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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 24, 1997
REGISTRATION NO. 333-23343
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TOTAL ENTERTAINMENT RESTAURANT CORP.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 5812 52-2016614
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
300 CRESCENT COURT
BUILDING 300, SUITE 850
DALLAS, TEXAS 75201
(214) 754-0414
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
------------------------
JAMIE B. COULTER
CHAIRMAN OF THE BOARD
TOTAL ENTERTAINMENT RESTAURANT CORP.
300 CRESCENT COURT
BUILDING 300, SUITE 850
DALLAS, TEXAS 75201
(214) 754-0414
(Name, address, including zip code, and telephone number,
including area code, of agent of service)
------------------------
COPIES TO:
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STEVEN WOLOSKY, ESQ. JEFFREY D. SAPER, ESQ.
JEFFREY S. SPINDLER, ESQ. J. ROBERT SUFFOLETTA, ESQ.
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP WILSON SONSINI GOODRICH & ROSATI, P.C.
505 PARK AVENUE 650 PAGE MILL ROAD
NEW YORK, NEW YORK 10022 PALO ALTO, CALIFORNIA 94304
(212) 753-7200 (415) 493-9300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED JUNE 24, 1997
2,100,000 SHARES
TOTAL ENTERTAINMENT RESTAURANT CORP.
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by Total
Entertainment Restaurant Corp. (the "Company"). Prior to this Offering, there
has been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price of the Common Stock will be
between $8.50 and $9.50 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
Common Stock has been approved for quotation on the Nasdaq National Market under
the trading symbol "TENT."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Price to Underwriting Proceeds to
Public Discount (1) Company (2)(3)
<S> <C> <C> <C>
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Per Share................................... $ $ $
Total(3).................................... $ $ $
=========================================================================================
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $725,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 315,000 shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to Public will total $ , the Underwriting Discount will
total $ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein when, as and if delivered to and accepted by the Underwriters and subject
to their right to reject any order in whole or in part. It is expected that
delivery of certificates representing the shares will be made against payment
therefor at the office of Montgomery Securities on or about , 1997.
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MONTGOMERY SECURITIES
, 1997
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[THIS PAGE CONTAINS PHOTOS OF
THE COMPANY'S ENTERTAINMENT RESTAURANT LOCATIONS.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF
PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
Fox & Hound(R) and Bailey's Sports Grille(R) are registered service marks
of the Company. This Prospectus also includes service marks or trademarks of
corporations other than the Company. The trademarks on the labels and syphon
handles shown in the photographs in this Prospectus are the property of their
respective owners.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
historical and pro forma financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. This Prospectus contains certain
forward-looking statements within the meaning of the federal securities laws.
Actual results could differ materially from those anticipated in the
forward-looking statements due to a number of factors, including those set forth
in "Risk Factors" and elsewhere in this Prospectus. Unless otherwise indicated,
all information in this Prospectus assumes (i) the completion of a 79-for-1
stock dividend prior to the date of this Prospectus and (ii) no exercise of the
Underwriters' over-allotment option.
THE COMPANY
Total Entertainment Restaurant Corp. (the "Company") currently owns and
operates 12 entertainment restaurant locations under the Fox & Hound ("Fox &
Hound") and Bailey's Sports Grille ("Bailey's") brand names. The Company's
entertainment restaurant locations combine a comfortable and inviting social
gathering place, full menu and full service bar, state-of-the-art audio and
video systems for sports entertainment, traditional games of skill such as
pocket billiards and a late-night dining and entertainment alternative all in a
single location. The Company's entertainment restaurant locations appeal to a
broad range of guests who can participate in one or more aspects of the
Company's total entertainment and restaurant experience. Fox & Hound and
Bailey's encompass the Company's multi-dimensional concept and serve both larger
urban and smaller regional markets. The first Bailey's was opened in Charlotte,
North Carolina in 1989 and the first Fox & Hound was opened in Arlington, Texas
in 1994. The Company currently owns and operates three Fox & Hounds and nine
Bailey's in Arkansas, Indiana, North Carolina, South Carolina, Tennessee and
Texas.
The Company believes that its versatile entertainment restaurant concept
will enable the Company to distinguish itself as the leader in this market
segment. Management's strategy for attaining this leadership position is based
on the following key elements: (i) provide guests with a wide variety of
entertainment and dining options; (ii) leverage management's experience to
secure favorable real estate sites, control costs and implement proven operating
procedures; (iii) expand rapidly through selected geographic markets in the
United States; (iv) utilize both the Fox & Hound and Bailey's brand names to
target different market segments; and (v) provide high quality food and
beverages, entertainment and customer service.
The Company's management team has extensive experience in the restaurant
business and has successfully developed and operated multi-unit concepts in a
variety of geographic markets throughout the United States. The Company intends
to open five entertainment restaurant locations in 1997 (one of which was opened
in March 1997) and 20 locations in each of 1998 and 1999. Management expects
that these future locations will range from 6,500 to 10,000 square feet. The
Company is currently evaluating markets familiar to its management team and is
actively negotiating additional leases at a number of sites. The Company expects
to manage this growth by employing the services and infrastructure provided by
Coulter Enterprises, Inc. to centralize its accounting and administrative
controls.
The Company, which was incorporated in Delaware in February 1997, was
formed to acquire the Bailey's and Fox & Hound concept and their existing
locations. The Company currently operates its Bailey's locations through its
subsidiary Bailey's Sports Grille, Inc. and its Fox & Hound locations through
separate subsidiary limited partnerships. The Company anticipates that future
entertainment restaurant locations will be operated by separate subsidiary
corporations in the states in which it will own and operate locations. The
Company's principal executive offices are located at 300 Crescent Court,
Building 300, Suite 850, Dallas, Texas 75201. The Company's telephone number is
(214) 754-0414.
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THE OFFERING
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Common Stock offered hereby...................... 2,100,000 shares
Common Stock to be outstanding after the
Offering....................................... 10,100,000 shares(1)
Use of Proceeds.................................. To finance the expansion and development
of additional entertainment restaurant
locations, to repay indebtedness and for
general corporate purposes. See "Use of
Proceeds."
Risk Factors..................................... The purchase of the Common Stock offered
hereby involves a high degree of risk
including the Company's limited operating
history, new management, small unit base,
expansion strategy and future capital
requirements. See "Risk Factors."
Nasdaq National Market symbol.................... "TENT"
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(1) Does not include (i) 1,500,000 shares reserved for issuance under the
Company's 1997 Incentive and Nonqualified Stock Option Plan (the "1997
Plan"), of which options to purchase 800,348 shares will be granted on the
date of this Prospectus and (ii) 150,000 shares reserved for issuance under
the Company's 1997 Directors Stock Option Plan (the "Directors Plan"), of
which options to purchase 50,000 shares will be granted on the date of this
Prospectus. See "Management -- Stock Option Plans."
SECTION 351 EXCHANGE
On February 20, 1997, the Company effected an exchange (the "Exchange") of
property under Section 351 of the Internal Revenue Code of 1986, as amended (the
"Code"), with the stockholders of four corporations (the "Subsidiary
Corporations") and certain limited partners of four Texas limited partnerships
(the "Subsidiary Limited Partnerships"). Pursuant to the Exchange, the Company
became the owner of the eight then-existing Bailey's locations and the three Fox
& Hound locations. The Company issued 8,000,000 shares of its common stock,
$0.01 par value (the "Common Stock"), in exchange for all of the outstanding
stock of the Subsidiary Corporations and the outstanding limited partnership
interests of the Subsidiary Limited Partnerships not owned by the Subsidiary
Corporations. The Subsidiary Corporations and Subsidiary Limited Partnerships
thereby became wholly-owned subsidiaries of the Company. All references to the
Company in this Prospectus are to Total Entertainment Restaurant Corp., a
Delaware corporation, and its subsidiaries, including the Subsidiary Limited
Partnerships. See "Certain Transactions."
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SUMMARY OF SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth certain historical financial and operating
data for Bailey's Sports Grille, Inc. and the three Fox & Hound locations (the
"Fox & Hound Entertainment and Restaurant Group"). The table also sets forth
summary pro forma financial data for the Company as if the Exchange had occurred
on January 1, 1996. The Company's pro forma statement of operations data for the
twelve weeks ended March 19, 1996 and March 25, 1997 and the balance sheet data
as of March 25, 1997 are unaudited and have been prepared by management solely
to facilitate comparison and do not represent the actual results of operations
for the periods presented. The pro forma financial data does not purport to be
indicative of the results of operations to be expected in the future. The
financial data below should be read in conjunction with all the historical and
pro forma financial statements, including the notes thereto, and the information
under "Selected Historical Financial Data," "Pro Forma Combined Condensed
Financial Statements" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The pro forma information is not
necessarily indicative of what the Company's results of operations would have
been for the periods indicated.
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HISTORICAL
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FOX & HOUND
ENTERTAINMENT AND THE COMPANY
BAILEY'S SPORTS GRILLE, INC.(1) RESTAURANT GROUP PRO FORMA(2)
------------------------------------------ ------------------------ -------------------------------------
12 WEEKS ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED ---------------------
------------------------------------------ ------------------------ DECEMBER 31, MARCH 19, MARCH 25,
1992 1993 1994 1995 1996 1994 1995 1996 1996 1996 1997
------ ------ ------ ------ ------ ------ ------ ------ ------------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND NUMBER OF LOCATIONS)
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STATEMENT OF
OPERATIONS DATA:
Net sales......... $1,069 $1,340 $2,928 $5,333 $9,312 $ 730 $2,618 $5,506 $14,818 $ 3,232 $ 4,084
Income (loss) from
operations...... 234 290 316 726 1,709 (83) 109 420 1,905 516 495
Income (loss)
before income
taxes........... 204 274 250 602 1,502 (84) 96 364 1,271 387 304
Provision for
income
taxes(3)........ -- -- -- -- -- -- -- -- 476 145 114
Net income
(loss).......... $ 204 $ 274 $ 250 $ 602 $1,502 $ (84) $ 96 $ 364 $ 795 $ 242 $ 190
Average shares
outstanding..... 8,000,000 8,000,000 8,000,000
Net income per
share(4)........ $ 0.10 $ 0.03 $ 0.02
OPERATING DATA:
Annualized average
weekly sales per
location(5)..... $ 535 $ 670 $ 925 $1,123 $1,352 $1,165 $1,252 $1,801 $ 1,491 $ 1,556 $ 1,578
Number of
locations at
period end(6)... 2 2 4 6 8 2 3 3 11 9 12
Number of store
operating
weeks(7)........ 104 104 162 246 357 32 107 159 516 108 134
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THE COMPANY
MARCH 25, 1997
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HISTORICAL AS ADJUSTED(8)
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BALANCE SHEET DATA:
Working capital (deficit)................................................................ $(10,130) $ 6,722
Total assets............................................................................. 14,189 20,205
Revolving note payable................................................................... 10,836 --
Stockholders' equity..................................................................... 1,620 18,472
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(1) Bailey's operates on a 52 or 53 week fiscal year ending on the last Tuesday
in December. Bailey's 1996 fiscal year was comprised of 53 weeks. The
Company will operate on a 52 or 53 week fiscal year ending on the last
Tuesday in December.
(2) The pro forma statement of operations data gives effect to the Exchange as
if it occurred on January 1, 1996. See "Pro Forma Combined Condensed
Financial Statements."
(3) No income tax provision is presented for the historical results of Bailey's
Sports Grille, Inc. or Fox & Hound Entertainment and Restaurant Group as the
entities operated as either Subchapter S corporations or as partnerships and
were not subject to income taxes at the entity level.
(4) Gives effect to all shares of Common Stock outstanding immediately following
the consummation of the Exchange and prior to the closing of this Offering
as though they were outstanding since January 1, 1996.
(5) Annualized average weekly sales per location are computed by dividing net
sales for full weeks open during the period by the number of store operating
weeks, and multiplying the result by fifty-two.
(6) There were no locations closed during the periods presented. Therefore, the
incremental change in the number of locations open at the end of each period
represents the number of locations opened during such period. No new
locations were opened during the twelve weeks ended March 19, 1996. One new
location was opened during the twelve weeks ended March 25, 1997.
(7) Store operating weeks represents the number of full weeks all locations were
open during the period.
(8) Adjusted to reflect the sale of the 2,100,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $9.00 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
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RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of the federal securities laws. Actual results and the timing of certain
events could differ materially from those anticipated in the forward-looking
statements due to a number of factors, including those set forth below and
elsewhere in this Prospectus. Prospective purchasers should carefully consider
the following information in addition to the other information contained in this
Prospectus in evaluating an investment in the Common Stock offered hereby.
Limited Operating History; New Company Management. The Company was formed
in February 1997 and pursuant to the Exchange became the owner of the Bailey's
and Fox & Hound concept and their existing locations. Prior to the Exchange,
Bailey's and Fox & Hound were operated as two separate entities. The executive
officers of the Company have all joined the Company subsequent to the Exchange.
See "Management." Accordingly, the historical operations and financial results
of Bailey's and Fox & Hound do not reflect the impact of the Company's current
management. Furthermore, only three of the Company's entertainment restaurant
locations have been in operation for more than three years. Accordingly, the
Company and its existing management have a limited operating history upon which
investors may evaluate the Company's performance and there can be no assurance
that the Company will be able to increase its revenues or sustain profitability
in the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Small Unit Base. The Company currently owns and operates only 12
entertainment restaurant locations, of which nine are Bailey's and three are Fox
& Hounds. Of these locations, the Company believes only one Fox & Hound in
Dallas (Midway), Texas and the four most recently opened Bailey's reflect
management's expectations as to the layout and decor of future locations. There
can be no assurance that future locations will achieve the sales levels or
reflect the unit economics of the existing locations. Consequently, the revenues
and earnings achieved to date by the Company's relatively small and concentrated
unit base may not be indicative of the future operating results of a larger
number of locations. Furthermore, because of the Company's relatively small unit
base, the operating results of any one location or the lack of success of any
new location will have a more significant effect on the Company's results of
operations than would be the case in a larger company with a significantly
larger unit base.
Expansion Strategy. The Company intends to pursue an aggressive expansion
strategy by opening five entertainment restaurant locations in 1997 (one of
which was opened in March 1997) and 20 locations in each of 1998 and 1999. The
Company's ability to expand will depend on a number of factors, including
identification of suitable locations, negotiation of favorable lease terms,
availability, staffing, training and retention of skilled management and hourly
personnel, securing required governmental approvals and permits, adequately
supervising construction, securing adequate financing, obtaining necessary
equipment and other factors, some of which are beyond the control of the
Company. Future operating results may be adversely affected by costs and
problems associated with developing new entertainment restaurant locations over
a short period of time. There can be no assurance that the Company will be able
to open all of its planned new entertainment restaurant locations or that such
newly opened locations can be operated profitably. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Expansion Plans."
Future Capital Requirements. The Company plans to incur substantial costs
over the near term in connection with its expansion plans. The Company believes
that the net proceeds from this Offering, anticipated cash flow from operations
and funds anticipated to be available from a credit facility will be sufficient
to satisfy the Company's working capital and capital expenditure requirements
through 1999. There can be no assurance, however, that changes in the Company's
operating plans, acceleration of the Company's expansion plans, lower than
anticipated revenues, increased expenses, potential acquisitions or other events
will not cause the Company to seek additional financing sooner than anticipated.
There can be no assurance that such additional financing will be available on
acceptable terms or at all.
Geographic Concentration; Dependence on Discretionary Spending. The
success of the Company's business and its operating results are dependent on
discretionary spending by consumers, particularly by consumers living in the
communities in which the Company's units are located. Currently, the Company's
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units are concentrated in six states, Arkansas, Indiana, North Carolina, South
Carolina, Tennessee and Texas. A significant weakening in any of the local
economies in which the Company operates or is planning to operate may cause the
residents of such communities to curtail discretionary spending which, in turn,
could have a material adverse effect on the results of operations of the
Company. The Company's business could also be adversely affected by national
economic conditions, demographic trends, consumer confidence in the economy and
local traffic patterns.
Competition. The entertainment and restaurant industries are highly
competitive. There are a great number of entertainment and restaurant businesses
that compete directly and indirectly with the Company. Many of these entities
are well-established and have significantly greater financial, marketing and
other resources than does the Company. Although there are few other companies
presently utilizing the concept of combining entertainment and restaurant
operations in a manner similar to the Company, the Company will encounter
increased competition in the future. Such increased competition may have an
adverse effect on the Company's operating results. In addition to other
entertainment and restaurant companies, the Company competes with numerous
businesses for suitable locations. The legalization of casino gambling in
geographic areas near any unit operated by the Company would increase consumers'
entertainment alternatives, which could have a material adverse effect on the
Company's business. See "Business -- Competition."
Dependence on Senior Management. Jamie B. Coulter, the Chairman of the
Board of the Company, Gary M. Judd, the Chief Executive Officer, President and
Chief Operating Officer of the Company and James K. Zielke, the Chief Financial
Officer of the Company, were not actively involved in the day-to-day business of
the Company prior to the Exchange. The Company has entered into a
non-competition, confidentiality and non-solicitation agreement with Mr.
Coulter. However, Mr. Coulter has made no future specific time commitment to the
Company. Messrs. Judd and Zielke are employed pursuant to employment agreements,
each of which will expire in April 2002. The loss of the services of Messrs.
Coulter, Judd or Zielke could adversely affect the Company's business, its
operations or its expansion plans. The Company's growth will depend upon its
ability to attract and retain additional skilled management personnel. See
"Management."
Government Regulation. The Company is subject to numerous federal, state
and local laws affecting its business. Each location is subject to licensing and
regulation by a number of governmental authorities, which may include alcoholic
beverage control, amusement, health and safety and fire agencies in the state or
municipality in which each of the Company's entertainment restaurant units is
located. In 1996, a significant portion of the Company's sales were derived from
alcoholic beverages. Each unit is required to obtain, directly or indirectly, a
license to sell alcoholic beverages on the premises from a state authority and,
in certain locations, county and municipal authorities. Typically, licenses must
be renewed annually and may be revoked or suspended for cause at any time.
Alcoholic beverage control regulations govern numerous aspects of the daily
operations of each entertainment restaurant location, including the minimum age
of patrons and employees, hours of operation, advertising practices, wholesale
purchasing, inventory control and handling, and storage and dispensing of
alcoholic beverages. The Company has not encountered any material problems
relating to alcoholic beverage licenses to date. The failure to receive or
retain a liquor license in a particular location could adversely affect the
Company's ability to obtain such a license elsewhere.
The Company is subject to "dram-shop" statutes in the states in which its
entertainment restaurant units are located. These statutes generally provide a
person injured by an intoxicated person with the right to recover damages from
an establishment which wrongfully served alcoholic beverages to the intoxicated
individual. The Company carries liquor liability coverage as part of its
existing comprehensive general liability insurance, which coverage the Company
believes is consistent with that carried by other entities serving alcoholic
beverages. Although the Company is covered by insurance, a judgment against the
Company under a dram-shop statute in excess of the Company's liability coverage
could have a material adverse effect on the Company.
Various federal and state labor laws govern the Company's relationship with
its employees, including such matters as minimum wage requirements, overtime and
other working conditions. Significant additional government-imposed increases in
minimum wages, paid leaves of absence and mandated health benefits, or increased
tax reporting and tax payment requirements for employees who receive gratuities,
could be
7
<PAGE> 9
detrimental to the economic viability of the Company's operations. In addition,
the Company is subject to extensive rules and regulations with respect to
discriminatory practices and accommodation of persons with disabilities. See
"Business -- Government Regulation."
A portion of the Company's revenues are derived from the use and operation
of video gaming machines. There can be no assurance that future regulations or
legislation will not limit, restrict or eliminate the use or operation of video
gaming machines.
Quarterly Fluctuations and Seasonality. As a result of revenues and
expenses associated with each new entertainment restaurant location, the timing
of the opening of future locations will result in fluctuations in the Company's
quarterly results. These fluctuations will likely be more significant in the
near term due to the Company's small unit base. In addition, the Company's
entertainment restaurant locations may have moderately higher revenues in the
first quarter due to weather conditions and major sporting events and in the
fourth quarter due to the year-end holidays.
Potential Increases in Food and Liquor Costs. Among other factors, the
success of the Company's business and its operating results are dependent upon
its ability to anticipate and react to changes in food and liquor costs and the
mix between its food and liquor revenues. Various factors beyond the Company's
control, such as adverse weather changes, may affect food costs and increases in
federal, state and local taxes may affect liquor costs. While in the past
management has been able to anticipate and react to increasing food and liquor
costs through purchasing practices, menu changes and price adjustments, there
can be no assurance that it will be able to do so in the future or that changes
in its sales mix will not adversely affect the Company's profitability.
Trademarks. The Company has obtained state and federal service mark
registrations and has a federal application pending for an additional service
mark. However, the Company has not yet obtained federal registration for certain
of the service marks used in its business and there can be no assurance that any
such registration for the Company's service marks will be obtained. In addition,
the Company is aware of the use by other persons in certain geographic areas of
names and marks which may be similar to "Fox & Hound" or "Bailey's" brands.
There can be no assurance that such marks will be available for use by the
Company in all locations or that the Company will be able to secure the
exclusive use of such marks. See "Business -- Trademarks."
Control by Management and Existing Stockholders. Following the completion
of this Offering, directors, officers and existing stockholders of the Company
will beneficially own approximately 79.2% of the outstanding Common Stock (76.8%
if the Underwriters' over-allotment option is exercised in full). Accordingly,
these persons, acting together, will be able to elect the entire Board of
Directors of the Company and to direct all of the affairs of the Company. See
"Management" and "Principal Stockholders."
Staggered Board, Blank-Check Preferred Stock. The Company's Certificate of
Incorporation provides for three classes of directors, to be elected on a
staggered basis for three-year terms after their initial terms expire. The
classification of directors will have the effect of making it more difficult for
stockholders to change the composition of the Board. As a result, at least two
annual meetings of stockholders may be required for the stockholders to change a
majority of the directors, whether or not a change in the Board would be
beneficial to the Company and its stockholders. In addition, the Board of
Directors has the authority without further action by the stockholders to issue
up to 2,000,000 shares of preferred stock (the "Preferred Stock"), in one or
more series and to fix the rights, privileges and restrictions thereof. Issuance
of such Preferred Stock, depending upon the rights, preferences and designations
thereof, may have the effect of delaying, detaining or preventing a change in
control of the Company. See "Description of Capital Stock -- Preferred Stock"
and "Description of Capital Stock -- Certain Anti-Takeover Provisions."
Use of Proceeds to Benefit Affiliates. The Company intends to use
approximately $10.8 million of the net proceeds of this Offering to repay
indebtedness, one-half of which is guaranteed by a principal stockholder of the
Company. See "Use of Proceeds" and "Certain Transactions."
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Dilution. The purchasers of the Common Stock offered hereby will
experience immediate and significant dilution of approximately $7.65 per share.
The purchase price of the Common Stock offered hereby will exceed the pro forma
tangible book value of the Common Stock following this Offering. See "Dilution."
Absence of Public Market and Determination of Offering Price. Prior to
this Offering, there has been no public market for the Company's Common Stock.
The initial public offering price will be determined through negotiations
between the Company and the Representative of the Underwriters. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. There can be no assurance that an active
trading market will develop subsequent to this Offering or, if developed, that
it will be sustained. The market price of the Common Stock could fluctuate
substantially after this Offering due to a variety of factors, including
quarterly operating results of the Company or other entertainment or restaurant
companies, changes in general conditions in the economy, the financial markets
or the entertainment or restaurants industries, changes in financial analysts
recommendations or earnings estimates, natural disasters or other developments
affecting the Company or its competitors. In addition, in recent years the stock
market has experienced extreme price and volume fluctuations. This volatility
has had a significant effect on the market prices of securities issued by many
companies for reasons unrelated to the operating performance of these companies.
Shares Eligible for Future Sale. It is anticipated that the Company's
Common Stock will be traded on the Nasdaq National Market. The Company will have
10,100,000 shares of Common Stock outstanding immediately following this
Offering, 8,000,000 shares of which are restricted securities under Rule 144 of
the Securities Act of 1933, as amended (the "Securities Act"). None of such
restricted securities has satisfied the holding period required by Rule 144
under the Securities Act. Accordingly, such shares may not be sold in the public
market until at least February 1998. In addition, the Company has granted
"piggy-back" registration rights to its existing stockholders in connection with
future registration statements filed by the Company subsequent to this Offering.
Sales of the Company's Common Stock pursuant to Rule 144 or otherwise may have
an adverse effect on the market price of the Common Stock. See "Shares Eligible
for Future Sale."
9
<PAGE> 11
USE OF PROCEEDS
The net proceeds from the sale of the 2,100,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$9.00 per share are estimated to be approximately $16,852,000 (approximately
$19,489,000 if the Underwriters' over-allotment option is exercised in full).
The Company expects to use approximately $10.8 million of such net proceeds to
repay indebtedness and the balance will be used for general corporate purposes,
primarily to finance the development and expansion of additional entertainment
restaurant locations. Such indebtedness was principally incurred to fund the
purchase by the Company from certain stockholders of their general and limited
partnership interests in the Subsidiary Limited Partnerships, certain
distributions of undistributed S corporation earnings to the then-existing
Bailey's stockholders prior to the Exchange and to purchase leasehold
improvements, fixtures and equipment. A majority of such indebtedness was
incurred by the Company within the past year. All of such indebtedness accrues
interest at the prime rate (currently 8.50% per annum) and matures on August 1,
1997. One-half of such indebtedness has been guaranteed by a principal
stockholder of the Company. See "Certain Transactions." Pending such uses, the
net proceeds of this Offering will be invested in short-term, interest-bearing
securities.
A portion of such net proceeds may also be used to acquire one or more
companies in the entertainment restaurant business or certain of their
locations. However, the Company has not entered into any agreements and is not
involved in any negotiations involving potential acquisitions.
The initial allocation of the net proceeds of this Offering set forth above
represents the Company's best estimate based upon its present plans and certain
assumptions regarding general economic and industry conditions and the Company's
future revenues and expenditures. The Company reserves the right to reallocate
these proceeds within the above-mentioned categories or to other purposes in
response to, among other things, changes in its plans, industry or general
economic conditions and the Company's future revenues and expenditures.
Any additional net proceeds realized from the exercise of the Underwriters'
over-allotment option (up to approximately $2,637,000) will be added to the
Company's working capital.
DIVIDEND POLICY
The Company does not intend to pay cash dividends on its Common Stock for
the foreseeable future. The payment of cash dividends in the future will be at
the discretion of the Company's 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 Company's Board of Directors.
10
<PAGE> 12
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
25, 1997, and as adjusted to reflect the issuance and sale of the 2,100,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $9.00 per share and the application of the estimated net proceeds
therefrom.
<TABLE>
<CAPTION>
MARCH 25, 1997
-----------------------
HISTORICAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Revolving note payable.................................................. $10,836 $ --
======= =======
Stockholders' equity:
Preferred Stock, $0.10 par value, 2,000,000 shares authorized; none
outstanding........................................................ -- --
Common Stock, $0.01 par value, 20,000,000 shares authorized; 8,000,000
shares issued and outstanding pro forma; 10,100,000 shares issued
and outstanding, as adjusted (1)................................... 80 101
Additional paid-in capital............................................ 1,450 18,281
Retained earnings..................................................... 90 90
------- -------
Total stockholders' equity......................................... 1,620 18,472
------- -------
Total capitalization.......................................... $ 1,620 $18,472
======= =======
</TABLE>
- ---------------
(1) Does not include (i) 1,500,000 shares reserved for issuance under the
Company's 1997 Plan, of which options to purchase 800,348 shares will be
granted on the date of this Prospectus and (ii) 150,000 shares reserved for
issuance under the Directors Plan, of which options to purchase 50,000
shares will be granted on the date of this Prospectus. See
"Management -- Stock Option Plans."
11
<PAGE> 13
DILUTION
The net tangible book value deficiency of the Company as of March 25, 1997
was approximately $(3,247,000), or $(0.41) per share of Common Stock. Net
tangible book value per share is equal to the Company's total tangible assets
less its total liabilities, divided by the number of shares of Common Stock
outstanding. After giving effect to the sale of 2,100,000 shares offered hereby
at an assumed initial public offering price of $9.00 per share and the
application of the net proceeds therefrom, the net tangible book value of the
Company at March 25, 1997 would have been approximately $13,605,000, or $1.35
per share. This represents an immediate increase in such net tangible book value
of $1.76 per share to existing stockholders and an immediate dilution of $7.65
per share to new investors purchasing shares at the initial public offering
price, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price................................ $ 9.00
Net tangible book value deficiency before Offering................. $(0.41)
Increase attributable to new investors............................. 1.76
------
Net tangible book value after Offering............................... 1.35
------
Dilution to new investors............................................ $ 7.65
======
</TABLE>
The following table summarizes, as of March 25, 1997, the number of shares
purchased from the Company, the total cash consideration paid and the average
cash price per share paid by the existing stockholders and the new investors
(based upon, in the case of new investors, an assumed initial public offering
price of $9.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)(2)............. 8,000,000 79.2% $ 1,930,300 9.3% $ 0.24
New investors........................... 2,100,000 20.8 18,900,000 90.7 $ 9.00
---------- ----- ----------- -----
Total......................... 10,100,000 100.0% $20,830,300 100.0%
========== ===== =========== =====
</TABLE>
- ---------------
(1) Does not include (i) 1,500,000 shares reserved for issuance under the
Company's 1997 Plan, of which options to purchase 800,348 shares will be
granted on the date of this Prospectus and (ii) 150,000 shares reserved for
issuance under the Directors Plan, of which options to purchase 50,000
shares will be granted on the date of this Prospectus. See
"Management -- Stock Option Plans."
(2) The total consideration paid by existing stockholders is comprised of the
cash paid to the Company for shares issued and the cash paid by investors to
the Subsidiary Corporations and Subsidiary Limited Partnerships.
12
<PAGE> 14
SELECTED HISTORICAL FINANCIAL DATA
BAILEY'S SPORTS GRILLE, INC.
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
The following tables set forth historical financial data of Bailey's Sports
Grille, Inc. and Fox & Hound Entertainment and Restaurant Group and selected pro
forma data for the Company. The selected historical financial data of Bailey's
Sports Grille, Inc. as of and for the years ended December 31, 1994, 1995 and
1996, set forth below have been derived from financial statements audited by
Deloitte & Touche LLP, independent auditors, whose report with respect thereto
is included elsewhere in this Prospectus. The selected historical financial data
of Bailey's Sports Grille, Inc. as of and for the years ended December 31, 1992
and 1993 were derived from unaudited combined financial statements of Bailey's
Sports Grille, Inc. In the opinion of management, the unaudited financial
statements reflect all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations for the unaudited periods. The selected historical financial data of
Fox & Hound Entertainment and Restaurant Group as of and for the years ended
December 31, 1994, 1995 and 1996, set forth below have been derived from
combined financial statements audited by Ernst & Young LLP, independent
auditors, whose report with respect thereto is included elsewhere in this
Prospectus. The pro forma financial data gives effect to the Exchange as if it
occurred on January 1, 1996, or such later date as may be applicable. See "Pro
Forma Combined Condensed Financial Statements." The pro forma data set forth
below for the year ended December 31, 1996, and for the 12 weeks ended March 19,
1996 and March 25, 1997 are unaudited and have been prepared by management
solely to facilitate comparison and do not represent the actual results of
operations for the periods presented. The pro forma financial data does not
purport to be indicative of the results of operations that would have occurred
had the transactions occurred when indicated above, or which may be expected to
occur in the future. The table should be read in conjunction with the "Pro Forma
Combined Condensed Financial Statements," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the historical financial
statements of Bailey's Sports Grille, Inc. and Fox & Hound Entertainment and
Restaurant Group and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FOX & HOUND
ENTERTAINMENT AND THE COMPANY
BAILEY'S SPORTS GRILLE, INC.(1) RESTAURANT GROUP PRO FORMA(2)
------------------------------------------ -------------------------- -----------------------------------
12 WEEKS ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED --------------------
------------------------------------------ -------------------------- DECEMBER 31, MARCH 19, MARCH 25,
1992 1993 1994 1995 1996 1994 1995 1996 1996 1996 1997
------ ------ ------ ------ ------ ------ ------ ------ ------------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND NUMBER OF LOCATIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales.......... $1,069 $1,340 $2,928 $5,333 $9,312 $ 730 $2,618 $5,506 $14,818 $ 3,232 $ 4,084
Costs and expenses
Operating
expenses....... 770 980 2,131 3,811 6,230 702 2,216 4,480 10,710 2,334 2,884
General and
administrative... 10 12 312 492 919 21 69 296 1,215 144 424
Depreciation and
amortization... 55 58 169 304 454 90 224 310 988 238 281
------ ------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Total costs and
expenses..... 835 1,050 2,612 4,607 7,603 813 2,509 5,086 12,913 2,716 3,589
Income (loss) from
operations....... 234 290 316 726 1,709 (83) 109 420 1,905 516 495
Other expense...... (30) (16) (66) (124) (207) (1) (13) (56) (634) (129) (191)
Income (loss)
before provision
for income
taxes............ 204 274 250 602 1,502 (84) 96 364 1,271 387 304
Provision for
income
taxes(3)......... -- -- -- -- -- -- -- -- 476 145 114
------ ------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Net income
(loss)........... $ 204 $ 274 $ 250 $ 602 $1,502 $ (84) $ 96 $ 364 $ 795 $ 242 $ 190
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= =======
OPERATING DATA:
Annualized average
weekly sales per
location(4)...... $ 535 $ 670 $ 925 $1,123 $1,352 $1,165 $1,252 $1,801 $ 1,491 $ 1,556 $ 1,578
Number of locations
at period
end(5)........... 2 2 4 6 8 2 3 3 11 9 12
Number of store
operating
weeks(6)......... 104 104 162 246 357 32 107 159 516 108 134
<CAPTION>
THE
COMPANY
HISTORICAL
MARCH 25,
1997
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
(AT END OF
PERIOD):
Total assets....... $ 454 $1,109 $1,575 $2,946 $6,059 $1,346 $2,638 $2,520 $14,189
Long-term debt,
including current
portion.......... 278 616 897 1,819 3,760 198 151 463 --
Stockholders'
equity........... 121 387 573 910 1,756 1,012 1,559 1,564 1,620
</TABLE>
- ---------------
(1) Bailey's operates on a 52 or 53 week fiscal year ending on the last Tuesday
in December. Bailey's 1996 fiscal year was comprised of 53 weeks. The
Company will operate on a 52 or 53 week fiscal year ending on the last
Tuesday in December.
(2) The pro forma statement of operations data gives effect to the Exchange as
if it occurred on January 1, 1996. See "Pro Forma Combined Condensed
Financial Statements."
(3) No income tax provision is presented for the historical results of Bailey's
Sports Grille, Inc. or Fox & Hound Entertainment and Restaurant Group as the
entities operated as either Subchapter S corporations or as partnerships and
were not subject to income taxes at the entity level.
(4) Annualized average weekly sales per location are computed by dividing net
sales for full weeks open during the period by the number of store operating
weeks and multiplying the result by fifty-two.
(5) There were no locations closed during the periods presented. Therefore, the
incremental change in the number of locations open at the end of each period
represents the number of locations opened during such period. No new
locations were opened during the twelve weeks ended March 19, 1996. One new
location was opened during the twelve weeks ended March 25, 1997.
(6) Store operating weeks represents the number of full weeks all locations were
open during the period.
13
<PAGE> 15
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
The unaudited pro forma combined condensed statements of operations for the
year ended December 31, 1996 and for the 12 weeks ended March 19, 1996 and March
25, 1997 give effect to the Exchange as if such transactions occurred on January
1, 1996.
The Exchange among the Company and F&H Restaurant Corp. in the pro forma
combined condensed financial statements has been accounted for as a business
combination using the purchase method of accounting in accordance with APB 16.
F&H Restaurant Corp. was deemed to be the acquiring corporation for accounting
purposes, since, upon the completion of the Exchange, the stockholders of F&H
Restaurant Corp., which had purchased 75% of Fox & Hound Entertainment and
Restaurant Group on December 6, 1996, controlled 50% of the Company.
Accordingly, the assets and liabilities of F&H Restaurant Corp. are included in
the pro forma combined condensed financial statements using historical amounts.
The Exchange among the Company and the owners of the remaining 25% of Fox &
Hound Entertainment and Restaurant Group and among the Company and Bailey's
Sports Grille, Inc. have been accounted for in the pro forma combined condensed
financial statements as business combinations using the purchase method of
accounting in accordance with APB No. 16. Accordingly, the assets and
liabilities related to the remaining 25% interest of Fox & Hound Entertainment
and Restaurant Group and to Bailey's Sports Grille, Inc. are recorded in the pro
forma combined condensed financial statements at their respective fair values.
The historical financial information of the Company, F&H Restaurant Corp.,
Fox & Hound Entertainment and Restaurant Group and Bailey's Sports Grille, Inc.
has been derived from their respective historical financial statements which are
contained elsewhere in this Prospectus. The pro forma adjustments are based upon
available information and assumptions that management believes are reasonable
under the circumstances. The pro forma combined condensed statements of
operations do not purport to be indicative of the actual operating results which
would have occurred had such transactions been consummated on the dates
indicated or the Company's results of operations for any future period. The pro
forma combined condensed statements of operations should be read in conjunction
with the historical financial statements and the notes thereto of the Company,
F&H Restaurant Corp., Fox & Hound Entertainment and Restaurant Group and
Bailey's Sports Grille, Inc. contained elsewhere in this Prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
14
<PAGE> 16
TOTAL ENTERTAINMENT RESTAURANT CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------
57 DAYS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, 1996
1996(1) -----------------------------------
-------------- FOX & HOUND
F&H RESTAURANT ENTERTAINMENT AND BAILEY'S SPORTS ADJUSTMENTS TO
CORP. RESTAURANT GROUP GRILLE, INC. HISTORICAL DATA PRO FORMA
-------------- ----------------- --------------- --------------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales...................... $384 $ 5,506 $ 9,312 $ (384)(a) $ 14,818
Costs and expenses:
Operating expenses........... 301 4,480 6,230 (301)(a) 10,710
General and administrative... 20 296 919 (20)(a) 1,215
Depreciation and
amortization.............. 27 310 454 (15)(a) 988
212(b)
---- ------ ------ ------- --------
Total costs and expenses....... 348 5,086 7,603 124 12,913
---- ------ ------ ------- --------
Income from operations......... 36 420 1,709 (260) 1,905
Other income (expense):
Other income................. 5 23 30 (3)(a) 55
Interest expense:
Related parties........... (12) (19) (237) (361)(c) (629)
Other..................... (4) (60) -- 4(a) (60)
---- ------ ------ ------- --------
Income before provision for
income taxes................. 25 364 1,502 (620) 1,271
Provision for income taxes..... 3 -- -- 473(d) 476
Minority equity interest in
income....................... 10 -- -- (10)(a) --
---- ------ ------ ------- --------
Net income..................... $ 12 $ 364 $ 1,502 $(1,083) $ 795
==== ====== ====== ======= ========
Pro forma net income per
share........................ $ 0.10(e)
=========
Average shares outstanding..... 8,000,000(e)
=========
</TABLE>
- ---------------
(1) The operations of F&H Restaurant Corp. (FHRC) for the 57 days from its
inception on November 4, 1996 through December 31, 1996 includes 25 days of
operations of Fox & Hound Entertainment and Restaurant Group, which was
acquired by FHRC on December 6, 1996.
Additional footnotes on page 17.
15
<PAGE> 17
TOTAL ENTERTAINMENT RESTAURANT CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------
12 WEEKS ENDED
-----------------------------------
MARCH 22, 1996 MARCH 19, 1996
FOX & HOUND ---------------
ENTERTAINMENT AND BAILEY'S SPORTS ADJUSTMENTS TO
RESTAURANT GROUP GRILLE, INC. HISTORICAL DATA PRO FORMA
----------------- --------------- --------------- ---------
<S> <C> <C> <C> <C>
Net sales.................................... $ 1,260 $ 1,972 $ -- $ 3,232
Costs and expenses:
Operating expenses......................... 1,046 1,288 -- 2,334
General and administrative................. 47 97 -- 144
Depreciation and amortization.............. 70 113 55(b) 238
------ ------ ------ ---------
Total costs and expenses..................... 1,163 1,498 55 2,716
------ ------ ------ ---------
Income from operations....................... 97 474 (55) 516
Other income (expense):
Other income............................... 6 3 -- 9
Interest expense........................... (16) (36) (86)(c) (138)
------ ------ ------ ---------
Income before provision for income taxes..... 87 441 (141) 387
Provision for income taxes................... -- -- 145(d) 145
Minority equity interest in income........... -- -- -- --
------ ------ ------ ---------
Net income................................... $ 87 $ 441 $ (286) $ 242
====== ====== ====== =========
Pro forma net income per share............... $ 0.03 (e)
=========
Average shares outstanding................... 8,000,000(e)
=========
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------------------
FROM INCEPTION ON
FEBRUARY 7, 1997 TO
MARCH 25, 1997(1) 51 DAYS ENDED FEBRUARY 20, 1997
------------------- ----------------------------------
TOTAL ENTERTAINMENT F&H RESTAURANT BAILEY'S SPORTS ADJUSTMENTS TO
RESTAURANT CORP. CORP. GRILLE, INC. HISTORICAL DATA PRO FORMA
------------------- ---------------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Net sales................... $ 1,690 $ 858 $ 1,536 -- $ 4,084
Costs and expenses:
Operating expenses........ 1,156 638 1,090 -- 2,884
General and
administrative......... 189 36 199 -- 424
Depreciation and
amortization........... 115 59 98 9(b) 281
------ ---- ------ ------ ---------
Total costs and expenses.... 1,460 733 1,387 9 3,589
------ ---- ------ ------ ---------
Income from operations...... 230 125 149 (9) 495
Other income (expense):
Other income.............. -- -- -- -- --
Interest expense.......... (87) (63) (41) -- (191)
------ ---- ------ ------ ---------
Income before provision for
income taxes.............. 143 62 109 (9) 304
Provision for income
taxes..................... 54 10 -- (50)(d) 114
Minority equity interest in
income.................... -- 34 -- (34)(a) --
------ ---- ------ ------ ---------
Net income.................. $ 89 $ 18 $ 109 $ (25) $ 190
====== ==== ====== ====== =========
Pro forma net income per
share..................... $ 0.02 (e)
=========
Average shares
outstanding............... 8,000,000(e)
=========
</TABLE>
- ---------------
(1) The operations of Total Entertainment Restaurant Corp. for the 47 days from
its inception on February 7, 1997 through March 25, 1997 includes the
operations of F&H Restaurant Corp. and Bailey's Sports Grille, Inc. since
their acquisition by Total Entertainment Restaurant Corp. on February 20,
1997.
Additional footnotes on following page.
16
<PAGE> 18
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(a) To eliminate the duplication of 25 days of operating results which
is included in both the Fox & Hound Entertainment and Restaurant Group's
historical combined financial statements and the historical consolidated
statement of income of F&H Restaurant Corp. subsequent to its acquisition
of a 75% interest in Fox & Hound Entertainment and Restaurant Group on
December 6, 1996, and to eliminate the minority equity interest in net
income from the historical consolidated statement of income of F&H
Restaurant Corp.
(b) To give effect to a full period of amortization of goodwill
resulting from the acquisition of the 75% interest in Fox & Hound
Entertainment and Restaurant Group by F&H Restaurant Corp., the acquisition
by the Company of Bailey's Sports Grille, Inc. and the acquisition by the
Company of the remaining 25% minority interest of Fox & Hound Entertainment
and Restaurant Group. Such goodwill is being amortized over its estimated
useful life of 20 years.
(c) To give effect to the increase in interest expense resulting from
the assumption that the acquisition on December 6, 1996 of the 75% interest
in Fox & Hound Entertainment and Restaurant Group by F&H Restaurant Corp.
was consummated on January 1, 1996, and that the total acquisition debt of
approximately $4,530 for such transaction was outstanding beginning on
January 1, 1996. This additional interest was calculated using the interest
rates in effect for such debt at December 31, 1996 (8.25%).
(d) Adjusted to reflect the provision for income taxes as if the
entities were combined into a single reporting entity and taxed as a C
corporation under the Code.
(e) Pro forma net income per share is based upon the average number of
shares of Common Stock outstanding during the period. For purposes of
computing average shares outstanding, all shares of the Company's Common
Stock outstanding immediately prior to this Offering are treated as being
outstanding since January 1, 1996.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements within the meaning of the
federal securities laws. Actual results and the timing of certain events could
differ materially from those anticipated in the forward-looking statements due
to a number of factors, including those set forth elsewhere in this Prospectus.
OVERVIEW
The Company was formed on February 7, 1997 and, pursuant to the Exchange,
the Company became the owner of the eight then-existing Bailey's and the three
Fox & Hound locations. The first Bailey's was opened in Charlotte, North
Carolina in 1989 and the first Fox & Hound was opened in Arlington, Texas in
1994. As of March 31, 1997, the Company operated nine Bailey's and three Fox &
Hounds located in Arkansas, Indiana, North Carolina, South Carolina, Tennessee
and Texas.
The Company intends to open five entertainment restaurant locations in 1997
(one of which was opened in March 1997) and 20 locations in each of 1998 and
1999. Because of the Company's anticipated expansion and its limited unit base
prior to such expansion, period to period comparisons may not be meaningful. The
Company intends to lease its locations and anticipates that most of its future
locations will range in size from approximately 6,500 to 10,000 square feet. The
Company believes that the Fox & Hound opened in December 1995 in Dallas
(Midway), Texas and the four most recently opened Bailey's reflect management's
expectations as to the layout and decor of future locations.
The components of the Company's net sales are food and non-alcoholic
beverages, alcoholic beverages, and amusement and other. For 1996, food and
non-alcoholic beverages were 22.4% of total sales, alcoholic beverages were
60.9% of total sales and amusement and other were 16.7% of total sales.
Components of operating expenses include food and beverage costs, operating
payroll and fringe benefit costs, occupancy costs and advertising and promotion
costs. These costs are generally variable and will fluctuate with changes in
sales volume and sales mix. Management expects that when a new location opens,
it will incur higher than normal levels of labor and food costs as personnel
complete training. Management believes, however, that as new staff gain
experience, hourly labor schedules will be gradually adjusted to provide
operating efficiencies similar to those at established locations. All of the
Company's leases provide for a minimum annual rent, and some leases call for
additional rent based on sales volume at the particular location over specified
minimum levels.
General and administrative expenses include all corporate and
administrative functions that support existing operations and provide an
infrastructure to support future growth. In addition, certain expenses of
recruiting and training unit management personnel prior to meeting the criteria
to be capitalized as pre-opening expenses are also included. Management,
supervisory and staff salaries, employee benefits, travel, information systems,
training, rent and office supplies are major items of costs in this category.
Since March 1997, the Company has been provided with certain accounting and
administrative services from Coulter Enterprises, a corporation controlled by
Jamie B. Coulter, Chairman of the Board of the Company, for a charge of 4.0% of
net sales. Concurrent with this Offering, the Company will enter into a services
agreement with Coulter Enterprises for a continuation of such services. The
fixed annual charge will be $94,000, pro rated for 1997, and the per unit per
28-day period fee will be $426.
The Company's policy is to capitalize costs associated with the opening of
locations, including the cost of hiring and training the initial workforce,
travel and other direct costs, if it is determined these costs are recoverable.
These costs are then amortized over the twelve month period following the
opening of a location. The Company capitalized approximately $139,000 of such
costs in 1996 and $54,000 during the 12 weeks ended March 25, 1997.
This Prospectus contains certain forward-looking statements. Although the
Company believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions are subject to change,
and therefore, there can be no assurance that the forward-looking statements
included in this Prospectus will prove to be accurate. Factors that could cause
actual results to differ from the results discussed in the forward-looking
statements include, but are not limited to, those discussed in "Risk
18
<PAGE> 20
Factors." In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentages
which certain items included in the Statement of Operations bear to net sales as
well as certain operating data:
<TABLE>
<CAPTION>
THE COMPANY
FOX & HOUND PRO FORMA
BAILEY'S SPORTS GRILLE, ENTERTAINMENT AND -------------------
INC. RESTAURANT GROUP
------------------------ ------------------------ 12 WEEKS ENDED
-------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, MARCH MARCH
------------------------ ------------------------ 19, 25,
1994 1995 1996 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses
Operating expenses................ 72.7 71.5 66.9 96.2 84.6 81.4 72.2 70.6
General and administrative........ 10.7 9.2 9.9 2.9 2.6 5.4 4.4 10.4
Depreciation and amortization..... 5.8 5.7 4.9 12.3 8.6 5.6 7.4 6.9
---- ------ ------ ------ ------ ------ ----- -----
Total costs and expenses........ 89.2 86.4 81.7 111.4 95.8 92.4 84.0 87.8
---- ------ ------ ------ ------ ------ ----- -----
Income (loss) from operations....... 10.8 13.6 18.3 (11.4) 4.2 7.6 16.0 12.2
Other (income) expense.............. 0.4 -- (0.3) (0.6) (0.6) (0.4) (0.3) --
Interest expense.................... 1.9 2.3 2.5 0.7 1.1 1.4 4.3 4.7
---- ------ ------ ------ ------ ------ ----- -----
Net income.......................... 8.5% 11.3% 16.1% (11.5)% 3.7% 6.6% 12.0% 7.5%
==== ====== ====== ====== ====== ====== ===== =====
OPERATING DATA:
Number of locations open at
period end (1).................... 4 6 8 2 3 3 9 12
Number of store operating weeks
(2)............................... 162 246 357 32 107 159 108 134
Average square footage of locations
open at period end................ 7,300 7,825 7,963 6,750 7,833 7,833 7,827 8,033
</TABLE>
- ---------------
(1) There were no locations closed during the periods presented. Therefore,
the incremental change in the number of locations open at the end of each period
represents the number of locations opened during such period.
(2) Store operating weeks represents the number of full weeks all locations
were open during the period.
F&H RESTAURANT CORP.
F&H Restaurant Corp. (FHRC) was organized on November 4, 1996, for the
purpose of acquiring a 75% partnership interest in the Fox & Hound Entertainment
and Restaurant Group (FHERG). The acquisition was completed on December 6, 1996,
for a total purchase price of $4,568,995 and was accounted for as a purchase in
accordance with APB 16. The acquired assets and liabilities were recorded at
their estimated fair values at the date of acquisition resulting in goodwill of
approximately $3,448,000 which is being amortized over 20 years. The purchase
was financed by a loan from a principal stockholder in the initial amount of
$1,500,000 and an additional loan from such stockholder of $3,030,071 in January
1997. Other than the interest from the acquisition debt and the amortization
from the goodwill, which are both insignificant for the 57 days ended December
31, 1996, the operating results also include 25 days of operations of FHERG
which is included in the table above and discussed in the Fox & Hound
Entertainment and Restaurant Group comparisons below. Therefore, no separate
operating data is presented or discussed for FHRC.
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<PAGE> 21
THE COMPANY (PRO FORMA)
Twelve Weeks Ended March 25, 1997 Compared to Twelve Weeks Ended March 19,
1996
Net sales increased $853,000 (26.4%) during the twelve weeks ended March
25, 1997 compared to the twelve weeks ended March 19, 1996, due principally to
the opening of two new locations after March 19, 1996 and before January 1, 1997
and the opening of one location two weeks prior to the end of the 1997 period.
As a result, store operating weeks during the twelve weeks ended March 25, 1997
increased 24.1% compared to the 1996 period.
Operating expenses increased $530,000 (22.7%) during the twelve weeks ended
March 25, 1997 compared to the twelve weeks ended March 19, 1996. Such expenses
declined as a percentage of net sales to 70.6% from 72.2% due to operating
efficiencies related to cost of sales and labor.
General and administrative expenses increased $294,000 (204.2%) during the
twelve weeks ended March 25, 1997 compared to the twelve weeks ended March 19,
1996. As a percentage of net sales, such expenses increased to 10.7% in the 1997
period from 4.4% in the 1996 period. This increase resulted from additional
multi-level supervisory personnel as well as additional accounting, training and
other administrative staff. The Company also incurred additional management fees
pursuant to the agreement with Coulter Enterprises, Inc. The Company anticipates
that general and administrative expenses will decrease in the future as a
percentage of net sales as the new agreement with Coulter Enterprises takes
effect upon the consummation of this Offering and as the anticipated expansion
in the number of locations leverages the fixed component of these expenses.
Depreciation and amortization increased $13,000 (4.9%) during the twelve
weeks ended March 25, 1997 compared to the twelve weeks ended March 19, 1996. As
a percentage of net sales, such expenses decreased to 6.8% during the 1997
period from 8.2% during the 1996 period due to one less location with
pre-opening costs amortization.
BAILEY'S SPORTS GRILLE, INC.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales increased $3,979,000 (74.6%) in 1996 compared to 1995 principally
attributable to the opening of two new locations during 1996 and due to a full
year of operations of the two locations opened in 1995, which resulted in a
45.1% increase in store operating weeks. Store operating weeks represents the
number of full weeks all locations were open during the period. Annualized
average weekly sales per location increased 20.4% in 1996 compared to 1995 due
to higher average sales at newer units compared to older units. Newer locations
were larger and had more seats than earlier locations.
Operating expenses, which consist primarily of cost of sales, cost of
restaurant-level labor, advertising, occupancy cost and utilities, increased
$2,419,000 (63.5%) in 1996 compared to 1995. Such expenses declined as a
percentage of net sales to 66.9% in 1996 from 71.5% in 1995 primarily due to
increases in gaming income at the Greenville and Columbia locations which have a
minimal incremental operating expense, resulting in a 2.0% decrease in operating
expenses as a percentage of sales. In addition, operating expenses decreased as
a result of tighter controls over hourly labor and a decrease in radio
advertising.
General and administrative expenses increased $427,000 (86.8%) in 1996
compared to 1995. As a percentage of net sales, such expenses increased to 9.9%
in 1996 from 9.2% in 1995 due to the addition of multi-unit supervisory
personnel and related costs. The Company anticipates that general and
administrative expenses will increase in absolute dollars and as a percentage of
net sales during 1997 as a result of the additional resources necessary to
manage the acquired business operations and to provide support for anticipated
expansion of Company locations.
Depreciation and amortization increased $150,000 (49.3%) in 1996 compared
to 1995, but declined as a percentage of net sales to 4.9% in 1996 from 5.7% in
1995 due to the leverage of the higher average sales volumes. The Company
anticipates that depreciation and amortization expense will increase in absolute
dollars and as a percentage of net sales during 1997 in view of the anticipated
opening of new locations.
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<PAGE> 22
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales increased $2,405,000 (82.1%) in 1995 compared to 1994 principally
attributable to the opening of two new locations during 1995 which resulted in a
51.9% increase in store operating weeks and a 21.4% increase in average sales
per location.
Operating expenses increased $1,680,000 (78.8%) in 1995 compared to 1994
and declined as a percentage of net sales to 71.5% in 1995 from 72.7% in 1994.
This decline was due primarily to the increase in gaming income at the
Greenville location.
General and administrative expenses increased $180,000 (57.7%) in 1995
compared to 1994. However, as a percentage of net sales, such expenses declined
to 9.2% in 1995 from 10.7% in 1994 due to the fixed nature of the charges for
such services.
Depreciation and amortization increased $135,000 (79.8%) in 1995 compared
to 1994 but were relatively constant as a percentage of net sales as the higher
average sales volumes of newer units offset their higher depreciable unit costs.
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales increased $2,888,000 (110.3%) in 1996 compared to 1995. Store
operating weeks increased by 48.6% in 1996 compared to 1995 due to the opening
of the third unit. Annualized average weekly sales per location increased by
43.8% in 1996 compared to 1995 due to the higher sales at the Dallas (Midway),
Texas location compared with the two previously opened locations.
Operating expenses increased $2,264,000 (102.2%) in 1996 compared to 1995.
Such expenses declined as a percentage of net sales to 81.4% in 1996 from 84.6%
in 1995, primarily due to an improvement in labor expense resulting from the
higher average sales per location and the fixed elements of management costs and
certain operating labor.
General and administrative expenses increased $227,000 (329.0%) in 1996
compared to 1995. As a percentage of net sales, such expenses increased to 5.4%
in 1996 from 2.6% in 1995, primarily due to the addition of personnel and
related costs. The Company anticipates that general and administration expenses
will increase in absolute dollars and as a percentage of net sales during 1997
as a result of the additional resources necessary to manage the acquired
business operations and to provide support for anticipated expansion of Company
locations.
Depreciation and amortization increased $86,000 (38.4%) in 1996 compared to
1995 but declined as a percentage of net sales to 5.6% in 1996 from 8.6% in 1995
. Depreciation and amortization of operating assets increased $107,000 in 1996
compared to 1995 primarily due to the increase in store operating weeks for new
locations while amortization of pre-opening costs declined by $59,000 in 1996
compared to 1995 due to the timing of the opening of new locations and lower
pre-opening costs for the third location compared to the two previously opened
locations.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales increased $1,888,000 (258.7%) in 1995 compared to 1994. Store
operating weeks increased by 234.4% in 1995 compared to 1994 due to a full
year's operation of the two locations opened in 1994, and annualized average
weekly sales per location increased by 7.5% in 1995 compared to 1994.
Operating expenses increased $1,514,000 (215.7%) in 1995 compared to 1994.
However, as a percentage of net sales, operating expenses declined to 84.6% in
1995 from 96.2% in 1994, primarily due to a 7.8% improvement in labor expense
resulting from reduced training costs and improved scheduling of hourly
personnel.
General and administrative expenses increased $48,000 (228.6%) in 1995
compared to 1994. However, as a percentage of net sales, such expenses remained
relatively constant.
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<PAGE> 23
Depreciation and amortization increased $134,000 (148.9%) in 1995 compared
to 1994 but declined as a percentage of net sales to 8.6% in 1995 from 12.3% in
1994. Depreciation and amortization of operating assets increased $86,000 in
1995 compared to 1994 and amortization of pre-opening costs increased $48,000 in
1995 compared to 1994 primarily due to a full year's depreciation for the two
locations opened in the second half of 1994.
IMPACT OF INFLATION
The principal operating expenses impacted by inflation include food, liquor
and labor costs. A large number of the Company's entertainment restaurant
personnel are paid at the federal minimum wage level and, accordingly, changes
in such wage level affect the Company's labor costs. In October 1997, the
federal minimum wage level will increase from $4.75 to $5.25 per hour. As costs
of food and labor have increased, the Company has been able to offset these
increases through economies of scale and improved operating procedures. To date,
inflation has not had a material impact on operating margins.
LIQUIDITY AND CAPITAL RESOURCES
The Company was formed on February 7, 1997 and, pursuant to the Exchange,
the Company became the owner of the eight then-existing Bailey's and the three
Fox & Hound locations. Prior to the Exchange, Bailey's financed its expansion
primarily with loans from stockholders. Prior to the Exchange, Fox & Hound
financed its expansion primarily with partners' equity contributions and loans
from related parties. See "Certain Transactions."
As is customary in the restaurant industry, the Company has operated with
negative working capital. The Company does not have significant receivables or
inventory and receives trade credit based upon negotiated terms in purchasing
food and supplies. Because funds available from cash sales are not needed
immediately to pay for food and supplies, or to finance inventory, they may be
considered as a source of financing for noncurrent capital expenditures.
At March 25, 1997, the Company had outstanding indebtedness to Intrust
Bank, N.A., Wichita, in the principal amount of approximately $10.8 million out
of a total credit line of $12.0 million available to the Company. This
outstanding indebtedness was incurred to refinance the debt of the acquired
entities in the Exchange of approximately $9.1 million and to finance the
stockholder dividend payment to the former stockholders of Bailey's of
approximately $1.7 million. Such indebtedness bears interest at the prime rate
(currently 8.50% per annum) and will be repaid with a portion of the net
proceeds of this Offering. One-half of the facility is personally guaranteed by
one of the Company's principal stockholders, which guarantee will terminate upon
the closing of this Offering. The Company has recently received a commitment
from Intrust Bank, N.A., Wichita, for renewal of the existing revolving credit
facility of $12.0 million. No definitive agreement has been entered into for
this line of credit facility and there is no assurance that the Company will be
able to establish such facility. Such credit facility will not be guaranteed by,
nor is it anticipated that any future indebtedness will be guaranteed by, any of
the Company's stockholders.
The Company intends to open five locations in 1997 (one of which was opened
in March 1997) and 20 locations in each of 1998 and 1999. The Company expects to
expend approximately $4.8 million in 1997 related to these openings.
The Company believes that the net proceeds from this Offering, its
anticipated cash flow from operations and funds anticipated to be available from
the credit facility noted above will be sufficient to satisfy its working
capital and capital expenditure requirements through 1999. There can be no
assurance, however, that changes in the Company's operating plans, acceleration
of the Company's expansion plans, lower than anticipated revenues, increased
expenses, potential acquisitions or other events will not cause the Company to
seek additional financing sooner than anticipated. There can be no assurance
that additional financing will be available on acceptable terms or at all.
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BUSINESS
GENERAL
The Company currently owns and operates 12 entertainment restaurant
locations under the Fox & Hound and Bailey's brand names. The Company's
entertainment restaurant locations combine a comfortable and inviting social
gathering place, full menu and full service bar, state-of-the-art audio and
video systems for sports entertainment, traditional games of skill such as
pocket billiards and a late-night dining and entertainment alternative all in a
single location. The Company's entertainment restaurant locations appeal to a
broad range of guests who can participate in one or more aspects of the
Company's total entertainment restaurant experience. Fox & Hound and Bailey's
encompass the Company's multi-dimensional concept and serve both larger urban
and smaller regional markets. The first Bailey's was opened in Charlotte, North
Carolina in 1989 and the first Fox & Hound was opened in Arlington, Texas in
1994. The Company currently owns and operates three Fox & Hounds and nine
Bailey's in Arkansas, Indiana, North Carolina, South Carolina, Tennessee and
Texas.
CONCEPT
The Company's entertainment restaurant concept differentiates itself by
offering all of the following features in a single location:
- Social Gathering Place. The Company's locations provide a contemporary
social gathering place where friends and acquaintances can gather
regularly for food, drinks and entertainment in an upscale yet casual
environment.
- Food and Beverage. The Company's units offer a full menu with a wide
range of mid-priced appetizers, entrees and desserts served in generous
portions. Each location features a full service bar and a wide variety of
domestic, imported and premium craft beers. Food and beverages can be
enjoyed in all areas of each location.
- Sports Entertainment. The Company's locations feature state-of-the-art
audio and video systems for viewing sporting events. Each location has
numerous TVs (including several big screen TVs) with satellite and cable
coverage of national, regional and local sporting events.
- Games of Skill. The Company's units offer traditional games of skill,
including pocket billiards featuring tournament-quality tables,
shuffleboard and darts. Certain locations also offer "just for fun"
blackjack and a variety of popular interactive games.
- Late-night Destination. The Company provides guests with an upscale
entertainment and dining alternative by serving food and beverages during
the increasingly popular late-night segment.
STRATEGY
Management believes that its unique entertainment restaurant concept will
enable the Company to distinguish itself as the leader in this market segment.
Management's strategy for attaining this leadership position is based on the
following key elements:
Total Entertainment and Restaurant Experience. The Company's concept
offers a social gathering place, food and beverages, sports entertainment, games
of skill and a late-night destination all in a single location. Each location
provides guests with a multi-dimensional entertainment and restaurant experience
that enables them to participate in one or more elements of the experience.
Seasoned Management Team. The Company employs a seasoned management team
with experience in successfully developing and operating multi-unit concepts in
a variety of geographic markets throughout the United States. The Company
intends to leverage this experience to secure favorable real estate sites,
control costs and implement proven operating procedures. In addition, the
Company maintains centralized financial and accounting controls through Coulter
Enterprises, which has 16 years of experience in providing such services. By
employing the services and infrastructure provided by Coulter Enterprises, the
Company is able to focus its energy and resources on brand and unit development.
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<PAGE> 25
Rapid Growth and Expansion. The Company believes that its entertainment
restaurant concept will be attractive in a variety of geographic markets
throughout the United States. The Company currently plans to open five locations
in 1997 (one of which was opened in March 1997) and 20 locations in each of 1998
and 1999. The Company is currently evaluating locations in markets that are
familiar to its management team and is actively negotiating additional leases at
a number of sites.
Flexibility and Versatility of Concept. The Company is implementing its
concept through both the Fox & Hound and Bailey's brand names. This strategy
enables the Company to target both larger urban markets as well as smaller
regional markets. The Company's concept also allows for significant versatility
through the reconfiguration of the entertainment areas within each of its
locations to accommodate various special events.
Commitment to High Quality Products and Services. The Company is committed
to providing a superior experience that includes high quality menu items, a wide
variety of domestic, imported and premium craft beers, state-of-the-art audio
and video systems and tournament-quality pocket billiard tables. These features,
combined with the Company's focus on a high level of customer service, help
build a loyal clientele and attract new guests.
LOCATIONS
The following table sets forth the location, opening date and approximate
square footage of the Company's existing entertainment and restaurant locations:
<TABLE>
<CAPTION>
LOCATION OPENING DATE SQUARE FOOTAGE
------------------------------- --------------- --------------
<S> <C> <C>
Fox & Hound
Arlington, TX August 1994 6,500
College Station, TX September 1994 7,000
Dallas (Midway), TX December 1995 10,000
Bailey's
Charlotte, NC November 1989 6,800
Pineville, NC October 1990 7,000
North Little Rock, AR February 1994 8,200
Greenville, SC September 1994 7,200
Nashville, TN April 1995 9,450
Knoxville, TN December 1995 8,300
Johnson City, TN May 1996 8,250
Columbia, SC October 1996 8,500
Clarksville, IN March 1997 9,200
</TABLE>
EXPANSION PLANS
The Company's management team has extensive experience in the restaurant
business and has successfully developed and operated numerous restaurants in
many geographic markets throughout the United States. The Company intends to
open five entertainment restaurant locations in 1997 (one of which was opened in
March 1997) and 20 locations in each of 1998 and 1999. The Company is currently
evaluating locations in markets familiar to its management team and is actively
negotiating additional leases at a number of sites. However, the number of
locations actually opened may vary depending upon the ability of the Company to
locate suitable sites and negotiate favorable leases.
The Company may in the future grant license or joint venture rights to the
Fox & Hound and Bailey's brands in certain limited geographic areas of the
United States. It is expected that these licensees or joint venture partners
will be required to develop a specific number of locations within a specified
time frame and that a license fee and/or a royalty fee will be paid to the
Company in connection with the development and operation of each such site. The
Company anticipates that one of such licenses may be granted to Dennis L.
Thompson, a director of the Company, and Thomas A. Hager, who has agreed to
become a director of the Company immediately following this Offering. Such
license is anticipated to grant the right to operate up to
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<PAGE> 26
eight locations under the "Fox & Hound" name in North Carolina. The Company has
granted to Stephen P. Hartnett, a principal stockholder of the Company and the
founder of Fox & Hound, the right to operate one "Fox & Hound" location in
Dallas, Texas without the payment of any license fee. See "Certain
Transactions."
SITE SELECTION CRITERIA AND LEASING
The Company believes the site selection process is critical in determining
the potential success of each entertainment restaurant location. Senior
management devotes significant time and resources in analyzing each prospective
site and inspects and approves each location prior to final lease execution. A
variety of factors are considered in the site selection process, including local
market demographics, site visibility, traffic count, nature of the retail
environment and accessibility and proximity to major retail centers, office
complexes, hotels and entertainment centers (e.g., stadiums, arenas, theaters).
The Company currently leases all locations, with the exception of the
Bailey's in Columbia, South Carolina, which is owned by the Company. Most of the
units are located in shopping centers. Leases are negotiated with initial terms
of three to five years, with multiple renewal options. The Company has generally
required approximately 90 to 120 days after the signing of a lease and obtaining
required permits to complete construction and open a new location. Additional
time is sometimes required to obtain certain government approvals and licenses,
such as liquor licenses. In the future, the Company anticipates principally
leasing its locations, although it may consider purchasing free-standing sites
where it is cost-effective to do so.
UNIT ECONOMICS
In 1996, the three Fox & Hounds recorded average net sales of $1.8 million.
The average cost to open the three Fox & Hounds was approximately $830,000, with
an additional $80,000 of pre-opening expenses per unit. The average net sales of
the six Bailey's that were open for a full year in 1996 was approximately $1.4
million. The average cost to open such six Bailey's was approximately $550,000,
with an additional $60,000 of pre-opening expenses per unit (for the four most
recently opened Bailey's). Management anticipates that the cost of opening new
locations will average approximately $850,000 per unit, which includes leasehold
improvements, fixtures and equipment, with an additional $100,000 of pre-opening
expenses per unit. Future locations are anticipated to range from 6,500 to
10,000 square feet.
MENU
Fox & Hound offers a single menu for lunch, dinner and late-night dining.
The menu features a selection of appetizers, including quesadillas and nachos,
soups and salads, gourmet-style sandwiches and burgers, a selection of grilled
entrees and desserts. Appetizers typically range in price from $4.50 to $7.95,
and entrees range from $5.95 to $12.95, with most entrees priced below $10.00.
Each location features a full service bar and over 100 brands of ales, lagers,
stouts and premium craft beers from around the world, including over 35 on tap.
Alcoholic beverage service accounted for approximately 63% of Fox & Hound's
revenues in 1996.
Bailey's offers a single menu for lunch (weekends only), dinner and
late-night dining. The menu currently offers more casual selections than Fox &
Hound by focusing more on appetizers, gourmet burgers and sandwiches, including
wraps, and less on grilled entrees. Appetizers typically range in price from
$3.95 to $6.50, and entrees range from $5.95 to $8.95. The full service bar
features a complete selection of mixed drinks, domestic and imported beers.
Alcoholic beverage service accounted for approximately 61% of Bailey's revenues
in 1996.
AMBIANCE AND DESIGN
Fox & Hound. Fox & Hound entertainment restaurant locations incorporate
the tradition, spirit and sophistication of a contemporary social gathering
place, with an elegant yet comfortable atmosphere of finished wood, polished
brass, embroidered chairs and booths, hunter green and burgundy walls and etched
glass. Each Fox & Hound features a full service restaurant and bar as well as
state-of-the-art audio and video technology and traditional games of skill such
as pocket billiards generously spaced to avoid crowding, darts and shuffleboard.
The entertainment area can be readily configured into a comfortable "arena" for
viewing
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<PAGE> 27
national, regional and local sporting and other television events. All locations
are also capable of accommodating business and social organizations for special
events.
Fox & Hound is the evolution of a concept originally conceived by Stephen
P. Hartnett. Management believes that the design of Fox & Hound plays an
essential role in its success. The bar and primary dining room are centrally
located while the wing rooms are partitioned from the bar and dining area by
etched glass and house games of skill along with state-of-the-art audio and
video technology. This layout provides guests with an open view of the main
dining room, bar and gaming areas. The open kitchen is organized for efficient
work flow and is centrally located so as to entice guests with its flavorful
aromas.
Bailey's. Each Bailey's location has a casual, relaxed atmosphere that
features a full-service restaurant and bar, numerous TVs (including several big
screen TVs) with satellite and cable coverage of sporting events, pocket
billiard tables, darts, foosball and shuffleboard. Certain locations also
feature "just for fun" blackjack and a variety of popular interactive games.
Like Fox & Hound, the bar and primary dining room in each Bailey's is centrally
located with games situated around the perimeter.
Bailey's is the evolution of a concept originally conceived by Thomas A.
Hager and Dennis L. Thompson. The first Bailey's was opened in Charlotte, North
Carolina in November 1989. There are presently nine locations operating in five
states. Since the opening of the first location in 1989, management has modified
and improved its original concept. With each successive opening, the decor was
modified to a more upscale yet casual decor.
MARKETING
The Company believes that its entertainment restaurant concept attracts a
loyal clientele, and the Company relies primarily on word-of-mouth to attract
new business. The Company does, however, advertise through traditional marketing
and advertising mediums in selected markets. These mediums include billboard
signage, radio and print advertising, local store marketing to households and
volunteer community involvement.
The Company's marketing efforts also seek to focus on national, regional
and local sporting events such as the Super Bowl and World Series, which attract
locally active groups of fans, supporters or alumni. The versatile layout and
design of the units can also accommodate group events.
OPERATIONS AND MANAGEMENT
The Company's operations and management systems are based upon systems and
controls that were developed by senior management and have been successfully
used to manage a large number of restaurants located in numerous states. The
Company strives to maintain quality and consistency in its entertainment
restaurant locations through the careful training and supervision of personnel
and the establishment of standards relating to food and beverage preparation,
maintenance of locations and conduct of personnel.
The management of a typical unit consists of one general manager and two or
three supporting managers. Each general manager is responsible for the unit's
day-to-day operations and is required to follow the Company's established
operating procedures and standards. Each entertainment restaurant location also
employs a staff of hourly employees, many of whom are part-time personnel. Unit
management personnel participate in an eight-week training program which focuses
on various aspects of the unit's operations and customer service. Working in
concert with general managers, the Company's senior management defines
operations and performance objectives. Each location's management team
participates in an incentive cash bonus program. Awards under the incentive plan
are tied to achievement of specified operating targets, including achievement of
specific unit objectives and control of operating expense budgets. Senior
management regularly visits the Fox & Hound and Bailey's locations and meets
with the respective management teams to ensure that the Company's strategies and
standards of quality are complied with.
The Company maintains financial and accounting controls for each of its
entertainment restaurant locations through the use of centralized accounting and
management information systems. Sales information is collected daily from each
location, and general managers are provided with operating statements for their
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<PAGE> 28
locations. Cash is controlled through daily deposits of sales proceeds in local
operating accounts, the balances of which are wire-transferred weekly to the
Company's principal operating account. The Company utilizes a comprehensive peer
review reporting system for its general managers. After the close of each 28-day
accounting period, profit and loss statements are produced and, subsequently, a
conference call is arranged during which the general manager of each location
reviews the profit and loss statement of the location with the other general
managers and the senior management of the Company. The participants offer each
other feedback on their respective performances and suggest ways of improving
profitability. At the end of each quarter, the general managers and the
Company's senior management meet in person. The Company believes that the peer
review system enables each general manager to benefit from the collective
experience of all of the Company's management.
The Company believes that customer service and satisfaction are keys to the
success of its operations. The Company's commitment to customer service and
satisfaction is evidenced by several Company practices and policies, including
periodic visits by unit management to guests' tables, active involvement of
management in responding to guest comments and assigning waitpersons so as to
ensure customer satisfaction. Teamwork is emphasized for efficient and timely
service.
Each new unit employee of the Company participates in a training program
during which the employee works under the close supervision of a general
manager. Management strives to instill enthusiasm and dedication in its
employees and to create a stimulating and rewarding working environment where
employees know what is expected of them in measurable terms. Management
continuously solicits employee feedback concerning unit operations and strives
to be responsive to the employees' concerns.
PURCHASING
The Company's management negotiates directly with suppliers for most food
and beverage products to ensure uniform quality, adequate supplies, and to
obtain competitive prices. Food and supplies are shipped directly to
entertainment restaurant locations, although invoices for purchases are
forwarded to a central location for payment. Due to the experience of the
Company's senior management in the restaurant business, the Company is able to
purchase most of its restaurant equipment directly from equipment manufacturers.
The Company has not experienced any significant delays in receiving supplies or
equipment.
MANAGEMENT INFORMATION SYSTEMS
The Company utilizes an in-store computer-based management support system
which is designed to improve labor scheduling and food and beverage cost
management, provide corporate management quick access to financial data and
reduce the general manager's administrative time. Each general manager uses the
system for production planning, labor scheduling and food and beverage cost
variance analysis. The system generates reports on sales, bank deposits and
variance data for the Company's management on a daily basis.
The Company generates weekly consolidated sales reports and food, beverage
and labor cost variance reports as well as detailed profit and loss statements
for each entertainment restaurant location every four weeks. Additionally, the
Company monitors sales mix, sales growth, labor variances and other sales trends
on a daily basis.
ACCOUNTING AND ADMINISTRATIVE SERVICES
Since March 1997, the Company has been provided with certain accounting and
administrative services from Coulter Enterprises for a charge of 4.0% of net
sales. Concurrent with this Offering, the Company will enter into a services
agreement for such accounting and administrative services to be provided by
Coulter Enterprises. The fixed annual charge, which will be pro rated for 1997,
will be $94,000 and the per unit per 28-day period fee will be $426. The
services agreement will expire on December 31, 1997 unless terminated by either
party upon 30 days' notice and will be renewable thereafter on a year-to-year
basis, terminable by either party upon 30 days' notice. See "Certain
Transactions." In the future, the Company may satisfy its accounting and
administrative needs by hiring employees directly; however, the Company believes
that such direct costs would not be materially different than the costs under
the contractual arrangement.
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<PAGE> 29
COMPETITION
The entertainment and restaurant industries are highly competitive. There
are a great number of restaurants and entertainment businesses that compete
directly and indirectly with the Company. The Company competes with restaurants
primarily on the basis of quality of food and service, ambiance and location and
competes with sports bars and entertainment complexes on the basis of
entertainment quality. Competition for sales in the entertainment and restaurant
industries is intense. While the Company believes that its entertainment
restaurant units are distinctive in design and operating concept, it is aware of
competitors that operate with similar concepts. Many of the Company's existing
and potential competitors are well-established and have significantly greater
financial, marketing and other resources than does the Company. In addition to
other entertainment and restaurant companies, the Company competes with numerous
businesses for suitable locations for its units. The legalization of casino
gambling in geographic areas near any entertainment restaurant location operated
by the Company could also create the possibility for entertainment alternatives
that could have a material adverse effect on the Company's business.
GOVERNMENT REGULATION
The Company's entertainment restaurant locations are subject to numerous
federal, state and local laws affecting health, sanitation, safety and Americans
with Disabilities Act accessibility standards, as well as to state and local
licensing regulation of the sale of alcoholic beverages. Each location has
appropriate licenses from regulatory authorities allowing it to sell liquor,
beer and wine, and each location has food service licenses from local health
authorities. The Company's licenses to sell alcoholic beverages must be renewed
annually and may be suspended or revoked at any time for cause, including
violation by the Company or its employees of any law or regulation pertaining to
alcoholic beverage control, such as those regulating the minimum age of patrons
or employees, advertising, wholesale purchasing, and inventory control. The
failure of a location to obtain or retain liquor or food service licenses would
have a material adverse effect on the Company's operations. In order to reduce
this risk, each location is operated in accordance with standardized procedures
designed to assure compliance with all applicable codes and regulations.
The Company may be subject in certain states 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 person. The Company carries liquor liability coverage as part of its
existing comprehensive general liability insurance and has never been named as a
defendant in a lawsuit involving "dram-shop" statutes.
The development and construction of additional locations will be subject to
compliance with applicable zoning, land use and environmental regulations. The
Company's operations are also subject to federal and state minimum wage laws
governing such matters as working conditions, overtime and tip credits and other
employee matters. Significant numbers of the Company's personnel are paid at
rates related to the federal minimum wage which is currently $4.75 per hour,
which will increase to $5.25 per hour in October 1997, and, accordingly, such
increase and further increases in the minimum wage will increase the Company's
labor costs.
A portion of the Company's revenues is derived from the use and operation
of video gaming machines. There can be no assurance that any future regulations
or legislation will not limit, restrict or eliminate the use or operation of
video gaming machines.
TRADEMARKS
The Company has registered its "Fox & Hound" service mark in Texas and has
applied for federal registration of such mark. The Company's "Bailey's Sports
Grille" service mark is registered federally and in North Carolina. The Company
regards its service marks as having significant value and as being an important
factor in the marketing of its entertainment restaurant concept. The Company is
aware of names and marks similar to the service marks of the Company that are
used by other persons in certain geographic areas. The Company believes such
uses will not have a material adverse effect on the Company. The Company's
policy is to pursue registration of its marks whenever possible and to oppose
vigorously any infringement of its marks.
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<PAGE> 30
LEGAL MATTERS
An officer and director of the Company recently resigned. Certain matters
related to this resignation have not yet been resolved. There are currently no
outstanding claims relating to this matter.
The Company is not currently a party to any material litigation. From time
to time, however, the Company may be subject to claims and lawsuits arising in
the normal course of business.
EMPLOYEES
The Company employs approximately 600 persons, two of whom are executive
officers, 44 of whom are entertainment restaurant location management personnel
and the remainder of whom are hourly entertainment restaurant personnel. None of
the Company's employees is covered by a collective bargaining agreement. The
Company believes its employee relations are satisfactory.
PROPERTIES
All of the Company's units are located in leased space with the exception
of the Bailey's in Columbia, South Carolina, which is owned by the Company.
Initial lease terms range from three to five years, with multiple renewal
options. All of the Company's leases provide for a minimum annual rent, and some
leases call for additional rent based on sales volume at the particular location
over specified minimum levels. Generally, the leases are net leases which
require the Company to pay the costs of insurance, taxes and a portion of
lessors' operating cost. Two Fox & Hounds are leased from a related party. See
"Certain Transactions."
The Company's executive offices are located at 300 Crescent Court, Building
300, Suite 850, Dallas, Texas 75201, which space is provided pursuant to the
terms of the services agreement that will be entered into by the Company with
Coulter Enterprises concurrent with this Offering. The Company believes that
there is sufficient office space available at favorable leasing terms in the
Dallas, Texas area to satisfy the additional needs of the Company that may
result from future expansion.
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<PAGE> 31
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
TERM AS DIRECTOR
NAME AGE POSITION EXPIRES
- --------------------------------------- --- -------------------------------------- ----------------
<S> <C> <C> <C>
Jamie B. Coulter....................... 56 Chairman of the Board 2000
Gary M. Judd........................... 38 Chief Executive Officer, President,
Chief Operating Officer and Director 1999
James K. Zielke........................ 33 Chief Financial Officer and Secretary --
Dennis L. Thompson..................... 53 Director 1998
Thomas A. Hager*....................... 48 Director 1998
Steven Wolosky*........................ 41 Director 1999
William F. Orthwein*................... 36 Director 2000
Christopher Goldsbury*................. 54 Director 2000
</TABLE>
- ---------------
* Messrs. Hager, Wolosky, Orthwein and Goldsbury have each agreed to serve as a
director immediately following this Offering.
Jamie B. Coulter has served as Chairman of the Board since March 1997. Mr.
Coulter has served as Chairman and Chief Executive Officer of Lone Star
Steakhouse and Saloon, Inc. ("Lone Star") since January 1992 and was president
of Lone Star from 1992 through 1995 (and a director and executive officer of
various subsidiaries of Lone Star since 1991). Between 1965 and 1980, Mr.
Coulter and his partners developed and operated Pizza Hut and Kentucky Fried
Chicken restaurants as one of the largest franchisees of both systems. From 1980
to May 1997, Mr. Coulter had been the sole stockholder, chairman, chief
executive officer and president of various Pizza Hut entities operating more
than 80 Pizza Hut restaurants in 11 states. Since 1980, Mr. Coulter has been the
sole stockholder and president of Coulter Enterprises, Inc., a management and
consulting company that provides management, accounting and administrative
services for Mr. Coulter's Pizza Hut franchises and other affiliated and
non-affiliated businesses.
Gary M. Judd has served as Chief Executive Officer, President and Chief
Operating Officer and director since May 1997. Mr. Judd served as vice president
of special projects with Coulter Enterprises, Inc. from October 1993 to May
1997. From March 1989 to September 1993, Mr. Judd was employed by Western
Sizzlin, Inc. in various capacities, most recently as director of franchise
operations. From March 1984 to February 1989, Mr. Judd served as a director of
operations with Coulter Enterprises.
James K. Zielke has served as Chief Financial Officer and Secretary since
April 1997. From January 1997 until April 1997, Mr. Zielke was the senior
director-tax for PepsiCo Restaurant Services Group, Inc. Mr. Zielke was employed
by Pizza Hut, Inc. from March 1993 until January 1997, most recently as
director-tax from March 1995 until January 1997. Prior to his employment by
Pizza Hut, Inc., Mr. Zielke was employed by Ernst & Young LLP from June 1986
until March 1993.
Dennis L. Thompson has been a director of the Company since February 1997
and from 1989 to 1997 was an investor with Bailey Sports Grille, Inc., of which
he was a co-founder. Mr. Thompson has served as senior vice president of real
estate and a director of Lone Star since January 1992. Mr. Thompson has been an
executive officer and a director of various subsidiaries of Lone Star since
1989. From 1985 to August 1995, he was an executive officer, director and
stockholder of Creative Culinary Concepts Inc., a company that owned and
operated eleven Lone Star Steakhouse and Saloons and certain other restaurants.
Thomas A. Hager was a co-founder of Bailey's Sports Grille, Inc. and served
as its president from inception in November 1989 until February 1997. Prior to
founding Bailey's Sports Grille, Inc., Mr. Hager owned and operated a restaurant
in Charlotte, North Carolina. Mr. Hager is also the founder of Thomas
Advertising, Inc., a national billboard advertising agency where he has served
as president since its inception in 1983.
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<PAGE> 32
Steven Wolosky has been a partner of the law firm of Olshan Grundman Frome
& Rosenzweig LLP since January 1987. Mr. Wolosky is also a director of Uniflex,
Inc., a company that designs, manufactures and sells a variety of plastic
products, and assistant secretary of WHX Corporation, a holding company for an
integrated steel manufacturer.
William F. Orthwein has been an independent floor trader in the Standard
and Poor's 500 pit at the Chicago Mercantile Exchange since 1984.
Christopher Goldsbury has been the president and chief executive officer of
Silver Ventures, a San Antonio, Texas based private investment company since
March 1995. Prior thereto, Mr. Goldsbury was employed by Pace Foods, Inc., a San
Antonio, Texas based company that produces Pace Picante Sauce. Mr. Goldsbury
joined Pace Foods in 1969, held positions in both production and sales from 1969
to 1979, was president from 1979 to 1982 and chairman of the board and chief
executive officer from 1982 to March 1995.
The Board of Directors of the Company currently consists of three members
divided into three classes, the terms of which expire at the annual meeting of
stockholders to be held in the year indicated in the table above. Each director
holds office until his term expires and his successor has been elected and
qualified. Beginning in 1998, at each annual meeting of stockholders, directors
nominated to a class with a term that expires in that year will be elected for a
three-year term. Executive officers serve at the discretion of the Board of
Directors.
Messrs. Hager, Wolosky, Orthwein and Goldsbury, whose biographical data
appear above, are not currently directors of the Company, but have agreed to
become directors contingent upon and effective immediately following this
Offering. The Board of Directors has created an Audit Committee, a Compensation
Committee and a Stock Option Committee. The Audit Committee will be composed of
a majority of independent directors and will be charged with reviewing the
Company's annual audit and meeting with the Company's independent accountants to
review the Company's internal controls and financial management practices. The
Compensation Committee, which will also be composed of a majority of the
independent directors, will recommend to the Board of Directors compensation for
the Company's key employees. The Stock Option Committee will administer the
Company's 1997 Plan and will be composed of independent directors. The members
of the Audit Committee will be Messrs. Hager, Thompson and Orthwein. The members
of the Compensation Committee will be Messrs. Wolosky, Goldsbury and Orthwein.
The members of the Stock Option Committee will be Messrs. Thompson, Goldsbury
and Orthwein.
Directors of the Company, other than the Chairman of the Board, who are not
executive officers will receive director fees of $3,000 per year and $500 per
meeting attended, plus the reasonable expenses of attending meetings and will be
entitled to participate in the Directors Stock Option Plan.
EXECUTIVE COMPENSATION
No executive officer of the Company received cash or other compensation
paid by the Company or its subsidiaries for the fiscal year ended December 31,
1996. Set forth below under "Employment Agreements" is the compensation to be
paid by the Company to its executive officers.
EMPLOYMENT AGREEMENTS
The Company has entered into separate employment agreements commencing as
of the closing of this Offering with each of Messrs. Judd and Zielke providing
for the employment of such individuals as Chief Executive Officer, President and
Chief Operating Officer, and Chief Financial Officer, respectively. Each
employment agreement provides that the officer shall devote all of his
professional time to the business of the Company. The agreements provide for (i)
annual base salaries of $175,000 and $125,000, respectively, for Messrs. Judd
and Zielke, subject to increases as determined by the Board of Directors and
(ii) the granting of options on the date of this Prospectus pursuant to the 1997
Plan to purchase 100,000 and 50,000 shares of Common Stock, respectively, at an
exercise price equal to the initial public offering price of the shares offered
hereby. Such options vest annually over five years. Each agreement terminates in
April 2002 with an option by the Company to extend the term for an additional
one-year period and contains non-competition and non-
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<PAGE> 33
solicitation provisions. Messrs. Coulter, Hager and Thompson have entered into
non-competition, confidentiality and non-solicitation agreements with the
Company.
Certain directors and executive officers of the Company are parties to
agreements that restrict their involvement with restaurants offering pizza,
pasta or steak. The Company's menus do not currently offer such items, and the
Company does not believe that such restrictions will have a material effect on
its operations.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation limits the personal liability of a director to the
Company for monetary damages for breach of fiduciary duty of care as a director.
Liability is not eliminated for (i) any breach of the director's duty of loyalty
to the Company or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
unlawful payment of dividends or stock purchases or redemptions pursuant to
Section 174 of the Delaware General Corporation Law, or (iv) any transaction
from which the director derived an improper personal benefit.
The Company has obtained directors and officers liability insurance. The
Company has also entered into indemnification agreements with its directors and
executive officers. The indemnification agreements provide that the directors
and executive officers will be indemnified to the full extent permitted by
applicable law against all expenses (including attorneys' fees), judgments,
fines and amounts reasonably paid or incurred by them for settlement in any
threatened, pending or completed action, suit or proceeding, including any
derivative action, on account of their services as a director or officer of the
Company or of any subsidiary of the Company or of any other company or
enterprise in which they are serving at the request of the Company. No
indemnification will be provided under the indemnification agreements, however,
to any director or executive officer in certain limited circumstances, including
on account of knowingly fraudulent, deliberately dishonest or willful
misconduct. To the extent the provisions of the indemnification agreements
exceed the indemnification permitted by applicable law, such provisions may be
unenforceable or may be limited to the extent they are found by a court of
competent jurisdiction to be contrary to public policy.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
STOCK OPTION PLANS
1997 Incentive and Nonqualified Stock Option Plan
In March 1997, the Board of Directors of the Company adopted the 1997
Incentive and Nonqualified Stock Option Plan (the "1997 Plan"). The 1997 Plan is
intended to assist the Company in securing and retaining a Chairman of the Board
and key employees by allowing them to participate in the ownership and growth of
the Company through the grant of incentive and nonqualified options
(collectively, the "Options") to the Chairman of the Board and full-time and
part-time employees of the Company and its subsidiaries. Incentive stock options
granted under the 1997 Plan are to be "Incentive Stock Options" as defined by
Section 422 of the Code.
An aggregate of 1,500,000 shares of Common Stock has been reserved for
issuance upon exercise of Options to be granted under the 1997 Plan. As of the
date of this Prospectus, the Company has granted options to purchase (i) 500,000
shares of Common Stock to the Chairman of the Board of the Company, (ii) 100,000
shares of Common Stock to the Chief Executive Officer of the Company, (iii)
50,000 shares of Common Stock to the Chief Financial Officer of the Company,
(iv) an aggregate of 40,000 shares of Common Stock to the Company's two district
managers, (v) an aggregate of 70,584 shares of Common Stock to the 12 general
managers of the Company's entertainment restaurant locations and (vi) an
aggregate of 39,764 shares of Common Stock to certain other employees of the
Company, in each case at an exercise price per share equal to the initial public
offering price. The options expire in July 2007. The 1997 Plan will be
administered by a committee (the "Committee"), composed of two or more
non-management directors that
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<PAGE> 34
are "non-employee directors" within the meaning of Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
"outside directors" within the meaning of Section 162(m) of the Code, authorized
to administer the 1997 Plan in a manner that complies with Rule 16b-3 under the
Exchange Act. The Committee will determine who shall receive Options, the number
of shares of Common Stock that may be purchased under Options, the time and
manner of exercise of Options and Option exercise prices. The term of Options
granted under the 1997 Plan may not exceed 10 years (five years in the case of
an incentive stock option granted to an optionee owning more than 10.0% of the
voting stock of the Company (a "10.0% Holder")). The Option exercise price for
incentive stock options shall not be less than 100.0% of the "fair market value"
of the shares of Common Stock at the time the Option is granted; provided,
however, that if an Option granted to the Company's Chief Executive Officer or
to any of the Company's other four most highly compensated officers is intended
to qualify as "performance-based" compensation under Section 162(m) of the Code,
the exercise price must equal at least 100.0% of the fair market value of the
subject stock on the date of grant; provided, further, that with respect to an
incentive stock option, in the case of a 10.0% Holder, the exercise price per
share shall be at least 110.0% of such fair market value. The Option exercise
price for nonqualified options shall not be less than 75.0% of the "fair market
value" of the shares of Common Stock at the time the Option is granted. The
aggregate fair market value of the shares of Common Stock as to which an
optionee may exercise incentive stock options may not exceed $100,000 in any
calendar year. Payment for shares purchased upon exercise of Options is to be
made in cash, check or other instrument, but, at the discretion of the
Committee, may be made by cashless exercise or the delivery of other shares of
Common Stock of the Company.
The maximum number of shares that may be subject to Options granted under
the 1997 Plan to any individual in any calendar year may not exceed 50% of the
number of shares covered by the 1997 Plan and the method of counting such shares
shall conform to any requirements applicable to "performance-based" compensation
under Section 162(m) of the Code. It is intended that compensation realized upon
the exercise of an Option granted under the 1997 Plan will thereupon be regarded
as "performance-based" under Section 162(m) of the Code and that such
compensation may be deductible without regard to the limits of Section 162(m) of
the Code.
Under certain circumstances involving a change in the number of outstanding
shares of Common Stock without the receipt by the Company of any consideration
therefor, such as a stock split, stock consolidation or payment of a stock
dividend, the class and aggregate number of shares of Common Stock in respect of
which Options may be granted under the 1997 Plan, the class and number of shares
subject to each outstanding Option and the Option exercise price per share will
be proportionately adjusted. In addition, in the event of any merger,
reorganization or consolidation of the Company with one or more corporations as
a result of which the Company is not the surviving corporation, the Options
granted under the 1997 Plan shall immediately vest assuming that the optionee
has held the Option for at least six months.
An Option may not be transferred other than by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations order,
and during the lifetime of the Option holder may be exercised only by such
holder; provided, however, that to the extent the Option does not disqualify
such Option for exemption under Rule 16b-3 of the Exchange Act, nonqualified
options may be transferable during an optionee's lifetime to immediate family
members of an optionee, partnerships in which the only partners are members of
the optionee's immediate family, and trusts established solely for the benefit
of such immediate family members.
The 1997 Plan will terminate in March 2007 and may be terminated at any
time by the Board of Directors prior to that date.
General Managers Program
The Company intends to grant incentive stock options under the 1997 Plan to
the general manager of each of its entertainment restaurant locations at the
time of their appointment as a general manager. Under this program, each general
manager will be granted incentive stock options to purchase shares of Common
Stock having an aggregate fair market value of $50,000 at the date of grant. The
incentive stock options shall vest over five years from the date of grant, with
vesting of 10.0%, 15.0%, 25.0%, 25.0% and 25.0% of the options, respectively, at
each of the first five anniversaries of the date of grant.
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<PAGE> 35
Directors Stock Option Plan
In March 1997, the Board of Directors of the Company adopted the Directors
Stock Option Plan (the "Directors Plan"). The Directors Plan provides for the
issuance of options to purchase up to 150,000 shares of Common Stock. All
members of the Board of Directors who are not employees of the Company
("Eligible Directors") are eligible to receive grants of options. Each Eligible
Director receives automatic, nondiscretionary grants of options based upon
specific criteria set forth in the Directors Plan. Each Eligible Director will
receive a grant of an option to purchase 10,000 shares of Common Stock on the
later of (i) the date the Eligible Director is elected to the Board of Directors
or (ii) the date of this Prospectus, and will be granted another option to
purchase 3,000 shares of Common Stock annually thereafter so long as he remains
an Eligible Director. Each option vests annually over a three-year period
provided such individual continues to serve as a director of the Company unless
such individual no longer serves as a result of his death or disability, in
which case the option immediately vests as to all shares subject to such option.
Accordingly, Messrs. Hager, Thompson, Wolosky, Orthwein and Goldsbury will each
be granted options to purchase 10,000 shares of Common Stock under the Directors
Plan on the date of this Prospectus at an exercise price equal to the initial
public offering price.
The exercise price of each option granted under the Directors Plan is equal
to the fair market value of the Company's Common Stock on the date of grant. All
options granted are first exercisable one year after the grant date, except in
the case of an Eligible Director's death or permanent disability, upon which
event the options become immediately exercisable for a period of one year
thereafter and then would terminate. If an Eligible Director's membership on the
Board of Directors terminates for any reason, any option held on such date may
be exercised any time within one year after the date of termination, unless the
option terminates sooner by its terms. As of the date of this Prospectus,
options to purchase 50,000 shares of Common Stock will be outstanding under the
Directors Plan.
COMPENSATION COMMITTEE INTERLOCKS
The Compensation Committee will consist of Messrs. Wolosky, Goldsbury and
Orthwein and the Stock Option Committee will consist of Messrs. Thompson,
Goldsbury and Orthwein. None of such Directors was a party to any transaction
with the Company which constitutes an interlock with another entity.
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<PAGE> 36
CERTAIN TRANSACTIONS
Concurrent with this Offering, the Company will enter into a services
agreement with Coulter Enterprises pursuant to which the Company will utilize
certain accounting and administrative services provided by Coulter Enterprises,
a corporation controlled by Jamie B. Coulter, Chairman of the Board of the
Company. The services agreement initially expires on December 31, 1997, unless
terminated by either party upon 30 days' notice, and is renewable thereafter on
a year-to-year basis, terminable by either party upon 30 days' notice.
Concurrent with this Offering, the service fee will consist of a fixed annual
charge of $94,000, pro rated for 1997, and a per unit per 28-day period fee of
$426. The amount of the services fee will be reviewed annually and will be
subject to approval by a majority of the disinterested directors of the Company.
Since March 1997 and through the date of this Offering, Coulter Enterprises has
provided accounting and administration services for a service fee of 4.0% of net
sales during such period.
Prior to March 1997, certain accounting and administrative services were
provided to the three Fox & Hound units by a corporation controlled by Stephen
P. Hartnett, a principal stockholder of the Company. The terms of the management
agreement provided for the reimbursement only of out-of-pocket expenses of such
corporation. The amount of such management fees were $1,750, $29,820 and
$225,600 for the fiscal years ended December 31, 1994, 1995 and 1996,
respectively.
The Company leases its Fox & Hounds in Dallas (Midway), Texas and College
Station, Texas from limited partnerships controlled by Stephen P. Hartnett. The
annual rent paid to the limited partnerships for the College Station, Texas
facility was $22,425, $66,121 and $56,000 for the fiscal years ended December
31, 1994, 1995 and 1996, respectively. Annual rent for fiscal year 1997 for this
facility will be $68,610. The annual rent paid to the limited partnerships for
the Dallas (Midway), Texas facility was $204,408 for the fiscal year ended
December 31, 1996. The annual rent for fiscal year 1997 for this facility will
be $204,392.
Certain stockholders of the Company have made loans to the Company or its
subsidiaries in the past three years. The following table summarizes such loans,
which are more fully described in the paragraphs that follow.
<TABLE>
<CAPTION>
AGGREGATE DATE OF
BORROWER LENDER AMOUNT FINAL PAYMENT
- ------------------------ ------------------------------------- ------------------- --------------------
<S> <C> <C> <C>
Company(1).............. Intrust Bank, N.A. $12.00 million(2) Due August 1, 1997
F&H Restaurant Corp..... Jamie B. Coulter $4.53 million February 1997
505 Entertainment,
Ltd................... Organized Capital, Inc.(3) $116,500 February 1997
505 Entertainment,
Ltd................... United II Strategic Trading, Inc.(3) $116,500 February 1997
Bailey's Sports Grille,
Inc.(4)............... Thomas Hager $1.50 million February 1997
Bailey's Sports Grille,
Inc.(4)............... Dennis L. Thompson $1.27 million February 1997
</TABLE>
- ---------------
(1) Jamie B. Coulter has guaranteed one-half of the Company's $12.00 million
line of credit.
(2) As of March 25, 1997, the outstanding indebtedness was approximately $10.84
million.
(3) The wife of Stephen P. Hartnett, a principal stockholder of the Company,,
has an equity interest in these companies.
(4) These loans were made to Bailey's Sports Grille, Inc. or its predecessor
corporations.
During the period November 1996 to January 1997, Jamie B. Coulter loaned to
F&H Restaurant Corp. an aggregate of approximately $4.53 million in connection
with the acquisition by F&H Restaurant Corp. of a 75% interest in the Subsidiary
Limited Partnerships and to provide working capital to the Subsidiary Limited
Partnerships. At December 31, 1996, the amount outstanding under such loans was
$1.50 million. The loans accrued interest at the prime rate (currently 8.50% per
annum). The loans were repaid in full in February 1997 pursuant to a $12.00
million line of credit obtained by the Company from Intrust Bank, N.A.,
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<PAGE> 37
Wichita, Kansas. One-half of such line of credit has been guaranteed by Mr.
Coulter. Indebtedness outstanding under such line of credit bears interest at
the prime rate (currently 8.50% per annum) and is due August 1, 1997. The entire
balance outstanding under the line of credit will be repaid upon the closing of
this Offering with a portion of the net proceeds therefrom.
In September 1995, a corporate stockholder of the Company, in which the
wife of Stephen P. Hartnett owns approximately 20%, loaned $83,000 to a
Subsidiary Limited Partnership. In December 1995, a second corporate stockholder
of the Company, in which the wife of Stephen P. Hartnett owns approximately 34%,
loaned $75,000 to such Subsidiary Limited Partnership. The aggregate amount
outstanding under such loans at December 31, 1995 was $83,000 and $75,000,
respectively. In July 1996, the two corporate stockholders made additional loans
of $7,000 and $15,000, respectively, to such Subsidiary Limited Partnership. In
November 1996, the two corporate stockholders loaned the Subsidiary Limited
Partnership an additional $53,000. All of these loans accrued interest at a rate
of 10.0% per annum. At December 31, 1996, the amount outstanding to each
corporate stockholder was $116,500. The loans were repaid in full in February
1997.
Dennis L. Thompson, a director of the Company, and Thomas S. Hager, who has
agreed to become a director immediately following this Offering, have made
various loans to Bailey's Sports Grille, Inc. or its predecessors. In 1994,
Messrs. Thompson and Hager loaned to Bailey's Sports Grille, Inc. or its
predecessors an aggregate of $177,670 and $208,240, respectively. Such loans
accrued interest at an effective interest rate of 8.0% per annum. At December
31, 1994, the aggregate outstanding balances were $286,431 and $344,001,
respectively. In 1995, Messrs. Thompson and Hager loaned to Bailey's Sports
Grille, Inc. or its predecessors an aggregate of an additional $365,540 and
$431,014, respectively. Such loans accrued interest at an effective interest
rate of 8.0% per annum. At December 31, 1995, the aggregate outstanding balances
were $600,483 and $710,844, respectively. In 1996, Messrs. Thompson and Hager
loaned to Bailey's Sports Grille, Inc. or its predecessors an aggregate of an
additional $725,056 and $856,528, respectively. Such loans accrued interest at
an effective interest rate of 8.0% per annum. At December 31, 1996, the
aggregate outstanding balances were $1,269,864 and $1,492,378, respectively. All
such loans, to the extent not previously repaid, were repaid in full in February
1997.
The Company anticipates that it may grant to Dennis L. Thompson, a director
of the Company, and Thomas A. Hager, who has agreed to become a director of the
Company immediately following this Offering, the right to operate up to eight
locations under the "Fox & Hound" name in North Carolina. The Company has
granted to Stephen P. Hartnett, a principal stockholder of the Company, the
right to operate one "Fox & Hound" location in Dallas, Texas without the payment
of any license fee.
On February 20, 1997, the Company entered into the Exchange with the
stockholders of the Subsidiary Corporations and certain limited partners of the
Subsidiary Limited Partnerships. Pursuant to the Exchange, the Company became
the owner of the eight then-existing Bailey's locations and the three Fox &
Hound locations. The Company issued all of its currently outstanding 8,000,000
shares of its Common Stock in exchange for all of the outstanding stock of the
Subsidiary Corporations and the outstanding limited partnership interests of the
Subsidiary Limited Partnerships not owned by the Subsidiary Corporations. The
Subsidiary Corporations and Subsidiary Limited Partnerships thereby became
wholly-owned subsidiaries of the Company. The Exchange constituted an exchange
of property under Section 351 of the Code. Each of the Subsidiary Corporations
which were S corporations under the Code terminated such status in connection
with the Exchange. Such Subsidiary Corporations and each of their respective
stockholders executed agreements with the Company indemnifying the Company for
any federal and state income tax liability incurred by the Company prior to the
Exchange relating to such Subsidiary Corporations.
The Company believes that the foregoing transactions were in its best
interests. It is the Company's current policy that all transactions by the
Company with officers, directors, 5.0% stockholders and their affiliates will be
entered into only if such transactions are approved by a majority of the
disinterested independent directors, are on terms no less favorable to the
Company than could be obtained from unaffiliated parties and are reasonably
expected to benefit the Company.
36
<PAGE> 38
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this Prospectus and as
adjusted to reflect the sale of the Common Stock offered by the Company hereby,
by (i) each director (including individuals who have agreed to serve as
directors immediately following this Offering), (ii) each executive officer,
(iii) all directors and executive officers as a group, and (iv) each person who
beneficially owns 5.0% or more of the Company's Common Stock. Unless otherwise
indicated, all the addresses for 5.0% stockholders, executive officers,
directors and director nominees of the Company is 300 Crescent Court, Building
300, Suite 850, Dallas, Texas 75201. Except as specified, the named beneficial
owner has sole voting and investment power with respect to the shares held by
such owner.
<TABLE>
<CAPTION>
PERCENT OF CLASS
SHARES ---------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- --------------------------------------------------------------- ---------- -------- --------
<S> <C> <C> <C>
Jamie B. Coulter............................................... 2,000,000 25.0% 19.8%
Gary M. Judd................................................... 140,000 1.8 1.4
James K. Zielke................................................ -- -- --
Dennis L. Thompson(1).......................................... 489,800 6.1 4.8
Thomas A. Hager(2)............................................. 725,600 9.1 7.2
Steven Wolosky................................................. 29,920 * *
William F. Orthwein............................................ -- -- --
Christopher Goldsbury.......................................... -- -- --
Stephen P. Hartnett(3)......................................... 416,240 5.2 4.1
4504 Winewood Court Colleyville, Texas 76034
United Strategic Trading II, Inc. 4504 Winewood Court
Colleyville, Texas 76034..................................... 544,240 6.8 5.4
Organized Capital II, Ltd. 4504 Winewood Court Colleyville,
Texas 76034.................................................. 526,800 6.6 5.2
All directors and executive officers as a group (4
persons)(1).................................................. 2,629,800 32.9% 26.0%
</TABLE>
- ---------------
* Less than 1.0% percent.
(1) Includes 244,900 shares held by Mr. Thompson's wife, Sharon K. Thompson.
Excludes 40,000 shares held by Mr. Thompson's adult children.
(2) Includes 72,000 shares held by Mr. Hager as custodian for the benefit of
his two childern.
(3) Excludes 544,240 shares held by United Strategic Trading II, Inc. and
526,800 shares held by Organized Capital II, Ltd. Mr. Hartnett is a trading
advisor to these entities, certain members of Mr. Hartnett's family are
stockholders or partners of such entities and Mr. Hartnett is the sole
stockholder of the corporate general partner of Organized Capital II, Ltd.
Mr. Hartnett's wife, Sandra Hartnett, holds approximately 34% and 20% of
the issued and outstanding stock or partnership interests of such
companies, respectively. Mr. Hartnett disclaims beneficial ownership of
these shares.
37
<PAGE> 39
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, $0.01 par value, and 2,000,000 shares of Preferred Stock, $0.10
par value. The following summary of certain terms of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Certificate of Incorporation
and By-laws, which are included as exhibits to the Registration Statement of
which this Prospectus is a part, and the provisions of applicable law.
COMMON STOCK
As of the date of this Prospectus, there were 8,000,000 shares of Common
Stock outstanding (after giving effect to the completion of a 79-for-1 stock
dividend prior to the date of this Prospectus) held by 73 stockholders of
record. Immediately following this Offering, there will be 10,100,000 shares of
Common Stock outstanding. Holders of Common Stock are entitled to one vote for
each share held of record on all matters submitted to a vote of the
stockholders. Subject to preferences that may be applicable to any then
outstanding Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then outstanding Preferred
Stock. Holders of Common Stock have no right to convert their Common Stock into
any other securities. The Common Stock has no preemptive or other subscription
right. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and the Common Stock
to be outstanding upon completion of this Offering will be, fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 2,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. The issuance of Preferred Stock could
adversely affect the voting power of holders of Common Stock and could have the
effect of delaying or preventing a change in control of the Company. The Company
has no present plan to issue any shares of Preferred Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's By-laws provide that the number of directors that constitutes
the Board of Directors shall be fixed by resolution of the Board of Directors
but in no event shall the number be greater than 10. The Board of Directors may
change the numbers of directors by a majority vote. The Certificate of
Incorporation provides that the Board of Directors shall be divided into three
classes, with the classes to be as nearly equal in number as possible, and that
one class shall be elected each year and serve for a three-year term. The
Company's Certificate of Incorporation does not provide for cumulative voting in
the election of directors. The Certificate of Incorporation provides that a
director may be removed only for "cause" by the affirmative vote of a majority
of the outstanding shares of Common Stock of the Company.
The classification of directors and the provisions of the Certificate of
Incorporation that limit the ability of stockholders to change the size of the
Board will have the effect of making it more difficult for stockholders to
change the composition of the Board. As a result, at least two annual meetings
of stockholders may be required for the stockholders to change a majority of the
directors, whether or not a change in the Board would be beneficial to the
Company and its stockholders and whether nor not a majority of the Company's
stockholders believes that such change would be desirable.
38
<PAGE> 40
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Union
National Bank, Charlotte, North Carolina.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
10,100,000 shares of Common Stock. The 2,100,000 shares of Common Stock being
sold hereby will be freely tradeable (other than by an "affiliate" of the
Company as such term is defined in the Securities Act) without restriction or
registration under the Securities Act. All remaining outstanding shares (the
"Restricted Shares") were issued and sold by the Company in private transactions
and are eligible for public sale if registered under the Securities Act or sold
in accordance with Rule 144 or Rule 144A.
All of the Company's stockholders prior to this Offering, who collectively
own 8,000,000 Restricted Shares, have agreed that they will not sell or
otherwise transfer any Common Stock owned by them without the prior written
consent of Montgomery Securities for a period of 180 days from the date of this
Prospectus (the "Lockup Period"). Following the expiration of the Lockup Period,
no Restricted Shares will be available for sale in the public market pursuant to
Rule 144 prior to February 20, 1998 because no such Restricted Shares will have
been held for more than one year.
In general, under Rule 144 as currently in effect, a holder of "restricted
securities" who beneficially owns shares that were not acquired from the Company
or an affiliate of the Company within the previous year would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of one percent of the then outstanding shares of Common Stock or the
average weekly trading volume of the Common Stock in the over-the-counter market
during the four calendar weeks preceding the date on which notice of the sale is
filed with the Securities and Exchange Commission (the "Commission"). Sales
under Rule 144 are subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. A person who is not deemed an affiliate of the Company at any time
during the 90 days preceding a sale and who beneficially owns shares that were
not acquired from the Company or an affiliate of the Company within the past two
years is entitled to sell such shares under Rule 144(k) without regard to volume
limitations, manner of sale provisions, notice requirements or the availability
of current public information concerning the Company. Rule 144A under the
Securities Act permits the immediate sale by the current holders of Restricted
Shares of all or a portion of their shares to certain qualified institutional
buyers as defined in Rule 144A. The Company has granted "piggy-back"
registration rights to its existing stockholders in connection with any future
registration statement filed by the Company subsequent to this Offering.
The Company intends to file a Registration Statement on Form S-8 under the
Securities Act, covering approximately 1,650,000 shares of Common Stock reserved
for issuance under its 1997 Plan and Directors Plan. See "Management -- Stock
Option Plans." Such registration statement is expected to be filed soon after
the date of this Prospectus and will automatically become effective upon filing.
Accordingly, shares registered under such registration statement will be
available for sale in the open market, unless such shares are subject to vesting
restrictions with the Company or the contractual Lockup Period restrictions
described above.
39
<PAGE> 41
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities (the
"Representative"), have severally agreed, subject to the terms and conditions
contained in the underwriting agreement by and among the Company and the
Underwriters (the "Underwriting Agreement"), to purchase from the Company the
number of shares of Common Stock indicated below opposite their respective names
at the initial public offering price less the underwriting discount set forth on
the cover page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent and
that the Underwriters are committed to purchase all of such shares if they
purchase any.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
UNDERWRITER OF COMMON STOCK
------------------------------------------------------------------- ---------------
<S> <C>
Montgomery Securities..............................................
---------
Total.............................................................. 2,100,000
=========
</TABLE>
The Representative has advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow to selected dealers a
concession of not more than $ per share, and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $
per share to certain other dealers. After the initial public offering, the
offering price and other selling terms may be changed by the Representative. The
Common Stock is offered subject to receipt and acceptance by the Underwriters
and to certain other conditions, including the right to reject orders in whole
or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 315,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial 2,100,000 shares to be purchased by
the Underwriters. To the extent that the Underwriters exercise this option, the
Underwriters will be committed, subject to certain conditions, to purchase such
additional shares in approximately the same proportion as set forth in the above
table. The Underwriters may purchase such shares only to cover over-allotments
made in connection with this Offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
The Representative has informed the Company that the Underwriters do not
expect to make sales of Common Stock offered hereby to accounts over which they
exercise discretionary authority in excess of 5% of the shares of Common Stock
offered hereby.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiations between the Company and the Representative. Among the factors
considered in such negotiations will be the history of, and the prospects for,
the Company and the industry in which it competes, an assessment of the
Company's management, its past and present earnings and the trend of such
earnings, the prospects for future earnings of the Company, the present state of
the Company's development, the general condition of the securities markets at
the time of the Offering and the market prices of publicly traded stock of
comparable companies in recent periods and other factors deemed relevant.
All of the Company's current stockholders have agreed that, for a period of
180 days after the date of this Prospectus, they will not, without the prior
written consent of Montgomery Securities, directly or indirectly
40
<PAGE> 42
offer to sell, sell or otherwise dispose of any shares of Common Stock or any
securities convertible or exchangeable for shares of Common Stock. In addition,
the Company has agreed that for a period of 180 days after the date of this
Prospectus, it will not, without the prior written consent of Montgomery
Securities, directly or indirectly offer to sell, issue, distribute or otherwise
dispose of any equity securities or securities convertible into or exchangeable
for equity securities or any options, rights or warrants with respect to any
equity securities except (i) for shares of Common Stock offered hereby or (ii)
for shares of Common Stock issued pursuant to exercise of outstanding options
disclosed in the Prospectus or (iii) options granted after the date of the
Prospectus under the 1997 Plan or the Directors Plan. See "Shares Eligible for
Future Sale."
The Representative has advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in this Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with this Offering. A "penalty bid" is an arrangement
permitting the Representative to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with this Offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representative in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representative has advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Olshan Grundman Frome & Rosenzweig LLP, New York, New
York. Steven Wolosky, a member of Olshan Grundman Frome & Rosenzweig LLP, owns
29,920 shares of Common Stock of the Company. Mr. Wolosky has agreed to serve as
a director of the Company immediately following this Offering. In addition, Mr.
Wolosky will be granted an option to purchase 10,000 shares of Common Stock
pursuant to the Directors Plan on the date of this Prospectus. Certain legal
matters arising in connection with this Offering will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California.
EXPERTS
The balance sheet of Total Entertainment Restaurant Corp., the consolidated
financial statements of F&H Restaurant Corp. and the combined financial
statements of Fox & Hound Entertainment and Restaurant Group appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, to the extent indicated in their reports thereon also
appearing elsewhere herein and in the Registration Statement. Such financial
statements have been included herein in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
The financial statements of Bailey's Sports Grille, Inc. as of December 26,
1995 and December 31, 1996 and for each of the three fiscal years in the period
ended December 31, 1996 included in this Prospectus have been audited by
Deloitte and Touche LLP, independent auditors, as stated in their report
appearing herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
41
<PAGE> 43
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all amendments
and exhibits thereto, the "Registration Statement") under the Securities Act
with respect to the shares offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement, copies of which may be obtained from the Public Reference Section of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fees prescribed by the Commission.
Copies of such Registration Statement may also be requested from the Company,
attention Secretary, 300 Crescent Court, Building 300, Suite 850, Dallas, Texas
75201.
Following the effectiveness of the Registration Statement, the Company will
be subject to the informational requirements of the Exchange Act and in
accordance therewith files reports, proxy statements and other information with
the Commission. Any such report, proxy statement and other information filed by
the Company with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the following
regional offices: Northeast Regional Office, Seven World Trade Center, New York,
New York 10048, and Midwest Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also be
obtained from the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Common Stock has been approved for quotation on the Nasdaq National
Market. The foregoing material also should be available for inspection at the
National Association of Securities Dealers, Inc. 1735 K Street, N.W.,
Washington, D.C. 20006. The Commission also maintains a home page on the World
Wide Web that contains reports, proxy and information statements and other
information regarding registrants that file electronically. The address of such
site is http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited and reported upon by its independent
accounting firm and quarterly reports containing unaudited interim financial
information for the first three quarters of each year.
42
<PAGE> 44
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
TOTAL ENTERTAINMENT RESTAURANT CORP.
Report of Independent Auditors........................................................ F-2
Consolidated Balance Sheets as of February 7, 1997 and (Unaudited) as of March 25,
1997................................................................................ F-3
Unaudited Consolidated Statement of Income for the 47 Days Ended March 25, 1997 (Since
Inception).......................................................................... F-4
Unaudited Consolidated Statement of Stockholders' Equity for the 47 Days Ended March
25, 1997 (Since Inception).......................................................... F-5
Unaudited Consolidated Statement of Cash Flows for the 47 Days Ended March 25, 1997
(Since Inception)................................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
F&H RESTAURANT CORP.
Report of Independent Auditors........................................................ F-9
Consolidated Balance Sheet of December 31, 1996....................................... F-10
Consolidated Statements of Income for the 57 Days Ended December 31, 1996 and
(Unaudited) for the 51 Days Ended February 20, 1997................................. F-11
Consolidated Statements of Stockholders' Equity for the 57 Days Ended December 31,
1996 and (Unaudited) for the 51 Days Ended February 20, 1997........................ F-12
Consolidated Statements of Cash Flows for the 57 Days Ended December 31, 1996 and
(Unaudited) for the 51 Days Ended February 20, 1997................................. F-13
Notes to Consolidated Financial Statements............................................ F-14
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
Report of Independent Auditors........................................................ F-19
Combined Balance Sheets of December 31, 1995 and 1996................................. F-20
Combined Statements of Operations for the Years Ended December 31,
1994, 1995 and 1996................................................................. F-21
Combined Statements of Partners' Equity for the Years Ended December 31, 1994, 1995
and 1996............................................................................ F-22
Combined Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and
1996................................................................................ F-23
Notes to Combined Financial Statements................................................ F-24
BAILEY'S SPORTS GRILLE, INC.
Independent Auditors' Report.......................................................... F-27
Balance Sheets of December 26, 1995 and December 31, 1996............................. F-28
Statements of Income for the Years Ended December 27, 1994, December 26, 1995 and
December 31, 1996 and (Unaudited) for the 51 Days Ended February 20, 1997........... F-29
Statements of Stockholders' Equity for the Years Ended December 27, 1994, December 26,
1995 and December 31, 1996 and (Unaudited) for the 51 Days Ended February 20,
1997................................................................................ F-30
Statements of Cash Flows for the Years Ended December 27, 1994, December 26, 1995 and
December 31, 1996 and (Unaudited) for the 51 Days Ended February 20, 1997........... F-31
Notes to Financial Statements......................................................... F-32
</TABLE>
F-1
<PAGE> 45
REPORT OF INDEPENDENT AUDITORS
The Stockholders
Total Entertainment Restaurant Corp.
We have audited the accompanying balance sheet of Total Entertainment
Restaurant Corp., as of February 7, 1997. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Total Entertainment Restaurant
Corp. at February 7, 1997, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
March 10, 1997
Wichita, Kansas
F-2
<PAGE> 46
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 7, 1997 MARCH 25, 1997
---------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $1,000 $ 1,459,789
Accounts receivable -- affiliates............................ -- 99,664
Accounts receivable.......................................... -- 7,067
Inventories.................................................. -- 261,517
Preopening costs, net........................................ -- 124,883
Deferred taxes............................................... -- 100,194
Other current assets......................................... -- 211,249
------ ------------
Total current assets................................. -- 2,263,363
Property and equipment:
Land......................................................... -- 600,000
Buildings.................................................... -- 642,946
Leasehold improvements....................................... -- 2,773,417
Equipment.................................................... -- 1,961,541
Furniture & fixtures......................................... -- 1,295,938
------ ------------
-- 7,273,842
Less accumulated depreciation and amortization............... -- 126,493
------ ------------
-- 7,147,349
Other assets:
Goodwill, net of accumulated amortization of $57,416......... -- 4,682,384
Other assets................................................. -- 95,487
------ ------------
Total other assets........................................ -- 4,777,871
------ ------------
Total assets.............................................. $1,000 $ 14,188,583
====== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving note payable to bank............................... $ -- $ 10,835,695
Accounts payable............................................. -- 805,108
Accounts payable -- affiliates............................... -- 157,502
Accrued liabilities.......................................... -- 594,715
------ ------------
Total current liabilities................................. -- 12,393,020
Deferred income taxes.......................................... -- 175,726
Commitments.................................................... -- --
Stockholders' equity:
Preferred Stock, $.10 par value; 2,000,000 shares authorized;
none issued............................................... -- --
Common Stock, $.01 par value; 20,000,000 shares authorized,
8,000 shares issued and outstanding (8,000,000 at March
25, 1997)................................................. 80 80,000
Additional paid-in capital................................... 920 1,450,390
Retained earnings............................................ -- 89,447
------ ------------
Total stockholders' equity........................... -- 1,619,837
------ ------------
Total liabilities and stockholders' equity........... $1,000 $ 14,188,583
====== ============
</TABLE>
F-3
<PAGE> 47
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
47 DAYS ENDED
MARCH 25, 1997
(SINCE INCEPTION)
-----------------
<S> <C>
Sales:
Food and beverage........................................................... $ 1,388,266
Entertainment and other..................................................... 302,107
----------
Total net sales................................................... 1,690,373
Costs and expenses:
Cost of sales............................................................. 428,986
Entertainment and restaurant operating expenses........................... 726,785
Depreciation and amortization............................................. 115,585
----------
Entertainment and restaurant costs and expenses............................. 1,271,356
----------
Entertainment and restaurant operating income............................... 419,017
General and administrative expenses:
Related parties........................................................... 57,069
Other..................................................................... 131,918
----------
Income from operations...................................................... 230,030
Other income (expense):
Other income.............................................................. 85
Interest expense:
Related parties........................................................ (32,370)
Other.................................................................. (54,630)
----------
Income before provision for income taxes.................................... 143,115
Provision for income taxes.................................................. 53,668
----------
Net income.................................................................. $ 89,447
==========
</TABLE>
F-4
<PAGE> 48
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL RETAINED
NUMBER AMOUNT PAID-IN CAPITAL EARNINGS TOTAL
--------- ------- --------------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balance at February 7, 1997...... 8,000 $ 80 $ 920 $ -- $ 1,000
Common Stock cancelled
(unaudited)................. (8,000) (80) 80 -- --
Issuance of common stock
(unaudited)................. 8,000,000 80,000 1,449,390 -- 1,529,390
Net income (unaudited)......... -- -- -- 89,447 89,447
--------- ------- --------- ------- ---------
Balance at March 25, 1997
(unaudited).................... 8,000,000 $80,000 $ 1,450,390 $ 89,447 $1,619,837
========= ======= ========= ======= =========
</TABLE>
F-5
<PAGE> 49
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
47 DAYS ENDED
MARCH 25, 1997
(SINCE INCEPTION)
---------------------
<S> <C>
Operating activities:
Net Income.............................................................. 89,447
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 115,585
Deferred taxes....................................................... 4,974
Net change in operating assets and liabilities
Accounts receivable -- affiliate................................... (78,890)
Accounts receivable................................................ 54,379
Inventories........................................................ 12,597
Pre-opening costs.................................................. (34,952)
Other current assets............................................... (15,976)
Other assets....................................................... (7,099)
Accounts payable................................................... 618,905
Accounts payable -- affiliates..................................... 69,444
Accrued liabilities................................................ 46,548
---------
Net cash provided by operating activities....................... 874,962
Investing activities:
Purchases of property and equipment..................................... (180,336)
Cash of companies acquired in Exchange.................................. 733,804
---------
Net cash provided by investing activities....................... 553,468
Financing activities:
---------
Proceeds from revolving note payable to bank......................... 10,835,695
Payment of dividends payable to certain predecessor stockholders..... (1,675,332)
Payment of notes payable to stockholders............................. (4,530,071)
Payment of notes payable to affiliates............................... (233,000)
Payment of notes payable to banks.................................... (4,366,933)
Net cash provided by financing activities....................... 30,359
Net increase in cash and cash equivalents................................. 1,458,789
Cash and cash equivalents at beginning of period.......................... 1,000
---------
Cash and cash equivalents at end of period................................ 1,459,789
=========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................................. 30,359
Cash paid for income taxes.............................................. --
Supplemental schedule of noncash investing and financing activities:
The Company exchanged 8,000,000 shares of its common stock for all the
capital stock and remaining partnership interests as described in Note
1.
</TABLE>
F-6
<PAGE> 50
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 7, 1997
(INFORMATION WITH RESPECT TO DATA AFTER FEBRUARY 7, 1997 IS UNAUDITED)
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Total Entertainment Restaurant Corp. (the "Company") was organized as a
Delaware corporation on February 7, 1997, for the purpose of developing
entertainment restaurant locations. Effective February 20, 1997, the Company
entered into simultaneous stock exchange transactions and issued an aggregate of
8,000,000 shares of its common stock for all the common stock of Bailey's Sports
Grille, Inc., all the common stock of F&H Restaurant Corp. and the remaining 25%
minority interest in Fox & Hound Entertainment and Restaurant Group (the
"Exchange"). The Exchange among the Company and F&H Restaurant Corp. was
accounted for as a business combination using the purchase method of accounting
in accordance with APB No. 16. For accounting purposes, F&H Restaurant Corp. was
deemed to be the acquiring corporation since, upon the completion of the
Exchange, its former stockholders control 50% of the Company. Accordingly, the
assets and liabilities of F&H Restaurant Corp. were recorded by the Company on
the acquisition date using their historical amounts.
The Exchange among the Company and the owners of the remaining 25% of Fox &
Hound Entertainment and Restaurant Group and the owners of Bailey's Sports
Grille, Inc. was accounted for using the purchase method of accounting in
accordance with APB No. 16. The historical operations of the Company effectively
commenced on February 20, 1997, and include the operating results of the
companies acquired in the Exchange from that date. The acquired assets and
liabilities assumed have been recorded at their estimated fair values at the
Exchange date, with exception of the F&H Restaurant Corp. which was recorded at
its historical costs as described previously. The Exchange resulted in goodwill
of approximately $4,740,000, including approximately $3,448,000 previously
recorded by F&H Restaurant Corp. in its acquisition of its 75% partnership
interest in the Fox & Hound Entertainment and Restaurant Group, such goodwill is
being amortized over 20 years. The preliminary purchase price allocation to the
assets and liabilities acquired in the Exchange are summarized as follows:
<TABLE>
<S> <C>
Assets acquired
Current assets....................................................... $1,498,276
Property and equipment............................................... 7,039,719
Goodwill and other assets............................................ 4,789,911
----------
13,327,906
Less assumed liabilities:
Current liabilities.................................................. 822,428
Dividends payable to certain predecessor stockholders................ 1,675,332
Notes payable to stockholder......................................... 4,530,071
Notes payable to affiliates.......................................... 233,000
Notes payable to banks............................................... 4,366,933
Deferred taxes....................................................... 170,752
----------
Net assets acquired.................................................... $1,529,390
==========
</TABLE>
Upon formation, the Company issued 8,000 shares of common stock at $0.0125
per share. In connection with the Exchange, the shares issued originally were
canceled and 100,000 new shares of Common Stock were issued. In February 1997,
the Company's Board of Directors approved a 79 for 1 stock dividend. All share,
per share and stock option data included in the accompanying balance sheet,
notes thereto and elsewhere in the Prospectus have been restated to reflect the
stock dividend.
F-7
<PAGE> 51
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- - Unaudited Interim Financial Data
The interim financial data at March 25, 1997 and for the 47 days ended
March 25, 1997 (since inception) included herein, are unaudited and, in the
opinion of management, reflect all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of financial position
and the results of operations and cash flows for such interim period.
2. PREFERRED STOCK
The Company's Board of Directors has the authority to issue up to 2,000,000
shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preference
and the number of shares constituting any series or the designation of such
series.
3. STOCK OPTIONS
- 1997 Incentive and Nonqualified Stock Option Plan
In March 1997, the Board of Directors adopted a stock option plan
providing for incentive and nonqualified stock options pursuant to which
up to 1,500,000 shares of common stock will be available for issuance.
The Plan covers the Chairman of the Board, certain officers and key
employees. Concurrent with the effective date of the proposed initial
public offering, the Company will grant options to the Chairman of the
Board and certain key employees to purchase an aggregate of 800,348
shares of common stock at an exercise price per share equal to the
initial public offering price.
- Directors' Stock Option Plan
In March 1997, the Board of Directors adopted a stock option plan
providing for nondiscretionary grants to nonemployee directors pursuant
to which up to 150,000 shares of common stock will be available for
issuance. Concurrent with the effective date of the proposed public
offering, the Company will grant an option to directors to purchase an
aggregate of 50,000 shares of common stock at an exercise price per share
equal to the initial public offering price.
4. REVOLVING NOTE PAYABLE
On February 24, 1997, the Company borrowed approximately $10,800,000 under
a $12,000,000 revolving line of credit with Intrust Bank, N.A., Wichita, Kansas.
The proceeds from the borrowing were used to retire certain indebtedness assumed
in connection with the Exchange, including all notes payable to affiliates,
notes payable to banks and dividends payable to certain predecessor stockholders
representing substantially all of the undistributed S Corporation earnings
attributable to such stockholders prior to the Exchange. The line of credit
requires monthly payments of interest and is due August 1997. Interest accrues
at the bank's prime rate. The line of credit is secured by a guarantee from a
principal stockholder for up to $6,000,000.
F-8
<PAGE> 52
REPORT OF INDEPENDENT AUDITORS
The Stockholders
F&H Restaurant Corp.
We have audited the accompanying consolidated balance sheet of F&H
Restaurant Corp. as of December 31, 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for the 57 days ended
December 31, 1996 (since incorporation). These financial statements are the
responsibility of F&H Restaurant Corp.'s management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of F&H Restaurant
Corp. at December 31, 1996, and the consolidated results of its operations and
its cash flows for the 57 days ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
March 10, 1997
Wichita, Kansas
F-9
<PAGE> 53
F&H RESTAURANT CORP.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 254,463
Accounts receivable -- affiliates............................................. 28,343
Accounts receivable........................................................... 5,003
Inventories................................................................... 92,455
Deferred taxes................................................................ 47,289
Other current assets.......................................................... 25,758
----------
Total current assets....................................................... 453,311
Property and equipment:
Leasehold improvements........................................................ 1,150,312
Equipment..................................................................... 821,295
Furniture and fixtures........................................................ 151,416
----------
2,123,023
Less accumulated depreciation and amortization................................ 19,302
----------
2,103,721
Other assets:
Goodwill (net of accumulated amortization of $11,776)...................... 3,436,290
Other assets............................................................... 15,760
----------
Total other assets.................................................... 3,452,050
----------
Total assets.......................................................... $6,009,082
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to stockholder (Notes 1 and 3)................................... $1,500,000
Note payable to affiliates (Note 4)........................................... 233,000
Amounts due to sellers (Note 1)............................................... 3,030,071
Accounts payable.............................................................. 66,363
Accounts payable -- affiliates................................................ 15,128
Accrued liabilities:
Sales tax payable.......................................................... 70,057
Accrued payroll............................................................ 69,298
Insurance.................................................................. 29,765
Other...................................................................... 61,672
Current maturities -- long-term debt (Note 5)................................. 463,465
----------
Total current liabilities.................................................. 5,538,819
Long-term debt (Note 5)......................................................... --
Deferred taxes.................................................................. 67,057
Minority interest............................................................... 390,214
Commitments (Note 7)............................................................ --
Stockholders' equity:
Common stock, no par value; 1,000 shares authorized, issued and outstanding... 1,000
Retained earnings............................................................. 11,992
----------
Total stockholders' equity................................................. 12,992
----------
Total liabilities and stockholders' equity............................ $6,009,082
==========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 54
F&H RESTAURANT CORP.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE FOR THE
57 DAYS ENDED 51 DAYS ENDED
DECEMBER 31, FEBRUARY 20,
1996 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
Net sales.......................................................... $ 384,522 $ 858,312
Costs and expenses:
Costs of sales................................................... 115,725 245,371
Entertainment and restaurant operating expenses.................. 185,430 392,967
Depreciation and amortization.................................... 27,179 58,688
-------- --------
Entertainment and restaurant costs and expenses.................... 328,334 697,026
-------- --------
Entertainment and restaurant operating income...................... 56,188 161,286
General and administrative expenses:
Related parties.................................................. 15,797 30,187
Other............................................................ 4,337 5,647
-------- --------
Income from operations............................................. 36,054 125,452
Other income (expense):
Other income..................................................... 4,775 64
Interest expense:
Related parties............................................... (12,256) (63,250)
Other......................................................... (3,427) --
-------- --------
Income before income taxes and minority interest............ 25,146 62,266
Provision for income taxes (Note 8)................................ 3,181 10,440
Minority interest.................................................. 9,973 34,428
-------- --------
Net income......................................................... $ 11,992 $ 17,398
======== ========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE> 55
F&H RESTAURANT CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED
NUMBER AMOUNT EARNINGS TOTAL
------- ------ -------- -------
<S> <C> <C> <C> <C>
Balance at November 7, 1996........................... -- $ -- $ -- $ --
Issuance of common stock............................ 1,000 1,000 -- 1,000
Net income.......................................... -- -- 11,992 11,992
----- ------ ------- -------
Balance at December 31, 1996.......................... 1,000 $1,000 $ 11,992 $12,992
----- ------ ------- -------
Net income (unaudited).............................. -- -- 17,398 17,398
----- ------ ------- -------
Balance at February 20, 1997 (unaudited).............. 1,000 $1,000 $ 29,390 $30,390
===== ====== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE> 56
F&H RESTAURANT CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
FOR THE FOR THE
57 DAYS ENDED 51 DAYS ENDED
DECEMBER 31, FEBRUARY 20,
1996 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
Operating activities
Net income..................................................... $ 11,992 $ 17,398
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 31,156 58,688
Deferred taxes.............................................. 1,809 --
Minority interest in income of subsidiaries................. 9,973 34,428
Net change in operating assets and liabilities:
Accounts receivable....................................... 7,041 (21,767)
Inventories............................................... (414) 5,694
Other current assets...................................... 11,562 (47,506)
Other assets.............................................. -- 9,578
Accounts payable.......................................... (20,926) 89,453
Accrued liabilities....................................... 5,026 (80,287)
---------- ----------
Net cash provided by operating activities.............. 57,219 65,679
Investing activities
Payment for purchase of interest in Fox & Hound Entertainment
and Restaurant Group, net of cash acquired.................. (1,327,925) --
Purchases of property and equipment............................ (7,517) --
Proceeds from sales of property and equipment.................. -- 2,963
Other.......................................................... (1,000) --
---------- ----------
Net cash provided by (used in) investing activities......... (1,336,442) 2,963
Financing activities
Net proceeds from issuance of common stock..................... 1,000 --
Proceeds from notes payable -- stockholder..................... 1,500,000 --
Proceeds from note receivable -- partner....................... 42,322 --
Net proceeds from short term note payable to affiliate......... -- 5,232,515
Payment of notes payable -- stockholder........................ -- (1,500,000)
Payment of notes payable -- affiliates......................... -- (233,000)
Payment of amounts due to sellers.............................. -- (3,030,071)
Payment of long-term debt...................................... (9,636) (463,465)
---------- ----------
Net cash provided by financing activities................... 1,533,686 5,979
---------- ----------
Net increase in cash and cash equivalents........................ 254,463 74,621
Cash and cash equivalents at beginning of period................. -- 254,463
---------- ----------
Cash and cash equivalents at end of period....................... $ 254,463 $ 329,084
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest......................................... $ 11,628 $ 29,989
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE> 57
F&H RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION WITH RESPECT TO DATA AFTER DECEMBER 31, 1996 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS AND ACQUISITION
F&H Restaurant Corp. (FHRC) was organized as a Delaware corporation on
November 4, 1996, for the purpose of acquiring a 75% partnership interest in the
Fox & Hound Entertainment and Restaurant Group (FHERG). FHERG owns and operates
three entertainment restaurant locations in the state of Texas under the name of
"Fox & Hound English Pub and Grille." The acquisition was completed on December
6, 1996; thus, the accompanying consolidated financial statements include 25
days of operations of FHERG.
The acquisition was financed by a loan from a principal stockholder of FHRC
in the initial amount of $1,500,000 and an additional loan from such stockholder
of $3,030,071 in January 1997. The aggregate consideration paid by FHRC was
$4,568,995, including expenses associated with the purchase, consisting of
$1,538,924 in cash and a promissory note for $3,030,071 which was due January 2,
1997.
The acquisition has been accounted for as a purchase and, accordingly, the
acquired underlying assets and liabilities have been recorded at their estimated
fair values at the date of acquisition. The acquisition resulted in goodwill of
approximately $3,448,000 which is being amortized over 20 years. The preliminary
purchase price allocation to the assets and liabilities acquired are as follows:
<TABLE>
<S> <C>
Assets acquired
Current assets......................................... $ 388,913
Property and equipment................................. 2,115,506
Goodwill and other assets.............................. 3,504,158
----------
Total assets acquired............................... 6,008,577
----------
Liabilities assumed
Current liabilities.................................... 520,191
Long-term debt (including current portion)............. 473,101
Other.................................................. 66,049
----------
Total liabilities assumed........................... 1,059,341
----------
Net assets acquired...................................... 4,949,236
Minority interest........................................ 380,241
----------
Total purchase price allocated......................... $4,568,995
==========
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES
- - Consolidation
The accompanying financial statements include the accounts of FHRC and its
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
- - Cash and Cash Equivalents
FHRC considers cash and cash equivalents to include currency on hand,
demand deposits with banks or other financial institutions, and short-term
investments with maturities of three months or less when purchased. Cash and
cash equivalents are carried at cost which approximates fair value.
- - Inventories
Inventories consist of food and beverages, and are stated at the lower of
cost (first-in, first-out) or market.
F-14
<PAGE> 58
F&H RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
- - Property and Equipment
Property and equipment are stated at cost. Maintenance, repairs and
renewals which do not enhance the value of or increase the life of the assets
are expensed as incurred.
Leasehold improvements are amortized on the straight-line method over the
lesser of the maximum life of the lease or 20 years, or the estimated useful
lives of the assets. Equipment and furniture and fixtures are depreciated using
the straight-line method over seven years, which is the estimated useful life of
the assets. Depreciation expense for the period ended December 31, 1996 was
approximately $11,300.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. FHRC has adopted Statement 121 and,
based on current circumstances, believes there have been no impairments.
- - Goodwill
Goodwill represents the excess of the acquisition cost of the 75% interest
in FHERG over the fair value of its net assets at the date of acquisition and is
being amortized on a straight-line method over 20 years. The carrying value of
goodwill will be reviewed if the facts and circumstances suggest that it may be
impaired. If this review indicates that goodwill will not be recoverable, as
determined based on the undiscounted cash flows of the entity acquired over the
remaining amortization period, FHRC's carrying value of the goodwill will be
reduced by the estimated shortfall of cash flows.
- - 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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from estimates.
- - Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
- - Unaudited Interim Financial Data
The interim financial data for the 51 days ended February 20, 1997,
included herein, are unaudited and, in the opinion of management, reflect all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of financial position and the results of operations and cash
flows for such interim period.
F-15
<PAGE> 59
F&H RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
3. NOTE PAYABLE -- STOCKHOLDER
At December 31, 1996, FHRC had an outstanding note payable to a principal
stockholder for $1,500,000. This note is payable on demand and accrues interest
at the prime interest rate as published in the Wall Street Journal (8.25% at
December 31, 1996). In January of 1997, this note was increased by $3,030,071 to
pay the remaining amount due to sellers in the acquisition as described in Note
1. Subsequent to the Exchange Transaction (Note 9), this note was refinanced
with a note payable to Total Entertainment Restaurant Corp.
4. NOTE PAYABLE TO AFFILIATES
Note payable to affiliates represents notes to certain partners of FHERG
totaling $233,000 at December 31, 1996. These notes are payable on demand and
accrue interest at 10%. Subsequent to the Exchange Transaction (Note 9) in
February 1997, this note was refinanced with a note payable to Total
Entertainment Restaurant Corp.
5. LONG-TERM DEBT
Long-term debt at December 31, 1996 consisted of the following:
<TABLE>
<S> <C>
Installment loan to bank, payable in varying monthly payments, including interest
at the bank's base rate plus 2% (10.25% at December 31, 1996), due September
1999, secured by leasehold improvements and restaurant equipment and a guarantee
from a general partner.......................................................... $110,058
Installment loan to bank, payable in varying monthly payments, including interest
at the bank's base rate plus 1.5% (11.25% at December 31, 1996), due September
2000, secured by leasehold improvements and restaurant equipment and a guarantee
from several partners........................................................... 353,407
--------
463,465
Less current portion.............................................................. 463,465
--------
$ --
========
</TABLE>
Subsequent to the acquisition of FHRC as described in Note 9, the
installment notes payable were refinanced with a note payable to Total
Entertainment Restaurant Corp. Accordingly, the installment notes payable have
been classified as current portion of long-term debt.
6. RELATED PARTY TRANSACTIONS
FHRC utilizes an affiliate to provide certain accounting, computer
administrative services and certain management services. FHRC incurred fees of
$15,797 related to such services for the period ended December 31, 1996.
7. LEASES
FHRC leases two entertainment restaurant locations from affiliates and
another from a third party. These leases are noncancelable operating leases
having terms expiring between 1999 and 2000. The leases have renewal clauses of
5 to 20 years, exercisable at the option of the lessee. FHRC also leases various
office, entertainment and restaurant equipment under noncancelable operating
leases having terms from one to three years. Total rental expense for the period
ended December 31, 1996, was $19,066, including $17,786 involving related
parties.
F-16
<PAGE> 60
F&H RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
Minimum lease payments for the next five years and thereafter under
operating leases in effect at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
RELATED UNRELATED
FISCAL YEAR PARTIES PARTIES TOTAL
------------------------------------ -------- --------- --------
<S> <C> <C> <C>
1997................................ $193,416 $36,132 $229,548
1998................................ 178,416 36,132 214,548
1999................................ 178,416 10,588 189,004
2000................................ 163,548 -- 163,548
2001................................ -- -- --
Thereafter -- -- --
</TABLE>
8. INCOME TAXES
Significant components of the provision for income taxes are as follows:
<TABLE>
<S> <C>
Current:
Federal................................................... $ 318
State..................................................... 1,054
------
Total.................................................. 1,372
Deferred:
Federal................................................... 1,206
State..................................................... 603
------
Total.................................................. 1,809
------
Total income tax expense.......................... $3,181
======
</TABLE>
Significant components of FHRC's deferred tax assets and liabilities at
December 31, 1996, are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Tax over book basis of other assets...................... $47,289
Deferred tax liabilities:
Book over tax basis of property and equipment............ 889
Book over tax basis of goodwill and other assets......... 66,168
-------
67,057
-------
Net deferred tax liabilities.......................... $19,768
=======
</TABLE>
The reconciliation of income tax expense computed at the U.S. federal
statutory rate to the actual income tax expense for the period ended December
31, 1996, is:
<TABLE>
<CAPTION>
AMOUNT RATE
------- ----
<S> <C> <C>
Income tax expense at federal statutory rate........ $ 8,550 34%
State income taxes, net of federal benefit.......... 1,077 4
Tax credits......................................... (2,581) (10)
Effect of graduated tax rates....................... (4,778) (19)
Other............................................... 913 4
------- ---
Actual income tax expense........................... $ 3,181 13%
======= ===
</TABLE>
F-17
<PAGE> 61
F&H RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
9. EXCHANGE TRANSACTION
On February 20, 1997, the stockholders of FHRC completed an Exchange
Transaction whereby they exchanged all of their interests in FHRC's common stock
for common stock of Total Entertainment Restaurant Corp. Subsequent to the
acquisition of FHRC, the long-term installment note payable of $463,465, the
note payable to a stockholder of $4,530,071 and the note payable to affiliates
of $233,000 were refinanced with a short-term loan from Total Entertainment
Restaurant Corp. from funds it obtained from a revolving note payable to a bank.
The aggregate debt related to this refinancing was $5,226,536.
10. FAIR VALUES OF FINANCIAL INSTRUMENTS
The methods used by FHRC in estimating its fair value disclosures for
financial instruments are as follows:
Cash and Cash Equivalents -- The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Long-term Debt, Notes Payable, Notes Payable to Stockholder and Notes
Payable to Partners -- The carrying amount of FHRC's borrowings under its
short-term and long-term debt agreements approximates their fair value.
F-18
<PAGE> 62
REPORT OF INDEPENDENT AUDITORS
The Partners
Fox & Hound Entertainment and Restaurant Group
We have audited the accompanying combined balance sheets of Fox & Hound
Entertainment and Restaurant Group as of December 31, 1995 and 1996, and the
related combined statements of operations, partners' equity and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Fox & Hound Entertainment and
Restaurant Group's management. Our responsibility is to express an opinion on
these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 financial statements referred to above present fairly,
in all material respects, the combined financial position of Fox & Hound
Entertainment and Restaurant Group at December 31, 1995 and 1996, and the
combined results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
March 10, 1997
Wichita, Kansas
F-19
<PAGE> 63
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 280,519 $ 252,229
Accounts receivable............................................... 12,692 5,003
Accounts receivable -- affiliates................................. 27,343 27,343
Inventories....................................................... 75,718 92,455
Preopening costs, net............................................. 81,053 --
Other current assets.............................................. 44,108 25,758
---------- ----------
Total current assets........................................... 521,433 402,788
Property and equipment (Note 4):
Leasehold improvements............................................ 1,137,334 1,252,445
Equipment......................................................... 954,899 1,048,438
Furniture and fixtures............................................ 157,330 186,232
---------- ----------
2,249,563 2,487,115
Less accumulated depreciation and amortization.................... 154,590 383,394
---------- ----------
2,094,973 2,103,721
Other assets........................................................ 21,570 13,720
---------- ----------
Total assets.............................................. $2,637,976 $2,520,229
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Note payable (Notes 2 and 4)...................................... $ 445,439 $ --
Note payable -- partners (Note 3)................................. 163,000 233,000
Accounts payable.................................................. 138,007 66,363
Accrued liabilities:
Sales and gross receipts tax payable........................... 69,216 70,057
Payroll and related expenses................................... 86,428 69,298
Insurance...................................................... -- 29,765
Other.......................................................... 25,559 24,363
Current maturities -- long-term debt (Note 4)..................... 40,901 463,465
---------- ----------
Total current liabilities...................................... 968,550 956,311
Long-term debt (Note 4)............................................. 110,000 --
Commitments (Note 6)................................................ -- --
Partners' equity:
Partners' equity.................................................. 1,609,426 1,563,918
Less note receivable -- partner................................... (50,000) --
---------- ----------
Total partners' equity.............................................. 1,559,426 1,563,918
---------- ----------
Total liabilities and partners' equity.............................. $2,637,976 $2,520,229
========== ==========
</TABLE>
See notes to combined financial statements.
F-20
<PAGE> 64
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Net sales............................................... $729,800 $2,617,834 $5,506,697
Costs and expenses:
Costs of sales........................................ 245,737 824,089 1,721,088
Entertainment and restaurant operating expenses....... 455,933 1,390,982 2,759,146
Depreciation and amortization......................... 90,427 224,219 310,512
-------- ---------- ----------
Entertainment and restaurant costs and expenses......... 792,097 2,439,290 4,790,746
-------- ---------- ----------
Entertainment and restaurant operating income (loss).... (62,297) 178,544 715,951
General and administrative expenses:
Related parties....................................... 1,750 29,820 225,600
Other................................................. 19,343 39,524 70,416
-------- ---------- ----------
Income (loss) from operations........................... (83,390) 109,200 419,935
Other income (expense):
Other income.......................................... 4,308 15,384 23,370
Interest expense:
Related parties.................................... -- (6,398) (18,945)
Other.............................................. (5,559) (22,388) (59,868)
-------- ---------- ----------
(1,251) (13,402) (55,443)
-------- ---------- ----------
Net income (loss).................................. $(84,641) $ 95,798 $ 364,492
======== ========== ==========
</TABLE>
See notes to combined financial statements.
F-21
<PAGE> 65
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
COMBINED STATEMENTS OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
NOTE RECEIVABLE PARTNERS' TOTAL PARTNERS'
PARTNER EQUITY EQUITY
--------------- ---------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1993....................... $ -- $ -- $ --
Contributed capital.............................. -- 1,096,669 1,096,669
Net loss......................................... -- (84,641) (84,641)
-------- ---------- ----------
Balance at December 31, 1994....................... -- 1,012,028 1,012,028
Contributed capital.............................. (50,000) 750,000 700,000
Partners' distributions.......................... -- (248,400) (248,400)
Net income....................................... -- 95,798 95,798
-------- ---------- ----------
Balance at December 31, 1995....................... (50,000) 1,609,426 1,559,426
Partners' distributions.......................... -- (410,000) (410,000)
Proceeds from note receivable.................... 50,000 -- 50,000
Net income....................................... -- 364,492 364,492
-------- ---------- ----------
Balance at December 31, 1996....................... $ -- $1,563,918 $ 1,563,918
======== ========== ==========
</TABLE>
See notes to combined financial statements.
F-22
<PAGE> 66
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
COMBINED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Net income (loss)..................................... $ (84,641) $ 95,798 $ 364,492
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization...................... 90,427 224,219 310,512
Net change in operating assets and liabilities:
Accounts receivable.............................. (8,740) (31,295) 7,689
Inventories...................................... (31,524) (44,194) (16,737)
Preopening costs................................. (153,121) (87,818) --
Other current assets............................. (51,316) 7,208 18,350
Accounts payable................................. 7,767 (3,420) 62,016
Accrued liabilities.............................. 128,827 52,376 12,280
----------- ----------- -----------
Net cash provided by (used in) operating
activities.................................. (102,321) 212,874 758,602
Investing activities
Purchases of property and equipment................... (1,120,717) (995,186) (371,212)
Other................................................. (15,769) (5,971) 7,195
----------- ----------- -----------
Net cash used in investing activities.............. (1,136,486) (1,001,157) (364,017)
Financing activities
Capital contributions................................. 1,096,669 700,000 50,000
Proceeds from long-term debt.......................... 202,707 450,000 --
Proceeds from note payable -- partners................ 5,000 158,000 70,000
Payment of long-term debt............................. (10,000) (46,367) (132,875)
Partner distributions................................. -- (248,400) (410,000)
----------- ----------- -----------
Net cash provided by (used in) financing activities... 1,294,376 1,013,233 (422,875)
Net increase (decrease) in cash and cash
equivalents........................................ 55,569 224,950 (28,290)
Cash and cash equivalents at beginning of period...... -- 55,569 280,519
----------- ----------- -----------
Cash and cash equivalents at end of period............ $ 55,569 $ 280,519 $ 252,229
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest............................. $ 5,559 $ 24,426 $ 79,118
Supplemental schedule of non cash investing and
financing activities:
During 1996, the note payable of $445,439 was
refinanced by a long-term installment note
payable due September 2000.
</TABLE>
See notes to combined financial statements.
F-23
<PAGE> 67
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business Description
The accompanying combined financial statements include the historic assets,
liabilities and operations associated with the limited partnerships listed
below. The combined partnerships are collectively referred to as Fox & Hound
Entertainment and Restaurant Group (FHERG). Pursuant to an acquisition agreement
entered into on December 6, 1996, a 75% partnership interest was purchased from
each partner by F&H Restaurant Corp. All such limited partnerships have been
presented on a combined basis because they have common partners and management
and significant interrelated activities. All significant intercompany
transactions have been eliminated.
<TABLE>
<CAPTION>
ENTITY STORE OPENING DATE
--------------------------------- ------------------
<S> <C>
Midway Entertainment, Ltd........ November 30, 1995
505 Entertainment, Ltd........... September 10, 1994
North Collins Entertainment,
Ltd............................ August 29, 1994
</TABLE>
Each of the above entities operates a stand-alone entertainment restaurant
location in the state of Texas under the name of "Fox & Hound English Pub and
Grille."
Significant Accounting Policies
- - Cash and Cash Equivalents
FHERG considers cash and cash equivalents to include currency on hand,
demand deposits with banks or other financial institutions, and short-term
investments with maturities of three months or less when purchased. Cash and
cash equivalents are carried at cost which approximates fair value.
- - Inventories
Inventories consist of food and beverages, and are stated at the lower of
cost (first-in, first-out) or market.
- - Property and Equipment
Property and equipment are stated at cost. Maintenance, repairs and
renewals which do not enhance the value of or increase the life of the assets
are expensed as incurred.
Leasehold improvements are amortized on the straight-line method over the
lesser of the maximum life of the lease or 20 years, or the estimated useful
lives of the assets. Equipment and furniture and fixtures are depreciated using
the straight-line method over seven years, which is the estimated useful life of
the assets. Depreciation expense incurred for the years ended December 31, 1994,
1995 and 1996 was approximately $35,700, $122,000 and $128,900, respectively.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. FHERG adopted Statement 121 and,
based on current circumstances, believes there have been no impairments.
F-24
<PAGE> 68
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
- - 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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from estimates.
- - Pre-opening Costs
Labor costs and costs of hiring and training personnel and certain other
costs relating to opening new entertainment restaurant locations are capitalized
until the entertainment restaurant location is open and then amortized over the
subsequent 12 months. Accumulated amortization related to such entertainment
restaurant locations was approximately $156,700 and $237,800 at December 31,
1995 and 1996, respectively.
- - Income Taxes
The entities comprising FHERG are limited partnerships and are taxed as
such pursuant to the Internal Revenue Code and, as such, are not individually
subject to federal or state income taxes because their taxable income or loss
accrues to the individual partners or members. Accordingly, the accompanying
combined financial statements do not include a provision for income taxes.
2. NOTE PAYABLE
At December 31, 1995, FHERG had an available line of credit with a bank of
up to $450,000. Interest was payable on the outstanding balance at the bank's
base rate plus 2%. Borrowings under the line of credit were guaranteed by
several partners of FHERG. The note matured in May of 1996 and was refinanced
with an installment loan with the bank (see Note 4).
3. NOTE PAYABLE TO PARTNERS
Note payable to partners represents notes to certain partners totaling
$163,000 and $233,000 at December 31, 1995 and 1996, respectively. These notes
are payable on demand and accrue interest at 10%.
4. LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Installment loan to bank, payable in varying monthly payments,
including interest at the bank's base rate plus 2% (10.25% at
December 31, 1996), due September 1999, secured by leasehold
improvements and restaurant equipment and a guarantee from a general
partner.............................................................. $150,901 $110,058
Installment loan to bank, payable in varying monthly payments,
including interest at the bank's base rate plus 1.5% (11.25% at
December 31, 1996), due September 2000, secured by leasehold
improvements and restaurant equipment and a guarantee from several
partners............................................................. -- 353,407
-------- --------
150,901 463,465
Less current portion................................................... 40,901 463,465
-------- --------
$110,000 $ --
======== ========
</TABLE>
In connection with the acquisition of FHERG as described in Note 8, the
installment notes payable were refinanced with a short-term note payable to
Total Entertainment Restaurant Corp. Accordingly, the installment notes payable
have been classified as current portion of long-term debt.
F-25
<PAGE> 69
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. RELATED PARTY TRANSACTIONS
FHERG utilizes certain affiliates to provide accounting, computer,
administrative services and certain management services. The Company incurred
fees of $1,750, $29,820 and $225,600 related to such services for fiscal years
1994, 1995 and 1996, respectively.
6. LEASES
FHERG leases two entertainment restaurant locations from affiliates and
another from a third party. These leases are noncancelable operating leases
having terms expiring between 1999 and 2000. The leases have renewal clauses of
5 to 20 years, exercisable at the option of the lessee. FHERG also leases
various office, entertainment and restaurant equipment under noncancelable
operating leases having terms from one to three years. Total rental expense for
the years ended December 31, 1994, 1995 and 1996, was $35,886, $123,546 and
$306,280, respectively, including $22,425, $77,600 and $260,400, respectively,
involving related parties.
Minimum lease payments for the next five years and thereafter under
operating leases in effect at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
RELATED UNRELATED
FISCAL YEAR PARTIES PARTIES TOTAL
-------------------------------------------- -------- --------- --------
<S> <C> <C> <C>
1997........................................ $193,416 $36,132 $229,548
1998........................................ 178,416 36,132 214,548
1999........................................ 178,416 10,588 189,004
2000........................................ 163,548 -- 163,548
2001........................................ -- -- --
Thereafter.................................. -- -- --
</TABLE>
7. FAIR VALUES OF FINANCIAL INSTRUMENTS
The methods used by FHERG in estimating its fair value disclosures for
financial instruments are as follows:
Cash and Cash Equivalents -- The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Long-term Debt, Notes Payable and Notes Payable -- Partners -- The carrying
amount of FHERG's borrowings under its short-term and long-term debt agreements
approximates their fair value.
8. EXCHANGE TRANSACTION
On February 20, 1997, the partners of FHERG completed an Exchange
Transaction whereby they exchanged all of their interests for common stock of
Total Entertainment Restaurant Corp. Subsequent to the Exchange Transaction,
long-term installment notes payable of $463,465 were refinanced with a
short-term loan from Total Entertainment Restaurant Corp. from funds it obtained
from a revolving note payable to a bank.
F-26
<PAGE> 70
INDEPENDENT AUDITORS' REPORT
Board of Directors
Bailey's Sports Grille, Inc.
Charlotte, North Carolina
We have audited the accompanying balance sheets of Bailey's Sports Grille,
Inc. ("Bailey's") as of December 26, 1995 and December 31, 1996, and the related
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of Bailey's management. Our responsibility is to express an
opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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, such financial statements present fairly, in all material
respects, the financial position of Bailey's as of December 26, 1995 and
December 31, 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
March 11, 1997
F-27
<PAGE> 71
BAILEY'S SPORTS GRILLE, INC.
BALANCE SHEETS
DECEMBER 26, 1995 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................. $ 326,068 $ 1,039,532
Accounts receivable.............................................. 3,832 9,263
Inventories...................................................... 91,548 136,724
Pre-opening costs, net (Note 2).................................. 67,057 84,101
Prepaid expenses................................................. 49,830 90,904
---------- -----------
Total current assets..................................... 538,335 1,360,524
---------- -----------
PROPERTY AND EQUIPMENT:
Land............................................................. -- 600,000
Buildings........................................................ -- 650,012
Leasehold improvements........................................... 884,858 1,434,856
Restaurant equipment............................................. 1,094,508 1,621,071
Furniture and equipment.......................................... 939,833 1,180,642
Computer equipment and software.................................. 198,329 284,499
Vehicles......................................................... 8,900 28,101
---------- -----------
Total.................................................... 3,126,428 5,799,181
Less accumulated depreciation and amortization................... (732,813) (1,187,513)
---------- -----------
Property and equipment, net.............................. 2,393,615 4,611,668
---------- -----------
OTHER ASSETS, NET (Note 2)......................................... 14,138 87,189
---------- -----------
TOTAL.............................................................. $2,946,088 $ 6,059,381
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................. $ 18,749 $ 143,142
Accrued liabilities:
Payroll and related expenses.................................. 88,717 164,671
Sales tax payable............................................. 37,285 67,219
Interest...................................................... 4,128 25,350
Other......................................................... 68,204 142,374
Long-term debt to stockholders, current portion.................. 287,106 3,760,381
---------- -----------
Total current liabilities................................ 504,189 4,303,137
---------- -----------
LONG-TERM DEBT TO STOCKHOLDERS (Note 4)............................ 1,532,252 --
---------- -----------
COMMITMENTS (Note 5)
STOCKHOLDERS' EQUITY (Note 1):
Common stock of combined companies as of December 26, 1995....... 42,440 --
Common stock, no par value, 100,000 shares authorized, 10,000
issued and outstanding at December 31, 1996................... -- 42,880
Additional paid-in capital....................................... 20,160 39,720
Retained earnings................................................ 867,047 1,673,644
---------- -----------
Total.................................................... 929,647 1,756,244
Less note receivable -- stockholder (Note 3)..................... (20,000) --
---------- -----------
Total stockholders' equity............................... 909,647 1,756,244
---------- -----------
TOTAL.............................................................. $2,946,088 $ 6,059,381
========== ===========
</TABLE>
See notes to financial statements.
F-28
<PAGE> 72
BAILEY'S SPORTS GRILLE, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED FOR THE
---------------------------------------------- 51 DAYS ENDED
DECEMBER 27, DECEMBER 26, DECEMBER 31, FEBRUARY 20,
1994 1995 1996 1997
------------ ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES:
Food and beverage.................... $2,244,626 $4,262,630 $7,420,320 $ 1,202,905
Gaming and vending................... 683,857 1,070,891 1,892,075 333,576
----------- ----------- ----------- -----------
Total........................ 2,928,483 5,333,521 9,312,395 1,536,481
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales........................ 754,072 1,410,085 2,456,763 392,693
Operating expenses................... 1,377,053 2,400,773 3,773,007 697,543
General and administrative 198,949
expenses.......................... 312,474 491,693 919,112
Depreciation and amortization........ 168,605 304,460 454,700 98,258
----------- ----------- ----------- -----------
Total........................ 2,612,204 4,607,011 7,603,582 1,387,443
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS................. 316,279 726,510 1,708,813 149,038
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense..................... (56,299) (125,120) (237,002) (40,510)
Other income (expense)............... (10,086) 1,041 29,824 --
----------- ----------- ----------- -----------
Total........................ (66,385) (124,079) (207,178) (40,510)
----------- ----------- ----------- -----------
NET INCOME............................. $ 249,894 $ 602,431 $1,501,635 $ 108,528
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
F-29
<PAGE> 73
BAILEY'S SPORTS GRILLE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON ADDITIONAL RETAINED NOTES
STOCK PAID-IN EARNINGS RECEIVABLE-
(NOTE 1) CAPITAL (DEFICIT) STOCKHOLDER TOTAL
------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 28, 1993...... $21,000 $ 600 $ 395,722 $ -- $ 417,322
Net income.................... -- -- 249,894 -- 249,894
Issuance of common stock...... 1,000 -- -- -- 1,000
Stockholder distributions..... -- -- (95,000) -- (95,000)
------- ------- ----------- -------- -----------
BALANCE, DECEMBER 27, 1994...... 22,000 600 550,616 -- 573,216
Net income.................... -- -- 602,431 -- 602,431
Issuance of common stock...... 20,440 19,560 -- (20,000) 20,000
Stockholder distributions..... -- -- (286,000) -- (286,000)
------- ------- ----------- -------- -----------
BALANCE, DECEMBER 26, 1995...... 42,440 20,160 867,047 (20,000) 909,647
Net income.................... -- -- 1,501,635 -- 1,501,635
Issuance of common stock...... 440 19,560 -- (20,000) --
Repayment of notes
receivable --
stockholder................ -- -- -- 40,000 40,000
Stockholder distributions..... -- -- (695,038) -- (695,038)
------- ------- ----------- -------- -----------
BALANCE, DECEMBER 31, 1996...... 42,880 39,720 1,673,644 -- 1,756,244
Net income (unaudited)........ -- -- 108,528 -- 108,528
Stockholder distributions
(unaudited)................ -- -- (1,984,203) -- (1,984,203)
------- ------- ----------- -------- -----------
BALANCE, FEBRUARY 20, 1997
(unaudited)................... $42,880 $39,720 $ (202,031) -- $ (119,431)
======= ======= =========== ======== ===========
</TABLE>
See notes to financial statements.
F-30
<PAGE> 74
BAILEY'S SPORTS GRILLE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------ FOR THE
DECEMBER 27, DECEMBER 26, DECEMBER 31, 51 DAYS ENDED
1994 1995 1996 FEBRUARY 20,
------------ ------------ ------------ 1997
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 249,894 $ 602,431 $ 1,501,635 $ 108,528
------------ ------------ ------------ -------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization...... 168,605 304,460 578,171 98,258
(Increase) decrease in accounts
receivable....................... 74,607 2,710 (5,431) 1,617
Increase in inventories............ (15,782) (45,399) (45,176) (50,629)
Increase in preopening costs....... (6,860) (60,197) (138,157) (43,767)
Increase in prepaid expenses and
other current assets............. (5,665) (31,499) (41,074) (11,905)
(Increase) decrease in other
assets........................... 61,267 (9,881) (75,409) 4,939
Increase (decrease) in accounts
payable.......................... (51,102) (427) 124,393 (108,945)
Increase (decrease) in accrued
liabilities...................... 50,787 112,441 191,280 (32,313)
------------ ------------ ------------ -------------
Net adjustments............... 275,857 272,208 588,597 (142,744)
------------ ------------ ------------ -------------
Net cash provided by (used in)
operating activities........ 525,751 874,639 2,090,232 (34,216)
------------ ------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES --
Capital expenditures.................. (1,063,392) (1,405,076) (2,672,753) (459,192)
------------ ------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings.................. 509,000 1,177,676 2,745,799 --
Payments on long-term debt............ (229,190) (235,358) (794,776) (3,760,381)
Distributions to stockholders......... (95,000) (286,000) (695,038) (1,984,203)
Note payable to parent................ -- -- -- 5,603,181
Repayment of notes receivable --
stockholder........................ 1,000 -- 40,000 --
------------ ------------ ------------ -------------
Net cash provided by (used in)
financing activities........ 185,810 656,318 1,295,985 (141,403)
------------ ------------ ------------ -------------
NET INCREASE (DECREASE) IN CASH......... (351,831) 125,881 713,464 (634,812)
CASH, BEGINNING OF YEAR................. 552,018 200,187 326,068 1,039,532
------------ ------------ ------------ -------------
CASH, END OF YEAR....................... $ 200,187 $ 326,068 $ 1,039,532 $ 404,720
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -- Cash paid during the
year for interest..................... $ 52,369 $ 143,588 $ 214,754 $ 65,860
NONCASH FINANCING ACTIVITIES -- In 1995,
Bailey's converted $20,000 of notes
payable to stockholders to common
stock representing the initial
capitalization of one new store.
</TABLE>
See notes to financial statements.
F-31
<PAGE> 75
BAILEY'S SPORTS GRILLE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 27, 1994, DECEMBER 26, 1995 AND DECEMBER 31, 1996
(INFORMATION WITH RESPECT TO DATA AFTER DECEMBER 31, 1996 IS UNAUDITED)
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Bailey's Sports Grille, Inc. ("Bailey's") operates eight entertainment
restaurant locations in North Carolina, South Carolina, Tennessee and Arkansas
under the name Bailey's Sports Grille. Bailey's was formed pursuant to a merger
of eight separate corporate entities in August 1996, each operating as a
Bailey's Sports Grille entertainment restaurant location. No change in relative
ownership interests occurred as a result of this merger, and therefore, no
change in basis was recorded relative to any combining company's assets and
liabilities. The stated value of Bailey's stock upon formation was $42,440, an
amount equal to the combined par value of the predecessor combined entities.
From January 1995 through the August 1996 merger, the separate entities had
common ownership and management and significant interrelated activities. As
such, they were combined in the accompanying financial statements for that
period. All significant intercompany accounts have been eliminated for fiscal
years 1994, 1995 and 1996.
The following summarizes the entities whose accounts are included in the
accompanying combined financial statements as of December 27, 1994 and December
26, 1995:
<TABLE>
<CAPTION>
1994 1995
----------------- ----------------
PAR VALUE/ SHARES SHARES PAR SHARES PAR
NAME OF ENTITY SHARE AUTHORIZED ISSUED VALUE ISSUED VALUE
- --------------------------------------- ---------- ---------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Charlotte Billiards Club, Inc. ........ $1.00 100,000 10,000 $10,000 10,200 $10,200
Creative Billiards, Inc. .............. $1.00 100,000 10,000 10,000 10,200 10,200
Bailey's of Greenville, Inc. .......... $0.10 10,200 10,000 1,000 10,200 1,020
Bailey's of Nashville, Inc. ........... $1.00 100,000 -- -- 10,000 10,000
Bailey's of Knoxville, Inc. ........... $1.00 100,000 -- -- 10,000 10,000
Bailey's of North Little Rock, Inc. ... $1.00 1,020 1,000 1,000 1,020 1,020
------- -------
$22,000 $42,440
======= =======
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES -- Inventories, which consist of food, beverage, and
merchandise, are reported at the lower of cost or market determined on the
first-in, first-out method.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost. Repair
and maintenance costs which do not enhance the value of, or increase the useful
life of, the assets are expensed as incurred. Depreciation is calculated using
the straight-line method over the following estimated useful service lives:
<TABLE>
<S> <C>
Building......................................................... 30 years
Restaurant Equipment............................................. 7 years
Furniture and equipment.......................................... 7 years
Computer equipment............................................... 5 years
Vehicles......................................................... 3 years
</TABLE>
Leasehold improvements are amortized on the straight-line method over the
lesser of 20 years or the estimated useful lives of the assets.
PRE-OPENING COSTS -- Labor costs and certain other incremental costs
relating to opening new entertainment restaurant locations are capitalized until
the store is open and then amortized over the subsequent twelve months. The net
carrying value of pre-opening costs at December 27, 1994, December 26, 1995 and
December 31, 1996 was $6,860, $67,057 and $84,101, respectively. Accumulated
amortization was $14,839, $55,510 and $174,005 at December 27, 1994, December
26, 1995 and December 31, 1996, respectively.
F-32
<PAGE> 76
BAILEY'S SPORTS GRILLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ORGANIZATION COSTS -- Legal and professional costs and other costs related
to corporate organization are capitalized and then amortized on a straight-line
basis over five years. The net carrying value of organization costs and
accumulated amortization at December 31, 1996 was $53,749 and $4,812,
respectively. No such organization costs were capitalized in 1994 and 1995.
FISCAL YEAR -- Bailey's fiscal year ends on the last Tuesday before
December 31, with both 1994 and 1995 representing 52 weeks of operations and
1996 representing 53 weeks.
INCOME TAX STATUS -- Bailey's has elected S corporation status for income
tax purposes. As such, income taxes on earnings of Bailey's are the
responsibility of the shareholders individually and, accordingly, are not
reflected in the accompanying financial statements. The separate entities which
were merged into Bailey's in August 1996 also had elected S corporation status.
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.
RECLASSIFICATIONS -- Certain amounts in the 1994 and 1995 financial
statements have been reclassified to conform to the 1996 financial statement
presentation.
UNAUDITED INTERIM FINANCIAL DATA -- The interim financial data for the 51
days ended February 20, 1997, included herein, are unaudited and, in the opinion
of management, reflect all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of financial position and the
results of operations and cash flows for such interim period.
3. NOTES RECEIVABLE -- STOCKHOLDER
In March 1995 and January 1996, Bailey's issued 620 shares of common stock
to an individual in return for notes receivables totaling $40,000, with interest
at 8-1/2% per year. In June 1996, the individual sold all of his shares to two
existing stockholders and repaid the outstanding notes receivable to Bailey's in
full. At December 26, 1995, one of these notes in the amount of $20,000 is shown
as a reduction of stockholders' equity.
4. FINANCING ARRANGEMENTS
Bailey's stockholders had an unsecured financing arrangement with a bank
that provided for total availability of $5,100,000 to be used to establish six
entertainment restaurant locations at $700,000 each and $900,000 to finance the
purchase of property related to one additional entertainment restaurant
location. Bailey's received the proceeds under this financing arrangement when
executed, and established a corresponding note payable to stockholders. The
original repayment terms and interest rate charged for this stockholder debt
represented the same terms as the stockholder bank loan. Amounts payable to
stockholders under this arrangement totaled $388,040, $1,204,544 and $3,667,187
at December 27, 1994, December 26, 1995 and December 31, 1996, respectively.
F-33
<PAGE> 77
BAILEY'S SPORTS GRILLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of amounts payable under all financing
arrangements at December 26, 1995 and December 31, 1996:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Stockholder notes, refinanced in 1997......................... $1,204,544 $3,667,187
Other amounts advanced by stockholders........................ 614,814 93,194
---------- ----------
1,819,358 3,760,381
Less current portion.......................................... 287,106 3,760,381
---------- ----------
Long-term portion............................................. $1,532,252 $ --
========== ==========
</TABLE>
In connection with the February 20, 1997 acquisition of Bailey's as
described in Note 7, the stockholder notes have been refinanced with a
short-term loan from Total Entertainment Restaurant Corp. Accordingly, the
stockholder notes have been classified within current liabilities as of December
31, 1996.
In February 1997, the other amounts advanced by stockholders were repaid in
full, and as such, have been classified within current liabilities as of
December 31, 1996.
5. OPERATING LEASES
Bailey's leases of entertainment restaurant locations have been classified
as operating leases. Original lease terms range from 3 to 5 years, but all have
renewal options which cover periods ranging from 6 to 27 years. The lease
agreements provide for minimum rental payments or a rental payment based upon a
percentage of sales, whichever is greater. For the years ended December 27,
1994, December 26, 1995, December 31, 1996 and for the 51 days ended February
20, 1997, (unaudited), no contingent rental expense was incurred.
Future payments under all noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR LEASES
----------------------------------------------------------------- ----------
<S> <C>
1997............................................................. $ 609,056
1998............................................................. 548,333
1999............................................................. 361,477
2000............................................................. 211,259
2001............................................................. 144,143
Thereafter....................................................... 532,044
----------
Total....................................................... $2,406,312
==========
</TABLE>
Total lease expense for the years ended December 27, 1994, December 26,
1995, December 31, 1996 and for the 51 days ended February 20, 1997 (unaudited)
was $230,203, $322,863, $455,192 and $71,776, respectively.
6. RELATED PARTY TRANSACTIONS
During 1996, Bailey's purchased $72,110 of inventory from a company which
is owned by a stockholder. Amounts payable to this company totaled $11,192 at
December 31, 1996.
7. SUBSEQUENT EVENTS
On February 20, 1997, all of the outstanding shares of stock of Bailey's
were acquired in an exchange of stock with Total Entertainment Restaurant Corp.,
a holding company formed to own and operate entertainment restaurant location.
Subsequent to this transaction, Bailey's distributed $1,984,203 to its previous
shareholders, of which $1,675,332 was funded through a loan from Total
Entertainment Restaurant Corp. Additionally, Total Entertainment Restaurant
Corp. refinanced $3,913,118 of stockholder notes with a short-term loan (see
Note 4).
*******
F-34
<PAGE> 78
===================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations in connection with this Offering
other than those contained in this Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or by the Underwriters. This Prospectus does not constitute an
offer to sell or solicitation of an offer to buy any security other than the
shares of Common Stock to which it relates or an offer to sell or a solicitation
of any person in any jurisdiction in which such an offer or solicitation would
be unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or that the
information herein is correct as of any time subsequent to the date of this
Prospectus.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 6
Use of Proceeds..................... 10
Dividend Policy..................... 10
Capitalization...................... 11
Dilution............................ 12
Selected Historical Financial
Data.............................. 13
Pro Forma Combined Condensed
Statements of Operations.......... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 18
Business............................ 23
Management.......................... 30
Certain Transactions................ 35
Principal Stockholders.............. 37
Description of Capital Stock........ 38
Shares Eligible For Future Sale..... 39
Underwriting........................ 40
Legal Matters....................... 41
Experts............................. 41
Available Information............... 42
Index to Financial Statements....... F-1
</TABLE>
----------------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock whether or not participating
in the distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
===================================================
===================================================
2,100,000 SHARES
TOTAL ENTERTAINMENT
RESTAURANT CORP.
COMMON STOCK
----------------------------
PROSPECTUS
----------------------------
MONTGOMERY SECURITIES
, 1997
===================================================
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses (other than selling
commissions and other fees paid to the Underwriters) which will be paid by the
Registrant in connection with the issuance and distribution of the securities
being registered. With the exception of the registration fee and the NASD filing
fee, all amounts shown are estimates.
<TABLE>
<S> <C>
Registration fee........................................................ $ 7,666.67
NASD filing fee......................................................... $ 3,030.00
Nasdaq listing expenses................................................. $ 42,500.00
Blue sky fees and expenses (including legal and filing fees)............ $ 10,000.00
Printing expenses (other than stock certificates)....................... $110,000.00
Printing and engraving of stock certificates............................ $ 2,000.00
Legal fees and expenses (other than Blue sky)........................... $175,000.00
Accounting fees and expenses............................................ $280,000.00
Transfer Agent and Registrar fees and expenses.......................... $ 10,000.00
Miscellaneous expenses.................................................. $ 84,803.33
-----------
Total......................................................... $725,000.00
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of the Registrant provides that the
Registrant shall indemnify to the extent permitted by Delaware law any person
whom it may indemnify thereunder, including directors, officers, employees and
agents of the Registrant. Such indemnification (other than an order by a court)
shall be made by the Registrant only upon a determination that indemnification
is proper in the circumstances because the individual met the applicable
standard of conduct. Advances for such indemnification may be made pending such
determination. Such determination shall be made by a majority vote of a quorum
consisting of disinterested directors, by independent legal counsel or by the
stockholders. In addition, the Registrant's Certificate of Incorporation
eliminates, to the extent permitted by Delaware law, personal liability of
directors to the Registrant and its stockholders for monetary damages for breach
of fiduciary duty as directors.
The Registrant's authority to indemnify its directors and officers is
governed by the provisions of Section 145 of the Delaware General Corporation
Law, as follows:
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to
II-1
<PAGE> 80
procure a judgment in its favor by reason of the fact that he is or was
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation
and except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made
(1) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2)
if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses incurred by an officer or director in defending a civil
or criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition or such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in this
section. Such expenses incurred by other employees and agents may be paid
upon such terms and conditions, if any, as the board of directors deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any by, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this section.
(h) For purposes of this section, references to the "corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had the power and authority to indemnify its directors,
officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position
under this section with respect to the resulting or surviving corporation
as he would have with respect to such constituent corporation if its
separate existence had continued.
II-2
<PAGE> 81
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans, references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan, and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee, or agent with respect
to any employee benefit plan, its participants or beneficiaries, and a
person who acted in good faith and in a manner reasonably believed to be in
the interest of the participants and beneficiaries of any employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Registrant has agreed to indemnify the Underwriters
and the Underwriters have agreed to indemnify the Registrant and its directors,
officers and controlling persons against certain civil liabilities that may be
incurred in connection with the Offering, including certain liabilities under
the Securities Act of 1933, as amended (the "Securities Act").
The Registrant has entered into Indemnification Agreements with each of its
directors and officers whereby it has agreed to indemnify each director and
officer from and against any and all expenses, losses, claims, damages and
liability incurred by such director or officer for or as a result of action
taken or not taken while such director was acting in his capacity as a director,
officer, employee or agent of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On February 20, 1997, the Company entered into an Exchange Agreement with
the stockholders of four corporations (the "Subsidiary Corporations,") and
certain limited partners of four Texas limited partnerships (the "Subsidiary
Limited Partnerships"). Pursuant to the Exchange, the Company became the owner
of the eight then-existing Bailey's entertainment restaurants and the three Fox
& Hound entertainment restaurants. The Company issued 8,000,000 shares of its
Common Stock in exchange for all of the outstanding stock of the Subsidiary
Corporations and certain outstanding limited partnership interests of the
Subsidiary Limited Partnerships not owned by the Subsidiary Corporations. The
Subsidiary Corporations and Subsidiary Limited Partnerships thereby became
wholly-owned subsidiaries of the Company. The transaction constituted an
exchange of property under Section 351 of the Internal Revenue Code of 1986, as
amended. There were no underwriting discounts or commissions paid in connection
with the issuance of any of these securities. The issuance of these securities
are claimed to be exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended, as transactions by an Issuer not involving a
public offering. The securities were issued to persons who purchased with an
investment intent and not with the intent to distribute such securities. In
addition, there are restrictions on their ability to transfer the securities.
These persons had a pre-existing relationship with the Company and are
sophisticated persons with substantial investment experience. All certificates
representing the shares have been properly legended.
II-3
<PAGE> 82
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Exhibits:
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
----------- -------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.*
2.1 -- Form of Stock for Stock Exchange Agreement between the Registrant, the
Shareholders of F&H Restaurant Corp., Fox & Hound, Inc., Fox & Hound II, Inc.
and Bailey's Sports Grille, Inc. and Certain Limited Partners of N. Collins
Entertainment, Ltd., 505 Entertainment, Ltd., Midway Entertainment, Ltd. and
F&H Dallas, L.P., dated February 20, 1997.
3.1 -- Certificate of Incorporation of the Registrant.
3.1.1 -- Amendment to the Certificate of Incorporation of the Registrant.*
3.2 -- By-laws of the Registrant.
4.1 -- Specimen Certificate of the Registrant's Common Stock.*
5.1 -- Opinion of Olshan Grundman Frome & Rosenzweig LLP.*
10.1 -- Form of Services Agreement between the Registrant and Coulter Enterprises,
Inc.*
10.2 -- Form of Employment Agreement between the Registrant and Gary M. Judd.*
10.3 -- Form of Employment Agreement between the Registrant and James K. Zielke.*
10.4 -- Form of 1997 Incentive and Nonqualified Stock Option Plan of the Registrant.
10.5 -- Form of 1997 Directors' Stock Option Plan of the Registrant.
10.6 -- Form of Indemnification Agreement for officers and directors of the Registrant.
10.7 -- Confidentiality and Non-Competition Agreement among F&H Dallas, L.P., Midway
Entertainment, Ltd., N. Collins Entertainment, Ltd., 505 Entertainment, Ltd.
and Jamie B. Coulter, dated December 6, 1996.
10.8 -- Non-Competition, Confidentiality and Non-Solicitation Agreement between the
Registrant and Dennis L. Thompson, dated February 20, 1997.
10.9 -- Non-Competition, Confidentiality and Non-Solicitation Agreement between the
Registrant and Thomas A. Hager, dated February 20, 1997.
10.10 -- Lease by and between Real Alchemy, I, L.P. and Midway Entertainment, Ltd.,
dated June 1, 1995.
10.11 -- First Amendment to Lease by and between Real Alchemy I, L.P. and Midway
Entertainment, Ltd., dated February 20, 1996.
10.12 -- Amendment to Lease by and between Real Alchemy I, L.P. and Midway
Entertainment, Ltd., dated December 6, 1996.
10.13 -- Lease by and between 505 Center, L.P. and 505 Entertainment, Ltd., dated
January 31, 1994.
10.14 -- Amendment to Lease by and between 505 Center, L.P. and 505 Entertainment, Ltd.,
dated December 6, 1996.
10.15 -- Promissory Note to Jamie B. Coulter, issued by F&H Restaurant Corp., dated
November 14, 1996.
10.16 -- Promissory Note to Jamie B. Coulter, issued by F&H Restaurant Corp., dated
December 6, 1996.
10.17 -- Promissory Note to Jamie B. Coulter, issued by F&H Restaurant Corp., dated
January 3, 1997.
10.18 -- Promissory Note to Jamie B. Coulter, issued by F&H Restaurant Corp., dated
January 21, 1997.
</TABLE>
II-4
<PAGE> 83
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
-----------
-------------------------------------------------------------------------------
<C> <C> <S>
10.19 -- Promissory Note to Intrust Bank, N.A., issued by the Registrant, dated February
25, 1997.
10.20 -- Commercial Guaranty to Intrust Bank, N.A., issued by Jamie B. Coulter, dated
February 25, 1997.
10.21 -- Promissory Note to Dennis L. Thompson, issued by Bailey's of Nashville, Inc.,
dated July 11, 1995.
10.22 -- Promissory Note to Thomas A. Hager, issued by Bailey's of Nashville, Inc.,
dated July 11, 1995.
10.23 -- Promissory Note to Dennis L. Thompson, issued by Bailey's of Greenville, Inc.,
dated October 4, 1994.
10.24 -- Promissory Note to Thomas A. Hager, issued by Bailey's of Greenville, Inc.,
dated October 4, 1994.
10.25 -- NationsBank, N.A. Loan Agreement by and among NationsBank, N.A., Dennis L.
Thompson, Thomas A. Hager, Octavio J. Ponce, Patrick C.Boyd and C. Wells Hall,
III, dated August 8, 1996.
10.26 -- Credit Agreement (Individuals) by and among NationsBank, N.A., Dennis L.
Thompson, Thomas A. Hager, Octavio J. Ponce, Patrick C. Boyd, C. Wells Hall,
III and James E. Harris, as Guarantor, dated as of August 8, 1996.
21.1 -- Subsidiaries of Registrant.
23.1 -- Consent of Ernst & Young LLP.*
23.2 -- Consent of Deloitte & Touche LLP.*
23.3 -- Consent of Olshan Grundman Frome & Rosenzweig LLP (contained in Exhibit 5.1).*
24.1 -- Powers of Attorney (included on the signature page of this Registration
Statement).*
27.1 -- Financial Data Schedule.*
99.1 -- Consent of Thomas A. Hager to serve as a director.
99.2 -- Consent of Steven Wolosky to serve as a director.
99.3 -- Consent of William F. Orthwein to serve as a director.
99.4 -- Consent of Christopher Goldsbury to serve as a director.
</TABLE>
- ---------------
* Filed herewith
(b) Financial Statement Schedules: Omitted as not being required.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registration of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE> 84
The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities
Act, the information omitted form the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective, and
(ii) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant undertakes to provide to the Underwriters at the
closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-6
<PAGE> 85
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized in the City of Dallas, State of Texas, on
the 23rd day of June, 1997.
TOTAL ENTERTAINMENT
RESTAURANT CORP.
By: /s/ GARY M. JUDD
------------------------------------
Gary M. Judd,
Chief Executive Officer, President
and Chief
Operating Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints JAMIE B. COULTER and GARY M. JUDD, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and any related registration statement filed
pursuant to Rule 462(b) of the Act, and to file the same, with exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or either of them, or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------- ---------------
<C> <S> <C>
/s/ JAMIE B. COULTER Chairman of the Board of Directors June 23, 1997
- ------------------------------------------
Jamie B. Coulter
/s/ GARY M. JUDD Chief Executive Officer, President June 23, 1997
- ------------------------------------------ (principal executive officer), Chief
Gary M. Judd Operating Officer and Director
/s/ JAMES K. ZIELKE Chief Financial Officer (principal June 23, 1997
- ------------------------------------------ financial and accounting officer) and
James K. Zielke Secretary
* Director June 23, 1997
- ------------------------------------------
Dennis L. Thompson
*By: /s/ JAMIE B. COULTER
- ------------------------------------------
Jamie B. Coulter
Attorney-in-fact
</TABLE>
II-7
<PAGE> 86
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
----------- -------------------------------------------------------------------- ------------
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement.*
2.1 -- Form of Stock for Stock Exchange Agreement between the Registrant,
the Shareholders of F&H Restaurant Corp., Fox & Hound, Inc., Fox &
Hound II, Inc. and Bailey's Sports Grille, Inc. and Certain Limited
Partners of N. Collins Entertainment, Ltd., 505 Entertainment, Ltd.,
Midway Entertainment, Ltd. and F&H Dallas, L.P., dated February 20,
1997.
3.1 -- Certificate of Incorporation of the Registrant.
3.1.1 -- Amendment to the Certificate of Incorporation of the Registrant.*
3.2 -- By-laws of the Registrant.
4.1 -- Specimen Certificate of the Registrant's Common Stock.*
5.1 -- Opinion of Olshan Grundman Frome & Rosenzweig LLP.*
10.1 -- Form of Services Agreement between the Registrant and Coulter
Enterprises, Inc.*
10.2 -- Form of Employment Agreement between the Registrant and Gary M.
Judd.*
10.3 -- Form of Employment Agreement between the Registrant and James K.
Zielke.*
10.4 -- Form of 1997 Incentive and Nonqualified Stock Option Plan of the
Registrant.
10.5 -- Form of 1997 Directors' Stock Option Plan of the Registrant.
10.6 -- Form of Indemnification Agreement for officers and directors of the
Registrant.
10.7 -- Confidentiality and Non-Competition Agreement among F&H Dallas,
L.P., Midway Entertainment, Ltd., N. Collins Entertainment, Ltd.,
505 Entertainment, Ltd. and Jamie B. Coulter, dated December 6,
1996.
10.8 -- Non-Competition, Confidentiality and Non-Solicitation Agreement
between the Registrant and Dennis L. Thompson, dated February 20,
1997.
10.9 -- Non-Competition, Confidentiality and Non-Solicitation Agreement
between the Registrant and Thomas A. Hager, dated February 20, 1997.
10.10 -- Lease by and between Real Alchemy, I, L.P. and Midway Entertainment,
Ltd., dated June 1, 1995.
10.11 -- First Amendment to Lease by and between Real Alchemy I, L.P. and
Midway Entertainment, Ltd., dated February 20, 1996.
10.12 -- Amendment to Lease by and between Real Alchemy I, L.P. and Midway
Entertainment, Ltd., dated December 6, 1996.
10.13 -- Lease by and between 505 Center, L.P. and 505 Entertainment, Ltd.,
dated January 31, 1994.
10.14 -- Amendment to Lease by and between 505 Center, L.P. and 505
Entertainment, Ltd., dated December 6, 1996.
10.15 -- Promissory Note to Jamie B. Coulter, issued by F&H Restaurant Corp.,
dated November 14, 1996.
10.16 -- Promissory Note to Jamie B. Coulter, issued by F&H Restaurant Corp.,
dated December 6, 1996.
10.17 -- Promissory Note to Jamie B. Coulter, issued by F&H Restaurant Corp.,
dated January 3, 1997.
</TABLE>
<PAGE> 87
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
-----------
-------------------------------------------------------------------- ------------
<C> <C> <S> <C>
10.18 -- Promissory Note to Jamie B. Coulter, issued by F&H Restaurant Corp.,
dated January 21, 1997.
10.19 -- Promissory Note to Intrust Bank, N.A., issued by the Registrant,
dated February 25, 1997.
10.20 -- Commercial Guaranty to Intrust Bank, N.A., issued by Jamie B.
Coulter, dated February 25, 1997.
10.21 -- Promissory Note to Dennis L. Thompson, issued by Bailey's of
Nashville, Inc., dated July 11, 1995.
10.22 -- Promissory Note to Thomas A. Hager, issued by Bailey's of Nashville,
Inc., dated July 11, 1995.
10.23 -- Promissory Note to Dennis L. Thompson, issued by Bailey's of
Greenville, Inc., dated October 4, 1994.
10.24 -- Promissory Note to Thomas A. Hager, issued by Bailey's of
Greenville, Inc., dated October 4, 1994.
10.25 -- NationsBank, N.A. Loan Agreement by and among NationsBank, N.A.,
Dennis L. Thompson, Thomas A. Hager, Octavio J. Ponce, Patrick
C.Boyd and C. Wells Hall, III, dated August 8, 1996.
10.26 -- Credit Agreement (Individuals) by and among NationsBank, N.A.,
Dennis L. Thompson, Thomas A. Hager, Octavio J. Ponce, Patrick C.
Boyd, C. Wells Hall, III and James E. Harris, as Guarantor, dated as
of August 8, 1996.
21.1 -- Subsidiaries of Registrant.
23.1 -- Consent of Ernst & Young LLP.*
23.2 -- Consent of Deloitte & Touche LLP.*
23.3 -- Consent of Olshan Grundman Frome & Rosenzweig LLP (contained in
Exhibit 5.1).*
24.1 -- Powers of Attorney (included on the signature page of this
Registration Statement).*
27.1 -- Financial Data Schedule.*
99.1 -- Consent of Thomas A. Hager to serve as a director.
99.2 -- Consent of Steven Wolosky to serve as a director.
99.3 -- Consent of William F. Orthwein to serve as a director.
99.4 -- Consent of Christopher Goldsbury to serve as a director.
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
EXHIBIT 1.1
TOTAL ENTERTAINMENT RESTAURANT CORP.
Common Stock
Underwriting Agreement
dated June __, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 1. Representations and Warranties of the Company............................................... 3
Compliance with Registration Requirements...................................................... 3
Offering Materials Furnished to Underwriters................................................... 3
Distribution of Offering Material By the Company............................................... 3
The Underwriting Agreement..................................................................... 4
Authorization of the Common Shares............................................................. 4
No Applicable Registration or Other Similar Rights............................................. 4
No Material Adverse Change..................................................................... 4
Independent Accountants........................................................................ 4
Preparation of the Financial Statements........................................................ 5
Organization and Good Standing of the Company and its Subsidiaries............................. 5
Capitalization and Other Capital Stock Matters................................................. 5
The Service Agreement.......................................................................... 6
The Licensing Agreement........................................................................ 7
Nasdaq National Market Listing................................................................. 7
Non-Contravention of Existing Instruments; No Further Authorizations or
Approvals Required.......................................................................... 7
No Material Actions or Proceedings............................................................. 8
Intellectual Property Rights................................................................... 8
All Necessary Permits; Compliance with Laws, etc............................................... 9
Title to Properties............................................................................ 9
Tax Law Compliance............................................................................. 9
Company Not an "Investment Company."........................................................... 9
Insurance...................................................................................... 10
No Price Stabilization or Manipulation......................................................... 10
Related Party Transactions..................................................................... 10
Section 2. Purchase, Sale and Delivery of the Common Shares............................................ 10
The Firm Common Shares......................................................................... 10
The First Closing Date......................................................................... 10
The Optional Common Shares; the Second Closing Date............................................ 11
Public Offering of the Common Shares........................................................... 11
Payment for the Common Shares.................................................................. 11
Delivery of the Common Shares.................................................................. 11
Delivery of Prospectus to the Underwriters..................................................... 12
Section 3. Additional Covenants of the Company......................................................... 12
Representative's Review of Proposed Amendments and Supplements................................. 12
Securities Act Compliance...................................................................... 12
Amendments and Supplements to the Prospectus and Other Securities Act Matters.................. 13
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Copies of any Amendments and Supplements to the Prospectus..................................... 13
Blue Sky Compliance............................................................................ 13
Use of Proceeds................................................................................ 13
Transfer Agent................................................................................. 13
Earnings Statement............................................................................. 13
Periodic Reporting Obligations................................................................. 13
Agreement Not To Offer or Sell Additional Securities........................................... 14
Future Reports to the Representative........................................................... 14
Section 4. Payment of Expenses......................................................................... 14
Section 5. Conditions of the Obligations of the Underwriters........................................... 15
Accountants' Comfort Letter.................................................................... 15
Compliance with Registration Requirements; No Stop Order; No Objection from
NASD ...................................................................................... 16
No Material Adverse Change or Ratings Agency Change............................................ 16
Opinion of Counsel for the Company............................................................. 16
Opinion of Counsel for the Underwriters........................................................ 17
Officers' Certificate.......................................................................... 17
Bring-down Comfort Letter...................................................................... 17
Lock-Up Agreement from Directors, Officers and Stockholders of the Company..................... 18
Additional Documents........................................................................... 18
Section 6. Reimbursement of Underwriters' Expenses..................................................... 18
Section 7. Effectiveness of this Agreement............................................................. 18
Section 8. Indemnification............................................................................. 19
Indemnification of the Underwriters............................................................ 19
Indemnification of the Company, its Directors and Officers..................................... 20
Notifications and Other Indemnification Procedures............................................. 20
Settlements.................................................................................... 21
Section 9. Contribution................................................................................ 22
Section 10. Default of One or More of the Several Underwriters.......................................... 23
Section 11. Termination of this Agreement............................................................... 23
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 12. Representations and Indemnities to Survive Delivery......................................... 24
Section 13. Notices.................................................................................... 24
Section 14. Successors................................................................................. 25
Section 15. Partial Unenforceability................................................................... 25
Section 16. Governing Law Provisions................................................................... 25
Section 17. General Provisions......................................................................... 25
</TABLE>
-iii-
<PAGE> 5
UNDERWRITING AGREEMENT
June ___, 1997
MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
As Representative of the several Underwriters
Ladies and Gentlemen:
INTRODUCTORY. Total Entertainment Restaurant Corp., a Delaware
corporation (the "Company"), proposes to issue and sell to the several
underwriters named in Schedule A (the "Underwriters") an aggregate of 2,000,000
shares (the "Firm Common Shares") of its Common Stock, par value $0.01 per share
(the "Common Stock"). In addition, the Company has granted to the Underwriters
an option to purchase up to an additional 300,000 shares (the "Optional Common
Shares") of Common Stock, as provided in Section 2. The Firm Common Shares and,
if and to the extent such option is exercised, the Optional Common Shares are
collectively called the "Common Shares." Montgomery Securities has agreed to act
as representative of the several Underwriters (in such capacity, the
"Representative") in connection with the offering and sale of the Common Shares.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1
(File No. 333-23343), which contains a form of prospectus to be used in
connection with the public offering and sale of the Common Shares. Such
registration statement, as amended, including the financial statements, exhibits
and schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including any
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A or Rule 434 under the Securities Act, is called the "Registration
Statement." Any registration statement filed by the Company pursuant to Rule
462(b) under the Securities Act is called the "Rule 462(b) Registration
Statement," and from and after the date and time of filing of the Rule 462(b)
Registration Statement, the term "Registration Statement" shall include the Rule
462(b) Registration Statement. Such prospectus, in the form first used by the
Underwriters to confirm sales of the Common Shares, is called the "Prospectus;"
provided, however, if the Company has, with the consent of Montgomery
Securities, elected to rely upon Rule 434 under the Securities Act, the term
"Prospectus" shall mean the Company's prospectus subject to completion (each, a
"preliminary prospectus") dated June [ ], 1997 (such preliminary prospectus is
called the "Rule 434 preliminary prospectus"), together with the applicable term
sheet (the "Term Sheet") prepared and filed by the Company with the Commission
under Rules 434 and 424(b) under the Securities Act and all references in this
Agreement to the date of the Prospectus shall mean the date of the Term Sheet.
All references in this Agreement to the Registration Statement, the Rule 462(b)
Registration Statement, a preliminary prospectus, the Prospectus or the Term
Sheet, or any amendments or
<PAGE> 6
supplements to any of the foregoing, shall include any copy thereof filed with
the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").
On February 20, 1997, the Company entered into an Exchange Agreement
(the "Exchange Agreement") with (i) the holders of all of the outstanding shares
of the capital stock of Bailey's Sports Grille, Inc., a Delaware corporation
("Bailey's"), F&H Restaurant Corp., a Delaware corporation ("F&H"), Fox & Hound,
Inc., a Texas corporation ("Fox I"), Fox & Hound II, Inc., a Texas corporation
("Fox II") (collectively, Bailey's, F&H, Fox I and Fox II shall be referred to
herein as the "Entertainment Restaurant Corporations," and the holders of the
capital stock of the Entertainment Restaurant Corporations shall be referred to
herein as the "Entertainment Restaurant Corporation Stockholders"), and (ii) the
holders of 18.75% of the limited partnership interests of each of N. Collins
Entertainment, Ltd., a Texas limited Partnership ("Collins"), 505 Entertainment,
Ltd., a Texas limited Partnership ("505"), Midway Entertainment, Ltd., a Texas
limited Partnership ("Midway") and F&H Dallas, L.P., a Texas limited Partnership
("Dallas") (collectively, Collins, 505, Midway and Dallas shall be referred to
herein as the "Entertainment Restaurant Partnerships," and the holders of such
limited partnership interests in the Entertainment Restaurant Partnerships shall
be referred to herein as the "Entertainment Restaurant Limited Partners").
Pursuant to the transactions contemplated in the Exchange Agreement, the Company
became the direct or indirect (through one or more Entertainment Restaurant
Corporations) owner of all of the outstanding capital stock of each of the
Entertainment Restaurant Corporations and all of the outstanding partnership
interests of each of the Entertainment Restaurant Limited Partnerships in
exchange for the issuance to the Entertainment Restaurant Corporation
Stockholders and the Entertainment Restaurant Limited Partners of all of the
Company's currently outstanding Common Stock.
In connection with the execution of the Exchange Agreement, the Company
entered into an S Corporation Termination, Tax Allocation and Indemnification
Agreement with (i) Baileys and each of the stockholders of Baileys (the
"Bailey's Tax Agreement"), (ii) Fox I and each of the stockholders of Fox I (the
"Fox I Tax Agreement"), and (iii) Fox II and each of the stockholders of Fox II
(the "Fox II Tax Agreement") (collectively, the Bailey's Tax Agreement, the Fox
I Tax Agreement and the Fox II Tax Agreement shall be referred to as the "Tax
Agreements"). Pursuant to the Tax Agreements, (i) each of Bailey's, Fox I and
Fox II terminated its status as an S Corporation under Subchapter S of the
Internal Revenue Code of 1986, as amended (the "Code"), and comparable state
laws, and (ii) responsibility for income tax liabilities, if any, incurred
during the period that each of Bailey's, Fox I and Fox II (collectively, the "S
Corporation Entertainment Restaurant Corporations") were treated as S
Corporations was allocated among the Company and each of the stockholders of the
S Corporation Entertainment Restaurant Corporations. Collectively, the Tax
Agreements and the Exchange Agreement shall be referred to herein as the
"Exchange Documents."
The Company has entered into a Service Agreement (the "Service
Agreement") with Coulter Enterprises, Inc., a Kansas corporation ("Coulter
Enterprises"), pursuant to which Coulter Enterprises will provide certain
accounting and administrative services to each of the Company's entertainment
restaurant locations as well as any future entertainment restaurant locations
developed by the Company in return for certain fees. The Service Agreement will
become effective on the date hereof (the "Effective Date").
2
<PAGE> 7
The Company has entered into a licensing agreement (the "Licensing
Agreement") with Dennis L. Thompson and Thomas A. Hager (the "Licenses"),
pursuant to which the Company has granted the Licensees the non-exclusive right
to use the "Fox & Hound" name in certain areas of North Carolina. The Licensing
Agreement will become effective on the Effective Date.
The Company hereby confirms its agreement with the
Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The
Registration Statement and any Rule 462(b) Registration Statement have
been declared effective by the Commission under the Securities Act. The
Company has complied to the Commission's satisfaction with all requests
of the Commission for additional or supplemental information. No stop
order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement is in effect and no proceedings for
such purpose have been instituted or are pending or, to the best
knowledge of the Company, are contemplated or threatened by the
Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and was
identical to the copy thereof delivered to the Underwriters for use in
connection with the offer and sale of the Common Shares. Each of the
Registration Statement, any Rule 462(b) Registration Statement and any
post-effective amendment thereto, at the time it became effective and
at all subsequent times, complied and will comply in all material
respects with the Securities Act and did not and will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus, as amended or supplemented, as
of its date and at all subsequent times, did not and will not contain
any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately
preceding sentences do not apply to statements in or omissions from the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment thereto, or the Prospectus, or any amendments
or supplements thereto, made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in
writing by the Representative expressly for use therein. There are no
statutes, contracts or other documents required to be described in the
Prospectus or to be filed as exhibits to the Registration Statement
which have not been described or filed as required. The description in
the Prospectus of such statutes and contracts fairly presents the
information required to be provided by the Securities Act. The
contracts so described in the Prospectus are in full force and effect
on the date hereof; and neither the Company nor any of the
Subsidiaries, as defined below, nor to the best of the Company's
knowledge, any other party is in breach of or default under any of such
contracts.
(b) Offering Materials Furnished to Underwriters. The Company
has delivered to the Representative one complete manually signed copy
of the Registration Statement and of each consent and certificate of
experts filed as a part thereof, and conformed copies of
3
<PAGE> 8
the Registration Statement (without exhibits) and preliminary
prospectuses and the Prospectus, as amended or supplemented, in such
quantities and at such places as the Representative has reasonably
requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The
Company has not distributed and will not distribute, prior to the later
of the Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Common Shares, any offering material
in connection with the offering and sale of the Common Shares other
than a preliminary prospectus, the Prospectus or the Registration
Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding
agreement of, the Company, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights and remedies of creditors or
by general equitable principles.
(e) Authorization of the Common Shares. The Common Shares to
be purchased by the Underwriters from the Company have been duly
authorized for issuance and sale pursuant to this Agreement and, when
issued and delivered by the Company pursuant to this Agreement, will be
validly issued, fully paid and nonassessable.
(f) No Applicable Registration or Other Similar Rights. There
are no persons with registration or other similar rights to have any
equity or debt securities registered for sale under the Registration
Statement or included in the offering contemplated by this Agreement.
(g) No Material Adverse Change. Except as otherwise disclosed
in the Prospectus, subsequent to the respective dates as of which
information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to
result in a material adverse change, in the condition, financial or
otherwise, or in the earnings, business, operations or prospects,
whether or not arising from transactions in the ordinary course of
business, of the Company and its Subsidiaries, considered as one entity
(any such change is called a "Material Adverse Change"); (ii) the
Company and its Subsidiaries, considered as one entity, have not
incurred any material liability or obligation, indirect, direct or
contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of
business; and (iii) there has been no dividend or distribution of any
kind declared, paid or made by the Company or any of its Subsidiaries
on any class of capital stock or repurchase or redemption by the
Company or any of its Subsidiaries of any class of capital stock.
(h) Independent Accountants.
(i) Ernst & Young LLP, who have expressed their
opinion with respect to the financial statements (which term as used in
this Agreement includes the related notes thereto) of the Fox and Hound
Restaurant Group, as such term is defined in the Registration Statement
(the "Fox & Hound Financial Statements") and the pro forma financial
statements
4
<PAGE> 9
of the Company as of December 31, 1996 (the "Pro Forma Financial
Statements") and supporting schedules filed with the Commission as a
part of the Registration Statement and included in the Prospectus, are
independent public or certified public accountants as required by the
Securities Act.
(ii) Deloitte & Touche LLP, who have expressed their
opinion with respect to the financial statements of Bailey's Sports
Grille, Inc. (the "Bailey's Financial Statements") and supporting
schedules filed with the Commission as a part of the Registration
Statement and included in the Prospectus, are independent public or
certified public accountants as required by the Securities Act.
(i) Preparation of the Financial Statements. The financial
statements filed with the Commission as a part of the Registration
Statement and included in the Prospectus present fairly the
consolidated financial position of the Company and its Subsidiaries as
of and at the dates indicated and the results of their operations and
cash flows for the periods specified. The Fox & Hound Financial
Statements filed with the Commission as a part of the Registration
Statement and included in the Prospectus present fairly the
consolidated financial position of the Fox & Hound Restaurant Group as
of and at the dates indicated and the results of their operations and
cash flows for the periods specified. The Bailey's Financial Statements
filed with the Commission as a part of the Registration Statement and
included in the Prospectus present fairly the consolidated financial
position of Bailey's Sports Grille, Inc. as of and at the dates
indicated and the results of their operations and cash flows for the
periods specified. Such financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved, except as may be
expressly stated in the related notes thereto. No other financial
statements or supporting schedules are required to be included in the
Registration Statement. The financial data set forth in the Prospectus
under the captions "Prospectus Summary--Summary Selected Financial
Data," "Selected Financial Data" and "Capitalization" fairly present
the information set forth therein on a basis consistent with that of
the audited financial statements contained in the Registration
Statement. The Pro Forma Financial Statements of the Company and its
Subsidiaries and the related notes thereto included under the caption
"Pro Forma Combined Condensed Financial Statements" and elsewhere in
the Prospectus and in the Registration Statement present fairly the
information contained therein, have been prepared in accordance with
the Commission's rules and guidelines with respect to pro forma
financial statements and have been properly presented on the bases
described therein, and the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are appropriate to give
effect to the transactions and circumstances referred to therein.
(j) Organization and Good Standing of the Company and its
Subsidiaries. Each of the Company and its subsidiary corporations and
subsidiary limited partnerships (the "Subsidiary Limited Partnerships")
listed on Annex I hereto (collectively, the "Subsidiaries") has been
duly incorporated or organized and is validly existing as a corporation
or a limited partnership, as the case may be, in good standing under
the laws of the jurisdiction of its organization and has all requisite
power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus and, in the case of
the Company, to enter into and perform its obligations under this
Agreement.
5
<PAGE> 10
Each of the Company and the Subsidiaries is duly qualified as a foreign
corporation or entity to transact business and is in good standing in
its jurisdiction of organization and each other jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except for such
jurisdictions where the failure to so qualify or to be in good standing
would not, individually or in the aggregate, result in a Material
Adverse Change. All of the issued and outstanding capital stock of each
Subsidiary that is a corporation has been duly authorized and validly
issued, is fully paid and nonassessable and is owned by the Company,
directly or through Subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance or claim. All of the
issued and outstanding ownership interests of each Subsidiary Limited
Partnership has been duly authorized and validly issued, is fully paid
and nonassessable and is owned by the Company, directly or through
Subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance or claim. The Company does not own or
control, directly or indirectly, any corporation, association or other
entity other than the Subsidiaries listed in Exhibit 21.1 to the
Registration Statement.
(k) Capitalization and Other Capital Stock Matters. The
authorized, issued and outstanding capital stock of the Company is as
set forth in the Prospectus under the caption "Capitalization." The
Common Stock (including the Common Shares) conforms in all material
respects to the description thereof contained in the Prospectus. All of
the issued and outstanding shares of Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable and
have been issued in compliance with federal and state securities laws.
None of the outstanding shares of Common Stock were issued in violation
of any preemptive rights, rights of first refusal or other similar
rights to subscribe for or purchase securities of the Company. There
are no authorized or outstanding options, warrants, preemptive rights,
rights of first refusal or other rights to purchase, or equity or debt
securities convertible into or exchangeable or exercisable for, any
capital stock of the Company or any of its Subsidiaries other than
those accurately described in the Prospectus. The description of the
Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted or currently
intended by the Company to be granted thereunder, set forth in the
Prospectus accurately and fairly presents the information required to
be shown with respect to such plans, arrangements, options and rights.
(l) Exchange Documents. Each of the Company and, to the
Company's knowledge, the Entertainment Restaurant Corporation
Stockholders, the Entertainment Restaurant Limited Partners and the S
Corporation Restaurant Corporations had full legal right, power and
authority to enter into the Exchange Documents and to perform the
transactions contemplated thereby. The Exchange Documents were duly
authorized and executed by the Company and, to the Company's knowledge,
by the Entertainment Restaurant Corporation Stockholders, the
Entertainment Restaurant Limited Partners and the S Corporation
Restaurant Corporations, constitute valid and binding obligations of
the Company, enforceable in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or other similar laws relating to
or affecting creditors' rights generally or by general equitable
principles and the transactions contemplated thereby have been
consummated. The execution and performance of the Exchange Documents by
the Company and the Entertainment Restaurant
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<PAGE> 11
Corporation Stockholders, the Entertainment Restaurant Limited Partners
and the S Corporation Restaurant Corporations, and the consummation of
the transactions therein contemplated has not violated and will not
violate any provision of the charter or bylaws, or other organizational
documents, of the Company and has not resulted and will not result in
an a breach or violation of, or constitute, either by itself or upon
notice or the passage of time or both, a default under any material
agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which the Company is a party
or by which the Company or any of its property may be bound or
affected, any statute or any authorization, judgment, decree, order,
rule or regulation of any court or any regulatory body, administrative
agency or other governmental body applicable to the Company or any of
its property, except for such violations, breaches and defaults that
individually or in the aggregate would not result in a Material Adverse
Change. Each consent, approval or authorization or other order of any
court, regulatory body, administrative agency or other governmental
body required for the delivery of the Exchange Document or the
consummation of the transactions contemplated thereby was obtained,
except for any such consent, approval, authorization or order the
failure to have so obtained has not resulted and will not result in a
Material Adverse Change.
(m) The Service Agreement. Each of the Company and, to the
Company's knowledge, Coulter Enterprises has full legal right, power
and authority to enter into the Service Agreement and to perform the
transactions contemplated thereby. The Service Agreement has been duly
authorized and executed by the Company and, to the Company's knowledge,
Coulter Enterprises and, when delivered by the respective parties on
the Effective Date, will constitute a valid and binding obligation of
the Company, enforceable in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or other similar laws relating to
or affecting creditors' rights generally or by general equitable
principles. The execution and performance of the Service Agreement by
the Company and Coulter Enterprises and the consummation of the
transactions therein contemplated will not violate any provision of the
charter or bylaws, or other organizational documents, of the Company
and will not result in the breach or violation of, or constitute,
either by itself or upon notice or the passage of time or both, a
default under any material agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which the
Company is a party or by which the Company or any of its property may
be bound or affected, any statute or any authorization, judgment,
decree, order, rule or regulation of any court or any regulatory body,
administrative agency or other governmental body applicable to the
Company or any of its property, except for such violations, breaches
and defaults that individually or in the aggregate would not result in
a Material Adverse Change. No consent, approval or authorization or
other order of any court, regulatory body, administrative agency or
other governmental body is required for the delivery of the Service
Agreement or the consummation of the transactions contemplated thereby.
(n) The Licensing Agreement. Each of the Company and, to the
Company's knowledge, the Licensees has full legal right, power and
authority to enter into the Licensing Agreement and to perform the
transactions contemplated thereby. The Licensing Agreement has been
duly authorized and executed by the Company and, to the Company's
knowledge, the Licensees and, when delivered by the respective parties
on the Effective
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<PAGE> 12
Date, will constitute a valid and binding obligation of the Company,
enforceable in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally or by general equitable principles. The execution and
performance of the Licensing Agreement by the Company and the
consummation of the transactions therein contemplated will not violate
any provision of the charter or bylaws, or other organizational
documents, of the Company and will not result in the breach or
violation of, or constitute, either by itself or upon notice or the
passage of time or both, a default under any material agreement,
mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument to which the Company is a party or by which the
Company or any of its property may be bound or affected, any statute or
any authorization, judgment, decree, order, rule or regulation of any
court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its property,
except for such violations, breaches and defaults that individually or
in the aggregate would not result in a Material Adverse Change. No
consent, approval or authorization or other order of any court,
regulatory body, administrative agency or other governmental body is
required for the delivery of the Licensing Agreement or the
consummation of the transactions contemplated thereby.
(o) Nasdaq National Market Listing. The Common Shares have
been approved for inclusion on the Nasdaq National Market, subject only
to official notice of issuance.
(p) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. Neither the Company nor any of
its Subsidiaries is in violation of its charter, by-laws or other
organizational documents or is in default (or, with the giving of
notice or lapse of time, would be in default) (a "Default") under any
indenture, mortgage, loan or credit agreement, note, contract,
franchise, lease or other instrument (including, without limitation,
the Exchange Documents) to which the Company or any of its Subsidiaries
is a party or by which it or any of them may be bound, or to which any
of the property or assets of the Company or any of its subsidiaries is
subject (each, an "Existing Instrument"), except for such Defaults as
would not, individually or in the aggregate, result in a Material
Adverse Change. The Company's execution, delivery and performance of
this Agreement and consummation of the transactions contemplated hereby
and by the Prospectus (i) have been duly authorized by all necessary
corporate action and will not result in any violation of the provisions
of the charter, by-laws or other organizational documents of the
Company or any Subsidiary, (ii) will not conflict with or constitute a
breach of, or Default or, a Debt Repayment Triggering Event (as defined
below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
of its Subsidiaries pursuant to, or require the consent of any other
part to, any Existing Instrument, except for such conflicts, breaches,
Defaults, liens, charges or encumbrances as would not, individually or
in the aggregate, result in a Material Adverse Change and (iii) will
not result in any violation of any law, administrative regulation or
administrative or court decree applicable to the Company or any
Subsidiary. No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental or
regulatory authority or agency, is required for the Company's
execution, delivery and performance of this Agreement and consummation
of the transactions contemplated hereby and by the Prospectus, except
such as have been obtained
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<PAGE> 13
or made by the Company and are in full force and effect under the
Securities Act, applicable state securities or blue sky laws and from
the National Association of Securities Dealers, Inc. (the "NASD"). As
used herein, a "Debt Repayment Triggering Event" means any event or
condition which gives, or with the giving of notice or lapse of time
would give, the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right
to require the repurchase, redemption or repayment of all or a portion
of such indebtedness by the Company or any of its Subsidiaries.
(q) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of
the Company's knowledge, threatened (i) against or affecting the
Company or any of its Subsidiaries, (ii) which has as the subject
thereof any officer or director of, or property owned or leased by, the
Company or any of its Subsidiaries or (iii) relating to environmental
or discrimination matters, where in any such case (A) there is a
reasonable possibility that such action, suit or proceeding might be
determined adversely to the Company or such Subsidiary and (B) any such
action, suit or proceeding, if so determined adversely, would
reasonably be expected to result in a Material Adverse Change or
adversely affect the consummation of the transactions contemplated by
this Agreement, the Service Agreement or the Licensing Agreement. No
labor disturbance by the employees of the Company or any of its
Subsidiaries exists or, to the Company's knowledge, is imminent, and
the Company is not aware of any existing or imminent labor disturbance
by the employees of any of its principal suppliers, construction
contractors or other persons that might be expected to result in a
Material Adverse Change. Neither the Company nor any of its
Subsidiaries is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.
(r) Intellectual Property Rights. The Company and its
Subsidiaries own or possess sufficient trademarks, service marks, trade
names, patent rights, copyrights, licenses, approvals, trade secrets
and other similar rights (collectively, "Intellectual Property Rights")
reasonably necessary to conduct their businesses as now conducted; and
the expected expiration of any of such Intellectual Property Rights
would not result in a Material Adverse Change. Neither the Company nor
any of its Subsidiaries has received any notice of infringement or
conflict with asserted Intellectual Property Rights of others, which
infringement or conflict, if the subject of an unfavorable decision,
would result in a Material Adverse Change.
(s) All Necessary Permits; Compliance with Laws, etc. The
Company and each Subsidiary possess such valid and current
certificates, authorizations or permits issued by the appropriate
federal, state or local regulatory agencies or bodies necessary to
conduct their respective businesses, and neither the Company nor any
Subsidiary has received any notice of proceedings relating to the
revocation or modification of, or non-compliance with, any such
certificate, authorization or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, could
result in a Material Adverse Change. To the Company's knowledge, the
Company and each of it Subsidiaries is conducting business in
compliance with the Fair Labor Standards Act, the rules and regulations
of the federal Food and Drug Administration, and all applicable
federal, state and local laws, rules and regulations of the
jurisdictions in which it is conducting business, including, without
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<PAGE> 14
limitation, all applicable local, state and federal laws and
regulations governing health, sanitation, safety, the purchase and sale
of alcoholic beverages (including, but not limited to, liquor licenses,
"tied house" statutes and "dram shop" statutes), environmental matters,
zoning and land use, except where the failure to be so in compliance
could result in a Material Adverse Change.
(t) Title to Properties. The Company and each of its
Subsidiaries has good and marketable title to all the properties and
assets reflected as owned in the financial statements referred to in
Section 1(i) above (or elsewhere in the Prospectus), in each case free
and clear of any security interests, mortgages, liens, encumbrances,
equities, claims and other defects, except such as do not materially
and adversely affect the value of such property and do not materially
interfere with the use made or proposed to be made of such property by
the Company or such Subsidiary. The Company and each of its
Subsidiaries holds its leased properties under valid and binding
leases, true and correct copies of which have been delivered to you or
your counsel, with such exceptions as are not materially significant in
relation to the business of the Company and its Subsidiaries taken as a
whole. Except as disclosed in the Prospectus, the Company and each of
its Subsidiaries owns or leases all such properties as are necessary to
its operations as now conducted or as proposed to be conducted.
(u) Tax Law Compliance. The Company and, to the Company's
knowledge, each of its Subsidiaries have filed all necessary federal,
state and foreign income and franchise tax returns and have paid all
taxes shown as due thereon to the extent due to be paid prior to the
date hereof and, to the extent not so due, has made adequate reserves
on its financial statements; and the Company has no knowledge of any
tax deficiency that has been or might be asserted or threatened against
the Company or any Subsidiary that could result in a Material Adverse
Change.
(v) Company Not an "Investment Company." The Company has been
advised of the rules and requirements under the Investment Company Act
of 1940, as amended (the "Investment Company Act"). The Company is not,
and after receipt of payment for the Common Shares will not be, an
"investment company" within the meaning of Investment Company Act and
will conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(w) Insurance. Each of the Company and its Subsidiaries are
insured by recognized, financially sound and reputable institutions
with policies in such amounts and with such deductibles and covering
such risks as are generally deemed adequate and customary for their
businesses including, but not limited to, policies covering real and
personal property owned or leased by the Company and its Subsidiaries
against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full
force and effect. The Company has no reason to believe that it or any
Subsidiary will not be able (i) to renew its existing insurance
coverage as and when such policies expire or (ii) to obtain comparable
coverage from similar institutions as may be necessary or appropriate
to conduct its business as now conducted and at a cost that would not
result in a Material Adverse Change.
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(x) No Price Stabilization or Manipulation. The Company has
not taken and will not take, directly or indirectly, any action
designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Common Shares.
(y) Related Party Transactions. There are no business
relationships or related-party transactions involving the Company or
any subsidiary or any other person required to be described in the
Prospectus pursuant to the Securities Act which have not been described
as required.
Any certificate signed by an officer of the Company and
delivered to the Representative or to counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to each Underwriter as
to the matters set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
The Firm Common Shares. The Company agrees to issue and sell to the
several Underwriters the Firm Common Shares upon the terms herein set forth. On
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the Company the
respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
Underwriters to the Company shall be $[ ] per share.
The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of Montgomery Securities, 600 Montgomery Street, San Francisco,
California (or such other place as may be agreed to by the Company and the
Representative) at 6:00 a.m. San Francisco time, on May [ ], 1997, or such other
time and date not later than 10:30 a.m. San Francisco time, on May [ ], 1997, as
the Representative shall designate by notice to the Company (the time and date
of such closing are called the "First Closing Date"). The Company hereby
acknowledges that circumstances under which the Representative may provide
notice to postpone the First Closing Date as originally scheduled include, but
are in no way limited to, any determination by the Company or the Representative
to recirculate to the public copies of an amended or supplemented Prospectus or
a delay as contemplated by the provisions of Section 10.
The Optional Common Shares; the Second Closing Date. In addition, on
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of 300,000 Optional Common Shares from the
Company at the purchase price per share to be paid by the Underwriters for the
Firm Common Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by the Representative
to the Company, which notice may be given at any time within 30 days from the
date
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of this Agreement. Such notice shall set forth (i) the aggregate number of
Optional Common Shares as to which the Underwriters are exercising the option,
(ii) the names and denominations in which the certificates for the Optional
Common Shares are to be registered and (iii) the time, date and place at which
such certificates will be delivered (which time and date may be simultaneous
with, but not earlier than, the First Closing Date; and in such case the term
"First Closing Date" shall refer to the time and date of delivery of
certificates for the Firm Common Shares and the Optional Common Shares). Such
time and date of delivery, if subsequent to the First Closing Date, is called
the "Second Closing Date" and shall be determined by the Representative and
shall not be earlier than three nor later than five full business days after
delivery of such notice of exercise. If any Optional Common Shares are to be
purchased, each Underwriter agrees, severally and not jointly, to purchase the
number of Optional Common Shares (subject to such adjustments to eliminate
fractional shares as the Representative may determine) that bears the same
proportion to the total number of Optional Common Shares to be purchased as the
number of Firm Common Shares set forth on Schedule A opposite the name of such
Underwriter bears to the total number of Firm Common Shares. The Representative
may cancel the option at any time prior to its expiration by giving written
notice of such cancellation to the Company.
Public Offering of the Common Shares. The Representative hereby advises
the Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Common Shares as
soon after this Agreement has been executed and the Registration Statement has
been declared effective as the Representative, in its sole judgment, has
determined is advisable and practicable.
Payment for the Common Shares. Payment for the Common Shares shall be
made at the First Closing Date (and, if applicable, at the Second Closing Date)
by wire transfer of immediately available funds to the order of the Company.
It is understood that the Representative has been authorized, for its
own account and the accounts of the several Underwriters, to accept delivery of
and receipt for, and make payment of the purchase price for, the Firm Common
Shares and any Optional Common Shares the Underwriters have agreed to purchase.
Montgomery Securities, individually and not as the Representative of the
Underwriters, may (but shall not be obligated to) make payment for any Common
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representative by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
Delivery of the Common Shares. The Company shall deliver, or cause to
be delivered, to the Representative for the accounts of the several Underwriters
certificates for the Firm Common Shares at the First Closing Date, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor. The Company shall also deliver, or cause
to be delivered, to the Representative for the accounts of the several
Underwriters, certificates for the Optional Common Shares the Underwriters have
agreed to purchase at the First Closing Date or the Second Closing Date, as the
case may be, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The certificates
for the Common Shares shall be in definitive form and registered in such names
and denominations as the Representative shall have requested at least two full
business days prior to the First Closing Date
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(or the Second Closing Date, as the case may be) and shall be made available for
inspection on the business day preceding the First Closing Date (or the Second
Closing Date, as the case may be) at a location in New York City as the
Representative may designate. Time shall be of the essence, and delivery at the
time and place specified in this Agreement is a further condition to the
obligations of the Underwriters.
Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m.
on the second business day following the date the Common Shares are released by
the Underwriters for sale to the public, the Company shall delivery or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representative shall request.
SECTION 3. ADDITIONAL COVENANTS OF THE COMPANY. The Company further
covenants and agrees with each Underwriter as follows:
(a) Representative's Review of Proposed Amendments and
Supplements. During such period beginning on the date hereof and ending
on the later of the First Closing Date or such date, as in the opinion
of counsel for the Underwriters, the Prospectus is no longer required
by law to be delivered in connection with sales by an Underwriter or
dealer (the "Prospectus Delivery Period"), prior to amending or
supplementing the Registration Statement (including any registration
statement filed under Rule 462(b) under the Securities Act) or the
Prospectus, the Company shall furnish to the Representative for review
a copy of each such proposed amendment or supplement, and the Company
shall not file any such proposed amendment or supplement to which the
Representative reasonably objects.
(b) Securities Act Compliance. After the date of this
Agreement, the Company shall promptly advise the Representative in
writing (i) of the receipt of any comments of, or requests for
additional or supplemental information from, the Commission, (ii) of
the time and date of any filing of any post-effective amendment to the
Registration Statement or any amendment or supplement to any
preliminary prospectus or the Prospectus, (iii) of the time and date
that any post-effective amendment to the Registration Statement becomes
effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto or of any order preventing or
suspending the use of any preliminary prospectus or the Prospectus, or
of any proceedings to remove, suspend or terminate from listing or
quotation the Common Stock from any securities exchange upon which the
it is listed for trading or included or designated for quotation, or of
the threatening or initiation of any proceedings for any of such
purposes. If the Commission shall enter any such stop order at any
time, the Company will use its best efforts to obtain the lifting of
such order at the earliest possible moment. Additionally, the Company
agrees that it shall comply with the provisions of Rules 424(b), 430A
and 434, as applicable, under the Securities Act and will use its
reasonable efforts to confirm that any filings made by the Company
under such Rule 424(b) were received in a timely manner by the
Commission.
(c) Amendments and Supplements to the Prospectus and Other
Securities Act Matters. If, during the Prospectus Delivery Period, any
event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make
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<PAGE> 18
the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if in the
opinion of the Representative or counsel for the Underwriters it is
otherwise necessary to amend or supplement the Prospectus to comply
with law, the Company agrees to promptly prepare (subject to Section
3(a) hereof), file with the Commission and furnish at its own expense
to the Underwriters and to dealers, amendments or supplements to the
Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the
Prospectus. The Company agrees to furnish the Representative, without
charge, during the Prospectus Delivery Period, as many copies of the
Prospectus and any amendments and supplements thereto as the
Representative may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representative and counsel for the Underwriters to qualify or register
the Common Shares for sale under (or obtain exemptions from the
application of) the state securities or blue sky laws or Canadian
provincial securities laws of those jurisdictions designated by the
Representative, shall comply with such laws and shall continue such
qualifications, registrations and exemptions in effect so long as
required for the distribution of the Common Shares. The Company shall
not be required to qualify as a foreign corporation or to take any
action that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be
subject to taxation as a foreign corporation. The Company will advise
the Representative promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Common Shares
for offering, sale or trading in any jurisdiction or any initiation or
threat of any proceeding for any such purpose, and in the event of the
issuance of any order suspending such qualification, registration or
exemption, the Company shall use its best efforts to obtain the
withdrawal thereof at the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds
from the sale of the Common Shares sold by it in the manner described
under the caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at
its expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company
will make generally available to its security holders and to the
Representative an earnings statement (which need not be audited)
covering the twelve-month period ending June 30, 1998 that satisfies
the provisions of Section 11(a) of the Securities Act.
(i) Periodic Reporting Obligations. During the Prospectus
Delivery Period the Company shall file, on a timely basis, with the
Commission and the Nasdaq National Market all reports and documents
required to be filed under the Exchange Act.
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(j) Agreement Not To Offer or Sell Additional Securities.
During the period of 180 days following the date of the Prospectus, the
Company will not, without the prior written consent of Montgomery
Securities (which consent may be withheld at the sole discretion of
Montgomery Securities), directly or indirectly, sell, offer, contract
or grant any option to sell, pledge, transfer or establish an open "put
equivalent position" within the meaning of Rule 16a-1(h) under the
Exchange Act, or otherwise dispose of or transfer, or announce the
offering of, or file any registration statement under the Securities
Act in respect of, any shares of Common Stock, options or warrants to
acquire shares of the Common Stock or securities exchangeable or
exercisable for or convertible into shares of Common Stock (other than
as contemplated by this Agreement with respect to the Common Shares);
provided, however, that the Company may issue shares of its Common
Stock or options to purchase its Common Stock, or Common Stock upon
exercise of options, pursuant to any stock option, stock bonus or other
stock plan or arrangement described in the Prospectus, but only if the
holders of such shares, options, or shares issued upon exercise of such
options, agree in writing not to sell, offer, dispose of or otherwise
transfer any such shares or options during such 180 day period without
the prior written consent of Montgomery Securities (which consent may
be withheld at the sole discretion of Montgomery Securities).
(k) Future Reports to the Representative. During the period of
five years hereafter the Company will furnish to the Representative at
600 Montgomery Street, San Francisco, California 94111 Attention:
Murray C. Huneke (i) as soon as practicable after the end of each
fiscal year, copies of the Annual Report of the Company containing the
balance sheet of the Company as of the close of such fiscal year and
statements of income, stockholders' equity and cash flows for the year
then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the
filing thereof, copies of each proxy statement, Annual Report on Form
10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or
other report filed by the Company with the Commission, the NASD or any
securities exchange; and (iii) as soon as available, copies of any
report or communication of the Company mailed generally to holders of
its capital stock.
Montgomery Securities, on behalf of the several Underwriters, may, in
its sole discretion, waive in writing the performance by the Company of any one
or more of the foregoing covenants or extend the time for their performance.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel, independent public or certified pubic accountants and
other advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary
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prospectus and the Prospectus, and all amendments and supplements thereto, and
this Agreement, (vi) all filing fees, attorneys' fees and expenses incurred by
the Company or the Underwriters in connection with qualifying or registering (or
obtaining exemptions from the qualification or registration of) all or any part
of the Common Shares for offer and sale under the state securities or blue sky
laws or the provincial securities laws of Canada, and, if requested by the
Representative, preparing and printing a "Blue Sky Survey" or memorandum, and
any supplements thereto, advising the Underwriters of such qualifications,
registrations and exemptions, (vii) the filing fees incident to, and the
reasonable fees and expenses of counsel for the Underwriters in connection with,
the NASD's review and approval of the Underwriters' participation in the
offering and distribution of the Common Shares, (viii) the fees and expenses
associated with including the Common Shares on the Nasdaq National Market, and
(ix) all other fees, costs and expenses referred to in Item 13 of Part II of the
Registration Statement. Except as provided in this Section 4, Section 6, Section
8 and Section 9 hereof, the Underwriters shall pay their own expenses, including
the fees and disbursements of their counsel.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Section 1 hereof as of the date hereof and as of the First Closing Date
as though then made and, with respect to the Optional Common Shares, as of the
Second Closing Date as though then made, to the timely performance by the
Company of its covenants and other obligations hereunder, and to each of the
following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the
Representative shall have received;
(i) from Ernst & Young LLP, independent public or
certified public accountants for the Company and Fox & Hound
Restaurant Group, a letter dated the date hereof addressed to
the Underwriters, in form and substance satisfactory to the
Representative, containing statements and information of the
type ordinarily included in accountant's "comfort letters" to
underwriters, delivered according to Statement of Auditing
Standards No. 72 (or any successor bulletin), with respect to
the audited and unaudited financial statements and the Pro
Forma Financial Statements prepared by them and certain
financial information contained in the Registration Statement
and the Prospectus (and the Representative shall have received
an additional [___] conformed copies of such accountants'
letter for each of the several Underwriters).
(ii) from Deloitte & Touche LLP, independent public
or certified public accountants for the Bailey's, a letter
dated the date hereof addressed to the Underwriters, in form
and substance satisfactory to the Representative, containing
statements and information of the type ordinarily included in
accountant's "comfort letters" to underwriters, delivered
according to Statement of Auditing Standards No. 72 (or any
successor bulletin), with respect to the audited and unaudited
financial statements prepared by them and certain financial
information contained in the Registration Statement and the
Prospectus (and the Representative shall have
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<PAGE> 21
received an additional [___] conformed copies of such
accountants' letter for each of the several Underwriters).
(b) Compliance with Registration Requirements; No Stop Order;
No Objection from NASD. For the period from and after effectiveness of
this Agreement and prior to the First Closing Date and, with respect to
the Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with
the Commission (including the information required by Rule
430A under the Securities Act) in the manner and within the
time period required by Rule 424(b) under the Securities Act;
or the Company shall have filed a post-effective amendment to
the Registration Statement containing the information required
by such Rule 430A, and such post-effective amendment shall
have become effective; or, if the Company elected to rely upon
Rule 434 under the Securities Act and obtained the
Representative's consent thereto, the Company shall have filed
a Term Sheet with the Commission in the manner and within the
time period required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of
the Registration Statement, any Rule 462(b) Registration
Statement, or any post-effective amendment to the Registration
Statement, shall be in effect and no proceedings for such
purpose shall have been instituted or threatened by the
Commission; and
(iii) the NASD shall have raised no objection to the
fairness and reasonableness of the underwriting terms and
arrangements.
(c) No Material Adverse Change or Ratings Agency Change. For
the period from and after the date of this Agreement and prior to the
First Closing Date and, with respect to the Optional Common Shares, the
Second Closing Date:
(i) in the judgment of the Representative there shall
not have occurred any Material Adverse Change; and
(ii) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change,
in the rating accorded any securities of the Company or any of
its subsidiaries by any "nationally recognized statistical
rating organization" as such term is defined for purposes of
Rule 436(g)(2) under the Securities Act.
(d) Opinion of Counsel for the Company. On each of the First
Closing Date and the Second Closing Date the Representative shall have
received the favorable opinion of Olshan Grundman Frome & Rosenzweig
LLP, counsel for the Company, dated as of such
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<PAGE> 22
Closing Date, the form of which is attached as Exhibit A (and the
Representative shall have received an additional [___] conformed copies
of such counsel's legal opinion for each of the several Underwriters).
(e) Opinion of Special Counsel for the Company. On each of the
First Closing Date and the Second Closing Date the Representative shall
have received the favorable opinion of [ ], special counsel for the
Company, dated as of such Closing Date, to the effect that the Company
and its Subsidiaries are in compliance with all applicable laws,
statutes and regulations relating to the purchase, sale or marketing of
alcoholic beverages in the States of Arkansas, Indiana, North Carolina,
South Carolina, Tennessee and Texas.
(f) Opinion of Counsel for the Underwriters. On each of the
First Closing Date and the Second Closing Date the Representative shall
have received the favorable opinion of Wilson Sonsini Goodrich &
Rosati, P.C., counsel for the Underwriters, dated as of such Closing
Date, with respect to the matters set forth in paragraphs (i) (with
respect to the Company only), (v) (with respect to subparagraph (a)
only), (vi) (with respect to due authorization, execution and deliver
of the Underwriting Agreement only), (vii), (viii) (to such counsel's
knowledge, with respect to the first two sentences only), (ix) and (xi)
(with respect to the caption "Underwriting" only) and the next-to-last
paragraph of Exhibit A (and the Representative shall have received an
additional [___] conformed copies of such counsel's legal opinion for
each of the several Underwriters).
(g) Officers' Certificate. On each of the First Closing Date
and the Second Closing Date the Representative shall have received a
written certificate executed by the Chairman of the Board, Chief
Executive Officer or President of the Company and the Chief Financial
Officer or Chief Accounting Officer of the Company, dated as of such
Closing Date, to the effect set forth in subsections (b)(ii) and
(c)(ii) of this Section 5, and further to the effect that:
(i) for the period from and after the date of this
Agreement and prior to such Closing Date, there has not
occurred any Material Adverse Change;
(ii) the representations, warranties and covenants of
the Company set forth in Section 1 of this Agreement are true
and correct with the same force and effect as though expressly
made on and as of such Closing Date; and
(iii) the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing Date.
(h) Bring-down Comfort Letter. On each of the First Closing
Date and the Second Closing Date the Representative shall have
received;
(i) from Ernst & Young LLP, independent public or
certified public accountants for the Company and Fox & Hound
Restaurant Group, a letter dated such date, in form and
substance satisfactory to the Representative, to the effect
that they reaffirm the statements made in the letter furnished
by them pursuant to
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<PAGE> 23
subsection (a)(i) of this Section 5, except that the specified
date referred to therein for the carrying out of procedures
shall be no more than three business days prior to the First
Closing Date or Second Closing Date, as the case may be (and
the Representative shall have received an additional [___]
conformed copies of such accountants' letter for each of the
several Underwriters).
(ii) from Deloitte & Touche LLP, independent public
or certified public accountants for Bailey's, a letter dated
such date, in form and substance satisfactory to the
Representative, to the effect that they reaffirm the
statements made in the letter furnished by them pursuant to
subsection (a) (ii) of this Section 5, except that the
specified date referred to therein for the carrying out of
procedures shall be no more than three business days prior to
the First Closing Date or Second Closing Date, as the case may
be (and the Representative shall have received an additional
[___] conformed copies of such accountants' letter for each of
the several Underwriters).
(i) Lock-Up Agreement from Directors, Officers and
Stockholders of the Company. On the date hereof, the Company shall have
furnished to the Representative an agreement in the form of Exhibit B
hereto from each director, officer and each beneficial owner of Common
Stock (as determined according to Rule 13d-3 under the Exchange Act),
and such agreement shall be in full force and effect on each of the
First Closing Date and the Second Closing Date.
(j) Additional Documents. On or before each of the First
Closing Date and the Second Closing Date, the Representative and
counsel for the Underwriters shall have received such information,
documents and opinions as they may reasonably require for the purposes
of enabling them to pass upon the issuance and sale of the Common
Shares as contemplated herein, or in order to evidence the accuracy of
any of the representations and warranties, or the satisfaction of any
of the conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representative by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Optional Common Shares, at any time prior
to the Second Closing Date, which termination shall be without liability on the
part of any party to any other party, except that Section 4, Section 6, Section
8 and Section 9 shall at all times be effective and shall survive such
termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement
is terminated by the Representative pursuant to Section 5, Section 7, Section 10
or Section 11, or if the sale to the Underwriters of the Common Shares on the
First Closing Date is not consummated because of any refusal, inability or
failure on the part of the Company to perform any agreement herein or to comply
with any provision hereof, the Company agrees to reimburse the Representative
and the other Underwriters (or such Underwriters as have terminated this
Agreement with respect to themselves), severally, upon demand for all
out-of-pocket expenses that shall have been reasonably incurred by the
Representative and the Underwriters in connection with the proposed purchase and
the offering
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<PAGE> 24
and sale of the Common Shares, including but not limited to fees and
disbursements of counsel, printing expenses, travel expenses, postage, facsimile
and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of
(i) the execution of this Agreement by the parties hereto and (ii) notification
by the Commission to the Company and the Representative of the effectiveness of
the Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated
by any party by notice to each of the other parties hereto, and any such
termination shall be without liability on the part of (a) the Company to any
Underwriter, except that the Company shall be obligated to reimburse the
expenses of the Representative and the Underwriters pursuant to Sections 4 and 6
hereof, (b) of any Underwriter to the Company, or (c) of any party hereto to any
other party except that the provisions of Section 8 and Section 9 shall at all
times be effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter, its officers and
employees, and each person, if any, who controls any Underwriter within
the meaning of the Securities Act and the Exchange Act against any
loss, claim, damage, liability or expense, as incurred, to which such
Underwriter or such controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or state statutory
law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the
written consent of the Company), insofar as such loss, claim, damage,
liability or expense (or actions in respect thereof as contemplated
below) arises out of or is based (i) upon any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any
information deemed to be a part thereof pursuant to Rule 430A or Rule
434 under the Securities Act, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading; or (ii) upon any untrue
statement or alleged untrue statement of a material fact contained in
any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
or (iii) in whole or in part upon any inaccuracy in the representations
and warranties of the Company contained herein; or (iv) in whole or in
part upon any failure of the Company to perform its obligations
hereunder or under law; or (v) any act or failure to act or any alleged
act or failure to act by any Underwriter in connection with, or
relating in any manner to, the Common Stock or the offering
contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based
upon any matter covered by clause (i) or (ii) above, provided that the
Company shall not be liable under this clause (v) to the extent that a
court of competent jurisdiction shall have determined by a final
judgment that
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<PAGE> 25
such loss, claim, damage, liability or action resulted directly from
any such acts or failures to act undertaken or omitted to be taken by
such Underwriter through its bad faith or willful misconduct; and to
reimburse each Underwriter and each such controlling person for any and
all expenses (including the fees and disbursements of counsel chosen by
Montgomery Securities) as such expenses are reasonably incurred by such
Underwriter or such controlling person in connection with
investigating, defending, settling, compromising or paying any such
loss, claim, damage, liability, expense or action; provided, however,
that the foregoing indemnity agreement shall not apply to any loss,
claim, damage, liability or expense to the extent, but only to the
extent, arising out of or based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information furnished to the Company by
the Representative expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or
supplement thereto); and provided, further, that with respect to any
preliminary prospectus, the foregoing indemnity agreement shall not
inure to the benefit of any Underwriter from whom the person asserting
any loss, claim, damage, liability or expense purchased Common Shares,
or any person controlling such Underwriter, if copies of the Prospectus
were timely delivered to the Underwriter pursuant to Section 2 and a
copy of the Prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not
sent or given by or on behalf of such Underwriter to such person, if
required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Common Shares to such person, and if
the Prospectus (as so amended or supplemented) would have cured the
defect giving rise to such loss, claim, damage, liability or expense.
The indemnity agreement set forth in this Section 8(a) shall be in
addition to any liabilities that the Company may otherwise have.
(b) Indemnification of the Company, its Directors and
Officers. Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each of its directors, each of
its officers who signed the Registration Statement and each person, if
any, who controls the Company within the meaning of the Securities Act
or the Exchange Act, against any loss, claim, damage, liability or
expense, as incurred, to which the Company, or any such director,
officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of
any litigation, if such settlement is effected with the written consent
of such Underwriter), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises
out of or is based upon any untrue or alleged untrue statement of a
material fact contained in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto),
or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
the Registration Statement, any preliminary prospectus, the Prospectus
(or any amendment or supplement thereto), in reliance upon and in
conformity with written information furnished to the Company by the
Representative expressly for use therein; and to reimburse the Company,
or any such director, officer or controlling person for any legal and
other expense reasonably incurred by the Company, or any such director,
officer or controlling person in connection with investigating,
defending, settling, compromising or paying any
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<PAGE> 26
such loss, claim, damage, liability, expense or action. The Company
hereby acknowledges that the only information that the Underwriters
have furnished to the Company expressly for use in the Registration
Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) are the statements set forth (A) as
the first paragraph on the inside front cover page of the Prospectus
concerning stabilization by the Underwriters and (B) in the table in
the first paragraph and as the fifth and eighth paragraphs under the
caption "Underwriting" in the Prospectus; and the Underwriters confirm
that such statements are correct. The indemnity agreement set forth in
this Section 8(b) shall be in addition to any liabilities that each
Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures.
Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying
party under this Section 8, notify the indemnifying party in writing of
the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent it
is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an
indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it shall elect, jointly with
all other indemnifying parties similarly notified, by written notice
delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that a conflict may arise between
the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal
defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select
separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of such indemnifying party's election so to
assume the defense of such action and approval by the indemnified party
of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding
sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel
(together with local counsel), approved by the indemnifying party
(Montgomery Securities in the case of Section 8(b) and Section 9),
representing the indemnified parties who are parties to such action) or
(ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the
action, in each of which cases the fees and expenses of counsel shall
be at the expense of the indemnifying party.
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(d) Settlements. The indemnifying party under this Section 8
shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party
agrees to indemnify the indemnified party against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by
Section 8(c) hereof, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request
and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of
such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise or
consent to the entry of judgment in any pending or threatened action,
suit or proceeding in respect of which any indemnified party is or
could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise
or consent includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of such
action, suit or proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any reason held
to be unavailable to or otherwise insufficient to hold harmless an indemnified
party in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount paid or payable by such indemnified party, as incurred, as a
result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Underwriters, on the
other hand, from the offering of the Common Shares pursuant to this Agreement or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, on the one hand, and the Underwriters, on the other hand, in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Underwriters, on the other hand, in connection with the offering of the
Common Shares pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Common
Shares pursuant to this Agreement (before deducting expenses) received by the
Company, and the total underwriting discount received by the Underwriters, in
each case as set forth on the front cover page of the Prospectus (or, if Rule
434 under the Securities Act is used, the corresponding location on the Term
Sheet) bear to the aggregate initial public offering price of the Common Shares
as set forth on such cover. The relative fault of the Company, on the one hand,
and the Underwriters, on the other hand, shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact or any
such inaccurate or alleged inaccurate representation or warranty relates to
information supplied by the Company, on the one
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<PAGE> 28
hand, or the Underwriters, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined solely by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representative with the consent of the non-defaulting
Underwriters, to purchase the Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Representative and the Company for
the purchase of such Common Shares are not made
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<PAGE> 29
within 48 hours after such default, this Agreement shall terminate without
liability of any party to any other party except that the provisions of Section
4, Section 6, Section 8 and Section 9 shall at all times be effective and shall
survive such termination. In any such case either the Representative or the
Company shall have the right to postpone the First Closing Date or the Second
Closing Date, as the case may be, but in no event for longer than seven days in
order that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date this Agreement maybe terminated by the Representative by notice given to
the Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the NASD; (ii) a general
banking moratorium shall have been declared by any of federal, New York,
Delaware or California authorities; (iii) there shall have occurred any outbreak
or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective substantial
change in United States' or international political, financial or economic
conditions, as in the judgment of the Representative is material and adverse and
makes it impracticable to market the Common Shares in the manner and on the
terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Representative there shall have occurred
any Material Adverse Change; or (v) the Company shall have sustained a loss by
strike, fire, flood, earthquake, accident or other calamity of such character as
in the judgment of the Representative may interfere materially with the conduct
of the business and operations of the Company regardless of whether or not such
loss shall have been insured. Any termination pursuant to this Section 11 shall
be without liability on the part of (a) the Company to any Underwriter, except
that the Company shall be obligated to reimburse the expenses of the
Representative and the Underwriters pursuant to Sections 4 and 6 hereof, (b) any
Underwriter to the Company, or (c) of any party hereto to any other party except
that the provisions of Section 8 and Section 9 shall at all times be effective
and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Common Shares sold hereunder and any termination of this Agreement.
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<PAGE> 30
SECTION 13. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representative:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
Total Entertainment Restaurant Corp.
300 Cresent Court
Building 300, Suite 850
Dallas, Texas 75201
Facsimile: [___]
Attention: (212) 754-0414
with a copy to:
Olshan Grundman Frome & Rosenzweig LLP
505 Parker Avenue
New York, New York 10022
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and no other person will have any right
or obligation hereunder. The term "successors" shall not include any purchaser
of the Common Shares as such from any of the Underwriters merely by reason of
such purchase.
26
<PAGE> 31
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
SECTION 17. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
counterparts, each one of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument. This Agreement
may not be amended or modified unless in writing by all of the parties hereto,
and no condition herein (express or implied) may be waived unless waived in
writing by each party whom the condition is meant to benefit. The Table of
Contents and the Section headings herein are for the convenience of the parties
only and shall not affect the construction or interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
TOTAL ENTERTAINMENT RESTAURANT CORP.
By:
----------------------------------------
Jamie B. Coulter
Chairman of the Board of Directors
27
<PAGE> 32
The foregoing Underwriting Agreement is hereby confirmed and accepted by the
Representative in San Francisco, California as of the date first above written.
MONTGOMERY SECURITIES
Acting as Representative of the several Underwriters named in the attached
Schedule A.
By: MONTGOMERY SECURITIES
By:
-------------------------------
Richard A. Smith
Authorized Signatory
28
<PAGE> 33
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM
COMMON SHARES
UNDERWRITERS TO BE PURCHASED
------------ ---------------
<S> <C>
Montgomery Securities [_________]
---------
Total 2,000,000
=========
</TABLE>
<PAGE> 34
EXHIBIT A
Opinion of Olshan Grundman Frome & Rosenzweig LLP to be
delivered pursuant to Section 5(d) of the Underwriting Agreement. Capitalized
terms not otherwise defined herein shall have the meaning set forth in the
Underwriting Agreement.
(i) The Company and each of its Subsidiaries has been duly
organized and is validly existing as a corporation (or, in the case of
a Subsidiary Limited Partnership, as a limited partnership) in good
standing under the laws of its jurisdiction of organization, has full
power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus, and is duly qualified to do business as a foreign
corporation or entity and is in good standing in all other
jurisdictions where the ownership or leasing of properties or the
conduct of its business requires such qualification, except for
jurisdictions in which the failure to so qualify would not result in a
Material Adverse Change.
(ii) The Company has corporate power and authority to enter
into and perform its obligations under the Underwriting Agreement.
(iii) All of the issued and outstanding capital stock of each
Subsidiary that is a corporation has been duly authorized and validly
issued, is fully paid and non-assessable and is owned by the Company,
directly or through Subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance or, to the best knowledge
of such counsel, any pending or threatened claim. All of the issued and
outstanding ownership interests of each Subsidiary Limited Partnership
has been duly authorized and validly issued, is fully paid and
nonassessable and is owned by the Company, directly or through
Subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance or claim.
(iv) The authorized, issued and outstanding capital stock of
the Company (including the Common Stock) conforms to the description
thereof set forth in the Prospectus. All of the outstanding shares of
Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable and have been issued in compliance with the
registration and qualification requirements of federal and state
securities laws. The form of certificate used to evidence the Common
Stock is in due and proper form and complies with all applicable
requirements of the charter and by-laws of the Company and the General
Corporation Law of the State of Delaware. The description of the
Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus accurately and fairly presents
the information required to be shown with respect to such plans,
arrangements, options and rights.
(v) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (a) by
operation of the charter or by-laws of the Company or the General
A-1
<PAGE> 35
Corporation Law of the State of Delaware or (b) to the best knowledge
of such counsel, otherwise.
(vi) The Underwriting Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles.
(vii) The Common Shares to be purchased by the Underwriters
from the Company have been duly authorized for issuance and sale
pursuant to the Underwriting Agreement and, when issued and delivered
by the Company pursuant to the Underwriting Agreement against payment
of the consideration set forth therein, will be validly issued, fully
paid and nonassessable.
(viii) The Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the
Commission under the Securities Act. To the best knowledge of such
counsel, no stop order suspending the effectiveness of either of the
Registration Statement or the Rule 462(b) Registration Statement, if
any, has been issued under the Securities Act and no proceedings for
such purpose have been instituted or are pending or are contemplated or
threatened by the Commission. Any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) under the Securities Act
has been made in the manner and within the time period required by such
Rule 424(b).
(ix) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus, and each amendment or
supplement to the Registration Statement and the Prospectus, as of
their respective effective or issue dates (other than the financial
statements and supporting schedules, or other financial information or
statistical data derived therefrom, included therein or in exhibits to
or excluded from the Registration Statement, as to which no opinion
need be rendered) comply as to form in all material respects with the
applicable requirements of the Securities Act.
(x) The Common Shares have been approved for listing on the
Nasdaq National Market.
(xi) The statements (i) in the Prospectus under the captions
"Description of Capital Stock", "Business--Legal Matters", "Certain
Transactions" and "Shares Eligible for Future Sale" and (ii) in Item 14
and Item 15 of the Registration Statement, insofar as such statements
constitute matters of law, summaries of legal matters, the Company's
charter or by-law provisions, documents or legal proceedings, or legal
conclusions, has been reviewed by such counsel and fairly present and
summarize, in all material respects, the matters referred to therein.
A-2
<PAGE> 36
(xii) To the best knowledge of such counsel, there are no
legal or governmental actions, suits or proceedings pending or
threatened which are required to be disclosed in the Registration
Statement.
(xiii) To the best knowledge of such counsel, there are no
Existing Instruments required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto other than
those described or referred to therein or filed as exhibits thereto;
and the descriptions thereof and references thereto are correct in all
material respects.
(xiv) No consent, approval, authorization or other order of,
or registration or filing with, any court or other governmental
authority or agency, is required for the Company's execution, delivery
and performance of the Underwriting Agreement and consummation of the
transactions contemplated thereby and by the Prospectus, except as
required under the Securities Act, applicable state securities or blue
sky laws and from the NASD.
(xv) The execution and delivery of the Underwriting Agreement
by the Company and the performance by the Company of its obligations
thereunder (other than performance by the Company of its obligations
under the indemnification section of the Underwriting Agreement, as to
which no opinion need be rendered) (a) have been duly authorized by all
necessary corporate action on the part of the Company; (b) will not
result in any violation of the provisions of the charter or by-laws of
the Company or any Subsidiary; (c) will not, to the best knowledge of
such counsel, constitute a breach of, or Default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its Subsidiaries, or any
material Existing Instrument; or (d) to the best knowledge of such
counsel, will not result in any violation of any law, administrative
regulation or administrative or court decree applicable to the Company
or any subsidiary.
(xvi) The Company is not, and after receipt of payment for the
Common Shares will not be, an "investment company" within the meaning
of Investment Company Act.
(xvii) To the best knowledge of such counsel, there are no
persons with registration or other similar rights to have any equity or
debt securities registered for sale under the Registration Statement or
included in the offering contemplated by the Underwriting Agreement.
(xviii) Neither the Company nor any Subsidiary is in violation
of its charter or by-laws or other organizational document; to the best
of such counsel's knowledge, neither the Company nor any Subsidiary (a)
is in violation of any law, administrative regulation or administrative
or court decree applicable to the Company or any Subsidiary or (b) is
in Default in the performance or observance of any obligation,
agreement, covenant or condition contained in any material Existing
Instrument, except in each such case for such violations or Defaults as
would not, individually or in the aggregate, result in a Material
Adverse Change.
A-3
<PAGE> 37
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants for
the Company and with representatives of the Underwriters at which the contents
of the Registration Statement and the Prospectus, and any supplements or
amendments thereto, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (other than as specified above), and
any supplements or amendments thereto, on the basis of the foregoing, nothing
has come to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the Registration
Statement or such amendments became effective, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief as to
the financial statements or schedules or other financial or statistical data
derived therefrom, included in the Registration Statement or the Prospectus or
any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the laws of the
State of New York, the General Corporation Law of the State of Delaware or the
federal law of the United States, to the extent they deem proper and specified
in such opinion, upon the opinion (which shall be dated the First Closing Date
or the Second Closing Date, as the case may be, shall be satisfactory in form
and substance to the Underwriters, shall expressly state that the Underwriters
may rely on such opinion as if it were addressed to them and shall be furnished
to the Representative) of other counsel of good standing whom they believe to be
reliable and who are satisfactory to counsel for the Underwriters; provided,
however, that such counsel shall further state that they believe that they and
the Underwriters are justified in relying upon such opinion of other counsel,
and (B) as to matters of fact, to the extent they deem proper, on certificates
of responsible officers of the Company and public officials.
A-4
<PAGE> 38
EXHIBIT B
March , 1997
Montgomery Securities
As Representative of the Several Underwriters
600 Montgomery Street
San Francisco, California 94111
RE: TOTAL ENTERTAINMENT RESTAURANT CORP. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
representative of the underwriters. The undersigned recognizes that the Offering
will be of benefit to the undersigned and will benefit the Company by, among
other things, raising additional capital for its operations. The undersigned
acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of Montgomery Securities
(which consent may be withheld in its sole discretion), directly or indirectly,
sell, offer, contract or grant any option to sell (including without limitation
any short sale), pledge, transfer, establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934,
or otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock, or securities exchangeable or exercisable for or
convertible into shares of Common Stock currently or hereafter owned either of
record or beneficially (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934, as amended) by the undersigned, or publicly announce the
undersigned's intention to do any of the foregoing, for a period commencing on
the date hereof and continuing through the close of trading on the date 180 days
after the date of the Prospectus. The undersigned also agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent and
registrar
B-1
<PAGE> 39
against the transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of any Common Stock
owned either of record or beneficially by the undersigned, including any rights
to receive notice of the Offering.
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
Printed Name of Stockholder: __________________________
By: ___________________________________________________
Signature
Printed Name of Person Signing: __________________________
(If different from name of stockholder)
(Please indicate capacity of person
signing if signing as custodian, trustee,
or on behalf of an entity)
B-2
<PAGE> 40
ANNEX I - SUBSIDIARIES
Bailey's Sports Grille, Inc.
F&H Restaurant Corp.
Fox & Hound, Inc.
Fox & Hound II, Inc.
N. Collins Entertainment, Ltd.
505 Entertainment, Ltd.
Midway Entertainment, Ltd.
F&H Dallas, L.P.
<PAGE> 1
EXHIBIT 3.1.1
Certificate of Amendment
of
Certificate of Incorporation
of
EATERTAINMENT INC.
Under Section 242 of the General Corporation Law
-----------------------------
It is hereby certified that:
1. The name of the corporation is Eatertainment Inc. (the
"Corporation").
2. The certificate of incorporation of the Corporation is hereby
amended by striking out Article FIRST thereof and by substituting in lieu of
said Article the following new Article:
"FIRST: The name of the corporation (hereinafter sometimes
called the "Corporation") is Total Entertainment Restaurant
Corp."
3. The amendment of the certificate of incorporation herein
certified has been duly adopted in accordance with the provisions of Sections
228 and 242 of the General Corporation Law of the State of Delaware and written
consent of stockholders has been given in accordance with Section 228 of the
General Corporation Law of the State of Delaware. Prompt written notice of the
adoption of the amendment herein certified shall be given to those stockholders
who have not consented in writing thereto, as provided in Section 228(d) of the
General Corporation Law of the State of Delaware.
Signed and acknowledged on June 11, 1997.
EATERTAINMENT INC.
By: /s/James K. Zielke
--------------------------
James K. Zielke
Chief Financial Officer
<PAGE> 1
COMMON STOCK
[TENT]
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 89150E 10 0
TOTAL ENTERTAINMENT RESTAURANT CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $0.01 PAR VALUE, OF
- -------------------- TOTAL ENTERTAINMENT RESTAURANT CORP. --------------------
transferable only on the books of the Corporation by the holder hereof in
person or by duly authorized attorney upon surrender of this certificate
properly endorsed.
This certificate and the shares of Common Stock represented hereby are
received and held subject to the laws of the State of Delaware and to the
Certificate of Incorporation and the Bylaws of the Corporation all as from time
to time amended, and the owner of this certificate by accepting the same
expressly assents thereto. This certificate is not valid unless countersigned
by the Transfer Agent and registered by the Registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by the facsimile signatures of its duly authorized officers and a
facsimile of its corporate seal to be hereunto affixed.
Dated TOTAL ENTERTAINMENT RESTAURANT CORP.
[CORPORATE SEAL]
/s/ James K. Zielke /s/ Gary M. Judd
- ------------------------ ----------------------
SECRETARY/TREASURER PRESIDENT
COUNTERSIGNED AND REGISTERED
FIRST UNION NATIONAL BANK
(CHARLOTTE, N.C.) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
The Corporation is authorized to issue Common Stock, $0.01 par value, and
Preferred Stock, $0.10 par value, which may be issued in one or more series. A
statement of the respective powers, designations, preferences and relative,
participating, optional or other special rights of the Common Stock and any
such series of Preferred Stock will be furnished without charge to the holder
of record of this certificate upon written request to the Secretary of the
Corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT -- Custodian
----------------- ---------------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
--------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
shares
- -----------------------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ---------------------------------------------------------------------
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated
-----------------------------
----------------------------------------
----------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
----------------------------------------
SIGNATURE(S) GUARANTEED: THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION: (BANKS,
STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM) PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 5.1
[OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP LETTERHEAD]
June 19, 1997
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Total Entertainment Restaurant Corp.
------------------------------------
Gentlemen:
We have acted as counsel to Total Entertainment Restaurant Corp. (formerly
known as Eatertainment Inc.), a Delaware corporation (the "Company"), in
connection with its filing of a registration statement on Form S-1, as amended
(the "Registration Statement"), relating to 2,415,000 shares (the "Shares") of
its Common Stock, $.01 par value (the "Common Stock"), including up to 315,000
Shares subject to an over-allotment option, all as more particularly described
in the Registration Statement.
In our capacity as counsel to the Company, we have examined the Company's
Certificate of Incorporation and By-Laws, as amended to date, and such other
documents as we have considered appropriate for purposes of this opinion.
With respect to factual matters, we have relied upon statements and
certificates of officers of the Company. We have also reviewed such other
matters of law and examined and relied upon such other documents, records and
certificates as we have deemed relevant hereto. In all such examinations we have
assumed conformity with the original documents of all documents submitted to
us as conformed or photostatic copies, the authenticity of all
<PAGE> 2
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
Securities and Exchange Commission
June 19, 1997
Page -2-
documents submitted to us as originals and the genuineness of all signatures on
all documents submitted to us.
On the basis of the foregoing, we are of the opinion that the Shares
have been validly authorized and will, when sold as contemplated by the
Registration Statement, be legally issued, fully paid and non-assessable.
We advise you that Steven Wolosky, a member of this firm, will serve as
a director of the Company immediately following the offering. Mr. Wolosky
currently owns 29,920 shares of Common Stock of the Company. In addition,
Mr. Wolosky will be granted an option to purchase 10,000 shares of Common Stock
pursuant to the Company's 1997 Directors' Stock Option Plan on the date of the
prospectus included in the Registration Statement.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to us under the caption "Legal
Matters" in the prospectus constituting part of the Registration Statement.
Very truly yours,
/s/ OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
<PAGE> 1
EXHIBIT 10.1
SERVICES AGREEMENT
THIS AGREEMENT, made this ____ day of ________, 1997, by and between Total
Entertainment Restaurant Corp., a Delaware Corporation, hereafter referred to as
"TENT", and Coulter Enterprises, Inc., a Kansas Corporation, hereafter referred
to as "CEI".
WHEREAS, TENT owns and operates entertainment restaurant locations and
plans to develop and operate additional entertainment restaurant locations; and
WHEREAS, CEI has substantial experience and expertise in providing
accounting and administrative services, hereafter referred to as "Services", to
restaurant operations; and
WHEREAS, TENT desires to obtain Services from CEI, and CEI is agreeable to
provide such Services;
NOW, THEREFORE, the parties hereto intending to be legally bound hereby
agree as follows:
1. Services.
1.01 During the term of this Agreement, CEI shall provide to TENT
such Services as more fully described and defined in Exhibit A, as may be
necessary or desirable, or as may be reasonably requested or required, in
connection with the accounting and administrative needs of TENT, including its
existing entertainment restaurant locations and new restaurant development, as
well.
1.02 "Services" means and includes, without limitation,
administrative and accounting assistance as hereinafter provided.
1.03 TENT personnel may continue to use CEI's photocopy machines,
computer, telephones, support staff, and other office related equipment,
materials, and supplies, and CEI agrees that it shall remain solely responsible
for the upkeep, maintenance, and repair for all such equipment and that it (CEI)
is responsible for all utility charges and other costs of operations associated
with said equipment.
1.04 CEI agrees to provide reasonable amounts of office space to
TENT for its executives and administrative personnel. CEI shall not be obligated
to lease additional space beyond that presently leased by CEI on the seventh
floor of the Kress Energy Center nor provide additional space if it has a
negative impact on CEI's operations.
<PAGE> 2
1.05 If additional office space is required in order to adequately
meet TENT needs, the parties agree to prorate the lease rental and other related
costs on an equitable basis.
2. Limitation of Loss.
2.01 CEI shall not be liable to TENT for any loss sustained as a
result of an act, omission or error in judgment, unless CEI acted, or failed to
act, and such act or failure to act was constituted in bad faith.
2.02 While the amount of time and personnel required for performance
by CEI hereunder will necessarily vary depending upon the nature and type of
Services, CEI shall devote such time and effort to make available such personnel
as may, from time to time, reasonably be required for the performance of
Services hereunder.
2.03 TENT agrees to fully cooperate with CEI and to respond in a
timely manner to questions, issues, etc, that are raised by CEI in order that
CEI can fully perform the services contemplated herein.
3. Term.
3.01 This Agreement shall commence effective as of ___________,
1997, and shall expire on December 31, 1997 and shall automatically renew for
successive one (1) year periods, unless and until terminated by either party, at
any time and for any reason, upon not less than sixty (60) days prior written
notice to the other.
4. Compensation.
4.01 The parties agree to the following method of compensation for
the Services to be rendered:
$94,000.00 annually payable at the rate of $________ per four (4) week
accounting period and $426.00 for each entertainment restaurant location
operated by TENT per 28- day period, plus payment for out-of-pocket
expenses, which fee is payable on a period-by-period basis.
Payment is due by the 15th day following the end of the period.
The parties agree that if this Agreement is renewed, to review the actual
experience and costs of CEI and to utilize good faith in considering an
adjustment to the compensation formula to be used for the renewal period.
In any event,
-2-
<PAGE> 3
the restructured compensation formula is subject to the approval of the
outside board members of TENT.
5. Force Majure.
5.01 CEI shall not be deemed to be in violation of this Agreement if
it is prevented from performing any of its obligations hereunder for any reason
beyond its control, including without limitation acts of God, the elements,
fire, flood or due to any other cause which is beyond the control of CEI.
6. CEI Propriety.
6.01 It is expressly understood that the systems, methods,
procedures and controls employed by CEI in the performance of this Agreement are
proprietary in nature and shall remain the property of CEI and shall, at no
time, be utilized, distributed, copied or otherwise employed by TENT except in
pursuance of the terms and objectives of its business. TENT shall not employ, or
seek to employ, any person who is at the time employed by CEI without first
obtaining the written consent of CEI.
7. Indemnity.
7.01 TENT shall defend, indemnify, save and hold harmless CEI, its
officers, directors, employees, and agents from and against any obligation,
liability, cost or damage resulting from TENT's actions under the terms of this
Agreement, except to the extent occasioned by gross negligence or willful
misconduct of CEI officers, directors or employees.
8. Confidential Information.
8.01 CEI shall not, at any time during or following the termination
or expiration for any reason of this Agreement, directly or indirectly,
disclose, publish or divulge to any person (except where necessary in connection
with the furnishing of Services under this Agreement), appropriate or use, or
cause or permit any other person to appropriate or use, any of TENT's recipes,
marks, trade secrets, copyrights or other proprietary, secret or confidential
information not then publicly available.
9. General.
9.01 This Agreement constitutes the entire agreement of the parties
with respect to the transactions contemplated hereby, and may not be modified,
amended, altered or supplemented, except upon the execution and delivery of a
written Agreement executed by the parties hereto.
-3-
<PAGE> 4
9.02 TENT shall include all subsidiary corporations which operate
entertainment restaurant locations.
9.03 All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given if personally delivered, or mailed by regular
first class mail, in each case, however, only against receipt, or if mailed by
first class registered or certified mail, return receipt requested, addressed to
the parties as follows:
CEI (Coulter Enterprises, Inc.)
TENT (Total Entertainment Restaurant Corp.)
Any such notice, etc., shall be deemed to have been given on the date actually
received, if personally delivered or mailed by overnight or by regular first
class mail, or on the third day after the date of mailing, if mailed by
registered or certified mail.
9.04 Neither this Agreement, nor any of the rights or obligations
hereunder, may be transferred, assigned or delegated, in whole or in part, by
either party without the other party's prior written consent Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of,
and be enforceable by the parties hereto and their respective legal
representatives, successors and assigns, but no other person or entity shall
require or have any rights under this Agreement.
9.05 This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Kansas applicable to contracts made
and to be performed exclusively therein, without giving effect to the principles
of conflict of laws.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
TOTAL ENTERTAINMENT RESTAURANT
CORP.
By:___________________________________
Name:
Title:
ATTEST:
By:___________________________________
Name:
Title:
COULTER ENTERPRISES, INC.
By:___________________________________
Name:
Title:
ATTEST:
By:___________________________________
Name:
Title:
-5-
<PAGE> 6
EXHIBIT A
ACCOUNTING: Accounting services including, but not limited to, the following:
A. Payroll Services
1. Processing and payment of bi-weekly payrolls and other
inter-period payroll disbursements;
2. Preparation of all federal and state payroll tax returns,
including preparation of all W-2's;
3. Timely payment or deposit of payroll taxes.
B. Accounting Services
1. Processing and payment of accounts payable;
2. Processing and payment of fixed payables (rent, note payments,
etc.);
3. Maintenance and retention of files and records for not less
than five (5) years;
4. Preparation and distribution of four (4) week period financial
statements;
5. Preparation of information necessary for auditing and
preparation of federal and state income tax returns by an
approved CPA firm. (Actual cost of auditing and tax return
preparation by CPA designated by TENT to be paid by TENT.)
C. Miscellaneous Services
1. All forms required for use by TENT will be provided at a price
not to exceed the cost of the form;
2. Weekly report covering significant operational items of TENT's
restaurant;
3. Daily operating report for each restaurant.
-6-
<PAGE> 7
ADMINISTRATIVE:
A. Administrative Services
1. Work with tax and legal representatives of TENT as necessary;
2. Provide documentation required for any necessary financing
arrangements;
3. Make cost analysis as necessary or required;
4. Keep TENT's employees current as to accounting and operating
policies;
5. Oversee preparation of plans and specifications for
construction of new restaurants;
6. Coordinate with architects and contractors;
7. Assist in negotiation of leases and purchase contracts and
prepare appropriate documentation;
8. Assist in the identification and approval of new entertainment
restaurant sites.
-7-
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Agreement is entered into effective as of this _______________
day of ____, 1997, by and between Total Entertainment Restaurant Corp., a
Delaware corporation (the "Corporation"), and Gary M. Judd ("Employee").
RECITALS
WHEREAS, Employee is currently serving as Chief Executive Officer,
President and Chief Operating Officer of the Corporation and various
subsidiaries of the Corporation; and
WHEREAS, Employee is a principal officer of the Corporation and an
integral part of its management;
WHEREAS, the Corporation desires to continue the services of Employee,
whose experience, knowledge and abilities with respect to the business and
affairs of the Corporation are extremely valuable to the Corporation; and
WHEREAS, the parties hereto desire to enter into this Agreement setting
forth the terms and conditions of the continued employment relationship of the
Corporation and Employee.
NOW THEREFORE, it is agreed as follows:
ARTICLE I
1.1 Term of Employment. The Corporation shall initially employ
Employee for a period of five years from the date hereof (the "Initial Term").
1.2 Extension of Initial Term. Upon each annual anniversary date of
this Agreement, commencing at the last day of the last year of the Initial Term,
this Agreement shall be extended automatically for successive terms of one year
each, unless either the Corporation or Employee gives contrary written notice to
the other not later than 90 days prior to the annual anniversary date thereof.
ARTICLE II
Duties of Employee
General Duties. Employee shall serve as Chief Executive Officer,
President and Chief Operating Officer of the Corporation. He shall do and
perform all services, acts, or things
<PAGE> 2
necessary or advisable to manage and conduct the business of the Corporation
consistent with such position subject to such policies and procedures as may be
established by the Board.
Employee shall: (i) devote his entire business time, attention, and
energies to the business of the Corporation, and (ii) faithfully and
competently perform his duties hereunder; and, Employee shall not, during the
term of this Agreement, engage in any other business activity except as
permitted by Article 8.
ARTICLE III
Compensation
3.1 Salary. For Employee's services to the Corporation as Chief
Executive Officer, President and Chief Operating Officer, from ____________,
1997 until the termination of this Agreement, Employee shall be paid a salary
at the annual rate of $175,000 (herein referred to as "Salary") payable in
twenty-four equal installments on the first and fifteenth day of each month. On
the first day of each calendar year during the term of this Agreement with the
Corporation, Employee shall be eligible for an increase in Salary based on
recommendations made by the Compensation Committee of the Board.
3.2 Stock Options. The Corporation shall grant to Employee options (the
"Options") to purchase 100,000 shares of common stock, $0.01 par value per
share (the "Common Stock"), pursuant to the Corporation's 1997 Incentive and
Nonqualified Stock Option Plan (the "Plan"), subject to stockholder approval of
the Plan. The grant date of the Options shall be the effective date of the
Corporation's initial public offering of its Common Stock (the "Grant Date").
Twenty percent (20%) of the Options shall vest per year, for the first five
years on the first five anniversaries of the Grant Date. The Options shall
expire on the tenth anniversary of the Grant Date. The exercise price of the
Options shall be the initial public offering price of the Corporation's Common
Stock.
3.3 Bonus. In addition to participation in the 1997 Incentive and
Nonqualified Stock Option Plan of the Corporation, Employee is eligible to
participate in all bonus compensation plans, if any, which may be offered from
time to time.
ARTICLE IV
Employee Benefits
4.1 Medical, Life and Disability Insurance Benefits. The Corporation
shall provide Employee with the medical, life and disability insurance benefits
in accordance with the established benefit policies of the Corporation.
4.2 Business Expenses. Employee shall be authorized to incur reasonable
expenses for promoting the business of the Corporation including expenses for
entertainment, travel, and
-2-
<PAGE> 3
similar items. The Corporation shall reimburse Employee for all such expenses
upon the presentation by Employee, from time to time, of an itemized account of
such expenditures.
4.3 Vacations. Employee shall be entitled to an annual paid
vacation commensurate with the Corporation's established vacation policy for
executive officers. The timing of paid vacations shall be scheduled in a
reasonable manner by Employee.
4.4 Disability. Upon Disability (as defined herein) of Employee,
Employee shall be entitled to receive an amount equal to 50% of his salary (in
addition to any disability insurance benefits received pursuant to Section 4.2
herein), such amount being paid semi-monthly in twelve equal installments.
ARTICLE V
Termination
-----------
5.1 Death. Employee's employment hereunder shall be terminated
upon Employee's death.
5.2 Disability. The Corporation may terminate Employee's
employment hereunder in the event Employee is disabled and such disability
continues for more than 180 days. "Disability" shall be defined as the
inability of Employee to render the services required of him under this
Agreement as a result of physical or mental incapacity.
5.3 Cause.
(a) The Corporation may terminate Employee's employment hereunder
for Cause. For the purposes of this Agreement, "Cause" shall mean the (i)
willful and intentional failure by Employee to substantially perform his duties
hereunder, other than any failure resulting from Employee's incapacity due to
physical or mental incapacity, or (ii) commission by Employee, in connection
with his employment by the Corporation, of an illegal act or any act (though
not illegal) which is not in the ordinary course of Employee's responsibilities
and which exposes the Corporation to a significant level of undue liability.
For purposes of this paragraph, no act or failure to act on Employee's part
shall be considered to have met either of the preceding tests unless done or
omitted to be done by Employee not in good faith without a reasonable belief
that his action or omission was in the best interest of the Corporation.
(b) Notwithstanding the foregoing, Employee shall not be deemed to
have been terminated for Cause unless and until there shall have been delivered
to Employee a copy of a resolution, duly adopted by the majority vote of the
Board of Directors.
5.4 Compensation Upon Termination for Cause or Upon Resignation by
Employee. Except as otherwise set forth in Section 5.6 hereof, if Employee's
employment shall be terminated for Cause or if Employee shall resign his
position with the Corporation, the Corporation shall pay Employee's
compensation only through the last day of Employee's
-3-
<PAGE> 4
employment by the Corporation. The Corporation shall then have no further
obligation to Employee under this Agreement.
5.5 Involuntary Termination. If:
(i) Employee is terminated by the Corporation at any time
prior to the termination of this Agreement for reasons other
than Cause; or
(ii) if the Corporation gives notice to Employee, in
accordance with Section 1.2 herein, that this Agreement will
not be renewed:
Employee shall be paid, over the ensuing six (6) month period, a sum
equal to the cash compensation paid to him excluding all bonuses of
any kind by the Corporation for the six (6) month period immediately
preceding such termination or non-renewal. Such six (6) month period,
as the case may be, shall begin: (i) on the date of termination in the
case of termination of Employee's employment; or (ii) on the date
notice of non-renewal is given in the case of termination of this
Agreement not accompanied by simultaneous termination of Employee's
employment with the Corporation.
ARTICLE VI
No Obligation to Mitigate Damages; No Effect
on Other Contractual Rights
6.1 No Mitigation. Employee shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
provided for under this Agreement be reduced by any compensation earned by
Employee as the result of employment by another employer after Employee's
termination or resignation.
6.2 Other Contractual Rights. The provisions of this Agreement,
and any payment provided for hereunder, shall not reduce any amount otherwise
payable, or in any way diminish Employee's existing rights, or rights which
would accrue solely as a result of passage of time under any employee benefit
plan or other contract, plan or arrangement of which Employee is a beneficiary
or in which he participates.
ARTICLE VII
Successors to the Corporation
7.1 Employee's Successors and Assigns. This Agreement shall inure
to the benefit of and be enforceable by Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die while any amounts are still
payable to him hereunder, all such amounts, unless otherwise provided herein,
shall be
-4-
<PAGE> 5
paid in accordance with the terms of this Agreement to Employee's devisee,
legatee or other designee or, if there by no such designee, to Employee's
estate.
ARTICLE VIII
Restrictions on Employee
8.1 Non-Disclosure; Non-Solicitation. Except in the performance of
his duties hereunder, at no time during the Term of Employment and for eighteen
(18) months after the termination hereof, shall Employee, individually or
jointly with others, for the benefit of Employee or any third party, publish,
disclose, use, or authorize anyone else to publish, disclose, or use, any
secret or confidential material or information relating to any aspect of the
business or operations of the Corporation, including, without limitation, any
secret or confidential information relating to the business, customers, trade
or industrial practices, trade secrets, technology, recipes or know-how of the
Corporation. Except in the performance of his duties hereunder, at no time
during the Initial Term or any additional term or six (6) months thereafter,
shall Employee for himself or on behalf of any other person or entity contact
any employee of the Corporation for the purpose of hiring, diverting or
otherwise soliciting the employee.
8.2 Non-Competition. During the Initial Term or any additional
term and for twenty-four (24) months thereafter, regardless of any termination
pursuant to Section 6 or any voluntary termination or resignation by Employee,
Employee shall not, individually or jointly with others, directly or
indirectly, whether for his own account or for that of any other person or
entity, own or hold any ownership interest in any person or entity engaged in a
business the same as or similar to any Business (as defined herein) of the
Corporation without the Corporation's written consent. For the purposes of this
Agreement, "Business" shall mean a facility or social gathering place which may
include restaurant operations with games of skill, including but not limited to
pool, snooker, billiards, enteractive or passive video games or multiple
television sets.
ARTICLE IX
Miscellaneous
9.1 Indemnification. To the full extent permitted by law, the
Board shall authorize the payment of expenses incurred by or shall satisfy
judgments or fines rendered or levied against Employee in any action brought by
a third-party against Employee (whether or not the Corporation is joined as a
party defendant) to impose any liability or penalty on Employee for any act
alleged to have been committed by Employee while employed by the Corporation
unless Employee was acting with gross negligence or willful misconduct.
Payments authorized hereunder shall include amounts paid and expenses incurred
in settling any such action or threatened action.
9.2 Notices. Any notices required or permitted to be given under
this Agreement shall be sufficient if in writing and sent by mail to his
residence, in the case of Employee, or to its principal office, in the case of
the Corporation.
-5-
<PAGE> 6
9.3 Waiver of Breach. The waiver by any party hereto of a breach
of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach by any party.
9.4 Amendment. No amendment or modification of this Agreement
shall be deemed effective unless or until executed in writing by the parties
hereto.
9.5 Validity. This Agreement, having been executed and delivered
in the State of Texas, its validity, interpretation, performance and enforcement
will be governed by the laws of that state, without giving effect to conflict
of laws rules of such state.
9.6 Section Headings. Section and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.7 Counterpart Execution. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute but one and the same instrument.
9.8 Legal Fees. Except in the event of termination for Cause, and
only in the event a change of control of the Corporation has occurred, the
Corporation shall pay all legal fees and expenses which Employee may incur as a
result of the Corporation's contesting the validity, enforceability or
Employee's interpretation of, or determination under, this Agreement.
9.9 Exclusivity. Specific arrangements referred to in this
Agreement are not intended to exclude Employee's participation in any other
benefits available to executive personnel generally or to preclude other
compensation or benefits as may be authorized by the Board from time to time.
9.10 Partial Invalidity. If any provision in this Agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed and its seal affixed hereto by its officers thereunto duly authorized;
and Employee has executed this Agreement, as of the day and year first above
written.
"CORPORATION" TOTAL ENTERTAINMENT RESTAURANT
CORP.
BY
---------------------------------------
Jamie B. Coulter, Chairman of the Board
ATTEST:
- ---------------------------------
James K. Zielke, Secretary
"EMPLOYEE" ---------------------------------------
Gary M. Judd
-7-
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Agreement is entered into effective as of this ____ day of
____________ , 1997, by and between Total Entertainment Restaurant Corp., a
Delaware corporation (the "Corporation"), and James K. Zielke ("Employee").
RECITALS
WHEREAS, Employee is currently serving as Chief Financial Officer of
the Corporation and various subsidiaries of the Corporation; and
WHEREAS, Employee is a principal officer of the Corporation and an
integral part of its management;
WHEREAS, the Corporation desires to continue the services of Employee,
whose experience, knowledge and abilities with respect to the business and
affairs of the Corporation are extremely valuable to the Corporation; and
WHEREAS, the parties hereto desire to enter into this Agreement setting
forth the terms and conditions of the continued employment relationship of the
Corporation and Employee.
NOW THEREFORE, it is agreed as follows:
ARTICLE I
1.1 Term of Employment. The Corporation shall initially employ
Employee for a period of five years from the date hereof (the "Initial Term").
1.2 Extension of Initial Term. Upon each annual anniversary date of
this Agreement, commencing at the last day of the last year of the Initial
Term, this Agreement shall be extended automatically for successive terms of
one year each, unless either the Corporation or Employee gives contrary written
notice to the other not later than 90 days prior to the annual anniversary date
thereof.
ARTICLE II
Duties of Employee
General Duties. Employee shall serve as Chief Financial Officer of the
Corporation. He shall do and perform all services, acts, or things necessary or
advisable to manage and conduct
<PAGE> 2
the business of the Corporation consistent with such position subject to such
policies and procedures as may be established by the Board.
Employee shall: (i) devote his entire business time, attention, and
energies to the business of the Corporation, and (ii) faithfully and
competently perform his duties hereunder; and, Employee shall not, during the
term of this Agreement, engage in any other business activity except as
permitted by Article 8.
ARTICLE III
Compensation
3.1 Salary. For Employee's services to the Corporation as Chief
Financial Officer, from ____________, 1997 until the termination of this
Agreement, Employee shall be paid a salary at the annual rate of $125,000
(herein referred to as "Salary") payable in twenty-four equal installments on
the first and fifteenth day of each month. On the first day of each calendar
year during the term of this Agreement with the Corporation, Employee shall be
eligible for an increase in Salary based on recommendations made by the
Compensation Committee of the Board.
3.2 Stock Options. The Corporation shall grant to Employee options (the
"Options") to purchase 50,000 shares of common stock, $0.01 par value per share
(the "Common Stock"), pursuant to the Corporation's 1997 Incentive and
Nonqualified Stock Option Plan (the "Plan"), subject to stockholder approval of
the Plan. The grant date of the Options shall be the effective date of the
Corporation's initial public offering of its Common Stock (the "Grant Date").
Twenty percent (20%) of the Options shall vest per year, for the first five
years on the first five anniversaries of the Grant Date. The Options shall
expire on the tenth anniversary of the Grant Date. The exercise price of the
Options shall be the initial public offering price of the Corporation's Common
Stock.
3.3 Bonus. In addition to participation in the 1997 Incentive and
Nonqualified Stock Option Plan of the Corporation, Employee is eligible to
participate in all bonus compensation plans, if any, which may be offered from
time to time.
ARTICLE IV
Employee Benefits
4.1 Medical, Life and Disability Insurance Benefits. The Corporation
shall provide Employee with the medical, life and disability insurance benefits
in accordance with the established benefit policies of the Corporation.
4.2 Business Expenses. Employee shall be authorized to incur reasonable
expenses for promoting the business of the Corporation including expenses for
entertainment, travel, and
-2-
<PAGE> 3
similar items. The Corporation shall reimburse Employee for all such expenses
upon the presentation by Employee, from time to time, of an itemized account of
such expenditures.
4.3 Vacations. Employee shall be entitled to an annual paid vacation
commensurate with the Corporation's established vacation policy for executive
officers. The timing of paid vacations shall be scheduled in a reasonable manner
by Employee.
4.4 Disability. Upon Disability (as defined herein) of Employee, Employee
shall be entitled to receive an amount equal to 50% of his salary (in addition
to any disability insurance benefits received pursuant to Section 4.2 herein),
such amount being paid semi-monthly in twelve equal installments.
ARTICLE V
Termination
5.1 Death. Employee's employment hereunder shall be terminated upon
Employee's death.
5.2 Disability. The Corporation may terminate Employee's employment
hereunder in the event Employee is disabled and such disability continues for
more than 180 days. "Disability" shall be defined as the inability of Employee
to render the services required of him under this Agreement as a result of
physical or mental incapacity.
5.3 Cause.
(a) The Corporation may terminate Employee's employment hereunder for
Cause. For the purposes of this Agreement, "Cause" shall mean the (i) willful
and intentional failure by Employee to substantially perform his duties
hereunder, other than any failure resulting from Employee's incapacity due to
physical or mental incapacity, or (ii) commission by Employee, in connection
with his employment by the Corporation, of an illegal act or any act (though
not illegal) which is not in the ordinary course of Employee's responsibilities
and which exposes the Corporation to a significant level of undue liability. For
purposes of this paragraph, no act or failure to act on Employee's part shall be
considered to have met either of the preceding tests unless done or omitted to
be done by Employee not in good faith without a reasonable belief that his
action or omission was in the best interest of the Corporation.
(b) Notwithstanding the foregoing, Employee shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
Employee a copy of a resolution, duly adopted by the majority vote of the Board
of Directors.
5.4 Compensation Upon Termination for Cause or Upon Resignation by
Employee. Except as otherwise set forth in Section 5.6 hereof, if Employee's
employment shall be terminated for Cause or if Employee shall resign his
position with the Corporation, the Corporation shall pay Employee's compensation
only through the last day of Employee's
-3-
<PAGE> 4
employment by the Corporation. The Corporation shall then have no further
obligation to Employee under this Agreement.
5.5 Involuntary Termination. If:
(i) Employee is terminated by the Corporation at any time
prior to the termination of this Agreement for reasons other
than Cause; or
(ii) if the Corporation gives notice to Employee, in
accordance with Section 1.2 herein, that this Agreement will
not be renewed:
Employee shall be paid, over the ensuing six (6) month period, a sum
equal to the cash compensation paid to him excluding all bonuses of any
kind by the Corporation for the six (6) month period immediately
preceding such termination or non-renewal. Such six (6) month period, as
the case may be, shall begin: (i) on the date of termination in the case
of termination of Employee's employment; or (ii) on the date notice of
non-renewal is given in the case of termination of this Agreement not
accompanied by simultaneous termination of Employee's employment with
the Corporation.
ARTICLE VI
No Obligation to Mitigate Damages; No Effect
on Other Contractual Rights
6.1 No Mitigation. Employee shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
provided for under this Agreement be reduced by any compensation earned by
Employee as the result of employment by another employer after Employee's
termination or resignation.
6.2. Other Contractual Rights. The provisions of this Agreement, and
any payment provided for hereunder, shall not reduce any amount otherwise
payable, or in any way diminish Employee's existing rights, or rights which
would accrue solely as a result of passage of time under any employee benefit
plan or other contract, plan or arrangement of which Employee is a beneficiary
or in which he participates.
ARTICLE VII
Successors to the Corporation
7.1 Employee's Successors and Assigns. This Agreement shall inure
to the benefit of and be enforceable by Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die while any amounts are still
payable to him hereunder, all such amounts, unless otherwise provided herein,
shall be
-4-
<PAGE> 5
paid in accordance with the terms of this Agreement to Employee's devisee,
legatee or other designee or, if there be no such designee, to Employee's
estate.
ARTICLE VIII
Restrictions on Employee
------------------------
8.1 Non-Disclosure; Non-Solicitation. Except in the performance of his
duties hereunder, at no time during the Term of Employment and for eighteen (18)
months after the termination hereof, shall Employee, individually or jointly
with others, for the benefit of Employee or any third party, publish, disclose,
use, or authorize anyone else to publish, disclose or use, any secret or
confidential material or information relating to any aspect of the business or
operations of the Corporation, including, without limitation, any secret or
confidential information relating to the business, customers, trade or
industrial practices, trade secrets, technology, recipes or know-how of the
Corporation. Except in the performance of his duties hereunder, at no time
during the Initial Term or any additional term or six (6) months thereafter,
shall Employee for himself or on behalf of any other person or entity contact
any employee of the Corporation for the purpose of hiring, diverting or
otherwise soliciting the employee.
8.2 Non-Competition. During the Initial Term or any additional
term and for twenty-four (24) months thereafter, regardless of any termination
pursuant to Section 6 or any voluntary termination or resignation by Employee,
Employee shall not, individually or jointly with others, directly or
indirectly, whether for his own account or for that of any other person or
entity, own or hold any ownership interest in any person or entity engaged in a
business the same as or similar to any Business (as defined herein) of the
Corporation without the Corporation's written consent. For the purposes of this
Agreement, "Business" shall mean a facility or social gathering place which may
include restaurant operations with games of skill, including but not limited to
pool, snooker, billiards, enteractive or passive video games of multiple
television sets.
ARTICLE IX
Miscellaneous
-------------
9.1 Indemnification. To the full extent permitted by law, the
Board shall authorize the payment of expenses incurred by or shall satisfy
judgments or fines rendered or levied against Employee in any action brought by
a third-party against Employee (whether or not the Corporation is joined as a
party defendant) to impose any liability or penalty on Employee for any act
alleged to have been committed by Employee while employed by the Corporation
unless Employee was acting with gross negligence or willful misconduct.
Payments authorized hereunder shall include amounts paid and expenses incurred
in settling any such action or threatened action.
9.2 Notices. Any notices required or permitted to be given under
this Agreement shall be sufficient if in writing and sent by mail to his
residence, in the case of Employee, or to its principal office, in the case of
the Corporation.
-5-
<PAGE> 6
9.3 Waiver of Breach. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach by any party.
9.4 Amendment. No amendment or modification of this Agreement shall
be deemed effective unless or until executed in writing by the parties hereto.
9.5 Validity. This Agreement, having been executed and delivered in
the State of Texas, its validity, interpretation, performance and enforcement
will be governed by the laws of that state, without giving effect to conflict
of laws rules of such state.
9.6 Section Headings. Section and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.7 Counterpart Execution. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
9.8 Legal Fees. Except in the event of termination for Cause, and
only in the event a change of control of the Corporation has occurred, the
Corporation shall pay all legal fees and expenses which Employee may incur as a
result of the Corporation's contesting the validity, enforceability or
Employee's interpretation of, or determination under, this Agreement.
9.9 Exclusivity. Specific arrangements referred to in this
Agreement are not intended to exclude Employee's participation in any other
benefits available to executive personnel generally or to preclude other
compensation or benefits as may be authorized by the Board from time to time.
9.10 Partial Invalidity. If any provision in this Agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed and its seal affixed hereto by its officers thereunto duly
authorized; and Employee has executed this Agreement, as of the day and year
first above written.
"CORPORATION" TOTAL ENTERTAINMENT RESTAURANT
CORP.
By _______________________________________
Jamie B. Coulter, Chairman of the Board
ATTEST:
__________________________________
Gary M. Judd, President
"EMPLOYEE" __________________________________________
James K. Zielke
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Historical Financial Data" and to the use of our reports (i) dated
March 10, 1997, with respect to the consolidated financial statements of F&H
Restaurant Corp., (ii) dated March 10, 1997, with respect to the combined
financial statements of Fox & Hound Entertainment and Restaurant Group, and
(iii) dated March 10, 1997, with respect to the balance sheet of Total
Entertainment Restaurant Corp. in the Registration Statement and related
Prospectus of Total Entertainment Restaurant Corp. for the registration of
2,100,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
Wichita, Kansas
June 23, 1997
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to the Registration Statement
of Total Entertainment Restaurant Corp. on Form S-1 of our report on Bailey's
Sports Grille, Inc. dated March 11, 1997, appearing in the Prospectus, which is
part of this Registration Statement, and to the reference to us under the
heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Charlotte, North Carolina
June 20, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FOR TOTAL ENTERTAINMENT
RESTAURANT CORP. THAT IS EXTRACTED FROM ITS REGISTRATION STATEMENT ON FORM S-1
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED IN SUCH REGISTRATION STATEMENT.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-30-1997
<PERIOD-START> FEB-07-1997
<PERIOD-END> MAR-25-1997
<CASH> 1,459,789
<SECURITIES> 0
<RECEIVABLES> 106,731
<ALLOWANCES> 0
<INVENTORY> 261,517
<CURRENT-ASSETS> 2,263,363
<PP&E> 7,273,842
<DEPRECIATION> 126,493
<TOTAL-ASSETS> 14,188,583
<CURRENT-LIABILITIES> 12,393,020
<BONDS> 0
0
0
<COMMON> 80,000
<OTHER-SE> 1,539,837
<TOTAL-LIABILITY-AND-EQUITY> 14,188,583
<SALES> 1,388,266
<TOTAL-REVENUES> 1,690,373
<CGS> 428,986
<TOTAL-COSTS> 1,271,356
<OTHER-EXPENSES> 188,987
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,000
<INCOME-PRETAX> 143,115
<INCOME-TAX> 53,668
<INCOME-CONTINUING> 89,447
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,447
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FOR F & H RESTAURANT CORP.
THAT IS EXTRACTED FROM TOTAL ENTERTAINMENT RESTAURANT CORP.'S REGISTRATION
STATEMENT ON FORM S-1 AND ITS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS INCLUDED IN SUCH REGISTRATION STATEMENT.
[/LEGEND]
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> FEB-20-1997
[CASH] 0
[SECURITIES] 0
[RECEIVABLES] 0
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 0
[PP&E] 0
[DEPRECIATION] 0
[TOTAL-ASSETS] 0
[CURRENT-LIABILITIES] 0
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 0
[OTHER-SE] 0
[TOTAL-LIABILITY-AND-EQUITY] 0
[SALES] 858,312
[TOTAL-REVENUES] 858,312
[CGS] 245,371
[TOTAL-COSTS] 697,026
[OTHER-EXPENSES] 35,834
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 63,250
[INCOME-PRETAX] 62,266
[INCOME-TAX] 10,440
[INCOME-CONTINUING] 51,826
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 17,398
[EPS-PRIMARY] 0
[EPS-DILUTED] 0
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FOR BAILEY'S SPORTS GRILLE,
INC. THAT IS EXTRACTED FROM TOTAL ENTERTAINMENT RESTAURANT CORP.'S REGISTRATION
STATEMENT ON FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS INCLUDED IN SUCH REGISTRATION STATEMENT.
[/LEGEND]
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> FEB-20-1997
[CASH] 0
[SECURITIES] 0
[RECEIVABLES] 0
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 0
[PP&E] 0
[DEPRECIATION] 0
[TOTAL-ASSETS] 0
[CURRENT-LIABILITIES] 0
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 0
[OTHER-SE] 0
[TOTAL-LIABILITY-AND-EQUITY] 0
[SALES] 1,202,905
[TOTAL-REVENUES] 1,536,481
[CGS] 392,693
[TOTAL-COSTS] 1,387,443
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 40,510
[INCOME-PRETAX] 108,528
[INCOME-TAX] 0
[INCOME-CONTINUING] 108,528
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 108,528
[EPS-PRIMARY] 0
[EPS-DILUTED] 0
</TABLE>