors and officers), computed by reference to the average high and low prices of such stock, as of July 3, 2002, was $558,016,000. The number of shares outstanding of the registrant's Common Stock, $1.00 Par Value, was 42,284,000 at March 5, 2003. DOCUMENTS INCORPORATED BY REFERENCE Incorporated Document Location in Form 10-K Portions of 2002 Annual Report of Shareholders Parts I and II Portions of Proxy Statement dated March 31, 2003 Part III PART I ITEM 1. BUSINESS. General Ryan's Family Steak Houses, Inc., the registrant (together with its subsidiaries, referred to hereafter as the "Company"), is a South Carolina corporation that operates a chain of restaurants located principally in the southern and midwestern United States. At January 1, 2003, 322 Company-owned and 22 franchised Ryan's Family Steakhouse restaurants were in operation. In addition, the Company operated two Fire Mountain restaurants. The Fire Mountain concept has essentially the same format as a Ryan's Family Steakhouse restaurant with display cooking and is used in certain locations. Therefore, in total, at January 1, 2003, the Company owned and operated 324 and franchised 22 restaurants, all of which are referred to hereafter as "Ryan's" or "Ryan's restaurant(s)". System-wide sales, which include sales by franchised restaurants, were approximately $816 million in 2002 and $787 million in 2001. Sales by Company-owned restaurants amounted to approximately $774 million in 2002 and $745 million in 2001. The Company, headquartered in Greer, South Carolina, was organized in 1977, opened its first restaurant in 1978 and completed its initial public offering in 1982. It has no revenues or assets outside the U.S. The Company maintains an Internet website at www.ryansinc.com. This website offers free access to the Company's press releases and filings with the Securities and Exchange Commission, including its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after these reports are filed with the SEC. The following table indicates the number of Company-owned restaurants opened each year, net of closings, and the total number of Company-owned restaurants open at each year-end during the 5-year period ending January 1, 2003: Restaurant Total Open Year Openings, Net at Year-End 1998 10 280 1999 9 289 2000 12 301 2001 12 313 2002 11 324
Restaurant Operations General. A Ryan's restaurant is a family-oriented restaurant serving a wide variety of foods from its centrally located scatter bars known collectively as the Mega Barr buffet, as well as grilled entrees such as charbroiled steaks, hamburgers, chicken and seafood. The Mega Barr includes fresh and pre-made salad items, soups, cheeses, a variety of hot meats and vegetables, and hot yeast rolls prepared and baked daily on site. All entree purchases include a trip to a bakery bar. Bakery bars feature hot and fresh-from-the-oven cookies, brownies and other bakery products as well as various dessert selections, such as ice cream, frozen yogurt, fresh fruit, cakes, cobblers and several dessert toppings. All Ryan's also offer a variety of non-alcoholic beverages. All restaurants have their Mega Barsr in a scatter bar format. This format breaks the Mega Barr into island bars for easier customer access and more food variety. The newest Ryan's design features a display-style cooking area that is in the dining room and very visible and easily accessible to customers. A variety of meats are grilled daily and available to customers as part of the buffet price. Customers go the grill and can get hot, cooked-to-order steak, chicken or other grilled items placed directly from the grill onto their plate. This format was first implemented during 2000, and at the end of 2002, 123 Ryan's restaurants operated with the display cooking format. All new restaurants open with display cooking, and current plans call for the conversion of 30 to 40 restaurants to the display cooking format in 2003. Most Ryan's are open seven days a week with typical hours of operation being 11:00 a.m. to 9:30 p.m. Sunday through Thursday and 11:00 a.m. to 10:30 p.m. Friday and Saturday. The Company is implementing a program in which some of its restaurants, particularly new restaurants and restaurants that have been converted to the display cooking format, are closed on Mondays. All other hours of operation remain consistent with all other Ryan's. At January 1, 2003, approximately 46% of the Company's restaurants were on this program. Management believes that the Monday-closing program results in less manager turnover, better overall restaurant operations and no significant loss of restaurant sales. The average customer count per restaurant during 2002 was approximately 6,300 per week, and the average meal price per person was $7.45, including beverage. Management believes that the average table turns over every 30 to 45 minutes. Each Company-owned Ryan's is located in a free-standing masonry building that is typically about 10,000 square feet. The interior of most restaurants generally contains two or three dining rooms with seating for approximately 400 customers in total, an area where customers both order and pay for their meals and a kitchen area. The focal points of the main dining room are the Mega Barr and a bakery bar. In restaurants with display cooking, the display-style grill is prominently visible from where customers enter the restaurant. Parking lots at the restaurants vary in size, with available parking ranging from 125 to 200 cars. Restaurant Management and Supervision. The Company emphasizes standardized operating and control systems together with comprehensive recruiting and training programs in order to maintain food and service quality. In each Ryan's restaurant, the management team typically consists of a general manager or operating partner (under the Operating Partner Program described below), a manager, an assistant manager and an associate manager. Management personnel begin employment at the manager trainee level and complete a formal four- week training program at the Company's management training center in Greer, South Carolina prior to being placed in associate manager positions. All restaurant managers continue their training through various training manuals and classes developed by the Company. Each restaurant management team reports to a district manager or district partner (under the District Partner Program described below). Individuals in these positions normally oversee the operations of four to eight restaurants and report to one of eight regional directors or regional partners (under the Regional Partner Program described below), positions that may be at the Vice President level and, in every case, report to the Senior Vice President-Operations. Communication and support from all corporate office departments are designed to assist all restaurant supervisory personnel (collectively referred to as "Restaurant Supervision") in responding promptly to local concerns. All Restaurant Supervision as well as general managers, operating partners and managers participate in incentive bonus programs. Bonuses paid to general managers and managers are based on the monthly sales volume of their individual restaurant with deductions for excess spending in key expense items, such as food cost, payroll and cash shortages. The bonus program for district managers and regional directors is based principally on same-store sales, profitability, "hidden shopper" (service feedback) scores and certain qualitative factors. In 1997, the Company initiated an Operating Partner Program in order to provide general managers with an additional career path and an opportunity to share in the profitability of their stores. After being selected and upon a $10,000 investment in Ryan's common stock, a general manager is promoted to Operating Partner and then shares in any profit improvement and overall profitability of the restaurant. At January 1, 2003, Operating Partners were managing 173 restaurants. The Company's long-term goal is to have Operating Partners in approximately two-thirds of its restaurants. In 1999, the Company initiated a District Partner Program in order to reward top-performing district managers who were ready to assume additional responsibilities. After being selected and upon a $15,000 investment in Ryan's common stock, a district manager is promoted to District Partner and then shares in any profit improvement and overall profitability of the restaurants under his or her supervision. At January 1, 2003, there were 21 District Partners supervising 154 restaurants. The Company's goal is to have an additional five to seven District Partners in place at the end of 2003. In 2000, the Company initiated a Regional Partner Program in order to reward top-performing regional directors who had demonstrated the ability to assume additional responsibilities. After being selected and upon a $20,000 investment in Ryan's common stock, a regional director is promoted to Regional Partner and then shares in the overall profitability of the restaurants under his or her supervision. A Regional Partner's compensation is also affected by same-store sales, "hidden shopper" scores, profit improvement and certain qualitative factors. At January 1, 2003, there were two Regional Partners supervising 111 restaurants. The Company's goal is to have another Regional Partner in place at the end of 2003. Advertising. The Company does not rely extensively on advertising, spending less than one percent of restaurant sales during each of the years 2002, 2001 and 2000 on advertising. In 2002 and 2001, the Company's advertising efforts consisted principally of billboard advertising, newspaper ads and local marketing efforts. Local marketing focuses on building customer relationships through community involvement and may include activities such as sponsoring a youth sports team, providing a meeting place for organizations or providing food for a special community event. The emphasis is on building relationships at the restaurant level that lead to word-of-mouth advertising and, in turn, to increased restaurant sales. In 2000, the Company ran media advertising campaigns, using spot television, cable television and radio, in 20 markets covering 89 Ryan's restaurants. Newspaper ads and billboards were used in various other markets. In 2003, current plans are to continue to emphasize billboard advertising, newspaper ads and local marketing efforts within the Company's advertising strategy. The Company reviews its overall advertising plans annually and may or may not utilize television or radio advertising in the future depending on various factors such as historical sales results from advertising, current and planned restaurant programs, current advertising cost levels and market penetration. Expansion of Company-Owned Restaurants General. At January 1, 2003, the Company owned and operated 324 Ryan's restaurants. During 2003, the Company plans to open 15 to 17 new Company-owned Ryan's, including four potential relocations. Target sites for these new restaurants are within or contiguous to the Company's current 23-state operating area. Management defines a relocation as a restaurant opened within six months after closing another restaurant in the same marketing area. A relocation represents a redeployment of assets within a market. The following table summarizes the Company's openings, closings and relocations during 2002, 2001 and 2000: 2002 2001 2000 Beginning of year 313 301 289 New restaurants 13 11 13 Relocations - opened 7 5 4 Relocations - closed (7) (4) (5) Closings (2) - - End of year 324 313 301
Site Selection. The Company employs a real estate manager and uses in-house real estate representatives to locate potential new sites and to perform all preliminary site investigative work. Final approval is made by the Company's executive management. Important factors in site selection include population, demographics, proximity to both business and residential areas, traffic count and site accessibility. Another factor in site selection for a Ryan's restaurant is its proximity to other Ryan's restaurants because this proximity improves the efficiency of the Company's Restaurant Supervision, advertising programs and distribution network. Construction. The Company presently acts as the general contractor for the construction of all of its restaurants. The Company's in- house architectural staff draws up the detailed construction plans that are used by subcontractors selected by a Ryan's project manager to perform the actual construction work. In addition to selecting and scheduling subcontractors, a Ryan's project manager also procures materials, if necessary, and provides general oversight of the construction project. A Ryan's construction superintendent is on site during the construction of each restaurant and closely supervises the progress and workmanship of the project. New restaurants are generally completed approximately four to five months from the commencement of construction. The average cost of a new Ryan's restaurant (land, building and equipment) constructed in 2002 was approximately $2.8 million. Restaurant Opening. When a new Ryan's restaurant is opened, all restaurant management positions are staffed with personnel who have had prior management experience in another of the Company's restaurants. Prior to opening, all staff personnel at the new location undergo one week of intensive training conducted by a new store opening team. Franchising. While the Company has granted Ryan's franchises in the past, management has not actively pursued new franchisees in recent years in order to concentrate on the operation and development of Company-owned restaurants. Future consideration may be given to new franchisees proposing to operate in regions significantly outside of the Company's existing or contemplated operating areas. The following table indicates the number of franchised restaurants opened each year, net of closings, and the total number of franchised restaurants open at each year-end during the 5-year period ending January 1, 2003: Net Restaurants Total Open Year Opened (Closed) at Year-End 1998 1 26 1999 (3) 23 2000 - 23 2001 - 23 2002 (1) 22
At January 1, 2003, the Company's sole franchise agreement was with Family Steak Houses of Florida, Inc. ("Family") which, at that date, operated 22 Ryan's restaurants in central and northern Florida. The present franchise agreement expires in 2010. If Family is in compliance with the franchise agreement at that time and agrees to certain remodeling requirements, Family then has the option to extend the agreement for up to two 10-year renewal periods. The agreement provides that the Company will furnish Family with all the necessary information to construct, equip, manage and operate restaurants under the Ryan's Family Steakhouse name or derivative thereof. It further provides for exclusive territorial protection in certain Florida counties as long as Family operates a specified number of Ryan's restaurants. The franchise agreement with Family was amended in August 1999 in order to revise the number of Ryan's restaurants required to be in operation by Family. A comparison of the old and current requirements follows: Restaurants in Operation Old Current Year-End Requirement Requirement 2001 29 25 2002 30 27 2003 31 29 2004 32 31 Subsequent years +1/year +2/year
At January 2, 2002 (year-end 2001), Family was required to have 25 restaurants in operation, but operated only 23 restaurants. Under the terms of the agreement, this noncompliance did not constitute a default, but did result in Family losing its exclusive territorial protection at that date. Family still has the right to build and operate additional restaurants in its franchise area. However, the Company also has the right to either sell franchises to other franchisees or operate Company-owned Ryan's restaurants in that area. The Company has explored real estate options in Family's area of operation and may open Company-owned restaurants there in future years. Also, in accordance with an October 1996 amendment to the franchise agreement, the royalty rate charged to Family by the Company increased to 4% of sales from 3%, effective January 3, 2002. The 4% rate is consistent with the rate prior to the rate reduction stated in a May 1992 amendment to the franchise agreement. If the franchise agreement had never been amended, Family's royalty rate would have been 5% for all of its franchised Ryan's restaurants for 1991 and onward. Sources and Availability of Raw Materials The Company has a centralized purchasing program which is designed to provide uniform product quality in all restaurants as well as reduced food, beverage and supply costs. The Company's management establishes contracts for approximately 90% of its food and other products from a variety of major suppliers under competitive terms. Purchases under these contracts are delivered to one of three warehouses operated by the Company's principal distributor and then delivered to the restaurants by the distributor. The remaining 10% of the Company's products (principally fresh produce) are purchased locally by restaurant management. The beef used by the Company is obtained from four western suppliers based on price and availability of product. To ensure against interruption in the flow of beef supplies due to unforeseen or catastrophic events, the distributor maintains up to eight weeks supply of beef at its warehouses. The Company believes that satisfactory sources of supply are generally available for all the items used regularly in its operations. Working Capital Requirements Working capital requirements for continuing operations are not significant. The Company's restaurant sales are primarily derived from cash sales, and inventories are purchased on credit and are rapidly converted to cash. Therefore, the Company does not maintain significant receivables or inventories. Trademarks and Service Marks The Company has registered various trademarks and service marks, including "Ryan'sr", "Ryan's Family Steak Houser", "Mega Barr" and "Fire Mountainr", and their related designs with the United States Patent and Trademark Office. All trademarks and service marks have stated expiration dates ranging from September 2007 to June 2012. However, they are renewable for an unlimited number of additional 10- year terms at the option of the Company. Competition The food service business is highly competitive and is often impacted by changes in the taste and eating habits of the public, economic and political conditions affecting spending habits, population and traffic patterns. The principal bases of competition in the industry are the quality and price of the food products offered. Location, speed of service and attractiveness of facilities are also important factors. Ryan's restaurants compete with many units operated or franchised by national, regional and local restaurant companies that offer steak or buffet-style meals. Although the Company believes that its price/value to its customers places it in an excellent competitive position, during the last few years many operators have upgraded their restaurants to more closely match the Ryan's format, particularly the Mega Barr and, most recently, display cooking. The Company also competes with many specialty food outlets and other food vendors. Seasonality The Company's operations are subject to some seasonal fluctuations. Average sales per restaurant run approximately 5% less than the company-wide annual per-restaurant average during the first and fourth quarters and 5% more than the company-wide annual average during the second and third quarters. Research The Company maintains ongoing research programs relating to the development of new products and evaluation of marketing activities. The Company's management staff includes a Director of Research and Development, whose responsibilities include enhancing and updating the Mega Barr and grill selections. While research and development activities are important to the Company, past expenditures have not been and future expenditures are not expected to be material to the Company's financial results. Customers No material part of the Company's business is dependent upon a single customer or a specific group of customers. Regulation The Company is subject to licensing and regulation by health, sanitation, safety and fire agencies in the states and/or municipalities in which its restaurants are located. The Company's restaurants are constructed to meet local and state building code requirements and are operated in material accordance with state and local regulations relating to the preparation and service of food. Generally the Company has not encountered significant obstacles to opening new restaurants as a result of difficulties or failures in obtaining the required licenses or approvals. However, more stringent or varied requirements of local and state governmental bodies could delay or prevent development of new restaurants in particular locations. The Company is subject to the Fair Labor Standards Act, which regulates matters such as minimum wage requirements, overtime and other working conditions, along with the Americans with Disabilities Act and various family leave mandates. A significant number of the Company's restaurant team members are paid at the Federal minimum wage, and accordingly, legislated changes to the minimum wage affect the Company's payroll costs. Although no minimum wage increases have been signed into law, legislation proposing to increase the minimum wage by $1.50 to $6.65 per hour was introduced in the U.S. Senate in May 2002. Although the proposed legislation was not passed in 2002, it is likely that Congress will again consider the issue in 2003. The Company has typically been able to increase menu prices to cover most of the payroll rate increases. Environmental Matters While the Company is not aware of any federal, state or local environmental regulations that will materially affect its operations, earnings or competitive position or result in material capital expenditures, it cannot predict the impact of possible future legislation or regulation on its operations. Employees At March 5, 2003, the Company employed approximately 21,200 persons, of whom approximately 20,800 were restaurant personnel. The Company strives to maintain low turnover by offering all full-time employees (defined as working at least 30 hours per week) a competitive benefit package, which includes several health insurance plans, life insurance, vacation pay and a defined contribution retirement plan. All part-time employees are eligible to participate in certain health insurance plans and also receive vacation pay. None of the Company's employees are represented by a union. The Company has experienced no work stoppages attributable to labor disputes and considers its employee relations to be good. Information as to Classes of Similar Products or Services The Company operates in only one industry segment. All significant revenues and pre-tax earnings relate to retail sales of food and beverages to the general public through either Company-operated or franchised restaurants. At January 1, 2003, the Company had no operations outside the continental United States. Information regarding the Company's restaurant sales and assets is included in the Company's financial statements, which are incorporated by reference into Part II, Item 8 of this Form 10-K. Forward-Looking Information In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the Company cautions that the statements in this annual report and elsewhere that are forward- looking involve risks and uncertainties that may impact the Company's actual results of operations. All statements other than statements of historical fact that address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as Company plans or strategies, deadlines for completing projects, expected financial results, expected regulatory environment and other such matters, are forward-looking statements. The words "estimates", "plans", "anticipates", "expects", "intends", "believes" and similar expressions are intended to identify forward- looking statements. All forward-looking information reflects the Company's best judgment based on current information. However, there can be no assurance that other factors will not affect the accuracy of such information. While it is not possible to identify all factors, the following could cause actual results to differ materially from expectations: general economic conditions including consumer confidence levels; competition; developments affecting the public's perception of buffet-style restaurants; real estate availability; food and labor supply costs; food and labor availability; weather fluctuations; interest rate fluctuations; stock market conditions; political environment (including acts of terrorism and wars); and other risks and factors described from time to time in the Company's reports filed with the Securities and Exchange Commission, including this Form 10-K. The ability of the Company to open new restaurants depends upon a number of factors, including its ability to find suitable locations and negotiate acceptable land acquisition and construction contracts, its ability to attract and retain sufficient numbers of restaurant managers and team members, and the availability of reasonably priced capital. The extent of the Company's stock repurchase program during 2003 and future years depends upon the financial performance of the Company's restaurants, the investment required to open new restaurants, share price, the availability of reasonably priced capital, the financial covenants contained in the Company's loan agreements that govern the senior notes and the revolving credit facility, and the maximum debt and share repurchase levels authorized by the Company's Board of Directors. ITEM 2. PROPERTIES. The Company owns substantially all of its restaurant properties, each of which is a free-standing masonry building of approximately 8,000 to 12,500 square feet, with seating for approximately 300 to 500 persons and parking for approximately 125 to 200 cars on sites of approximately 75,000 to 130,000 square feet. At January 1, 2003, all restaurant sites, except 16 properties under land leases and one restaurant under an operating lease for the building and its underlying land, were owned by the Company. A listing of the number of Ryan's restaurant locations by state as of January 1, 2003 appears on page 5 of the Company's 2002 Annual Report to Shareholders and is incorporated by reference. A detailed listing of Ryan's restaurant locations may be obtained without charge by writing to the Company's Corporate Secretary at its corporate office. The Company's corporate office consists of two office buildings (30,000 square feet and 16,000 square feet) and a 10,000 square foot warehouse facility, all of which are located in Greer, South Carolina. The office buildings (land and building) are owned by the Company. The warehouse facility is leased with annual renewal terms ending in October 2005. From time to time, the Company offers for sale excess land that was acquired in connection with its restaurant properties. Also, at January 1, 2003, six closed restaurant properties were offered for sale. The Company believes that the eventual disposition or non- disposition of all such properties will not materially affect its business or financial condition, taken as a whole. ITEM 3. LEGAL PROCEEDINGS. In November 2002, a lawsuit was filed in the United States District Court, Middle District of Tennessee, Nashville Division, on behalf of three plaintiffs alleging various violations by the Company of the Fair Labor Standards Act of 1938. The plaintiffs' attorneys have indicated that they intend to seek class-action status on this complaint. The Company intends to vigorously defend this lawsuit and has retained two firms to serve as co-lead counsel for the Company. Any potential financial impact to the Company cannot be determined at this time. In addition, from time to time, the Company is involved in other litigation arising in the normal course of business. Based on those legal actions currently known to its management, the Company believes that, as a result of its legal defenses and insurance arrangements, none of these actions, if decided adversely, would have a material effect on its business or financial condition, taken as a whole. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The information regarding trading of the Company's common stock, quarterly market prices and dividends appears under "Common Stock Data" and "Market Price of Common Stock" on page 25 of the Company's 2002 Annual Report to Shareholders and is incorporated by reference. At March 5, 2003, the Company's common stock was held by approximately 10,400 stockholders of record including holdings through nominee or street name accounts with brokers. As further described in Item 7A, the Company is party to a long- term credit agreement involving a revolving credit facility, expiring in January 2005, that prohibits the payment of cash dividends but permits the payment of dividends solely in the Company's common stock. The following table provides information on the number of securities to be issued upon the exercise of outstanding options, warrants and rights and the number of securities remaining available for future issuance. Equity Compensation Plan Information at Last Fiscal Year-End (c) (a) Number of Number of (b) Securities Securities Weighted- Remaining To Be Issued Average Available for upon Exercise Issuance Exercise of Price of under Equity Outstanding Outstanding Compensation Options, Options, Plans Warrants and Warrants and (Excluding Rights Rights Securities Plan Category (#) ($/Sh) Reflected in Column (a)) (#) Equity 4,592,000 8.10 3,641,000 compensation plans approved by security holders Equity -- -- - -- compensation plans not approved by security holders Total 4,592,000 8.10 3,641,000
ITEM 6. SELECTED FINANCIAL DATA. Selected financial data for the last five years is included in the "Five-Year Financial Summary" on page 13 of the Company's 2002 Annual Report to Shareholders and is incorporated by reference. The Company has never paid cash dividends on its common stock and does not expect to pay such dividends in the foreseeable future. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. "Management's Discussion and Analysis of Financial Condition and Results of Operations" is included on pages 7 through 12 of the Company's 2002 Annual Report to Shareholders and is incorporated by reference. ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company's exposure to market risk relates primarily to changes in interest rates. Foreign currencies are not used in the Company's operations, and products used in the preparation of food at the Company's restaurants are not under purchase contract for more than one year in advance. The Company's long-term debt was funded on January 28, 2000 as a result of two loan transactions that refinanced all existing debt balances and added to the Company's credit availability. The first transaction involved a $200 million revolving credit facility with several banks due in 2005, bearing interest at various floating interest rates plus a variable spread currently set at 1.375%. The second transaction involved the private placement with several insurance companies of $75 million of senior notes due in 2008 with principal payments commencing in 2005, bearing interest at 9.02%. Both loans are secured by the stock of the Company's wholly-owned subsidiaries and affiliates. While the Company has entered into derivative financial instrument agreements in the past, there were no such agreements outstanding during the year ended January 1, 2003. The Company has never entered into financial instrument agreements for trading or speculative purposes. The following table presents information regarding the Company's outstanding long-term debt based on total outstanding debt balances as of January 1, 2003. The contractually required principal repayments and their related average interest rates by maturity date are presented in the table. For the variable rate debt, average interest rate is based on the two-month London Interbank Offered Rate ("LIBOR") at January 1, 2003 plus the current applicable margin of 1.375%. The applicable margin is subject to increase up to a maximum of 1.675% or decrease to a minimum of 0.875% in future years depending upon changes to the Company's ratio of funded debt to EBITDA. The fair value of the variable rate debt approximates its carrying amount at January 1, 2003 due to the variable rate provisions of the related debt instruments. During 2002, the variable rate debt had an average interest rate of 3.3%. The fair value of the fixed rate debt is based on borrowing rates available to the Company for notes with similar terms and average maturities at January 1, 2003. As of January 1, 2003 Expected Maturity Dates There- Fair 2003 2004 2005 2006 2007 after Total Value Liabilities (in millions) Long-term debt - Variable rate - - $127.0 - - - 127.0 127.0 Average interest rate 2.8% 2.8% 2.8% 2.8% - - 2.8% Fixed rate - - $18.8 18.8 18.8 18.8 75.0 86.1 Average interest rate 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0%
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Company's financial statements, unaudited quarterly financial information and the independent auditors' report are included on pages 14 through 23 of the Company's 2002 Annual Report to Shareholders and are incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required under this item is incorporated by reference to the Ryan's Family Steak Houses, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held April 30, 2003 under the headings "Election of Directors", "Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance." ITEM 11.EXECUTIVE COMPENSATION. The information required under this item is incorporated by reference to the Ryan's Family Steak Houses, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held April 30, 2003 under the headings "Election of Directors - Compensation of Directors", "Executive Compensation and Other Information", "Report of the Compensation Committee" and "Performance Graph." ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required under this item is incorporated by reference to the Ryan's Family Steak Houses, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held April 30, 2003 under the headings "Election of Directors", "Certain Beneficial Owners of Common Stock" and "Executive Officers." ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required under this item is incorporated by reference to the Ryan's Family Steak Houses, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held April 30, 2003 under the headings "Election of Directors" and "Executive Compensation and Other Information - Deferred Compensation - Salary Continuation Agreement." PART IV ITEM 14.CONTROLS AND PROCEDURES. The Company's Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the Company's disclosure controls and procedures within 90 days of the filing of this report, and have concluded that the Company's disclosure controls and procedures were adequate and effective to ensure that information required to be disclosed is recorded, processed, summarized, and reported in a timely manner. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the Chief Executive Officer and Chief Financial Officer's evaluation, nor were there any significant deficiencies or material weaknesses in the controls which required corrective action. ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8- K. (a)1-2Financial statements filed as part of this Form 10-K are listed in the "Index to Financial Statements", at page 19. (a)3 Exhibits (numbered in accordance with Item 601 of Regulation S-K): Exhibit # Description 3.1 Articles of Incorporation of the Company, as amended through April 24, 1986: Incorporated by reference to Exhibit 4(a) to the Registration Statement of the Company filed with the SEC on Form S- 3 (Commission file no. 33-7245) (the "Form S-3"). 3.1.1 Articles of Amendment to the Articles of Incorporation, dated April 22, 1987: Incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K for the period ended January 1, 1992 (Commission file no. 0-10943) (the "1991 10-K"). 3.1.2 Articles of Amendment to the Articles of Incorporation, dated May 25, 1989: Incorporated by reference to Exhibit 4.3 to the Registration Statement of the Company filed with the SEC on Form S- 8 (Commission file no. 33-53834). 3.2 Bylaws of the Company: Incorporated by reference to Exhibit 4(b) to the Form S-3. 3.2.1 Amendment to By-Laws of the Company, dated October 25, 1990: Incorporated by reference to Exhibit 3.3 to the 1991 10-K. 3.2.2 Amendment to By-Laws of the Company, dated January 28, 1999: Incorporated by reference to Exhibit 3.2.2 to the Annual Report on Form 10-K for the period ended December 29, 1999 (Commission file no. 0-10943) (the "1999 10-K"). 4.1 Specimen of Company common stock certificate: Incorporated by reference to Exhibit 4.1 to the 1991 10-K. 4.2 See Exhibits 3.1, 3.1.1, 3.1.2, 3.2, 3.2.1 and 3.2.2. 4.3 See Exhibit 10.22, 10.23, 10.23.1 and 10.24. *10.1 Ryan's Family Steak Houses, Inc. 1987 Stock Option Plan: Incorporated by reference to Exhibit 4 to the Registration Statement of the Company filed with the SEC on Form S-8 (Commission file no. 33-15924). *10.2 Ryan's Family Steak Houses, Inc. 1991 Stock Option Plan: Incorporated by reference to Exhibit 4.4 to the Registration Statement of the Company filed with the SEC on Form S-8 (Commission file no. 33-53834). *10.3 Ryan's Family Steak Houses, Inc. 1998 Stock Option Plan: Incorporated by reference to Exhibit 99.1 to the Registration Statement of the Company filed with the SEC on Form S-8 (Commission file no. 333-67165). *10.4+ Ryan's Family Steak Houses, Inc. 2002 Stock Option Plan, as approved at the Special Meeting of Shareholders held on July 22, 2002. *10.5 Ryan's Employee Retirement Savings Plan, dated March 1, 1992: Incorporated by reference to Exhibit 10.4 to the 1991 10-K. *10.6 Salary Continuation Agreement, dated April 22, 1987, between the Company and Alvin A. McCall, Jr.; as amended on October 26, 1989: Incorporated by reference to Exhibit 10.5 to the 1991 10-K. *10.7 Deferred Compensation - Salary Continuation Agreement, dated April 22, 1987, between the Company and Charles D. Way: Incorporated by reference to Exhibit 10.6 to the 1991 10-K. 10.8 Agreement and Plan of Restructuring: Incorporated by reference to Exhibit A to the Proxy Statement of the Company, dated March 25, 1993, filed with respect to the Annual Meeting of Shareholders to be held on April 28, 1993 (Commission file no. 0- 10943). *10.9 Split Dollar Agreement by and between the Company and Charles D. Way dated September 1, 1993: Incorporated by reference to Exhibit 10.8 to the Annual Report on Form 10-K for the period ended December 29, 1993 (Commission file no. 0-10943) (the "1993 10-K"). *10.10 Split Dollar Agreement by and between the Company and G. Edwin McCranie dated November 12, 1993: Incorporated by reference to Exhibit 10.9 to the 1993 10-K. *10.11 Split Dollar Agreement by and between the Company and James R. Hart dated August 8, 1993: Incorporated by reference to Exhibit 10.11 to the 1993 10-K. *10.12 Split Dollar Agreement by and between the Company and Fred T. Grant, Jr. dated November 12, 1993: Incorporated by reference to Exhibit 10.12 to the 1993 10-K. *10.13 Split Dollar Agreement by and between the Company and Alan E. Shaw dated November 12, 1993: Incorporated by reference to Exhibit 10.13 to the 1993 10-K. *10.14 Split Dollar Agreement by and between the Company and Morgan A. Graham dated November 12, 1993: Incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K for the period ended December 31, 1997 (Commission file no. 0-10943) (the "1997 10-K"). *10.15 Split Dollar Agreement by and between the Company and Janet J. Gleitz dated November 12, 1993: Incorporated by reference to Exhibit 10.16 to the 1997 10-K. *10.16 Split Dollar Agreement by and between the Company and Ilene T. Turbow dated November 12, 1995: Incorporated by reference to Exhibit 10.17 to the 1997 10-K. *10.17 Deferred Compensation Plan by and between the Company and Morgan A. Graham dated November 1, 1997: Incorporated by reference to Exhibit 10.18 to the 1997 10-K. *10.18 Deferred Compensation Plan by and between the Company and Janet J. Gleitz dated November 1, 1997: Incorporated by reference to Exhibit 10.19 to the 1997 10-K. *10.19 Deferred Compensation Plan by and between the Company and Ilene T. Turbow dated November 1, 1997: Incorporated by reference to Exhibit 10.20 to the 1997 10-K. *10.20 Executive Bonus Plan, commencing in fiscal year 1998: Incorporated by reference to Exhibit 10.23 to the 1997 10-K. 10.21 Franchise Agreement between Ryan's Family Steak Houses, Inc. (later assigned to Ryan's Properties, Inc.) and Family Steak Houses of Florida, Inc. dated September 16, 1987: Incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K for the period ended January 2, 2002 (Commission file no. 0-10943) (the "2001 10-K"). 10.21.1 Amendment dated as of May 29, 1992 to the Franchise Agreement referred to at Exhibit 10.21: Incorporated by reference to Exhibit 10.21.1 to the 2001 10-K. 10.21.2 Agreement between Ryan's Properties, Inc. and Family Steak Houses of Florida, Inc.: Incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K for the period ended December 28, 1994 (Commission file no. 0-10943). 10.21.3 Amendment dated as of October 3, 1996 to the Franchise Agreement referred to at Exhibit 10.21: Incorporated by reference to Exhibit 10.22.1 to the 1999 10-K. 10.21.4 Amendment dated as of August 31, 1999 to the Franchise Agreement referred to at Exhibit 10.21: Incorporated by reference to Exhibit 10.22.2 to the 1999 10-K. 10.21.5 Amendment dated as of January 30, 2002 to the Franchise Agreement referred to at Exhibit 10.21: Incorporated by reference to Exhibit 10.21.5 to the 2001 10-K. 10.22 Ryan's Family Steak Houses, Inc. and Wachovia Bank of North Carolina, N.A., as Rights Agent, Shareholder Rights Agreement dated as of January 26, 1995: Incorporated by reference to Exhibit 2 to the report on Form 8-K filed with the Commission on February 9, 1995 (Commission file no. 0- 10943). 10.23 Credit Agreement dated as of January 28, 2000 among Ryan's Family Steak Houses, Inc. (the "Borrower"), the domestic subsidiaries of the Borrower, as Guarantors, Bank of America, N.A., as Administrative Agent, First Union National Bank, as Syndication Agent, Wachovia Bank, N.A., as Documentation Agent, SunTrust Bank, Atlanta, as Senior Managing Agent, and certain other banks signatory thereto: Incorporated by reference to Exhibit 10.24 to the 1999 10-K. 10.23.1 First Amendment dated as of November 9, 2001 to the Credit Agreement referred to at Exhibit 10.23: Incorporated by reference to Exhibit 10.23.1 to the 2001 10-K. 10.23.2+ Second Amendment dated as of November 15, 2002 to the Credit Agreement referred to at Exhibit 10.23. 10.24 Note Purchase Agreement between Ryan's Family Steak Houses, Inc. and various lenders for $75,000,000 of 9.02% Senior Notes due January 28, 2008: Incorporated by reference to Exhibit 10.25 to the 1999 10-K. *10.25 Form of Split-Dollar Life Insurance Agreement by and between the Company and each of Messrs. Way, McCranie, Graham, Grant, Hart and Shaw and Ms. Gleitz and Ms. Turbow: Incorporated by reference to Exhibit 10.26 to the 1999 10-K. *10.26 Deferred Compensation Plan, effective as of August 1, 1999: Incorporated by reference to Exhibit 10.27 to the 1999 10-K. *10.27 Form of Employment, Noncompetition and Severance Agreement by and between the Company and each of Messrs. Way, McCranie, Grant, Graham, and Hart and Ms. Gleitz and Ms. Turbow: Incorporated by reference to Exhibit 10.28 to the Annual Report on Form 10-K for the period ended January 3, 2001 (Commission file no. 0-10943). 13.1+ Ryan's Family Steak Houses, Inc. 2002 Report to Shareholders (except for those portions that are expressly incorporated by reference in this Report on Form 10-K, this exhibit is furnished for the information of the Commission and is not deemed to be filed as a part hereof). 21.1+ Subsidiaries of the Company. 23.1+ Consent of Independent Auditors. 99.1+ Section 906 Certification of Chief Executive Officer 99.2+ Section 906 Certification of Chief Financial Officer * This is a management contract or compensatory plan or arrangement. + Filed with this Form 10-K. (b) (i) On November 18, 2002, the Company filed a report on Form 8-K that included the certifications of the registrant's Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 in connection with Form 10-Q for the period ended October 2, 2002. (ii) On December 12, 2002, the Company filed a report on Form 8-K that described the litigation involving the Fair Labor Standards Act of 1938 that is further discussed at Item 3 of this Form 10-K. (c) The response to this portion of Item 15 is submitted as a separate section of this report. (d) The response to this portion of Item 15 is submitted as a separate section of this report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. RYAN'S FAMILY STEAK HOUSES, INC. March 31, 2003 By:/s/Fred T. Grant, Jr. Fred T. Grant, Jr. Senior Vice President - Finance, Treasurer and Assistant Secretary (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/Charles D. Way Chairman, President and March 31, 2003 Charles D. Way Chief Executive Officer /s/G. Edwin McCranie Director and Executive March 31, 2003 G. Edwin McCranie Vice President /s/James D. Cockman Director March 31, 2003 James D. Cockman /s/Barry L. Edwards Director March 31, 2003 Barry L. Edwards /s/Brian S. MacKenzie Director March 31, 2003 Brian S. MacKenzie /s/Harold K. Roberts, Jr. Director March 31, 2003 Harold K. Roberts, Jr. /s/James M. Shoemaker, Jr. Director March 31, 2003 James M. Shoemaker, Jr. /s/Fred T. Grant, Jr. Senior Vice President Fred T. Grant, Jr. - Finance, March 31, 2003 Treasurer and Assistant Secretary (Principal Financial and Accounting Officer) Ryan's Family Steak Houses, Inc. Section 302 Certification Chief Executive Officer I, Charles D. Way, certify that: 1. I have reviewed this annual report on Form 10-K of Ryan's Family Steak Houses, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions); (a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 31, 2003 /s/Charles D. Way Charles D. Way Chairman, President and Chief Executive Officer Ryan's Family Steak Houses, Inc. Section 302 Certification Chief Financial Officer I, Fred T. Grant, Jr., certify that: 1. I have reviewed this annual report on Form 10-K of Ryan's Family Steak Houses, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions); (a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 31, 2003 /s/Fred T. Grant, Jr. Fred T. Grant, Jr. Senior Vice President - Finance, Treasurer and Assistant Secretary RYAN'S FAMILY STEAK HOUSES, INC. INDEX TO FINANCIAL STATEMENTS The following financial statements of the Registrant included in the Annual Report to Shareholders for the year ended January 1, 2003, are incorporated herein by reference. With the exception of the pages listed below and other information incorporated in this report on Form 10-K, the 2002 Annual Report to Shareholders is not deemed "filed" as part of this report. Page Reference in Annual Report Independent Auditors' Report 23 Consolidated Statements of Earnings 14 Consolidated Balance Sheets 15 Consolidated Statements of Cash Flows 16 Notes to Financial Statements 17-23 All financial statement schedules have been omitted since the required information is not applicable or the information required is included in the consolidated financial statements or the notes thereto. EX-10 3 stockoptionplan2002.txt 10.4 2002 STOCK OPTION PLAN RYAN'S FAMILY STEAK HOUSES, INC. 2002 STOCK OPTION PLAN Effective as of August 1, 2002 RYAN'S FAMILY STEAK HOUSES, INC. 2002 STOCK OPTION PLAN 1. PURPOSE The purpose of the Ryan's Family Steak Houses, Inc. Stock Option Plan (the "Plan") is to promote the growth and profitability of Ryan's Family Steak Houses, Inc. (the "Company") and its subsidiaries from time to time (the "Subsidiaries") by increasing the personal participation of key personnel in the continued growth and financial success of the Company and the Subsidiaries by enabling the Company and the Subsidiaries to attract and retain key personnel of outstanding competence and by providing such key personnel with an equity opportunity in the Company. This purpose will be achieved through the grant of stock options ("Options") to purchase shares of the common stock of the Company. 2. ADMINISTRATION The Plan shall be administered by the Compensation Committee of the Company's Board of Directors (the "Compensation Committee"); provided, however, that, if the Compensation Committee includes members who are not "outside directors" (within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor provision ("Section 162(m)")) or "non-employee directors" (within the meaning of Rule 16b-3 ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934 (the "Exchange Act")) the Plan shall be administered by a special committee of the Board of Directors that includes those members of the Company's Compensation Committee (not less than two) who are "outside directors" and "non-employee directors." The administering committee shall be referred to herein as the "Committee." The Committee shall have complete authority to: (i) interpret all terms and provisions of the Plan consistent with law; (ii) select from the group of those individuals eligible to participate in the Plan the key personnel to whom Options shall be granted; (iii) within the limits established herein, determine the number of shares to be subject to and the term of each Option granted to each of such personnel; (iv) prescribe the form of instrument(s) evidencing Options granted under this Plan; (v) determine the time or times at which Options shall be granted; (vi) make special grants of Options when determined to be appropriate; (vii) provide, if appropriate, for the exercise of Options in installments and/or subject to specified conditions; (viii) determine the method of exercise of Options granted under the Plan; (ix) determine any other terms and conditions to which Options shall be subject, so long as such terms and conditions are not inconsistent with this Plan; (x) adopt, amend and rescind general and special rules and regulations for the Plan's administration; and (xi) make all other determinations necessary or advisable for the administration of this Plan. Any action which the Committee is authorized to take may be taken without a meeting if all the members of the Committee sign a written document authorizing such action to be taken, unless different provision is made by the Bylaws of the Company or by resolution of the Committee. The Committee may designate selected Board members or certain employees of the Company to assist the Committee in the administration of the Plan and may grant authority to such persons to execute documents including Options on behalf of the Committee; subject in each such case to the requirements of Rule 16b-3 and Section 162(m). No member of the Board or Committee or employee of the Company assisting the Board or Committee pursuant to the preceding paragraph shall be liable for any action taken or determination made in good faith. 3. ELIGIBILITY AND FACTORS TO BE CONSIDERED IN GRANTING OPTIONS Participation in this Plan shall be determined by the Committee and (other than grants pursuant to Section 5 hereof) shall be limited to those key personnel, who may or may not be officers or members of the Board of Directors, of the Company and the Subsidiaries who have the greatest impact on the Company's long-term performance. In making any determination as to the key personnel to whom Options shall be granted and as to the number of shares to be subject thereto, the Committee shall take into account, in each case, the level and responsibility of the position, performance, compensation, assessed potential and such other factors as the Committee shall deem relevant to the accomplishment of the purposes of the Plan. Directors of the Company or any Subsidiary who are not also employees of the Company or any Subsidiary are not eligible to participate in this Plan, except pursuant to Section 5 of the Plan. Options may be granted under this Plan only for a reason connected with employment or directorship. 4. STOCK SUBJECT TO PLAN The stock to be offered under this Plan, upon exercise of Options, may be authorized but unissued common shares, shares previously issued and thereafter acquired by the Company (if permitted by applicable law), or any combination thereof. An aggregate of 3,600,000 shares are reserved for the grant of Options under this Plan, any or all of which, at the Committee's discretion, may be intended to qualify as incentive stock options under Section 422 of the Code. Of the 3,600,000 shares reserved for this Plan, 900,000 shares shall be 10-Year Option Shares and the remaining 2,700,000 shares shall be 7-Year Option Shares. The maximum number of shares of the Company's common stock that may be covered by Options granted under the Plan in any fiscal year of the Company to any single participant is 100,000. Provided that the adjustment does not cause compensation payable under this Plan to lose its deductibility under Section 162(m), the maximum number of shares subject to the Plan, and the number of shares designated as 10-Year Option Shares and 7-Year Option Shares, shall be appropriately adjusted to reflect any change in the capitalization of the Company resulting from a stock dividend, stock split, or other adjustment contemplated by Section 15 of this Plan and occurring after the adoption of this Plan. If an Option granted hereunder shall expire or terminate for any reason without having been fully exercised, the unpurchased shares subject thereto shall again be available for the purposes of this Plan. The Committee will maintain records showing the cumulative total of all shares subject to Options outstanding under this Plan. 5. OPTIONS FOR DIRECTORS WHO ARE NEITHER OFFICERS NOR EMPLOYEES The grant of Options under this Section 5 shall be limited to those directors of the Company who, on the date of grant, are neither officers nor employees of the Company or any Subsidiary (each an "Eligible Director"). On October 31 of each calendar year (or, if October 31 is not a business day, the immediately preceding business day) (the "Grant Date"), each Eligible Director shall automatically receive from the Company an option to acquire 5,000 shares of common stock at an exercise price equal to the closing price of the common stock on the Grant Date (an "Eligible Director Option"); provided, that no Eligible Director Options may be awarded under this Plan unless and until no shares remain available for the grant of options under the Company's 1998 Stock Option Plan. Eligible Director Options shall be granted with respect to 10-Year Option Shares so long as any such shares remain available under the Plan. An Eligible Director Option granted with respect to 10-Year Option Shares shall be exercisable in full on and after the date that is six months after the Grant Date and from time to time thereafter until, and including, the date that is the business day immediately preceding the tenth anniversary of the Grant Date. An Eligible Director Option granted with respect to 7-Year Option Shares shall be exercisable (a) with respect to half of the 7-Year Option Shares with respect to which such Option is granted, on and after the first anniversary of the Grant Date and (b) with respect to all of the 7-Year Option Shares with respect to which such Option is granted, on and after the second anniversary of the Grant Date, and in each case from time to time thereafter, until, and including, the date that is the business day immediately preceding the seventh anniversary of the Grant Date. Notice of each such Option granted on a Grant Date shall be given to each Eligible Director within a reasonable time after the Grant Date. The number of shares with respect to which Eligible Directors are to receive Options each Grant Date shall not be subject to automatic adjustment pursuant to Section 15., provided, however, that the Committee may elect to adjust such number of shares in the manner provided in Section 15. upon the occurrence of an event that gives rise to an adjustment pursuant to Section 15. Outstanding Options held by Eligible Directors are subject to adjustment in accordance with Section 15. This Section 5 may not be amended more frequently than once every six months, other than to comport with changes in the Internal Revenue Code or the rules and regulations thereunder. 6. ALLOTMENT OF SHARES The Committee may, in its sole discretion and subject to the provisions of the Plan, grant to eligible participants, on or after the effective date hereof, Options to purchase shares of the Company's common stock. Options granted under this Plan may, at the discretion of the Committee, be: (i) Options which are intended to qualify as incentive stock options under Section 422 of the Code (or any successor provision); (ii) Options which are not intended to so qualify under Section 422 of the Code (or any successor provision); or (iii) both of the foregoing if granted separately and not in tandem. Each Option granted under this Plan must be clearly identified as to its status as an incentive stock option or not. Options may be allotted to participants in such amounts, subject to the limitations specified in this Plan, as the Committee, in its sole discretion, may from time to time determine. In the case of Options intended to be incentive stock options, the aggregate fair market value (determined at the time of the Options' respective grants) of the shares with respect to which such Options are exercisable for the first time by a participant hereunder during any calendar year (under all plans taken into account pursuant to Section 422(d) of the Code (or any successor provision)) shall not exceed $100,000. Options not intended to qualify as incentive stock options under Section 422 of the Code (or any successor provision) may be granted to any Plan participant without regard to the Section 422 limitations. 7. OPTION PRICE The price per share at which each Option granted under the Plan may be exercised shall be such price as shall be determined by the Committee at the time of grant based on such criteria as may be adopted by the Committee in good faith; provided, however, in no case shall the exercise price per share be less than one hundred percent (100%) of the fair market value of the common stock at the time such Option is granted (or 110% for owners of more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary). Other than adjustments pursuant to Section 15 of this Plan, the price per share at which an Option granted under this Plan may be exercised shall not be changed after the date of grant. If the Company's shares of common stock are: (1) actively traded on any national securities exchange or NASDAQ system that reports their sales prices, fair market value shall be the closing price per share on the date the Committee grants the Option; (2) otherwise traded over the counter, fair market value shall be the average of the final bid and asked prices for the shares of the Company's common stock as reported for the date the Committee grants the Option; or (3) not traded, the Committee shall consider any factor or factors which it believes affects fair market value, and shall determine fair market value without regard to any restriction other than a restriction which by its terms will never lapse. 8. TERM OF OPTION The term of each Option granted under the Plan shall be established by the Committee, but shall not exceed (a) in the case of Options granted with respect to 10-Year Option Shares, ten (10) years from the date of grant; (b) in the case of Options granted with respect to 7-Year Option Shares, seven (7) years from the date of grant; and (c) notwithstanding clauses (a) and (b), in the case of Options granted to any owner of more than 10% of the total combined voting power of all classes of stock of the Company or of a Subsidiary, five (5) years from the date of the grant. 9. TIME OF GRANTING OPTIONS The date of grant of an Option under the Plan shall, for all purposes, be the date on which the Committee makes the determination of granting such Option. Notice of the determination shall be given to each individual to whom an Option is so granted, within a reasonable time after the date of such grant. 10. NON-TRANSFERABILITY An Option granted to a participant under this Plan shall not be transferable by him or her except by will or the laws of descent and distribution or, to the extent not inconsistent with the applicable provisions of the Code, pursuant to a domestic relations order. In the case of an Option intended to be an incentive stock option, such Option shall not be transferable by a participant other than by will or the laws of descent and distribution and during the optionee's lifetime shall be exercisable only by him or her. 11. EXERCISE OF OPTIONS Vesting in General. Subject to the provisions of this Plan, an Option may be exercisable upon such terms and conditions as may be determined by the Committee at the time of grant, provided that (a) an Option granted with respect to 10-Year Option Shares shall first become exercisable, and shall be exercisable in full, on and after the date that is six months after the date of grant and from time to time thereafter until such Option expires and (b) an Option granted with respect to 7-Year Option Shares shall first become exercisable (i) with respect to half of the 7-Year Option Shares with respect to which such Option is granted, on and after the first anniversary of the date of grant and (ii) with respect to all of the 7-Year Option Shares with respect to which such Option is granted, on and after the second anniversary of the date of grant, and from time to time thereafter until such Option expires. Notwithstanding the foregoing, upon any Change of Control (as defined below) all outstanding Options, to the extent not already exercisable, shall become immediately exercisable in full. An Option granted under Section 5 hereof shall be exercisable in accordance with the provisions of Section 5 hereof. The Committee may, in its discretion, temporarily suspend the exercise of Options from time to time for a period not to exceed thirty (30) days. Change of Control. "Change of Control" shall mean the occurrence of any one of the following: (a) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" (within the meaning of Section 13(d) of the Exchange Act) other than one or more wholly-owned Subsidiaries of the Company; (b) the adoption of a plan relating to the liquidation or dissolution of the Company; (c) the first day on which a majority of the members of the Board are not Continuing Directors (as defined below); or (d) the consummation of any transaction (including without limitation any merger, share exchange or consolidation) the result of which is that any "person" (as defined above), other than an Exempt Person or Exempt Persons, becomes, directly or indirectly, the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that an entity or person shall be deemed to have "beneficial ownership" of all shares that any such entity or person has the right to acquire, whether such right is exercisable immediately or only after the passage of time) of more than 35% of the outstanding common stock of the Company; provided that the transactions covered by this clause (d) shall not include the acquisition by the Company of its common stock; provided further, however, that if (x) any "person" (as defined above) becomes, directly or indirectly, the "beneficial owner" (as defined above) of more than 35% of the outstanding common stock of the Company solely as a result of acquisition by the Company of its common stock, (y) such "person" thereafter acquires any additional shares of common stock of the Company and (z) immediately after such acquisition such "person" is, directly or indirectly, the "beneficial owner" (as defined above) of 35% or more of the outstanding common stock of the Company, then such acquisition of additional shares shall constitute a Change of Control. "Exempt Person" shall mean (a) the Company, (b) any wholly- owned Subsidiary of the Company, (c) any individual who immediately before the transaction is an executive officer of the Company, (d) any employee benefit plan of the Company or any of its wholly-owned Subsidiaries or (e) any entity or person holding shares of common stock for or pursuant to the terms of any such plan if such entity or person is not a beneficiary of or participant in such plan. "Continuing Directors" shall mean, as of any date, any member of the Board who (i) was a member of the Board on the effective date of this Plan or (ii) was nominated for election or elected to the Board with the approval of a majority of the Continuing Directors who were members of the Board at the time of such nomination or election. Exercisability of Incentive Stock Options. Any Option granted under this Plan which is intended to qualify as an incentive stock option under Section 422 of the Code (or any successor provision) (other than an Option granted to a person who was an executive officer of the Company (as designated by the Board of Directors) at the time of the grant of the Option (a "Grant-Date Officer")) shall terminate in full (whether or not previously exercisable) prior to the expiration of its term on the date the optionee ceases to be a director of the Company or an employee of the Company or any Subsidiary of the Company, unless the optionee shall (a) die while a director of the Company or an employee of the Company or such Subsidiary, in which case the participant's personal representative or representatives may exercise all or part of the previously unexercised portion of the Option at any time within one year after the participant's death (but no later than the fixed term of the Option) for the number of shares for which the Option could have been exercised at the time the participant died, (b) become permanently or totally disabled within the meaning of Section 22(e)(3) of the Code (or any successor provision) while a director of the Company or an employee of the Company or a Subsidiary, in which case the participant or his or her personal representative may exercise the previously unexercised portion of the Option at any time within one year after termination of his or her employment or directorship (but no later than the fixed term of the Option) for the number of shares for which the Option could have been exercised at the time the participant terminated his or her employment because of becoming permanently or totally disabled, (c) resign with the consent of the Company or have his or her directorship with the Company or employment with the Company or any Subsidiary terminated by the Company or any Subsidiary for any reason other than because of an "Immediate Termination Event" (as defined below), in which case the participant may exercise the previously unexercised portion of the Option at any time within three months after the participant's resignation or termination (but no later than the fixed term of the Option) for the number of shares for which the Option could have been exercised immediately prior to such resignation or termination, (d) retire with the consent of the Company after the optionee has reached his or her 55th birthday and has at least 10 years of service with the Company or any Subsidiary, in which case the participant may exercise the previously unexercised portion of such Option at any time prior to the expiration of its fixed term for the number of shares for which the Option could have been exercised immediately prior to such retirement, or (e) retire with the consent of the Company after the optionee has reached his or her 55th birthday and has fewer than 10 years of service with the Company or any Subsidiary, in which case the participant may exercise the previously unexercised portion of such Option at any time within two years after the participant's retirement (but no later than the fixed term of the Option) for the number of shares for which the Option could have been exercised immediately prior to such retirement. Exercisability of Stock Options other than Incentive Stock Options. Any Option granted under this Plan which is not intended to qualify as an incentive stock option under Section 422 of the Code (or any successor provision) (other than an Option granted to a Grant-Date Officer) shall terminate in full (whether or not previously exercisable) prior to the expiration of its term on the date the optionee ceases to be a director of the Company or an employee of the Company or any Subsidiary of the Company, unless the optionee shall (a) die while a director of the Company or an employee of the Company or such Subsidiary, in which case the participant's personal representative or representatives may exercise all or part of the previously unexercised portion of the Option at any time within two years after the participant's death (but no later than the fixed term of the Option) for the number of shares for which the Option could have been exercised at the time the participant died, (b) become permanently or totally disabled within the meaning of Section 22(e)(3) of the Code (or any successor provision) while a director of the Company or an employee of the Company or a Subsidiary, in which case the participant or his or her personal representative may exercise the previously unexercised portion of the Option at any time within two years after termination of his or her employment or directorship (but no later than the fixed term of the Option) for the number of shares for which the Option could have been exercised at the time the participant terminated his or her employment because of becoming permanently or totally disabled, (c) resign with the consent of the Company or have his or her directorship with the Company or employment with the Company or any Subsidiary terminated by the Company or any Subsidiary for any reason other than because of an "Immediate Termination Event" (as defined below), in which case the participant may exercise the previously unexercised portion of the Option at any time within three months after the participant's resignation or termination (but no later than the fixed term of the Option) for the number of shares for which the Option could have been exercised immediately prior to such resignation or termination, (d) retire with the consent of the Company after the optionee has reached his or her 55th birthday and has at least 10 years of service with the Company or any Subsidiary, in which case the participant may exercise the previously unexercised portion of such Option at any time prior to the expiration of its fixed term for the number of shares for which the Option could have been exercised immediately prior to such retirement, or (e) retire with the consent of the Company after the optionee has reached his or her 55th birthday and has fewer than 10 years of service with the Company or any Subsidiary, in which case the participant may exercise the previously unexercised portion of such Option at any time within two years after the participant's retirement (but no later than the fixed term of the Option) for the number of shares for which the Option could have been exercised immediately prior to such retirement. Options to Grant-Date Officers. In the case of an Option granted to a Grant-Date Officer, the termination of such participant's employment for a reason other than an Immediate Termination Event (as defined below) shall not affect the term of the Option and the Option shall be exercisable by the option holder or his or her personal representative for its remaining term notwithstanding such termination of employment. Immediate Termination Event. An "Immediate Termination Event" means termination of employment or directorship by reason of: (i) misuse of Company or Subsidiary assets (which shall include but not be limited to cash, inventory and/or equipment); (ii) gross misconduct in connection with the performance of job duties for the Company or any Subsidiary; (iii) conviction of a felony or entry of a guilty or nolo contendere plea to a felony offense by the individual; (iv) failure to pass a drug test administered by the Company or any Subsidiary; or (v) obvious intoxication on the job or consumption of any alcoholic beverage on the premises of the Company or any Subsidiary. Notwithstanding anything to the contrary herein, if a participant to whom an Option shall have been granted shall have his or her directorship with the Company or employment with the Company or a Subsidiary terminated because of an Immediate Termination Event, all options held by such participant shall terminate in full (whether or not previously exercisable) prior to their term on the date that the participant ceased to be an employee of the Company or a Subsidiary or a director of the Company. No Exercise After Fixed Term of Option. In no event may an Option be exercised after the expiration of its fixed term. 12. METHOD OF EXERCISE Each Option granted under this Plan shall be deemed exercised when the holder: (a) shall indicate the decision to do so in writing delivered to the Company; (b) shall tender to the Company payment in full in cash, or in shares of the Company's common stock, of the exercise price for the shares for which the Option is exercised; (c) shall tender to the Company payment in full in cash, or in shares of the Company's common stock, of the amount of all federal and state withholding or other employment taxes applicable to the taxable income, if any, of the holder resulting from such exercise; and (d) shall comply with such other reasonable requirements as the Committee may establish. No person, estate or other entity shall have any of the rights of a shareholder with reference to shares subject to an Option until a certificate or certificates for the shares has been delivered. An Option granted under this Plan may be exercised for any lesser number of shares than the full amount for which it could be exercised. Such a partial exercise of an Option shall not affect the right to exercise the Option from time to time in accordance with this Plan for the remaining shares subject to the Option. An optionee must exercise Options in 100 share increments, unless the optionee is exercising Options upon or after termination of the optionee's employment with the Company or a Subsidiary. 13. CANCELLATION AND REPLACEMENT OF OPTIONS The Committee may, at any time or from time to time, permit the voluntary surrender by the holder of any outstanding Option under this Plan where such surrender is conditioned upon the granting to such holder of new Option(s) for such number of shares as the Committee shall determine, or may require such a voluntary surrender as a condition precedent to the grant of new Option(s) to such holder. The Committee shall determine the terms and conditions of new Options, including the prices at and periods during which they may be exercised, in accordance with the provisions of this Plan, all or any of which may differ from the terms and conditions of the Options surrendered. Any such new Option(s) shall be subject to all the relevant provisions of this Plan. IN NO EVENT, HOWEVER, SHALL A CANCELLATION AND REGRANT BE USED TO EFFECT A "REPRICING" THAT WOULD RESULT IN A DECREASE IN THE PER-SHARE EXERCISE PRICE OF AN OPTION GRANTED UNDER THIS PLAN. The shares subject to any Option(s) so surrendered shall no longer be charged against the limitation provided in Section 4 of this Plan and may again become shares subject to the Plan. Except as may be otherwise required under Section 162(m) with respect to "covered employees" (as defined in Section 162(m)), the granting of new Option(s) in connection with the surrender of outstanding Option(s) under this Plan shall be considered for the purposes of the Plan as the grant of new Option(s) and not an alteration, amendment or modification of the Plan or of the Option(s) being surrendered. 14. TERMINATION OF OPTIONS An Option granted under this Plan shall be considered terminated in whole or in part to the extent that, in accordance with the provisions of this Plan, it can no longer be exercised for any shares originally subject to the Option. The shares subject to any Option, or portion thereof, which terminates shall no longer be charged against the limitation provided in Section 4 of this Plan and may again become shares subject to the Plan. 15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION In the event of a stock dividend, recapitalization, merger, reorganization, consolidation, stock split, stock consolidation or any other change in the characteristics of the shares of common stock, the shares reserved for purposes of this Plan, the shares designated as 10-Year Option Shares and 7-Year Option Shares and the shares subject to Options outstanding hereunder shall be correspondingly increased, diminished or changed, so that by exercise of any outstanding Option the participant shall receive, without change in aggregate purchase price, securities, as so increased, diminished or changed, (and other property, if applicable) comparable to the securities (and property, if applicable) he or she would have received if he or she had exercised his or her Option prior to such event and had continued to hold the common stock so purchased until affected by such event; provided with respect to incentive stock options that, in the case of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the excess of the aggregate fair market value of the shares subject to any Option immediately after such event over the aggregate exercise price of such shares is not more than the excess of the aggregate fair market value of all shares subject to the Option immediately before such event over the aggregate exercise price of such shares. The Committee, in its discretion, may elect not to make adjustments pursuant to this Section 15. to the extent necessary to ensure that compensation payable under this Plan does not lose its deductibility on account of Section 162(m). Adjustments under this Section shall be made by the Committee, whose determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. 16. COMPLIANCE WITH SECURITIES AND EXCHANGE COMMISSION AND OTHER REQUIREMENTS No certificate(s) for shares shall be executed and delivered upon exercise of an Option until the Company shall have taken such action, if any, as is then required to comply with the provisions of the Securities Act of 1933, as amended, the Exchange Act, as amended, the South Carolina Uniform Securities Act, as amended, any other applicable state blue sky law(s) and the requirements of any exchange or NASDAQ system on which the common stock of the Company may, at the time, be listed. In the case of the exercise of an Option by a person or estate acquiring the right to exercise the Option by bequest or inheritance, the Committee may require reasonable evidence as to the ownership of the Option and may require such consent and releases of taxing authorities as it may deem advisable. 17. NO RIGHT TO EMPLOYMENT Neither the adoption of the Plan nor its operation, nor any document describing or referring to the Plan, or any part thereof, shall confer upon any participant under this Plan any right to continue in the employ or as a director of the Company or any Subsidiary, or shall in any way affect the right and power of the Company or any Subsidiary to terminate the employment or directorship of any participant in this Plan at any time with or without assigning a reason therefore, to the same extent as the Company or Subsidiary might have done if this Plan had not been adopted. 18. AMENDMENT AND TERMINATION The Committee may at any time suspend, amend or terminate this Plan. The Committee may make such modifications of the terms and conditions of a holder's Option as it shall deem advisable. No Option may be granted during any suspension of the Plan or after such termination. Notwithstanding the foregoing provisions of this Section, no amendment, suspension or termination shall, without the consent of the holder of an Option, alter or impair any rights or obligations under any Option theretofore granted under the Plan. In addition to Committee approval of an amendment, if the amendment would: (i) materially increase the benefits accruing to participants; (ii) increase the number of securities issuable under this Plan (other than an increase merely reflecting a change in capitalization such as a stock dividend or stock split); (iii) change the class of employees eligible to receive Options; or (iv) otherwise materially modify the requirements for eligibility, then such amendment shall be approved by a majority of the shares of the Company's capital stock present and voting either in person or by proxy, and entitled to vote, at a meeting duly held of the stockholders of the Company. 19. USE OF PROCEEDS The proceeds received by the Company from the sale of shares pursuant to Options granted under the Plan shall be used for general corporate purposes as determined by the Board. 20. INDEMNIFICATION OF COMMITTEE In addition to such other rights of indemnification as they may have as members of the Board, the members of the Committee shall, to the fullest extent permitted by law, be indemnified by the Company against the reasonable expenses, including attorney's fees, actually and necessarily incurred in connection with the defense of any action, suit, investigation or other proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Board member (or Committee member, as applicable) is liable for gross negligence or misconduct in the performance of his or her duties; provided that within 60 days after institution of any such action, suit or proceeding the Board member (or Committee member, as applicable) shall in writing offer the Company the opportunity, at its own expense, to handle and defend the same. 21. EFFECTIVE DATE OF THE PLAN This Plan shall be effective as of August 1, 2002, subject, however, to approval by the requisite shareholder vote at the meeting of shareholders of the Company to be held on or about July 22, 2002. 22. SECTION 162(m) This Plan and its operation are intended to satisfy the requirements of Section 162(m) with respect to permitting the deductibility of compensation for those participants who are "covered employees" for purposes of Section 162(m). In the event that any provision of this Plan or an Option granted under this Plan does not so satisfy Section 162(m), that provision shall be deemed amended to the extent necessary to satisfy Section 162(m). 23. DURATION OF THE PLAN Unless previously terminated by the Committee, this Plan shall terminate at the close of business on July 31, 2012, and no Option shall be granted under it thereafter, but such termination shall not affect any option theretofore granted under the Plan. EX-10 4 secondamendcreditagmt.txt 10.23.2 SECOND AMENDMENT CREDIT AGMT SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated as of November 15, 2002 is entered into by and among RYAN'S FAMILY STEAK HOUSES, INC., a South Carolina corporation (the "Parent"), RYAN'S FAMILY STEAK HOUSES EAST, INC., a Delaware corporation ("Ryan's East"; together with the Parent, the "Borrowers"), the Domestic Subsidiaries of the Parent identified as "Guarantors" on the signature pages hereto, the Lenders identified on the signature pages hereto and BANK OF AMERICA, N.A., as Administrative Agent for the Lenders (in such capacity, the "Administrative Agent"). Except as otherwise defined in this Amendment, terms defined in the Credit Agreement referred to below (as amended by this Amendment) are used as defined therein. RECITALS WHEREAS, a $200 million credit facility has been established in favor of the Borrowers pursuant to that Credit Agreement (as amended, modified, supplemented and extended, the "Credit Agreement") dated as of January 28, 2000 among the Borrowers, the Guarantors, the Lenders identified therein, First Union National Bank (now known as Wachovia Bank, National Association), as Syndication Agent, Wachovia Bank, N.A. (now known as Wachovia Bank, National Association), as Documentation Agent, SunTrust Bank, Atlanta, as Senior Managing Agent, and Bank of America, N.A., as Administrative Agent; WHEREAS, the Credit Parties have requested certain modifications and amendments to the Credit Agreement; and WHEREAS, the Required Lenders have agreed to the requested modifications and amendments on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1. Amendments. The Credit Agreement is hereby amended and modified in the following manner: 1.1 Sale or Lease of Assets. Clause (e) of Section 8.5 is amended and restated in its entirety to read as follows: (e) the sale of up to eleven (11) stores in any fiscal year provided that (i) no Default or Event of Default exists before or after giving effect to any such sale, (ii) each such store is sold pursuant to the terms and conditions of an arms-length contract for fair market value and (iii) to the extent such dispositions permitted under this subclause (e) exceed $40,000,000 in the aggregate during the term of this Credit Agreement, the Revolving Committed Amount shall be immediately reduced by the amount by which such dispositions permitted by this subclause (e) exceed $40,000,000 in the aggregate during the term of this Credit Agreement. 1.2 Restricted Payments. The proviso at the end of clause (b) of Section 8.8 is amended and restated in its entirety to read as follows: provided, that, the Parent may repurchase shares of its Capital Stock pursuant to the Share Repurchase Program in an amount not to exceed during the term of this Credit Agreement an aggregate amount equal to the sum of (i) $55 million plus (ii) an amount equal to 50% of Net Income for each fiscal quarter after September 29, 1999 so long as at the time of such repurchase and after giving effect thereto, no Default or Event of Default shall exist or be continuing. 1.3 Capital Expenditures. Section 8.13 is amended and restated in its entirety to read as follows: 8.13 Capital Expenditures. The Credit Parties will not permit Capital Expenditures (a) for the fiscal year ending January 1, 2003 to exceed $71,000,000 in the aggregate, (b) for the fiscal year ending December 31, 2003 to exceed $87,000,000 in the aggregate and (c) for the fiscal year ending December 29, 2004 to exceed $90,000,000 in the aggregate; provided, however, that up to $10,000,000 of the unused allowance for Capital Expenditures in any fiscal year, if not expended in the fiscal year for which it is permitted, may be carried over for expenditure in the immediate succeeding fiscal year; provided, further, that up to $10,000,000 of the unused allowance for the Parent's repurchase of its Capital Stock pursuant to the Share Repurchase Program as permitted by Section 8.8 may be expended in any fiscal year for Capital Expenditures in addition to the amounts permitted above. Section 2. Conditions Precedent. This Amendment shall become effective immediately upon receipt by the Administrative Agent of multiple counterparts of this Amendment, duly executed and delivered by each of the Credit Parties, the Required Lenders and the Administrative Agent. Section 3. Miscellaneous. 3.1 Reaffirmation of Representations and Warranties. The Credit Parties hereby affirm that the representations and warranties set forth in the Credit Agreement and the other Credit Documents are true and correct as of the date hereof (except such representations and warranties that expressly relate to an earlier period). 3.2 Reaffirmation of Guaranty. Each Guarantor (i) acknowledges and consents to all of the terms and conditions of this Amendment, (ii) affirms all of its obligations under the Credit Documents and (iii) agrees that this Amendment and all documents executed in connection herewith do not operate to reduce or discharge such Guarantor's obligations under the Credit Agreement or the other Credit Documents. 3.3 Reaffirmation of Liens. Each Credit Party affirms the liens and security interests created and granted by it in the Credit Documents and agrees that this Amendment shall in no manner adversely affect or impair such liens and security interests. 3.4 No Other Changes. Except as modified hereby, all of the terms and provisions of the Credit Agreement and the other Credit Documents (including schedules and exhibits thereto) shall remain in full force and effect. 3.5 Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and it shall not be necessary in making proof of this Amendment to produce or account for more than one such counterpart. 3.6 Governing Law. This Amendment shall be deemed to be a contract made under, and for all purposes shall be construed in accordance with, the laws of the State of South Carolina. [remainder of page intentionally left blank] IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed and delivered by its duly authorized officer as of the day and year first above written. BORROWERS: RYAN'S FAMILY STEAK HOUSES, INC., a South Carolina corporation By: Name: Fred T. Grant, Jr. Title: Senior Vice President - Finance RYAN'S FAMILY STEAK HOUSES EAST, INC., a Delaware corporation By: Name: Fred T. Grant, Jr. Title: Treasurer GUARANTORS: BIG R PROCUREMENT COMPANY, LLC, a Delaware limited liability company By: RYAN'S FAMILY STEAK HOUSES, INC., a South Carolina corporation, its sole manager By: Name: Fred T. Grant, Jr. Title: Senior Vice President - Finance RYAN'S FAMILY STEAK HOUSES TLC, INC., a Delaware corporation By: Name: Fred T. Grant, Jr. Title: Treasurer RYAN'S PROPERTIES, INC., a Delaware corporation By: Name: Fred T. Grant, Jr. Title: Treasurer RYMARK HOLDINGS, INC., a Delaware corporation By: Name: Fred T. Grant, Jr. Title: Treasurer RYAN'S HOOSIER GROUP, LP, a South Carolina limited partnership By: RYAN'S FAMILY STEAK HOUSES TLC, INC., a Delaware corporation, its sole general partner By: Name: Fred T. Grant, Jr. Title: Treasurer LENDERS: BANK OF AMERICA, N.A., in its capacity as Administrative Agent and individually as a Lender By: Name: Title: WACHOVIA BANK, NATIONAL ASSOCIATION (formerly First Union National Bank) By: Name: Title: WACHOVIA BANK, NATIONAL ASSOCIATION (formerly Wachovia Bank, N.A.) By: Name: Title: SUNTRUST BANK, ATLANTA By: Name: Title: SOUTHTRUST BANK, N.A. By: Name: Title: HIBERNIA NATIONAL BANK By: Name: Title: FLEET NATIONAL BANK By: Name: Title: CAROLINA FIRST BANK By: Name: Title: EX-21 5 subsid.txt 21.2 SUBSIDIARIES Exhibit 21.1 RYAN'S FAMILY STEAK HOUSES, INC. SUBSIDIARIES OF THE COMPANY AS OF JANUARY 1, 2003 Jurisdiction of % Owned by Company Name of Subsidiary Organization (or Subsidiaries) 1.Big R Procurement Company, LLC DE 100% 2.Ryan's Family Steak Houses East, Inc. DE 100% 3.Ryan's Properties, Inc. DE 100% 4.Rymark Holdings, Inc. DE 100% EX-23 6 auditorsconsent10k.txt 23.1 AUDITOR'S CONSENT Final 03/28/03 6077 Exhibit 23.1 Consent Of Independent Auditors The Board of Directors Ryan's Family Steak Houses, Inc.: We consent to incorporation by reference in the following Registration Statements of our report dated January 31, 2003, with respect to the consolidated balance sheets of Ryan's Family Steak Houses, Inc. as of January 1, 2003 and January 2, 2002, and the related consolidated statements of earnings and cash flows for each of the years in the three- year period ended January 1, 2003, which report is incorporated by reference in the 2002 annual report on Form 10-K of Ryan's Family Steak Houses, Inc. Form S-8 No. 33-15924 - Ryan's Family Steak Houses, Inc. 1987 Stock Option Plan No. 33-53834 - Ryan's Family Steak Houses, Inc. 1991 Stock Option Plan No. 333-67165 - Ryan's Family Steak Houses, Inc. 1998 Stock Option Plan Greenville, South Carolina March 28, 2003 EX-99 7 certification906cdw10k.txt 99.1 CDW 906 CERTIFICATION Exhibit 99.1 Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350 For purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Charles D. Way, the Chief Executive Officer of Ryan's Family Steak Houses, Inc. (the "Company"), hereby certifies that, to his knowledge: (i) the Annual Report on Form 10-K of the Company for the year ended January 1, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 31, 2003 /s/ Charles D. Way Charles D. Way Chairman, President and Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to Ryan's Family Steak Houses, Inc. and will be retained by Ryan's Family Steak Houses, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-99 8 certification906ftg10k.txt 99.2 FTG 906 CERTIFICATION Exhibit 99.2 Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350 For purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Fred T. Grant, Jr., the Chief Financial Officer of Ryan's Family Steak Houses, Inc. (the "Company"), hereby certifies that, to his knowledge: (i) the Annual Report on Form 10-K of the Company for the year ended January 1, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 31, 2003 /s/ Fred T. Grant, Jr. Fred T. Grant, Jr. Senior Vice President - Finance, Treasurer and Assistant Secretary A signed original of this written statement required by Section 906 has been provided to Ryan's Family Steak Houses, Inc. and will be retained by Ryan's Family Steak Houses, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----