<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------------- -------------------
COMMISSION FILE NUMBER: 0-21625
FAMOUS DAVE'S OF AMERICA, INC.
(Name of small business issuer in its charter)
Minnesota 41-1782300
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
7279 Flying Cloud Dr., Eden 55441
Prairie, MN
(Address of principal executive (Zip Code)
offices)
Issuer's telephone number: (612) 833-9300
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer had total revenues of $18,202,000 for its fiscal year ended
December 28, 1997.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
As of March 20, 1998, assuming as market value the price of $6.00 per share
(the last sales price of the Company's Common Stock on The Nasdaq Stock
MarketSM), the aggregate market value of shares held by non-affiliates was
$41,841,540.
As of March 20, 1998 the Company had outstanding 8,827,590 shares of Common
Stock, $.01 par value.
Documents Incorporated by Reference: Portions of the Company's Proxy
Statement for its Annual Meeting of Shareholders to be conducted in June 1998
(the "1998 Proxy Statement") are incorporated by reference into Part III of this
Form 10-KSB, to the extent described in Part III. The 1998 Proxy Statement will
be filed within 120 days after the end of the fiscal year ended December 28,
1997.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE NO.
PART I
<S> <C> <C>
Item 1. Description of Business 3
Item 2. Description of Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Registrant's Common Equity
And Related Stockholder Matters 8
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 7. Consolidated Financial Statements 14/F-1
Item 8. Changes in and Disagreements with Accountants
On Accounting and Financial Disclosure 14
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act 15
Item 10. Executive Compensation 15
Item 11. Security Ownership of Certain Beneficial Owners and Management 15
Item 12. Certain Relationships and Related Transactions 15
Item 13. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The business of Famous Dave's of America, Inc. (the "Company") is to
develop, own and operate barbeque restaurants under the name "Famous Dave's". As
of December 28, 1997, the Company owned and operated fourteen restaurants, ten
in Minnesota and four in Wisconsin, with eight additional units in development
in Minnesota, Wisconsin, Iowa and Illinois.
THE FAMOUS DAVE'S CONCEPT
The Company seeks to differentiate itself by providing high-quality food in
a distinctive and comfortable atmosphere. In May 1997, Famous Dave's was named a
"1997 Hot Concept" by Nation's Restaurant News, a leading restaurant
publication. Key elements of the Company's concept include the following:
High Quality Food. Each restaurant features a distinctive selection of
authentic, barbeque-oriented menu items from various regions of the U.S. Such
items include hickory-smoked St. Louis-style ribs, Texas beef brisket, Georgia
chopped pork, country-roasted chicken, and barbeque sandwiches, as well as
honey-buttered corn bread, potato salad, coleslaw, Shack Fries and Wilbur(TM)
Beans. Homemade desserts, including Famous Dave's Bread Pudding and Hot Fudge
Kahlua(TM) Brownies, are a specialty. To complement its barbeque items and to
suit different customer tastes, the Company's Famous Dave's BBQ Sauces come in
four regional variations (Rich & Sassy(TM), Texas Pit(TM), Georgia Mustard(TM)
and Hot Stuff(TM)). These sauces represent signature items of the Company which
are also distributed throughout Famous Dave's territory as retail grocery items.
Management believes that its high quality food is a principal point of
differentiation between Famous Dave's and other barbeque competitors, and is a
significant contributing factor to its level of repeat business.
Distinctive Environment -- Decor and Music. The Company's original theme, a
nostalgic roadhouse shack ("Shack"), is promoted by the abundant use of rustic
antiques, items of Americana from the '30s and '40s, and very upbeat,
hand-selected, recorded blues music to enhance the environment and add to the
customer's experience. In addition, the Company has developed a larger "Blues
Club" format (an authentic Chicago Blues Club decor featuring live music seven
nights a week) and a "Lodge" format (featuring a rustic North Woods lodge
decor.)
Broad-Based Appeal. Management believes that the Company's concept has broader
appeal than other restaurant concepts because it attracts customers of all ages.
Management believes that the Company's distinctive concept, combined with
high-quality food, make Famous Dave's appealing to children, teenagers and
adults.
OPERATING STRATEGY
Key elements of the Company's operating strategy include the following:
Operational Simplicity. The Company strives to ensure a consistent,
high-quality eating experience by employing a streamlined operating system based
on a focused menu and simplified food preparation techniques. Famous Dave's menu
focuses on a limited number of popular barbeque items and side dishes which are
prepared using easy-to-operate kitchen equipment and processes that use prepared
seasonings, sauces and mixes. This streamlined operating system helps reduce the
Company's costs of operation by requiring less staff, lowering training costs
and eliminating the need for highly-compensated chefs. The limited number of
menu items and simplified food preparation process permits meals to be served
quickly and consistently.
Recruiting, Training and Retaining Employees. The Company believes that
a key component of the success of its concept rests with the ability to hire,
train and motivate qualified restaurant employees. The Company believes that by
providing training, competitive compensation and opportunities for employee
involvement and advancement, the Company encourages a sense of personal
commitment from its employees. In 1997, the Company instituted Hog Heaven
University, which augments the Company's technical training with programs aimed
at improving the personal development skills of the Company's managers. The
Company believes that its competitive
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compensation, employee involvement and streamlined operating system help
enable it to attract and retain qualified restaurant managers and employees.
Take-out --- Focus on Customer Convenience. The Company seeks to
provide its customers with maximum convenience by offering convenient take-out
service in addition to its lively and entertaining sit-down experience. The
Company believes that Famous Dave's barbeque and side dishes are viewed by
guests as traditional American "picnic foods" that maintain their quality and
travel particularly well, making them an attractive choice to replace a
home-cooked meal. The Company believes the high quality, reasonable cost and
avoidance of preparation time make take-out of the Company's product
particularly attractive to customers, and more than 25% of the Company's
restaurant revenues are derived from this method. The Company's restaurants have
been designed specifically to accommodate a significant level of take-out sales,
including a separate take-out counter.
Style of Service. The Company's Blues Club and Lodge utilize a
full-service style of service. Through 1997, the Company's Shacks have utilized
a more limited, counter-style of service with self-service seating and drink
selection. Management is currently evaluating a change to full-service for
certain of its existing and future shacks.
Customer Satisfaction. Management believes that it has achieved a
significant level of repeat business by providing high-quality food and
efficient friendly service, in an entertaining environment at moderate prices.
The Company strives to maintain quality and consistency in each of its
restaurants through the training and supervision of personnel and the
establishment of and adherence to high standards of personnel performance, food
preparation and facility maintenance. The Company has also built family-friendly
strategies into its food, service and design by providing children's menus,
smaller-sized entrees at reduced prices and changing tables in restrooms.
Attractive Value-to-Price Relationship. Famous Dave's offers its high
quality food and distinctive atmosphere at competitive prices to encourage
frequent patronage. Lunch and dinner entrees range from $4.99 to $16.99
resulting in an average check of approximately $10.50 during fiscal 1997.
EXPANSION STRATEGY
Management believes that the casual dining barbeque niche of the
restaurant industry offers strong growth opportunities for the Company because
the barbeque niche of the restaurant market is highly fragmented.
The key elements of the Company's growth strategy include the following:
Targeted Expansion. The Company believes that there are significant
growth opportunities for Famous Dave's restaurants throughout the United States.
The Company generally intends to enter new markets with one or more restaurants
in high-profile, heavy traffic retail locations in order to build brand
awareness. Next the Company would develop the market further with additional
restaurants, some of which may be in less visible, less traveled neighborhood
and retail locations. In major metropolitan markets, the Company may initially
open a BBQ & Blues Club to serve as a marketing and promotional vehicle for
future restaurants which will be developed subsequently in the surrounding area.
The Company currently plans to concentrate its expansion primarily in markets
where multiple restaurants can be opened, thereby expanding consumer awareness
and creating opportunities for operating, distribution and marketing
efficiencies. In late 1997, the Company opened its first Lodge restaurant and
currently anticipates utilizing this format more extensively later in fiscal
1998. The Company currently anticipates opening 10 to 12 additional units in
fiscal 1998 and plans to target its 1998 restaurant expansion in the upper and
central Midwestern part of the United States.
Flexible Unit Formats. Because of its variable unit formats, the
Company believes it can tailor the Famous Dave's concept to a variety of
markets, demographic areas and real estate locations. Management believes the
flexibility in building size, type of construction and configuration, as well as
a variable service structure permits location in a variety of economic and
demographic areas throughout different markets.
FRANCHISE PROGRAM
The Company is currently evaluating its strategy for pursuing a franchise
program for its restaurants. The Company has taken steps to meet various legal
requirements in order to offer and sell franchises, but has not yet sold any
franchises. The Company currently anticipates that it will not actively pursue
the sale of franchises in 1998.
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RESTAURANT OPERATIONS - MANAGEMENT AND EMPLOYEES
The Company's ability to manage multi-location units will be central to its
overall success. The Company's management includes experienced personnel with
extensive restaurant experience. At the unit level, the Company places specific
emphasis on the position of general manager ("General Manager") and seeks
employees with significant restaurant experience and management expertise. The
Company strives to maintain quality and consistency in each of its units through
the careful training and supervision of personnel and the establishment of, and
adherence to, high standards relating to personnel performance, food and
beverage preparation, and maintenance of facilities. The Company attempts to
attract high quality, experienced restaurant management and personnel with its
competitive compensation and bonus programs.
All managers must complete a training program, during which they are
instructed in areas such as food quality and preparation, customer service, and
employee relations. The Company has also prepared operations manuals relating to
food and beverage quality and service standards. New staff members participate
in approximately three weeks of training under the close supervision of Company
management. Management strives to instill enthusiasm and dedication in its
employees, regularly solicits employee suggestions concerning Company operations
and endeavors to be responsive to employees' concerns. In addition, the Company
has numerous programs designed to recognize and reward employees for superior
performance. Staffing levels at each restaurant vary according to the time of
day and size of the restaurant. However, in general, each Shack or Lodge unit
has between 25 and 80 employees.
PURCHASING
The Company strives to obtain consistent quality items at competitive prices
from reliable sources. In order to maximize operating efficiencies and to
provide the freshest ingredients for its food products while obtaining the
lowest possible prices for the required quality, each unit's management team
determines the daily quantities of food items needed and orders such quantities
from major suppliers which are then shipped directly to the restaurants.
MANAGEMENT INFORMATION SYSTEMS
The Company has developed restaurant-level management information systems
that include a computerized point-of-sale system which facilitates the movement
of customer orders between the customer areas and kitchen operations, processes
credit card transactions, and provides management with revenue and other key
operating and financial information. The Company also uses a time management
system which tracks the time worked by each employee, allowing management to
more effectively manage labor costs through better scheduling of employee work
hours.
The Company's unit-level point-of-sale, time management and inventory
management systems provide data for posting to the Company's general ledger and
to other accounting subsystems. The general ledger system provides various
management reports comparing actual and budgeted results. The results are
reported to and reviewed by Company management. Such reporting includes (i)
daily reports of revenues, (ii) weekly reports of selected controllable unit
expenses and (iii) detailed monthly reports of revenues and expenses.
MARKETING AND PROMOTION
To date, the Company has relied primarily upon advertising, publicity and
"word of mouth" advertising to attract customers to its restaurants. The Company
also uses distinctive exterior signage and off-site billboards. In addition, the
Company has attempted to create brand awareness in its "Famous Dave's" name by
offering items such as Famous Dave's BBQ sauces for retail sale at its
restaurants and in grocery stores in the Twin Cities area and certain other
markets. The Company also participates in local rib festivals and barbeque
contests.
TRADEMARKS
The Company has trademarked or has applied for registration of various
service marks and intends to defend its service marks. However, there can be no
assurance that the Company will be granted trademark registration for its
pending applications or any or all of the proposed uses in the Company's
applications. In the event the Company's additional mark(s) are granted
registration, there can be no assurance that the Company can protect such
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mark(s) and design(s) against prior users in areas where the Company conducts
operations. There is also no assurance that the Company will be able to prevent
competitors from using the same or similar marks, concepts or appearance.
COMPETITION
Competition in the restaurant industry is intense. Famous Dave's restaurants
compete with moderately priced, casual dining restaurants primarily on the basis
of quality of food and service, atmosphere, location and value. In addition to
existing themed and barbecue restaurants, the Company expects to face
competition from steakhouses and other restaurants featuring large portions of
red meat. The Company also competes with other restaurants and retail
establishments for quality sites. Competition in the food service industry is
affected by changes in consumer taste, economic and real estate conditions,
demographic trends, traffic patterns, the cost and availability of qualified
labor, product availability and local competitive factors.
Many of the Company's competitors are well established and have
substantially greater financial, marketing and other resources than the Company.
Regional and national restaurant companies continue to expand their operations
in current and anticipated market areas of the Company. The Company believes its
ability to compete effectively depends on its ongoing ability to offer
high-quality, competitively priced food in a distinctive environment.
In addition, to the extent that barbeque restaurants are frequently viewed
as "local", the Company may experience intense competition or lack of consumer
acceptance if it expands into areas with existing barbeque restaurants.
GOVERNMENT REGULATION
The Company is subject to extensive state and local government regulation by
various governmental agencies, including state and local licensing, zoning, land
use, construction and environmental regulations and various regulations relating
to the sale of food and alcoholic beverages, sanitation, disposal of refuse and
waste products, public health, safety and fire standards. The Company's
restaurants are subject to periodic inspections by governmental agencies to
ensure conformity with such regulations. Difficulties or failure in obtaining
required licensing or other regulatory approvals could delay or prevent the
opening of a new restaurant, and the suspension of, or inability to renew, a
license could interrupt operations at an existing restaurant, any of which would
adversely affect the operations of the Company. Restaurant operating costs are
also affected by other government actions which are beyond the Company's
control, including increases in the minimum hourly wage requirements, workers
compensation insurance rates, health care insurance costs and unemployment and
other taxes. The Company is also subject to "dram shop" statutes, which
generally provide a person injured by an intoxicated person the right to recover
damages from an establishment that wrongfully served alcoholic beverages to the
intoxicated persons.
To the extent that the Company offers and sells franchises, the Company is
also subject to federal regulation and certain state laws which govern the offer
and sale of franchises. Many state franchise laws impose substantive
requirements on franchise agreements, including limitations on non-competition
provision and the termination or nonrenewal of a franchise. Bills have been
introduced in Congress from time to time which would provide for federal
regulation of substantive aspects of the franchiser-franchisee relationship. As
proposed, such legislation would limit, among other things, the duration and
scope of non-competition provisions, the ability of a franchiser to terminate or
refuse to renew a franchise, and the ability of a franchiser to designate
sources of supply.
The Federal Americans with Disabilities Act prohibits discrimination on the
basis of disability in public accommodations and employment. The Company could
be required to expend funds to modify its restaurants in order to provide
service to or make reasonable accommodations for disabled persons. The Company's
restaurants are currently designed to be accessible to the disabled. The Company
believes it is in substantial compliance with all current applicable regulations
relating to accommodations for the disabled.
EMPLOYEES
As of December 28, 1997, the Company had approximately 750 employees,
approximately 35% of which were full-time. None of the Company's employees are
covered by a collective bargaining agreement. The Company believes that its
relationship with its employees is satisfactory.
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ITEM 2. DESCRIPTION OF PROPERTIES
The following table sets forth certain information about the Company's
existing restaurant locations and locations in development as of December 28,
1997:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
SQUARE INTERIOR LAND OWNED CONVERSION OR DATE OPENED OR
LOCATION FORMAT FOOTAGE SEATS OR LEASED NEW CONSTRUCTION PLANNED TO BE OPENED
-------- ------ ------- ----- --------- ---------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Linden Hills, Minneapolis, MN Shack 2,900 50 Leased Conversion June 1995
Roseville, MN Shack 4,800 100 Leased Conversion June 1996
Calhoun Square, Minneapolis, MN Club 10,500 350 Leased Conversion September 1996
Maple Grove, MN Shack 5,200 120 Owned New Construction April 1997
Highland Park, St. Paul, MN Shack 5,200 120 Leased New Construction June 1997
Stillwater, MN Shack 5,200 120 Owned New Construction July 1997
Apple Valley, MN Shack 3,800 90 Owned Conversion July 1997
Madison, WI #1 Shack 4,800 100 Leased Conversion August 1997
Grand Chute, WI (Appleton, WI) Shack 2,900 75 Owned Conversion October 1997
Forest Lake, MN Shack 4,500 90 Leased New Construction October 1997
Winona, MN Shack 4,400 90 Leased Conversion November 1997
Middleton, WI (Madison, WI #2) Shack 4,800 100 Leased Conversion November 1997
LaCrosse, WI Shack 3,800 80 Owned Conversion December 1997
Minnetonka, MN Lodge 5,500 130 Leased New Construction December 1997
Plymouth, MN Shack 2,100 25 Leased Conversion January 1998
West St. Paul, MN Shack 6,000 140 Leased Conversion January 1998
Rochester, MN Shack 5,000 140 Leased Conversion February 1998
Janesville, WI Shack 4,100 100 Leased Conversion March 1998
West Des Moines, IA Shack 5,200* 120* Leased Conversion 2nd Quarter 1998
Des Moines, IA Shack 4,600* 110* Leased Conversion 2nd Quarter 1998
Naperville, IL Lodge 5,500* 150* Leased Conversion 2nd Quarter 1998
Chicago, IL Club 15,000* 500* Leased New Construction Fiscal 1999
</TABLE>
- ----------
* Estimated
The development cost of the Company's restaurants varies depending primarily
on the size of the restaurant and whether it is a conversion of an existing
building or a newly constructed unit. Since the Company's inception and through
fiscal 1997, the development cost of the Company's existing shack or lodge
restaurants has ranged from approximately $460,000 to $1,390,000 per restaurant
for conversions ranging in size from 2,900 square feet to 4,800 square feet and
$1,530,000 to $2,175,000 per restaurant for new construction ranging in size
from 4,500 square feet to 5,500 square feet. Such development costs include
construction, fixtures, furniture and equipment, and pre-opening costs, and do
not include the cost of purchased land as it has been the Company's general
practice to lease the majority of its sites. The development cost of the
Company's existing 10,500 square foot Blues Club was approximately $2,600,000,
including pre-opening expenses of approximately $180,000.
The Company is currently reevaluating the planned development of the Chicago
Blues Club and may defer development until later in fiscal 1998 or fiscal 1999.
There can be no assurances that units planned for 1998 or 1999 will open when
planned, or at all, due to the risks associated with the development of new
units, such as governmental approvals and the availability of capital, many of
which are beyond the Company's control.
The Company's leased restaurant facilities are occupied under agreements
with terms ranging from seven to 15 years, excluding renewal options. Such
leases generally provide for fixed rental payments plus operating expenses
associated with the properties. The Company's executive offices are located in
approximately 14,000 square feet in Eden Prairie, Minnesota, under a lease
expiring in 1999.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware of
any threatened litigation that would have a material adverse effect on its
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of the fiscal year ended December 28, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq Stock MarketSM under the
symbol DAVE. The Company's Common Stock was quoted on the Nasdaq SmallCap Market
from November 5, 1996 through July 24, 1997 and the Nasdaq National Market
subsequent to July 24, 1997.
The following table summarizes the high and low sale prices per share of the
Common Stock for the periods indicated, as reported on the Nasdaq Stock
MarketSM:
<TABLE>
<CAPTION>
1996 HIGH LOW
-------- ------ -----
<S> <C> <C> <C>
Fourth Quarter 8.75 6.75
1997 HIGH LOW
-------- ------ -----
First Quarter 9.63 6.63
Second Quarter 14.25 8.75
Third Quarter 21.13 12.75
Fourth Quarter 19.88 7.94
</TABLE>
On March 20, 1998, the last reported sale price for the Common Stock was
$6.00 per share. As of March 20, 1998, the Company had 286 record holders of
Common Stock plus an estimated 1,000 additional beneficial shareholders.
In October and November 1996, the Company sold in its initial public
offering 2,645,000 Units at an offering price of $6.50 per Unit and received
net proceeds from the offering of approximately $15.2 million. Each Unit
consisted of one share of Common Stock and one Redeemable Class A Warrant which
entitled the holder to purchase one share of Common Stock at $8.50 per share.
During July 1997, 2,637,840 of the outstanding 2,645,000 warrants were exercised
with the Company issuing an additional 2,637,840 shares and receiving net
proceeds totaling approximately $22.3 million. As indicated in the registraton
statements dated October 1996 and June 1997 covering the above securities
offerings (registration no. 333-10675), proceeds from such offerings have been
used primarily to develop additional units. Through December 28, 1997, the
Company estimates that proceeds from such offerings were primarily used for
payments to non-affiliated entities and persons other than directors, officers
or significant shareholders as follows:
<TABLE>
<CAPTION> Amount in ($000's)
------------------
<S> <C>
Construction/conversion of units $13,300
Purchase of furniture, fixtures and equipment $ 5,800
Purchase of real estate $ 2,800
Temporary investment in short-term, investment-grade, interest bearing securities $15,600
--------
$37,500
========
</TABLE>
The Company's Board of Directors has not declared any dividends on the
Company's Common Stock since its inception, and does not intend to pay out any
cash dividends on its Common Stock in the foreseeable future. The Board of
Directors presently intends to retain all earnings, if any, to finance the
development and opening of additional Units. The payment of cash dividends in
the future, if any, will be at the discretion of the Board of Directors and will
depend upon such factors as earnings levels, capital requirements, the Company's
financial condition and other factors deemed relevant by the Board of Directors.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The business of Famous Dave's of America, Inc. (the "Company") is to
develop, own and operate barbeque restaurants under the name "Famous Dave's". As
of December 28, 1997, the Company owned and operated fourteen restaurants, ten
in Minnesota and four in Wisconsin, with eight additional units in development
in Minnesota, Wisconsin, Iowa and Illinois. Four of these units opened in
January, February and March 1998. As of December 28, 1997, the Company had no
franchised units open or franchise agreements signed.
The Company was formed in March 1994 and opened its first restaurant in the
Linden Hills neighborhood of Minneapolis in June 1995. Prior to opening the
Linden Hills Unit, the Company had no revenues and its activities were devoted
solely to development. Through December 28, 1997, the Company had opened a total
of fourteen restaurants as follows:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE CONVERSION OR
LOCATION FORMAT FOOTAGE NEW CONSTRUCTION DATE OPENED
-------- ------ ------- ---------------- -----------
<S> <C> <C> <C> <C>
Linden Hills, Minneapolis, MN Shack 2,900 Conversion June 1995
Roseville, MN Shack 4,800 Conversion June 1996
Calhoun Square, Minneapolis,MN Club 10,500 Conversion September 1996
Maple Grove, MN Shack 5,200 New Construction April 1997
Highland Park, St. Paul, MN Shack 5,200 New Construction June 1997
Stillwater, MN Shack 5,200 New Construction July 1997
Apple Valley, MN Shack 3,800 Conversion July 1997
Madison, WI #1 Shack 4,800 Conversion August 1997
Grand Chute, WI (Appleton, WI) Shack 2,900 Conversion October 1997
Forest Lake, MN Shack 4,500 New Construction October 1997
Winona, MN Shack 4,400 Conversion November 1997
Middleton, WI (Madison, WI #2) Shack 4,800 Conversion November 1997
LaCrosse, WI Shack 3,800 Conversion December 1997
Minnetonka, MN Lodge 5,500 New Construction December 1997
</TABLE>
The future additional revenues and profits of the Company will depend upon
various factors, including additional market acceptance of the Famous Dave's
concept, the quality of the restaurant operations, the ability to successfully
expand into new markets, the ability of the Company to raise additional
financing as required and general economic conditions. There can be no
assurances the Company will successfully implement its expansion plans, in which
case it will continue to be dependent on revenues from existing operations. The
Company also faces all of the risks, expenses and difficulties frequently
encountered in connection with the expansion and development of an expanding
business. Furthermore, to the extent that the Company's expansion strategy is
successful, it must manage the transition to multiple-site and higher-volume
operations, the control of overhead expenses and the addition and retention of
necessary personnel.
Components of operating expenses include operating payroll and fringe
benefits, occupancy costs, repair and maintenance, and advertising and
promotion. Certain of these costs are variable and will increase with sales
volume. The primary fixed costs are corporate and restaurant management and
occupancy costs. The Company's experience is that when a new restaurant opens,
it incurs higher than normal levels of labor and food costs until operations
stabilize, usually during the first three months of operation. The Company
believes, however, that as restaurant management and staff gain experience,
labor scheduling, food cost management and operating expense control are
improved to levels similar to those at the Company's more established
restaurants.
General and administrative expenses include all corporate and administrative
functions that serve to support existing operations and provide an
infrastructure to support future growth. Management, supervisory and staff
salaries, employee benefits, travel, recruiting, training, rent and office
supplies are major items in this category.
At January 1, 1996, the Company elected a 52 or 53 week fiscal year ending
on the Sunday nearest December 31. Before January 1, 1996, the Company used a
fiscal year ending on December 31. Fiscal 1996 and fiscal 1997 were 52-week
years.
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OPERATING RESULTS
Overall results of operations for the 52 weeks ended December 28, 1997
reflect the opening of eleven new units during fiscal 1997 and the additions to
the Company's infrastructure to support a rapid expansion rate. The overall
operating results of the Company for fiscal 1997 and fiscal 1996, expressed as a
percentage of net sales, were as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------
DECEMBER 28, DECEMBER 29,
1997 1996
------------- -------------
<S> <C> <C>
Sales, Net........................... 100.0 100.0
Unit-Level Costs and Expenses:
Food and Beverage Costs............ 37.1 35.9
Labor and Benefits................. 25.2 24.0
Operating Expenses................. 19.3 19.6
Depreciation and Amortization...... 3.7 3.0
Pre-opening Expenses............... 7.3 1.9
----- ------
Total Costs and Expenses........ 92.7 84.3
----- ------
Income from Unit-level Operations.... 7.3 15.7
General and Administrative Expenses 35.4 32.8
----- -------
Loss from Operations................. (28.0) (17.1)
Interest and Other Income (Expense) 2.9 2.2
----- -------
Net Loss............................. (25.1) (14.9)
===== =======
</TABLE>
A breakdown of the Company's restaurant and non-restaurant operating results
is as follows (amounts in $000's):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 28, 1997
-----------------------------------
Non-restaurant
Restaurant Operations Operations Total Company
--------------------- ------------------- -------------
Amount % of Net Amount % of Net Amount % of Net
------ Sales ------ Sales ------ Sales
-------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales, Net........................... 16,728 100.0 1,474 100.0 18,202 100.0
------ ----- ----- ----- ------ -----
Unit-Level Costs and Expenses:
Food and Beverage Costs............ 5,980 35.7 770 52.2 6,750 37.1
Labor and Benefits................. 4,267 25.5 328 22.3 4,595 25.2
Operating Expenses................. 3,164 18.9 357 24.2 3,521 19.3
Depreciation and Amortization...... 669 4.0 9 0.6 678 3.7
Pre-opening Expenses............... 1,324 7.9 0 0.0 1,324 7.3
------ ----- ----- ----- ------ -----
Total Costs and Expenses........ 15,404 92.1 1,464 99.3 16,868 92.7
------ ----- ----- ----- ------ -----
Income from Unit-level Operations.... 1,324 7.9 10 0.7 1,334 7.3
------ ----- ----- ----- ------ ------
<CAPTION>
FISCAL YEAR ENDED DECEMBER 29, 1996
-----------------------------------
Non-restaurant
Restaurant Operations Operations Total Company
--------------------- ------------------- -------------
Amount % of Net Amount % of Net Amount % of Net
------ Sales ------ Sales ------ Sales
-------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales, Net........................... 4,707 100.0 45 100.0 4,752 100.0
----- ----- --- ----- ----- -----
Unit-Level Costs and Expenses:
Food and Beverage Costs............ 1,673 35.5 31 68.9 1,704 35.9
Labor and Benefits................. 1,107 23.5 33 73.3 1,140 24.0
Operating Expenses................. 927 19.7 3 6.7 930 19.6
Depreciation and Amortization...... 144 3.1 0 0.0 144 3.0
Pre-opening Expenses............... 89 1.9 0 0.0 89 1.9
----- ----- --- ----- ----- -----
Total Costs and Expenses........ 3,940 83.7 67 148.9 4,007 84.3
----- ----- --- ----- ----- -----
Income (Loss) from Unit-level 767 16.3 (22) (48.9) 745 15.7
Operations........................... ----- ----- --- ----- ----- -----
</TABLE>
The Company's non-restaurant revenues consist primarily of retail grocery
sales in fiscal 1996 and retail grocery, catering and special event sales in
fiscal 1997.
10
<PAGE> 11
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Net Sales -- Net sales increased by $13,450,000 or 283% to $18,202,000 for
the year ended December 28, 1997 from $4,752,000 for the year ended December 29,
1996. The increase in sales was due primarily to the additional eleven
restaurants opened during fiscal 1997, adding to the base of three restaurants
open as of December 29, 1996, as well as an increase in non-restaurant revenues.
Because of the 1997 restaurant openings, and expected additional restaurant
openings in 1998, the Company anticipates net sales and operating costs and
expenses to continue to increase during fiscal 1998. The Company had no material
menu price increases during fiscal 1997.
Same Store Sales -- It is the Company's policy to include in its same store
sales base restaurants which have been open more than eighteen months. During
fiscal 1997, the only restaurant included in this base was the Linden Hills
unit. Same store sales for fiscal 1997 decreased approximately 10% compared to
fiscal 1996. Management believes that this decrease reflects primarily the
redistribution of customer demand because of new units opened in the
Minneapolis/St. Paul market during 1997.
Average Weekly Sales -- Average weekly sales from restaurant operations
increased from $48,500 to $51,600 reflecting primarily the larger sales volumes
from the Calhoun Blues Club, which was open during all of fiscal 1997 vs. less
than four months in fiscal 1996, offset by an increase in the mix of relatively
lower-unit-volume shacks vs. the relatively higher-unit-volume club. Restaurant
operating weeks during fiscal 1997 totaled 324 compared to 97 in fiscal 1996.
Average weekly sales at units outside of the Minneapolis/St. Paul market have
generally been lower than sales at units within the Minneapolis/St. Paul market,
reflecting what management believes are lower levels of name recognition and
brand awareness in new markets.
Food and Beverage Costs -- Food and beverage costs for fiscal 1997 were
$6,750,000 or 37.1% of net sales compared to $1,704,000 or 35.9% for fiscal
1996. The increase in food and beverage costs as a percent of net sales was
primarily due to increased sales of lower-margin retail grocery items, higher
pork prices throughout much of fiscal 1997 and initial operating inefficiencies
associated with the opening of new units, offset by reduced costs and expenses
due to improved purchasing power.
Labor and Benefits -- Labor and benefits were $4,595,000 or 25.2% of net
sales in fiscal 1997 compared to $1,140,000 or 24.0% of net sales in fiscal
1996. The increase in labor and benefits as a percent of net sales was primarily
attributable to initial operating inefficiencies associated with the opening of
new units.
Operating Expenses -- Operating expenses for fiscal 1997 were $3,521,000 or
19.3% of net sales compared to $930,000 or 19.6% of net sales for fiscal 1996.
The decrease in operating expenses as a percent of sales in fiscal 1997 compared
to fiscal 1996 is primarily due to an increase in the ratio of owned vs. leased
properties (in general, there is no rent expense associated with owned
properties), offset by higher operating costs associated with non-restaurant
operations and the Calhoun Blues Club which opened in September 1996.
Depreciation and Amortization -- Unit-level depreciation and amortization
for fiscal 1997 was $678,000 or 3.7% of net sales compared to $144,000 or 3.0%
of net sales for fiscal 1996. The increase in unit-level depreciation and
amortization as a percent of net sales is due primarily to higher levels of
depreciation resulting from higher construction costs associated with
newly-constructed units opened in fiscal 1997. Units opened in 1996 and prior
were conversions of existing structures which generally had lower levels of
investment in relation to sales and thus lower levels of depreciation as a
percent of net sales.
Pre-opening Expenses -- Beginning in the second quarter of fiscal 1997,
pre-opening expenses are deferred and charged to expense in the month a new
restaurant opens. In fiscal 1996, these expenses were deferred and charged to
expense over no longer than a twelve-month period following the opening of the
restaurant. Pre-opening expenses were $1,324,000 or 7.3% of net sales for fiscal
1997 compared to $89,000 or 1.9% of net sales for fiscal 1996. These expenses
reflect the opening of eleven new restaurants in fiscal 1997 vs. the opening of
two new restaurants in fiscal 1996. Pre-opening expenses were generally higher
for units opened in fiscal 1997 due primarily to costs associated with more
extensive training of restaurant management and staff and costs associated with
openings outside of the Minneapolis/St. Paul market.
Income from Unit-level Operations -- Income from unit-level operations
totaled $1,334,000 or 7.3% of net sales for fiscal 1997 compared to $745,000 or
15.7% of net sales for fiscal 1996. Income from unit-level operations represents
11
<PAGE> 12
income from operations before general and administrative expenses. Although
income from unit-level operations should not be considered an alternative to
income/loss from operations as a measure of the Company's operating performance,
such unit-level measurement is commonly used as an additional measure of
operating performance in the restaurant industry and certain related industries.
The change in income from unit-level operations, both in amount and as a percent
of sales, from 1996 to 1997 is primarily attributable to the increase in net
sales from additional units opened and the impact of pre-opening expenses
associated with the eleven additional units opened. Other changes in costs and
expenses discussed above also contributed to the change in income from
unit-level operations.
General and Administrative Expenses -- General and administrative expenses
increased to $6,435,000 or 35.4% of net sales in fiscal 1997 from $1,558,000 or
32.8% of net sales in fiscal 1996. The increase in these expenses is primarily
attributable to costs associated with the development of the Company's corporate
and administrative infrastructure to support the development of additional
restaurants. Management expects a reduction in the percentage of general and
administrative expense to sales during fiscal 1998. Also see "1998 Adjustments
To Corporate Infrastructure" below.
Loss From Operations -- Loss from operations totaled ($5,105,000) or (28.0%)
of net sales for fiscal 1997 compared to ($813,000) or (17.1%) of net sales for
fiscal 1996. The increase in the loss from operations in 1997 compared to 1996
is primarily due to increased general and administrative expenses associated
with the development of the Company's corporate and administrative
infrastructure, the impact of pre-opening expenses associated with additional
units opened and other changes in costs and expenses discussed above.
Interest and Other Income (Expense), Net -- Interest and other income
(expense), net, which primarily represents interest income from short-term
investments offset by interest expense on capital lease obligations and a charge
for a planned systems conversion, totaled $530,000 for fiscal 1997 compared to
$106,000 for fiscal 1996. The increase from fiscal 1996 to fiscal 1997 was due
primarily to interest income received from the short-term investment of proceeds
from the Company's initial public offering in October 1996 and the exercise of
Class A Warrants in July 1997.
Net Loss / Net Loss per Share -- Net loss for fiscal 1997 was ($4,575,000)
compared to ($707,000) for fiscal 1996. Basic and diluted net loss per common
share was ($0.64) for fiscal 1997 compared to ($0.23) for fiscal 1996. The
computations of basic and diluted net loss per share reflect the adoption of
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" in 1997
as well as implementation of guidance from the Securities and Exchange
Commission Staff Accounting Bulletin No. 98 issued in February 1998. The
increases in the net loss and the basic and diluted net loss per common share in
1997 compared to 1996 is primarily due to increased general and administrative
expenses associated with the development of the Company's corporate and
administrative infrastructure, the impact of pre-opening expenses associated
with additional units opened and other changes in costs and expenses discussed
above.
1998 ADJUSTMENTS TO CORPORATE INFRASTRUCTURE
In February and March 1998, the Company adjusted its corporate infrastructure to
a reduced level which management believes is appropriate to support its current,
more controlled, plans for expansion and franchising. Such adjustments included
the resignation or termination of 12 members of the corporate staff, including
the president, vice president of franchising and executive vice president of
strategic planning and marketing. In addition, the Company's chief financial
officer has also indicated his intention to resign effective March 31, 1998 and
the Company has commenced a national search for his successor.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has met its capital requirements primarily
through the sale of Common Stock to and borrowings from its founder, David W.
Anderson, the private placement of Common Stock and the sale of Common Stock and
Warrants to the public.
During the period from March 14, 1994 (Inception) through December 31, 1995,
the Company sold to Mr. Anderson 2,000,000 shares of Common Stock at $.50 per
share. Additionally, the Company entered into a revolving promissory note with
Mr. Anderson allowing for advances of up to $2,000,000. This note was repaid and
expired during 1997.
12
<PAGE> 13
In July 1996, the Company completed a private placement of 1,356,250 shares
of Common Stock at $3.50 per share. The net proceeds to the Company were
approximately $4.1 million.
In October and November 1996, the Company sold in its initial public
offering 2,645,000 Units at an offering price of $6.50 per Unit, including
345,000 Units from the exercise of the Underwriter's over-allotment option. The
Company received net proceeds from the offering of approximately $15.2 million.
Each Unit consisted of one share of Common Stock and one Redeemable Class A
Warrant which entitled the holder to purchase one share of Common Stock at $8.50
per share.
In June 1997, the Company called for the redemption of the Class A Warrants,
giving warrant holders 30 days notice to exercise their warrants prior to
redemption by the Company. During July 1997, the warrant call was completed with
2,637,840 of the outstanding 2,645,000 warrants being exercised. Net proceeds to
the Company from such exercises totaled approximately $22.3 million. Unexercised
warrants were redeemed for $.01 per warrant.
As of December 28, 1997, the Company held cash and short-term investments of
approximately $18.3 million compared to $14.3 million as of December 29, 1996.
As reflected in the accompanying consolidated financial statements, this
increase in cash and short-term investments during the fifty-two weeks ended
December 28, 1997 primarily represents cash received from the exercise of Class
A Warrants and other financing activities (approximately $21.7 million), offset
by cash used for the purchase and/or development of property, equipment and
leasehold improvements (approximately $20.1 million.)
The development cost of the Company's restaurants has varied depending primarily
on the size of the restaurant and whether it is a conversion of an existing
building or a newly constructed unit. Since the Company's inception and through
fiscal 1997, the development cost of the Company's existing shack or lodge
restaurants has ranged from approximately $460,000 to $1,390,000 per restaurant
for conversions ranging in size from 2,900 square feet to 4,800 square feet and
$1,530,000 to $2,175,000 per restaurant for new construction ranging in size
from 4,500 square feet to 5,500 square feet. Such development costs include
construction, fixtures, furniture and equipment, and pre-opening costs, and do
not include the cost of purchased land as it has been the Company's general
practice to lease the majority of its sites. The development cost of the
Company's existing 10,500 square foot Blues Club was approximately $2,600,000,
including pre-opening expenses of approximately $180,000.
As of December 28, 1997, the Company had irrevocable letters of credit
outstanding for a total of approximately $1.6 million, including a letter of
credit for $1.5 million related to the Blues Club under construction in Chicago.
Such letters of credit are secured in full by the pledge of short-term
securities.
As of December 28, 1997, the Company had a lease financing facility of up to
$3.5 million for furniture, fixtures, equipment and leasehold improvements, of
which approximately $2.0 million had been funded through December 28, 1997.
To continue the Company's expansion, the Company anticipates that additional
financing will be required during fiscal 1998. The Company anticipates that
future development and expansion will be funded or financed primarily through
cash and short-term investments currently held, proceeds from the sale of
additional equity and/or debt securities, and proceeds from other forms of
financing such as lease financing or other credit facilities. However, there are
no assurances that additional financing required for expansion will be available
on terms acceptable or favorable to the Company.
INCOME TAXES
At December 28, 1997, the Company had federal and state net operating loss
carryforwards ("NOL's") for tax reporting purposes of approximately $4.9
million, which if not used will begin to expire in 2011. Future changes in
ownership, if any, may place limitations on the use of these NOL's. The Company
has recorded a full valuation allowance against the deferred tax asset related
to the NOL's due to the uncertainty of realizing the related benefit.
13
<PAGE> 14
QUARTERLY FLUCTUATIONS, SEASONALITY AND INFLATION
The Company's Units typically generate higher revenues in the second and
third quarters and lower revenues in the first and fourth quarters as a result
of seasonal traffic increases experienced during the summer months.
The primary inflationary factors affecting the Company's operations include
food and beverage and labor costs. In addition, the Company's leases require the
Company to pay taxes, maintenance, repairs and utilities and these costs are
subject to inflationary increases.
The Company believes low inflation rates have contributed to relatively
stable costs. There is no assurance, however, that low inflation rates will
continue.
PROPOSED NEW ACCOUNTING STANDARD
In April 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued an exposure draft
entitled "Reporting on the Costs of Start-Up Activities." The proposed
accounting standard contained in this draft would require entities to expense as
incurred all start-up and pre-opening costs that are not otherwise capitalizable
as long-lived assets. If adopted by the AICPA, this new accounting standard
would be effective for fiscal years beginning after December 15, 1997. The
comment period for the exposure draft ended in July 1997, and the AICPA is
expected to issue a final pronouncement on this standard during the second
quarter of 1998.
If the new accounting principle is adopted by the AICPA, implementation will
involve the recognition of the cumulative effect of the change in accounting
principle required by the new standard as a one-time charge against earnings,
net of any related income tax effect, retroactive to the beginning of fiscal
1998. The Company's policy is to defer pre-opening costs and charge such costs
to expense in the month a new restaurant opens. As of December 28, 1997, the
Company had deferred approximately $130,000 of pre-opening costs related to
units in development.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain Statements in this Form 10-KSB constitute "Forward-Looking Statements"
within the meaning of the private securities litigation reform act of 1995 (the
"Reform Act"). Such Forward-Looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results,
performance, or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
additional market acceptance of the Famous Dave's concept; the ability to
successfully expand into new markets; the ability of the company to execute its
expansion strategy; changes in business strategy or development plans;
availability and terms of capital; changes in costs of food, labor, and
employee benefits; changes in Government Regulations; competition; availability
of locations and terms of sites for restaurant development; development and
operating costs; advertising and promotional efforts; brand awareness and other
factors referenced in this Form 10-KSB.
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of the Company are included herein
following the signatures, beginning at page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE> 15
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16 (A) OF THE EXCHANGE ACT
Information in response to this Item is incorporated herein by reference to
the Company's definitive proxy statement to be filed pursuant to Regulation 14 A
within 120 days after the end of the fiscal year covered by this form 10-KSB.
ITEM 10. EXECUTIVE COMPENSATION
Information in response to this Item is incorporated herein by reference to
the Company's definitive proxy statement to be filed pursuant to Regulation 14 A
within 120 days after the end of the fiscal year covered by this form 10-KSB.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this Item is incorporated herein by reference to
the Company's definitive proxy statement to be filed pursuant to Regulation 14 A
within 120 days after the end of the fiscal year covered by this form 10-KSB.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this Item is incorporated herein by reference to
the Company's definitive proxy statement to be filed pursuant to Regulation 14 A
within 120 days after the end of the fiscal year covered by this form 10-KSB.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
See "exhibit index" on the page following the Consolidated Financial
Statements.
(b) Reports on Form 8-K.
None.
15
<PAGE> 16
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FAMOUS DAVE'S OF AMERICA, INC.
("REGISTRANT")
Dated: March 30, 1998 By /s/ Douglas S. Lanham
----------------------
Douglas S. Lanham
Chief Executive Officer, President and
Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on March 30, 1998 by the following persons on behalf
of the Registrant, in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
/s/ David W. Anderson Chairman of the Board
--------------------------
David W. Anderson
/s/Douglas S. Lanham Chief Executive Officer, President,
-------------------------- Chief Operating Officer and
Douglas S. Lanham Director (principal executive
officer)
/s/ Steven E. Opdahl Vice President--Finance, Chief
-------------------------- Financial Officer (principal
Steven E. Opdahl financial and accounting
officer)
/s/ Thomas J. Brosig Director
--------------------------
Thomas J. Brosig
/s/ Richard L. Monfort Director
--------------------------
Richard L. Monfort
/s/ Martin J. O'Dowd Director
--------------------------
Martin J. O'Dowd
</TABLE>
16
<PAGE> 17
ITEM 7. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Famous Dave's of America, Inc.:
We have audited the accompanying consolidated balance sheets of Famous Dave's of
America, Inc. and Subsidiaries as of December 28, 1997 and December 29, 1996 and
the related consolidated statements of operations, shareholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Famous Dave's of
America, Inc. and Subsidiaries as of December 28, 1997 and December 29, 1996 and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
LUND KOEHLER COX & COMPANY, PLLP
Minneapolis, Minnesota
January 26, 1998
F-1
<PAGE> 18
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 1997 AND DECEMBER 29, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,984 $ 4,907
Securities available-for-sale 10,328 9,417
Inventories 471 167
Prepaids and other current assets 1,059 654
---------- ---------
Total current assets 19,842 15,145
Property, equipment and leasehold improvements, net 26,179 6,093
---------- ---------
$ 46,021 $ 21,238
========== =========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 5,718 $ 446
Current portion of capital lease obligations 361 162
Notes payable 0 390
Other current liabilities 1,444 195
---------- ---------
Total current liabilities 7,523 1,193
Capital lease obligations, net of current portion 1,390 742
---------- ---------
Total liabilities 8,913 1,935
---------- ---------
Commitments and contingencies (note 12)
Shareholders' equity:
Common stock, $.01 par value, 100,000 shares authorized,
8,667 and 6,001 shares issued and outstanding 87 60
Additional paid-in capital 41,928 19,587
Unrealized loss on securities available-for-sale 0 (12)
Accumulated deficit (4,907) (332)
---------- ---------
Total shareholders' equity 37,108 19,303
---------- ---------
$ 46,021 $ 21,238
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 19
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 28, 1997 AND DECEMBER 29, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Sales, net $ 18,202 $ 4,752
-------- --------
Costs and expenses:
Food and beverage costs 6,750 1,704
Labor and benefits 4,595 1,140
Operating expenses 3,521 930
Depreciation and amortization 682 144
Pre-opening expenses 1,324 89
General and administrative 6,435 1,558
-------- --------
Total costs and expenses 23,307 5,565
-------- --------
Loss from operations (5,105) (813)
-------- --------
Other income (expense):
Interest income 913 197
Interest expense (151) (91)
Reserve for loss on systems conversion (232) 0
-------- --------
Total other income (expense) 530 106
-------- --------
Net loss $ (4,575) $ (707)
======== ========
Basic and diluted net loss per common share $ (0.64) $ (0.23)
======== ========
Shares used in computing basic and diluted net loss
per common share 7,165 3,079
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 20
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 28, 1997 AND DECEMBER 29, 1996
(in thousands)
<TABLE>
<CAPTION>
Unrealized Loss
Common Stock Additional on Securities
---------------- Paid-in Available- Accumulated
Shares Amount Capital For Sale Deficit Total
------ ------ ------- -------------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1995 2,000 $ 20 $ 980 $ 0 $ (306) $ 694
Termination of S Corporation status -- -- (681) -- 681 0
Private placement of common stock at
$3.50 per share, net of issuance costs 1,356 14 4,125 -- -- 4,139
Initial public offering of common
stock at $6.50 per share, net of
issuance costs 2,645 26 15,163 -- -- 15,189
Change in unrealized loss on
securities available-for-sale -- -- -- (12) -- (12)
Net loss -- -- -- -- (707) (707)
------ ------ ------- --------- -------- -------
Balance - December 29, 1996 6,001 60 19,587 (12) (332) 19,303
Exercise of Class A warrants at
$8.50 per share, net of issuance costs
and redemption of unexercised
Class A warrants 2,638 26 22,301 -- -- 22,327
Exercise of stock options 28 1 40 -- -- 41
Change in unrealized loss on
securities available-for-sale -- -- -- 12 -- 12
Net loss -- -- -- -- (4,575) (4,575)
------ ------ ------- --------- -------- -------
Balance - December 28, 1997 8,667 $ 87 $41,928 $ 0 $ (4,907) $37,108
====== ====== ======= ========= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 21
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 28, 1997 AND DECEMBER 29, 1996
(in thousands)
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Operating activities:
Net loss $ (4,575) $ (707)
Adjustments to reconcile net loss to
cash flows from operating activities:
Depreciation and amortization 902 273
Reserve for loss on systems conversion 232 0
Changes in working capital items:
Inventories (304) (155)
Prepaids and other current assets (405) (756)
Accounts payable 5,272 336
Other current liabilities 1,249 165
---------- --------
Cash flows from operating activities 2,371 (844)
---------- --------
Investing activites:
Net increase in securities available-for-sale (899) (9,429)
Purchases of property, equipment and leasehold improvements (20,123) (4,424)
---------- --------
Cash flows from investing activities (21,022) (13,853)
---------- --------
Financing activities:
Proceeds from exercise of Class A warrants, net of issuance costs 22,327 0
Proceeds from exercise of stock options 41 0
Proceeds from private placement of stock, net of issuance costs 0 4,139
Proceeds from initial public offering, net of issuance costs 0 15,188
Advances on notes payable 0 241
Payments on note payable (390) 0
Payments on capital lease obligations (250) (64)
---------- --------
Cash flows from financing activities 21,728 19,504
---------- --------
Increase in cash and cash equivalents 3,077 4,807
Cash and cash equivalents, beginning 4,907 100
---------- --------
Cash and cash equivalents, ending $ 7,984 $ 4,907
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 22
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 28, 1997 AND DECEMBER 29, 1996
(1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Famous Dave's of America, Inc. (the Company) was
incorporated in the state of Minnesota on March 14, 1994. The Company develops,
owns, operates and franchises American roadhouse style restaurants under the
name "Famous Dave's". As of December 28, 1997, the Company had fourteen owned
restaurants in operation, with additional restaurants in development. The
Company has not yet franchised a restaurant.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Famous Dave's of America, Inc. and its wholly owned subsidiaries.
All significant intercompany transactions and balances have been eliminated in
consolidation.
FISCAL YEAR - Beginning January 1, 1996, the Company adopted a 52/53 week
accounting period ending on the Sunday nearest December 31 of each year. Fiscal
years 1997 and 1996 were 52 week years.
CASH AND CASH EQUIVALENTS - The Company includes as cash equivalents
certificates of deposit and all other investments with original maturities of
three months or less when purchased which are readily convertible into known
amounts of cash. The balances maintained at financial institutions may, at
times, exceed federally insured limits.
INVENTORIES - Inventories consist principally of food, beverages and retail
goods and are recorded at the lower of cost (first-in, first-out) or market.
DEPRECIATION - Property, equipment and leasehold improvements are recorded at
cost. Improvements are capitalized while repair and maintenance costs are
charged to operations when incurred. Furniture, fixtures, equipment and antiques
are depreciated or amortized using the straight-line method over five to seven
years, while buildings are depreciated over thirty years. Leasehold improvements
are amortized using the straight-line method over the shorter of their estimated
useful lives or the lease term, including option periods.
PRE-OPENING EXPENSES - Effective March 31, 1997, the Company's policy is to
capitalize the direct and incremental costs associated with a new restaurant and
charge these costs to operations in the month the restaurant opens. Previously,
the Company charged these costs to expense over no longer than a twelve-month
period following the opening of the restaurant.
F-6
<PAGE> 23
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 28, 1997 AND DECEMBER 29, 1996
NET LOSS PER COMMON SHARE - During 1997, the Company adopted Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (Statement 128) for
all periods shown. Statement 128 requires disclosures of basic earnings per
share (EPS) and diluted EPS, which replaces the existing primary EPS and fully
diluted EPS, as defined by APB No. 15. Basic EPS is computed by dividing net
loss by the weighted average number of shares of common stock outstanding during
the year. Diluted EPS is computed by dividing net loss by the weighted average
common shares outstanding and dilutive common equivalent shares assumed to be
outstanding during each period. In addition, the Company has implemented recent
guidance from the Securities and Exchange Commission issued in February 1998
regarding the implementation of Statement 128. Dilutive common equivalent shares
have not been included in the computation of diluted EPS because their inclusion
would be antidilutive. Antidilutive common equivalent shares issuable based on
future exercise of stock options or warrants could potentially dilute basic EPS
in subsequent years.
MANAGEMENT'S USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS - The carrying amounts for all financial instruments
approximates fair value. The carrying amounts for cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities approximate fair
value because of the short maturity of these instruments. The fair value of
capital lease obligations approximates the current rates at which the Company
could borrow funds with similar remaining maturities.
RECLASSIFICATIONS - Certain accounts in the prior year consolidated financial
statements have been reclassified for comparative purposes to conform with the
presentation in the current year consolidated financial statements. These
reclassifications had no effect on net loss or shareholders' equity.
(2) SECURITIES AVAILABLE-FOR-SALE
The Company classifies all investments which are not cash equivalents as
securities available-for-sale with all gross unrealized gains or losses included
as a separate component of shareholders' equity. There were unrealized losses of
$0 and $12,000 at December 28, 1997 and December 29, 1996.
Securities available-for-sale are reported at fair value and are due within one
year of the financial statement date. At December 28, 1997, $1,624,300 of these
securities had been pledged as collateral for outstanding letters of credit (see
note 12).
F-7
<PAGE> 24
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 28, 1997 AND DECEMBER 29, 1996
(3) INVENTORIES
Inventories consisted of the following at (in thousands):
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
----------------- -----------------
<S> <C> <C>
Food and beverage $ 153 $ 44
Retail goods 318 123
================= =================
$ 471 $ 167
================= =================
</TABLE>
(4) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consisted of the following at (in
thousands):
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
----------------- -----------------
<S> <C> <C>
Land, buildings and improvements $ 16,508 $ 4,478
Furniture, fixtures and equipment 7,120 1,387
Antiques 1,187 234
Less: accumulated depreciation and amortization 1,100 198
Less: reserve for loss on system conversion 232 0
================= =================
23,483 5,901
Construction in progress 2,696 192
================= =================
$ 26,179 $ 6,093
================= =================
</TABLE>
(5) NOTES PAYABLE
MORTGAGE NOTE PAYABLE - CONTRACT FOR DEED - The Company had a mortgage note
payable of $390,000 at December 29, 1996 which was paid in full during 1997.
NOTE PAYABLE - SHAREHOLDER - The Company had a $2,000,000 revolving note with
its majority shareholder which expired June 1997. The outstanding balance on the
note was $83,000 at December 29, 1996, which was paid in full during 1997 and
netted with other related party balances included in other current assets.
F-8
<PAGE> 25
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 28, 1997 AND DECEMBER 29, 1996
(6) RELATED PARTY TRANSACTIONS
S&D LAND HOLDINGS, INC. - S&D Land Holdings, Inc. (S&D) is a company wholly
owned by the majority shareholder of the Company. The Company rents four
properties from S&D. The Company paid S&D rent of $169,000 and $104,000 for the
years ended December 28, 1997 and December 29, 1996. The Company owed S&D
$172,000 and $48,000 at December 28, 1997 and December 29, 1996.
GRAND PINES RESORTS, INC. - Grand Pines Resorts, Inc. (Grand Pines), is a
company wholly owned by the majority shareholder of the Company. The Company
charges Grand Pines a royalty of 4% of its food sales. Royalty income was
$56,000 and $49,000 for the years ended December 28, 1997 and December 29, 1996.
Until July 1997, the Company also provided certain management services to Grand
Pines for 3% of its food sales. Management fee income was $15,000 and $38,000
for the years ended December 28, 1997 and December 29, 1996. At December 28,
1997 and December 29, 1996, Grand Pines owed the Company $190,000 and $215,000
for royalties, management services and other expenses.
(7) CAPITAL LEASE OBLIGATIONS
The Company has a lease financing facility providing up to $3.5 million for
furniture, equipment and leasehold improvements, of which approximately $2.0
million had been funded. Leases outstanding under this agreement bear interest
at rates of approximately 11% to 15% and expire through August 2002. The
obligations are secured by the equipment under lease. Total cost and accumulated
amortization of the leased equipment was $2,066,000 and $271,000 at December 28,
1997 and $969,000 and $77,000 at December 29, 1996.
Future minimum lease payments are as follows for the fiscal years ending (in
thousands):
<TABLE>
<S> <C>
1998 $ 540
1999 539
2000 531
2001 437
2002 151
---------
Total 2,198
Less: amounts representing interest 447
---------
Present value of future minimum lease payments 1,751
Less: current portion 361
---------
Obligations under capital leases, net of current portion $ 1,390
=========
</TABLE>
(8) SHAREHOLDERS' EQUITY
STOCK SPLIT - On June 11, 1996, the Company declared a 2,000-for-1 stock split.
The stock split has been retroactively reflected in the accompanying
consolidated financial statements.
F-9
<PAGE> 26
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 28, 1997 AND DECEMBER 29, 1996
PRIVATE PLACEMENT OF COMMON STOCK - During July 1996, the Company sold 1,356,250
shares of its common stock in a private placement offering for $3.50 per share
and received net proceeds of approximately $4,139,000.
INITIAL PUBLIC OFFERING - During October and November 1996, the Company sold, in
an initial public offering, 2,645,000 units consisting of one share of common
stock and one Redeemable Class A Warrant for $6.50 per unit. Class A Warrants
entitled the holder to purchase one share of the Company's common stock at $8.50
per share. Net proceeds to the Company were approximately $15,189,000.
EXERCISE OF WARRANTS - During June 1997, the holders of 2,637,840 of the
Redeemable Class A Warrants (the Warrants), discussed above, exercised the
Warrants at an exercise price of $8.50. A total of 7,160 warrants were not
exercised, and the Company redeemed those at $.01 per warrant. Net proceeds to
the Company were approximately $22,327,000.
UNDERWRITER'S WARRANT - In connection with its initial public offering in
October 1996, the Company issued a warrant to the underwriter to purchase
230,000 shares of common stock at $9.10 per share. The warrant is exercisable
for five years.
STOCK OPTION PLAN - The Company adopted a Stock Option and Compensation Plan in
1995 and an additional stock option and compensation plan for nonofficers and
employees in June 1997 (the Plan), pursuant to which options and other awards to
acquire an aggregate of 1,100,000 shares of the Company's common stock may be
granted. Stock options, stock appreciation rights, restricted stock, other stock
and cash awards may be granted under the Plan. In general, options vest over a
period of five years and expire ten years from the date of grant. In addition,
the Company has granted certain stock options outside of the Plan.
The Company applies APB Opinion 25 "Accounting for Stock Issued to Employees"
and related Interpretations in accounting for its stock options. Accordingly, no
compensation cost has been recognized for its stock options. Had compensation
cost for the Company's stock options been determined based on the fair value at
the grant dates consistent with the method of Statement of Financial Accounting
Standards No. 123 "Accounting for Stock Based Compensation" (Statement 123), the
Company's net loss would have been increased to the proforma amounts indicated
below (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net loss:
As reported $ 4,575 $ 707
Pro forma $ 5,646 $ 869
Loss per share:
Basic and Diluted EPS as reported $ (.64) $ (.23)
Basic and Diluted EPS pro forma $ (.79) $ (.28)
</TABLE>
F-10
<PAGE> 27
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 28, 1997 AND DECEMBER 29, 1996
Information regarding the Company's stock options is summarized below:
<TABLE>
<CAPTION>
1997 1996
----------------------------------------- -----------------------------------------
Weighted Weighted
Shares Average Shares Average
(in thousands) Exercise Price (in thousands) Exercise Price
------------------ ---------------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
Options outstanding, beginning of year 515 $ 3.90 150 $ 1.00
Granted 609 9.76 365 5.10
Canceled 23 1.83 0 .00
Exercised 28 1.45 0 .00
----------------- -----------------
Options outstanding, end of year 1,073 $ 7.34 515 $ 3.90
================= ===================== ================= ======================
Options exercisable, end of year 132 $ 4.46 55 $ 2.51
================= ===================== ================= ======================
Weighted average fair value of
options granted during the year $ 8.35 $ 3.85
===================== ======================
</TABLE>
Of the 365,000 stock options granted during 1996, 75,000, with exercise prices
ranging from $4.33 to $6.75 per share, were granted outside of the Plan.
Options outstanding at December 28, 1997 have an exercise price ranging between
$1.00 and $18.75 and a weighted average remaining contractual life of 8.05
years.
In determining the compensation cost of the options granted during 1997 and
1996, as specified by Statement 123, the fair value of each option grant has
been estimated on the date of grant using the Black-Scholes option pricing model
and the weighted average assumptions used in these calculations are summarized
below:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C> <C>
Risk free interest rate 7% 7%
Expected life of options granted 10 years 10 years
Expected volatility 80.6% 34.3%
Expected dividend yield 0% 0%
</TABLE>
F-11
<PAGE> 28
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 28, 1997 AND DECEMBER 29, 1996
(9) INCOME TAXES
The Company was an S Corporation until March 3, 1996 and incurred losses
totaling $681,000 through that date. Accordingly, these losses were recognized
by the Company's founding shareholder on his personal tax returns. These losses
were reclassified to additional paid-in capital during 1996.
From March 4, 1996 through December 28, 1997 the Company generated a net
operating loss of approximately $4,907,000 which, if not used, will begin to
expire in 2011. Future changes in the ownership of the Company may place
limitations on the use of this net operating loss carryforward. The Company has
recorded a full valuation allowance against its deferred tax asset due to the
uncertainty of realizing the related benefit (in thousands).
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
-------------------- --------------------
<S> <C> <C>
Net operating loss carryforward $ 1,986 $ 133
Less: valuation allowance 1,986 133
------------------- -------------------
Net deferred taxes $ 0 $ 0
=================== ===================
(10) SUPPLEMENTAL CASH FLOWS INFORMATION (IN THOUSANDS)
December 28, December 29,
1997 1996
-------------------- --------------------
Cash paid for interest $ 151 $ 91
=================== ===================
Noncash investing and financing activities:
Equipment purchased under capital lease
obligations $ 1,097 $ 969
=================== ===================
Change in unrealized loss on securities
available-for-sale $ 12 $ (12)
=================== ===================
Purchase of land with contract for deed $ 0 $ 390
=================== ===================
Real estate exchanged to retire debt $ 0 $ 781
=================== ===================
</TABLE>
(11) RETIREMENT SAVINGS PLAN
In July 1997, the Company implemented a pre-tax salary reduction/profit sharing
plan under the provisions of Section 401(k) of the Internal Revenue Code which
covers employees meeting certain eligibility requirements. Profit sharing
contributions by the Company are completely discretionary. The Company made
contributions totaling $12,000 for the year ended December 28, 1997.
F-12
<PAGE> 29
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 28, 1997 AND DECEMBER 29, 1996
(12) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company has entered into various operating leases for its
existing and future restaurants and corporate office space with lease terms
ranging from three to thirty years including lease options. One of the leases
requires a percentage rent of 5% of annual gross sales for the restaurant in
excess of $2,813,000, in addition to the base rent. All of these leases contain
provisions for payments of real estate taxes, insurance and common area costs.
Total rent expense for the years ended December 28,1997 and December 29, 1996,
including common area costs, real estate taxes and percentage rent, was $728,000
and $232,000. Percentage rent was $95,591 and $0 for the years ended December
28, 1997 and December 29, 1996.
Future minimum rental payments (excluding percentage rents) for the operating
leases described above are as follows for the years ending December 28 (in
thousands):
<TABLE>
<S> <C>
1998 $ 1,057
1999 1,170
2000 1,135
2001 991
2002 1,007
Thereafter 16,714
===================
Total $ 22,074
===================
</TABLE>
EMPLOYMENT AGREEMENTS - At December 28, 1997, the Company had employment
agreements with three of its officers. The agreements require minimum annual
compensation of $100,000 to $225,000 and have terms of two to five years. All of
the contracts require at least six months' severance payments with a resulting
two year non-compete.
LETTER OF CREDIT - At December 28, 1997, the Company had irrevocable letters of
credit outstanding for a total of $1,624,300, including a letter of credit for
$1.5 million expiring January 1, 1999 related to a Blues club under construction
in Chicago. Such letters of credit are secured in full by short-term securities
pledged as collateral.
F-13
<PAGE> 30
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 28, 1997 AND DECEMBER 29, 1996
(13) SELECTED QUARTERLY DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarters During the Year Ended December 28, 1997
------------------------------------------------------------------------------------
March 30 June 29 September 28 December 28
------------------- --------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Revenues $ 2,241 $ 3,797 $ 6,102 $ 6,062
Loss from operations $ (758) $ (1,041) $ (1,063) $ (2,243)
Net loss $ (619) $ (921) $ (849) $ (2,186)
Basic and diluted net loss
per common share $ (.10) $ (.15) $ (.11) $ (.25)
Quarters During the Year Ended December 29, 1996
------------------------------------------------------------------------------------
March 31 June 30 September 29 December 29
------------------- --------------------- -------------------- --------------------
Revenues $ 290 $ 717 $ 1,684 $ 2,061
Loss from operations $ (201) $ (118) $ (39) $ (455)
Net loss $ (250) $ (138) $ (54) $ (265)
Basic and diluted net loss
per common share $ (.13) $ (.07) $ (.02) $ (.05)
</TABLE>
F-14
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
------- ----------- --------
<S> <C> <C>
3.1 Articles of Incorporation, incorporated by reference from Exhibit
3.1 to the Company's Registration Statement on Form SB-2 (File No.
333-10675) filed with the Securities and Exchange Commission on
August 23, 1996 (the "1996 SB-2")
3.2 Bylaws, incorporated by reference from Exhibit 3.2 to the 1996 SB-2
10.1 Lease Agreement dated as of January 1, 1996 by and between S&D
Land Holdings, Inc. and Famous Dave's of Minneapolis, Inc. (Linden
Hills), incorporated by reference from Exhibit 10.1 to the 1996
SB-2
10.2 Lease Agreement dated as of January 1, 1996 by and between S&D
Land Holdings, Inc. and Famous Dave's of Minneapolis, Inc.
(Highland Park), incorporated by reference from Exhibit 10.2 to
the 1996 SB-2
10.3 Lease Agreement dated as of January 15, 1996 by and between S&D
Land Holdings, Inc. and Famous Dave's of Minneapolis, Inc.
(Minnetonka), incorporated by reference from Exhibit 10.3 to the
1996 SB-2
10.4 Sublease Agreement dated as of January 1, 1996 by and between S&D
Land Holdings, Inc. and Famous Dave's of Minneapolis, Inc.
(Roseville), incorporated by reference from Exhibit 10.4 to the
1996 SB-2
10.5 Lease Agreement dated January 4, 1996 by and between Calhoun
Square Associates Limited Partnership and Lake & Hennepin BBQ and
Blues, Inc., as amended on March 26, 1996 and as further amended
on July 15, 1996 (Calhoun Square), incorporated by reference from
Exhibit 10.5 to Amendment No. 1 to the 1996 SB-2 filed with the
Securities and Exchange Commission on October 1, 1996 ("Amendment
No. 1 to the 1996 SB-2")
10.6 Company's 1995 Stock Option and Compensation Plan, incorporated
by reference from Exhibit 10.7 to the 1996 SB-2
10.7 Amendment dated August 12, 1996 to the Company's 1995 Stock Option
and Compensation Plan, incorporated by reference from Exhibit
10.13 to Amendment No. 1 to the 1996 SB-2
10.8 Amendment dated February 4, 1997 to the Company's 1995 Stock Option
and Compensation Plan, incorporated by reference from the Company's Form
10-K for the fiscal year ended December 29, 1996
10.9 Employment Agreement dated as of March 4, 1996 between the Company
and David W. Anderson, incorporated by reference from Exhibit 10.8
to the 1996 SB-2
10.10 Employment Agreement dated as of August 12, 1996 between the
Company and Mark A. Payne, incorporated by reference from Exhibit
10.10 to the 1996 SB-2
10.11 Employment Agreement dated as of December 18, 1996 between
the Company and Stanley R. Herman, as amended as of January 23, 1997,
incorporated by reference from the Company's Form 10-K for the fiscal
year ended December 29, 1996
10.12 Employment Agreement dated as of January 23, 1997 between the Company
and Douglas S. Lanham, incorporated by reference from the Company's
Form 10-K for the fiscal year ended December 29, 1996
10.13 Trademark License Agreement between Famous Dave's of America, Inc.
and Grand Pines Resorts, Inc., incorporated by reference from
Exhibit 10.11 to the 1996 SB-2
10.14 Management Agreement dated January 1, 1996 between Famous Dave's
Enterprises, Inc. and Famous Dave's of Minneapolis, Inc.,
incorporated by reference from Exhibit 10.12 to the 1996 SB-2
10.15 Company's 1997 Employee Stock Option Plan
10.16 Separation Agreement and General Release dated February 3, 1998
between the Company and Mark A. Payne
21 Subsidiaries of Famous Dave's of America, Inc.
23 Consent of Lund Koehler Cox & Company, PLLP
27.1 Financial Data Schedule - Year ended December 28, 1997
27.2 Financial Data Schedule - Year ended December 29, 1996 and nine
months ended September 29, 1996
27.3 Financial Data Schedule - Six months ended June 29, 1997 and nine months
ended September 28, 1997
</TABLE>
<PAGE> 1
EXHIBIT 10.15
FAMOUS DAVE'S OF AMERICA, INC.
1997 EMPLOYEE STOCK OPTION PLAN
1. Purpose. The purpose of the 1997 Employee Stock Option Plan (the
"Plan") of Famous Dave's of America, Inc. (the "Company") is to increase
shareholder value and to advance the interests of the Company by attracting,
retaining and motivating employees of the Company by furnishing opportunities to
purchase or receive shares of Common Stock, $.01 par value, of the Company
("Common Stock") pursuant to the Plan.
2. Administration. The Plan shall be administered by the stock option
committee (the "Committee") of the Board of Directors of the Company. The
Committee shall consist of not less than two directors of the Company and shall
be appointed from time to time by the Board of Directors of the Company. The
Board of Directors of the Company may from time to time appoint members of the
Committee in substitution for, or in addition to, members previously appointed,
and may fill vacancies, however caused, in the Committee. The Committee shall
select one of its members as its chairman and shall hold its meetings at such
times and places as it shall deem advisable. A majority of the Committee's
members shall constitute a quorum. All action of the Committee shall be taken by
the majority of its members. Any action may be taken by a written instrument
signed by majority of the members and actions so taken shall be fully effective
as if it had been made by a majority vote at a meeting duly called and held. The
Committee may appoint a secretary, shall keep minutes of its meetings and shall
make such rules and regulations for the conduct of its business as it shall deem
advisable. The Committee shall have complete authority to award Incentives under
the Plan, to interpret the Plan, and to make any other determination which it
believes necessary and advisable for the proper administration of the Plan. The
Committee's decisions and matters relating to the Plan shall be final and
conclusive on the Company and its participants.
3. Eligible Employees. Employees of the Company (excluding officers and
directors of the Company) shall become eligible to receive Incentives under the
Plan when designated by the Committee. Employees may be designated individually
or by groups or categories (for example, by pay grade) as the Committee deems
appropriate. Participation by others and any performance objectives relating to
others may be approved by groups or categories (for example, by pay grade) and
authority to designate participants who are not officers and to set or modify
such targets may be delegated.
4. Types of Incentives. Incentives under the Plan may be granted in any
one or a combination of the following forms: (a) incentive stock options and
non-statutory stock options (section 6); (b) stock appreciation rights ("SARs")
(section 7); (c) stock awards (section 8); (d) restricted stock (section 8); and
(e) performance shares (section 9).
-1-
<PAGE> 2
5. Shares Subject to the Plan.
5.1. Number of Shares. Subject to adjustment as provided in
Section 10.6, the number of shares of Common Stock which may be issued
under the Plan shall not exceed 200,000 shares of Common Stock, subject
to approval by the shareholders of the Company at the next meeting of
shareholders.
5.2. Cancellation. To the extent that cash in lieu of shares
of Common Stock is delivered upon the exercise of a SAR pursuant to
Section 7.4, the Company shall be deemed, for purposes of applying the
limitation on the number of shares, to have issued the greater of the
number of shares of Common Stock which it was entitled to issue upon
such exercise or on the exercise of any related option. In the event
that a stock option or SAR granted hereunder expires or is terminated
or canceled unexercised as to any shares of Common Stock, such shares
may again be issued under the Plan either pursuant to stock options,
SARs or otherwise. In the event that shares of Common Stock are issued
as restricted stock or pursuant to a stock award and thereafter are
forfeited or reacquired by the Company pursuant to rights reserved upon
issuance thereof, such forfeited and reacquired shares may again be
issued under the Plan, either as restricted stock, pursuant to stock
awards or otherwise. The Committee may also determine to cancel, and
agree to the cancellation of, stock options in order to make a
participant eligible for the grant of a stock option at a lower price
than the option to be canceled.
5.3. Type of Common Stock. Common Stock issued under the Plan
in connection with stock options, SARs, performance shares, restricted
stock or stock awards, may be authorized and unissued shares.
6. Stock Options. A stock option is a right to purchase shares of
Common Stock from the Company. Each stock option granted by the Committee under
this Plan shall be subject to the following terms and conditions:
6.1. Price. The option price per share shall be determined by
the Committee, subject to adjustment under Section 10.6.
6.2. Number. The number of shares of Common Stock subject to
the option shall be determined by the Committee, subject to adjustment
as provided in Section 10.6. The number of shares of Common Stock
subject to a stock option shall be reduced in the same proportion that
the holder thereof exercises a SAR if any SAR is granted in conjunction
with or related to the stock option.
6.3. Duration and Time for Exercise. Subject to earlier
termination as provided in Section 10.4, the term of each stock option
shall be determined by the Committee but shall not exceed ten years and
one day from the date of grant. Each stock option shall become
exercisable at such time or times during its term as shall be
determined by the Committee at the time of grant. No stock option may
be exercised during the first six months of its term. Except as
provided by the preceding sentence, the Committee may
-2-
<PAGE> 3
accelerate the exercisability of any stock option. Subject to the
foregoing and with the approval of the Committee, all or any part of
the shares of Common Stock with respect to which the right to purchase
has accrued may be purchased by the Company at the time of such accrual
or at any time or times thereafter during the term of the option.
6.4. Manner of Exercise. A stock option may be exercised, in
whole or in part, by giving written notice to the Company, specifying
the number of shares of Common Stock to be purchased and accompanied by
the full purchase price for such shares. The option price shall be
payable in United States dollars upon exercise of the option and may be
paid by cash; uncertified or certified check; bank draft; by delivery
of shares of Common Stock in payment of all or any part of the option
price, which shares shall be valued for this purpose at the Fair Market
Value on the date such option is exercised; by instructing the Company
to withhold from the shares of Common Stock issuable upon exercise of
the stock option shares of Common Stock in payment of all or any part
of the option price, which shares shall be valued for this purpose at
the Fair Market Value or in such other manner as may be authorized from
time to time by the Committee. Prior to the issuance of shares of
Common Stock upon the exercise of a stock option, a participant shall
have no rights as a shareholder.
6.5. Incentive Stock Options. Notwithstanding anything in the
Plan to the contrary, the following additional provisions shall apply
to the grant of stock options which are intended to qualify as
Incentive Stock Options (as such term is defined in Section 422 of the
Internal Revenue Code of 1986, as amended):
(a) The aggregate Fair Market Value (determined as of
the time the option is granted) of the shares of Common Stock
with respect to which Incentive Stock Options are exercisable
for the first time by any participant during any calendar year
(under all of the Company's plans) shall not exceed $100,000.
(b) Any Incentive Stock Option certificate authorized
under the Plan shall contain such other provisions as the
Committee shall deem advisable, but shall in all events be
consistent with and contain all provisions required in order
to qualify the options as Incentive Stock Options.
(c) All Incentive Stock Options must be granted
within ten years from the earlier of the date on which this
Plan was adopted by Board of Directors or the date this Plan
was approved by the shareholders.
(d) Unless sooner exercised, all Incentive Stock
Options shall expire no later than 10 years after the date of
grant.
(e) The option price for Incentive Stock Options
shall be not less than the Fair Market Value of the Common
Stock subject to the option on the date of grant.
-3-
<PAGE> 4
(f) No Incentive Stock Options shall be granted to
any participant who, at the time such option is granted, would
own (within the meaning of Section 422 of the Code) stock
possessing more than 10% of the total combined voting power of
all classes of stock of the employer corporation or of its
parent or subsidiary corporation.
7. Stock Appreciation Rights. A SAR is a right to receive, without
payment to the Company, a number of shares of Common Stock, cash or any
combination thereof, the amount of which is determined pursuant to the formula
set forth in Section 7.4. A SAR may be granted (a) with respect to any stock
option granted under this Plan, either concurrently with the grant of such stock
option or at such later time as determined by the Committee (as to all or any
portion of the shares of Common Stock subject to the stock option), or (b)
alone, without reference to any related stock option. Each SAR granted by the
Committee under this Plan shall be subject to the following terms and
conditions:
7.1. Number. Each SAR granted to any participant shall relate
to such number of shares of Common Stock as shall be determined by the
Committee, subject to adjustment as provided in Section 10.6. In the
case of an SAR granted with respect to a stock option, the number of
shares of Common Stock to which the SAR pertains shall be reduced in
the same proportion that the holder of the option exercises the related
stock option.
7.2. Duration. Subject to earlier termination as provided in
Section 10.4, the term of each SAR shall be determined by the Committee
but shall not exceed ten years and one day from the date of grant.
Unless otherwise provided by the Committee, each SAR shall become
exercisable at such time or times, to such extent and upon such
conditions as the stock option, if any, to which it relates is
exercisable. No SAR may be exercised during the first twelve months of
its term. Except as provided in the preceding sentence, the Committee
may in its discretion accelerate the exercisability of any SAR.
7.3. Exercise. A SAR may be exercised, in whole or in part, by
giving written notice to the Company, specifying the number of SARs
which the holder wishes to exercise. Upon receipt of such written
notice, the Company shall, within 90 days thereafter, deliver to the
exercising holder certificates for the shares of Common Stock or cash
or both, as determined by the Committee, to which the holder is
entitled pursuant to Section 7.4.
7.4. Payment. Subject to the right of the Committee to deliver
cash in lieu of shares of Common Stock, the number of shares of Common
Stock which shall be issuable upon the exercise of a SAR shall be
determined by dividing:
(a) the number of shares of Common Stock as to which
the SAR is exercised multiplied by the amount of the
appreciation in such shares (for this purpose, the
"appreciation" shall be the amount by which the Fair Market
Value of the shares of Common Stock subject to the SAR on the
exercise date exceeds (1)
-4-
<PAGE> 5
in the case of a SAR related to a stock option, the purchase
price of the shares of Common Stock under the stock option or
(2) in the case of a SAR granted alone, without reference to
a related stock option, an amount which shall be determined
by the Committee at the time of grant, subject to adjustment
under Section 10.6); by
(b) the Fair Market Value of a share of Common Stock
on the exercise date.
In lieu of issuing shares of Common Stock upon the exercise of
a SAR, the Committee may elect to pay the holder of the SAR cash equal
to the Fair Market Value on the exercise date of any or all of the
shares which would otherwise be issuable. No fractional shares of
Common Stock shall be issued upon the exercise of a SAR; instead, the
holder of the SAR shall be entitled to receive a cash adjustment equal
to the same fraction of the Fair Market Value of a share of Common
Stock on the exercise date or to purchase the portion necessary to make
a whole share at its Fair Market Value on the date of exercise.
8. Stock Awards and Restricted Stock. A stock award consists of the
transfer by the Company to a participant of shares of Common Stock, without
other payment therefor, as additional compensation for services to the Company.
A share of restricted stock consists of shares of Common Stock which are sold or
transferred by the Company to a participant at a price determined by the
Committee (which price shall be at least equal to the minimum price required by
applicable law for the issuance of a share of Common Stock) and subject to
restrictions on their sale or other transfer by the participant. The transfer of
Common Stock pursuant to stock awards and the transfer and sale of restricted
stock shall be subject to the following terms and conditions:
8.1. Number of Shares. The number of shares to be transferred
or sold by the Company to a participant pursuant to a stock award or as
restricted stock shall be determined by the Committee.
8.2. Sale Price. The Committee shall determine the price, if
any, at which shares of restricted stock shall be sold to a
participant, which may vary from time to time and among participants
and which may be below the Fair Market Value of such shares of Common
Stock at the date of sale.
8.3. Restrictions. All shares of restricted stock transferred
or sold hereunder shall be subject to such restrictions as the
Committee may determine, including, without limitation any or all of
the following:
(a) a prohibition against the sale, transfer, pledge
or other encumbrance of the shares of restricted stock, such
prohibition to lapse at such time or times as the Committee
shall determine (whether in annual or more frequent
installments, at the time of the death, disability or
retirement of the holder of such shares, or otherwise);
-5-
<PAGE> 6
(b) a requirement that the holder of shares of
restricted stock forfeit, or (in the case of shares sold to a
participant) resell back to the Company at his cost, all or a
part of such shares in the event of termination of his
employment during any period in which such shares are subject
to restrictions;
(c) such other conditions or restrictions as the
Committee may deem advisable.
8.4. Escrow. In order to enforce the restrictions imposed by
the Committee pursuant to Section 8.3, the participant receiving
restricted stock shall enter into an agreement with the Company setting
forth the conditions of the grant. Shares of restricted stock shall be
registered in the name of the participant and deposited, together with
a stock power endorsed in blank, with the Company. Each such
certificate shall bear a legend in substantially the following form:
The transferability of this certificate and the shares of
Common Stock represented by it are subject to the terms and
conditions (including conditions of forfeiture) contained in
the 1997 Employee Stock Option Plan of Famous Dave's of
America, Inc. (the "Company"), and an agreement entered into
between the registered owner and the Company. A copy of the
Plan and the agreement is on file in the office of the
secretary of the Company.
8.5. End of Restrictions. Subject to Section 10.5, at the end
of any time period during which the shares of restricted stock are
subject to forfeiture and restrictions on transfer, such shares will be
delivered free of all restrictions to the participant or to the
participant's legal representative, beneficiary or heir.
8.6. Shareholder. Subject to the terms and conditions of the
Plan, each participant receiving restricted stock shall have all the
rights of a shareholder with respect to shares of stock during any
period in which such shares are subject to forfeiture and restrictions
on transfer, including without limitation, the right to vote such
shares. Dividends paid in cash or property other than Common Stock with
respect to shares of restricted stock shall be paid to the participant
currently.
9. Performance Shares. A performance share consists of an award which
shall be paid in shares of Common Stock, as described below. The grant of
performance share shall be subject to such terms and conditions as the Committee
deems appropriate, including the following:
9.1. Performance Objectives. Each performance share will be
subject to performance objectives for the Company or one of its
operating units to be achieved by the end of a specified period. The
number of performance shares granted shall be determined by the
Committee and may be subject to such terms and conditions, as the
Committee shall determine. If the performance objectives are achieved,
each participant will be paid in shares of Common Stock or cash. If
such objectives are not met, each
-6-
<PAGE> 7
grant of performance shares may provide for lesser payments in
accordance with formulas established in the award.
9.2. Not Shareholder. The grant of performance shares to a
participant shall not create any rights in such participant as a
shareholder of the Company, until the payment of shares of Common Stock
with respect to an award.
9.3. No Adjustments. No adjustment shall be made in
performance shares granted on account of cash dividends which may be
paid or other rights which may be issued to the holders of Common Stock
prior to the end of any period for which performance objectives were
established.
9.4. Expiration of Performance Share. If any participant's
employment with the Company is terminated for any reason other than
normal retirement, death or disability prior to the achievement of the
participant's stated performance objectives, all the participants
rights on the performance shares shall expire and terminate unless
otherwise determined by the Committee. In the event of termination of
employment by reason of death, disability, or normal retirement, the
Committee, in its own discretion may determine what portions, if any,
of the performance shares should be paid to the participant.
10. General.
10.1. Effective Date. The Plan will become effective on June
24, 1997.
10.2. Duration. The Plan shall remain in effect until all
Incentives granted under the Plan have either been satisfied by the
issuance of shares of Common Stock or the payment of cash or been
terminated under the terms of the Plan and all restrictions imposed on
shares of Common Stock in connection with their issuance under the Plan
have lapsed. No Incentives may be granted under the Plan after the
tenth anniversary of the date the Plan is approved by the shareholders
of the Company.
10.3. Non-transferability of Incentives. No stock option, SAR,
restricted stock or performance award may be transferred, pledged or
assigned by the holder thereof (except, in the event of the holder's
death, by will or the laws of descent and distribution to the limited
extent provided in the Plan or in the Incentive) and the Company shall
not be required to recognize any attempted assignment of such rights by
any participant. During a participant's lifetime, an Incentive may be
exercised only by him or by his guardian or legal representative.
10.4. Effect of Termination of Employment or Death. In the
event that a participant ceases to be an employee of the Company for
any reason, including death, any Incentives may be exercised or shall
expire at such times as may be determined by the Committee.
-7-
<PAGE> 8
10.5. Additional Condition. Notwithstanding anything in this
Plan to the contrary: (a) the Company may, if it shall determine it
necessary or desirable for any reason, at the time of award of any
Incentive or the issuance of any shares of Common Stock pursuant to any
Incentive, require the recipient of the Incentive, as a condition to
the receipt thereof or to the receipt of shares of Common Stock issued
pursuant thereto, to deliver to the Company a written representation of
present intention to acquire the Incentive or the shares of Common
Stock issued pursuant thereto for his own account for investment and
not for distribution; and (b) if at any time the Company further
determines, in its sole discretion, that the listing, registration or
qualification (or any updating of any such document) of any Incentive
or the shares of Common Stock issuable pursuant thereto is necessary on
any securities exchange or under any federal or state securities or
blue sky law, or that the consent or approval of any governmental
regulatory body is necessary or desirable as a condition of, or in
connection with the award of any Incentive, the issuance of shares of
Common Stock pursuant thereto, or the removal of any restrictions
imposed on such shares, such Incentive shall not be awarded or such
shares of Common Stock shall not be issued or such restrictions shall
not be removed, as the case may be, in whole or in part, unless such
listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the
Company.
10.6. Adjustment. In the event of any merger, consolidation or
reorganization of the Company with any other corporation or
corporations, there shall be substituted for each of the shares of
Common Stock then subject to the Plan, including shares subject to
restrictions, options, or achievement of performance share objectives,
the number and kind of shares of stock or other securities to which the
holders of the shares of Common Stock will be entitled pursuant to the
transaction. In the event of any recapitalization, stock dividend,
stock split, combination of shares or other change in the Common Stock,
the number of shares of Common Stock then subject to the Plan,
including shares subject to restrictions, options or achievements of
performance shares, shall be adjusted in proportion to the change in
outstanding shares of Common Stock. In the event of any such
adjustments, the purchase price of any option, the performance
objectives of any Incentive, and the shares of Common Stock issuable
pursuant to any Incentive shall be adjusted as and to the extent
appropriate, in the discretion of the Committee, to provide
participants with the same relative rights before and after such
adjustment.
10.7. Incentive Plans and Agreements. Except in the case of
stock awards or cash awards, the terms of each Incentive shall be
stated in a plan or agreement approved by the Committee. The Committee
may also determine to enter into agreements with holders of options to
reclassify or convert certain outstanding options, within the terms of
the Plan, as Incentive Stock Options or as non-statutory stock options
and in order to eliminate SARs with respect to all or part of such
options and any other previously issued options.
-8-
<PAGE> 9
10.8. Withholding.
(a) The Company shall have the right to withhold from
any payments made under the Plan or to collect as a condition
of payment, any taxes required by law to be withheld. At any
time when a participant is required to pay to the Company an
amount required to be withheld under applicable income tax
laws in connection with a distribution of Common Stock or upon
exercise of an option or SAR, the participant may satisfy this
obligation in whole or in part by electing (the "Election") to
have the Company withhold from the distribution shares of
Common Stock having a value up to the amount required to be
withheld. The value of the shares to be withheld shall be
based on the Fair Market Value of the Common Stock on the date
that the amount of tax to be withheld shall be determined
("Tax Date").
(b) Each Election must be made prior to the Tax Date.
The Committee may disapprove of any Election, may suspend or
terminate the right to make Elections, or may provide with
respect to any Incentive that the right to make Elections
shall not apply to such Incentive. An Election is irrevocable.
10.9. No Continued Employment or Right to Corporate Assets. No
participant under the Plan shall have any right, because of his or her
participation, to continue in the employ of the Company for any period
of time or to any right to continue his or her present or any other
rate of compensation. Nothing contained in the Plan shall be construed
as giving an employee, the employee's beneficiaries or any other person
any equity or interests of any kind in the assets of the Company or
creating a trust of any kind or a fiduciary relationship of any kind
between the Company and any such person.
10.10. Deferral Permitted. Payment of cash or distribution of
any shares of Common Stock to which a participant is entitled under any
Incentive shall be made as provided in the Incentive. Payment may be
deferred at the option of the participant if provided in the Incentive.
10.11. Amendment of the Plan. The Board may amend or
discontinue the Plan at any time. However, no such amendment or
discontinuance shall, subject to adjustment under Section 10.6, (a)
change or impair, without the consent of the recipient, an Incentive
previously granted, (b) increase the maximum number of shares of Common
Stock which may be issued to all participants under the Plan, (c)
change or expand the types of Incentives that may be granted under the
Plan, (d) change the class of persons eligible to receive Incentives
under the Plan, or (e) materially increase the benefits accruing to
participants under the Plan.
10.13. Definition of Fair Market Value. For purposes of this
Plan, the "Fair Market Value" of a share of Common Stock at a specified
date shall, unless otherwise expressly provided in this Plan, be the
amount which the Committee determines in good faith to be 100% of the
fair market value of such a share as of the date in question;
-9-
<PAGE> 10
provided, however, that notwithstanding the foregoing, if such shares
are listed on a U.S. securities exchange or are quoted on the NASDAQ
National Market System or NASDAQ Small-Cap Stock Market ("NASDAQ"),
then Fair Market Value shall be determined by reference to the last
sale price of a share of Common Stock on such U.S. securities exchange
or NASDAQ on the applicable date. If such U.S. securities exchange or
NASDAQ is closed for trading on such date, or if the Common Stock does
not trade on such date, then the last sale price used shall be the one
on the date the Common Stock last traded on such U.S. securities
exchange or NASDAQ.
-10-
<PAGE> 1
EXHIBIT 10.16
SEPARATION AGREEMENT
AND GENERAL RELEASE
Mark A. Payne
8860 Flesher Circle
Eden Prairie, MN 55347
Dear Mark:
This letter will document our agreement concerning the termination of
your employment with Famous Dave's of America, Inc. (the "Company") on February
3, 1998 ("Termination Date"). The Company is prepared to offer you certain
benefits in exchange for your execution of this Separation Agreement and General
Release ("Separation Agreement"). The terms of the Company's Separation
Agreement with you are set forth in this letter. The Company hereby advises you
to consult legal counsel of your choice prior to signing this Separation
Agreement.
1. Benefits of Separation Agreement.
A. Severance Pay
Within two (2) days following the date of your signature on this
Separation Agreement, the Company agrees to pay you the gross sum of
$175,000.00 as a severance benefit (the "Severance Payment"), subject
to all legally required withholding and deductions. You hereby
acknowledge that the severance payment is full and fair payment for the
release of your claims as set forth below and is equal or greater in
value than any severance benefit to which you are entitled.
B. Acceleration of Option Vesting and Extension of Exercise
Period
i. With respect to the Option Agreement dated as of
August 12, 1996 between you and the Company relating
to a total of 25,000 shares of common stock, which
option vested in full on the closing date of the
Company's initial public offering, you or your legal
representative shall have until December 31, 1998 to
exercise such option notwithstanding the provisions
of Section 5 of said Option Agreement.
ii. With respect to the Option Agreement dated as of
August 12, 1996 between you and the Company relating
to a total of 100,000 shares of common stock, in
addition to the portion of the option to purchase
25,000 shares which vested on August 12, 1997, an
additional portion of the option to purchase 65,000
shares shall vest on the date hereof. You or your
legal representative
<PAGE> 2
shall have until December 31, 1998 to exercise all
vested portions of the option notwithstanding the
provisions of Section 4 of said Option Agreement. The
remaining unvested portion of the option to purchase
10,000 shares shall terminate on the date hereof.
iii. With respect the Option Agreement dated as of March
26, 1997 between you and the Company relating to a
total of 50,000 shares of common stock, no portion of
which has vested as of the date hereof, such option
shall terminate in full on the date hereof.
2. Employment Inquiries.
The Company agrees that all requests by third parties for information
concerning your employment with the Company will be handled by the
Company's Human Resources Department which, pursuant to Company policy,
is authorized to provide only basic employment history indicating dates
of employment, positions held, and responsibilities performed without
qualitative comment of any kind.
3. Tax Treatment.
You acknowledge that the Company has made no representation or warranty
whatsoever concerning the treatment for tax purposes of any payments
made pursuant to this Separation Agreement, that you have not relied
upon any such representation or warranty, and that the terms of this
Separation Agreement are not intended to guarantee any particular tax
treatment with regard to such payments.
4. Confidentiality.
You agree that Article IV of the Employment Agreement dated as of
August 12, 1996 between you and the Company, as amended (the
"Employment Agreement"), shall remain in full force and effect.
5. Non-Competition.
You agree that Article V of the Employment Agreement shall remain in
full force and effect.
6. Nondisclosure.
You agree that you will keep the terms of this Separation Agreement
confidential and that you will not disclose any of its terms to any
third party, other than to your spouse, financial advisor and legal
counsel. In turn, these persons shall be advised regarding the
confidentiality provisions of this Separation Agreement and must agree
to maintain the confidentiality of this Separation Agreement as a
condition of disclosure to them.
2
<PAGE> 3
7. Entire Agreement.
This Separation Agreement constitutes the entire understanding between
you and the Company and supersedes all prior agreements with respect to
the matters herein relating to your employment and the termination of
your employment.
8. Release.
In exchange for receiving the payments and other consideration set
forth in this Separation Agreement, you hereby promise to give up all
of your claims against the Company. You hereby release, give up, and
otherwise relinquish all of your claims against the Company. You agree
that you will not bring any lawsuits or make any other demands against
the Company except if necessary to enforce the provisions of this
Separation Agreement. You agree that the money and benefits which you
will receive as set forth in this Separation Agreement are full and
fair payment for the release of all your claims. The Company does not
owe you anything in addition to what you will receive under this
Separation Agreement.
The claims which you are releasing, giving up, and otherwise
relinquishing as provided above include all of your rights to any
relief of any kind from the Company including, but not limited to:
a) All claims you have now, whether or not you now know about
the claims;
b) All claims for attorneys' fees;
c) All claims for alleged discrimination and all other claims
under federal, state, or local law;
d) All claims arising from your employment or separation from
employment with the Company, including, but not limited to,
any alleged breach of contract, wrongful termination,
interference with contract, defamation, promissory estoppel,
or infliction of emotional distress; and
e) All claims for any other alleged unlawful employment practices
arising out or relating to your employment or separation from
employment.
By your signature below, you acknowledge that you fully understand and
accept the terms of this Separation Agreement and Release and you represent and
agree that your signature is freely, voluntarily and knowingly given, having had
the advice and assistance of legal counsel. This Agreement does not constitute,
and shall not be construed as, an admission of fault or liability of any kind,
and the Company expressly denies any fault, liability or wrongdoing of any kind
with regard to you or any other employee.
3
<PAGE> 4
For purposes of this paragraph, "you" means Mark A. Payne and all and
anybody who has or acquires legal rights or claims through you; and "Company"
means Famous Dave's of America, Inc., and all and each of its parent,
subsidiary, and affiliated corporations, and all and each of the past and
present officers, directors, employees, agents, successors and assigns of the
foregoing entities.
You agree that this Separation Agreement shall be construed and
interpreted in accordance with the law of the State of Minnesota.
If you are in agreement with the terms set out in this letter, please
sign both copies and return one to me.
FAMOUS DAVE'S OF AMERICA, INC.
/s/ David W. Anderson
- -------------------------------
David W. Anderson
Chairman of the Board
ACCEPTANCE
Read, agreed to, and accepted this 3rd day of February, 1998.
/s/ Mark A. Payne
----------------------------
Mark A. Payne
4
<PAGE> 1
EXHIBIT 21
Subsidiaries of Registrant
1. D&D of Minnesota, Inc., a Minnesota corporation
2. Lake & Hennepin BBQ and Blues, Inc., a Minnesota corporation
3. Famous Dave's RIBS, Inc., a Minnesota corporation
4. Famous Dave's RIBS-U Inc., a Minnesota corporation
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-KSB into the Company's
previously filed Registration Statement on Form S-8 File No. 333-16299.
/s/LUND KOEHLER COX & COMPANY, PLLP
Minneapolis, Minnesota
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FAMOUS
DAVE'S OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR
FOR THE YEAR ENDED DECEMBER 28, 1997 AND IS QUALIFIED IN ITS ENTIRELY BY
REFERENCE TO SUCH FORM 10-KSB
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> DEC-28-1997
<CASH> 7,984
<SECURITIES> 10,328
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 471
<CURRENT-ASSETS> 19,842
<PP&E> 27,511
<DEPRECIATION> 1,332
<TOTAL-ASSETS> 46,021
<CURRENT-LIABILITIES> 7,523
<BONDS> 1,390
0
0
<COMMON> 42,015
<OTHER-SE> (4,907)
<TOTAL-LIABILITY-AND-EQUITY> 46,021
<SALES> 18,202
<TOTAL-REVENUES> 18,202
<CGS> 6,750
<TOTAL-COSTS> 23,307
<OTHER-EXPENSES> 232
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 151
<INCOME-PRETAX> (4,575)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,575)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,575)
<EPS-PRIMARY> (.64)
<EPS-DILUTED> (.64)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-29-1996 DEC-29-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-29-1996 SEP-29-1996
<CASH> 4,907 2,031
<SECURITIES> 9,417 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 167 149
<CURRENT-ASSETS> 15,145 2,517
<PP&E> 6,291 3,971
<DEPRECIATION> 198 0
<TOTAL-ASSETS> 21,238 6,706
<CURRENT-LIABILITIES> 1,193 1,510
<BONDS> 742 0
0 0
0 0
<COMMON> 19,647 34
<OTHER-SE> (344) 4,377
<TOTAL-LIABILITY-AND-EQUITY> 21,238 6,706
<SALES> 4,752 2,691
<TOTAL-REVENUES> 4,752 2,691
<CGS> 1,704 934
<TOTAL-COSTS> 5,565 3,090
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 91 37
<INCOME-PRETAX> (707) (442)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (707) (442)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (707) (442)
<EPS-PRIMARY> (0.23) (0.19)
<EPS-DILUTED> (0.23) (0.19)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-28-1997 DEC-28-1997
<PERIOD-START> DEC-30-1996 DEC-30-1996
<PERIOD-END> JUN-29-1997 SEP-28-1997
<CASH> 748 10,162
<SECURITIES> 6,888 13,818
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 271 268
<CURRENT-ASSETS> 8,737 25,145
<PP&E> 11,128 18,055
<DEPRECIATION> 413 567
<TOTAL-ASSETS> 20,499 42,632
<CURRENT-LIABILITIES> 2,052 1,846
<BONDS> 650 1,485
0 0
0 0
<COMMON> 19,670 42,022
<OTHER-SE> (1,872) (2,721)
<TOTAL-LIABILITY-AND-EQUITY> 20,499 42,632
<SALES> 6,038 12,140
<TOTAL-REVENUES> 6,038 12,140
<CGS> 2,183 4,496
<TOTAL-COSTS> 7,838 15,003
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 57 98
<INCOME-PRETAX> (1,540) (2,389)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,540) (2,389)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,540) (2,389)
<EPS-PRIMARY> (0.26) (0.36)
<EPS-DILUTED> (0.26) (0.36)
</TABLE>
