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The City of Corpus Christi has requested proposals from interested parties for the redevelopment of the Corpus Christi City Marina Development. Enclosed is a proposal for a unique and exciting redevelopment project plan for this site offered by Houston based Landry's Restaurants, Inc. Our project, The Texas Boardwalk, "The freshest catch in family fun!," promises to be a spectacular major attraction drawing thousands of daily visitors. We believe that the enclosed proposal outlines a project that accomplishes the Citys visions of sparking interest in the shoreline area and being complimentary to the existing downtown district. Landry's proposes to create on the property an Aquarium themed full service restaurant, a Rain Forest themed full service restaurant, amusement amenities, all connected by a series of paved and landscaped plazas that will form a world class entertainment, dining, meeting and marina facility.

Enclosed are photos and media clippings from our existing highly successful Kemah Boardwalk located 20 miles from Houston. While The Kemah Boardwalk is an entertainment facility located in a sleepy fishing community, the proposed Texas Boardwalk will be a focal point of the City of Corpus Christi, connecting The City Marina with existing tourist destinations such as downtown Corpus Christi, The Texas State Aquarium, The Convention Center and The USS Lexington.

Landry's and its executive team have both the development and operational experience necessary to complete and operate a project of this size. Our qualifications included in this proposal clearly demonstrate our expertise. Landry's offers valuable skills and background to this proposed project. After building over two-hundred high volume seafood dinner houses across the country (thirty-five states) and creating the very special Kemah Boardwalk development in Galveston County, we are prepared to turn our expertise toward this challenging Corpus Christi project.


Economic Proposal

A lease term of 60 years from opening date, or the maximum allowable under law;

Landry's will pay an annual lease payment to the City of $ 150,000 for the full term of the Lease payable annually in arrears (timing to correspond with the calculations of credit described below) beginning in the first year following the opening of the project;

The City will credit against the lease payment all project generated sales taxes and taxes on the sale of beer, wine and liquor collected by the Texas Comptroller of Public Accounts and remitted to or for the benefit of the City;

The City will own all permanent improvements made to the real property, however, Landry's reserves the right to provide and own personal property and trade fixtures or to provide such personal property and trade fixtures to the City for lease to Landry's;

Landry's will have complete control over the leased property and improvements, including onpremise parking facilities, during the entire term of the lease, including construction and operation. Landry's will have the exclusive authority to set and charge fees for use and enjoyment of any of the project's facilities;

The lease will be structured to minimize the payment of ad valorem taxes and local and state sales taxes on the materials and labor for new construction and renovation of existing structures;

The City will pay, or cause to be paid, the costs of any necessary remediation of conditions which contaminate the property or buildings, including contamination of ground water;

The City will waive or grant variances to any provisions of its Historic Preservation Ordinance necessary to permit the development of the project;

Arrangements will be made to minimize the requirement of state or federal permits associated with the preservation of historic buildings on the National Register of Historic Places or such required permits shall be taken in the name of the City or another public entity, and in making this proposal, Landry's assumes that the lease can and will be structured in a way that excludes the project, the lease and Landry's other interests in the project from the property tax rolls. The exemption from ad valorem taxation is a key component of the project's financial viability.

In addition to the above-described lease structure, Landry's desires to work with the City to ensure that the project is mutually beneficial. As an inducement to Landry's to undertake the project, the City must enter into a definitive agreement with Landry's that addresses, to the satisfaction of Landry's, the following undertakings by the City:

• Providing Corpus Christi Police Department ("CCPD")patrols, and other CCPD security for the project;

• Working with the City of Corpus Christi to cause the extension of existing transit routes

to serve the project, -

• Improving pedestrian and vehicular access to the project, • Granting any or all tax abatements allowable for such a project and/or a rebate or payment of a portion of the hotel occupancy tax;

• Waiving impact fees for water and sewer connections.

"Landry's" shall mean Landry's Restaurants, Inc., or any special purpose entity created for this project, its successors, or assigns. Landry's shall be permitted to mortgage or otherwise assign its interests in the project for project financing or other purposes.



Statement of Ownership

31A i Legal Entity: Landry's Restaurants, Inc.

15 10 West Loop South

Houston, Texas 77027

(7 13) 850- I 0 I 0

Facsimile (7 13) 623-4702

I

Principal Contact: Tilman J. Fertitta

I Landry's Restaurants, Inc. ("Landry's") is a publicly traded company listed on the NYSE under the symbol "LNY" and is headquartered in Houston, Harris County, Texas at 15 10 West Loop South, Houston, Texas 77027. The main phone number is (7 13) 850- 10 10. The executive officers and members of the board of directors of Landry's are as follows:

~I

Chairman of the Board, President

and Chief Executive Officer: Tilman J. Fertitta

Board Member, Vice President Administration

and General Counsel: Steven L. Scheinthal

Board Member, Vice President of Finance

and Chief Financial Officer: Paul S. West

~t Board Member: Joe Max Taylor

Board Member: James Masucci

Board Member: Michael Chadwick


In the event Landry's creates a special purpose entity for this project, Landry's will guarantee its

performance, compliance with City requirements, and any payment obligations. p

Statement of Qualifications

Landry's and its executive team have substantial development and operational experience of similar projects. Since Landry's went public in 1993, Landry's and its Chairman, President and CEO, Tilman J. Fertitta, have developed and are operating over two hundred (200) restaurants in over thirty-Five (35) states, the Kemah Boardwalk, the San Luis Hotel and Conference Center, the Galveston Island Hilton and soon the Houston Downtown Aquarium and Galveston Convention Center.

The crown jewel of the Landry's development is the Kemah Boardwalk development located in Kemah. Texas. The Kemah Boardwalk is a thirty-five acre (35) acre entertainment complex that was totally developed and is owned and operated by Landry's through various wholly owned subsidiary corporations at a cost of nearly sixty-five million dollars ($65,000,000.00). The Kemah Boardwalk is home to seven (7) free-standing waterfront restaurants, which are located along restaurant row, the Boardwalk Inn Hotel, twenty-five thousand (25,000) square feet of retail space, amusements, and the waterfront boardwalk.

The Kemah Boardwalk features the Aquarium restaurant, truly an underwater dining adventure. The Aquarium restaurant is d three (3) story building with approximately thirty thousand (30,000) square feet. It was remodeled at a cost of approximately eight million dollars ($8,000,000.00). The Aquarium restaurant contains approximately one hundred thousand ( 100,000) gallons of saltwater tanks with over one hundred ( 100) different species of fish, including sharks, eels, stingrays, grouper and snapper. Included at the Aquarium restaurant is a thirty-two (32) foot cylindrical tank, which is currently the tallest of its kind in the world.

Also located at the Kemah Boardwalk is the Boardwalk locomotive. The C.P Huntington train is a source of entertainment for people of all ages. The train tracks stretch approximately five thousand three hundred (5,300) feet around the entire Kemah Boardwalk development. The total cost for the train tracks, installation and train was approximately one million four hundred thousand dollars ($1,400,000.00). The train can carry up to one hundred( 100) passengers around the Kemah Boardwalk development every ten ( 10) minutes.

The Aquarium and RainForest Cafe restaurants are two of the main components for the proposed Corpus Christi project. Given that the Kemah Boardwalk development was completed in 1998, Landry's brings with it substantial knowledge, experience and expertise to the Corpus Christi project, both as a developer and operator. Its ability to replicate and improve upon the Kemah Boardwalk concept is a Foregone conclusion.


In addition to the Kemah Boardwalk, Landry's and Mr. Fertitta have an enormous amount of development experience. Landry's has recently been awarded the contract from the City of Galveston to develop, manage and operate the new Galveston Island Convention Center. In addition, Landrys was the successful bidder in a request for proposal from the City of Houston to build and operate a downtown Aquarium Restaurant and Entertainment Complex. The Kemah Boardwalk and Houston Downtown Aquarium were and are funded through internally generated cash flow and/or borrowings under an existing line of credit agreement with Bank of America. The Galveston Island Convention Center will be funded out of municipal bonds financed with the Hotel Occupancy Tax.

Moreover, Landry's Chairman, President and CEO, Mr. Fertitta, who will be directly involved in redevelopment of the Corpus Christi Marina and the operations thereafter, was personally responsible for the redevelopment and remodeling of the twentytwo acre San Luis resort, including the San Luis Hotel and Conference Center (recipient of the AAA Four Diamond Award°) and the Galveston Island Hilton, in Galveston, Texas. The renovations, which took place in 1996, have transformed the resort complex into one of the premier resort areas in the Southwestern United States. Approximately two hundred fifty thousand (250,000) square feet of hotel and restaurant space was redeveloped and remodeled at a total cost of approximately sixteen million dollars ($ I 6,000,000.00). The twenty-two acre resort is owned, managed and operated by Fertitta Hospitality, LLC, (which is wholly owned by Mr. Fertitta and his wife), and the project was funded with Mr. Fertitta's personal funds and personal line of credit.

Architects and project contacts for each of the aforementioned projects are as follows:

Kemah Boardwalk

Architect:

Project Contact:

Morris Architects - Micky Sheppard 3355 W Alabama Houston, TX 77055 (7 I 3) 622- I 180

Jeff Cantwell 15 10 West Loop South Houston, TX 77027 (7 I 3) 850- I 99 1


San Luis Resort

Architect: Morris Architects - Micky Sheppard

3355 W Alabama

Houston, TX 77055

(7 I 3) 622- I I 80

i Project Contact: Kelly Roberts

- 5222 Seawall Blvd.

Galveston, TX 77550

(409) 744- I 500

Downtown Aquarium, Houston

Architect: John Kirksey

Kirksey and Partners Architects

4299 San Felipe

Houston, TX 77027

(7 I 3) 850-9600

Project Contact: Jeff Cantwell

15 10 West Loop South

Houston, TX 77027

(7 I 3) 850- I 99 I

Galveston Island Convention Center

Architect: John Kirksey

- Kirksey and Partners Architects

4299 San Felipe

Houston, TX 77027

(7 I 3) 850-9600

Project Contact: Jeff Cantwell

15 10 West Loop South

Houston, TX 77027

(7 I 3) 850- I 99




I Project Financing Plans

The preliminary project budget is as follows:

Sitework (Parking, Nardscape, Water Taxi) 4,500,000

Landscape 1,500,000

Amusement Amenities and Fountains 7,000,000

( Landry's Seafood House Relocation 750 000

Rainforest Cafe 9,000,000

Aquarium Restaurant 10,000,000

Consultants (Architecture, Engineering, Design) 1,500,000

General Conditions 2,000,000

Contingencies 1,500,000

Project Cost $37,000,000



cost estimates exclude: Impact fees, if any Utility improvements, if any Asbestos, environmental, and lead paint abatements, if any Pre-opening operations/training expenses

To finance the development and operation of the proposed project, Landry's would use existing cash balances, cash flow from its existing business operations, and as necessary, the Company would utilize the additional availability on its credit facilities with its current bank credit group.

Landry's would ask that the City assist and cooperate with Landry's in exploring and pursuing financial structuring and strategies that provide relief of property taxes and abatements.


Certificate of Authority

I, the undersigned, hereby certify that I am the Chairman of the Board of Landry's Restaurants, Inc., a corporation duly organized and existing under the laws of the State of Delaware (the "Corporation" or "Landry's").

I further certify that by meeting of the Executive Committee of the Board of Directors of the Corporation dated October 22, 200 I , the following resolutions were adopted and are now in full force and effect:

Resolved, that Landry's finds, acknowledges, and recognizes that it is in Landry's best interest to submit a Proposal for redeveloping the Corpus Christi City Marina;

It Is Further Resolved, that the President or any Vice President of the Corporation be, and is hereby, authorized and directed to execute and deliver to the City of Corpus Christi any agreement between Landry's and the City of Corpus Christi containing such terms and in such form as may be approved by such officer, his execution thereof to be conclusive evidence of such approval; and

It Is Further Resolved, that the President or any Vice President of the Corporation be, and is hereby, authorized and directed to do and perform all such acts and things and to sign all documents, certificates, and instruments and to take all other steps deemed necessary or advisable and proper to carry out the intent of the foregoing resolutions and fully perform the provisions of any agreement executed with the City of Corpus Christi concerning the Proposal.

I further certify that these Resolutions are within the power of the Executive Committee of the Board of Directors to pass as provided in the Articles of Incorporation and Bylaws of this Corporation.


I further certify that the following individuals are the duly elected, qualified, and acting officers of the Corporation as of the date hereof and are authorized to execute agreements with the City of Corpus Christi on behalf of the Company:

Officer Name President and Chief Executive Officer Vice President Administration and Secretary Vice President Finance and Treasurer

Tilman J. Fertitta Steven L. Scheinthal Paul S. West

In Witness Whereof, I hereunto subscribe my name on this the 22nd day of October, 200 I .

Tilman J. Fertitt , airman of the Board



Attachment A Questionnaire

Identification:

This Proposal is Submitted by: Landry's Restaurants, Inc.

15 10 West Loop South Houston, Texas 77027 Telephone: (7 13) 850- I 0 10 Fax: (713) 386-7070

Submittal Date: OctobeaSignature:T

ilman J. FertittaU

Title: Chairman of the Board, President and CEO

Declaration:

The signatory, as Proposer, declares that the only persons interested in this proposal are the persons identified herein, that no other person has any interest in this proposal or the Lease to which this Proposal pertains, that this Proposal is made without connection or arrangement with any other person and that this Proposal is in every respect fair, in good faith, and without collusion or fraud.

The Proposer further declares that he has complied in every respect with all of the instructions to Proposer, that he has read all addenda, if any, and that he has satisfied himself fully relative to all matters and conditions with respect to the Lease to which this Proposal pertains.

The Proposer agrees, if this Proposal is accepted, to execute an appropriate Lease Agreement for the purpose of establishing a formal relationship between the Proposer and the City for performance of all requirements to which the Proposal pertains.

The Proposer states that this proposal is based upon the Proposal Documents and addenda, if any.

Professional Information

Form of Business:

The Proposer is a corporation.

Corporation Statement:

a. Name of Corporation: Landry's Restaurants, Inc.

b. Date of Incorporation: June 23, 1993

c. Where Incorporated: Delaware

d. Authorized to do business in Texas?: Yes

e. The Corporation is held: Publicly

f. Stock Traded: NYSE

g. Shareholder, officer or director owning more than S% of any class of stock: Tilman J. Fertitta is the Chairman, President and C.E.O. of Landry's which is located at 15 10 West Loop South, Houston, Texas 77027. Mr. Fertitta owns 5,000,000 shares of common stock in Landry's which is approximately 2596 of the total amount of out standing shares of common stock.







Financial Data

I . Financial Statements The consolidated financial statements of Landry's Restaurants, Inc. months ended December 3 I , 2000 and for the years ended December 3 I , 1999, 1998, 1997 and 1996 are enclosed in the proposal. Landry's will guarantee the performance of a special purpose entity created for this project and provide project financing as necessary. The officers of Landry's will serve as officers of such entity.

2. Surety Information No surety or bonding company have ever been required to perform on behalf of Landry's or any of its subsidiaries.

3. Bankruptcy Information Landry's has not been in bankruptcy. The Company is well capitalized and has over $375 million in stockholder's equity.

CREDIT REFERENCES

Bank - $200 million bank credit syndicate Mr. AI Welch Bank of America Senior Vice President 700 Louisiana Street, 7th Floor Houston, Texas 77252 (7 I 3) 247-6559

Construction Projects - General contractor for various projects Terry Varner Herman Stewart Construction 4550 Forties Blvd., Suite 200 Lanham, MD 20706 (30 I ) 73 I -5555

Trade - Primary food product distributor, with annual business volume of - $ 100 million Mr. Jim Worrell Sysco Foods Regional Vice President Multi Unit Sales 1390 Enclave Parkway Houston, TX 77077 (7 I 3) 679-53 I 2

Trade - Seafood Purveyor with annual purchases of approximately $ 10 million Mr. Joe Bundrant Trident Seafoods Corporation Vice President - Sales 5303 Shilhole Avenue, N.W Seattle, WA 98107 (206) 783-3474

Lawrence Street T -Head will become home to a waterfront dining and entertainment complex situated on Corpus Christi Bay. Featuring an array of themed restaurants, wonderful amusements and attractions, the complex will delight tourists and visitors alike. One hundred and seventy-five ( 175) parking spaces will be available on the Lawrence Street T -Head. A valet drop-off will be available and guests will enter the complex through the entrance pavilion. In order to accommodate the demand for more parking, the Peoples Street T -Head will be developed into an additional parking area of seven hundred and fifty (750) spaces. Guests will be able to board a water taxi at the Pavilion at the southern point of the T-Head and ferry over to the entry Pavilion at the northern side of the Lawrence Street T -Head. There is also the potential to position a bus stop on the Peoples Street T -Head that can shuttle guests to and from the complex. In addition, the bus stop can also be incorporated as a bus stop on city routes including those through downtown. After passing through the entry Pavilion, guests will be greeted by a majestic arch and the train roundabout. Both Pavilions on each T -Head will be covered structures with beautiful landscaping, offering guests a beautiful retreat as they wait to board the water taxis. The water taxi may eventually be utilized as a transportation medium into the downtown areas as well. In addition to utilizing the land for parking, there is also an opportunity to develop an area of the Peoples Street T-Head into a future waterfront hotel property. The hotel would border the eastern side of the T -Head and offer visitors tremendous views of Corpus Christi Bay.

Joe's Crab Shack, situated on the northeast corner of the Lawrence Street "T" Head and overlooking beautiful Corpus Christi Bay, is currently working magic on guests of all ages with it's playful, upbeat setting, delicious menu and friendly service. Influenced by weathered, old beachfront fish shacks, Joe's has a comfortable, casual feel and a fun, upbeat atmosphere. Joe's features a tasty and imaginative menu featuring delicious appetizers, seafood combinations, colorful salads, bountiful sandwiches, pasta, steaks, chicken, and of course, crabs.

30 Landry's Seafood Houses currently located at the People's Street "T" Head, is a floating barge

which would be relocated on Corpus Christi Bay to the east side of the Lawrence Street "T"

Head. A dining dock will connect the restaurant to the "T" head and offer guests an incredible,

outside dining experience. Reminiscent of a 1940s Gulf Coast seafood house, Landry's features

a winning combination of sensational seafood, superb service and spectacular surroundings.


Aquarium Restaurant is a treat for locals and visitors looking for the best in upscale entertainment. Dining amongst the fish and coral, diners will feel as if submerged at the bottom of the ocean. Based on the acclaimed Aquarium restaurant at The Kemah Boardwalk, this restaurant will provide an underwater dining adventure. Entering the restaurant on the ground level, guests will ascend a grand staircase spiraling around a ten ( 10) foot diameter, fifty (50) foot high acrylic cylindrical aquarium. Once reaching their second floor destination, guests will be seated around the one hundred thousand ( 100,000) gallon center piece aquarium,and will feast on one of the many chef's selections while watching the marine biologist feed our collection of over one hundred ( 100) species of fish. Seating will be available on the second floor patio overlooking beautiful Corpus Christi Bay.

The Gift Shop located on the first floor of The Aquarium Restaurant, will include hundreds of souvenirs to help you remember your visit. With over fifteen hundred ( 1500) square feet of merchandise, you are sure to fill your needs. Take home a golf shirt, an aquarium kit or even a personalized Aquarium mug.

The Rainforest Cafe is a journey through the sights and sounds of the most realistic indoor rain forest ever created. The cool mist from the rain storms, beautiful and graceful marine life, the roaring waterfalls and lifelike animals provide a safari for your senses. The unforgettable cuisine at Rainforest Cafe includes a delicious variety of pastas, seafood, salads, signature entrees, sandwiches and delectable desserts along with world famous tropical drinks and traditional beverages. The Rainforest Cafe Retail Village offers an exclusive line of clothing, caps and jackets, a variety of rain forest-themed items from around the world, private label bath and body products, colorful puppets, plush toys and much more. Rainforest Cafe also puts the earth-friendly theme into practice. Free programs help educate the public about the world's rain forest, threatened and endangered species, and conservation efforts to protect the planet's fragile ecosystems. The curator and staff share their expert knowledge with guests throughout the day.

The Plaza will be the main gathering point for guests and is centrally located on the T-Head, adjacent to the Valet Drop OFF and Entry Pavilion. Within the Plaza area will be The Dancing Fountains and the Bandstand area. Flanking the Plaza area on either side are restaurants and various amusements and midway games.

Valet Drop Off and Entry Pavilion will act as the main entrance, welcoming guests into the complex. The entry pavilion will also provide restroom facilities.

The Dancing Fountains will be designed similar to the fountains at the Kemah Boardwalk. Drawing on that design, this development will strive to improve the experience. Computerized pumps and nozzles will create a melodic rhythm of water. Children and adults alike will frolic in the cool filtered water of the dancing fountains. With over fifty (50) feet in diameter, there will be room for everyone, so come on in. The Marlin Fountain will be a circular fountain consisting of two life-size marlin rising up from the center of a shallow fountain. The 'Bandstand will provide a covered venue for live entertainment, including musicians, magi cians, and other performers. The Bandstand will act as a focal point for major festivals and holiday events, including Holiday tree lighting ceremonies during Christmas, Summer Music Concert Series, Jazz Festivals, Halloween shows and more. The C.P Huntington Train is similar to the train at The Kemah Boardwalk and will delight visitors with a ten ( 10) minute train ride throughout the complex. Commencing its journey near the water taxi entry pavilion by Joe's Crab Shack, the train winds around Joe's Crab Shack and r follows a path along the boardwalk to the Aquarium restaurant, where guests then enter a tunnel reminiscent of an underwater grotto. From there the train continues along the lush landscape, past the amusements and through the Rainforest Cafe. As the train passes through the Cafe, guests will feel as if they are on a journey through the rain forest, surrounded by thick foliage, cool mists and special effects. After circling the Rainforest, the train backtracks along the boardwalk . Amusemets will be located on the south side of the complex, and will provide fun and variety for all ages. In addition to the Ferris Wheel and Carousel, there will be several wellknown rides for thrill-seekers, including the Aviator, the Inverter and the Sling Shot. There will also be a carni val plaza featuring various midway games and games of chance. There's fun for the whole family. The Ferris Wheel also known as the Century Wheel, will be over one hundred ( 100) feet tall. Awl Manufactured by Chance Rides, it will be thirty (30) feet taller than the Ferris Wheel at The Kemah Boardwalk. Go for a spin as you sail above the T-Heads and overlook Corpus Christi Bay. Classic Carousel features elaborate designs of horses and menagerie figures, Dentzel-style crests, head shields, panel art and distinctive music.


The Boardwalk will be constructed along the outer perimeter of the T-head, offering guests the perfect place to take a leisurely stroll around the complex and enjoy the fantastic waterfront views.

Kiosks will be located throughout the complex and provide various outside vendors the opportunity to lease retail space and offer their goods and services to guests visiting the complex.

Marina Facilities are available at the Cooper's Alley L -Head. Marina facilities currently at either the Peoples Street T -Head and the Lawrence Street T -Head will be relocated to Cooper's Alley L -Head to provide a centralized location and easier accessibility for the marina tenants. Marina support facilities, including restrooms, will be available for al) tenants at both Peoples Street T -Head and Lawrence Street T -Head for their convenience.

Paving Treatments and Landscaping will help screen, subdivide and direct visitors through the development. With the use of indigenous plant materials, the project will transform a harsh environment into a lush garden that will dazzle the senses. Retaining walls and walks will transform the grounds into a wonderful collection of elevation changes and geometric forms to interest all visitors. The use of masonry, payers, concrete and block will provide a variety of textures throughout the development.

Lighting. Fencing and Surveillance will be utilized to provide a safe and enjoyable environment for all visitors to the development. Safety and security are an important issue relative to the project. Necessary controls will serve to satisfy these concerns.

The wide variety of outstanding benefits which the city of Corpus Christi will receive from the proposed project transcends the culinary and entertainment values of the amenities and exhibits. The completed facilities will require and provide incremental city employment of hundreds of people in the downtown business district. Not only will Landry's make a substantial investment in terms of capital improvements; Landry's will also have a substantial investment in the necessary staffing, hiring, training, development of personnel and management services required to ensure that the facility is operated as a first class attraction. With just one visit to Landry's Kemah Boardwalk development, one can envision the overall significance of this project to the Corpus Christi Shoreline.


The Development Schedule

• Lease Evaluation Day I

• Design Development/Demolition Plan . . . . . . Day 2 - 90

• Permit Documents Day 60 - 180

• Abatement/Demolition Day 120 - 180

• Permit Submittal Day 180 - 240

• Site work Permit Day 2 10

• Site Work Day 210 - 600


• Building Permit . . . . . . . . . . . . . . . . . . . . . . . . . . Day 240

• Building Construction . . . . . . . . . . . . . . . . . . . . . Day 300 - 660

• F F & E Installation . . . . . . . . . . . . . . . . . . . . . . . Day 650 - 680

• Landscape Day 600-68

• Certificate of Occupancy . . . . . . . . . . . . . . . . . Day 680

• Punch Out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Day 680 - 720

• Pre-OpeningTraining . . . . . . . . . . . . . . . . . . . . . . Day 700 - 730

0 Grand Opening . . . . . . . . . . . . . . . . . . . . . . . . . . Day 73 I

Project Directory

Owner: Tillman Fertitta, Chairman, President & CEO Landry's Restaurants, Inc. 15 10 West Loop South Houston, TX 77027 (7 I 3) 850- I 0 I 0 Facsimile (7 I 3) 623-4702

Architect: Landry's Development / Cuningham Group 201 Main St. SE, Suite 325 Minneapolis, MN (6 I 2) 379-3400

Landscape Architect: Darin Weinheimer RLA-Principal Thad Kudela RLA-Principal Kudela & Weinheimer 7155 Old Katy Road, Suite 270 Houston, TX 77024 (7 I 3) 869-6987

General Contractor: Landry's Development 15 10 West Loop South Houston, TX 77027 (7 I 3) 850- I 99 I Facsimile (7 I 3) 96 I -5027

The City of Corpus Christi has requested proposals from interested parties for the redevelopment of the Corpus Christi City Marina Development. Enclosed is a proposal for a unique and exciting redevelopment project plan for this site offered by Houston based Landry's Restaurants, Inc. Our project, The Texas Boardwalk, "The freshest catch in family fun!," promises to be a spectacular major attraction drawing thousands of daily visitors. We believe that the enclosed proposal outlines a project that accomplishes the City's visions of sparking interest in the shoreline area and being complimentary to the existing downtown district. Landry's proposes to create on the property an Aquarium themed full service restaurant, a Rain Forest themed full service restaurant, amusement amenities, all connected by a series of paved and landscaped plazas that will form a world class entertainment, dining, meeting and marina facility.

Enclosed are photos and media clippings from our existing highly successful Kemah Boardwalk located 20 miles from Houston. While The Kemah Boardwalk is an entertainment facility located in a sleepy fishing community, the proposed Texas Boardwalk will be a focal point of the City of Corpus Christi, connecting The City Marina with existing tourist destinations such as downtown Corpus Christi, The Texas State Aquarium, The Convention Center and The USS Lexington.

Landry's and its executive team have both the development and operational experience necessary to complete and operate a project of this size. Our qualifications included in this proposal clearly demonstrate our expertise. Landry's offers valuable skills and background to this proposed project. After building over two-hundred high volume seafood dinner houses across the country (thirty-five states) and creating the very special Kemah Boardwalk development in Galveston County, we are prepared to turn our expertise toward this challenging Corpus Christi project.

SELECTED FINANCIAL DATA

The following table contains selected consolidated financial data for each of the past five fiscal years. All numbers are in thousands, except per share data.

Year Ended December 31,

2000 1999 1998 1997 1996

- Income Statement Data

Revenues:

Restaurant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 520,980 $ 438.986 $ 399.548 $ 311.673 $ 232,597

Processing plant . . . . . . . . . . . . . . . . . . . . . . . . . . . - ___ ___ ___ 3.510

-W Total revenues . . . . . . _ . . . . . . . . . . . . . . . . . . . 520,980 438,986 399,548 311,673 236,107

Operating costs and expenses:

Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 156,787 136,321 121,082 95.639 72,304

Restaurant labor . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,192 125,566 107.976 80,837 60,249

Other restaurant operating expenses . . . . . . . . . . . 122,099 101,563 86.319 66,227 51,077

General and administrative expenses . . . . . . . . . . . 26,652 21,354 15,222 10,517 9,447

Depreciation and amortization . . . . . . . . . . . . . . . . 33,392 '" 22,230 18,687 17,080 12,978

Restaurant pre-opening expenses . . . . . . . . . . . . . 3,402 3,764 10,439 '' ___

Store closings and special charges . . . . . . . . . . . . 2,000 "' 2,945 "' 37.632 __

"'

Merger costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,971

i Processing plant expenses . . . . . . . . . . . . . . . . . . 3,857

Total operating costs end expenses . . . . . . . . . . 491,524 413,743 397,357 270,300 235.883

Operating Ire . . . . . . . . . . . . . . . . . . . . . . . . . . . ?9,156 25,243 2.191 41,373 224

Other expense (income):

Interest experrse(income),net . 6,618 1,965 (1,625) (1,063) (2,379

Total other expense (income) . . . . . . . . . . . . . . . 7,504 1.787 (2,468 ) (1,457 ) (2,061

Income before income taxes and cumulative

effect of accounting change . . . . . . . . . . . . . . . . . . 21,952 23,456 4,659 42,830 2,285

Provision for income taxes . . . . . . . . . . . . . . . . . . . . . 7,30Q 8,080 1,607 15,400 779

Income before cumulative effect

of eccour4lng Change . . . . . . . . . . . . . . . . . . . . . . . 14,650 15,376 3,052 27,430 1,506

Cumulative effect of accounting change, net of tax . . . . . - _- 3,382 '=' __ __

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . i 14,850 Z 15.376 $ (330) $ 27,430 $ 1,506

Net iflcarrra before special charges,

rtwrga costs end ang change . , . . i 2D,301 i 17,305 I 27,701 $ 27,430 $ 18,647

Earnings (loss) per share information:

Basic

Net income before cumulative effect

.. - of accounting change . . . . . . . . . . . . . . . . . . . . . $ 0.63 $ 0.58 $ 0.10 $ 1.07 $ 0.06

Cumulative effect d aging change, net of tax . . . . - _- (0.11) __ ___

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.63 $ 0.58 $ (0.01) $ 1.07 $ 0.06

_ Net income before spatial charges,

merger costs and accounting change . . . . . . $ 0.87 $ 0.65 % 0.94 $ 1.07 $ 0.80

Weighted average number of

common shares outstanding . . . . . . . . . . . . . . 23,100 26,675 29,400 25,518 23,360

'- Diluted

Net income before cumulative effect

of accounting change . . . . . . . . . . . . . . . . . . . . . $ 0.62 $ 0.57 $ 0.10 $ 1.03 $ 0.06

Cumulative effect of accounting charge, net of tax . . . - _- (0.11) -__ --_

. Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.62 $ 0.57 $ (0.01) $ 1.03 $ 0.06

Net income before special charges,

merger costs and accounting change . . . . . . $ 0.86 $ 0.64 $ 0.93 $ 1.03 $ 0.77

Weighted average number of

common shares and common share

equivalents outstanding . . . . . . . . . . . . . . . . . . . . 23,600 27,025 29,900 26,600 24,100





f LANDRY'S RESTAURANTS, INC.

CON S®L9®ATE® STATERAENTS ®F ANC®ME

Year Ended December 31,

2000 1999 1998

REVENUES $520,979,796 $438,986,243 $ 399.548,083

OPERATING COSTS AND EXPENSES:

Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,786,917 136,321,031 121,081,247

Restaurant labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,182,415 125,566,341 107.976.294

Other restaurant operating expenses . . . . . . . . . . . . . . . . . . 122,098,633 101,562,887 86.319,234

General and administrative expenses: : . . . . : . : : : : : 26,652,446 21,353.610 15.222,384

Depreciation and amortization. . . 33,391,788 22,229,762 18,686,508

Restaurant pre-opening expenses . . . . . . . . . . . . . . . . . . . . 3.401,511 3,764,389 10,439,229

Store closings and special charges . . . . . . . . . . . . . . . . . . . . 2,000,000 2.945,000 37,631,969

Total operating costs and expenses . . . . . . . . . . . . . . . . 491,523,710 413,743,020 397,356,865

OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,456,086 25,243,223 2,191,218

OTHER EXPENSE (INCOME):

Interest expense (income), net . . . . . . . . . . . . . . . . . . . . . . . 6,617,567 1,964,969 (1,624,569)

Other.net 886,573 (177.711) (843,389)

a 7,504.140 1.787.258 (2,467,958)

INCOME BEFORE INCOME TAXES & CUMULATIVE

EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE . . . 21,951,946 23,455,965 4.659,176

PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . 7,301,828 8.080.232 1,607,254

NET INCOME BEFORE CUMULATIVE EFFECT OF

CHANGE IN ACCOUNTING PRINCIPLE . . . . . . . . . . . . . . . 14,650,118 15,375.733 3,051,922

CUMULATIVE EFFECT OF CHANGE IN

ACCOUNTING PRINCIPLE, NET OF TAX . . . . . . . . . . . . . . - --- 3,381,500

NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,850,118 $ 15,375,733 $ (329,578)

EARNINGS (LOSS) PER SHARE INFORMATION:

BASIC

Net income before cumulative effect

of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.83 $ 0.58 $ 0.10

Cumulative effect of accounting change : ; : : : : : - --- (0.11)

Net income (loss) . . . : : $ 0.63 $ 0.58 $ (0.01)

t

Weighted average number of

Common shares outstanding . . . . . . . . . . . . . . . . . . . . . 23,400,000 26,675.000 29.4.000

DILUTED

Net income before cumulative effect

of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.82 $ 0.57 $ 0.10

Cumulative effect of accounting change . . . . . . . . . . . . . . . . -- --- (0.11)

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.62 $ 0.57 $ (0.01)

Weighted average number of common and

common share equivalents outstanding . . . . . . . . . . . . . 23,600,000 27,025.000 29,900,000

~as.`',

i

The accompanying notes are an integral part of these consolidated financial statements.







LANDRY'S RESTAURANTS. INC.

C®NS®L9®ATE® STATEMENT ®F ST®C9CH®L®ERS° E® U 1'TY

Preferred Stock Common Stock Additional Retained -

Shares Amount Shares Amount Paid-In Capital Earnings Total

BALANCE, January 1, 1998 . . . . . 2,702 $27 26,004,449 $260,044 $250,935,805 $45,541,851 $296,737,727

Net loss . . . . . . . . . . . . . . . . . . . . ___ __ __ ___ ___ (329,578) (329,578)

Conversion of preferred stock . . . . (2.702) (27) 2,702 27 --- --- --

Issuance of common -

stock, net of offering costs . . . . . --- --- 3,810,950 38.110 102,273,091 --- 102,371,201

Exercises of stock options and

income tax benefit . . . . . . . . . . . ___ ___ 527,189 5,272 9,947.453 ___ 9,952,725

BALANCE, December 31, 1998 . ___ __ 30,345,290 303,453 363,156,349 45,212,273 408,672,075 -.

Net income . . . . . . . . . . . . . . . . . . ___ __ __ ___ ___ 15.375,733 15,375,733

Exercises of stock options and

income tax benefit . . . . . . . . . . . -- --- 900,000 9,000 6,294,105 --- 6,303,105 _

Purchase of common

stock held for treasury . . . . . . . . __ ___ (g,422,16,5) (64.222) (46,845,354) (6.093,299) (53,002,875)

BALANCE, December 31, 1999 . . . . -- -- 24,823,125 $248,231 $322,605,100$54,494,707 $377,348,038

Net income . . . . . . . . . . . . . . . . . . ___ __ ~ __ ___ 14,650,118 14,650,118

Dividends paid . . . . . . . . . . . . . (1,764,579) (1,764,579) -

Purchase of common stock

held in treasury ___ __ (3.324,773) (33,247) (21,379,388) (4.268.284) (25,680,919)

BALANCE. December 31.2000 . . ___ __ 21,498,352 $214,984 $301,225,712 $63,111,962 $364,552,658

The accompanying notes are an integral part of these consolidated financial statements.

M Now



LANDRY'S RESTAURANTS, INC.

CON SOLI DATED STATEMENTS OF CASH FLOWS

- Year Ended December 31,

2000 1999 1998

CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income (loss) . $14,650,118 $ 15,375,733 $ (329,578)

°--` Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Store closings and special charges . . . . . . . . . . . . . . . . . . . . . . . . . ___ (730,000) 25,362,773

Gain on sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (287,894)

Cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . --- 5,162,500

Gain on involuntary conversion of assets . . . . . . . . . . . . . . . . . . . . . . . . (491,477) (1,229,043)

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,391,786 22,229,762 18,686,508

Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (413,988) ___ ___

Changes in assets and liabilities:

(Increase) decrease in trade and other receivables . . . . . . . . . . . . . . 4,364,595 6,612.899 (5,296,232)

(Increase) decrease in inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,758,689) 4,429.497 5,385,531

(Increase) decrease in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 11,234,1!60 2,147,994 586,569

Increase (decrease) in accounts payable and

accrued liabilites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,866,444 6.815,646 11,475,059

Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,685,010 40,726.427 60,133.665

Net cash provided by operating activities . . . . . . . . . . . . . . . _ . . . . . . . . . . 65,335,128 56,102,160

59,804,087

CASH FLOWS FROM INVESTING ACTIVITIES:

Property and equipment additions . . . . . . . _ . . . . . . . . . . . . . . . . . . . . . . . (77,399,028) (55,123,127)

(137,950,072)

Proceeds from sale of properly and equipment . . . . . . . . . . . . . . . . . . . . . _-- 1,499,995 1,850.000

Purchase of Rainforest Cafe, net of cash acquired . . . . . . . . . . . . . . . . . . . (44,562,492) ___ ___

Other (170,000) ___ 52.986

.. "` Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (122,131,520) (53,623,132)

(136,047,086)

CASH FLOWS FROM FINANCING ACTIVITIES:

Sale (purchases) of common stack . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,680,919) (53.002,875)

102,294.532

Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . ___ 5,400,000 6,969,317

Borrowings (payments) under credit line, net . . . . . . . . . . . . . . . . . . . . . . . 86,907,083 32,918.108

(15,071.575)

Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,764,579) ___ __

Other 516.E ___ ___

Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . 59,978.251 (14,694,767)

94,192,274

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS . . . . . . . . . . . 3,181,859 (12,205,739) 17,949,275

CASH & CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . 22,977,666 35,183,405 17,234,130

CASH & CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . . . . . $ 26,159,525 $ 22,977,666 $

35,183,405

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for.

Interest . . . . . . . . . . . . . . . . . .. . . . . . $ 7,692,000 $ 4,093.000 $ 1,834.000

Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,312,0 $ 491,837 $ 2,074,000

I

IThe accompanying notes are an integral part of these consolidated financial statements.

LANDRY'S RESTAURANTS, INC.

NOTES TO CONSOLI DATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS Landry's Restaurants, Inc. (the "Company") owns and operates seafood restaurants primarily under the trade names Landry's Seafood House, Joe's Crab Shack and The Crab House. In addition, the Company owns and operates domestic and licenses intemafional rainforest themed restaurants under the trade name Rainforest Cafe. Rainforest Cafe, Inc. ("Rainforest Cafe"), a casual dining restaurant chain, was acquired in 2000.

The Company is also the developer and operator of the Kemah Boardwalk, located near Houston, Texas. The Kemah Boardwalk is a forty acre waterfront restaurant development including seven restaurants, a boutique hotel, retail shops, amusement attractions, and a marina.

PRINCIPLES OF CONSOLIDATION The accompanying financial statements include the consolidated accounts of Landry's Restaurants, Inc., a Delaware holding company, and its wholly and

majority owned subsidiaries and partnership. -

INVENTORIES

Inventories consist of food and beverages used in restaurant operations and complementary retail goods and are recorded at

the lower of cost or market __

value as datemtined by the averaoe cost for food and beverages and by the retail method on the first-in, first-out basis for retail goods. Inventories consist



DEVELOPMENT COSTS

Certain direct costs are capitalized in conjunction with site selection for planned future restaurants, acquiring restaurant properties and other real estate development projects. Direct and certain indirect costs, including interest, are capitalized in conjunction with construction and development projects. These costs are included in property and equipment in the accompanying consolidated balance sheets and are amortized over the life of the related building and leasehold interest. Costs related to abandoned site selections and general site selection costs which cannot be identified with specific restaurants are charged to operations.

GOODWILL

Goodwill is amortized over 30 years. Other intangible assets are amortized over the life of the related agreement. These amounts are included in goodwill

..

and other assets in the accompanying consolidated balance sheets, respectively.

EARNINGS PER SHARE

Net income (loss) per common share has been computed in accordance with Statement of Financial Accounting

Standards (SFAS) No. 128, "Earnings Per

Share". Basic earnings per share is computed by dividing net income by the weighted average number of shares

of common stock outstanding during the

Aft year. Diluted earnings per share reflects the potential dilution that could occur if contracts to issue common

stock were exercised or converted into common

_ stock. For purposes of this calculation, outstanding stock options are considered common stock equivalents

using the treasury stock method. Options to pur

chase approximately 1,300,000 shares have been excluded from the calculation of diluted earnings per share for

2000 and 1999, as they were anti-clilu6ve.

CASH FLOW REPORTING

For purposes of the consolidated financial statements, the Company considers all highly liquid investments with

original maturities of three months or less to

be cash equivalents.

SEGMENT REPORTING

As of December 31, 2000, the Company operated 188 casual fuU-service dining restaurants which are a part of

a single operating segment. The restaurants

operate principally in the United States and provide similar proms to similar customers. The restaurants

generally possess similar pricing structures result

ing in the potential for similar long-tens expected financial performance characteristics. Revenues are from the

sale of foal, beverages and complementary

retail items.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United

States requires management to make esti

mates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent

assets and liabilities at the date of the finan

cial statements and the reported amounts of revenues and expenses during the reporting period. Actual results

may differ from those estimates.

2. ACQUISITION OF RAINFOREST CAFE, INC.

On October 28, 2000, the Company accepted for purchase 12,455,011 shares of the cortwnon stock, no par

value (the "Shares"), of Rainforest Cafe that had

been tendered pursuant to a tender offer for all of the outstanding shares at $3.25 per share. As of the dosing of

the tender offer, the Company owned approx

imately 60% majority ownership in Rainforest Cafe. On December i, 2000, the Company tad the 100% merger of

Purchaser with and into Raimforest

Cafe, with RaiMorest Cafe, as the surviving corporation. The aggregate purchase price for all outstanding shares

was approximately $70.2 million, which was

provided primarily from the Company's existing bank credit faality. The aggregate purchase price includes

payments tendered to dissenting shareholders on

February 13, 2001.

The acquisition was accounted for by the purchase method of accounting and, accordingly, the Company's

financial statements include the Company's own

ership portion of the operating results of Rainforest Cafe for November and December 2000. The assets acquired

and liabilities assumed were recorded at

estimated fair values as determined by the Company's management based on information currently available and

on preliminary plans as to future opera

tions. The allocation of the purchase price is subject to revision based on the final determination of fair values. A

summary of the assets acquired and liabili

ties assumed in the acquisition follows:

- - (Thousands)

Estimated fair values of assets acquired $ 148.000

Liabilities assumed (68,594)

Allocated purchase price . 79,406

Less cash acquired and amount payable for outstanding shares (34,844)

Net cash paid, as of December 31, 2000 $ 44,562

I

® ® ®®

JEEL

As a result of the acquisition, the Company has recorded acquisition integration costs for the estimated incremental costs to exit and consolidate activities at various locations, to involuntarily terminate employees, and for other costs to integrate operating locations and other activities of Rainforest Cafe with the Company. Accounting principles generally accepted in the United States, provide that these acquisition integration expenses, which are not associated with the generation of future revenues and have no future economic benefit, be reflected as assumed liabilities in the allocation of the purchase price. The components of the acquisition integration liabilities included in the purchase price allocation for Rainforest Cafe are comprised of involuntary corporate terminations of $10.0 million, facility rationalization and exit costs of $16.7 million and other miscellaneous costs of $4.0 million. Accrued merger costs as of December 31 2000, include remaining Rainforest Cafe common stock acquisition costs of $16.0 million, involuntary corporate termination costs of $8.2 million, restaurant exit costs of $16.7 million, and other miscellaneous costs of $3.5 million. Certain aspects of the integration plan are subject to finalization and may be refined as additional studies are completed, including the evaluation of acquired facilities. Refinement of the estimated acquisition integration liabilities will be included in the final allocation of the purchase price, which will be completed during 2001.

Unaudited pro forma results of operations are prepared as if Landry's and Rainforest had been combined as of the beginning of the year, and include estimates and assumptions which management believes are reasonable. Unaudited pro forma results for the years ended December 31, 2000 and 1999, respectively, are as follows: revenues of $740.0 million and $702.0 million; net income of $14.0 million and $25.0 million; and basic net income per share of $0.60 and $0.93, respectively. Rainforest cafe operating results for 2000 include pre-tax special charges for approximately $7 million related to store closings, write

off of development aril transaction cost and loss on sale of investments. Pro forma results do not include any anticipated cost

savings or other effects of the j

planned integration and are not necessarily indicative of the results which would have occurred ff the business combination had

been in effect on the dates I

indicated, or which may result in the future.

3. PROPERTY AND EQUIPMENT

Property and equpmerN is comprised of the following:

December 31,

2000 1999

_ _ _ $ 93,838.270 $ 73,763.606

Buildings and emprovements . 121,341,888 113,262,222

Furniture, lactates and equipment . 134,503,489 121,972,834

Leasehold improvements . 279,658,133 180,791,359

Construction in progress . 27,102,500 7,986.135

$656.444.280 $497.776.156

Lessr-aoaxrndateddapreciation . (96,706,482) (66,397,301)

Property and equipment, net . $559,737,798 $431.378,855

During the touts quarter of 2000, the Company evaluated recent unfavorable cash flows related to three low performing restaurants and concluded that these properties were impaired based on the existing and anticipated future economic outiOdc for such properties in their respective market areas. As a result, the Company recorded an asset impairment charge of approximately $6,292,000, representing the difference between the estimated fair value and carrying value for those restaurant properties. The asset impairment charge is classified as depredation and amortization expense in the consolidated statements of income (k)BS) for the year ended December 31, 2000.

Other current assets at December 31, 2000 and 1999, includes approximately $5,961,000 and $5.667,000 of assets held for sale. Other income for the year ended December 31, 1999 and 1998, includes a gain on the involuntary conversion of assets of $491,000 and $1,229.000, respectively, as a result of an insurance settlement.

4. ACCRUED LIABILITIES Accrued liabilities are comprised of the following:

December 31.

2000 1999

Payroll and related costs . $10,898.420 $ 4,145.220

Rent, insurance and taxes, other than payroll and income taxes 17,841,483 6.294,954

Federal and state income taxes . - 1,198,998

Store closings and special charges (Note 9) 947,131 1,705,027

Accruals for Rainforest Cafe acquisition (Note 2) 44.361,565 -

Other . 11.895,391 6,427,937

$85,943,990 $19,772.136







5. DEBT

As of December 31, 2000, the Company has a $200.0 million credit line from a syndicate of banks which was renewed and increased from $125.0 million in June 2000. Amounts outstanding at December 31, 1999, under the credit line, which were classified in 1999 as a current liability, have been reclassified as long-term due to the renewal. The credit line matures in June 2003, and is available for expansion, acquisitions, share repurchases, and other general corporate purposes. Interest on the credit line is payable monthly or quarterly at Libor or the banks' base rate plus a financing spread (aggregating 9.0% of December 31. 2000). The Company's financing spread is presently 2.25% for Libor, and 0.5% for base rate borrowings, and may be decreased or increased by 25 basis points as the Company's leverage ratio decreases or increases over predetermined percentages. The credit line is governed by certain financial covenants, including maximum leverage ratio, maximum indebtedness, tangible net worth and fixed charge coverage ratio tests, limitations of capital expenditures to prescribed amounts, maximum annual cash dividends of $5.0 million per year, and restrictions on repurchases of common stock. In connection with the bank syndicate's approval of the Rainforest Cafe acquisition, certain financial covenants were amended or added, including a permitted increase in the maximum leverage ratio through September 30, 2001, and an additional limitation of common stock repurchases to $6.0 million until the Company's leverage ratio is below a prescribed amount. As of December 31, 2000, the Company had $45.0 minion available for borrowing under the credit line.

Interest expense (income), net includes the following:

Yew Ended December 31,

2000 1999 1998

Interest expense . $7,180,597 $2,696,606 $ 40.924

Interest income _ (563.030) p31,637) (1,665,493)

$6,617,567 $1,964,969 $(1,624,569)

6. INCOME TAXES An analysis of the provision for income taxes for the years ended December 31, 2000, 1999, and 1998 is as follows:

2000 1999 1998

_ Tax Provision (Benefit) on Income Before Cumulative

Effect of Change in Aocamting Principle:

Current income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 280,564 $2,184,218 $ 5,350,808

Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,021,264 5,896.014 (3,743,554)

- Total 7,301,828 8,080,232 1,607,254

Tax Provision (Benefit) on Cumulative Effect of Change

in Accounting Principle:

- Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . - - (1,781,000)

Total provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . $7,301,828 $8,080,232 $ (173,746)

The Company's effective tax rate, for the years ended December 31, 2000, 1999 and 1998, differs from the federal statutory rate as follows:

2000 1989 1998

Statutory rate 35.096 35.0° 35.0%

FICA tax credit . (7.7) (5.5) (25.4)

State income tax, net of federal tax benefit 1.1 0.9 9.5

Other _ 4.9 4.1 15.4

- 33.3% 34.5% 34.5%

The provision for income taxes as a percentage of income before income taxes was reduced to 31.0% from 34.5% effective July 1, 2000, as a result of continuing favorable Federal income tax crests for tipped employees. The Company's actual cash payments for annual income taxes due are currently lower than the financial accrual rate due to significant differences between book and tax accounting and tax credit and loss carryforwards.

_.

_.

-.

lion and subsequent operating expenses will be funded by governmental agency bonds issued by the City of Galveston and serviced by certain hotel occupancy taxes. In connection with the convention center development and related management contract, the Company is obligated to purchase and donate, with reversion

- ary interest, land required for use by the convention center and to guarantee certain construction cost overruns and operating

losses, if any, subject to certain

rights of reimbursement. Under the agreements, the Company will have the rights to one-half of any profits generated by the operation of the convention center.

`_ The Company has entered into a contract to purchase property, including a multi-story building, adjacent to the new Enron

Field (professional baseball park), close

to the Convention Center, a new professional basketball arena and other major venues under development and construction in the downtown area of Houston, Texas. Subject to the availability of financing and certain tax abatements, the Company plans to renovate the existing building into a 200-room hotel. Renovation and construction costs are expected to be approximately $25 million, which would be expended over 3 years.

LOAN GUARANTEE

Rainforest Cafe, a wholly-owned subsidiary of the Company, has guaranteed the borrowings of one of its foreign affiliates in which the Company owns a 20°r interest. The amount of the guaranty is limited to approximately $1.2 million.

LITIGATION AND CLAIMS

Dissenters Rights

Eighty-one former shareholders (holding 4,406,655 shares) of Rainforest Cafe, Inc. fed to the merger between the Company and Rainforest Cafe. On February 13, 2001, Rainfwest Cafe sent each of the 81 dissenting shareholders, Rainforest Cafe's per share estimate of fair value, along with a check in the amount of $3.25 per share, which was the original acquisition price per share. Subsequently, seventy-eight of the disserfing shareholders have made a demand for supplemental payment based on their belief that the fair value per share of common stock of the former Rainfaest Cafe was greater than $3.25 per share. The Company believes that its estimate of fair value is correct and that the dissenting shareholders' estimate of fair value is inflated. The Company will vigorously pursue its determination of fair value in an appraisal proceeding.

Class Action Litigation

Class action lawsuits were filed in June and July of 1999 against the Company in the United States District Court for the Southern District of Texas, Houston Division. These actions rune as defendants the Company, all of its current executive officers, directors and underwriters that participated in the Company's offering of Common Stock in March 1998. Such lawsuits allege that the defendants violated Federal securities laws during certain periods while individually selling the Company's camron stock. The plaintiffs in these actions seek unspecified monetary damages. Alttrough the ultimate outcome of this matter cannot be determined at this time, the Company believes thew claims are witttout merit and intends to defend against these elaiims vigorously.

General Litigation

The Company is subject to other legal proceedings and claims that arise in the ordinary course of brrsatess. Management does not believe that the outcome of any of these matters will have a material adverse effect on the Company's financial position, results of operations or cash flows.

8. STOCKHOLDERS' EQUITY

On November 19, 1998, the Company authorized an open market stock buy bade program. In April 2000, the Company authorized a renewal of the stock buy back program for $36.0 million. These stock buy back programs resulted in the Company repurdrasing irrto ireasury approximately 3,300,000 and 8,400,000 shares of common stock for approximately $26,000.000 and $53.000,000, in 2000 and 1999, red

Commencing in 2000, the Company began to pay an annual $0.10 per share dividend, declared and paid in quarterly installments of $0.025 per share.

The Company maintains two stock option plans, which were originally adopted in 1993, (the Stock Option Plans), as amended, pursuant to which cottons may be granted to eligible employees and non-employee directors of the Company or its subsidiaries for the purchase of an aggregate of 2,750,000 shares of c-~mmon stock of the Company. The Stock Option Plans are administered by the Stock Option Committee of the Board of Directors (the Committee), which determines at its discretion, the number of shares subject to each option granted and the related purchase price, vesting and option periods. The Committee may grant either non-qualified stock options or incentive stock options, as defined by the Internal Revenue Code of 1986, as amended.

The Company also maintains the 1995 Flexible Incentive Plan, which was adopted in 1995, (Flex Plan), as amended, for key employees of the Company. Under the Flex Plan eligible employees may receive stock options, stock appreciation rights, restricted stock, performance awards, performance stock and other awards, as defined by the Board of Directors or an appointed committee. The aggregate number of shares of common stock which may be issued under the Flex Plan (or with respect to which awards may be granted) may not exceed 2,000,000 shares.

The stock option plans are accounted for using APB Opinion No. 25, under which no compensation expense has been recorded. If compensation costs for the



Company had been determined using the alternative accounting method based on the fair value prescribed by SFAS 123, the Company's pro forma net income (loss) for 2000, 1999 and 1998 would have been approximately $12,700,000, $12,239.000 and $(4,386,000) respectively, and the Company's pro forma earnings (loss) per share-basic would have been $0.54, $0.46 and $(0.15) and per share-diluted would have been $0.54, $0.45 and $(0.15), respectively. The fair value of each option grant is estimated on the date of grant using the BlackScholes option-pricing model; amortization over the respective vesting periods; no dividends; expected lives of 4, 6 and 5 years for 2000. 1999 and 1998, respectively; expected stock price volatility of approximately 40% and an interest rate of approximately 6% for 2000 and 1999 and 5°/ for 1998. The weighted average fair value per share of options granted during 2000, 1999 and 1998 was $3.08, $4.40 and $6.37, respectively.

In connection with the acquisition of Rainforest Cafe, the Company issued approximately 500,000 vested stock options to employees of Rainforest Cafe as replacement for existing options outstanding at the date of the merger, as required by the merger agreement. The fair value of these options was included in the purchase price of Rainforest Cafe.

At December 31, 2000, options for 3,169,8(13 shares were outstanding (1,827,959 of which were exercisable) at prices ranging from $6.00 to $22.24 per share. As of December 31, 2000, all options have been granted at the stock price on the grant date and are generally exercisable beginning one year from the date of grant with annual vesting periods over three to five years.

2000 1999 1998

Average Average Average

Exercise Exercise Exercise _

Shares Price Shares Price Shares Price _

Options outstanding, beginning of year 2,810,575 $ 9.97 3,646,741 $ 9.22 3,095,619 $13.30

Granted 913,500 $11.44 105,500 $ 7.01 2.211,951 $ 6.37

Exerdsed _ - - (900,000) $ 6.00 (564,223) $12.57

Terminated (554,272) $12.73 (41,666) $21.79 (1,096,606) $13.28

Options outstanding, end of year 3,169,803 $ 9.92 2,810,575 $ 9.97 3,646,741 $ 9.22 _

Options exercisable, end of year 1,827,959 $12.07 1,087,839 $12.58 883,151 $14.10

9. STORE CLOSINGS AND SPECIAL CHARGES

During the fount quarter of 1998, the Company recorded approximately $37,632,000 in estimated store closings

and special charges. These special charges pro- _

vided an estimated income tax benefd of $13,000.000. These expenses were the result of the Company's decision in the fourth quarter of 1998 to dose seven underperforming restaurants, eight of which were dosed in 1998 and three of which were dosed in 1999, the Company's decision not to renew a restaurant lease upon option renewal and charges in the Company's strategic growth plan. As a result of charges in the Company's strategic growth plan, the Company reduced planned future unit growth, abandoned potential restaurant sites, and abandoned efforts to build a standalone office complex in Houston, Texas. These strategic changes resulted in a reduction in employees, the sale of a duplicate corporate asset and the abandonment of a strategic corporate transaction. The store dosing and special charges consist of the following items:

CHARGE IN 4TH QUARTER 1998

Restaurant closures and lease terminations: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Write down of property, equipment, leasehold interests and other assets to

estimated net realizable value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,815,000

Estimated lease termination casts and employee severance on dosed restaurants . . . . . . 7,634,000

Charges associated with the changes in the Company's strategic growth plan: . . . . . . . . . . .

Abandonment of development sites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,910,000 _

Employee severance and separation costs related to a reduction in planned

future restaurant unit growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303,000

Loss on sale of a duplicate corporate asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000

Costs associated with abandoned corporate transaction . . . . . . . . . . . . . . . . . . . . . . . . . . 570,000

Total . $37,832,000

E

Significant estimates included in the special charge relate to estimated lease exit costs such as rent and lease

buyout costs through final disposition, and estimat

ed proceeds associated with certain owned properties. These costs were estimated by management based upon

information from internal and external real estate _

advisors and discussions and negotiations with third parties. During 2000, the balance of accrued 1998 store

closing costs decreased from approximately t

$1,705,000, to approximately $947,000 as a result of payments for costs, lease rentals and other expenses related to exiting the properties. The Company expects remaining cash payments to occur during 2001.

For the year ended December 31, 2000 and 1999, the Company incurred $2.000,000 and $2,945,000 of store closings and special charges, respectively. In the second quarter of 2000 the Company expensed costs associated with a proposed initial acquisition of Rainforest Cafe that was terminated. On March 2, 1999, the Company announced the signing of a definitive merger agreement. The merger agreement was subsequently terminated on March 8, 1999, with no further discussions. The Company incurred $3,675,000 in transaction costs in connection with the definitive merger agreement which were expensed in the first quarter of 1999. Additionally, the Company successfully exited seven of the underperforming restaurants included in the 1998 store closings charge and recorded a special credit of $730,000, during the second quarter of 1999, due to the reversal of amounts originally recorded, since five lease terminations were resolved favorably relative to amounts accrued at December 31, 1998.

10. RELATED PARTY TRANSACTIONS

During 2000, in connection with the Company's initial attempt to acquire Rainforest Cafe and the concurrent bank syndicate loan approval and renewal negotiation, the Company obtained a commitment and funding for an unsecured bridge loan of $10.0 million from the Chairman and Chief Executive Officer of the Company. The Company paid a commitment fee of $125,000 and interest of $172,000 related to the bridge loan, which were lower than the amounts requested by the Company's lead syndicate bank for such a fatality. The loan was fully repaid after the Company's initial merger agreement was terminated.

Effective January 1, 1996, the Company entered into a Consulting Service Agreement (the "Agreertterrt") with Fertitta Hospitality, LLC ("Fertitta Hospitality"), which is jointly owned by the Chairman and Chief Executive Officer of the Company and his wife. Pursuant to the Agreement, the Company provides limited consulting services to Fertitla hospitality with respect to management and operational matters, trativa and personnel matters. The Company receives a consulting fee of $2,500 per month under the Agreement plus the reimbursement of all out-of-pocket expenses and such additional compensation as may be agreed upon. The Agreement provides for a one-year term, was renewed in 2000, and is automatically renewed artless either party terminates the Agreement upon 30 days' written rbtice to the other party. The Agreement was entered into between related parties and was not the result of arm's-ler>gttr negotiations. Accordingly, the terms of this transaction may have been mare or less favorable to the Company than might have been obtained from unaffiliated third parties. The Company believes that the terms of On transaction gyre at least as favorable to the Company as that which could have been obtained in arm'slength transactions with an unaffiliated party.

In 1998, die Company entered into an agreement with 610 Loop Venture, LLC, a company wholly owned by the Chairman and Chief Executive Officer of the Company, whereby, the Company would sell to 610 Loop Venture, a 4-acre undeveloped land tree at a third-party appraised value of $5.400,000 (approximately $700,000 more than the original purchase price paid by the Company), and 610 Loop Venture would construct a condominium hoteUoffice project on the land. In 1999, the agreement was amended and the Company entered into a ground lease agreement with 610 Loop Venture for approximately one-third of the undeveloped tract. The grand lease is for a term of five years with one option renewal period. Under ttz'e terms of the ground lease, 610 Loop Venture pays the Company base rent of $12,000 per month plus pro-rata real property taxes and insurance. During 2000, at the request of the Company. 610 Loop Venture and the Company reached an agreement terminating the condominium hotel/office project to permit the Company 7,o build its own office building. 610 Loop Venture has retained the option to purchase certain property based upon an appraised value.



® _ ._

11. QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of unaudited quarterly consolidated results of operations (in thousands, except per share data).

March 31. June 30, September 30, December 31

2000 2000 2000 2000

Quarter Ended:

Revenues ....................... $ 110.951 $ 134,042 $ 133,108 $ 142,879

Asset impairment, store closings and special charges $ - $ 2,000 $ - $ 6,292

Operating income (loss) . . . . . . . . . . . . . . . . . . . . . $ 5,867 $ 11,010 $ 13,150 $ (571)

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,022 $ 6,278 $ 7,845 $ (2,495)

Net income per share (basic) . . . . . . . . . . . . . . . . . $ 0.12 $ 0.26 $ 0.34 $ (0.12)

Net income per share (diluted) . . . . . . . . . . . . . . . . $ 0.12 $ 0.26 $ 0.34 $ (0.12)

Net income per share before special charges

(tiluted) . . . . . . . . . . . . . . . . . . . . . . _ . . . . . . . $ 0.12 $ 0.31 $ 0.34 $ 08

March 31, June 30, September 30, December 31,

1999 1999 1999 1999

Quarter Ended:

Revenues $ 101,266 $ 123,607 $ 116.510 $ 97,603

Store closings and special charges (credit) . . . . . $ 3,675 $ p30) $ - $ -

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . $ 482 $ 10,945 $ 10,822 $ 2,994

Netirrcome . $ 238 $ 7,068 $ 6,592 $ 1,478

Net Income per share (basic) . . . . . . . . . . . . . . . . $ 0.01 $ 0.25 $ 0.26 $ 0.06

Net income per share (diluted) . . . . . . . . . . . . . . . $ 0.01 $ 025 $ 0.25 $ 0.06

Net krcorrre par share before special charges (credik)

( ............................. $ 0.09 $ 0.24 $ 0.25 $ 0.06

CORPORATE INFORMATION

Stock Information

The Comoanv's common stock is traded on the New Ywk Stock Exchange under the symbol "L NY

Corporate Offices Landry's Restaurants, Inc. 1510 West Loop South Houston, Texas 77027 Phone: (713) 850-1010 Fax: (713) 963-8194 www.landryssealood corn

The Company

Landry's Restaurants, Inc., headquartered in Houston, Texas, owns and operates tall-service casual dining restaurants under the names of

Landry's Seafood House. Joe's Crab Shack Willie G's. The Crab House. Cadillac Bar, Aquarium. Rainforest Cafe. Kernah Boardwalk and others

in 32 states. The Company operated a total of 188 restaurants with approximately 16,000 employees as of December 31 2000

Independent Auditors Transfer Agent

Arthur Andersen LLP American Stock Transfer

Houston. Texas New York New York

10-K Availability

The Company will furnish to any stockholder, without charge, a copy of the Company's annual report filed with the Securities and Exchange

Commission on Form 10-K for 2000 anon written request from the stockholder addressed to:

Paul C West Vice President of Finance and Chief Financial Officer Landry's Restaurants, Inc. 1510 West Loop South Houston. Texas 77027 (713)850-1010





MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The Company owns and operates full-service, casual dining restaurants. As of December 31, 2000, the Company operated 188 restaurants. In addition, the Company operates three limited menu takeout service units.

On October 28, 2000, the Company, acquired pursuant to a tender offer, approximately 80°/ of the outstanding common stock of Rainforest Cafe, a publicly traded restaurant company. On December 1, 2000, the Company completed the 100% merger with Rainforest Cafe. The aggregate purchase price to all outstanding shares was approximately $70.2 million. As of February 28, 2007, there were 25 domestic Rainforest Cafes owned and operated by the Company and it international franchised units. The Company owns an equity interest in certain international franchised units. Subsequent to the acquisition, four Rainforest Cafe restaurants have (teen dosed. It is probable that certain additional Rainforest Cafe restaurants failing to meet certain minimum standards will be closed.

Excluding anticipated unit closures, the acquired Rainforest Cafe restaurants incurred an 8% same store sales decline for the two months ended December 31, 2000, as compared to the same period in the prior year. Revenues for substantially all Rainforest Cafe restaurants have experienced same store sales declines for an extended period of time. Comaspor>rtingly, restaurant profitability has also declined. Management plans to address the sales declines tiuough improved menu development, a focused general manager Incentive plan similar to that implemented in the Company's other restaurants in 1999, investment in improved ambiance, additional marketing initiatives and selective unit closures of restaurants that do rat meet the Company's minimum standards. There is no assurance that management will successfully curtail the same store sales decline of Rainforest Cafe restaurants or that its operational and financial plans wilt improve operating margins, particularly in situations where sales declines continue. Based on the Company's historical experience, initial open" results for the Rainforest Cafe's units will be adversely affected by the new menu rollout. Cost of sales will be subject to inefficiencies during the learning process and labor expenses will be impacted by additional training and staffing costs. Further inefficiencies may occur as the Company implements its financial, management and operational systems in these restaurants.

The Cortpary's operations may be impacted by changes in federal and state taxes arid other federal and state governmental

policies which include marry -

possible factors such as the level of minimum wages, the deduclibibly of band entertainment expenses, levels of disposable income aril national and regional economic growth. There are various federal, state and local govemmerNal initiatives to increase the level of minimum wages which would increase the Company's tabor costs.

The restaurant industry is intensely competitive and is affected by changes in consumer tastes and by national, regional, and

local economic conditions

and demographic trends. The performance of individual restaurants may be affected by

tactws suds as traffic patterns, demographic considerations, weather conditions, and the type, number, and location of

competing restaurants. The Company has many well established competitors with greater financial resources aril longer

histories of operation than the

Compamr, including competitors already established in regions where the Company is

planning to expand, as wet as rxxnpetitors planning th expand in the same regions. The Company faces significant

competition from mid-priced, fub-service, casual dining restaurants offering seafood and other types and varieties of cuisine.

The Company's competitors

include national, regional, and local chains as well as local owner-operated mstaurants.

The Company also tees with other restaurants and retail establishments for restaurant sites.

This report contains certain forward-looking statements within the meaning d Section 27A of the Securities Al and Section 21 E

of the Exchange Ad,

wrridr are intended to be covered by safe harbors created thereby. Stockholders are

cautioned that all forward-looking statements involve risks and uncertainty, Including without limitation, the ability of the

Company to continue its expansion

strategy, ability to make projected capital expenditures, as wail as general market

conditions, competition, and pricing. In addition, there is no assurance that Landry's management will be able to smoothly

integrate Rainforest Cafe opera

tions and business, or whether same store sales declines of Rainforest Cafe units can be mitigated or can achieve projected

financial results. All state

ments, other than statements of historical facts, included or incorporated by reference in this report that address activities,

events or developments that the

Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including

the amount and nature there

on, business strategy and measures to implement such strategy, competitive strengths, goals, expansion and growth of the

Company's business and oper

ations, plans, references to future success as well as other statements which include words such as "anticipate." "believe,"

"plan," "estimate;" "expel,"

and "intend" and other similar expressions constitute forward-looking statements. Although the Company believes that the

assumptions underlying the for

ward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate and, therefore, there can

be no assurance that the

forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in

the forward-looking state

ments included herein, the inclusion of such information should not be regarded as a representation by the Company or any

other person that the objec

t Eves and plans of the Company will be achieved.





RESULTS OF OPERATIONS

Restaurant Profitability

The following table sets forth the percentage relationship to total restaurant revenues of certain restaurant operating data for the periods indicated:

YEAR ENDED DECEMBER 31,

- 2000 1999 1998

Revenues 100.0% 100.0% 100.0°/

Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.1 31.1 30.3

Restaurant labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.3 28.6 27.0

Other restaurant operating expenses (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.4 23.1 21.6

Restaurant level profit (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.2% 17.2 % 21.1 °i

(1) Excludes depreciation, amortization and pre-opening expenses.

Yeas Errand Deoernbsr 31, 2000 Corrnparad to the Year Ended Decermber 31, 1999

Revenues increased $81,993,553, or 18.7%, from $438,986.243 to $520,979,796 for the year ended December 31, 2000, compared to the year ended December 31, 1999. The increase in revenues was primarily attributable to revenues from new restaurant openings, a same store sales increase of 1°i°, and the inclusion of revues from Rainforest Cafe restaurants for the last two months of 2000.

As a primary result of Rraeased revenues, cost of revenues increased $20,465,886, or 15.0%, from $136,321,031 to $156,7,917 in the year ended Decennber 31, 2000, compared to the prior year. Cost of revenues as a percentage of revenues for the year ended Decembers 31, 2000 decreased to 30.1% from 31.1% in 1999. The decease in cost of revenues as a percentage of revues primarily retteas menu changes and lower product costs in 2000 as compared to 1999.

Restaurant labor expenses increased $21,626,074, or 172%, from $125,566,341 to $147,192,415 in the year ended December 31, 2000, compared to the prior years: Restaurant labor eases as a percentage of revenues for the year ended December 31, 2000 decreased to 28.3° from 28.6°/ in 1999. The decease reflects productivity improvements partially offset by labor rate increases.

Other restaurant operating expenses irxxeased $20.535.746, c 20.2°/ , from $101,562,887 to $122,098,633 in the year ended Deer 31, 2000, compared to the prig year, princpal)t as a result of increased rtes. Such expanses increased as a percentage of revenues to 23.4° in 2000 from 23.1 % in 1999, as a primary result of increased occupancy and utility costs. The Company anticipates advertising and marketing expenses will increase as a pegs of revenues in 2001.

General and administrative expenses creased $5.298.836. or 24.8%, from $21,353,610 to $26.652.446 in the year ended December 31, 2000. compared to the poor yea` and increased as a percentage of revenues to 5.1 % from 4.9%. The dollar increase resulted primarily from increased personnel to support the Comparhl's operations end Increased incentive bonus compensation and duplicate corporate overhead costs for November and December 2000 associated with Rainforest Cafe caporals headquarters in Minneapolis, Minnesota. The Company expects that the future rate of increase of general and adminisUative expenses will moderate in comparison to revenue increases and the duplicate overhead costs. primarily salaries and rent, of the separate Rainforest Cafe corporate headquarters will be eliminated in 2001.

Depreciation and amortizatan expense increased $11,162,026. or 50.2%, from $22,229,762 to $33,391,788 in the year ended December 31, 2000, compared to the prior year. The dollar increase was primarily due to an asset impairment charge of $6,291,706, and the addition of new restaurants and equipment

The increase in net interest expense for the year ended December 31. 2000, as compared to the prig year, is substantially due to increased borrowings from treasury stock repurchases and the Rainforest Cafe acquisition. The decrease in other expense (income), net was attributable to an involuntary gain recorded in 1999, which did not recur in 2000.

Provision for income taxes decreased by $778,404 to $7,301,828 in 2000 from $8,080.232 in 1999 primarily due to the higher interest expense and a reduction in the Company's income. The provision for income taxes as a percentage of income before income taxes was reduced in the third and fourth quarter of 2000 and prospectively from 34.5°i° to 31 % to reflect continuing favorable Federal tax credits for tipped employees.

For the year ended December 31, 2000, a special change of $2,000.000 ($1,310,000, net of tax) was incurred in connection with the termination of an initial attempted acquisition of Rainforest Cafe. Store closings and special charges in 1999 represent the net of a $730,000 reversal (income) of estimated costs relating to favorably settling lease obligations of certain closed stores recorded during the second quarter of 1999 and $3,675,000 of expenses incurred related to an abandoned merger transaction during the first quarter of 1999.





Year Ended December 31, 1999 Compared to the Year Ended December 31, 1898

In the fourth quarter of 1998, the Company decided to close 11 underperforming restaurants, eight of which were closed in 1998, and three of which were closed in 1999. Store closing costs related to the write-down of associated property and equipment to estimated realizable value and anticipated costs to be incurred related to lease terminations and employee severance were recorded during the fourth quarter of 1998. In addition, the Company re-evaluated its strategic growth plan which reduced future unit growth aril abandoned numerous potential restaurant sites. These strategic changes resulted m a reduction in employees, the sale of a duplicate corporate asset and the abandonment of a strategic corporate transaction. The Company incurred a fourth quarter 1998 charge that aggregated $37,631,969 related to all such activities. During the second quarter of 1999, the Company concluded its negotiations on certain restaurants included in the fourth quarter special charge on a favorable basis compared to amounts previously accrued. As a result, the Company recognized a $730,000 special credit during the three months ended June 30, 1999. Store dosing and special charges and credits irdude management's estimate of costs which will be incurred in future periods based on various factors. Such factors could change, resulting in additional costs or credits in future periods.

Revenues increased $39,438,160, or 9.9%, from $399,548,083 to $438,986,243 for the year ended December 31,

1999, compared to the year ended December

31, 1998. The increase in revenues was primarily attributable to revenues from new restaurant openings and increases in

the Company's unit average weekly sales.

During the first quarter of 1999, the Company implemented a new menu for the Joe's Crab Shack restaurants, a new

manager bonus plan, and a new advertising and

marketing campaign. These programs created positive revenue growth. Same store sales for the twelve months ended

December 31, 1999, were up approximately

3.6 9% from the same period in 1998. Average weekly safes for all stores for the twelve months ended December 31,

1999 increased 2.8°.6, with increases recorded in

the second, third and fourth quarters of 1999, offsetting a decline in the first quarter of 1999.

As a primary result of increased revenues, cost of revenues increased $15,239,784, or 12.6°/ ,from $121,081,247 to $136,321,031 in the year ended December 31, 1999, compared to the prior year. Cost of revenues as a percentage of revenues for the year ended December 31, 1999, increased to 31.1%, from 30.3% in 1998. The increase in cost of revenues as a percentage of revenues primarily reffeds menu changes, reduced menu pricing in certain markets, and higher product costs in 1999 as compared to 1998.

Restaurant labor expenses increased $17,590,047, or 16.3 k, from $107,976,294 to $125,566,341 in the year ended

December 31, 1999, compared to the prior

year. Restaurant labor expenses as a percentage of revenues for the year ended December 31, 1999, increased to

28.6% from 27.0% in 1998. In connection with the

new menu roll-out and a new advertising and promotional campaign, the Company increased staffing levels and

implemented additional training programs. In addition,

to counteract what the Company believed to be higher general manager turnover than historically experienced, the

Company raised the base salary of substantially all

of its general managers by approximately $10,000 during the fourth quarter of 1998.

Other restaurant operating expenses Increased $15,243,653, or 17.7°x, from $86,319,234 to $101,562,887 in the year ended December 31, 1999, compared to the same period in the prig year, principally as a result of increased revenues. Such expenses increased as a percentage of revues to 23.1 in 1999 from 21.6°1 in 1998, as a primary result of increased advertising, marketing, insurar>cP, customer relations expenses, and the ousts of the new menu roll-out.

General and administrative ethaeased $6,131,226, or 40.3%, from $15,222,384 to $21,353,610 in the year ended December 31, 1999, compared to the prior year, and increased as a percentage of revenues to 4.996 from 3.8%. The dollar increase resulted primarily from increased personnel, particularly field operations support staff, salaries and travel to support the Company's operations.

Depreciation and amortization expenses increased $3,543,254, or 19.0°k, from $18.886.51)8 to $22,229,762 in the year ended December 31, 1999, compared to the year ended December 31,1998. The duffer increase was primarily due to the addition of new restaurants and purchases of new equipment.

The increase in net interest expense for the year ended December 31. 1999. as compared to the same period in the prior year, is primarily attributable to increased borrowings for capital esWres, working capital and treasury stock purchases, and increases in the weighted average borrowing rates under the Company's revolving credit facility. The change in other income was not deemed significant.

Provision for income taxes increased by 16,472,978 from $1,607,254 in 1998 to $8,080,232 in 1999 primarily due to the change in the Company's income. The provision for income taxes as a percentage of irK:ome before income taxes remained at 34.5%.

Liquidity and Capital Resources

The Company has a $200.0 million line of credit from a syndicate of banks which expires in June 2003. The line of credit is available for expansion, acquisitions, stock repurchases and general corporate purposes. At December 31, 2000, the Company had $155.0 million outstanding (with availability of $45.0 million) under this credit facility at an average intent rate of 9.0% aril had cash and cash equivalent balances aggregating approximately $26.2 million.

For the year ended December 31, 2000, the capital expenditures of the Company were $77.4 million, and the Company purchased $25.7 million of common stock funded out of existing cash balances, cash flow from operations and borrowings. On October 28, 2000, the Company completed the purchase of approximately 60% of the outstanding common stock of Rainforest Cafe for approximately $40.5 million through a cash tende