Landry's Restaurants delayed 10-K filing prompts covenant violation on 7½% notes

By Caroline Salls

Pittsburgh, March 30 - Landry's Restaurants, Inc. does not expect to be able to file its 10-K report for the year ended Dec. 31 until completion of a review of its historical stock option granting practices, and the delayed filing resulted in a violation of a financial covenant under the indenture for its 7½% senior unsecured notes, according to a company news release.

Indenture trustee U.S. Bank gave the company until April 20 to cure the violation to keep the notes from being accelerated.

The indenture trustee has already indicated that it would not seek acceleration of the notes unless holders of more than 25% of the notes asked it to do so.

If the notes are accelerated, the company said it believes that it would be able to refinance the notes on terms favorable to the company.

Landry's said it notified the New York Stock Exchange Friday of the delay in filing the 10-K.

In 2006, the company began a voluntary internal review of its historical stock option granting practices dating back to 1993, and that initial review was completed in March with no intentional backdating of options or fraudulent retroactive documentation regarding options found.

However, a review of the company's historical stock option granting practices is being conducted by the independent directors serving on Landry's audit committee, with assistance from independent legal counsel.

The company said this review is expected to be completed in its second fiscal quarter, and, as a result, it will not be able to file its 10-K until completion of the review.

Although the company has not completed its financial statements, based on the initial review, Landry's said it believes that the total non-cash charges over the 14-year period resulting from the review should be $8.6 million, after tax.

The outcome of the stock option granting practices review is expected to impact the company's 2006 and previous period results.

In addition, as a result of the loss from discontinued operations primarily resulting from the sale of Joe's Crab Shack in the fourth quarter of 2006, the company said it expects to report a net loss for 2006.

Landry's also said it completed the $19 million sale of a single restaurant location on Wednesday.

The purchase price is subject to an agreement to pay the buyer $2.6 million over the next 30 months in order to allow the company to continue to operate the restaurant.

Landry's operations include restaurants under the trade names Landry's Seafood House, Chart House and Rainforest Cafe as well as the Golden Nugget Hotels and Casinos in Las Vegas and Laughlin, Nev. The company is based in Houston.

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