<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended July 4, 1999
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ____________________ to _________________
Commission file number 0-21625
FAMOUS DAVE'S OF AMERICA, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Minnesota 41-1782300
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
7657 Anagram Drive, Eden Prairie, MN 55344
(Address of Principal Executive Offices)
(612) 294-1300
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, If Changed Since
Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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
--- ---
At August 16, 1999 there were 8,842,590 shares of common stock, $.01 par
value, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
1
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FAMOUS DAVE'S OF AMERICA, INC.
Form 10-QSB Index
July 4, 1999
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - 3
July 4, 1999 and January 3, 1999
Condensed Consolidated Statements of Operations - 4
For the thirteen weeks ended July 4, 1999 and June 28, 1998
and for the twenty-six weeks ended July 4, 1999 and June 28, 1998
Condensed Consolidated Statements of Cash Flows - 5
For the twenty-six weeks ended July 4, 1999 and June 28, 1998
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Items 1, 4, 5 and 6. 14
Signatures 15
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 4, JANUARY 3,
1999 1999
-------------- -------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 717,000 $ 1,951,000
Securities available-for-sale 1,517,000 1,624,000
Inventories 1,081,000 908,000
Prepaids and other current assets 944,000 824,000
-------------- -------------
Total current assets 4,259,000 5,307,000
PROPERTY, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, NET 38,931,000 35,576,000
OTHER ASSETS - DEPOSITS 332,000 286,000
-------------- -------------
$ 43,522,000 $ 41,169,000
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,799,000 $ 4,173,000
Current portion of capital lease obligations 410,000 403,000
Note payable 1,675,000 683,000
Other current liabilities 1,841,000 1,837,000
-------------- -------------
Total current liabilities 5,725,000 7,096,000
NOTE PAYABLE - LONG TERM 4,500,000 0
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 828,000 1,000,000
-------------- -------------
Total liabilities 11,053,000 8,096,000
-------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares authorized,
8,842,590 and 8,837,590 shares issued and outstanding 88,000 88,000
Additional paid-in capital 42,726,000 42,721,000
Accumulated deficit (10,345,000) (9,736,000)
-------------- -------------
Total shareholders' equity 32,469,000 33,073,000
-------------- -------------
$ 43,522,000 $ 41,169,000
============== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
---------------------------- -----------------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
1999 1998 1999 1998
------------ ------------ ------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES, NET $ 12,631,000 $ 10,925,000 $ 23,019,000 $ 18,659,000
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Food and beverage costs 4,398,000 3,955,000 7,944,000 6,687,000
Labor and benefits 3,547,000 2,909,000 6,471,000 5,065,000
Operating expenses 2,883,000 2,149,000 5,399,000 4,035,000
Depreciation and amortization 693,000 557,000 1,302,000 994,000
Pre-opening expenses 338,000 399,000 442,000 909,000
General and administrative 1,031,000 1,324,000 2,033,000 4,144,000
Reserve for loss on closed sites 0 0 0 1,589,000
------------ ------------ ------------ ------------
Total costs and expenses 12,890,000 11,293,000 23,591,000 23,423,000
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (259,000) (368,000) (572,000) (4,764,000)
Interest and other income (expense), net (33,000) 58,000 (37,000) 194,000
------------ ------------ ------------ ------------
NET LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (292,000) (310,000) (609,000) (4,570,000)
------------ ------------ ------------ ------------
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 0 0 0 (120,000)
------------ ------------ ------------ ------------
NET LOSS $ (292,000) $ (310,000) $ (609,000) $ (4,690,000)
============ ============ ============ ============
BASIC AND DILUTED NET LOSS PER COMMON
SHARE BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE $ (0.03) $ (0.04) $ (0.07) $ (0.52)
============ ============ ============ ============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (0.03) $ (0.04) $ (0.07) $ (0.53)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 8,838,524 8,827,590 8,838,057 8,794,332
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
--------------------------------------------------
JULY 4, JUNE 28,
1999 1998
----------------------- ------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (609,000) $ (4,690,000)
Adjustments to reconcile net loss to
cash flows from operating activities:
Depreciation and amortization 1,460,000 1,175,000
Reserve for loss on closed sites (57,000) 1,589,000
Write-off of certain other non-operating assets 0 679,000
Changes in working capital items -
Inventories (173,000) (225,000)
Prepaids and other current assets (120,000) 64,000
Other assets - deposits (46,000) (152,000)
Accounts payable (2,374,000) (2,244,000)
Other current liabilities 4,000 (103,000)
----------------------- ------------------------
Cash flows from operating activities (1,915,000) (3,907,000)
----------------------- ------------------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of available-for-sale securities (17,000) (9,053,000)
Proceeds from available-for-sale securities 124,000 16,386,000
Purchase of property, equipment
and leasehold improvements (4,758,000) (7,995,000)
----------------------- ------------------------
Cash flows from investing activities (4,651,000) (662,000)
----------------------- ------------------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Payments on capital lease obligations (165,000) (175,000)
Proceeds from exercise of stock options 5,000 784,000
Advances on notes payable 7,775,000 0
Payments on note payable (2,283,000) 0
----------------------- ------------------------
Cash flows from financing activities 5,332,000 609,000
----------------------- ------------------------
DECREASE IN CASH
AND CASH EQUIVALENTS (1,234,000) (3,960,000)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,951,000 7,984,000
----------------------- ------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 717,000 $ 4,024,000
======================= ========================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 4, 1999
(UNAUDITED)
(1) GENERAL
Famous Dave's of America, Inc. ("Famous Dave's") currently operates twenty-three
restaurants under the name "Famous Dave's" in the Midwestern region of the
United States. Our restaurants, the majority of which offer full table service,
feature hickory smoked off-the-grill meat entree favorites served in one of our
three casual formats: a "Northwoods" style lodge, a nostalgic roadhouse "shack",
or a Blues Club featuring nightly musical entertainment. We seek to
differentiate ourselves by providing high quality food in these distinctive and
comfortable environments. As of July 4, 1999 we operated twenty-three
restaurants with one additional unit in development, a lodge in Lincoln,
Nebraska. As of June 28, 1998 we operated nineteen restaurants, with an
additional four units in development.
(2) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
by us following the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. Although we believe that the disclosures are adequate to make the
information presented not misleading, it is suggested that these interim
condensed financial statements be read in conjunction with our most recent
audited financial statements and notes thereto included in our Annual Report on
Form 10-KSB for the fiscal year ended January 3, 1999. In our opinion, all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods presented have been made. Operating results for
the thirteen and twenty-six week periods ended July 4, 1999 are not necessarily
indicative of the results that may be expected for the fiscal year ending
January 2, 2000.
Certain amounts in the fiscal 1998 financial statements have been reclassified
to conform to the fiscal 1999 presentation with no impact on previously reported
net loss or shareholders' equity.
(3) INCOME (LOSS) PER COMMON SHARE
Basic earnings (loss) per share (EPS) is computed by dividing net
income (loss) by the weighted average number of common shares outstanding during
the quarter. Diluted EPS is computed by dividing net income(loss) by the
weighted average common shares outstanding and dilutive common equivalent shares
assumed to be outstanding during each period. Dilutive common equivalent shares
have not been included in the computation of diluted EPS because their inclusion
would be anti-dilutive. Anti-dilutive common equivalent shares issuable based on
future exercise of stock options or warrants could potentially dilute basic EPS
in subsequent years.
(4) INCOME FROM FRANCHISEES
In 1998, we entered into a franchise agreement with two former employees.
This agreement provides that in exchange for the payment of certain fees, the
franchisee may open up to three units under the Famous Dave's brand, along with
receiving other benefits. The revenue generated by this arrangement is not
recognized until the franchised restaurant is open and the Company has provided
all services. At July 4, 1999, there was one unit open under this franchise
agreement.
6
<PAGE> 7
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 4, 1999
(UNAUDITED)
(5) PRE-OPENING COSTS
In 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5
("SOP 98-5") entitled "Reporting on the Costs of Start-Up Activities." This
accounting standard requires entities to expense as incurred all start-up and
pre-opening costs that are not otherwise capitalizable as long-lived assets.
This new accounting standard is effective for fiscal years beginning after
December 15, 1998 with early adoption encouraged. We elected to adopt SOP 98-5
in fiscal 1998. The cumulative effect of this change in accounting principle was
$120,000 and was reflected in the quarter ended March 29, 1998. Prior to the
adoption of SOP 98-5, we deferred pre-opening costs until the month the related
unit opened and either charged such costs to expense in the month the restaurant
opened or, in certain cases prior to March 31, 1997, amortized such costs over a
period no longer than 12-months following the opening of the restaurant.
(6) SEVERANCE AND RESTRUCTURING
In March 1998, we recorded a provision totaling $1,146,000 for severance and
restructuring. This amount includes severance costs, real estate costs and a
provision for write-off of a discontinued point-of-sale system.
(7) PROVISION FOR LOSS ON RESTAURANTS TO BE DISPOSED
In March 1998, we implemented a plan to close two restaurants. As part of
this plan, we have recorded a provision of $1,589,000 to reduce the carrying
value of the assets related to these restaurants to their estimated net
realizable value.
(8) RELATED PARTY TRANSACTIONS
S&D LAND HOLDINGS, INC. - We lease the real estate for four of our units
from S&D Land Holdings, Inc., a company wholly owned by the Company's founding
Shareholder.
(9) INCOME TAXES
The Company was an S Corporation through March 3, 1996. Accordingly, losses
incurred through March 3, 1996 have been recognized by the Company's founding
shareholder. From March 4, 1996 through January 3, 1999, we generated a net
operating loss of approximately $9,736,000 which, if not used, will begin to
expire in 2011. During the twenty-six weeks ended July 4, 1999, an additional
net operating loss of approximately $609,000 was generated which, if not used,
will expire in 2014. Future changes in ownership may place limitations on the
use of these net operating loss carry-forwards. We have recorded a full
valuation allowance against the deferred tax asset due to the uncertainty of
realizing the related benefit.
(10) NOTE PAYABLE
On March 31, 1999 we completed a sale-leaseback transaction involving three of
our existing units that provided net proceeds of approximately $4.4 million.
Under this financing we are obligated to make monthly payments of $41,250 for a
minimum of twenty years.
7
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FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 4, 1999
(UNAUDITED)
(11) COMMITMENTS AND CONTINGENCIES
Construction and development contracts
In conjunction with our expansion activity, we enter into fixed price
construction contracts from time to time. At July 4, 1999, we had a commitment
outstanding under one contract for construction of a Blues Club in Chicago. As
of July 4, 1999, the balance remaining to be paid under this contract was
approximately $225,000.
We have entered into a contract with a national real estate services firm to
provide real estate development and construction management services for the
development of a minimum of six restaurants in the future. The estimated
remaining commitment under this contract was $87,000 at July 4, 1999.
Other
At July 4, 1999, we had an irrevocable letter of credit outstanding for a
total of $1,500,000 expiring September 1999 related to the Blues Club under
construction in Chicago. This letter of credit is fully secured by a certificate
of deposit.
8
<PAGE> 9
ITEM 2.
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The business of Famous Dave's of America, Inc. is to develop, own and
operate casual dining restaurants under the name "Famous Dave's." As of July 4,
1999 we owned and operated twenty-three restaurants: fourteen in Minnesota, four
in Wisconsin, three in Iowa and two in Illinois. In addition, there was one
restaurant operating in Minnesota under a franchise agreement.
Famous Dave's was formed in March 1994 and we opened our first restaurant in
the Linden Hills neighborhood of Minneapolis in June 1995. We currently operate
three lodge restaurants featuring barbecue entrees, a rustic Northwoods decor
and big band music. In addition, we operate seventeen nostalgic roadhouse
barbecue shacks of which ten have been opened as, or converted to, a full
service format that resembles the Lodge concept. We also operate two Blues Clubs
(featuring authentic Chicago Blues Club decor and live music seven nights a
week) and a Take-Out and Catering facility. All of the our restaurants feature
similar menu items, consistent preparation methods and uniform kitchen layouts.
Future revenues and profits, if any, will depend upon various factors,
including continued market acceptance of the Famous Dave's concept, the quality
of our restaurant operations, our ability to successfully expand into new
markets, our ability to raise additional financing as needed and general
economic conditions. There can be no assurances that we will successfully
implement our expansion plans, in which case we will continue to be dependent on
the revenues from existing operations. We also face 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 our
expansion strategy is successful, we must manage the transition to multiple-site
and higher-volume operations, the control of overhead expenses and the addition
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 fluctuate as sales
fluctuate. The primary fixed costs are corporate and restaurant management and
occupancy costs. Our 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. We believe, 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 our 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, rent, depreciation, general insurance and
marketing expenses are major items in this category.
The following discussion and analysis of financial condition and results
of operations should be read in conjunction with the accompanying unaudited
condensed consolidated financial statements and notes thereto and the audited
consolidated financial statements and notes thereto included in the Company's
Form 10-KSB for the fiscal year ended January 3, 1999.
9
<PAGE> 10
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Our overall operating results expressed as a percentage of net revenue were as
follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
July 4, June 28, July 4, June 28,
1999 1998 1999 1998
(unaudited) (unaudited) (unaudited) (unaudited)
------------- ------------- ------------ ---------------
100.0% 100.0% 100.0% 100.0%
------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
REVENUES, NET
UNIT-LEVEL COSTS AND EXPENSES:
Food and beverage costs 34.8% 36.2% 34.5% 35.8%
Labor and benefits 28.1% 26.6% 28.1% 27.1%
Operating expenses 22.8% 19.6% 23.5% 21.7%
Depreciation and amortization 5.5% 5.1% 5.7% 5.3%
Pre-opening expenses 2.7% 3.7% 1.9% 4.9%
------------- ------------- ------------ ---------------
Total costs and expenses 93.9% 91.2% 93.7% 94.8%
------------- ------------- ------------ ---------------
INCOME FROM UNIT-LEVEL OPERATIONS 6.1% 8.8% 6.3% 5.2%
General and administrative 8.2% 12.1% 8.8% 22.2%
Provision for loss on restaurants to be disposed 0.0% 0.0% 0.0% 8.5%
------------- ------------- ------------ ---------------
LOSS FROM OPERATIONS (2.1%) (3.3%) (2.5%) (25.5%)
Interest and other income, net (0.2%) 0.5% (0.2%) 1.0%
NET LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (2.3%) (2.8%) (2.7%) (24.5%)
------------- ------------- ------------ ---------------
Cumulative effect of change in accounting
principle 0.0% 0.0% 0.0% (0.6%)
------------- ------------- ------------ ---------------
NET LOSS (2.3%) (2.8%) (2.7%) (25.1%)
------------- ------------- ------------ ---------------
</TABLE>
REVENUE, NET
Net revenue for the thirteen weeks ended July 4, 1999 was $12,631,000
compared to $10,925,000 for the same period in 1998, a 16% increase. The
increase in net revenue is primarily due to the addition of four restaurants
opened during the four quarters subsequent to June 28, 1998, an increase in
retail and other non-restaurant revenue, and an increase in same store sales.
For the twenty-six weeks ended July 4, 1999 net revenue was $23,019,000, an
increase of 23% over the same period in 1998 of $18,659,000. The Company has
eight restaurants that have been open for more than eighteen months. Strong
marketing efforts have resulted in an increase in same store sales of
approximately 3% in the thirteen weeks ended July 4, 1999. This is the first
increase in same store sales in the history of our company and is an improvement
in comparable store sales performance from last year's decline of approximately
17%.
FOOD AND BEVERAGE COSTS
Food and beverage costs for the thirteen weeks ended July 4, 1999 were
$4,398,000 or 34.8% of net revenue, compared to $3,955,000 or 36.2% of net
revenue for the same period in 1998. For the twenty-six weeks ended July 4,
1999, food and beverage costs were $7,944,000 or 34.5%, compared to $6,687,000
or 35.8% for the same period ended June 28, 1998. The decrease in food and
beverage costs as a percent of net revenue was primarily due to increased
revenue and improved purchasing economies, including contract pricing of certain
pork items.
10
<PAGE> 11
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LABOR AND BENEFITS
Labor and benefits for the thirteen weeks ended July 4, 1999 were $3,547,000
or 28.1% of net revenue, compared to $2,909,000 or 26.6% of net revenue for the
same period in 1998. For the twenty-six weeks ended July 4, 1999 labor and
benefits were $6,471,000 or 28.1% compared to $5,065,000 or 27.1% of net revenue
for the same period ended June 28, 1998. Labor costs as a percent of net revenue
are higher in 1999 compared to 1998 due to the introduction of full table
service in several restaurants that were formerly counter service, as well as a
heightened emphasis on training and execution in company restaurants. Full
service restaurants that operate in states without a "tip credit" (such as
Minnesota) experience a higher wage rate for dining room labor. The migration
toward full service dining in most of the Company's restaurants is part of
management's strategy for increasing unit-level sales.
OPERATING EXPENSES
For the thirteen weeks ended July 4, 1999, operating costs were $2,883,000
or 22.8% of net revenue, compared to $2,149,000 or 19.6% of net revenue for the
same period in 1998. For the twenty-six weeks ended July 4, 1999, operating
costs were $5,399,000 or 23.5% of net revenue compared to $4,035,000 or 21.7%
for the same period ended June 28, 1998. The increase in operating expense is
due to increases in repair and maintenance costs, rent, real estate taxes and
entertainment costs.
DEPRECIATION AND AMORTIZATION
Unit-level depreciation and amortization for the thirteen weeks ended July
4, 1999 was $693,000 or 5.5% of net revenue compared to $557,000 or 5.1% of net
revenue during the same period in 1998. For the twenty-six weeks ended July 4,
1999, depreciation and amortization costs were $1,302,000 or 5.7% of net revenue
compared to $994,000 or 5.3% for the same period ended June 28, 1998. The
increase in unit-level depreciation and amortization results from higher
construction costs associated with units operating in 1999 compared to those
operating in fiscal 1998.
PRE-OPENING EXPENSES
Pre-opening expenses were $338,000 or 2.7% of net revenue for the thirteen
weeks ended July 4, 1999 compared to $399,000 or 3.7% of net revenue during the
same period in 1998. For the twenty-six weeks ended July 4, 1999 pre-opening
expenses were $442,000 or 1.9% of net revenue compared to $909,000 or 4.9% for
the same period in 1998. Pre-opening expenses are charged to expense in the
month that they are incurred. Prior to 1998, these expenses were expensed in the
month the restaurant opened or in some cases, deferred and charged to expense
over no longer than a twelve-month period following the opening of the unit. In
the first quarter of fiscal 1998, we took a $120,000 one-time charge against
earnings as a cumulative effect of a change in accounting principle to reflect
this policy change. The 1999 expenses reflect the development of the Chicago
Blues Club, which opened May 3, 1999, compared to the seven units opened in the
same period in 1998 with an additional four units in initial development.
INCOME FROM UNIT-LEVEL OPERATIONS
Income from unit-level operations totaled $772,000 or 6.1% of net revenue,
for the thirteen weeks ended July 4, 1999, compared to $956,000 or 8.8 % of net
revenue, in the corresponding period of 1998. For the twenty-six weeks ended
July 4, 1999 income from unit-level operations was $1,461,000 or 6.3% of net
revenue compared to $969,000 or 5.2% for the same period ended June 28, 1998.
Income from unit-level operations represents 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 our 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 revenue, from 1998 to 1999 is
attributable to the increase in net revenue from new units and retail and other
non-restaurant revenue and the other changes in costs and expenses as discussed
above.
11
<PAGE> 12
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the thirteen weeks ended July 4,
1999 were $1,031,000 or 8.2% of net revenue, compared to $1,324,000 or 12.1% of
net revenue for the same period in 1998. For the twenty-six weeks ended July 4,
1999, general and administrative expenses were $2,033,000 or 8.8% of net revenue
compared to $4,144,000 or 22.2% for the same period in 1998. The 1998 amount
reflects $1,146,000 in severance and restructuring costs related to the
reduction of the corporate infrastructure taken in the first quarter. The
reduction in general and administrative expenses both in amount and as a percent
of net revenue reflects increased sales and the adjustment of our corporate
infrastructure to a reduced level which we believe is appropriate to support our
current, more controlled plans for expansion.
LOSS FROM OPERATIONS
Loss from operations totaled $259,000 or 2.1% of net revenue, for the
thirteen weeks ended July 4, 1999 compared to a loss of $368,000 or 3.3% of net
revenue, in the corresponding period in 1998. For the twenty-six weeks ended
July 4, 1999 the loss from operations was $572,000 or 2.5% compared to
$4,764,000 or 25.5% for the twenty-six weeks ended June 28, 1998. The 1998
amount reflects charges of approximately $2.7 million in expenses associated
with a provision for disposition of two restaurants and severance and
restructuring charges which were taken in the first quarter of 1998. The
reduction in losses incurred is primarily attributable to increased income from
retail and other non-restaurant operations and significant reductions in the
level of general and administrative expense.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income (expense), net, primarily represents interest
income received from short-term investments offset by interest expense on
capital lease obligations and notes payable. Interest expense was $33,000 or
0.2% for the thirteen weeks ended July 4, 1999 compared to interest income of
$58,000 or 0.5% for same period in 1998. For the twenty-six weeks ended July 4,
1999 interest expense was $37,000 or 0.2% of net revenue compared to interest
income of $194,000 for the same period in 1998. The decrease in income from 1998
to 1999 was primarily due to the reduced level of short-term investments in 1999
and an increase in interest expense on notes payable.
NET LOSS/NET LOSS PER COMMON SHARE
The net loss for the thirteen weeks ended July 4, 1999 was $292,000, or $.03
per share on 8,838,524 weighted average shares outstanding, compared to a net
loss of $310,000, or $.04 per share on 8,827,590 weighted average shares
outstanding, during the comparable period in 1998. The net loss for the
twenty-six weeks ended July 4, 1999 was $609,000 or $.07 on 8,838,057 weighted
average shares outstanding compared to a loss of $4,690,000 or $.53 on 8,794,332
weighted average shares outstanding for the same period in 1998. The 1998 amount
reflects charges of approximately $2.7 million in expenses associated with a
provision for disposition of two restaurants and severance and restructuring
charges taken in the first quarter of 1998. The decrease in net loss and net
loss per share is attributable to increased income from retail and other
non-restaurant operations and a reduction in general and administrative
expenses.
12
<PAGE> 13
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of July 4, 1999 we held cash and cash equivalents of approximately
$717,000 compared to $1,951,000 as of January 3, 1999. The decrease in cash and
cash equivalents reflects the use of cash for the purchase and/or development of
property, equipment and leasehold improvements.
At July 4, 1999 we were party to a credit agreement with a financial
corporation which provides up to a $4.5 million line of credit of which
$1,675,000 is outstanding. This facility is secured by substantially all of our
property, and in addition is guaranteed by and secured by certain assets of our
Chairman, David Anderson. The credit facility matures in April, 2000.
On March 31, 1999 we completed a sale-leaseback transaction involving three
of our existing units that provided net proceeds of approximately $4.4 million.
Under this financing we are obligated to make monthly payments of $41,250 for a
minimum period of twenty years. Approximately $2.4 million of the proceeds were
used to pay down the existing bank line of credit and the remaining amount was
used to complete the construction of the Chicago Blues Club.
We anticipate that future development and expansion will be funded primarily
through cash and short-term investments currently held, proceeds from the sale
of additional equity and/or debt securities, and the proceeds from other forms
of financing such as lease financing or other credit facilities. However, there
can be no assurances that additional financing required for expansion will be
available on terms acceptable or favorable to us.
SEASONALITY
Our units typically generate higher revenues during the second and third
quarters (which are summer months for our locations) than in the first and
fourth quarters (which are winter months) as a result of our concentration of
locations in Minnesota and Wisconsin market areas.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-QSB and other materials filed or to be filed with the Securities and
Exchange Commission (as well as information included in oral statements or other
written statements made or to be made by us) contain statements that are
forward-looking. A number of important factors could, individually or in the
aggregate, cause actual results to differ materially from those expressed or
implied in any forward-looking statements. Such factors include, but are not
limited to, the following: competition in the casual dining restaurant market;
continued market acceptance of our concept; availability and terms of additional
financing: our ability to open additional restaurants in a timely manner;
consumer spending trends and habits; weather conditions in the regions in which
the we develop and operate restaurants; and laws and regulations affecting labor
and employee benefit costs. For further information regarding these and other
factors, see our Annual Report on Form 10-KSB for the fiscal year ended January
3, 1999.
13
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. 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
(a) On June 17, 1999, the Annual Meeting of Shareholders of the Company
(the "Annual Meeting") was held.
(b) At the Annual Meeting, all of management's nominees for directors
as listed in the proxy statement were elected with the following vote:
<TABLE>
<CAPTION>
Shares Voted "For" Shares Voted "Withheld"
---------------------------------- -----------------------------
<S> <C> <C>
David W. Anderson 7,989,968 62,099
Thomas J. Brosig 7,985,940 67,024
Douglas S. Lanham 7,985,841 68,249
Richard L. Monford 7,990,240 61,824
Martin J. O'Dowd 7,985,240 66,824
</TABLE>
(c) The Shareholders approved an amendment to the Company's 1995 Stock
Option and Compensation Plan to increase the number of shares of Common
Stock reserved for issuance thereunder from 950,000 shares to 1,250,000
shares. 7,406,359 votes were cast in favor of the amendment; 274,695 votes
opposed and 371,010 votes abstained.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Consulting Agreement dated August 1, 1999 by and between Douglas
S. Lanham and the Company
10.2 Employment Agreement dated July 1, 1999 by and between the Company
and Martin J. O'Dowd
27 Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE> 15
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FAMOUS DAVE'S OF AMERICA, INC.
/s/ Martin J. O'Dowd
--------------------
Martin J. O'Dowd
President and Chief Executive Officer
/s/ Steven A. Sekely
--------------------
Steven A. Sekely
Corporate Controller
(Principal Accounting Officer)
Date: August 18, 1999
15
<PAGE> 1
EXHIBIT 10.1
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is made and entered into as of
this first day of August, 1999 ("Effective Date"), by and between DOUGLAS S.
LANHAM, an individual, and FAMOUS DAVE'S OF AMERICA, INC., a Minnesota business
corporation (the "Company").
The parties hereby agree as follows:
1. Resignation; Termination of Employment Agreement. Upon the Effective
Date of this Agreement, Lanham shall resign from his seat on the Company's Board
of Directors and from his position as President and Chief Operating Officer of
the Company, and from any and all of his positions as director or officer of any
subsidiaries of the Company. The Employment Agreement entered into between the
Company and Lanham dated January 23, 1997, is hereby terminated and this
Agreement shall supersede such Employment Agreement in all respects, unless
otherwise excepted herein.
2. Services; Nature of Consulting Duties. The Company retains Lanham
for the term set forth below in Paragraph 3 to perform such consulting services
and duties for the Company relating to its business activities as the parties
from time to time mutually agree.
3. Term. Subject to the terms, covenants and conditions hereof, the
term of this Agreement shall be for a period of one (1) year commencing on the
Effective Date.
4. Base Compensation; Manner of Payments; Acceleration. During the term
of this Agreement, Lanham shall receive a base compensation of Two Hundred
Twenty Five Thousand Dollars ($225,000.00). The base compensation shall be
payable in equal installments at the time of the Company's regular employee
payroll dates. At Lanham's election, however, a portion of the base compensation
may be accelerated once during this Agreement in an amount up to Seventy Five
Thousand Dollars ($75,000.00) by providing written notice to the Company,
provided the requested amount of acceleration does not exceed the balance of the
outstanding base compensation remaining at the time such request is made.
Following an accelerated payment, the new remaining balance of base compensation
shall be paid in prorated equal installments made at the time of the Company's
regular employee payroll dates calculated to pay the final amount owing at the
expiration of the term of this Agreement.
5. Per Diem Compensation. In addition to the base compensation
described above, Lanham shall receive One Thousand Two Hundred Dollars
($1,200.00) for each day he provides consulting services to the Company pursuant
to this Agreement, plus reasonable out-of-pocket expenses incurred therein at
the Company's request.
6. Amendment of Stock Option Agreements. As additional consideration,
the parties hereby agree to amend various Option Agreements as follows:
<PAGE> 2
a. January 23, 1997 Option Agreement. In addition to the 150,000
share portion which has vested under the parties' Option Agreement dated January
23, 1997 (hereinafter "January 23 Option"), an additional 50,000 share portion
of such Option shall vest on the date hereof. Further, notwithstanding anything
to the contrary contained in the January 23 Option, the remaining 50,000
unvested share portion of the January 23 Option, as amended hereby, is
terminated and Lanham shall be entitled to exercise the vested portion of such
Option in the manner set forth in the January 23 Option at any time on or prior
to November 1, 2001 (the "Option Exercise Period"). Upon the expiration of the
Option Exercise Period, the January 23 Option shall terminate and become null
and void.
b. July 28, 1997 Option Agreement. The Option Agreement between the
parties dated July 28, 1997 is hereby terminated and is null and void.
c. June 18, 1999 Option Agreement. Notwithstanding anything to the
contrary contained in the parties' Option Agreement dated June 18, 1999
(hereinafter "June 18 Option"), the 25,000 unvested share portion of such option
is terminated and Lanham shall be entitled to exercise the remaining 125,000
shares covered by the June 18 Option in the manner set forth in such option at
any time prior to November 1, 2001 (the "Option Exercise Period"). Upon the
expiration of the Option Exercise Period, June 18 Option shall terminate and
become null and void.
d. July 28, 1997 Anderson Option Agreement. Lanham hereby agrees
that the Option Agreement dated July 28, 1997 between he and David W. Anderson
is hereby terminated and is null and void.
7. Status as Independent Contractor. Using commercially reasonable
efforts, Lanham shall devote such time to the performance of the services
described in this Agreement as reasonably requested from time to time by the
Company. Lanham may perform the services described in this Agreement at
locations other than in the State of Minnesota and may engage in other business
activities; provided, however, that Lanham complies with his confidentiality and
other obligations under this Agreement. Lanham shall have no power to act as an
agent of the Company or bind the Company in any respect. Lanham shall be an
independent contractor in the performance of this Agreement, and shall not be
deemed an employee of the Company for any purpose whatsoever. Lanham shall not
be entitled to participate in any benefit programs for employees of the Company,
including without limitation health benefits, life insurance, pension or profit
sharing plans or paid vacation and sick leave.
8. Agreement Not to Compete. Lanham agrees that during the term of this
Agreement he will not, unless he receives the prior approval of the Company's
Board, directly or indirectly engage in the following:
a. Own an interest in (except as provided below), manage, operate,
join, control, lend money or render financial or other assistance to, or
participate in or be connected with, as an officer, employee, partner,
stockholder, consultant or otherwise, any entity whose primary business
-2-
<PAGE> 3
is the retail sale of barbequed food. However, nothing in this subparagraph
shall preclude Lanham from holding (i) less than one percent of the outstanding
capital stock of any corporation required to file periodic reports with the
Securities and Exchange Commission under Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the securities of which are listed on any
securities exchange, quoted on the National Association of Securities Dealers
Automated Quotation System or traded in the over-the-counter market, or (ii)
Lanham's existing interests in Casa Roja, Inc. (d/b/a Rudy's), a barbequed food
restaurant in Albuquerque, New Mexico.
b. Intentionally solicit, endeavor to entice away from the Company,
or otherwise interfere with the relationship of the Company, any person who is
employed by or otherwise engaged to perform services for the Company whether for
Lanham's own account or for the account of any other individual, partnership,
firm, corporation or other business organization.
If the scope of the restrictions in this paragraph are determined by a court of
competent jurisdiction to be too broad to permit enforcement of such
restrictions to their full extent, then such restrictions shall be construed or
re-written (blue-lined) so as to be enforceable to the maximum extent permitted
by law, and Lanham hereby consents, to the extent he may lawfully do so, to the
judicial modification of the scope of such restrictions in any proceeding
brought to enforce them.
9. Confidential Information. Both parties to this Agreement acknowledge
and agree that during Lanham's tenure as Director and Chief Operating Officer,
as well as during the term of this Agreement, Lanham has had and will have
access to various trade secrets and confidential business information
("Confidential Information") of the Company. Lanham agrees that he shall use
such Confidential Information solely in connection with his obligations under
this Agreement and shall maintain in strictest confidence and shall not disclose
any such Confidential Information directly or indirectly or use such information
in any other way during the term of this Agreement or for a period of one (1)
year after the expiration of this Agreement. The parties further agree to take
all reasonable steps necessary to preserve and protect such Confidential
Information. The provisions of this paragraph shall not apply to information
which (i) was in Lanham's possession prior to receipt from the Company, or (ii)
is or becomes generally available to the public other than as a result of a
disclosure by Lanham, or (iii) becomes available to Lanham from a third party
having the right to make such disclosure.
10. Remedies and Enforcement. The parties acknowledge that the
Company's remedy at law for any breach or threatened breach of the non-compete
provisions of Paragraph 8 and the confidentiality provisions of Paragraph 9
above will be inadequate. Therefore, the Company shall be entitled to injunctive
and other equitable relief restraining Lanham from violating those requirements,
in addition to any other remedies that may be available to the Company under
this Agreement or applicable law.
11. Mutual Release. In consideration of the foregoing and except for
the obligations, responsibilities and liabilities created by this Agreement, the
Company, on behalf of itself and on behalf of its predecessors, successors,
subsidiaries, affiliates, officers, directors, employees, agents,
-3-
<PAGE> 4
representatives, attorneys and assigns, and Lanham, on behalf of himself and on
behalf of his agents, successors, heirs, assigns, executors, administrators and
all other persons, do hereby absolutely and unconditionally release and forever
discharge each other and their respective predecessors, successors,
subsidiaries, affiliates, officers, directors, employees, agents,
representatives, attorneys, heirs, executors, administrators and all other
persons from any and all claims, demands, actions or causes of action of any
kind, nature, description or origin, under any state or federal law or laws or
the common law, from the beginning of time to the date of this Agreement which
they have ever had or now have against each other, including, without limiting
the generality of the foregoing, all claims arising from Lanham's employment
with the Company including, but not limited to, any alleged breach of contract,
wrongful termination, wrongful discrimination, including any and all claims
under the Minnesota Human Rights Act ("MHRA") and the federal Age Discrimination
in Employment Act ("ADEA"), interference with contract, defamation, promissory
estoppel, or infliction of emotional distress or for any other alleged unlawful
employment practice arising out of or relating to Lanham's employment with the
Company. Lanham acknowledges that the consideration provided to him in this
Agreement is full and fair compensation for his foregoing release of rights and
claims.
Notwithstanding the foregoing, nothing in this Agreement shall be
construed to release the Company from Lanham's right, under Minnesota law or
under the Company's Articles of Incorporation or By-Laws, to indemnification
resulting from him being made or threatened to be made a party to any legal
proceeding by reason of his present or former official capacity as an officer
and/or director of the Company.
a. Right to Rescind Under Minnesota Law. Lanham understands that he
has a right to rescind the above general release of discrimination rights and
claims which he may have under the MHRA within fifteen (15) calendar days of the
date upon which he signs this Agreement. He further understands that, if he
desires to rescind the above general release of discrimination rights and claims
under the MHRA, he must put such rescission request in writing and deliver it to
the Company by hand or by certified mail, return receipt requested, within
fifteen (15) calendar days of the date of execution of this Agreement by him. If
notice of rescission is given by mail, it must be postmarked within fifteen (15)
days of the date Lanham signs this Agreement and must be addressed to David W.
Anderson, Famous Dave's of America, Inc., 7657 Anagram Drive, Eden Prairie,
Minnesota 55344.
b. Right to Rescind Under Federal Law. Lanham also understands that
he has twenty one (21) days to consider this Agreement and the above release of
any and all claims he may have against the Company under the ADEA, beginning on
the date on which he first received this Agreement. Lanham further understands
that if he signs this Agreement, he will then be entitled to revoke his release
of any rights and claims of age discrimination under the ADEA within seven (7)
days of executing it, and the release of his ADEA rights and claims shall not
become effective until the seven-day period has expired.
c. Effect of Rescission or Revocation. Lanham also understands that
if he
-4-
<PAGE> 5
rescinds or revokes the general release set forth above, all of the Company's
obligations under this Agreement will immediately cease, and the Company will
not pay Lanham any of the money or other benefits provided for in this
Agreement.
d. Denial of Liability. The Company does not admit that it is
responsible or legally obligated to Lanham, and in fact the Company denies that
it is responsible or legally obligated to Lanham even though it has provided
Lanham full and fair consideration to release his claims.
12. Miscellaneous Provisions.
a. Entire Agreement. This Agreement sets forth the entire agreement
of the parties with respect to the subject matter hereof, and supersedes all
prior agreements with respect to Lanham's services to the Company. This
Agreement may not be amended or modified in any manner except by a written
instrument signed by the parties.
b. Further Assurances. The parties represent and warrant that they
will take any additional action necessary to effectuate the terms and conditions
of this Agreement, including by way of example, but not limitation, executing
written modifications to their Option Agreements.
c. Severability. The invalidity or unenforceability of one or more
provisions of this Agreement shall not affect the validity or enforceability of
any of the other provisions, and this Agreement shall be construed as if such
invalid or unenforceable provisions were omitted. If any provision is
unenforceable because it is overly broad, the parties agree that such provision
shall be limited to the extent necessary to make it enforceable, it being the
intent of the parties that provisions of this Agreement be enforced to the
maximum extent possible.
d. Choice of Law; Choice of Forum. This Agreement shall be deemed to
have been entered into in, and shall be construed and enforced in accordance
with the laws of the State of Minnesota; and any legal action or proceeding
regarding the construction or enforcement of this Agreement shall be venued only
in a state or federal court located in Hennepin County, Minnesota.
e. Waivers. The failure of any party to insist, in any one or more
instances, upon the performance of any of the terms or conditions of this
Agreement or to exercise any right, shall not be construed as a waiver of the
future performance of any such term or condition or the future exercise of such
right.
f. Free Execution; Opportunity to Consult with Counsel. Each of the
undersigned parties represents and warrants to the other that they have read
this Agreement and fully understand all of its terms; that this Agreement has
been executed freely by each party, without promises or threats or the exertion
of influence by or upon the other; and that each party has had the full
opportunity to consult with legal counsel of its choice concerning the legal and
practical effect of this document.
-5-
<PAGE> 6
g. Headings. The heading of the paragraphs used in this Agreement
are included for convenience only and are not to be used in construing or
interpreting this Agreement.
h. Notices. Any notice to be given under this Agreement shall be
personally delivered in writing or shall be deemed duly given when received
within five (5) business days of deposit in the United States mail, postage
prepaid, registered or certified, return receipt requested, whichever is
earlier. If mailed to the Company, it shall be addressed to Mr. David W.
Anderson, Chairman, Famous Dave's of America, Inc., 7657 Anagram Drive, Eden
Prairie, Minnesota 55344, and if mailed to Lanham, it shall be addressed to him
at 11-B Arroyo Hondo Trail, Sante Fe, New Mexico 87505, or at such other
addresses as the parties may hereafter designate in writing to each other.
i. Assignment. Lanham may not assign or subcontract his rights or
obligations under this Agreement without the prior written consent of the
Company. The Company may assign its rights or obligations.
j. Execution. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
instrument.
FAMOUS DAVE'S OF AMERICA, INC. DOUGLAS S. LANHAM
By: s/David Anderson s/Douglas S. Lanham
------------------------------- --------------------------------
Douglas S. Lanham
Its: Chairman of the Board
------------------------------
-6-
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Agreement is made as of July 1, 1999 by and between FAMOUS DAVE'S
OF AMERICA, INC., a Minnesota corporation (the "Company"), and MARTIN J. O'DOWD
(the "Executive").
W I T N E S S E T H
WHEREAS, the Company desires to employ Executive in accordance with
the terms and conditions stated in this Agreement; and
WHEREAS, Executive desires to accept that employment pursuant to the
terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, the parties hereto agree as follows:
I. EMPLOYMENT
1.1 Employment as Chief Executive Officer. The Company hereby employs
Executive as President and Chief Executive Officer and Executive accepts such
employment pursuant to the terms of this Agreement. Executive shall report to
and take direction from the Chairman of the Board of Directors (the "Board") and
the Board. All other employees of the Company will report, directly or
indirectly, to Executive. Executive will perform those duties which are usual
and customary for a President and Chief Executive Officer of a restaurant
enterprise. Executive shall be employed at the Company's corporate offices. He
shall perform his duties in a manner reasonably expected of a President and
Chief Executive Officer of a restaurant company.
1.2 Term. Unless terminated by Executive or the Company pursuant to
Article III hereof, Executive's employment pursuant to this Employment Agreement
shall be for a term of three (3) years, such term to commence on August 1, 1999.
II. COMPENSATION, BENEFITS AND PERQUISITES
2.1 Base Salary. During the term and effectiveness of this Agreement,
the Company shall pay Executive an annualized base salary ("Base Salary") at the
annual rate of Three Hundred Thousand Dollars ($300,000). The Base Salary shall
be payable in equal installments in the time and manner that other employees of
the Company are compensated. The Board will review the Base Salary at least
annually and may, in its sole discretion, increase it to reflect performance,
appropriate industry guideline data or other factors.
2.2 Bonus. Executive will receive an annual bonus (the "Base Bonus") in
the amount of $75,000, payable at the end of each fiscal year. Executive may
receive an additional
<PAGE> 2
performance-based bonus (the "Incentive Bonus") of up to $50,000, the amount of
which, if any, will be determined and paid at the sole discretion of the Board's
compensation committee (the "Compensation Committee") at the end of each year of
service based upon Executive's satisfaction of certain criteria mutually agreed
upon by Executive and the Board, including without limitation, the
accomplishment by the Company of certain expectations regarding the Company's
budget, restaurant development and performance, and management retention. The
Board and Executive will review and, if mutually agreed, revise the criteria for
the Incentive Bonus at least annually.
2.3 Vacation. Executive shall be entitled to four (4) weeks' paid
vacation, or such greater amount of time as determined by the Board.
2.4 Employee Benefits. Throughout the term of this Agreement, Executive
shall be entitled to the usual and customary benefits and perquisites which the
Company generally provides to its other senior executives under its applicable
plans and policies (including, without limitation, healthcare coverage and
retirement benefits). If the Company adopts a benefit plan, Executive shall be
entitled to the benefits which the Company provides to its other executives
under such plan. Executive shall pay any contributions which are generally
required of executives to receive any such benefits.
III. TERMINATION OF EXECUTIVE'S EMPLOYMENT
3.1 Termination of Employment.
(a) Executive's employment under this Agreement may be
terminated by Executive at any time for any reason. This Agreement
shall terminate in its entirety immediately upon the death of
Executive.
(b) Executive's employment under this Agreement may be
terminated by the Company at any time for any reason; provided,
however, that if (i) Executive's employment is terminated by the
Company during the term of this Agreement for a reason or disability
other than for "Cause" as defined in Section 3.2, or (ii) Executive
resigns for "Good Reason" as defined in Section 3.2, Executive shall
receive a severance payment (the "Severance Payment") in the amount of
Two Hundred Thousand Dollars ($200,000), and shall not receive any
additional compensation or bonuses.
(c) If, during the term of this Agreement, Executive
terminates his employment with the Company following a "Change of
Control" of Company, Executive shall continue to receive his Base
Salary, Base Bonus and Incentive Bonus (the annual amount of which
shall equal (i) the amount of the Incentive Bonus payment made to
Executive at the end of the year preceding termination, or (ii)
$50,000, if such change of control and termination occur during the
first year of Executive's employment) for the remaining term of this
Agreement; provided however, that if Executive obtains other
2
<PAGE> 3
employment during such remaining term, the Company shall receive a
dollar-for-dollar credit against its severance obligation hereunder
with respect to compensation and benefits received by Executive in his
new employment.
(d) Any termination shall be effective as of the date
specified by the party initiating the termination in a written notice
delivered to the other party, which date shall not be earlier than the
date such notice is delivered to the other party. Except as expressly
provided to the contrary in this section or applicable law, Executive's
rights to pay and benefits shall cease on the date his employment under
this Agreement terminates.
3.2 Definitions. For purposes of this Article III,
(a) "Cause" shall mean only the following: (i) commission of a
felony; (ii) theft or embezzlement of Company property or commission of
similar acts involving moral turpitude; or (iii) the failure by
Executive to substantially perform his material duties under this
Agreement (excluding nonperformance resulting from Executive's
disability) which failure is not cured within 30 days after written
notice from the Chairman of the Board specifying the act of
nonperformance or within such longer period (but no longer than 90 days
in any event) as is reasonably required to cure such nonperformance.
Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been
delivered to Executive a copy of a resolution duly adopted by the
affirmative vote of the Board at a meeting of the Board called and held
for this specific purpose.
(b) "Good Reason" shall mean only the following: (i) Executive
has been demoted; or (ii) Executive has incurred a substantial
reduction in his authority or responsibility.
(c) "Change of Control" shall mean the occurrence of any of
the following events:
(i) any person or group of persons becomes the
beneficial owner of thirty-five percent (35%) or more of any
equity security of the Company entitled to vote for the
election of directors;
(ii) a majority of the members of the board of
directors of the Company is replaced within the period of less
than two (2) years by directors not nominated and approved by
the board of directors; or
(iii) the stockholders of the Company approve an
agreement to merge or consolidate with or into another
corporation or an agreement to sell or otherwise dispose of
all or substantially all of the Company's assets (including a
plan of liquidation).
3
<PAGE> 4
3.3 Disability. If Executive has become disabled such that he cannot
perform the essential functions of his job with or without reasonable
accommodation, and the disability has continued for a period of more than 90
days, the Board may, in its discretion, terminate his employment under this
Agreement. Upon any such termination for disability, Executive shall be entitled
to such disability, medical, life insurance, and other benefits as may be
provided generally for disabled employees of the Company during the period he
remains disabled.
3.4 Notice. Executive must provide the Company with at least 30 days'
written notice if Executive desires to terminate his employment under this
Agreement.
IV. CONFIDENTIALITY
4.1 Prohibitions Against Use. Both parties to this Agreement
acknowledge and agree that during the term of this Agreement they may have
access to various trade secrets and confidential business information
("Confidential Information") of each other. Each party agrees that it shall use
such Confidential Information solely in connection with his obligations under
this Agreement and shall maintain in strictest confidence and shall not disclose
any such Confidential Information, directly or indirectly or use such
information in any other way during the term of this Agreement or for a period
of one (1) year after the termination of this Agreement. The parties further
agree to take all reasonable steps necessary to preserve and protect the
Confidential Information. The provisions of this Section shall be equally
applicable to each parties' officers, directors, agents or employees. The
provisions of this Section shall not apply to information which (i) was in
possession of a party prior to receipt from the other party, or (ii) is or
becomes generally available to the public other than as a result of a disclosure
by a party, its directors, officers, employees, agents or advisors, or (iii)
becomes available to a party from a third party having the right to make such
disclosure.
4.2 Remedies. Executive acknowledges that the Company's remedy at law
for any breach or threatened breach by Executive of Section 4.1 will be
inadequate. Therefore, the Company shall be entitled to injunctive and other
equitable relief restraining Executive from violating those requirements, in
addition to any other remedies that may be available to the Company under this
Agreement or applicable law.
V. NON-COMPETITION
5.1 Agreement Not to Compete. Executive agrees that, on or before the
date which is two (2) years after the date Executive's employment under this
Agreement terminates, he will not, unless he receives the prior approval of the
Board, directly or indirectly engage in any of the following actions:
(a) Own an interest in (except as provided below), manage,
operate, join, control, lend money or render financial or other
assistance to, or participate in or be connected with, as an officer,
employee, partner, stockholder, consultant or otherwise,
4
<PAGE> 5
any entity whose primary business is the retail sale of barbequed food.
However, nothing in this subsection (a) shall preclude Executive from
holding (i) less than one percent of the outstanding capital stock of
any corporation required to file periodic reports with the Securities
and Exchange Commission under Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the securities of which are listed on
any securities exchange, quoted on the National Association of
Securities Dealers Automated Quotation System or traded in the
over-the-counter market, or (ii) holding an interest in the restaurant
concepts which Executive was involved with in the last three (3) years.
(b) Intentionally solicit, endeavor to entice away from the
Company, or otherwise interfere with the relationship of the Company,
any person who is employed by or otherwise engaged to perform services
for the Company (including, but not limited to, any independent sales
representatives or organizations), whether for Executive's own account
or for the account of any other individual, partnership, firm,
corporation or other business organization.
If the scope of the restrictions in this section are determined by a court of
competent jurisdiction to be too broad to permit enforcement of such
restrictions to their full extent, then such restrictions shall be construed or
rewritten (blue-lined) so as to be enforceable to the maximum extent permitted
by law, and Executive hereby consents, to the extent he may lawfully do so, to
the judicial modification of the scope of such restrictions in any proceeding
brought to enforce them.
5.2 Remedies. Executive acknowledges that the Company's remedy at
law for any breach or threatened breach by Executive of Section 5.1 will be
inadequate. Therefore, the Company shall be entitled to injunctive and other
equitable relief restraining Executive from violating those requirements, in
addition to any other remedies that may be available to the Company under this
Agreement or applicable law.
VI. STOCK OPTION AGREEMENT
Contemporaneously herewith and in connection with this Agreement, the
parties hereto have entered into a Stock Option Agreement, pursuant to which the
Company granted to Executive the right and option (the "Option") to purchase up
to Five Hundred Thousand (500,000) shares of the Company's common stock, subject
to the terms, conditions and exercise price set forth in the form of Stock
Option Agreement attached hereto as Exhibit A.
VII. MISCELLANEOUS
7.1 Amendment. This Agreement may be amended only in writing,
signed by both parties.
7.2 Entire Agreement. This Agreement contains the entire
understanding of the
5
<PAGE> 6
parties with regard to all matters contained herein. There are no other
agreements, conditions or representations, oral or written, expressed or
implied, with regard thereto. This Agreement supersedes any prior agreements
relating to the employment of Executive by the Company.
7.3 Assignment. This Agreement shall be binding upon, and shall inure
to the benefit of, the parties and their respective successors, assigns, heirs
and personal representatives and any entity with which the Company may merge or
consolidate or to which the Company may sell substantially all of its assets.
7.4 Notices. Any notice required to be given under this Agreement shall
be in writing and shall be delivered either in person or by certified or
registered mail, return receipt requested.
Any notice by mail shall be addressed as follows:
If to the Company, to:
Famous Dave's of America, Inc.
7657 Anagram Drive
Eden Prairie, MN 55344
Attention: Chairman of the Board
If to Executive, to:
Martin J. O'Dowd
3719 Xerxes Avenue South
Minneapolis, Minnesota 55410
or to such other addresses as either party may designate in writing to the other
party from time to time.
7.5 Waiver of Breach. Any waiver by either party of compliance with any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any other provision of this Agreement, or of any subsequent
breach by such party of a provision of this Agreement.
7.6 Severability. If any one or more of the provisions (or portions
thereof) of this Agreement shall for any reason be held by a final determination
of a court of competent jurisdiction to be invalid, illegal, or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions (or portions of the provisions) of this Agreement, and the
invalid, illegal or unenforceable provisions shall be deemed replaced by a
provision that is valid, legal and enforceable and that comes closest to
expressing the intention of the parties hereto.
7.7 Governing Law. This Agreement shall be interpreted and
enforced in accordance
6
<PAGE> 7
with the laws of the State of Minnesota, without giving effect to conflict of
law principles.
7.8 Arbitration. Any controversy or claim arising out of or relating to
this Agreement or the breach of this Agreement shall be settled by arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and a judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction. The arbitration award shall be subject
to review only in the manner provided in the Uniform Arbitration Act as adopted
in Chapter 572, Minnesota Statutes, as the Act is amended at the time of
submission of the issue to arbitration. The arbitrator(s) shall have the
authority to award the prevailing party its costs and reasonable attorney's fees
which shall be paid by the non-prevailing party. In the event the parties hereto
agree that it is necessary to litigate any dispute hereunder in a court, the
non-prevailing party shall pay the prevailing party its costs and reasonable
attorney's fees.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date set forth above.
FAMOUS DAVE'S OF AMERICA, INC.
By: s/ David W. Anderson
--------------------------
Its: Chairman
--------------------------
s/ Martin J. O'Dowd
--------------------------------
MARTIN J. O'DOWD
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FAMOUS
DAVE'S OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE SIX MONTHS ENDED JULY 4, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH 10-QSB
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> JUL-04-1999
<CASH> 717,000
<SECURITIES> 1,517,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,081,000
<CURRENT-ASSETS> 4,259,000
<PP&E> 44,002,000
<DEPRECIATION> 5,071,000
<TOTAL-ASSETS> 43,522,000
<CURRENT-LIABILITIES> 5,725,000
<BONDS> 5,328,000
0
0
<COMMON> 42,814,000
<OTHER-SE> (10,345,000)
<TOTAL-LIABILITY-AND-EQUITY> 43,522,000
<SALES> 23,019,000
<TOTAL-REVENUES> 23,019,000
<CGS> 7,944,000
<TOTAL-COSTS> 23,591,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (37,000)
<INCOME-PRETAX> (609,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (609,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (609,000)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
