-----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, I24rw2/hRUVS0k5BF7N2gfXGtzCTdh0fe704Jq98O+boRnS3kLaRgs5WBFjeXHk/ rptE/YFNzA9qk2ymsyWZ5A== 0000898430-99-002840.txt : 19990716 0000898430-99-002840.hdr.sgml : 19990716 ACCESSION NUMBER: 0000898430-99-002840 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990715 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIZZLER INTERNATIONAL INC CENTRAL INDEX KEY: 0000870760 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 954307254 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10711 FILM NUMBER: 99665161 BUSINESS ADDRESS: STREET 1: 12655 W JEFFERSON BLVD CITY: LOS ANGELES STATE: CA ZIP: 90066 BUSINESS PHONE: 3108272300 FORMER COMPANY: FORMER CONFORMED NAME: COLLINS FOODS INC DATE OF NAME CHANGE: 19600201 10-K 1 FORM 10-K FOR FYE APRIL 30, 1999 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark one) (X) Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) for the fiscal year ended April 30, 1999 or ( ) Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) for the transition period from __ to __ Commission file number 1-10711 ------- SIZZLER INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 95-4307254 - ------------------------------- ------------------------------------ (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 6101 West Centinela Avenue, Culver City, California 90230 ------------------------------------------------------------ (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (310) 568-0135 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ---------------------------- ------------------------ Common Stock, $.01 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE ------ (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] YES [ ] NO The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 1999, computed by reference to the closing sale price of such shares on such date was $54,957,949. The number of shares outstanding of common stock, $0.01 par value, as of June 30, 1999, was 28,797,828. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [ ] Portions of the registrants proxy statement for its 1999 annual meeting of stockholders are incorporated by reference into Part III of this form 10-K. PART I Introduction Sizzler International, Inc. ("Sizzler" or the "Company") is principally engaged in the operation, development and franchising of the Sizzler family steak house concept and the operation of Kentucky Fried Chicken ("KFC") franchises. Sizzler International, Inc. was incorporated on January 18, 1991 in connection with a reorganization of its parent company Collins Foods International, Inc. ("CFI") undertaken in contemplation of CFI's merger with PepsiCo, Inc. As part of the reorganization, the Company's common stock was distributed to stockholders of CFI. In addition, as part of the transaction, the Company acquired the remaining outstanding shares of common stock of its 66%-owned subsidiary Sizzler Restaurants International, Inc. ("SRI"), which became the Company's wholly-owned subsidiary. The 1996 Restructuring As a result of continued domestic operating losses in the early 1990's the Company's management enacted a restructuring strategy designed to return its U.S. operations to profitability. In June 1996 the Company and four subsidiaries filed for protection from creditors under Chapter 11 of the federal Bankruptcy Code. The plan of reorganization was confirmed by the Bankruptcy Court and became effective September 23, 1997. Restaurant Concepts Sizzler The Company operates approximately 100 Sizzler restaurants worldwide. Sizzler restaurants operate in the mid-scale dining market featuring a selection of grilled steak, chicken and seafood entrees, sandwiches and specialty platters, as well as a fresh fruit and salad bar in a family dining environment. Sizzler restaurants provide its guests with a service system in which guests place orders and pay upon entering the restaurant and are then seated and assisted by a server who deliver entrees and follow up on guest service. This system combines the benefits of convenience with the experience of a full service restaurant. The Company licenses approximately 250 additional Sizzler restaurants worldwide. Individual franchise agreements for a Sizzler restaurant provide a franchise term of 20 years, payment of an initial franchise fee and payment of royalties based on a percentage of gross sales. Multi-unit franchise development agreements may offer additional benefits. Franchisees are required to contribute a percentage of gross sales to a national advertising fund and may contribute to regional cooperative advertising 2 funds. Company-operated and franchised restaurants are operated in a consistent manner. Sizzler restaurants are typically free-standing buildings that are 5,000 to 6,000 square feet providing seating for 150 to 200 guests. Sizzler restaurants are open for lunch and dinner seven days a week. During fiscal year 1999 lunch and dinner sales were approximately 35 percent and 65 percent of revenues, respectively. The average restaurant check was approximately $8.50. Kentucky Fried Chicken ("KFC") The Company operates 101 KFC restaurants in Queensland, Australia under franchise agreements with its franchisor. The term of the agreements vary from 8 to 22 years and require payment of royalties based on a percentage of sales. As a franchisee the Company is required to contribute a percentage of revenues to a national Australian cooperative advertising fund administered by the franchisor and contribute to local advertising initiatives. KFC restaurants provide quick service to its guests and offer unique chicken products, sandwiches and various side orders. During 1999 lunch and dinner sales were approximately 38 percent and 62 percent respectively. The average ticket was approximately $5.05. KFC restaurants are typically free-standing buildings that are 1,875 to 2,500 square feet providing seating for 20 to 65 guests. Approximately 65 percent of the restaurants offer drive-through window and approximately 15 percent are located in shopping mall food courts. Restaurant Locations At May 2, 1999 the Company's operated and franchise restaurants included 447 locations in 18 states and 11 countries as illustrated below.
April 30, ---------------------- 1999 1998 1997 ---- ---- ---- Domestic Sizzler Restaurants Company-operated 66 66 69 Franchised (including Latin America) 198 199 208 International Restaurants Company-operated Sizzlers 31 31 39 Franchised Sizzlers 51 52 49 Company-operated KFCs 101 98 96 The Italian Oven - - 1
3 Suppliers The Company has entered into distribution arrangements with a number of suppliers of food and other products used in its restaurants. From time to time the Company makes advance purchases of selected commodity items to minimize fluctuation of costs. Although wholesale commodity prices are subject to change due to various economic conditions, the Company has in the past been able to obtain sufficient supplies to carry on its businesses and the Company believes that it will be able to do so in the future. Trademarks and Service Marks The Company owns certain registered trademarks, trade names and service marks domestically and internationally which are of material importance to the business conducted by Sizzler. These include the trademarks of SIZZLER. Sizzler licenses the right to use certain trademarks, trade names and service marks to its franchisees. The Company has licensed the right to use certain trademarks, trade names and service marks which relate to the operation of KFC(R) restaurants in Australia pursuant to the franchise agreements with the franchisor. The Company also has a first right of refusal to open Taco Bell(R) restaurants in Queensland, Australia with certain conditions in the event its franchisor, Tricon Global Restaurants, Inc., commences development of this market. Research and Development The Company continuously evaluates its menus and restaurant concepts. New products are developed by the Company's research staff in conjunction with outside consultants and food suppliers. Before introduction, new menu items are rigorously tested and evaluated for guest satisfaction, quality and profitability. The Company intends to maintain its existing research programs to develop new food products and evaluate marketing activities. The costs associated with these activities are not material to the Company. Seasonality The Company's operations are subject to some seasonal fluctuation with the summer months being slightly stronger followed by the spring months. The fall and winter seasons are weaker due to climatic and other conditions, which negatively impact guest dining patterns, although the overall effect of seasonality is moderated to a limited extent because the Australian seasons fall in reverse of the seasons in the United States. 4 Working Capital Requirements The Company's working capital requirements generally do not fluctuate significantly during the year because revenues consist primarily of cash sales and there is a rapid turnover of inventory. The Company does not carry significant inventories of beef, poultry, seafood, produce or other food products. Food products are ordered and delivered two or more times per week. Individual restaurants maintain supplies adequate to support their needs for two to five days. Competition The restaurant business is highly competitive and is impacted by changes in consumer eating habits and preferences, demographic and sociocultural patterns, and local and national economic conditions that may affect spending habits. The Company's restaurants compete directly and indirectly with a large number of national and regional restaurant establishments, as well as with locally owned restaurants and numerous other eating places that offer moderately priced steak, chicken, salads and other menu items to the public. The Company relies on innovative concept development, marketing techniques and promotions and competes in terms of perceived value, the variety and quality of menu items, service, and price. There are other companies engaged in restaurant operations and franchising programs similar to the Company's that have greater financial resources and a higher volume of sales than the Company. Environmental Matters Federal and state environmental regulations have not had a material effect on the Company, but more stringent and varied requirements of local government bodies with respect to zoning, land use and environmental factors sometimes impact construction of new restaurants or remodels of existing restaurants. Employees At April 30, 1999, the Company had approximately 2,600 employees in the United States and approximately 4,700 employees in Australia. None of the Company's employees are subject to collective bargaining agreements. Labor relations with employees have traditionally been good. As is true with most restaurant operations, the majority of the Company's employees work part time. Government Regulation Each of the Company's restaurants is subject to federal, state and local, as well as Australian laws and regulations governing health, sanitation, environmental matters, safety, the sale of alcoholic beverages and regulations regarding wages, hiring and employment practices. The Company believes it has all licenses and approvals required 5 to operate its business, and that its operations are in compliance with applicable laws and regulations. Risks Associated With Foreign Operations The Company operates Sizzler restaurants in Australia and New Zealand, as well as KFC restaurants in Queensland, Australia. The Company also licenses the right to operate Sizzler restaurants to others in a number of countries and U.S. territories. Possible risks associated with such operations include fluctuations in currency exchange rates, higher rates of inflation, possible changes in tax rates and structures, and possible foreign political and economic conditions. The Company is not able to predict the likelihood of or degree of future changes in exchange rates, rates of inflation, tax rates and structures, or other conditions. ITEM 2. Properties - ------------------ Through its subsidiaries, the Company owns or leases the real property on which its restaurants are operated. A small number of franchised restaurants are also located on property owned or leased by the Company. Periodically the Company reviews the appropriateness of owning versus leasing restaurant locations in light of its strategic plan. The Company owns outright a total of 30 operating Sizzler restaurant properties in the United States, Australia and New Zealand. Sizzler restaurants typically are free-standing buildings ranging from 5,000 to 6,000 square feet. The Company owns outright 48 KFC properties. The KFC restaurants in Australia are typically free-standing buildings ranging from 1,875 to 2,500 square feet. Approximately 60 percent of the restaurant locations operated by the Company are leased. The leases generally are for primary terms of 15 to 20 years, with two or three five-year renewal options and expire on various dates up to the year 2012. The Company has the right to extend many of these leases. The Company has the option under some of these leases to purchase the facilities at the end of the lease terms for varying amounts as specified in the respective lease agreements. ITEM 3. Legal Proceedings - ------------------------- The Company is subject to various lawsuits, claims and other legal matters in the ordinary course of conducting its business. As of the date of this Report, management believes that there are no legal proceedings pending, the adverse resolution of which is expected to have a material adverse financial impact on the Company's consolidated financial position. ITEM 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ None. 6 Executive Officers of the Registrant as of June 30, 1999 - -------------------------------------------------------- James A. Collins 72 Chairman of the Board of the Company and its predecessor CFI since 1968. Chief Executive Officer of CFI (1968-1987). Chairman of the Board, SRI (1982-1991). Chief Executive Officer of the Company (1997-1999). Charles L. Boppell 57 President and Chief Executive Officer of the Company since February 8, 1999. President and Chief Executive Officer of La Salsa Holding Company (1994-1999). President and Chief Executive Officer of Godfather's Pizza (1984-1993). Kevin W. Perkins 47 Executive Vice President of the Company and President and Chief Executive Officer of International Operations since May 29, 1997. Director of the Company (1994 to present). President and Chief Executive Officer of the Company (1994-1997). President of the Company's Sizzler Asia/Pacific Division (1988-1994). Christopher R. Thomas 50 Executive Vice President of the Company since 1991. President and Chief Executive Officer of Sizzler USA since 1997. Chief Financial Officer of the Company and its predecessor CFI (1985-1997). Announced resignation on June 4, 1999. Ryan S. Tondro 51 Vice President and Chief Financial Officer of the Company since May 1997. Vice President, Controller of the Company (1995-1997). Vice President, Finance and Controller of Washington Inventory Service, a division of Huffy Corporation (1993- 1995). Vice President, Controller of Thrifty Drug Stores (1978-1993).
7 Diane Hardesty 48 Vice President of the Company since April 1999. Vice President of La Salsa Holding Company (1995-1999). Vice President Adray's (1994-1996). Vice President Hudson's Grill (1991-1994) Michael J. Raedeke 41 Vice President, Taxation and Internal Audit of the Company since 1995. Director of Tax/Internal Audit of the Company (1991-1995). Kimberly Forster 33 Vice President of Strategic Planning of the Company since March 1999. Director of Financial Analysis, Times Mirror Company (1996-1999). Vice President and Manager of Financial Analysis Group, First Interstate Bank of California (1993-1996).
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS - ---------------------------------------------------------------------------- MARKET INFORMATION - ------------------ The Company's common stock is listed on the New York Stock Exchange (the "NYSE") under the symbol "SZ". As of July 2, 1999, the approximate number of record holders of the Company's common stock was 2,767. The high and low sales prices for a share of the Company's common stock as reported on the NYSE, by quarter, for the past two fiscal years are as follows:
1999 1998 ---------------- ---------------- High Low High Low ------- ------- ------- ------- First Quarter $ 3.188 $ 2.375 $ 3.125 $ 2.250 Second Quarter 2.563 1.500 4.750 3.000 Third Quarter 3.000 2.063 4.000 2.250 Fourth Quarter 2.375 1.689 4.000 2.250
8 COMMON STOCK DIVIDENDS The Company has no current plans to recommence payment of cash dividends. Future dividends will depend on a number of factors, including earnings, financial position, capital requirements and other relevant factors. 9 ITEM 6. SELECTED FINANCIAL DATA - -------------------------------- The following table sets forth consolidated financial data with respect to the Company and should be read in conjunction with the Consolidated Financial Statements, including Notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" presented elsewhere herein.
For the Years Ended April 30, 1999 1998 1997 1996 1995 - ----------------------------- -------- -------- -------- -------- -------- (In millions, except per share data and exchange rates) Systemwide sales $ 532.7 $ 557.9 $ 677.9 $ 875.7 $ 937.7 Revenues 226.3 242.3 299.9 436.2 462.2 Net income (loss) 7.4 5.4 0.6 (138.5) (a) 6.7 Basic and diluted earnings (loss) per share 0.26 0.19 0.02 (4.99) (a) 0.24 Average Australian dollar exchange rate 0.6208 0.7063 0.7880 0.7471 0.7434 Total assets 108.7 119.5 168.1 178.5 276.7 Long-term debt 26.9 35.5 0.3 (c) 7.0 (b) 17.1 Liabilities subject to compromise - - 83.9 (c) - - Total stockholders' investment 52.7 43.8 44.4 43.5 177.1 Dividends paid per share - - - 0.08 0.16 -------- -------- -------- -------- --------
(a) Includes an after-tax charge of $108.9 million or $3.92 per share, primarily related to the costs and asset write downs associated with restaurant closings and reorganization. In addition to the restructuring charge, the Company recorded a charge of $12.8 million or $0.46 per share related to the adoption of SFAS 121, Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed of, during fiscal year 1996. (b) This total does not include line of credit borrowings totaling $27.0 million which, as a result of acceleration of maturity, are presented as current liabilities in the consolidated financial statements. (c) Substantially all prepetition debt has been reclassified as "Liabilities subject to compromise under reorganization proceedings." 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATIONS - ------------- - --------------------- RESULTS OF OPERATIONS - --------------------- INTRODUCTION - ------------ The following discussion should be read in conjunction with "Selected Financial Data," the Consolidated Financial Statements and other financial information appearing elsewhere herein. As discussed in more detail in "Business - The 1996 Restructuring" and in Note 2 to the Consolidated Financial Statements, Sizzler International, Inc. and four subsidiaries emerged from bankruptcy on September 23, 1997. Fiscal years 1999, 1998 and 1997 marked periods during which the Company's domestic operations were revitalized. This process was completed during fiscal year 1999 with the repositioning of the Sizzler restaurant concept back to a mid-scale family steakhouse featuring high quality and high value entrees and a high-quality fresh fruit and salad bar designed to be either a light lunch entree or an addition to grilled entrees at dinner. During fiscal years 1999, 1998 and 1997 the Company also repositioned its international operations in response to strong competition in both the casual dining and fast food markets. In addition, international operations were impacted by significant declines in the local currencies of its franchise operations in Asia and by a weaker Australian dollar. RESULTS OF OPERATIONS - --------------------- The Company's revenues are generated from three primary sources: domestic Company-operated restaurant sales and franchise revenues (including franchise fees, royalties and rental income), international Company-operated restaurant sales and franchise revenues, and revenues from international KFC franchises operated by the Company. FIFTY TWO WEEKS ENDED APRIL 30, 1999 vs. FIFTY THREE WEEKS ENDED APRIL 30, 1998 - ------------------------------------------------------------------------------- Revenues totaled $226.3 million in fiscal 1999 compared to $242.3 million in fiscal 1998, a decrease of $16.0 million or 6.6 percent. The decrease includes $17.1 million due to a 12.1 percent decrease in the Australian dollar exchange rate offset by higher 11 average unit sales from international KFC operations and higher average unit sales and franchise revenues from domestic operations. The impact of the additional week in fiscal 1998 is approximately $4.4 million. Domestic revenues increased $4.7 million or 4.9 percent in fiscal 1999 compared to fiscal 1998 due to the impact of menu repositioning and a marketing strategy that minimized the use of customer discounts. International revenues decreased $20.8 million or 14.3 percent due to a decrease in the Australian dollar exchange rate and to lower Sizzler sales offset by higher KFC sales. Earnings before interest, taxes and parent company overhead were $18.0 million in fiscal 1999 compared to $16.2 million in fiscal 1998, an increase of $1.8 million or 11.3 percent. This increase was due to a $2.3 million increase in domestic operations, offset by a $.5 million decrease in international operations. Domestic Operations - ------------------- Company-operated restaurants accounted for 42.1 percent of consolidated revenues compared to 38.3 percent in fiscal 1998. Fiscal 1999 revenues were $95.3 million compared to $92.9 million in fiscal 1998, an increase of $2.4 million or 2.6 percent. On a comparative restaurant basis, Sizzler restaurants open more than one year, with fiscal 1998 adjusted to 52 weeks, experienced a 6.1 percent increase in average sales per restaurant, a 2.0 percent decrease in average customers per restaurant and an 8.3 percent increase in average customer check total. Gross margins per guest increased by 7.6 percent in fiscal 1999 compared to fiscal 1998 due to the impact of menu repositioning and marketing strategies. There were 66 Company-operated Sizzler restaurants as of April 30, 1999 and April 30, 1998. Earnings before interest, taxes and parent company allocation were $6.9 million in fiscal 1999 compared to $2.6 million in 1998, an increase of $4.3 million or 168.1 percent. Domestic Franchise - ------------------ Domestic franchise revenues, including franchise fees, royalties and rental income accounted for 2.9 percent of consolidated revenues in fiscal 1999 compared to 1.8 percent in fiscal 1998. Franchise revenues were $6.5 million in fiscal 1999 compared to $4.2 million in fiscal 1998, an increase of $2.3 million or 54.8 percent. The increase in fiscal 1999 reflects higher franchise sales in fiscal 1999 and the impact of a temporary royalty abatement program that offered lower royalty fees to franchisees during fiscal 1998. As of April 30, 1999 there were 198 Sizzler franchise locations compared to 199 as of April 30, 1998. International Operations - ------------------------ International operations accounted for 55.0 percent of consolidated revenues in fiscal 1999 compared to 59.9 percent in fiscal 1998. Revenues were $124.5 million in fiscal 1999 compared to $145.2 million in fiscal 1998, a decrease of $20.7 million or 14.3 percent. The decrease is primarily due to a 12.1 percent decrease in foreign currency 12 exchange rates and lower average sales volumes which were partially offset by the addition of three KFC restaurants. Earnings before interest, taxes and parent company allocation were $9.8 million in fiscal 1999 compared to $10.3 million in 1998, a decrease of $.5 million or 4.4 percent. Excluding franchise revenues, results from Company-operated Sizzler restaurants were $39.0 million in fiscal 1999 compared to $47.3 million in fiscal 1998, a decrease of $8.3 million or 17.6 percent. This decrease includes $5.4 million related to a decrease in the Australian dollar exchange rate. On a comparative restaurant basis, in Australian dollars Sizzler restaurants open more than one year, with fiscal 1998 adjusted to 52 weeks, experienced a .2 percent decrease in average sales per restaurant, a 2.8 percent decrease in average customers per restaurant and a 2.7 percent increase in average customer check total. There were 31 Company-operated Sizzler restaurants as of April 30, 1999 and April 30, 1998. International franchise revenues were $1.2 million in fiscal 1999 compared to $2.1 million in fiscal 1998, a decrease of $.9 million or 42.4 percent. The decrease is due to a decrease in the Australian dollar exchange rate and to a decrease in the number of franchise locations. As of April 30, 1999 there were 48 international franchised restaurants and three joint venture restaurants in six countries compared to 49 international franchise restaurants and three joint venture restaurants as of April 30, 1998. During fiscal 1999 two franchised restaurants were opened in Japan and three restaurants were closed, one each in Indonesia, South Korea and Taiwan. Revenues from the Company's KFC restaurants were $84.3 million in fiscal 1999 compared to $94.8 million in fiscal 1998, a decrease of $10.5 million or 11.1 percent. This decrease includes $11.6 million related to a decrease in the Australian dollar exchange rate offset by higher unit sales. On a comparative restaurant basis in Australian dollars, KFC restaurants open more than one year, with fiscal 1998 adjusted to 52 weeks, experienced a 4.3 percent increase in average sales per restaurant, a .4 percent decrease in average customers per restaurant and a 4.7 percent increase in average customer check total. As of April 30, 1999 there were 101 KFC restaurants compared to 98 as of April 30, 1998. Consolidated Costs and Expenses - ------------------------------- Consolidated costs and expenses were 95.9 percent of revenues in fiscal 1999 compared to 96.9 percent of revenues in fiscal 1998, a decrease of .9 points. Payroll and related expenses were 26.2 percent of revenues in fiscal 1999 compared to 26.7 percent in fiscal 1998, a decrease of .5 points. Cost of sales were 35.6 percent of revenues in fiscal 1999 compared to 36.5 percent in fiscal 1998, a decrease of .9 points. Interest expense was 1.5 percent of revenues in fiscal 1999 compared to 2.2 percent in fiscal 1998, a decrease of .7 points. These decreases were partially offset by a .6 point increase in general and administrative expenses to 7.5 percent of revenues in fiscal 1999 compared to 6.9 13 percent in fiscal 1998 and by a .3 point increase in other costs to 5.2 percent of revenues in fiscal 1999 compared to 4.9 in fiscal 1998. Interest expense was $3.3 million in fiscal 1999 compared to $5.3 million in fiscal 1998, a decrease of $2.0 million or 37.7 percent. This decrease is due to lower interest expense on bankruptcy claims. The provision for income taxes was $1.8 million in fiscal 1999 compared to $2.2 million in fiscal 1998. (See Note 3, to Consolidated Financial Statements). FIFTY THREE WEEKS ENDED APRIL 30, 1998 VS. FIFTY TWO WEEKS ENDED APRIL 30, 1997 - ------------------------------------------------------------------------------- Revenues totaled $242.3 million in fiscal 1998 compared to $299.9 million in fiscal 1997, a decrease of $57.6 million or 19.2 percent. The decrease in 1998 was primarily due to the closure of nine Company-operated restaurants, the sale of two Company-operated restaurants to franchisees and a net decrease of six franchised Sizzler restaurants. These decreases were offset by the addition of two KFC restaurants in Australia. The impact of the additional week in fiscal 1998 is approximately $4.4 million. Domestic revenues decreased $25.5 million or 20.8 percent in fiscal 1998 compared to fiscal 1997 due to a net decrease of three Company-operated and nine franchised restaurants. International revenues decreased $ 32.1 million or 18.1 percent. This decrease is primarily due to a net decrease of eight Sizzler Company-operated restaurants and a net decrease of three franchised Sizzler restaurants which were offset by the addition of two KFC restaurants during fiscal year 1998. Earnings before interest, taxes and parent company overhead were $16.2 million in fiscal 1998 compared to $5.8 million in fiscal 1997, an increase of $10.4 million or 181.4 percent. This increase was due to a $8.1 million increase in domestic operations and a $2.3 million increase in international operations. Domestic Operations - ------------------- Excluding franchise revenues, Company-operated restaurants accounted for 38.3 percent of consolidated revenues in fiscal 1998 compared to 38.8 percent in fiscal 1997. Fiscal 1998 revenues were $92.9 million compared to $116.5 million in fiscal 1997, a decrease of $23.6 million or 20.3 percent. On a comparative restaurant basis, Sizzler restaurants open more than one year, with fiscal 1998 adjusted to 52 weeks, experienced a .4 percent decrease in average sales per restaurant, a 5.5 percent decrease in average customers per restaurant and a 5.6 percent increase in average customer check total. Gross margins per guest increased by 7.5 percent in fiscal 1998 compared to fiscal 1997 reflecting the impact of the menu repositioning. 14 Earnings before interest, taxes and parent company allocation were $2.6 million in fiscal 1998 compared to a loss of $7.0 million in 1997, an increase of $9.6 million or 136.5 percent. Domestic Franchise - ------------------ Domestic franchise revenues, including franchise fees, royalties and rental income accounted for 1.8 percent of consolidated revenues in fiscal 1998 compared to 2.0 percent in fiscal 1997. Franchise revenues were $4.2 million in fiscal 1998 compared to $6.1 million in fiscal 1997, a decrease of $1.9 million or 30.5 percent. The decrease in fiscal 1998 reflects lower franchise sales in fiscal 1998, a net reduction of nine franchised restaurants during fiscal 1998 and a royalty abatement program that offered lower royalty fees to franchisees during fiscal 1998. International Operations - ------------------------ International operations accounted for 59.9 percent of consolidated revenues in fiscal 1998 compared to 59.1 percent in fiscal 1997. Revenues were $145.2 million in fiscal 1998 compared to $177.3 million in fiscal 1997, a decrease of $32.1 million or 18.1 percent. The decrease is primarily due to a 10.5 percent decrease in foreign currency exchange rates and lower average sales volumes which were partially offset by the addition of two KFC restaurants. Earnings before interest, taxes and parent company allocation were $10.3 million in fiscal 1998 compared to $8.0 million in 1997, an increase of $2.3 million or 29.1 percent. Excluding franchise revenues, results from Company-operated Sizzler restaurants were $47.3 million in fiscal 1998 compared to $69.8 million in fiscal 1997, a decrease of $22.5 million or 32.2 percent. This decrease reflects lower average restaurant sales, restaurant closings and a decrease in the Australian dollar exchange rate. On a comparative restaurant basis, in Australian dollars, Sizzler restaurants open more than one year, with fiscal 1998 adjusted to 52 weeks, experienced a 13.2 percent decrease in average sales per restaurant, a 17.1 percent decrease in average customers per restaurant and a 4.7 percent increase in average customer check total. International franchise revenues were $2.1 million in fiscal 1998 compared to $3.8 million in fiscal 1997, a decrease of $1.7 million or 44.1 percent. The decrease is primarily due to the closure of 39 franchised restaurants at the end of fiscal 1997 and a decrease in the Australian dollar exchange rate. As of April 30, 1998 there were 49 international franchised restaurants and three joint venture restaurants in six countries compared to 46 international franchise restaurants and three joint venture restaurants as of April 30, 1997. During fiscal 1998 five franchised restaurants were opened in Japan, Thailand and Indonesia and two restaurants were closed, one each in South Korea and Taiwan. 15 Revenues from the Company's KFC restaurants were $94.9 million in fiscal 1998 compared to $102.6 million in fiscal 1997, a decrease of $7.7 million or 7.5 percent. This decrease is primarily due to a decrease in the Australian dollar exchange rate. On a comparative restaurant basis in Australian dollars, KFC restaurants open more than one year, with fiscal 1998 adjusted to 52 weeks, experienced a 1.3 percent decrease in average sales per restaurant, a 6.7 percent decrease in average customers per restaurant and a 5.7 percent increase in average customer check total. As of April 30, 1998 there were 98 KFC restaurants compared to 96 as of April 30, 1997. Consolidated Costs And Expenses - ------------------------------- Consolidated costs and expenses were 96.9 percent of revenues in fiscal 1998 compared to 102.3 percent of revenues in fiscal 1997, a decrease of 5.4 points. Payroll and related expenses were 26.7 percent of revenues in fiscal 1998 compared to 28.4 percent in fiscal 1997, a decrease of 1.7 points. Cost of sales were 36.5 percent of revenues in fiscal 1998 compared to 37.1 percent in fiscal 1997, a decrease of .6 points. Interest expense was 2.2 percent of revenues in fiscal 1998 compared to 2.3 percent in fiscal 1997, a decrease of 0.1 points. These decreases were partially offset by a 0.1 point increase in rent expense to 3.6 percent of revenues in fiscal 1998 compared to 3.5 percent in fiscal 1997. Interest expense was $5.3 million in fiscal 1998 compared to $7.0 million in fiscal 1997, a decrease of $1.7 million or 24.3 percent. This decrease is due to lower interest expense on bankruptcy claims offset by new borrowings. The provision for income taxes was $2.2 million in fiscal 1998 compared to a benefit of $7.3 million in fiscal 1997. (See Note 3 to Consolidated Financial Statements). - ------------------------------- LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- WORKING CAPITAL - --------------- The Company's primary source of liquidity is cash flows from operations which was $15.3 million in fiscal 1999 and $1.6 million in fiscal 1998. This increase is primarily due to improved U.S. and international operations. The current ratio was 1.0 at April 30, 1999 and 1.1 at April 30, 1998. At April 30, 1999, working capital was negative $0.8 million compared to a positive $2.9 million at the end of the prior year. The decrease in the current ratio and working capital is primarily due to payment of allowed claims pursuant to the reorganization plan and reduction of long-term debt. 16 TOTAL ASSETS/CAPITAL EXPENDITURES - --------------------------------- Total assets decreased $10.8 million or 9.0 percent in fiscal 1999. Property and equipment represented 71.6 percent of total assets at the end of fiscal 1999 and 66.3 percent at the end of fiscal 1998. In fiscal 1998, total assets decreased $48.6 million or 28.9 percent from fiscal 1997. Capital expenditures were $7.7 million in fiscal 1999, which included new restaurant construction of $1.2 million and remodels of $6.5 million. The Company anticipates continuing to grow International operations through additional investment in Company-operated restaurants, joint ventures and the development of the franchise system. The Company anticipates capital expenditures in fiscal 2000 will be approximately $13.4 million, which will be used for new restaurants and maintenance of existing restaurants. In fiscal 1998, capital expenditures were $8.9 million, consisting of new restaurant construction of $1.7 million and remodels of $7.2 million. DEBT - ---- On September 23, 1997, the Company obtained a $63.5 million AUD (approximately $46.9 million US) bank facility from Westpac Banking Corporation in order to refinance the claims of the Company's unsecured creditors. The Westpac loan provides for a five-year term at an interest rate equal to the Australian interbank borrowing rate, plus a margin. The margin is based on a formula tied to the Company's international operations ratio of debt to earnings before interest and taxes, and varies between 1.25% and 2.25%. The Westpac loan involved the collateralization of the Company's principal operating assets of its international division. The Westpac loan is subject to a number of financial covenants and other restrictions. Based on current levels of operations and anticipated sales growth, management believes that cash flow from operations will be sufficient to meet all of its debt service requirements when due and to fund its capital expenditure and working capital requirements. INFLATION - --------- Increases in interest rates and the costs of labor, food and construction can significantly affect the Company's operations. Management believes that the current practices of maintaining adequate operating margins through a combination of menu price increases and cost controls, careful management of working capital and evaluation of property and equipment needs are its most effective tools for coping with inflation. 17 OTHER - ----- The Company is aware of industry concerns regarding the potential impact of possible further increases in the minimum wage, the increased marketing of prepared foods by grocery and convenience stores, customer resistance to increases in menu prices, the growth of home delivery of prepared foods, increased concerns over the nutritional value of foods and compliance with existing or proposed health and safety legislation and other similar contingencies. The Company is unable to predict the possible impact of such factors on its business. In the past, the Company has been able to address similar types of changes in the business climate and been able to pass any associated higher costs along to its customers, because the changes have generally impacted all restaurant companies. YEAR 2000 - --------- The Company is aware of the broad impact the Year 2000 issue could have on its business and, as a result, in fiscal 1998 established a comprehensive enterprise-wide program to prepare its computer systems and applications. This program consists of three areas: information systems, supply chain and critical third party readiness and business equipment. The Company has utilized both internal and external resources to inventory, assess, remediate, replace and test its systems for Year 2000 compliance and expects that all mission-critical systems will be Year 2000 compliant by October, 1999. The Company's assessment of the impact of the Year 2000 issue indicated that several information technology projects required acceleration due to potential Year 2000 issues. Specifically the Company has upgraded certain software applications and is in the process of replacing others in connection with a lease that ended in the ordinary course of business. To reduce the risks associated with the Year 2000 the Company has closely assessed the vendors supplying the Company's restaurants with food and other products to ensure that they are aware of the Year 2000 business risks and are appropriately addressing them. Surveys were sent to critical suppliers and service providers to obtain reasonable assurance that plans are in place to address the Year 2000 issue. Contingency plans have been developed for those vendors that have not provided the Company with satisfactory evidence of their readiness to handle Year 2000 issues. The Company is also communicating with its franchise business partners regarding the potential business risks associated with the Year 2000 issue. Equipment critical to restaurant and corporate office operations was scheduled to be replaced in early fiscal 2000 in connection with a lease ending in the ordinary course of business. The new equipment is Year 2000 compliant and is currently being installed. 18 The cost incurred by the Company to date for software and hardware is approximately $300,000 and management estimates the remaining cost to complete Year 2000 upgrades to be approximately $80,000. These costs were budgeted and will be funded by cash flow from operations. The Company believes that based on available information the costs related to Year 2000 compliance will not be material to its financial position. However, the cost of the project and the date on which the Company plans to complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions including the availability of certain resources, third party modification programs and other factors. Unanticipated failures by critical vendors and franchise partners, as well as the failure by the Company to execute its own remediation efforts could have a material adverse effect on the cost of the project and its completion date. As a result there can be no assurance that these forward looking estimates will be achieved and the actual cost and vendor compliance could differ materially from those plans resulting in material financial risk. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES - ----------------------------------------------------- The Company is protected against the risk of foreign exchange fluctuations associated with its bank facility with Westpac Banking Corporation because both the borrowings and principal and interest payments are denominated in Australian dollars and the Company funds its principal and interest payments from cash generated by its restaurant operations in Australia. NEW ACCOUNTING STANDARDS - ------------------------ In fiscal year 1999, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income". Other comprehensive income may include foreign currency translation adjustments, minimum pension liability adjustments, and unrealized gains and losses on investments in equity securities. In Fiscal 1999, the Company adopted statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), which establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also established standards for related disclosures about products and services, geographic areas, and major customers. The adoption of SFAS 131 does not impact the Company's consolidated results of operations, financial position or cash flows. In Fiscal 1999, the Company adopted statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" 19 ("SFAS 132"). This statement does not change the measurement or recognition of those plans, but is designed to simplify disclosures about pension and other postretirement benefit plans. Specifically, it standardizes the disclosure requirement to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer as useful as they were when SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," were issued. The Statement also suggests combined formats for presentation of pension and other postretirement benefit disclosures. The adoption of SFAS 132 does not impact the Company's consolidated results of operations, financial position or cash flows. In Fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 addresses the accounting for derivative instruments, including derivative instruments embedded in other contracts and hedging activities. The adoption of SFAS No. 133 does not impact the Company's consolidated results of operations, financial position or cash flows. FORWARD-LOOKING STATEMENTS - -------------------------- With the exception of any historical information contained in this report, the matters described herein contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve various risks which may cause actual results to differ materially. These risks include, but are not limited to, changes in global and local business and economic conditions; consumer preferences, spending patterns and demographic trends; food, labor and other operating costs; availability and cost of land and construction; currency exchange rates; and other risks outside the control of the Company referred to in the Company's registration statement and periodic reports filed with the Securities and Exchange Commission. 20 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (In thousands of dollars, except per share data) The following tables show comparative quarterly financial results during the past two fiscal years. The first, second and fourth fiscal quarters normally include twelve weeks of operations whereas the third fiscal quarter includes sixteen weeks of operations. Fiscal 1998 was a fifty-three week year, therefore, the fourth fiscal quarter includes thirteen weeks of operations.
First Second Third Fourth Fiscal 1999 Quarter Quarter Quarter Quarter - ----------- ------- ------- ------- ------- Restaurants $50,733 $48,973 $66,147 $52,708 Franchise operations 1,845 2,041 1,955 1,924 ------- ------- ------- ------- Revenues 52,578 51,014 68,102 54,632 Cost of sales 18,550 17,971 24,728 19,446 Labor and related expenses 13,745 13,443 18,380 13,611 Other operating expenses 10,604 10,584 15,238 11,463 General and administrative costs 4,267 4,233 4,228 4,146 ------- ------- ------- ------- Earnings before interest, taxes and depreciation 5,412 4,783 5,528 5,966 Depreciation 2,259 2,152 3,048 2,468 ------- ------- ------- ------- Earnings before interest and taxes 3,153 2,631 2,480 3,498 ------- ------- ------- ------- Net income $ 2,061 $ 1,604 $ 1,212 $ 2,515 ======= ======= ======= ======= Basic and diluted earnings per share $0.07 $0.06 $0.04 $0.09 ======= ======= ======= ======= First Second Third Fourth Fiscal 1998 Quarter Quarter Quarter Quarter - ----------- ------- ------- ------- ------- Restaurants $58,270 $54,770 $68,311 $54,640 Franchise operations 1,316 1,737 1,762 1,527 ------- ------- ------- ------- Revenues 59,586 56,507 70,073 56,167 Cost of sales 21,721 20,567 25,917 20,275 Labor and related expenses 15,853 14,945 18,898 14,930 Other operating expenses 11,835 11,847 14,808 10,667 General and administrative costs 4,407 3,801 4,310 4,177 ------- ------- ------- ------- Earnings before interest, taxes and depreciation 5,770 5,347 6,140 6,118 Depreciation 2,819 2,931 3,430 2,589 ------- ------- ------- ------- Earnings before interest and taxes 2,951 2,416 2,710 3,529 ------- ------- ------- ------- Net income $ 1,487 $ 776 $ 755 $ 2,360 ======= ======= ======= ======= Basic and diluted earnings per share $ 0.05 $ 0.03 $ 0.03 $ 0.08 ======= ======= ======= =======
21 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Sizzler International, Inc.: We have audited the accompanying consolidated balance sheets of Sizzler International, Inc. (a Delaware corporation) and subsidiaries as of April 30, 1999 and 1998, and the related consolidated statements of operations and comprehensive income, stockholders' investment and cash flows for each of the three years in the period ended April 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sizzler International, Inc. and subsidiaries as of April 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 1999 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Los Angeles, California June 16, 1999 22 SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES Consolidated Statements of Operations and Comprehensive Income (In thousands, except share data)
For the Years Ended April 30, 1999 1998 1997 - ----------------------------- ------------ ------------ ------------ Revenues Restaurant sales $ 218,561 $ 235,991 $ 290,061 Franchise revenues 7,765 6,342 9,867 ------------ ------------ ------------ Total revenues 226,326 242,333 299,928 ------------ ------------ ------------ Costs and Expenses Cost of sales 80,695 88,480 111,330 Labor and related costs 59,179 64,626 85,138 Other operating expenses 47,889 49,157 65,956 Depreciation and amortization 9,927 11,769 16,260 General and administrative expenses 16,874 16,695 22,192 ------------ ------------ ------------ Total operating costs and expenses 214,564 230,727 300,876 ------------ ------------ ------------ Interest expense 3,284 5,274 6,981 Investment income, net (724) (1,271) (1,178) ------------ ------------ ------------ Total costs and expenses 217,124 234,730 306,679 ------------ ------------ ------------ Income (loss) before income taxes 9,202 7,603 (6,751) Provision (benefit) for income taxes 1,810 2,225 (7,316) ------------ ------------ ------------ Net income $ 7,392 $ 5,378 $ 565 ============ ============ ============ Basic and diluted earnings per share $ 0.26 $ 0.19 $ 0.02 ============ ============ ============ Weighted Average common shares outstanding: Basic 28,815,000 28,864,000 28,967,000 Diluted 28,878,000 28,879,000 28,967,000 ============ ============ ============ Comprehensive Income: Net Income $ 7,392 $ 5,378 $ 565 Foreign currency translation adjustments (no tax effect) 579 (7,171) (1,621) ------------ ------------ ------------ Total comprehensive income (loss) $ 7,971 $ (1,793) $ (1,056) ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 23 SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands)
As of April 30, 1999 1998 - -------------------------------------------------- ----------- ----------- ASSETS Current assets Cash and cash equivalents $ 14,691 $ 21,167 Receivables, net of reserves of $1,726 in 1999 and $2,608 in 1998 3,546 2,926 Inventories 4,346 4,333 Prepaid expenses and other current assets 1,669 1,281 - -------------------------------------------------- ----------- ----------- Total current assets 24,252 29,707 - -------------------------------------------------- ----------- ----------- Property and equipment, at cost Land 22,582 22,252 Buildings and leasehold improvements 88,537 83,735 Equipment 64,969 62,942 Capital leases 2,616 2,616 Construction in progress 2,628 4,534 - -------------------------------------------------- ----------- ----------- 181,332 176,079 Less - Accumulated depreciation and amortization (103,496) (96,869) - -------------------------------------------------- ----------- ----------- Total property and equipment, net 77,836 79,210 - -------------------------------------------------- ----------- ----------- Long-term notes receivable, net of reserves of $508 in 1999 and $772 in 1998 1,553 1,268 Deferred income taxes 795 3,829 Intangible assets, net of accumulated amortization of $887 in 1999 and $696 in 1998 2,104 2,162 Other assets, net of accumulated amortization and reserves of $6 in 1999 and $1 in 1998 2,129 3,285 - -------------------------------------------------- ----------- ----------- Total assets $108,669 $119,461 ================================================== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 24 SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share data)
As of April 30, 1999 1998 - --------------------------------------------------------------- --------- --------- LIABILITIES AND STOCKHOLDERS' INVESTMENT Current liabilities Current portion of long-term debt $ 5,898 $ 5,764 Accounts payable 7,892 7,753 Other current liabilities 8,853 9,562 Income taxes payable 2,449 3,761 - --------------------------------------------------------------- --------- --------- Total current liabilities 25,092 26,840 - --------------------------------------------------------------- --------- --------- Long-term debt, net of current portion 26,918 35,497 Other liabilities 3,916 13,364 Commitments and contingencies - - Stockholders' investment Preferred stock, authorized 1,000,000 shares, $5 par value; no shares issued and outstanding - - Common stock, authorized 50,000,000 shares at $.01 par value; issued and outstanding 28,797,828 in 1999 and 28,840,908 shares in 1998 288 288 Additional paid-in capital 278,365 277,353 Accumulated deficit (222,191) (229,583) Accumulated other comprehensive income (3,719) (4,298) - --------------------------------------------------------------- --------- --------- Total stockholders' investment 52,743 43,760 - --------------------------------------------------------------- --------- --------- Total liabilities and stockholders' investment $ 108,669 $ 119,461 =============================================================== ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 25 SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Investment (In thousands, except share data)
Common Additional Accumulated Other Shares Common Paid-In Accumulated Comprehensive Outstanding Stock Capital Deficit Income Total - ------------------------------------------------------------------------------------------------------------------------------- Balance at April 30, 1996 27,767,706 $ 278 $ 274,221 $ (235,526) $ 4,494 $ 43,467 Restricted stock repurchased (18,381) (1) (56) (57) Restricted stock canceled (311,958) (3) (3) Grant of restricted stock 1,457,000 15 651 666 Stock issued 3,636 10 10 Net income 565 565 Amortization of restricted stock 1,374 1,374 Foreign currency translation adjustment (1,621) (1,621) - ------------------------------------------------------------------------------------------------------------------------------- Balance at April 30, 1997 28,898,003 289 276,200 (234,961) 2,873 44,401 Restricted stock repurchased (7,022) (17) (17) Restricted stock canceled (55,833) (1) (1) Stock issued 5,760 14 14 Net income 5,378 5,378 Amortization of restricted stock 1,156 1,156 Foreign currency translation adjustment (7,171) (7,171) - ------------------------------------------------------------------------------------------------------------------------------- Balance at April 30, 1998 28,840,908 288 277,353 (229,583) (4,298) 43,760 Restricted stock repurchased (37,080) (103) (103) Restricted stock canceled (6,000) 0 Net income 7,392 7,392 Amortization of restricted stock 1,115 1,115 Foreign currency translation adjustment 579 579 - ------------------------------------------------------------------------------------------------------------------------------- Balance at April 30, 1999 28,797,828 $ 288 $ 278,365 $ (222,191) $ (3,719) $ 52,743 ===============================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 26 SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands)
For the Years Ended April 30, 1999 1998 1997 - ------------------------------------------------------------------- ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 7,392 $ 5,378 $ 565 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 9,927 11,769 16,260 Deferred income tax provision (benefit) 3,377 (925) (12,167) Provision for bad debts 446 651 479 Other 1,114 (473) 791 Changes in operating assets and liabilities: Receivables (1,394) 1,015 704 Inventories (13) 1,131 1,421 Prepaid expenses and other current assets (388) 950 (477) Accounts payable 139 (5,881) 14,339 Accrued liabilities (1,607) (10,681) (19,740) Income taxes payable (1,703) 2,353 (1,329) Changes due to reorganization activities: Payments of reorganization costs (2,016) (6,442) (8,826) Interest expense accrued - 2,773 6,000 - ------------------------------------------------------------------- --------- --------- --------- Net cash provided by (used in) operating activities 15,274 1,618 (1,980) - ------------------------------------------------------------------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (7,684) (8,931) (6,399) Disposal of property and equipment 1,754 28,896 21,370 Other assets (1,137) (489) 739 - ------------------------------------------------------------------- --------- --------- --------- Net cash provided by (used in) investing activities (7,067) 19,476 15,710 - ------------------------------------------------------------------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Long-term borrowings - 46,895 11,461 Reduction of long-term debt (8,580) (4,865) (266) Payment of allowed claims pursuant to the reorganization plan (6,000) (75,159) - Other, net (103) (883) (56) - ------------------------------------------------------------------- --------- --------- --------- Net cash provided by (used in) financing activities (14,683) (34,012) 11,139 - ------------------------------------------------------------------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents (6,476) (12,918) 24,869 - ------------------------------------------------------------------- --------- --------- --------- Cash and cash equivalents at beginning of year 21,167 34,085 9,216 - ------------------------------------------------------------------- --------- --------- --------- Cash and cash equivalents at end of year $ 14,691 $ 21,167 $ 34,085 - ------------------------------------------------------------------- --------- --------- --------- Supplemental Cash Flow Disclosures Cash paid during the year for: Interest expense $ 3,290 $ 2,481 $ 1,175 Income taxes 72 693 5,989
The accompanying notes are an integral part of these consolidated financial statements. 27 SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies - --------------------------------------------------- Line of Business: Sizzler International, Inc. and subsidiaries ("Sizzler" or the "Company") is principally engaged in the operation, development and franchising of the Sizzler family steak house concept and the operation of Kentucky Fried Chicken ("KFC") franchises in Australia. Introduction: As discussed in Note 2, the Company operated as a debtor-in- possession under the provisions of Chapter 11 of the federal bankruptcy laws from June 2, 1996 to September 22, 1997, when the reorganization plans became effective. Consequently, the consolidated statements have been prepared in accordance with Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code," issued by the American Institute of Certified Public Accountants in November, 1980. Principles of Consolidation: The consolidated financial statements include the accounts of Sizzler International, Inc., and all majority-owned subsidiaries. Intercompany accounts and transactions have been eliminated. Certain financial statements, notes and supplementary data for the prior years have been reclassified to conform with the 1999 presentation. Accounting Period: The Company utilizes a fifty-two, fifty-three week fiscal year ending on the Sunday nearest to April 30. Fiscal year 1998 was a fifty- three week year ending on May 3, 1998. Fiscal year 1999 was a fifty-two week year. For clarity of presentation, the Company has described all periods presented as if the year ended April 30. Use of Estimates in Preparation of Financial Statements: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Franchise Operations: The Company recognizes initial franchise fees as income when the franchised restaurant commences operation, at which time the Company has substantially performed its obligations relating to such fees. Royalties which are based 28 upon a percentage of sales, are recognized as income on the accrual basis. On a limited basis, franchisees have also entered into leases of restaurant properties leased or owned by Sizzler. Royalty revenues, franchise fees and rent payments from franchisees are included in "Franchise Operations" in the Consolidated Statements of Operations and Comprehensive Income. Marketing Costs: Marketing costs are reported in the Other Operating Expenses and include costs of advertising, marketing and promotional programs. Promotional discounts are expensed as incurred. Stock-Based Compensation: In accordance with Statement of Financial Accounting Standards No. 123 (SFAS 123), the Company uses the intrinsic value-based method of measuring stock-based compensation cost which measures compensation cost as the excess, if any, of the quoted market price of Sizzler's capital stock at the grant date over the amount the employee must pay for the stock. The Company's policy generally is to grant stock options at fair market value at the date of grant. Common Stock and Net Income or Loss per Share: Basic earnings per share is computed as net income (loss) divided by the weighted average number of common shares outstanding for the period. Diluted EPS includes the dilutive effects of options and warrants using the treasury stock method. Cash and Cash Equivalents: At April 30, 1999 and 1998 cash and cash equivalents consists of cash and short-term investments carried at cost with original maturities of less than three months. Inventories: Inventories are valued at the lower of cost (first-in, first-out method) or market, and primarily consist of food products. Property and Equipment: Property and equipment are stated at cost, which includes interest capitalized during construction and costs relating to the selection of sites for new restaurant locations, except for assets that have been impaired, for which the carrying amount is reduced to the estimated fair value. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or a group of assets may not be recoverable. The Company considers a history of operating losses to be its primary indicator of potential impairment. Assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company deems an asset to be impaired if a forecast of undiscounted future operating cash flows directly related to the asset, including disposal value, if any, is less than its carrying amount. If an asset is determined to be impaired, the loss is measured as the amount by which the carrying amount of the asset exceeds fair value. The Company generally measures fair value by discounting estimated future cash flows. Considerable management judgment is 29 necessary to estimate discounted future cash flows. Accordingly, actual results could vary significantly from such estimates. Depreciation and Amortization: Depreciation and amortization are provided over the estimated useful lives of the assets using the straight-line method. Estimated useful lives range from 10 to 30 years for buildings and 2 to 8 years for equipment. Leasehold improvements are amortized primarily over the remaining lives of the leases, generally 15 to 20 years. Properties Held for Sale or Lease: Properties held for sale or lease were $711,000 at April 30, 1999 and $2,637,000 at April 30, 1998, and are included in Other Assets. These assets represent excess land carried at estimated realizable values. Intangible Assets: Intangible assets are amortized on a straight-line basis over appropriate periods ranging from 12 to 40 years. The Company continually evaluates the recoverability of these intangible assets by assessing whether the recorded value of the intangible assets will be recovered through future expected operating results. The methodology used to assess the recoverability of intangible and other long lived assets is to determine its expected net realizable value based upon the historical trend and their expected impact on future operating cash flows. Other Current Liabilities: Other current liabilities include amounts accrued for compensation and benefits, insurance, advertising, legal fees, rent, taxes and others. Translation of Foreign Currencies: The consolidated financial statements of the Company's foreign operations are translated in accordance with the Statement of Financial Accounting Standards No. 52 "Foreign Currency Translation". As a result, translation adjustments are included in stockholders' investment. The functional currency used in the Company's foreign operations is primarily the Australian dollar. Income Taxes: Income taxes are accounted for using the asset and liability method pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). Deferred taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes for a change in tax rates is recognized in income in the period of enactment. Comprehensive Income: In fiscal year 1999, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income". Other comprehensive income may include foreign currency translation adjustments, minimum pension liability adjustments, and unrealized gains and losses on investments in equity securities. 30 New Accounting Standards: In Fiscal 1999, the Company adopted statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), which establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also established standards for related disclosures about products and services, geographic areas, and major customers. The adoption of SFAS 131 does not impact the Company's consolidated results of operations, financial position or cash flows. In Fiscal 1999, the Company adopted statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132"). This statement does not change the measurement or recognition of those plans, but is designed to simplify disclosures about pension and other postretirement benefit plans. Specifically, it standardizes the disclosure requirement to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer as useful as they were when SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," were issued. The Statement also suggests combined formats for presentation of pension and other postretirement benefit disclosures. The adoption of SFAS 132 does not impact the Company's consolidated results of operations, financial position or cash flows. In Fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 addresses the accounting for derivative instruments, including derivative instruments embedded in other contracts and hedging activities. The adoption of SFAS No. 133 does not impact the Company's consolidated results of operations, financial position or cash flows. Note 2 - Bankruptcy Reorganization - ---------------------------------- Bankruptcy Proceedings - ---------------------- On June 2, 1996, in response to continued domestic operating losses, the Company enacted a comprehensive restructuring strategy designed to return the U.S. operations to profitability. This strategy included the closure of under- performing restaurants in the U.S. and filing for bankruptcy protection. The Company and four subsidiaries, (Sizzler Restaurants Inc. ("SRI"), Buffalo Ranch Steakhouses,, Inc., ("BRSH"), Tenly Enterprises, Inc., ("Tenly"), and Collins Properties, Inc. ("CPI")) became debtors-in-possession subject to the supervision of the U.S. Bankruptcy Court. The debtor subsidiaries 31 collectively owned and operated substantially all of the Company's U.S. restaurant businesses and assets. The Company's international division businesses and assets were owned and operated by separate subsidiaries and were not subject to the U.S. Chapter 11 provisions. On June 2, 1997, the Bankruptcy Court entered an order confirming the Chapter 11 plans of reorganization of the Company, SRI and CPI. The plans of reorganization for Tenly and BRSH were confirmed on February 24, 1997, On September 23, 1997, the reorganization plans became effective and the Company and its subsidiaries emerged from the bankruptcy proceedings. The Company's plan of reorganization provided for full payment of allowed creditor claims, including interest, over five years, from the Company's international operations. In September 1997, the Company obtained financing sufficient to pay its allowed creditor claims from Westpac Banking Corporation. SRI's plan provided for full payment of allowed unsecured creditors' claims through the formation of a creditor trust. Installment payments to the trust were evidenced by a four-year note with interest at the floating annual rate of prime plus one percent through the first year, prime plus two percent for the next two years, and prime plus three percent for the fourth year. SRI secured the note with a pledge of the stock of its subsidiaries and with substantially all of the domestic division's operating assets. The Company and its subsidiaries have paid approximately $81 million in pre- petition claims and interest and reinstated the remaining pre-petition liabilities. Remaining bankruptcy liabilities are included in the appropriate liability captions of the consolidated balance sheet. Reorganization Costs - -------------------- The Company incurred severance, temporary staff, legal and professional costs relating to the reorganization of $1.4 million, $6.4 million and $8.8 million, in fiscal 1999, 1998 and 1997, respectively. These reorganization costs were charged against established reserves. 32 Note 3 - Income Taxes - --------------------- The Company files a consolidated United States income tax return which includes all domestic subsidiaries in which it owns 80 percent or more of the voting stock and 80 percent or more of the value of the outstanding stock. Foreign withholding taxes have not been provided on the unremitted earnings totaling $3,891,000 of the Company's foreign operations at April 30, 1999. It is the Company's intention to reinvest such earnings permanently. The components of the provision (benefit) for income taxes attributable to income (loss) from operations consists of the following (in thousands):
For the years ended April 30, 1999 1998 1997 - ----------------------------- -------- -------- -------- Current Federal $ - $ - $ - State - - - Foreign 1,435 3,150 4,851 -------- -------- -------- 1,435 3,150 4,851 -------- -------- -------- Deferred Federal - - - State - 450 - Foreign 375 (1,375) (12,167) -------- -------- -------- 375 (925) (12,167) -------- -------- -------- Provision (benefit) for income taxes $ 1,810 $ 2,225 $ (7,316) -------- -------- --------
A reconciliation of the statutory United States Federal income tax rate to the Company's consolidated effective income tax rate follows:
For the years ended April 30, 1999 1998 1997 - ----------------------------- -------- -------- ---------- Federal statutory tax rate 35.0% 35.0% 35.0% State and local income taxes, net of related Federal income tax benefit 6.1 6.1 6.1 Tax credits, net - - 3.3 Goodwill write-off and non-deductible amortization - - (3.3) Valuation allowance (21.4) (11.8) (149.1) Other - - (0.4) ------ ----- ------ Effective tax rate 19.7% 29.3% (108.4)%
33 Pre-tax income (loss) for domestic and foreign operations is as follows (in thousands):
For the years ended April 30, 1999 1998 1997 - ---------------------------- --------- --------- --------- Domestic $ 3,741 $ 3,527 $(6,137) Foreign 5,461 4,076 (614) --------- --------- --------- $ 9,202 $ 7,603 $(6,751) ========= ========= =========
The tax effects of temporary differences and carryforwards which give rise to significant amounts of deferred tax assets and deferred liabilities are as follows (in thousands):
As of April 30, 1999 1998 - ----------------------------------------------------------------------- Deferred Tax Assets: Deferred income $ 18 $ 4,493 Foreign tax credit carryover 11,075 10,304 Minimum tax credit carryover 1,849 1,849 Other credits 2,840 2,840 Operating reserves and accruals 3,092 27,613 Net operating loss carry forward 49,582 37,988 -------- --------- Total gross deferred tax assets 68,456 85,087 Less: valuation allowance (61,979) (72,455) -------- --------- Net deferred tax assets 6,477 12,632 -------- --------- Deferred Tax Liabilities: State income taxes - (2,476) Property and equipment (886) (3,969) Capital leases (769) (776) Other (4,027) (1,582) -------- --------- Total gross deferred tax liabilities (5,682) (8,803) -------- --------- Net deferred tax assets/(liability) $ 795 $ 3,829 ======== =========
34 The following is a summary of the net operating loss carry forward and the credit carry forward (in thousands) and related expiration dates at April 30, 1999.
Gross Amount Expiration ------ ---------- Federal net operating loss $ 134,361 2011 - 2013 California net operating loss 27,474 2001 - 2003 Foreign tax credit 11,074 2000 - 2005 Minimum tax credit 1,849 Indefinite General business credit 2,840 2005 - 2010
Note 4 - Debt
- --------------------------------------------------------------------------------------------------------------------- A summary of debt outstanding as of April 30, 1999 and 1998, is as follows (in thousands): 1999 1998 - --------------------------------------------------------------------------------------------------------------------- Unsecured borrowings, at variable interest rates, due through 2012 $ 2,255 $ 2,608 Mortgage notes payable, with interest rate of 10.015 percent, secured by land and building with an original cost of approximately $600 at April 30, 1999 and 1998, due through 2039 564 565 Other secured note, with a variable interest rate, due through 2002 29,110 37,035 Capital lease obligations 887 1,053 - --------------------------------------------------------------------------------------------------------------------- 32,816 41,261 Less - current portion (5,898) (5,764) - --------------------------------------------------------------------------------------------------------------------- Long-term debt $ 26,918 $ 35,497 =====================================================================================================================
Payment of $5,675 on long-term debt, excluding capital lease obligations is due in fiscal 2000, $5,677 in 2001, $5,677 in 2002, $13,646 in 2003, and $1,254 thereafter. On September 23, 1997, the Company obtained a $63.5 million AUD (approximately $46.9 million US) bank facility from Westpac Banking Corporation (included in 'Other secured note' above) in order to refinance the claims of the Company's unsecured creditors. The Westpac loan provides for a five-year term at an interest rate equal to the Australian interbank borrowing rate, plus a margin. The margin is based on a formula tied to the Company's international operations ratio of debt to earnings before interest and taxes, and varies between 1.25% and 2.25%. The Westpac loan involved the collateralization of the Company's principal operating assets of its international division. 35 The Westpac loan is subject to a number of financial covenants and other restrictions. The Company is in compliance with all covenants and restrictions. Management believes that the aggregate fair value of the Company's long-term debt approximates the aggregate book value, as substantially all such debt is comprised of variable-rate obligations. Note 5 - Stock Options and Restricted Stock - ------------------------------------------- The Company has an Employee Stock Incentive Plan for certain officers and key employees, and a stock option plan for non-employee directors. The maximum number of shares that may be issued under these plans is 2,800,000 and 400,000 shares, respectively. Grants of options to employees and the periods during which such options can be exercised are at the discretion of the Board of Directors. The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock Based Compensation". As allowed by SFAS No. 123, the Company has elected to continue to measure compensation cost under the Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees" and comply with the pro forma disclosure requirements of the new standard. The fair value of option grants is estimated on the date of grant utilizing the Black-Scholes option-pricing model with the following assumptions: expected life of option of 5 years, expected volatility of 61%, risk free interest rate of 5.3% and a 0% dividend yield. Had compensation cost for these plans been determined consistent with SFAS 123, the Company's net income and earnings per share would have been reduced to the following pro-forma amounts.
1999 1998 1997 ---- ---- ---- Net Income: As Reported $7,392 $5,378 $ 565 Pro Forma $6,501 $4,515 $ 99 Basic and Diluted Earnings Per Share: As Reported $ 0.26 $ 0.19 $0.02 Pro Forma $ 0.23 $ 0.16 $0.00 ------ ------ -----
36 Stock Options: - -------------- The outstanding options become exercisable in varying amounts through 2005. A summary of stock option transactions follows:
For the years ended April 30, ------------------------------------------ Shares Outstanding 1999 1998 1997 - ---------------------------------------------------------------------------------------------------- Outstanding at the beginning of the year 229,523 109,347 1,471,074 Options granted 2,182,752 164,040 - Options exercised - - - Options canceled (81,121) (43,864) (1,361,727) - ---------------------------------------------------------------------------------------------------- Options outstanding at April 30 2,331,154 229,523 109,347 Options available for grant at April 30 943,208 1,235,950 366,305 - ---------------------------------------------------------------------------------------------------- Total reserved shares 3,274,362 1,465,473 475,652 ==================================================================================================== Options exercisable at April 30 217,381 97,483 73,226 ==================================================================================================== Option prices per share: Granted $0.01-$2.69 $0.281-$3.906 - Exercised - - - Canceled $2.69-$12.50 $5.625-$12.50 $5.00-$17.125 ====================================================================================================
Restricted Stock Plan: - ---------------------- Stock issued under the Company's stock incentive plan is delivered subject to various conditions relating to corporate performance. Compensation expense related to these options amounted to approximately $1,115,000 in 1999, $1,156,000 in 1998 and $1,374,000 in 1997. A summary of restricted stock transactions follows:
For the years ended April 30, -------------------------------------- Shares Outstanding 1999 1998 1997 - -------------------------------------------------------------------------------------------------- Shares restricted at beginning of the year 526,336 1,016,625 110,498 Shares granted - - 1,457,000 Shares released (234,174) (434,456) (238,915) Shares canceled (6,000) (55,833) (311,958) - -------------------------------------------------------------------------------------------------- Shares restricted at April 30 286,162 526,336 1,016,625 ==================================================================================================
37 Note 6 - Leases - ------------------------------------------------------------------------------- The Company is a party to a number of noncancelable lease agreements involving land, buildings and equipment. The leases are generally for terms ranging from three to 20 years and expire on varying dates through 2019. The Company has the right to extend many of these leases. Certain leases require contingent rent, determined as a percentage of sales, when annual sales exceed specified levels. The Company is also a lessor and a sublessor of land, buildings and equipment. The Company is a co-lessee or guarantor on leases of certain franchisees which are not significant in amount. Following is a schedule by year of future minimum lease commitments and sublease rental income under all noncancelable leases (in thousands):
Commitments --------------------------------- Sublease Capital Operating Rental Years ended April 30, Leases Leases Income - --------------------- --------------------------------- 2000 $ 290 $ 9,664 $ 831 2001 196 8,764 748 2002 101 7,877 748 2003 101 7,099 687 2004 101 6,638 625 Thereafter 406 24,985 1,270 -------------------------------- Total minimum lease commitments/receivables 1,195 $ 65,027 $4,909 ======== ====== Less amount representing interest 530 ------- Present value of minimum lease payments 665 Less current portion of capital lease obligations 222 ------- Long-term capital lease obligations $ 443 =======
Rent expense consists of (in thousands): ------------------------------------ Years ended April 30, 1999 1998 1997 - --------------------- ------------------------------------ Minimum rentals $ 8,564 $ 11,594 $ 11,355 Contingent rentals 475 489 623 Less sublease rentals (1,427) (1,078) (2,141) ------------------------------------ Net rent expense $ 7,612 $ 11,005 $ 9,837 ======== ========= =========
38 Note 7-Information by Industry Segment and Geographic Area - ---------------------------------------------------------- Substantially all of the Company's revenues result from the sale of menu items at restaurants operated by the Company or generated from franchise activity. The Company's reportable segments are based on geographic area and product type. Sizzler USA consists of all domestic Sizzler restaurant and franchise operations. Sizzler International consists of all foreign Sizzler restaurant and franchise operations. KFC consists of KFC franchise restaurants in Australia. Corporate and other includes any items not included in the reportable segments listed above. The effect of all intercompany transactions are eliminated when computing revenues, earnings before interest, taxes, and corporate overhead, and identifiable assets. Earnings before interest, taxes, and corporate overhead includes segment operating results before investment income, interest expense, income taxes, non- recurring charges, and allocated corporate overhead. The corporate and other component of earnings before interest, taxes, and corporate overhead represents corporate selling, and general and administrative expenses prior to being allocated to the operating segments. Identifiable assets are those assets used in the operations of each segment. Corporate and other assets include cash, investments, accounts receivable, deferred taxes, and various other assets. The negative amount in corporate and other assets is a result of a deferred income tax liability that nets with the deferred assets of the other segments.
- ------------------------------------------------------------------------------------ 1999 1998 1997 - ------------------------------------------------------------------------------------ Revenues (in thousands): - ------------------------ Sizzler - USA $101,872 $ 97,127 $123,128 Sizzler - International 40,176 50,364 72,575 KFC 84,278 94,842 102,566 Corporate and other - - 1,659 - ------------------------------------------------------------------------------------ Total $226,326 $242,333 $299,928 - ------------------------------------------------------------------------------------ Depreciation and Amortization (in thousands): - --------------------------------------------- Sizzler - USA $ 3,484 $ 3,942 $ 4,477 Sizzler - International 2,565 3,081 4,882 KFC 3,575 4,149 5,152 Corporate and other 303 597 1,749 - ------------------------------------------------------------------------------------ Total $ 9,927 $ 11,769 $ 16,260 - ------------------------------------------------------------------------------------
39
1999 1998 1997 - ---------------------------------------------------------- ------------ ------------ Earnings before Interest and Taxes - ---------------------------------- (in thousands): - --------------- Sizzler - USA $ 8,175 $ 5,891 $ (2,219) Sizzler - International 2,161 615 (7,748) KFC 7,679 9,678 15,719 Corporate and other (6,253) (4,578) (6,700) - ---------------------------------------------------------- ------------ ------------ Total $ 11,762 $ 11,606 $ (948) - ---------------------------------------------------------- ------------ ------------ Capital Expenditures (in thousands): - ----------------------------------- Sizzler - USA $ 4,501 $ 4,286 $ 1,358 Sizzler - International 619 726 1,951 KFC 2,453 3,582 2,697 Corporate and other 111 337 393 - ---------------------------------------------------------- ------------ ------------ Total $ 7,684 $ 8,931 $ 6,399 - ---------------------------------------------------------- ------------ ------------ Identifiable Assets (in thousands): - ---------------------------------- Sizzler - USA $ 60,538 $ 59,199 $71,034 Sizzler - International 33,641 30,939 31,904 KFC 33,384 42,626 62,860 Corporate and other (18,894) (13,303) 2,312 - ---------------------------------------------------------- ------------ ------------ Total $108,669 $ 119,461 $168,110 - ---------------------------------------------------------- ------------ ------------
Note 8 - Commitments and Contingencies - -------------------------------------- At April 30, 1999, there were no material commitments for capital projects. The Company is a party to certain litigation arising in the ordinary course of business which, in the opinion of management, should not have a material adverse effect upon the consolidated financial position of the Company or its results of operations. 40 Note 9 - Employee Benefit Plans - ------------------------------- The Company maintains an executive supplemental benefit plan that covers nine former employees and four active employees. The Company discontinued adding new participants to the plan in fiscal 1992. The components of net cost of the pension plan for the years ended April 30, 1999, 1998 and 1997 determined under SFAS No. 87 are as follows:
Fiscal Year Ended --------------------------------------- April 30, April 30, April 30, 1999 1998 1997 --------- --------- --------- (in thousands) Pension Plan: Service cost $ 51 $ 44 $ 40 Interest cost 962 1,024 753 Expected return on plan assets - - - Amortization of prior service cost - - - Recognized net actuarial loss 81 57 63 ------ ------ ---- Net periodic benefit cost $1,094 $1,125 $856 ====== ====== ====
There were no plan costs charged to continuing operations for the years ended April 30, 1999, 1998 and 1997. 41 The following table sets forth the funded status and amounts recognized in the Company's balance sheet for the plan:
Fiscal Year Ended -------------------------- April 30, April 30, 1999 1998 ------------ ------------ (in thousands) Change in Benefit Obligation Benefit obligation at beginning of year $ 9,065 $ 10,064 Service cost 51 44 Interest cost 962 1,024 Actuarial loss 42 (147) Benefits paid (1,182) (1,182) ---------- --------- Benefit obligation at end of year $ 8,938 $ 9,803 ---------- --------- Change in Plan Assets Fair value of plan assets at beginning of year - - Actual return on plan assets - - Employer contributions - - Benefits paid - - ----------- ---------- Net periodic benefit cost $ - $ - ----------- ---------- Reconciliation of Funded Status Funded Status - - Unrecognized actuarial (gain)/loss - - Unrecognized transition amount - - Unrecognized prior service cost - - ----------- ---------- Net amount recognized $ - $ - ----------- ---------- Amounts Recognized in the Consolidated Balance Sheet Consist of: Accrued benefit liability $ 8,938 $ 9,803 Accumulated other comprehensive income - - ---------- ---------- Net amount recognized $ 8,938 $ 9,803 ---------- ----------
42 Significant assumptions used in determining net cost and funded status information for all the periods shown above are as follows:
1999 1998 1997 ---- ---- ---- Discount rate 8.5% 8.5% 8.5% Rates of salary progression 5.0% 5.0% 5.0%
In addition, the Company has a contributory employee profit sharing, savings and retirement plan whereby eligible employees can elect to contribute from 1% to 15% of their salary the plan. Under the plan the Company can elect to make matching contributions, with certain limitations. Amounts charged to income under these plans were zero for the years ended April 30, 1997 and 1998 and $198,000 for the year ended April 30, 1999. Note 10 - Earnings Per Share - ---------------------------- Earnings per share (EPS) has been calculated as follows:
FOR THE YEARS ENDED APRIL 30, ---------------------------------------- (In thousands, except EPS) 1999 1998 1997 ---------- ---------- ---------- Numerator for both basic and diluted EPS - Net income $ 7,392 $ 5,378 $ 565 ======= ======= ======= Denominator: Denominator for basic EPS - weighted average shares of common stock outstanding 28,815 28,864 28,967 Effect of dilutive stock options 63 15 - (a) ------- ------- ------- Denominator for diluted EPS - adjusted weighted average shares outstanding 28,878 28,879 28,967 ======= ======= ======= Basic and diluted earnings per share $ 0.26 $ 0.19 $ 0.02 ======= ======= =======
(a) No recognition has been given to common stock equivalents as they are anti- dilutive. 43 Note 11- Valuation Accounts - --------------------------- The following is a summary of the activity in valuation accounts (in thousands):
Balance at Balance Beginning at End of of Period Addition Deductions Period ---------- -------------------- --------- Reserve for Account Receivable and - ---------------------------------- Note Receivable Bad Debt - ------------------------ Year ended April 30, 1999 $ 3,380 $ 501 $ 1,647 $ 2,234 ======= ======= ======= ======== Year ended April 30, 1998 $ 3,971 $ 1,169 $ 1,760 $ 3,380 ======= ======= ======= ======== Year ended April 30, 1997 $10,291 $ 828 $ 7,148 $ 3,971 ======= ======= ======= ========
Note 12- Related Party Transactions - ----------------------------------- The Company has entered into a services agreement dated May 1, 1999 with director Charles F. Smith. Under the agreement, Mr. Smith is obligated to be available to provide consulting services from time to time on a mutually agreed upon basis regarding corporate business asset dispositions and financings. The agreement is terminable by either party upon ten days' written notice. The agreement provides for compensation to Mr. Smith of $2,000 per day for services rendered and reimbursement of Mr. Smith's reasonable out of pocket expenses incurred at the Company's request. No payments were made to Mr. Smith under the agreement during the 1999 fiscal year. A subsidiary of the Company is party to a consulting agreement with Barry E. Krantz, a director of the Company. Under the agreement, Mr. Krantz provides marketing consulting services at an hourly rate. The agreement is terminable by the Company's subsidiary at any time and for any reason upon two weeks' notice. During fiscal years 1999, 1998 and 1997, the Company paid Mr. Krantz an aggregate of $124,000, $244,000 and $75,000, respectively, of fees and expenses under the consulting agreement. These amounts are recorded in general and administrative expenses in the statement of operations and comprehensive income. 44 The Company leases approximately 36,000 square feet of headquarters office premises from Pacifica Plaza Office Building, a limited partnership ("Pacifica"). James A. Collins, his spouse and his brother-in-law are among the partners of Pacifica, which was formed in 1979. Mr. Collins is the Company's Chairman of the Board. Mr. Collins, his spouse and his brother-in-law, directly or indirectly, own a majority interest in Pacifica. Under the four-year lease, the Company is responsible for rent payment of $34,000 a month during the period through December 1999 (except for an initial four months of abated rent), and $42,000 a month thereafter through October 31, 2001. Base rent under the lease was predicated upon the terms of a sublease negotiated between the Company and Digital Equipment Corporation ("DEC"), a tenant of Pacifica. In lieu of a sublease between the Company and DEC, the Company elected to enter into a direct lease with Pacifica for the headquarters office premises upon the condition that DEC be responsible for the difference between rent under its former lease with Pacifica (plus utilities) and the Company's base rent under the lease. The Company believes these terms were competitive at the time it entered into the lease. The expense for rent is included in general and administrate expenses in the statement of operations and comprehensive income. 45 Item 9. Changes in and Disagreements With Accountants on Accounting and - ----------------------------------------------------------------------- Financial Disclosures. - ---------------------- None. PART III Item 10. Directors and Executive Officers of the Registrant - ----------------------------------------------------------- Information required by this item with respect to the Company's directors is set forth under the captions "Election of Directors" and "Stock Ownership of Management" in the Company's Proxy Statement for its Annual Meeting of the Stockholders. Such information is incorporated herein by reference. Information required by this item with respect to the Company's executive officers is set forth in Part I of this Annual Report under the caption "Executive Officers of the Registrant as of June 30, 1999". Item 11. Executive Compensation - ------------------------------- Information required by this item is set forth under the caption "Executive Compensation" and "Election of Directors" in the Company's Proxy Statement for its Annual Meeting of the Stockholders. Such information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management - ----------------------------------------------------------------------- Information required by this item is set forth under the caption "Stock Ownership of Management" in the Company's Proxy Statement for its Annual Meeting of the Stockholders. Such information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions - ------------------------------------------------------- Information required by this item is set forth under the caption "Transactions with Directors and Management" in the Company's Proxy Statement for its Annual Meeting of the Stockholders. Such information is incorporated herein by reference. 46 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - ------------------------------------------------------------------------ (a) List of documents filed as part of the report: (1) Financial Statements: Report of Independent Public Accountants Consolidated Statements of Operations and Comprehensive Income of Sizzler International, Inc. and Subsidiaries for each of the three years in the period ended April 30, 1999 Consolidated Balance Sheets of Sizzler International, Inc. and Subsidiaries as of April 30, 1999 and 1998 Consolidated Statements of Stockholders' Investment of Sizzler International, Inc. and Subsidiaries for each of the three years in the period ended April 30, 1999. Consolidated Statements of Cash Flows of Sizzler International, Inc. and Subsidiaries for each of the three years in the period ended April 30, 1999. Notes to Consolidated Financial Statements. (2) Financial Statement Schedules: Schedules omitted because the required information is shown in the consolidated financial statements or in the notes thereto, or the amounts involved are not significant, or the required matter is not applicable. (3) Exhibits: Number Description ------ ----------- 2.1 Registrant's Sixth Amended Plan of Reorganization dated August 26, 1997, incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K report filed October 8, 1997. 2.2 Sizzler Restaurants International, Inc.'s Second Amended Plan of Reorganization, incorporated by reference to Exhibit 2.2 to the Registrant's Form 10-K report for the fiscal year ended April 30, 1997. 2.3 Collins Properties, Inc.'s Plan of Reorganization, incorporated by reference to Exhibit 2.3 to the Registrant's Form 10-K report for the fiscal year ended April 30, 1997. 3.1 Certificate of Incorporation of Registrant, incorporated herein by reference to Exhibit 3.1 to Amendment No. 1 to Registrant's Form S-4 Registration Statement Number 33-38412. 3.2 Bylaws of Registrant, as amended June 16, 1999. 4.1 Rights Agreement dated January 22, 1991 between The Bank of New York and Registrant, incorporated herein by reference to Exhibit 4.1 to Amendment No. 1 to the Registrant's Form S-4 Registration Statement Number 33-38412. 47 4.2 Amendment to Rights Agreement dated March 20, 1996 between The Bank of New York and the Registrant, incorporated herein by reference to Exhibit 4.2 to the Registrant's Form 10-K report for the fiscal year ended April 30, 1996. 4.3 Certificate of Designation of Series A Junior Participating Preferred Stock of Registrant, incorporated herein by reference to Exhibit 4.2 to Amendment No. 1 to Registrant's Form S-4 Registration Statement Number 33-38412. 10.1 Employee Savings Plan of Registrant, restated as of January 1, 1992, incorporated herein by reference to Exhibit 10.2 to the Registrant's Form 10-K report for the fiscal year ended April 30, 1995. 10.2 Amendment to Employee Savings Plan of Registrant, incorporated by reference to Exhibit 2.2 to the Registrant's Form 10-K report for the fiscal year ended April 30, 1997. 10.3 Registrant's Executive Supplemental Retirement Plan (effective May 1, 1985, and including amendments through May 1, 1993), incorporated herein by reference to Exhibit 10.3 to the Registrant's Form 10-K report for the fiscal year ended April 30, 1996. 10.4 Employment Agreement dated February 8, 1999 between Registrant and Charles L. Boppell. 10.5 Employment Agreement dated May 1, 1996 between Registrant and Kevin W. Perkins, incorporated herein by reference to Exhibit 10.5 to the Registrant's Form 10-K report for the fiscal year ended April 30, 1996. 10.6 Amendment to Employment Agreement dated September 25, 1996 between the Registrant and Kevin W. Perkins, incorporated by reference to Exhibit 10.6 to the Registrant's Form 10-K report for the fiscal year ended April 30, 1997. 10.7 Amendment to Employment Agreement dated January 1, 1997 between the Registrant and Kevin W. Perkins, incorporated by reference to Exhibit 10.7 to the Registrant's Form 10-K report for the fiscal year ended April 30, 1997. 10.8 Third Amendment to Employment Agreement dated May 5, 1997 between the Registrant and Kevin W. Perkins, incorporated by reference to Exhibit 10.8 to the Registrant's Form 10-K report for the fiscal year ended April 30, 1997. 10.9 Employment Agreement dated May 1, 1996 between Registrant and Christopher R. Thomas, incorporated herein by reference to Exhibit 10.6 to the Registrant's Form 10-K report for the fiscal year ended April 30, 1996. 10.10 Employment Agreement dated May 1, 1996 between Registrant and Ryan S. Tondro, incorporated herein by reference to Exhibit 10.9 to the Registrant's Form 10-K report for the fiscal year ended April 30, 1996. 10.11 Employment Agreement dated May 1, 1996 between Registrant and Michael J. Raedeke, incorporated herein by reference to Exhibit 10.11 to the Registrant's Form 10-K for the fiscal year ended April 30, 1996. 10.12 Consulting Agreement dated December 17, 1996 between Barry Krantz and Collins Foods International Pty Ltd., incorporated by reference to Exhibit 10.14 to the Registrant's Form 10-K report for the fiscal year ended April 30, 1997. 10.13 Consulting Agreement dated May 5, 1999 between Registrant and Charles F. Smith. 48 10.14 Paid Leave Plan and Trust and Summary Plan Description of Registrant, as amended as of June 30, 1994, incorporated herein by reference to Exhibit 10.5 to the Registrant's Form 10-K report for the fiscal year ended April 30, 1995. 10.15 1997 Employee Stock Incentive Plan of Registrant, incorporated herein by reference to Exhibit 99.1 to the Registrant's Form S-8 Registration Statement Number 333-476661 filed March 10, 1998. 10.16 1997 Non-Employee Directors Stock Incentive Plan of Registrant, incorporated herein by reference to Exhibit 99.1 to Registrant's Form S-8 Registration Statement No. 333-47659 filed March 10, 1998. 10.17 Form of Franchise Agreement between Sizzler USA Franchise, Inc. and Franchisee, incorporated by reference to Exhibit 10.26 to the Registrant's Form 10-Q report for the quarterly period ended February 1, 1998. 10.18 Development Agreement dated October 4, 1996 between Kentucky Fried Chicken Pty. Limited and Collins Foods International Pty Ltd., incorporated by reference to Exhibit 10.20 to the Registrant's Form 10-K report for the fiscal year ended April 30, 1997. 10.19 Master Franchise Agreement dated October 4, 1996 between Kentucky Fried Chicken Pty Limited and Collins Foods International Pty Ltd., incorporated by reference to Exhibit 10.21 to the Registrant's Form 10-K report for the fiscal year ended April 30, 1997. 10.20 Form of Franchise Agreement between Kentucky Fried Chicken Pty Limited and Collins Foods International Pty Ltd. relating to KFC restaurant franchise, incorporated by reference to Exhibit 10.22 to the Registrant's Form 10-K report for the fiscal year ended April 30, 1997. 10.21 Letter of Offer dated August 18, 1997 among certain subsidiaries of the Registrant and Westpac Banking Corporation, incorporated by reference to Exhibit 3.1 to the Registrant's Form 8-K report filed October 8, 1997. 10.22 A $63,500,000 Bill Acceptance and Discount Facility dated as of September 19, 1997 among certain subsidiaries of the Registrant and Westpac Banking Corporation, incorporated by reference to Exhibit 3.2 to the Registrant's Form 8-K report filed October 8, 1997. 10.23 Unlimited Cross Guarantee and Indemnity and Negative Pledge with Financial Ratio Covenants dated as of September 19, 1997 among certain subsidiaries of the Registrant and Westpac Banking Corporation, incorporated by reference to Exhibit 3.3 to the Registrant's Form 8-K report filed October 8, 1997. 10.24 Subordination Deed dated as of September 24, 1997 among the Registrant and certain of its subsidiaries and Westpac Banking Corporation, incorporated by reference to Exhibit 3.4 to the Registrant's Form 8-K report filed October 8, 1997. 10.25 Stock Pledge dated as of September 24, 1997 between the Registrant and Westpac Banking Corporation, incorporated by reference to Exhibit 3.5 to the Registrant's Form 8-K report filed October 8, 1997. 10.26 Form of Fixed and Floating Charge dated as of September 19, 1997 between various subsidiaries of the Registrant and Westpac Banking Corporation, incorporated by reference to Exhibit 3.6 to the Registrant's Form 8-K report filed October 8, 1997. 49 10.27 Corporate headquarters lease agreement between Pacifica Plaza Office Building and Sizzler USA Real Property, Inc., incorporated by reference to Exhibit 10.25 to the Registrant's Form 10-K report for the fiscal year ended April 30, 1998. 21.00 Subsidiaries of Registrant 23.00 Consent of Arthur Andersen LLP 27.00 Financial Data Schedule (b) Reports on Form 8-K Registrant has filed no reports on Form 8-K during the last quarter of its 1999 fiscal year. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant had duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: July 14, 1999 SIZZLER INTERNATIONAL, INC. By: /s/ Charles L. Boppell ---------------------- Charles L. Boppell Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE - --------- ----- ---- /s/ James A. Collins Chairman of the Board July 14, 1999 - -------------------- James A. Collins /s/ Charles L. Boppell President, Chief July 14, 1999 - ---------------------- Charles L. Boppell Executive Officer and Director /s/ Barry E. Krantz Director July 14, 1999 - ------------------- Barry E. Krantz 50 /s/ Phillip D. Matthews Director July 14, 1999 - ----------------------- Phillip D. Matthews /s/ Robert A. Muh Director July 14, 1999 - ----------------- Robert A. Muh /s/ Charles F. Smith Director July 14, 1999 - -------------------- Charles F. Smith /s/ Kevin W. Perkins Executive Vice President July 14, 1999 - -------------------- Kevin W. Perkins and Director /s/ Ryan S. Tondro Vice President and July 14, 1999 - ------------------ Ryan S. Tondro Chief Financial Officer (principal financial and accounting officer) 51 EX-3.2 2 BYLAWS OF REGISTRANT, AMENDED 06/16/99 EXHIBIT 3.2 BYLAWS OF SIZZLER INTERNATIONAL, INC. (a Delaware corporation) as amended June 16, 1999 ARTICLE I OFFICES SECTION 1.01 Registered Office. The registered office of Sizzler International, Inc. (hereinafter called the "Corporation") in the State of Delaware shall be at 1013 Centre Road, Wilmington, Delaware, New Castle County, and the name of the registered agent at that address shall be Corporation Service Company. SECTION 1.02 Principal Office. The principal office for the transaction of the business of the Corporation shall be at 6101 West Centinela Avenue, Suite 200, Culver City, California, Los Angeles County. The Board of Directors (hereinafter called the "Board") is hereby granted full power and authority to change said principal office from one location to another. SECTION 1.03 Other Offices. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or as the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 2.01 Annual Meetings. Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings may be held at such time, date and place as the Board shall determine by resolution. SECTION 2.02 Special Meetings. Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Board, or by a committee of the Board which has been duly designated by the Board and whose powers and authority, as provided in a resolution of the Board or in the Bylaws, include the power to call such meetings, but such special meetings may not be called by any other person or persons; provided, however, that if and to the extent that any special meeting of stockholders may be called by any other person or persons specified in any provisions of the Certificate of Incorporation or any amendment thereto or any certificate filed under Section 151(g) of the Delaware General Corporation Law (or its successor statute as in effect from time to time hereafter), then such special meeting may also be called by the person or persons, in the manner, at the times and for the purposes so specified. SECTION 2.03 Place of Meetings. All meetings of the stockholders shall be held at such places, within or without the State of Delaware, as may from time to time be designated by the person or persons calling the respective meeting and specified in the respective notices or waivers of notice thereof. SECTION 2.04 Notice of Meetings. Except as otherwise required by law, notice of each meeting of the stockholders, whether annual or special, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting by delivering a typewritten or printed notice thereof to him personally, or by depositing such notice in the United States mail, in a postage prepaid envelope, directed to him at his post office address furnished by him to the Secretary of the Corporation for such purpose or, if he shall not have furnished to the Secretary his address for such purpose, then at his post office address last known to the Secretary, or by transmitting a notice thereof to him at such address by telegraph, cable, or wireless. Except as otherwise expressly required by law, no publication of any notice of a meeting of the stockholders shall be required. Every notice of a meeting of the stockholders shall state the place, date and hour of the meeting, and, in the case of a special meeting, shall also state the purpose or purposes for which the meeting is called. Notice of any meeting of stockholder shall not be required to be given to any stockholder who shall have waived such notice and such notice shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, except as a stockholder who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Except as otherwise expressly required by law, notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. SECTION 2.05 Quorum. Except in the case of any meeting for the election of directors summarily ordered as provided by law, the holders of record of a majority in voting interest of the shares of stock of the Corporation entitled to be voted thereat, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders of the Corporation or any adjournment thereof. In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer entitled to preside at, or to act as secretary of, such meeting may adjourn such meeting 2 from time to time. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called. SECTION 2.06 Voting. (a) Each stockholder shall, at each meeting of the stockholders, be entitled to vote in person or by proxy each share or fractional share of the stock of the Corporation having voting rights on the matter in question and which shall have been held by him and registered in his name on the books of the Corporation: (i) on the date fixed pursuant to Section 6.05 of these Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, or (ii) if no such record date shall have been so fixed, then (a) at the close of business on the day next preceding the day on which notice of the meeting shall be given or (b) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which the meeting shall be held. (b) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants in common, tenants by entirety or otherwise, or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware. (c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by his proxy appointed by an instrument in writing, subscribed by such stockholder or by his attorney thereunto authorized and delivered to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date unless said proxy shall provide for a longer period. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless he shall in writing so notify the secretary of the 3 meeting prior to the voting of the proxy. At any meeting of the stockholders all matters, except as otherwise provided in the Certificate of Incorporation, in these Bylaws or by law, shall be decided by the vote of a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat and thereon, a quorum being present. The vote at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and it shall state the number of shares voted. SECTION 2.07 List of Stockholders. The Secretary of the Corporation shall prepare and make, at least ten (10) days before every meting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 2.08 Judges. If at any meeting of the stockholders a vote by written ballot shall be taken on any question, the chairman of such meeting may appoint a judge or judges to act with respect to such vote. Each judge so appointed shall first subscribe an oath faithfully to execute the duties of a judge at such meeting with strict impartiality and according to the best of his ability. Such judges shall decide upon the qualification of the voters and shall report the number of shares represented at the meeting and entitled to vote on such question, shall conduct and accept the votes, and, when the voting is completed, shall ascertain and report the number of shares voted respectively for and against the question. Reports of judges shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. The judges need not be stockholders of the Corporation, and any officer of the Corporation may be a judge on any question other than a vote for or against a proposal in which he shall have a material interest. SECTION 2.09 Advance Notice of Stockholder Proposals and Stockholder Nominations. (a) At any meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board or (ii) by any stockholder of the Corporation who complies with the notice procedures set forth in this Section 2.09(a). For business to be properly brought before any meeting of the stockholders by a 4 stockholder, the stockholder must have given notice thereof in writing to the Secretary of the Corporation not less than 90 days in advance of such meeting or, if later, the seventh day following the first public announcement of the date of such meeting. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (1) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (2) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (3) the class and number of shares of the Corporation that are beneficially owned by the stockholder, and (4) any material interest of the stockholder in such business. In addition, the stockholder making such proposal shall promptly provide any other information reasonably requested by the Corporation. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any meeting of the stockholders except in accordance with the procedures set forth in this Section 2.09. The Chairman of any such meeting shall direct that any business not properly brought before the meeting shall not be considered. (b) Nominations for the election of directors may be made by the Board or by any stockholder entitled to vote in the election of directors; provided, however, that a stockholder may nominate a person for election as a director at a meeting only if written notice of such stockholder's intent to make such nomination has been given to the Secretary of the Corporation not later than 90 days in advance of such meeting or, if later, the seventh day following the first public announcement of the date of such meeting. Each such notice shall set forth: (i) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (ii) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting and nominate the person or persons specified in the notice; (iii) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (iv) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the United States Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the Board; and (v) the consent of each nominee to serve as a director of the Corporation if so elected. In addition, the stockholder making such nomination shall promptly provide any other information reasonably requested by the Corporation. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2.09 (b). The Chairman of any meeting of stockholders shall direct that any nomination not made in accordance with these procedures be disregarded. 5 ARTICLE III BOARD OF DIRECTORS SECTION 3.01 General Powers. The property, business and affairs of the Corporation shall be managed by the Board. SECTION 3.02 Number and Term of Office. The authorized number of directors of the Corporation shall be seven (7) and such authorized number shall not be changed except by a Bylaw or amendment thereof duly adopted by the stockholders in accordance with the Certificate of Incorporation or by the Board amending this Section 3.02. Each of the directors of the Corporation shall hold office until his successor shall have been duly elected and shall qualify or until he shall resign or shall have been removed in the manner hereinafter provided. SECTION 3.03 Election of Directors. The directors shall be elected by the stockholders of the Corporation, and at each election the persons receiving the greatest number of votes, up to the number of directors then to be elected, shall be the persons then elected. The election of directors is subject to any provisions contained in the Certificate of Incorporation relating thereto, including any provisions for a classified board and for cumulative voting. Nominations of persons to serve as directors must be submitted to the Secretary of the Corporation not less than ten (10) days prior to the meeting of stockholders at which directors shall be elected. SECTION 3.04 Resignations. Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time be not specified, it shall take effect immediately upon its receipt; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 3.05 Vacancies. Except as otherwise provided in the Certificate of Incorporation, any vacancy in the Board, whether because of death, resignation, disqualification, an increase in the number of directors, or any other cause, may be filled by vote of the majority of the remaining directors, although less than a quorum. Each director so chosen to fill a vacancy shall hold office until his successor shall have been elected and shall qualify or until he shall resign or shall have been removed. SECTION 3.06 Place of Meeting, Etc. The Board may hold any of its meetings at such place or places within or without the State of Delaware as the Board may from time to time by resolution designate or as shall be designated by the person 6 or persons calling the meeting or in the notice or a waiver of notice of any such meeting. Directors may participate in any regular or special meeting of the Board by means of conference telephone or similar communications equipment pursuant to which all persons participating in the meeting of the Board can hear each other, and such participation shall constitute presence in person at such meeting. SECTION 3.07 First Meeting. The Board shall meet as soon as practicable after each annual election of directors and notice of such first meeting shall not be required. SECTION 3.08 Regular Meetings. Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting shall be held at the same hour and place on the next succeeding business day not a legal holiday. Except as provided by law, notice of regular meetings need not be given. SECTION 3.09 Special Meetings. Special meetings of the Board may be called at any time by the Chairman of the Board or the President or by any two (2) directors, to be held at the principal office of the Corporation, or at such other place or places, within or without the State of Delaware, as the person or persons calling the meeting may designate. Notice of all special meetings of the Board shall be given to each director by two (2) days' service of the same by telegram, by letter, or personally. Such notice may be waived by any director and any meeting shall be a legal meeting without notice having been given if all the directors shall be present thereat or if those not present shall, either before or after the meeting, sign a written waiver of notice of, or a consent to, such meeting or shall after the meeting sign the approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or be made part of the minutes of the meeting. SECTION 3.10 Quorum and Manner of Acting. Except as otherwise provided in these Bylaws or by law, the presence of a majority of the authorized number of directors shall be required to constitute a quorum for the transaction of business at any meeting of the Board, and all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a majority of the directors present. In the absence of a quorum, a majority of directors present at any meeting may adjourn the same from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. The directors shall act only as a Board, and the individual directors shall have no power as such. SECTION 3.11 Action by Consent. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board or 7 of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. SECTION 3.12 Compensation. No stated salary need be paid directors, as such, for their services, but, by resolution of the Board, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board or an annual directors' fee may be paid; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 3.13 Committees. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board, and except as otherwise limited by law, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have any power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of the dissolution, or amending the Bylaws of the Corporation; and unless the resolution of the Board expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Any such committee shall keep written minutes of its meetings and report the same to the Board at the next regular meeting of the Board. SECTION 3.14 Officers of the Board. The Board shall have a Chairman of the Board and may, at the discretion of the Board, have a Vice Chairman. The Chairman of the Board and the Vice Chairman shall be appointed from time to time by the Board and shall have such powers and duties as shall be designated by the Board. ARTICLE IV OFFICERS SECTION 4.01 Officers. The officers of the Corporation shall be a Chairman of the Board, a Chief Executive Officer, a President, a Chief Financial Officer and Treasurer, one or more Vice Presidents and a Secretary. The Corporation may also have, at the discretion of the Board, a Chief Operating Officer, one or more Assistant Vice Presidents, one or more 8 Assistant Secretaries, one or more Assistant Treasurers and such other officers as may be appointed in accordance with the provisions of Section 4.03 of this Article IV. One person may hold two or more offices, except that the Secretary may not also hold the office of President or Chief Executive Officer. SECTION 4.02 Election. The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 4.03 or Section 4.05 of this Article, shall be chosen annually by the Board, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. SECTION 4.03 Subordinate Officers, Etc. The Board may appoint such other officers as the business of the Corporation may require, each of whom shall have such authority and perform such duties as are provided in these Bylaws or as the Board may from time to time specify, and shall hold office until he shall resign or shall be removed or otherwise disqualified to serve. SECTION 4.04 Removal and Resignation. Any officer may be removed, either with or without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board. Any officer may resign at any time by giving written notice to the Board, the Chairman of the Board, the President or the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 4.05 Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the Bylaws for the regular appointments to such office. SECTION 4.06 Chairman of the Board. The Chairman of the Board shall, subject to the control of the Board, serve a general oversight, planning and policy making function, shall preside at all meetings of stockholders and at all meetings of the Board, and shall perform such other functions as determined from time to time by the Board. SECTION 4.07 Chief Executive Officer. The Chief Executive Officer of the Corporation shall, subject to the control of the Board, have general supervision, direction and control of the business and affairs of the Corporation. In the absence of the Chairman of the Board, he shall preside at all meetings of stockholders. He shall have the general powers and duties of management usually vested in the chief 9 executive officer of a corporation, and shall have such other powers and duties with respect to the administration of the business and affairs of the Corporation as may from time to time be assigned to him by the Board or as is prescribed by the Bylaws. SECTION 4.08 President. The President shall exercise and perform such powers and duties with respect to the administration of the business and affairs of the Corporation as may from time to time be assigned to such officer by the Chief Executive Officer (unless the President is also the Chief Executive Officer) or by the Board or as is prescribed by the Bylaws. In the absence or disability of the Chief Executive Officer, the President shall perform all of the duties of the Chief Executive Officer and when so acting shall have all of the powers and be subject to all the restrictions upon the Chief Executive Officer. SECTION 4.09 Vice Presidents. The Vice Presidents shall exercise and perform such powers and duties with respect to the administration of the business and affairs of the Corporation as may from time to time be assigned to each of them by the President or by the Chief Executive Officer or by the Board or as is prescribed by the Bylaws. In the absence or disability of the President, the Vice Presidents, in order of their rank as fixed by the Board, or if not ranked, the Vice President designated by the Board, shall perform all of the duties of the President and when so acting shall have all of the powers of and be subject to all the restrictions upon the President. SECTION 4.10 The Chief Financial Officer and Treasurer. The Chief Financial Officer and Treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and shares. Any surplus, including earned surplus, paid-in surplus and surplus arising from a reduction of capital, shall be classified according to source and shown in a separate account. The books of account shall at all reasonable times be open to inspection by any director. The Chief Financial Officer and Treasurer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board. He shall disburse the funds of the Corporation as may be ordered by the Board, shall render to the President, to the Chief Executive Officer, and to the directors, whenever they request it, an account of all his transactions as Chief Financial Officer and Treasurer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board or these Bylaws. SECTION 4.11 Secretary. The Secretary shall keep, or cause to be kept, a book of minutes at the principal office for the transaction of the business of the Corporation, or such other place as the Board may order, of all meetings of directors and stockholders, with the time and place of holding, whether regular or special, and if special, how authorized and the notice thereof given, the names of those present at 10 directors' meetings, the number of shares present or represented at stockholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office for the transaction of the business of the Corporation or at the office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the names of the stockholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the stockholders and of the Board required by these Bylaws or by law to be given, and he shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board or these Bylaws. If for any reason the Secretary shall fail to give notice of any special meeting of the Board called by one or more of the persons identified in Section 3.09, or if he shall fail to give notice of any special meeting of the stockholders called by one or more of the persons identified in Section 2.02, then any such person or persons may give notice of any such special meeting. SECTION 4.12 Compensation. The compensation of the officers of the Corporation shall be fixed from time to time by the Board. None of such officers shall be prevented from receiving such compensation by reason of the fact that he is also a director of the Corporation. Nothing contained herein shall preclude any officer from serving the Corporation, or any subsidiary corporation, in any other capacity and receiving such compensation by reason of the fact that he is also a director of the Corporation. Nothing contained herein shall preclude any officer from serving the Corporation, or any subsidiary corporation, in any other capacity and receiving proper compensation therefor. ARTICLE V CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. SECTION 5.01 Execution of Contracts. The Board, except as in these Bylaws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name and on behalf of the Corporation, and such authority may be general or confined to specific instances; and unless so authorized by the Board or by these Bylaws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount. 11 SECTION 5.02 Checks, Drafts, Etc. All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such person shall give such bond, if any, as the Board may require. SECTION 5.03 Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the Chief Executive Officer, the President, any Vice President or the Chief Financial Officer and Treasurer (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall from time to time be determined by the Board) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation. SECTION 5.04 General and Special Bank Accounts. The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient. ARTICLE VI SHARES AND THEIR TRANSFER SECTION 6.01 Certificates for Stock. Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, to be in such form as the Board shall prescribe, certifying the number and class of shares of the stock of the Corporation owned by him. The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the Chairman of the Board, the President, or a Vice President, and by the Secretary or an Assistant Secretary or by the Treasurer or an Assistant Treasurer. Any or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any such certificate shall thereafter have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may 12 nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such officer, transfer agent or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be canceled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so canceled, except in cases provided for in Section 6.04. SECTION 6.02 Transfers of Stock. Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.03, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be stated expressly in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. SECTION 6.03 Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them. SECTION 6.04 Lost, Stolen, Destroyed, and Mutilated Certificates. In any case of loss, theft, destruction, or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sum as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper to do so. SECTION 6.05 Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any other change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) 13 days before the date of such meeting, nor more than sixty (60) days prior to any other action. If in any case involving the determination of stockholders for any purpose other than notice of or voting at a meeting of stockholders, the Board shall not fix such a record date, the record date for determining stockholders for such purpose shall be the close of business on the day on which the Board shall adopt the resolution relating thereto. A determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. ARTICLE VII INDEMNIFICATION SECTION 7.01 Actions, Etc., Other Than by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, that he had reasonable cause to believe that his conduct was unlawful. SECTION 7.02 Actions, Etc., by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or as a member of any committee or similar body, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action 14 or suit if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 7.03 Determination of Right of Indemnification. Any indemnification under Section 7.01 or 7.02 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 7.01 and 7.02. Such determination shall be made (i) by the Board by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. SECTION 7.04 Indemnification Against Expenses of Successful Party. Notwithstanding the other provisions of this Article, to the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 7.01 or 7.02, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. SECTION 7.05 Advance of Expenses. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this Article. SECTION 7.06 Other Rights and Remedies. The indemnification provided by this Article shall not be deemed exclusive and is declared expressly to be nonexclusive of any other rights to which one seeking indemnification may be entitled under any Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 15 SECTION 7.07 Insurance. Upon resolution passed by the Board, the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or as a member of any committee or similar body, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article. SECTION 7.08 Constituent Corporations. For the purposes of this Article, references to "the Corporation" include in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or as a member of any committee or similar body, shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. SECTION 7.09 Other Enterprises, Fines and Serving at Corporation's Request. For purposes of this Article, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article. ARTICLE VIII MISCELLANEOUS SECTION 8.01 Seal. The Board shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words 16 and figures showing that the Corporation was incorporated in the State of Delaware and the year of incorporation. SECTION 8.02 Waiver of Notices. Whenever notice is required to be given by these Bylaws or the Certificate of Incorporation or by law, the person entitled to said notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice. SECTION 8.03 Fiscal Year. The fiscal year of the Corporation shall end on the Sunday nearest to April 30 in each year and the succeeding fiscal year shall begin on the Monday immediately following such Sunday. SECTION 8.04 Amendments. These Bylaws, or any of them, may be rescinded, altered, amended, or repealed, and new Bylaws may be made, (i) by the Board, by vote of a majority of the number of directors then in office as directors, acting at any meeting of the Board, or (ii) by the vote of the holders of not less than seventy percent (70%) of the total voting power of all outstanding shares of voting stock of the Corporation, at an annual meeting of stockholders, without previous notice, or at any special meeting of stockholders, provided that notice of such proposed amendment, modification, repeal or adoption is given in the notice of special meeting. Any Bylaws made or altered by the stockholders may be altered or repealed by the Board or may be altered or repealed by the Stockholders. 17 EX-10.4 3 EMPLOYMENT AGREEMENT DATED 02/08/99 [Execution Copy] EXHIBIT 10.4 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement") is made and entered into this 8th day of February, 1999, by and between SIZZLER INTERNATIONAL, INC., a Delaware corporation (the "Company"), and CHARLES L. BOPPELL ("Executive"). WHEREAS, the Company desires to engage the services of Executive as its President and Chief Executive Officer on the terms and conditions set forth herein, and Executive desires to accept such employment with the Company; NOW, THEREFORE, in consideration of the foregoing premises, the terms and conditions set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Employment and Duties. The Company hereby employs Executive as its --------------------- President and Chief Executive Officer to perform such duties and functions as shall be specified from time to time by the Company's Board of Directors (the "Board"). During the term of this Agreement, Executive shall not be required without his consent to undertake responsibilities not consistent with his position as the Company's President and Chief Executive Officer. Executive hereby accepts such employment and agrees to perform his duties pursuant to this Agreement and to observe and comply with all lawful written policies and practices of the Company as they now exist and as they may be duly and properly adopted from time to time. 2. Base Salary. For all services to be rendered by Executive to the ----------- Company, Executive shall be paid a base salary at the rate of three hundred and fifty thousand dollars ($350,000) per year. Executive's base compensation shall be reviewed at least annually and may be increased at the discretion of the Board, but during the term of this Agreement it may not be decreased below the then-effective base salary. Executive's salary shall be paid on a regular periodic basis in accordance with the normal payment pattern for executive officers of the Company. The base salary payable under this Section 2 shall be in addition to, and exclusive of, any payments to Executive from time to time under bonus, incentive compensation or similar plans now in effect or which hereafter may be adopted. 3. Performance Bonus. With respect to each full fiscal year of the ----------------- Company during which Executive is employed by the Company pursuant to this Agreement (each, a "Bonus Year"), Executive shall be entitlesd to earn a performance bonus in accordance with the Company's standard bonus plan, a copy of the current version of which is attached hereto as Exhibit A. The calculation and payment to Executive of any performance bonus earned pursuant to this Section 3 shall be made as soon as practicable in the fiscal year of the Company immediately succeeding each Bonus Year following preparation of the Company's annual financial statements for each such Bonus Year. 4. Stock Options. Executive shall participate in the Company's Amended ------------- and Restated 1997 Stock Option Plan (or such other stock option plan as may hereafter be adopted to provide for the grant of stock options to executive officers of the Company) pursuant to which Executive is receiving a grant of options on the date hereof to purchase 1,000,000 shares of the Company's Common Stock (the "Options"). The exercise price payable by Executive to the Company upon exercise of the Options shall be the closing price for shares of the Company's Common Stock on The New York Stock Exchange on the business day prior to the grant of the Options on the date of this Agreement. The said Options shall vest and become exercisable periodically, beginning one year from the date of this Agreement with respect to 200,000 shares and an additional 200,000 shares on each annual anniversary date thereafter. The form of stock option agreement between the Company and Executive is attached hereto as Exhibit B. 5. Other Benefits. -------------- (a) Executive shall be entitled to such fringe benefits and perquisites as are generally made available to executive officers of the Company and such other fringe benefits as may be approved by the Board in the future for executive officers of the Company. (b) The Company shall furnish Executive with a motor vehicle of his choice to use for business purposes in accordance with the Company's policies in effect from time to time. (c) Executive shall be entitled to a paid vacation each year of at least four weeks subject to the present vacation policy of the Company with respect to senior executives. (d) The Company agrees to include Executive's name among nominees for election to the Board, and will use its best efforts to ensure the election of Executive to the Board throughout the term of this Agreement. (e) The Company will provide Executive with, and pay the premiums on, a policy of term life insurance providing a death benefit to Executive of $1 million (provided, however, that Executive is insurable at no more than 200% of standard premium rates for his age category). 6. Reimbursement of Expenses. The Company shall pay or reimburse Executive ------------------------- for all reasonable business expenses incurred by Executive in connection with the performance of his duties hereunder, provided that Executive furnishes to the Company receipts and other appropriate documentation reasonably acceptable to the Company evidencing such expenditures. 7. Performance of Duties. In consideration of the payments to be made to --------------------- him hereunder, Executive agrees to devote his entire business time and attention to the performance of his duties hereunder, to serve the Company diligently to the best of his abilities and not to compete with the Company in any manner whatsoever. Without limiting the generality of the foregoing, Executive shall not, during the term of his employment by the Company, directly or indirectly (whether for compensation or otherwise), alone or as an agent, principal, partner, officer, employee, trustee, director, shareholder or in any other capacity, own, manage, operate, join, control or participate in the ownership, management, operation or control of or furnish any capital to or be connected in any manner with or provide any services as a consultant for any 2 business which competes directly or indirectly with the restaurant business of the Company as it may be conducted from time to time; provided, however, that notwithstanding the foregoing, nothing contained in this Section 7 shall be deemed to preclude Executive from owning not more than one percent (1%) of the publicly-traded capital stock of an entity which is engaged in the restaurant business. Executive may continue any civic, educational or charitable activities in which he is now engaged and may serve on boards of directors of other companies, if consistent with this Section 7 or if otherwise approved by the Board. 8. Term and Termination -------------------- (a) The initial term of Executive's employment with the Company shall commence on the date hereof and shall continue until February 7, 2004 or until (i) the initial term of this Agreement is extended by mutual written agreement of the parties or (ii) termination otherwise occurs as contemplated by this Section 8. (b) In the event of Executive's death or in the event of Executive's total disability for any consecutive four (4) month period during the term of this Agreement, this Agreement shall terminate, and in such event the sole right hereunder of Executive, Executive's surviving spouse or Executive's legal representative, as the case may be, shall be to: (i) receive, as the case may be, the base salary due Executive through the last day of the month in which his death shall have occurred or through the last day of the four month period of Executive's disability; (ii) have any and all previously accrued bonuses or vested options vest in Executive or in his estate immediately, plus, in the event of his disability, 50,000 Options which were otherwise unvested shall vest and become exercisable with respect to each fiscal quarter Executive was employed during the year in which he became disabled; and (iii) in the event of termination by reason of disability, have the Company continue to maintain in effect at its expense COBRA medical coverage for eighteen (18) months following the date of disability termination. (c) The Company may terminate this Agreement For Cause (as defined herein) upon thirty (30) days prior to written notice to Executive. For the purposes of this Agreement, the term "For Cause" shall mean: (i) Executive's breach of his covenants contained in this Agreement; (ii) Executive's entry of a plea of guilty or nolo contendere in a court of competent jurisdiction for any crime involving moral turpitude or any felony punishable by imprisonment of his conviction of any such offense; (iii) Executive's commission of any act of fraud in connection with, or related to, his duties hereunder; or (iv) Executive's willful misconduct, dishonesty or gross negligence in performance of his duties as determined in good faith by the Company's Board. If, however, a termination is made pursuant to either subsection (i) or (iv) of this Section 8(c), Executive shall be entitled to a period of one month to correct and cure the grounds for the termination to the reasonable satisfaction of the Company's correct and cure the grounds for the termination to the reasonable satisfaction of the Company's Board. Upon termination of Executive For Cause, this Agreement shall immediately terminate, and Executive shall not be entitled to any further rights or payments hereunder. Without limiting the generality of the foregoing, Executive shall have no right on or after the date of such termination to any of the benefits set forth in Section 5 hereof (other than payment for accrued vacation, any payment of base salary pursuant to Section 2 (other than payment for services rendered prior to the date of such termination), any payment of a performance bonus pursuant to Section 3 for the Bonus Year in which such termination occurs, or any other benefit or payment of any kind whatsoever. (d) The Company shall be entitled to terminate Executive's employment without cause at any time upon thirty (30) days prior written notice, provided, however, that (i) if the termination occurs prior to February 1, 2001, the Company shall continue to make, for a period of two years from the date of termination, base salary payments to Executive plus monthly payments of one-twelfth of the average of the annual performance bonuses Executive actually received from the Company during the last two fiscal years prior to his termination; (ii) if the termination occurs on or after February 1, 2001, the Company shall continue to make, for a period of one year from the date of termination, base salary payments to Executive plus monthly payments of one-twelfth of the average of the annual performance bonuses Executive actually received from the Company during the last two fiscal years prior to his termination; (iii) Executive shall be entitled to receive all appropriate COBRA insurance benefits at the expense of the Company during an additional eighteen (18) month period; (iv) in addition to Executive's right to exercise his vested Options, he shall also be entitled (x) to exercise an additional 50,000 Options for each fiscal quarter he remained employed by the Company in the year of his termination under this Section 8(d) and (y) to receive a prorated portion of the annual performance bonus which had accrued for his benefit through the end of the last fiscal quarter he was employed; and (v) Executive shall not be required or obligated to obtain other employment to mitigate the payments due to him hereunder. It is expressly understood and agreed that the continuation of payments of base salary to Executive as contemplated by this Section 8(d) shall not constitute Executive to be considered to be an ongoing employee of the Company. (e) Executive shall be entitled to terminate this Agreement upon thirty (30) days prior written notice to the Company if Just Grounds (as defined herein) exist therefor. For the purposes of this Agreement, the term "Just Grounds" shall mean: (i) a material breach by the Company of its covenants contained in this Agreement; or (ii) a material reduction or expansion in the scope of authority and duties and responsibilities assigned to Executive by the Board which is inconsistent with Executive's serving in the capacity as the Chief Executive Officer of the Company; or (iii) relocation of the Company's principal executive offices to a location more than fifty (50) miles from its present location shown in Section 12(f) below; or (iv) a Change in Control (as defined herein) in the ownership of the Company. For the purposes of this Agreement, a "Change in Control" shall be deemed to have occurred if any "person" (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly of securities of the Company representing more than 50.1% of the voting power of the Company's then outstanding securities as a result of purchases or acquisition of shares of the Company's Common Stock which are not expressly approved by the Board. For purposes of this Section 8(e), the Board expressly approving the 50.1% voting power ownership must consist of individuals who for the previous consecutive twelve (12) month period, constituted at least a majority of the Board. In the event that Executive seeks to terminate this Agreement pursuant to either subsection (i) or (ii) of this Section 8(e), the Company shall be entitled to a period of one month to correct and cure the grounds for termination to the reasonable satisfaction of Executive. 4 Upon termination of Executive's employment pursuant to subsections (i), (ii) or (iii) of this Section 8(e), Executive shall receive the compensation and benefits which would be provided to him if the termination occurred under Section 8(d) above. Upon termination of Executive's employment without cause or his resignation upon Just Grounds at any time during the term of this Agreement after a Change of Control has occurred of the type contemplated by subsection (iv) of this Section 8(e), then (x) Executive shall receive a lump sum severance payment equal to twice (A) the annual base salary then being paid to Executive as contemplated by Section 2 hereof plus (B) the average performance bonus earned by Executive during the Company's latest two fiscal years and (y) all of the Options granted to Executive pursuant to Section 4 above shall be accelerated and vested so that Executive shall be immediately entitled to exercise all Options granted to him thereunder. 9. Confidentiality. --------------- (a) The Company and Executive recognize that during the course of Executive's employment with the Company he will accumulate certain crucial proprietary and confidential information and trade secrets used in the Company's business and will become aware of certain crucial confidential and proprietary information and trade secrets about the business, operations and prospects of the Company, including, without limitation, confidential and proprietary information regarding suppliers and employees of the Company, which constitute valuable business assets providing the Company the opportunity to obtain an advantage over competitors who do not know or use such information or have access to it without the investment of considerable resources. Executive hereby acknowledges and agrees that such information (the "Proprietary Information") is confidential and proprietary and a trade secret of the Company. (b) Executive agrees that he shall not, at any time subsequent to the execution of this Agreement, whether during or after the term hereof, disclose, divulge or make known, directly or indirectly, to any person, or otherwise use or exploit, any Proprietary Information obtained by Executive at any time prior to or subsequent to the execution of this Agreement, except to the extent required by his performance of duties hereunder for the Company. Executive agrees to disclose to the Company the identity and nature of any contacts with any person or entity soliciting from Executive disclosure of any Proprietary Information or soliciting Executive's involvement in any business venture competitive with the Company. Executive shall not conceal from or fail to disclose to the Company, or divert or exploit for his own personal profit or that of others, any business opportunity or other opportunity to acquire an interest in or a contractual relationship with any person or entity where such person or entity is in the Company's line of business or where such contractual relationship involves the acquisition of real estate and which would be considered a feasible and advantageous opportunity or acquisition for the Company. Upon termination of this Agreement, Executive will deliver to the Company all tangible documentation and repositories of supplier and employee lists, files, records of research, proposals, reports, memoranda, photographs, business methods and techniques, computer software and programming, budgets and other financial plans and information and other materials or records or writings of any other type (including all copies thereof) made, used or obtained by, or provided to, Executive, containing any Proprietary Information, whether obtained prior to or subsequent to the execution of this Agreement. 5 10. Non-Solicitation of Employees, Suppliers and Others. Executive --------------------------------------------------- agrees that during the period from the date of termination of this Agreement until two (2) years after the termination of this Agreement he shall not solicit any employee or supplier of the Company, and he shall not participate in any endeavor or activity which would disrupt the Company's good business relationships with the employees, suppliers and/or other persons engaged in business or activities relating to the Company, and he shall not make any false, deceptive or misleading statement or statements to any one or more of such suppliers or such persons which would be likely to cause such disruption. 11. Arbitration. ------------ (a) Any controversy, claim or dispute between the parties directly or indirectly concerning this Agreement or the breach hereof, or the subject matter hereof (except in instances where only injunctive relief is sought by the Company), shall be finally settled by arbitration held in Los Angeles, California. The Company and Executive shall each select an arbitrator from a panel of seven (7) arbitrators (the "Arbitration Pool") obtained by the Company from the Federal Mediation and Conciliation Service within thirty (30) days of receiving written notice form either party demanding any such proceeding. Such two chosen arbitrators shall agree on a third arbitrator from the Arbitration Pool within fifteen (15) days thereafter. In the event an agreement has not been reached on the third arbitrator by the end of such fifteen (15) day period, the third arbitrator shall be chosen by the American Arbitration Association. The arbitration shall be held and a final decision reached within thirty (30) days thereafter. The decision of a majority of the three chosen arbitrators shall be final and conclusive on the parties, and there shall be no appeal therefrom. A decision of the arbitrators may be enforced by the prevailing party in a court of competent jurisdiction. All other issues in connection with such arbitration shall be in accordance with the Rules of the American Arbitration Association. (b) The parties hereby agree that an action to compel arbitration pursuant to this Agreement may be brought in any appropriate court and in connection therewith the laws of the State of California shall control. Application may also be made to such court for confirmation of any decision or award of the arbitrators but only if necessary to effectuate such decision or award. The parties hereto hereby consent to the jurisdiction of the arbitrators and of such court and waive any objection to the jurisdiction of such arbitrators or court. 12. Miscellaneous. ------------- (a) Executive represents and warrants to the Company that (i) his is not now under any obligation of a contractual or other nature to any person, firm or corporation which is inconsistent or in conflict with this Agreement, or which would prevent, limit or impair in any way the performance by him of his obligations hereunder and (ii) this Agreement constitutes the valid and legally binding obligation of Executive enforceable in accordance with its terms. The Company represents and warrants to Executive that the execution, delivery and performance by the Company of this Agreement has been duly authorized by the Board and constitutes a valid and legally binding obligation of the Company enforceable in accordance with its terms. (b) In the event that the Company sells or issues an aggregate of more than 300,000 shares of its Common Stock in any consecutive twelve (12) month period for a price per share which is either (i) less than the prevailing per share closing market price on the date of issuance or (ii) less than the exercise price of Executive's unexercised Options, then the exercise price payable by Executive with respect to his unexercised Options shall be appropriately adjusted so as to provide Executive with anti-dilution protection. Specifically excepted from the provisions of this Section 12(b), however, shall be sales of Common Stock of the Company upon exercise of stock options duly granted under stock option plans of the Company. (c) In the event that any amount or benefit that may be paid or otherwise provided to Executive by the Company (collectively, "Covered Payments"), is or may become subject to the tax imposed under Code Section 4999 ("Excise Tax"), the Company will pay to Executive a "Reimbursement Amount," equal to the total of: (A) any Excise Tax on the Covered Payments, plus (B) any Federal, state, and local income taxes, employment and excise taxes (including the Excise Tax) on the Reimbursement Amount (but without reduction for any Federal, state, or local income or employment taxes on such Covered Payments), plus (C) the product of any deductions disallowed for Federal, state or local income tax purposes because of the inclusion of the Reimbursement Amount in Executive's adjusted gross income multiplied by the highest applicable marginal rate of Federal, state, and local income taxation, respectively, for the calendar year in which the Reimbursement Amount is to be paid. Notwithstanding the foregoing, if the after-tax value of the Covered Payments Executive would have netted after all taxes (federal, state and local income, employment and excise taxes) had the present value of his total Covered Payments equalled 2.99 times his Base Amount (as defined under Code Section 280G(b)(2)) is equal to at least 85 percent of the amount Executive would net after all taxes (federal, state and local income, employment and excise taxes) had he received all Covered Payments and the Reimbursement Amount, then no Reimbursement shall be paid and the present value of his total Covered Payments shall be limited to 2.99 times his Base Amount. For purposes of this Section 12(c), Executive shall be deemed to pay (i) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Reimbursement Amount is to be paid and (ii) any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which such Reimbursement Amount is to be paid, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of Executive's adjusted gross income.) (d) The waiver by either party of a breach of any provision of this Agreement must be in writing and shall not operate or be construed as a waiver of any subsequent breach thereof. (e) This Agreement constitutes the entire Agreement of Executive and the Company and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations between the parties with respect to the subject matter hereof, and it may only be amended in a writing duly signed by both parties. 7 (f) Any and all notices referred to herein shall be sufficiently furnished if in writing, and sent by registered or certified mail, postage prepaid, or by facsimile transmission (but only if confirmation of receipt is subsequently received by the sender either orally or in writing), or by overnight courier (if such overnight courier guarantees next day delivery and such notice is sent for delivery on a day on which such courier guarantees such overnight delivery), to the respective parties at the following addresses or such other address as either party may from time to time designate in writing set forth in this Section 12(f): The Company: Sizzler International, Inc. 6101 West Centinela Avenue Suite 200 Culver City, California 90230 Attention: Chairman of the Board Facsimile: (310) 645-6646 Executive: Charles L. Boppell 11837 Henley Lane Los Angeles, California 90077 Facsimile: (310) 476-3678 (g) If any portion of this Agreement shall be invalid or unenforceable for any reason, there shall be deemed to be made such minor changes (and only such minor changes) in such provisions or portion as are necessary to make it valid and enforceable. The invalidity or unenforceability of any provision or portion of this Agreement shall not affect the validity or enforceability of any other provisions or portions of this Agreement. If any such unenforceable or invalid provision or provisions shall be rendered enforceable and valid by changes in application law, then such provision or provisions shall be deemed to read as they presently do in this Agreement without change. (h) The rights and obligations of the parties hereto shall inure to and be binding upon the parties hereto and their respective heirs, successors and assigns. (i) The waiver by either party of a breach of a provision of this Agreement shall not operate or be construed as a waiver of a subsequent breach hereof. (j) This Agreement is intended to and shall be governed by, and interpreted under and construed in accordance with, the laws of the State of California, without reference to any conflict of laws or principles. (k) If any litigation, arbitration or any other proceeding is instituted in connection with or related to this Agreement, the non-prevailing party in such litigation, arbitration or other proceeding shall pay the expenses, including, without limitation, the attorneys' fees and expenses of investigation, of the prevailing party; provided, however, that the 8 maximum amount for which the non-prevailing party shall be responsible under this Section 12(k) shall be $100,000. (1) The Company and Executive expressly agree that the provisions of Sections 9, 10 and 11 shall survive the termination of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. THE COMPANY: SIZZLER INTERNATIONAL, INC. By: /s/ Charles L. Boppell ----------------------------- Its: Chairman of Board ----------------------------- By: ----------------------------- Its: ----------------------------- EXECUTIVE: /s/ Charles L. Boppell ---------------------------------- Charles L. Boppell 9 EXHIBIT A SIZZLER INTERNATIONAL, INC. FY 99 KEY MANAGEMENT INCENTIVE PLAN Sizzler International Inc. has created the Key Management Incentive Plan to motive those key management people who have the direct ability to influence short and long-term results and to reward them for successful attainment of the Company's objectives, goals, and strategies. Eligibility - ----------- Employees eligible to participate in the FY 99 Incentive Plan are those designated on the FY 99 Incentive Plan structure schedules attached. The percent of salary payable as an incentive award appears in the Bonus Percent column. The Chief Executive Officer, with the approval of the Compensation Committee of the Board of Directors, may amend the participant list or percentage factors to meet special situations which may occur during the year. Eligible employees terminating prior to the bonus payment will not be eligible to receive the payment or any portion thereof. If an eligible employee is employed by the Company and on the payroll at the end of the fiscal year, but terminates prior to the time the incentive award is determined and distributed, any incentive award earned and due, will be payable to the employee as soon as possible. Performance Factor - ------------------ Incentive awards will be earned based on the achievement of target earnings before interest and taxes (EBIT). FY 99 Target EBIT is $13,323,000. Payments - -------- Incentive awards will be paid out, at 25% of target bonus, with attainment of 90% ($11,990,700) of EBIT. Payments increase after 90% attainment of EBIT. Not more than nine and one-half cents ($.095) of each incremental dollar increase in target achievement over 100% will be added to the bonus pool. Participants will share in those increases in the same proportion as they do at 100% target attainment. Administration of Plan - ---------------------- This Plan is administered by the Administration Department at the direction of the Chief Executive Officer and with the approval of the Compensation Committee. SII 1999 Bonus Plan Bonus Achievements
EBIT % of % of Attained EBIT Target Target Bonus - --------- ----------- ------------ $11,990.7 90% 25% $12,123.9 91% 30% $12,257.2 92% 35% $12,390.4 93% 40% $12,523.6 94% 45% $12,656.9 95% 50% $12,790.1 96% 60% $12,923.3 97% 70% $13,056.5 98% 80% $13,189.8 99% 90% - --------- ----------- ------------ $13,323.0 100% 100% ========= =========== ============
Plan Note: For all EBIT above the EBIT Budget Target of $13,323, 9.5 cents of each incremental dollar will be added to the bonus pool, to be shared by the plan participants in the same proportion as their share of the bonus pool paid on 100% EBIT attainment. SII 1999 Bonus Plan Target Modifier
Bonus Target Participation Earnings Bonus Incremental Indicated Salary Percent Bonus % Increment Pool @ 9.5% Bonus Bonus Modifier -------- ------- -------- ------------- --------- ----------- ----------- -------- -------- R. Tondro $167,200 35% $ 58,520 0.265 $500,000 $ 47,500 $ 12,606.35 $ 71,126 1.21542 M. Raedeke $130,000 25% $ 32,500 0.147 $500,000 $ 47,500 $ 7,001.13 $ 39,501 1.21542 J. McGinnis $122,700 15% $ 18,405 0.083 $500,000 $ 47,500 $ 3,964.80 $ 22,370 1.21542 M. Green $127,500 25% $ 31,875 0.145 $500,000 $ 47,500 $ 6,866.50 $ 38,741 1.21542 T. Robinson $102,000 25% $ 25,500 0.116 $500,000 $ 47,500 $ 5,493.20 $ 30,993 1.21542 At Large $ 53,700 0% $ 53,700 0.244 $500,000 $ 47,500 $ 11,568.03 $ 65,268 1.21542 -------- ----------- -------- Total Standard Bonus $220,500 1.000 $500,000 $ 47,500 $ 47,500.00 $268,000 ======== ===== ======== ======== =========== ========
SII 1999 Bonus Plan Bonus Increments
Target % Percent Improvement over Target EBIT - -------- ------------------------------------ 100.00% 101.88% 103.75% 105.63% 107.51% 109.38% 111.26% 113.14% 115.01% 116.89% Target EBIT EBIT Improvement over Target - $250,000 Increments - ----------- -------------------------------------------------- $13,323 $13,573 $13,823 $14,073 $14,323 $14,573 $14,823 $15,073 $15,323 $15,573 Target Bonus Bonus Pool - Target + Incremental @ 9.5% - ------------ ---------------------------------------- $220,500 $244,250 $268,000 $291,750 $315,500 $339,250 $363,000 $386,750 $410,500 $434,250 Target Bonus % Modifier to "At Target" Bonus - ------- ----------------------------- 100.00% 110.77% 121.54% 132.31% 143.08% 153.85% 164.63% 175.40% 186.17% 196.94%
EXHIBIT B SIZZLER INTERNATIONAL, INC. Stock Option Agreement This Stock Option Agreement ("Agreement") is made and entered into this 8th day of February, 1999, by and between SIZZLER INTERNATIONAL, INC., a Delaware corporation (the "Company") and CHARLES L. BOPPELL ("Option Holder"). RECITALS -------- WHEREAS, the Board of Directors of the Company has adopted and the stockholders of the Company have approved the Sizzler International, Inc. 1997 Employee Stock Incentive Plan (the "Plan"); and WHEREAS, the Plan provides among other things for the grant of stock options to key employees of the Company and its subsidiaries; and WHEREAS, pursuant to the Plan, the Committee administering the Plan has determined that it is to the advantage and best interest of the Company and its stockholders to grant a stock option to Option Holder on the terms and conditions set forth below as an inducement to join the Company as its President and Chief Executive Officer and as an incentive to remain in the employ of the Company during the term of this Agreement; NOW, THEREFORE, the Company grants to Option Holder a stock option (the "Option) to purchase one million (1,000,000) shares of the Company's Common Stock, $.01 par value, at an option exercise price of $2.19 per share (which is the closing price of shares of the Company's Common Stock on the New York Stock Exchange on the last business day prior to the date of this Agreement), and Option Holder hereby confirms acceptance of such Option which is expressly subject to the following terms and conditions: 1. Term. The specified term of this Option shall be a period of ten (10) ---- years, commencing on the date of this Option. 2. Exercisability. The number of shares of the Company's Common Stock -------------- which may be purchased under this Option is as follows: On or after February 8, 2000, Option Holder may purchase up to 200,000 shares at $2.19 per share; On or after February 8, 2001, Option Holder may purchase up to an additional 200,000 shares at $2.19 per share; On or after February 8, 2002, Option Holder may purchase up to an additional 200,000 shares at $2.19 per share; On or after February 8, 2003, Option Holder may purchase up to an additional 200,000 shares at $2.19 per share; and On or after February 8, 2004, Option Holder may purchase up to an additional 200,000 shares at $2.19 per share. All purchases of shares under this Option must be made before February 8, 2009. 3. Method of Exercise. This Option may be exercised only by Option Holder ------------------ or his transferees by will or the laws of descent and distribution, or pursuant to a Qualified Domestic Relations Order ("QDRO") as defined by the Code or title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). This Option may be exercised during its term by written notice thereof signed and delivered by Option Holder (or permitted transferee) to the Secretary of the Company at its office in the City of Los Angeles, State of California. Such notice shall state the number of shares being purchased and shall be accompanied by the option exercise price for such shares in full in cash or by cashier's check. To the extent that it would not result in liability under Section 16 of the Securities Exchange Act of 1934 ("1934 Act") (unless the Option Holder consents to such liability and consents to disgorge any profits relating thereto to the Company), the option exercise price may instead be paid, in whole or in part, in any of the following forms: (a) By the delivery of Common Shares, duly endorsed or accompanied by a duly executed stock power, which delivery effectively transfers to the Company good and valid title to such shares, free and clear of any pledge, commitment, lien, claim or other encumbrance, such shares to be valued on the basis of the fair market value of such shares on the date of exercise, provided that the Company is not then prohibited from purchasing or acquiring Common Shares; and/or (b) At the discretion of the Committee, by reducing the number of Common Shares to be delivered to Option Holder upon such exercise (such reduction to be valued on the basis of the aggregate fair market value, determined on the date of exercise, of the additional Common Shares that would otherwise have been delivered to Option Holder upon such exercise) provided that the Company is not then prohibited from purchasing or acquiring Common Shares. 4. Nontransferability. Option Holder may not transfer this Option other ------------------ than by will or by the laws of descent and distribution, or pursuant to a QDRO. Except as provided herein, this Option shall not be sold, transferred, assigned, conveyed, gifted, pledged, hypothecated or disposed of in any way, whether by operation of law or otherwise, and shall not be subject to execution, attachment or similar process. 5. Option Holder's Employment Agreement. This Option is expressly subject ------------------------------------ to the specific terms and conditions of the Option Holder's Employment Agreement being executed on the date hereof. 6. Requirements of Law and of Stock Exchanges. The issuance of shares ------------------------------------------ upon the exercise of this Option shall be subject to compliance with all of the applicable requirements of 2 law with respect to the issuance and sale of such shares. In addition, the Company shall not be required to issue or deliver any certificate or certificates for such purchase upon exercise of this Option prior to the admission of such shares to listing on notice of issuance on The New York Stock Exchange or any other stock exchange on which shares of the Company's Common Stock are then listed. By accepting this Option, Option Holder represents and agrees for himself and his permitted transferees that unless a registration statement under the Securities Act of 1933 is in effect as to shares purchased upon any exercise of this Option, any and all shares so purchased shall be acquired for investment and not for sale or for distribution, and any notice of the exercise of any portion of this Option delivered to the Company pursuant to paragraph 3 hereof shall be accompanied by a representation and warranty in writing, signed by the person entitled to exercise the same, that the shares are being so acquired in good faith for investment and not for sale or distribution. 7. Notices. Any notice to be given to the Company shall be personally _______ delivered to or addressed to the Secretary of the Company, at its principal office, and any notice to be given to Option Holder shall be addressed to him at the address given beneath his signature hereto, or at such other address as Option Holder may hereafter designate in writing to the Company. Any notice to the Company is deemed given when received by the Company. Any notice to Option Holder is deemed given when enclosed in a properly sealed envelope addressed as aforesaid, registered or certified, and deposited, postage and registration or certification fee prepaid, in a post office or branch post office regularly maintained by the United States. 8. Payment of Income Taxes. If the Company is required to withhold an _______________________ amount on account of any federal, state or local tax (including, without limitation, any income, FICA, disability insurance, or employment tax) imposed as a result of the exercise of the Option, Option Holder shall, concurrently with such withholding, pay such amount to the Company in full in cash; provided, however, that in the discretion of the Committee, and to the extent that it would not result in liability under Section 16 of the 1934 Act (unless Option Holder consents to such liability and consents to disgorge any profits, relating thereto to the Company), the payment of such amount to the Company may be made, in whole or in part: (a) with Common Shares delivered by Option Holder concurrently with such withholding, duly endorsed or accompanied by a duly executed stock power, which delivery effectively transfers to the Company good and valid title to such shares, free and clear of any pledge, commitment, lien, or other encumbrance (such shares to be valued on the basis of the fair market value of such shares on the date of such sale or exercise), provided that the Company is not then prohibited from purchasing or acquiring Common Shares; and/or (b) by reducing the number of Common Shares to be delivered to Option Holder upon exercise of such Option (such reduction to be valued on the basis of the aggregate fair market value (determined on the date of such exercise) of the additional Common Shares that would otherwise have been delivered to Option Holder upon exercise of such option), provided that the Company is not then prohibited from purchasing or acquiring Common Shares. 9. Stock Option Plan. This Option is subject to all of the terms and ----------------- conditions of the Company's 1997 Employee Stock Incentive Plan as the same shall be amended from time to time in accordance with the terms thereof, but no such amendment shall, without Option Holder's consent, adversely affect Option Holder's rights under this Option. The interpretation and construction by the Committee of the Plan, this Agreement, the Option, and such rules and regulations as may be adopted by the Committee for the purpose of administering the Plan, shall be final and binding upon Option Holder. All capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Plan. 10. Stockholder Rights. Option Holder shall be entitled to vote, receive ------------------ dividends, and be deemed the holder of Common Stock of the Company purchasable hereunder only to the extent this Option shall have been duly exercised (in whole or in part) to purchase such Common Stock in accordance with the provisions of this Agreement. 11. Governing Law. This Agreement and the Option granted hereunder shall be ------------- construed and enforced in accordance with the laws of the State of Delaware (except to the extent prempted by federal law). IN WITNESS WHEREOF, the Company has granted and issued this Option, at Culver City, California, on the day and year first above written. SIZZLER INTERNATIONAL, INC. By: /s/ James A. Collins ---------------------------- James A. Collins Chief Executive Officer ACCEPTED: /s/ Charles L. Boppell ----------------------------------------- "Option Holder"--Charles L. Boppell Address: 11837 Henley Lane Los Angeles, California 90077 ###-##-#### ----------------------------------------- Social Security Number 4 EX-10.13 4 CONSULTING AGREEMENT EXHIBIT 10.13 AMENDED & RESTATED SERVICES AGREEMENT ------------------------------------- THIS AMENDED AND RESTATED SERVICES AGREEMENT ("Agreement") is entered into this 5th day of May, 1999 by and between Sizzler International, Inc., with principal offices at 6101 West Centinela Avenue, hereinafter called "Sizzler" and Charles F. Smith, hereinafter called "Smith". WHEREAS, Smith presently is a Director of Sizzler; and WHEREAS, Smith has been providing services to Sizzler with regard to various possible business asset dispositions and/or financings, which are in addition to his responsibilities as Director; and WHEREAS, Sizzler desires to compensate Smith for the additional services he is providing with respect to the possible business asset dispositions and/or financings noted above; NOW THEREFORE, it is agreed as follows: 1. Smith will perform such services with regard to possible business asset dispositions and refinancings as are mutually agreed upon by Sizzler and Smith. 2. Sizzler will pay Smith the sum of $2,000 per day that Smith provides such services during the term of the Agreement. The days in which Smith shall work shall be mutually agreed upon between the parties. Sizzler will pay Smith monthly within seven (7) days of receipt of an invoice. 3. Sizzler will reimburse Smith for all reasonable out of pocket expenses incurred at the request of Sizzler, including the cost of meals, hotel and airfare (in accordance with Sizzler travel policy) in connection with the provisions of services under this Agreement. 4. This Agreement contains all of the understandings between the parties with respect to the subject matter herein and can not be amended or modified, except by written agreement of both parties. 5. This Agreement shall commence as of the date written above and continue until canceled by either party with a ten (10) day written notice. At the end of this period, all outstanding charges shall be due and payable as outlined on a closing invoice delivered to Sizzler. 6. The Services Agreement dated May 1, 1999 is amended and restated in its entirety herein. SIZZLER INTERNATIONAL, INC. BY: /s/ RYAN S. TONDRO /s/ CHARLES F. SMITH ------------------- -------------------- RYAN S. TONDRO CHARLES F. SMITH DATE:_________________ DATE:_________________ EX-21 5 SUBSIDIARIES OF REGISTRANT SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES EXHIBIT 21 PARENTS AND SUBSIDIARIES - ------------------------ James A. Collins, Chairman of the Board, owned of record and beneficially, at June 30, 1999, 3,814,911 shares of the Company's common stock, representing approximately 13 percent of the Company's total shares outstanding and may be considered a "parent" of the Company as such term is defined by the rules and regulations of the Securities and Exchange commission under the Securities Act of 1933, as amended. Set forth below is a list of all of the Company's subsidiaries as of June 30, 1999:
Jurisdiction of Name of Subsidiary Incorporation - ------------------------------------------------------------ Buffalo Ranch Australia Pty, Ltd. Australia CFI Insurers, Ltd. Bermuda Collins Finance and Management Pty, Ltd. Australia Collins Foods Australia Pty, Ltd. Australia Collins Foods International, Pty, Ltd. Nevada Collins International, Inc. Delaware Collins Properties, Inc. Delaware Collins Property Development Pty, Ltd. Australia Curly's of Springfield, P.A., Inc. Pennsylvania Dalton's Roadhouse, Inc. California Furnace Concepts Australia Corp. Nevada Furnace Concepts International, Inc. Nevada Gulliver's Australia Pty, Ltd. Australia Josephina's, Inc. California Restaurant Concepts International, Inc. Nevada Restaurant Concepts of Australia Pty, Ltd. Nevada Scott's & Sizzler Ltd. Canada Sizzler Australia Pty, Ltd. Australia Sizzler Family Steak Houses, Inc. Nevada Sizzler Franchise Development, Ltd. Bermuda Sizzler Holdings of Canada, Inc. Canada
Jurisdiction of Name of Subsidiary Incorporation - ----------------------------------------------------------- Sizzler International Marks, Inc. Delaware Sizzler New Zealand Limited Nevada Sizzler of N.Y., Inc. New York Sizzler Project Pty, Ltd. Australia Sizzler Restaurant Services, Inc. Nevada Sizzler South Pacific Pty, Ltd. Nevada Sizzler Southeast Asia, Inc. Nevada Sizzler Steak Seafood Salad (S) Pte. Ltd. Singapore Sizzler USA Franchise, Inc. Delaware Sizzler USA Real Property, Inc. Delaware Sizzler USA Restaurants, Inc. Delaware Sizzler USA. Inc. Delaware Tenly Enterprises, Inc. Pennsylvania
EX-23 6 CONSENT OF ARTHUR ANDERSEN LLP SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES EXHIBIT 23 ---------- CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- To Sizzler International, Inc. As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement file Number 33-38412, 333-47659 and 333-476661. ARTHUR ANDERSEN LLP Los Angeles, California July 14, 1999 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR MAY-02-1999 MAY-04-1998 MAY-02-1999 14,691 0 5,272 1,726 4,346 24,252 181,332 103,496 108,669 25,092 0 0 0 288 52,455 108,669 218,561 226,326 80,695 80,695 0 0 3,284 9,202 1,810 7,392 0 0 0 7,392 0.26 0.26
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