Contingent rental payments on building leases are typically made based on the percentage of gross sales on the individual restaurants that exceed predetermined levels. The percentage of gross sales to be paid and related gross sales level vary by unit. Contingent rental expense was approximately $67, $88 and $129 for the fiscal years ended March 28, 2004, March 30, 2003 and March 31, 2002, respectively. 

## 2. Guarantees 

The Company guarantees certain equipment financing for fran- chisees with a third-party lender. The Company’s maximum obliga- tion, should the franchisees default on the required monthly payment to the third-party lender, for loans funded by the lender, as of March 28, 2004, was approximately $305. The equipment financing expires at various dates through fiscal 2008. 

The Company also guarantees a franchisee’s note payable with a bank. The note payable matures in fiscal 2007. The Company’s max- imum obligation, should the franchisee default on the required monthly payments to the bank, for loans funded by the lender, as of March 28, 2004, was approximately $261. 

The guarantees referred to above were entered into by the Company prior to December 31, 2002 and have not been modified since that date, which was the effective date for FIN 45, “Guarantors Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others.” 

## 3. Contingencies 

An employee of a Miami Subs franchised restaurant, com- menced an action for unspecified damages in the United States District Court, Southern District of Florida in January 2004 against Miami Subs Corporation, Miami Subs USA, Inc., Nadia M. Invest- ments, Inc. and DYV SYS International, Inc., both Miami Subs fran- chisees (“the franchisees”), claiming that he was not paid overtime when he worked in excess of 40 hours per week, in violation of the Fair Labor Standards Act. The action also seeks damages for any other employees of the defendants who would be similarly entitled to overtime. Pursuant to the terms of the Miami Subs Franchise Agreement, the franchisees are obligated to operate their Miami Subs franchises in compliance with the law, including all labor laws. Miami Subs intends to assert that it is not an appropriate party to this litiga- tion, to deny any liability to Plaintiff and defend against this action vigorously. 

An action has been commenced, in the Circuit Court of the Fifteenth Judicial Circuit, Palm Beach County, Florida in September 2001 against Miami Subs and EKFD Corporation, a Miami Subs franchisee (“the franchisee”) claiming negligence in connection with a slip and fall which allegedly occurred on the premises of the fran- chisee for unspecified damages. Pursuant to the terms of the Miami Subs Franchise Agreement, the franchisee is obligated to indemnify Miami Subs and hold it harmless against claims asserted and procure an insurance policy which names Miami Subs as an additional insured. Miami Subs has denied any liability to plaintiffs and has 

made demand upon the franchisee’s insurer to indemnify and defend against the claims asserted. The insurer has agreed to indemnify and defend Miami Subs and has assumed the defense of this action for Miami Subs. 

Miami Subs has received a claim from a landlord for a franchised location that Miami Subs owes the landlord $150 in connection with the construction of the leased premises. Miami Subs has been the pri- mary tenant at the location since 1993, when the lease was assigned to Miami Subs by the initial tenant under the lease, the party to whom the construction loan was made. To date, the landlord has not commenced legal action. Miami Subs intends to continue to dispute its liability for the construction loan and to vigorously defend any legal action. 

Ismael Rodriguez commenced an action, in the Supreme Court of the State of New York, Kings County, in May 2004 against Nathan’s Famous, Inc. seeking damages of $1,000 for claims of age discrimination in connection with the termination of Mr. Rodriguez’s employment. Mr. Rodriguez was terminated from his position in connection with his repeated violation of company policies and fail- ure to follow Company-mandated procedures. Nathan’s Famous, Inc. intends to deny any liability and defend this action vigorously. Nathan’s Famous, Inc. has submitted this claim to its insurance car- rier with the expectation that it will be covered by its employment practices liability insurance policy. 

The Company is involved in various other litigation in the nor- mal course of business, none of which, in the opinion of management, will have a significant adverse impact on its financial position or results of operations. 

## Note M—Related Party Transactions 

As of March 28, 2004, Miami Subs leased two restaurant proper- ties from Kavala, Inc., a private company owned by the estate of Gus Boulis, a former shareholder of Miami Subs. Future minimum rental commitments due to Kavala at March 28, 2004 under these existing leases was approximately $1,074. Rent expense under these two leases amounted to $206, $198 and $182 for the fiscal years ended March 28, 2004, March 30, 2003 and March 31, 2002, respectively. 

Mr. Donald L. Perlyn has been an officer of Miami Subs since 1990, a Director since 1997 and President and Chief Operating Officer since July 1998. Mr. Perlyn has been a director of Nathan’s since October 1999. Mr. Perlyn served as a member of the Board of Directors of Arthur Treacher’s, Inc. until March 2002 when Arthur Treacher’s, Inc. was sold in a private transaction. Miami Subs has been granted certain exclusive co-branding rights by Arthur Treacher’s, Inc. and Mr. Perlyn had been granted options to acquire approximately 175,000 shares of Arthur Treacher’s, Inc. common stock. These options were converted into options of the entity that sold Arthur Treacher’s, Inc. 

A firm on which Mr. Howard M. Lorber serves as chairman of the board of directors, and the firm’s affiliates received ordinary and 

