<PAGE>
As filed with the Securities and Exchange Commission on April 16, 1999
Registration No. 333-72593
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Amendment No. 3
to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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BUCA, INC.
(Exact name of Registrant as specified in its charter)
----------------
Minnesota 5812 41-1802364
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
1300 Nicollet Mall, Suite 3043
Minneapolis, Minnesota 55403
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
Joseph P. Micatrotto
President and Chief Executive Officer
BUCA, Inc.
1300 Nicollet Mall, Suite 3043
Minneapolis, Minnesota 55403
(612) 288-2382
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Douglas P. Long, Esq. Jonathan B. Abram, Esq.
Faegre & Benson LLP Dorsey & Whitney LLP
2200 Norwest Center Pillsbury Center South, 20th Floor
90 South Seventh Street 220 South Sixth Street
Minneapolis, Minnesota 55402 Minneapolis, Minnesota 55402
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<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of Each Class of Amount to be Offering Price Offering Registration
Securities to be Registered Registered(1) Per Share(2) Price(2) Fee
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<S> <C> <C> <C> <C>
Common Stock, $0.1 par value... 3,201,910 Shares $12.50 $40,023,875 $11,127(3)
- ----------------------------------------------------------------------------------------
</TABLE>
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(1) Includes 417,640 shares of common stock which may be purchased by the
underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) of the Securities Act of 1933, as amended.
(3) Of this amount, $11,087 was previously paid.
The Registrant hereby amends this Registration Agreement 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 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the Securities and Exchange Commission +
+declares our registration statement effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to completion, dated April
16, 1999
2,780,819 Shares
BUCA, INC.
Common Stock
$ per share
------------------------------------------------------
. This is our initial public offering and no
. BUCA, Inc. is offering public market currently exists for our shares.
2,500,000 shares and
selling shareholders
are offering
280,819 shares.
. We anticipate that the . Proposed trading symbol: Nasdaq National
initial public Market--BUCA.
offering price will be
between $10.50 and
$12.50 per share.
----------
This investment involves risk. You should carefully consider the "Risk Factors"
beginning on page 7.
------------------------------------------------------
------------------------------------------------------
<TABLE>
<CAPTION>
Per
Share Total
------- ------------
<S> <C> <C>
Public Offering Price..................................... $ $
Underwriting Discount.....................................
Proceeds to BUCA, Inc. ...................................
Proceeds to Selling Shareholders..........................
</TABLE>
------------------------------------------------------
------------------------------------------------------
The underwriters have a 30-day option to purchase up to 417,122 additional
shares of common stock from us and a selling shareholder to cover over-
allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved of anyone's investment in these securities or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
U.S. Bancorp Piper Jaffray
NationsBanc Montgomery
Securities LLC
The date of this prospectus is , 1999.
<PAGE>
[PHOTO OF GIRL EATING SPAGHETI]
"Italian family dining at its best"
Chicago Tribune
Elegant Dining
in a cosmopolitan atmosphere
"ONE BIG RAUCOUS DINNER PARTY"
South Bay Weekly
"PORTIONS ARE NFL TRAINING TABLE WORTHY"
Cleveland Free Times
"BEST FAMILY RESTAURANT 1998"
Seattle Magazine Readers' Poll
BUCA (R) and BUCA di BEPPO(R), as well as additional names and logos appearing
in this prospectus, are registered trademarks of BUCA, Inc. This prospectus
also includes names and trademarks of other companies. The individual
restaurant reviews quoted in this prospectus are not intended to suggest or
imply an endorsement by the reviewers or their publishers of the contents of
this prospectus or an investment in the common stock.
2
<PAGE>
[PHOTO OF
RESTAURANT INTERIOR]
ONE OF
[PHOTO OF DINERS] THE BEST
NEW RESTAURANTS
IN AMERICA
"JUST TRY BON APPETIT [PHOTO OF
NOT TO SING RESTAURANT INTERIOR]
ALONG"
Los Angeles Times
"Exudes the excessive
exuberant, voluptuous
Neapolitan spirit"
San Francisco Chronicle
[PHOTO OF FOOD]
[PHOTO OF DINERS] "So much
FUN
you won't know
what hit you"
Seattle Post-Intelligencer
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary............................................................... 4
Risk Factors.......................................................... 7
Use of Proceeds....................................................... 12
Dividend Policy....................................................... 12
Capitalization........................................................ 13
Dilution.............................................................. 14
Selected Consolidated Financial Data.................................. 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 17
Business.............................................................. 24
Management............................................................ 33
Certain Relationships and Related Transactions........................ 40
Principal Shareholders................................................ 43
Selling Shareholders.................................................. 46
Shares Eligible for Future Sale....................................... 48
Description of Capital Stock.......................................... 49
Underwriting.......................................................... 53
Legal Matters......................................................... 55
Experts............................................................... 55
Where You Can Find More Information................................... 56
Index to Consolidated Financial Statements............................ F-1
</TABLE>
---------------
You should rely only on the information contained in this prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. This prospectus is not an offer to sell, nor is it
seeking an offer to buy, these securities in any state where the offer or sale
is not permitted. The information in this prospectus is complete and accurate
as of the date on the front cover, but the information may have changed since
that date.
3
<PAGE>
SUMMARY
The items in the following summary are described in more detail later in this
prospectus. This summary provides an overview of selected information and does
not contain all the information you should consider. Therefore, you should also
read the more detailed information set out in this prospectus, including the
financial statements.
Business of BUCA
BUCA, Inc. owns and operates 21 full service, dinner-only restaurants under the
name BUCA di BEPPO. Our restaurants offer high quality, immigrant Southern
Italian cuisine served family-style in large portions in a fun and energetic
atmosphere that parodies the decor and ambiance of post-War Italian/American
restaurants.
Our food is based on authentic family recipes enjoyed for generations in the
villages of Southern Italy and then adapted to American ingredients. Our menu
features dishes such as the BUCA di BEPPO 1893 salad, chicken cacciatore,
spaghetti with half-pound meat balls, eggplant parmigiana, ravioli al pomodoro,
veal marsala, garlic mashed potatoes, pizza arrabiatta and tiramisu. These
dishes, often seasoned with garlic and served with vine-ripened tomatoes,
communicate the pure, powerful flavors of the immigrant Southern Italian
kitchen.
Our oversized portions, served family-style on large platters, are designed to
overwhelm guests with an abundance of high quality food. In family-style
serving, each item is shared by the entire table, which encourages guests to
interact and enjoy the meal together. We believe that the generous portions,
combined with an average check per guest of approximately $20.00, including
beverages, offer our guests exceptional value.
BUCA di BEPPO restaurants irreverently exaggerate the cliches of post-War
Italian/American restaurants found in Italian neighborhoods of large U.S.
cities. We design our restaurants to be a fun, high-energy destination. Each
BUCA di BEPPO restaurant in a market is unique, which reinforces our image as a
collection of neighborhood restaurants. Restaurant interiors are covered with
hundreds of vintage photos and icons of Italian heritage, and feature lively
music from classic artists such as Frank Sinatra and Dean Martin. Restaurant
exteriors feature flashing bare bulb signage, statuary and humorous neon signs.
Our food, decor and family-style servings all promote a fun, celebratory and
socially interactive dining experience that emulates a traditional
Italian/American evening meal. Our innovative concept has attracted national
attention as evidenced by national awards, including a 1998 "Hot Concepts!"
award from Nation's Restaurant News, and awards in all of our local markets.
We believe that our restaurants provide superior unit level economics. In
fiscal 1998, our restaurants with at least two full years of operating history
generated average restaurant sales of approximately $3.0 million and average
cash flow of approximately $693,000, or 23.5% of restaurant sales. We believe
that our Paisano Partners program, in which our restaurant general managers,
known as Paisano Partners, purchase stock and receive a significant portion of
their annual cash compensation based on restaurant cash flow, motivates
Paisanos to achieve significantly greater operating efficiencies and
contributes to our superior unit level economics. In fiscal 1998, our total
cash investment per restaurant averaged $1.4 million, excluding average
preopening costs per restaurant of approximately $195,000.
We are pursuing a rapid but disciplined expansion strategy. Our objective is to
become the dominant family-style, immigrant Southern Italian restaurant in each
of our markets. We intend to continue our expansion throughout the United
States with 13 openings planned in fiscal 1999, of which two have already
opened, eight are under construction and the remaining three have signed
leases. By the end of fiscal 1999, we plan to have 32 restaurants open in at
least 17 markets. To achieve our planned expansion, we will need to raise
sufficient capital, select appropriate restaurant sites, effectively manage
development risks and recruit qualified personnel.
4
<PAGE>
Office Location
We were incorporated on December 2, 1994 as a Minnesota corporation. Our
principal executive offices are located at 1300 Nicollet Mall, Minneapolis,
Minnesota 55403 and our telephone number is (612) 288-2382.
The Offering
Common stock offered:
<TABLE>
<S> <C>
By BUCA, Inc...................... 2,500,000 shares
By selling shareholders........... 280,819 shares
Total......................... 2,780,819 shares
Common stock outstanding after the offer-
ing...................................... 9,756,612 shares
Offering price............................ $ per share
Use of proceeds........................... To fund restaurant
development, repay bank debt
and for general corporate purposes.
Proposed Nasdaq National Market symbol.... BUCA
</TABLE>
The number of shares to be outstanding after the offering includes the issuance
of 4,545,434 shares of common stock in connection with the conversion of all
outstanding shares of preferred stock upon the closing of this offering and
119,558 shares to be issued upon the conversion of approximately $825,000 in
aggregate principal amount of our outstanding subordinated convertible debt in
connection with the closing. It excludes:
. 1,068,154 shares of common stock issuable upon exercise of options
outstanding as of the date of this prospectus at a weighted average exercise
price of $7.04 per share,
. 333,415 shares of common stock issuable upon exercise of warrants remaining
outstanding after this offering at a weighted average exercise price of
$2.44 per share and
. 138,400 shares of common stock issuable after the completion of this
offering upon conversion of subordinated debt remaining outstanding after
this offering, assuming a public offering price of $11.50 per share.
Except as otherwise noted, all information in this prospectus assumes:
. no exercise of the underwriters' over-allotment option,
. no exercise of those options or warrants to purchase shares of common stock
or the conversion of the outstanding convertible subordinated debt into
shares of common stock remaining outstanding after the completion of this
offering and
. the issuance of shares of common stock in connection with the conversion of
all outstanding shares of preferred stock upon the closing of this offering.
Information in this prospectus also gives effect to a two-for-three reverse
split of the common stock effected on February 17, 1999.
5
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share and operating data)
We changed our fiscal year-end from December 31 to the last Sunday in December,
beginning with the fiscal year ended December 28, 1997.
The pro forma information below gives effect, as of and for the period ending
December 27, 1998, to:
. the issuance of shares of common stock in connection with the conversion of
all outstanding shares of preferred stock upon the closing of this offering,
. the termination of our obligation to redeem shares of common stock held in
the Parasole Employee Stock Ownership Trust and the BUCA Employee Stock
Ownership Plan (the "redeemable common stock") upon the closing of this
offering,
. the repayment of $6,600,000 of outstanding subordinated and bank debt with
borrowings of $7,000,000 under our credit facility with U.S. Bank, and
. a one-time extraordinary charge of $1,400,000 related to the early repayment
of outstanding debt.
The as adjusted information below gives effect as of December 27, 1998 to:
. our receipt of the estimated net proceeds of $25,875,000 from the sale of
2,500,000 shares of common stock offered by us at an assumed initial public
offering price of $11.50 per share,
. application of a portion of the net proceeds of this offering to repay
amounts outstanding under our credit facility with U.S. Bank and the
resulting write-off of deferred financing costs,
. the special non-cash charge of approximately $1,300,000 related to the
discount applicable to the right of holders of $1,780,000 of our outstanding
subordinated debt to convert such debt into common stock after the closing
of this offering, and
. the conversion of $825,000 in aggregate principal amount of our outstanding
subordinated debt into 119,558 shares in connection with this offering,
assuming a public offering price of $11.50 per share.
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------
December 31, December 28, December 27,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Consolidated Statements of Operations
Data:
Restaurant sales....................... $11,316 $19,030 $38,483
Income from restaurant operations...... 1,499 2,501 5,581
Operating loss......................... (919) (2,399) (1,893)
Net loss............................... (1,113) (3,319) (2,946)
Net loss applicable to common stock.... (4,800) (5,305) (5,135)
Net loss per common share--basic and
diluted............................... $ (1.96) $ (2.13) $ (2.04)
Weighted common shares assumed
outstanding--basic and diluted........ 2,445 2,490 2,512
Pro forma net loss per common share--
basic and diluted..................... $ (.42)
Common shares assumed outstanding pro
forma--basic and diluted.............. 7,062
Operating Data:
Comparable restaurant sales
increase(/1/)......................... 0.3% 8.9% 13.3%
Average weekly restaurant sales........ $47,319 $47,579 $52,727
Restaurants open at end of period...... 6 11 19
<CAPTION>
December 27, 1998
--------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------------ ------------ ------------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.............. $ 6,576 $ 6,576 $25,451
Total assets........................... 37,560 37,560 56,135
Total debt, including current portion.. 7,866 9,266 1,441
Redeemable stock(/2/).................. 36,973 -- --
Common shareholders' (deficit)/equity.. (13,540) 22,033 48,433
</TABLE>
- ---------------
(/1/The)calculation of comparable restaurant sales increase includes
restaurants open for 12 full calendar months, as adjusted to provide
comparable 52-week fiscal years.
(/2/Includes)Series A, Series B and Series C preferred stock and the redeemable
common stock.
6
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors before you decide to
buy our common stock. You should also consider the other information in this
prospectus. If any of the following risks actually occur, our business,
financial condition, operating results or cash flows, could be materially
adversely affected. This could cause the trading price of our common stock to
decline, and you may lose part or all of your investment.
We May Be Unable to Achieve Profitability
Since we were formed, we have incurred net losses of approximately $7.6 million
through the end of fiscal 1998, primarily due to new restaurant opening
expenses and the costs of hiring senior management to develop and implement our
expansion strategy. We intend to continue to expend significant financial and
management resources on the development of additional restaurants. We cannot
predict whether we will be able to achieve or sustain revenue growth,
profitability or positive cash flow in the future. Failure to achieve these
objectives may cause our stock price to decline and make it difficult to raise
additional capital. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" for information on the history of our losses.
Our Business Could Be Materially Adversely Affected if We Are Unable to Expand
in a Timely and Profitable Manner
To continue to grow, we must open new BUCA di BEPPO restaurants on a timely and
profitable basis. We have experienced delays in restaurant openings from time
to time and may experience delays in the future. Delays or failures in opening
new restaurants could materially adversely affect our business, financial
condition, operating results or cash flows. We expanded from 11 restaurants at
the end of fiscal 1997 to 19 restaurants at the end of fiscal 1998. We expect
to open an additional 13 restaurants during fiscal 1999, two of which are
already open. Our ability to expand successfully will depend on a number of
factors, some of which are beyond our control, including the:
.identification and availability of suitable restaurant sites;
.competition for restaurant sites;
.negotiation of favorable leases;
.timely development in certain cases of commercial, residential, street
or highway construction near our restaurants;
.management of construction and development costs of new restaurants;
.securing required governmental approvals and permits;
.recruitment of qualified operating personnel, particularly Paisano
Partners and kitchen managers;
.competition in new markets; and
.general economic conditions.
In addition, we contemplate entering new markets in which we have no operating
experience. These new markets may have different demographic characteristics,
competitive conditions, consumer tastes and discretionary spending patterns
than our existing markets, which may cause our new restaurants to be less
successful in these new markets than in our existing markets.
7
<PAGE>
We May Not Be Able to Achieve and Manage Planned Expansion
We face many business risks associated with rapidly growing companies,
including the risk that our existing management, information systems and
financial controls will be inadequate to support our planned expansion. We
cannot predict whether we will be able to respond on a timely basis to all of
the changing demands that our planned expansion will impose on management and
these systems and controls. If we fail to continue to improve management,
information systems and financial controls or encounter unexpected difficulties
during expansion, our business, financial condition, operating results or cash
flows could be materially adversely affected.
Furthermore, we may seek to acquire the operations of other restaurants. To do
so successfully, we would need to identify suitable acquisition candidates,
obtain financing on acceptable terms, and negotiate acceptable acquisition
terms. Even if we are successful in completing acquisitions, they may have a
material adverse effect on our operating results, particularly in the fiscal
quarters immediately following the completion of an acquisition, while the
acquisition is being integrated into our operations. We do not currently have
any definitive agreements, arrangements or understandings regarding any
particular acquisition.
Fluctuations in Our Operating Results May Result in Decreases in Our Stock
Price
Our operating results will fluctuate significantly because of several factors,
including the timing of new restaurant openings and related expenses,
profitability of new restaurants, increases or decreases in comparable
restaurant sales, general economic conditions, consumer confidence in the
economy, changes in consumer preferences, competitive factors and weather
conditions. As a result, our operating results may fall below the expectations
of public market analysts and investors. In that event, the price of our common
stock would likely decrease.
In the past, our preopening costs have varied significantly from quarter to
quarter primarily due to the timing of restaurant openings. We typically incur
most preopening costs for a new restaurant within the two months immediately
preceding, and the month of, its opening. In addition, our labor and operating
costs for a newly opened restaurant during the first three to six months of
operation are materially greater than what can be expected after that time,
both in aggregate dollars and as a percentage of restaurant sales. Accordingly,
the volume and timing of new restaurant openings in any quarter has had and is
expected to continue to have a significant impact on quarterly preopening costs
and labor and direct and occupancy costs. We anticipate that preopening costs,
labor and direct and occupancy costs will significantly increase as a percent
of restaurant sales in the second and third quarters of fiscal 1999. Due to
these factors, results for a quarter may not indicate results to be expected
for any other quarter or for a full fiscal year. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for a discussion
of our historical operating results.
We May be Unable to Fund Our Significant Future Capital Needs and We May Need
Additional Funding Sooner Than Anticipated
We will need substantial capital to finance our expansion plans, which require
funds for capital expenditures, preopening costs and potential initial
operating losses related to new restaurant openings. We may not be able to
obtain additional financing on acceptable terms. If adequate funds are not
available, we will have to curtail projected growth, which could materially
adversely affect our business, financial condition, operating results or cash
flows. Moreover, if we issue additional equity securities, your holdings may be
diluted.
We estimate that capital expenditures during fiscal 1999 will be approximately
$17.0 million and that capital expenditures during future years will exceed
this amount. In addition, we have experienced negative cash flow from
operations of approximately $169,000 in fiscal 1996 and $1.5 million in fiscal
1997, while experiencing a positive cash flow from operations of approximately
$338,000 in fiscal 1998. Although we expect that the net proceeds of this
offering, combined with other resources, will be sufficient to fund our capital
requirements
8
<PAGE>
through at least the next 12 months, this may not be the case. We may be
required to seek additional capital earlier than anticipated if:
.future actual cash flows from operations fail to meet our expectations;
.costs and capital expenditures for new restaurant development exceed
anticipated amounts;
.we are unable to obtain sale-leaseback financing of certain
restaurants;
.landlord contributions, loans and other incentives are lower than
expected; or
.we are required to reduce prices to respond to competitive pressures.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for a discussion of our historical
and anticipated capital needs.
Because of Our Small Restaurant Base, Our Operating Results Could Be Materially
Adversely Affected By the Negative Performance of a Small Number of Restaurants
We currently operate 21 restaurants, eight of which opened in the last 12
months. Due to our small restaurant base, poor operating results at any one or
more restaurants could materially adversely affect our business, financial
condition, operating results or cash flows. Our operating results achieved to
date may not be indicative of our future operating results with a larger number
of restaurants.
Increased Food Costs Could Materially Adversely Affect Our Operating Results
Our profitability depends in part on our ability to anticipate and react to
changes in food costs. We rely on SYSCO Corporation, a national food
distributor, as the primary distributor of our food. Although we believe that
alternative distribution sources are available, any increase in distribution
prices or failure to perform by SYSCO could cause our food costs to increase.
Further, various factors beyond our control, including adverse weather
conditions and governmental regulation, may affect our food costs. We cannot
predict whether we will be able to anticipate and react to changing food costs
by adjusting our purchasing practices and menu prices, and a failure to do so
could materially adversely affect our business, financial condition, operating
results or cash flows.
Changes in Consumer Preferences or Discretionary Consumer Spending Could
Negatively Impact Our Results
Our restaurants feature immigrant Southern Italian cuisine served family-style.
Our continued success depends, in part, upon the popularity of this type of
Italian cuisine and this style of informal dining. Shifts in consumer
preferences away from our cuisine or dining style could materially adversely
affect our future profitability. Also, our success depends to a significant
extent on numerous factors affecting discretionary consumer spending, including
economic conditions, disposable consumer income and consumer confidence.
Adverse changes in these factors could reduce guest traffic or impose practical
limits on pricing, either of which could materially adversely affect our
business, financial condition, operating results or cash flows.
We May Be Unable to Compete With Larger, Better Established Competitors
The restaurant industry is highly competitive. Due to our limited financial
resources and operating history, we may be unable to compete effectively with
our larger, better established competitors, which have substantially greater
financial resources and operating histories than we do. We will likely face
direct competition with these competitors in each of the markets we enter. See
"Business--Competition" for a discussion of the competition we face.
We Could Face Potential Labor Shortages
Our success depends in part upon our ability to attract, motivate and retain a
sufficient number of qualified employees, including restaurant managers,
kitchen staff and wait staff, necessary to keep pace with our
9
<PAGE>
expansion schedule. Qualified individuals needed to fill these positions are in
short supply in certain areas, and the inability to recruit and retain such
individuals may delay the planned openings of new restaurants or result in high
employee turnover in existing restaurants which could have a material adverse
effect on our business, financial condition, operating results or cash flows.
Additionally, competition for qualified employees could require us to pay
higher wages to attract sufficient employees, which could result in higher
labor costs.
Our Operations Depend on Governmental Licenses and We May Face Liability Under
Dram Shop Statutes
Our business depends on obtaining and maintaining required food service and
liquor licenses for each of our restaurants. If we fail to hold all necessary
licenses, we may be forced to delay or cancel new restaurant openings and close
or reduce operations at existing locations. In addition, our sale of alcoholic
beverages subjects us to "dram shop" statutes in some states. These statutes
allow an injured person to recover damages from an establishment that served
alcoholic beverages to an intoxicated person. If we receive a judgment
substantially in excess of our insurance coverage, or if we fail to maintain
our insurance coverage, our business, financial condition, operating results or
cash flows could be materially and adversely affected. See "Business--
Government Regulation" for a discussion of the regulations we must comply with.
Complaints or Litigation From Guests May Materially Adversely Affect Us
We are from time to time the subject of complaints or litigation from guests
alleging illness, injury or other food quality, health or operational concerns.
Adverse publicity resulting from these allegations may materially adversely
affect us and our restaurants, regardless of whether the allegations are valid
or whether BUCA is liable. These claims may divert our financial and management
resources that would otherwise be used to benefit the future performance of our
operations.
We Face Uncertainty Regarding Risk of Year 2000 Compliance
BUCA and third parties with which we do business, rely on numerous computer
programs for day to day operations. We cannot predict whether we will be able
to effectively address our year 2000 issues in a timely and cost-efficient
manner and without interruption to our business. We have initiated discussions
with our significant suppliers regarding their plans to solve year 2000 issues
where their systems interface with our systems or otherwise impact our
operations. We cannot predict whether year 2000 difficulties encountered by our
suppliers and other third parties with whom we do business will have a material
adverse impact on our business, financial conditions, operating results or cash
flows. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Compliance" for a discussion of our Year 2000
readiness.
We Could Face Consolidated Tax Group Liability
Prior to our spin-off in late fiscal 1996, we were a member of the consolidated
tax group of Parasole Restaurant Holdings, Inc. Under the Internal Revenue
Code, as a former member of the consolidated tax group, we could be held liable
for unpaid federal tax liabilities, if any, of the consolidated tax group
through the end of 1996 in the event of nonpayment by Parasole.
Our Existing Shareholders Will Retain Significant Control Which Could Reduce
Your Ability to Receive a Premium for Your Shares Through a Change in Control
Upon completion of this offering, our executive officers, directors and
principal shareholders and their affiliates will own approximately 57.7% of the
outstanding shares of common stock, or 55.2% if the underwriters' over-
allotment option is completely exercised. As a result, they may be able to
control us and direct our affairs, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
also may delay, defer or prevent a change in control of BUCA, and make some
transactions more difficult or impossible without the support of these
shareholders. These transactions might include proxy
10
<PAGE>
contests, mergers, tender offers, open market purchase programs or other
purchases of common stock that could give our shareholders the opportunity to
realize a premium over the then prevailing market price for shares of common
stock. This could depress the price of our common stock. See "Management" and
"Principal Shareholders" for information about these shareholders and the
number of shares they will control.
Our Common Stock May Not Develop an Active, Liquid Trading Market
We do not know the level of trading volume that will exist for our common stock
after the offering. Trading volume levels may affect your ability to sell your
shares quickly at the current market price. The initial public offering price
of our common stock will be determined by negotiations among us, the selling
shareholders and the underwriters. You may not be able to resell the common
stock you buy at or above the initial public offering price.
Our Common Stock Price May Be Volatile
The market price of our common stock could fluctuate significantly in response
to quarterly operating results and other factors, including many over which we
have no control and that may not be directly related to us. The stock market
has from time to time experienced extreme price and volume fluctuations, which
have often been unrelated or disproportionate to the operating performance of
particular companies. Fluctuations or decreases in the trading price of our
common stock may adversely affect your ability to trade your shares. In
addition, these fluctuations could adversely affect our ability to raise
capital through future equity financings.
Future Sales of Our Common Stock May Depress Our Stock Price and Limit Our
Ability to Raise Capital in the Market
Sales of substantial amounts of our stock in the public market, or the
perception that these sales may occur, could adversely affect the market price
our stock and our ability to raise capital through a public offering of our
equity securities. After this offering, the shares offered under this
prospectus will be freely tradeable. The remaining 6,975,793 shares outstanding
will be available for sale at various times, with 6,811,842 shares available
for sale after their 180-day lock-up period. See "Shares Eligible for Future
Sale" for a discussion of potential future sales of our common stock.
Provisions of Our Articles of Incorporation, Our By-Laws and Minnesota Law
Could Discourage Potential Acquisition Proposals and Delay or Prevent a Change
in Control
Anti-takeover provisions of our Articles of Incorporation, By-Laws and
Minnesota law could diminish the opportunity for shareholders to participate in
acquisition proposals at a price above the then current market price of our
common stock. The provisions may also inhibit increases in the market price of
our stock that could result from takeover attempts. For example, while we have
no present plans to issue any preferred stock, our board of directors, without
further shareholder approval, may issue preferred stock that could have the
effect of delaying, deterring or preventing a change in control. The issuance
of preferred stock could adversely affect the voting power of your shares. In
addition, our Articles of Incorporation provide for a classified board of
directors consisting of three classes as well as require a 75% supermajority
vote for removal of directors. These classified board and supermajority removal
provisions could also have the effect of delaying, deterring or preventing a
change in control. See "Management--Board of Directors; Committees" and
"Description of Capital Stock" for a discussion of these provisions.
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to our future plans, objectives,
expectations and intentions. These statements may be identified by the use of
words such as "expects," "anticipates," "intends," "plans," and similar
expressions. Our actual results could differ materially from those discussed in
these statements. Factors that could contribute to these differences include
those discussed above and elsewhere in this prospectus.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the 2,500,000 shares of common stock
offered by us at an assumed initial public offering price of $11.50 per share
are estimated to be approximately $25,875,000, after deducting the underwriting
discount and estimated offering expenses, or approximately $30,165,000 if the
over-allotment option granted by us is exercised in full. We will not receive
any of the proceeds from the sale of shares of common stock by the selling
shareholders.
We intend to use approximately $17.0 million of the net proceeds of this
offering to finance the development of new BUCA di BEPPO restaurants during the
next twelve months and $7.0 million to retire existing bank debt. Our agreement
with our commercial lender, U.S. Bank National Association, requires us to
repay all amounts outstanding under the $7.0 million term loan with the lender,
which bears interest at 9.63% and matures on December 31, 2000. This debt was
incurred to repay other BUCA debt and for the development of restaurants. In
addition, we are required to repay all amounts outstanding in excess of $3.0
million under our revolving line of credit with the lender, which bears
interest at lender's prevailing reference rate plus 0.75% to 1.25%, depending
upon the then-applicable cash flow coverage ratio, and expires on December 31,
2000. Currently, we have $2.0 million outstanding under our revolving line of
credit. We anticipate that prior to the completion of the offering we will
borrow additional amounts from our revolving line of credit to fund a portion
of our new restaurant development. We plan to repay these outstanding amounts,
which will be a part of the $17.0 million of development expenditures, with the
net proceeds from this offering.
The balance of the net proceeds from this offering will be used to finance the
development of BUCA di BEPPO restaurants in subsequent periods and for general
corporate purposes. We may also use a portion of the net proceeds for the
acquisition of other restaurant operations. We do not currently have any
definitive agreements, arrangements or understandings regarding any particular
acquisition. Pending application of the net proceeds, we intend to invest the
net proceeds in short-term, investment-grade, interest-bearing securities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for additional information
regarding our sources and uses of capital.
DIVIDEND POLICY
We have never declared or paid cash dividends. We currently intend to retain
all future earnings for the operation and expansion of our business and do not
anticipate paying cash dividends on the common stock in the foreseeable future.
Any payment of cash dividends in the future will be at the discretion of our
board of directors and will depend upon our results of operations, earnings,
capital requirements, contractual restrictions and other factors deemed
relevant by our board. In addition, our current credit facility prohibits us
from paying any cash dividends without our lender's consent.
12
<PAGE>
CAPITALIZATION
The following table sets forth, at December 27, 1998, our consolidated cash and
cash equivalents and capitalization on three different bases. First, the
information is set forth on an actual basis. Second, the information is set
forth on a pro forma basis to reflect the issuance of common stock in
connection with the conversion of the preferred stock upon the closing of this
offering, the termination of our redemption obligations with respect to the
redeemable common stock, the repayment of $6,600,000 of outstanding
subordinated and bank debt with borrowings of $7,000,000 under our credit
facility with U.S. Bank, and a one-time extraordinary charge of $1,400,000
related to the early repayment of outstanding debt. Third, the information is
set forth on a pro forma as adjusted basis to reflect the sale of the shares of
common stock offered by us by this prospectus at an assumed initial public
offering price of $11.50 per share and the application of the estimated net
proceeds from the offering, the resulting write-off of deferred financing
costs, the non-cash charge of $1,300,000 related to the discount applicable to
the right of holders of $1,780,000 of our outstanding subordinated debt to
convert the debt into common stock after the closing of this offering, the
conversion of $825,000 in aggregate principal amount of our outstanding
subordinated debt into 119,558 shares in connection with this offering and the
exercise of the warrant to be included in this offering. See "Use of Proceeds"
for a discussion of how we intend to use the proceeds. This table should be
read in conjunction with the consolidated financial statements and their notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 27, 1998
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents...................... $ 6,576 $ 6,576 $25,451
======== ======= =======
Long-term debt, including current portion...... $ 7,866 $ 9,266 $ 1,441
Redeemable stock(/1/).......................... 36,973 -- --
Common stock: $.01 par value;
13,100,000 shares authorized, 1,918,056 shares
issued and outstanding, actual; 7,062,176
shares issued and outstanding, pro forma;
9,746,178 shares issued and outstanding, pro
forma as adjusted(/2/)........................ 19 71 97
Additional paid-in capital..................... -- 36,921 64,895
Accumulated deficit............................ (13,266) (14,666) (16,266)
-------- ------- -------
(13,247) 22,326 48,726
Notes receivable from shareholders............. (293) (293) (293)
Total common shareholders' (deficit) equity
............................................ (13,540) 22,033 48,433
-------- ------- -------
Total capitalization......................... $ 31,299 $31,299 $49,874
======== ======= =======
</TABLE>
- ---------------
(/1/)Includes Series A, Series B and Series C preferred stock and the
redeemable common stock.
(/2/Excludes)(1) 1,068,154 shares of common stock issuable upon exercise of
options outstanding as of the date of this prospectus at a weighted average
exercise price of $7.04 per share, (2) 333,415 shares of common stock
issuable upon exercise of warrants remaining outstanding after this
offering at a weighted average exercise price of $2.44 per share, (3)
138,400 shares of common stock issuable after the completion of this
offering upon conversion of subordinated debt remaining outstanding after
this offering, assuming a public offering price of $11.50 per share and (4)
10,434 shares of common stock issued since December 27, 1998 under our
Paisano Partners program.
13
<PAGE>
DILUTION
Our net tangible book value as of December 27, 1998 was approximately $22.8
million, or $3.15 per share of common stock. Net tangible book value per share
is determined by dividing BUCA's net tangible worth, which consists of tangible
assets less liabilities, by the aggregate number of shares of common stock
outstanding, giving effect to the conversion of the preferred stock, the
conversion of a portion of our outstanding subordinated debt in connection with
this offering and the exercise of the warrant to be included in this offering.
After giving effect to the sale of the 2,500,000 shares of common stock offered
by this prospectus at an assumed initial public offering price of $11.50 per
share and the application of the net proceeds from the offering, our pro forma
net tangible book value as of December 27, 1998 would have been approximately
$48.7 million, or $5.00 per share of common stock. This represents an immediate
increase in net tangible book value of $1.85 per share to existing shareholders
and an immediate dilution of $6.50 per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $11.50
Net tangible book value per share before this offering.......... $3.15
Increase per share attributable to new investors................ 1.85
-----
Pro forma as adjusted net tangible book value per share after this
offering......................................................... 5.00
------
Dilution per share to new investors............................... $ 6.50
======
</TABLE>
The following table sets forth as of December 27, 1998, giving effect to the
conversion of the preferred stock, the conversion of a portion of our
outstanding subordinated debt in connection with this offering and the exercise
of the warrant to be included in this offering, the difference between the
number of shares of common stock purchased from us, the total consideration
paid to us and the average price per share paid by existing shareholders and by
new investors at an assumed initial public offering price of $11.50 per share:
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
----------------- ------------------- Per
Number Percent Amount Percent Share
--------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing shareholders............. 7,246,178 74.3% $31,786,976 52.5% $ 4.39
New investors..................... 2,500,000 25.7 28,750,000 47.5 11.50
--------- ----- ----------- ----- ------
Total........................... 9,746,178 100.0% $60,536,976 100.0% $ 6.21
========= ===== =========== ===== ======
</TABLE>
Sales by the selling shareholders in this offering will reduce the number of
shares held by existing shareholders to 6,965,359, or 71.5% of the total number
of shares of common stock outstanding, and will increase the number of shares
held by new investors to 2,780,819, or 28.5% of the total number of shares of
common stock outstanding after the offering. To the extent shares are issued
upon the exercise of options and warrants or the conversion of subordinated
debt remaining outstanding after the completion of this offering, there will be
further dilution to new investors. See "Management" and "Description of Capital
Stock" for information regarding outstanding options, warrants and convertible
subordinated debt. These tables do not include the issuance of 10,434 shares of
common stock issued since December 27, 1998 under our Paisano Partners program.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except share, per share and operating data)
The following selected consolidated financial data for the five fiscal years
ended December 27, 1998 are derived from our audited consolidated financial
statements. The consolidated financial statements and their notes for each of
the three fiscal years ended December 27, 1998, and the reports of independent
public accountants on those years, are included elsewhere in this prospectus.
This selected consolidated financial data should be read in conjunction with
the consolidated financial statements and their notes, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and other
financial information included elsewhere in this prospectus. We changed our
fiscal year-end from December 31 to the last Sunday in December, beginning with
the fiscal year ended December 28, 1997. The pro forma information included in
the following data gives effect as of December 27, 1998 to:
. the issuance of shares of common stock in connection with the conversion of
all outstanding shares of preferred stock upon the closing of this offering,
. the termination of our obligation to redeem the redeemable common stock upon
the closing of this offering, and
. the repayment of $6,600,000 of outstanding subordinated and bank debt with
borrowings of $7,000,000 under our credit facility with U.S. Bank; and
. a one-time extraordinary charge of $1,400,000 related to the early repayment
of outstanding debt.
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------
December 31, December 31, December 31, December 28, December 27,
1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------
Consolidated Statements
of Operations Data:
<S> <C> <C> <C> <C> <C>
Restaurant sales........ $ 4,114 $ 7,142 $ 11,316 $ 19,030 $ 38,483
Restaurant costs:
Product................ 1,345 2,303 3,471 5,520 10,876
Labor.................. 1,354 2,258 3,723 6,478 12,548
Direct and occupancy... 829 1,270 2,242 3,750 7,861
Depreciation and
amortization........... 79 173 381 781 1,617
---------- ---------- ---------- ---------- ----------
Total restaurant
costs................ 3,607 6,004 9,817 16,529 32,902
---------- ---------- ---------- ---------- ----------
Income from restaurant
operations............. 507 1,138 1,499 2,501 5,581
General and
administrative
expenses............... 332 656 1,988 3,760 5,579
Preopening costs........ 151 183 430 1,140 1,895
---------- ---------- ---------- ---------- ----------
Operating income
(loss)................. 24 299 (919) (2,399) (1,893)
Interest expense........ 98 219 295 497 1,036
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes and
cumulative effect of
change in accounting
principle.............. (74) 80 (1,214) (2,896) (2,929)
Provision (benefit) for
income taxes........... 1 43 (101) 72 17
---------- ---------- ---------- ---------- ----------
Income (loss) before
cumulative effect of
change in accounting
principle.............. (75) 37 (1,113) (2,968) (2,946)
Cumulative effect of
change in accounting
principle related to
preopening costs....... -- -- -- (351) --
---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ (75) $ 37 $ (1,113) $ (3,319) $ (2,946)
========== ========== ========== ========== ==========
Cumulative preferred
stock dividends,
accretion of preferred
stock to redemption
value, and change in
redeemable common
stock.................. -- -- (3,687) (1,986) (2,189)
---------- ---------- ---------- ---------- ----------
Net income (loss)
applicable to common
stock.................. $ (75) $ 37 $ (4,800) $ (5,305) $ (5,135)
========== ========== ========== ========== ==========
Net income (loss) per
share--basic and
diluted................ $ (.03) $ .02 $ (1.96) $ (2.13) $ (2.04)
========== ========== ========== ========== ==========
Weighted average common
shares assumed
outstanding--basic and
diluted shares ........ 2,444,666 2,444,666 2,444,666 2,490,136 2,512,309
========== ========== ========== ========== ==========
Pro forma net loss per
share--
basic and diluted ..... $(.42)
==========
Common shares assumed
outstanding pro forma--
basic and diluted...... 7,062,176
==========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------
December 31, December 28, December 27,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Operating Data:
Comparable restaurant sales in-
crease(/1/)........................... 0.3% 8.9% 13.3%
Average weekly restaurant sales........ $47,319 $47,579 $52,727
Restaurants open at end of period...... 6 11 19
</TABLE>
<TABLE>
<CAPTION>
As of
----------------------------------------------------------------
December 31, December 31, December 31, December 28, December 27,
1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash equiva-
lents.................. $1,222 $ 805 $ 5,750 $ 6,099 $ 6,576
Total assets............ 2,480 4,477 12,771 21,288 37,560
Total debt, including
current portion........ 2,062 3,011 3,940 5,460 7,866
Redeemable stock(/2/)... -- -- 11,301 21,824 36,973
Shareholders' deficit... (179) (148) (4,942) (9,284) (13,540)
</TABLE>
- ---------------
(/1/)The calculation of comparable restaurant sales increase includes
restaurants open for 12 full calendar months, as adjusted to provide
comparable 52-week fiscal years.
(/2/)Includes Series A, Series B and Series C preferred stock and the
redeemable common stock.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of the financial condition and results of operations
should be read in conjunction with our consolidated financial statements and
their notes appearing elsewhere in this prospectus.
Overview
We own and operate 21 full service, dinner-only restaurants that offer high
quality, immigrant Southern Italian cuisine served family-style in large
portions in a fun and energetic atmosphere that parodies the decor and ambiance
of post-War Italian/American restaurants. In late 1996, BUCA, then a wholly
owned subsidiary of Parasole Restaurant Holding, Inc., was spun-off to the
shareholders of Parasole. At the time of the spin-off, we operated five
restaurants and had recently hired Joseph P. Micatrotto as President and Chief
Executive Officer. Since then, Mr. Micatrotto has hired an experienced
management team to embark on a strategic expansion of the BUCA di BEPPO
concept, targeted at major metropolitan areas throughout the United States.
Since late 1996, we have pursued a rapid but disciplined expansion strategy,
opening two restaurants in 1996, five in 1997 and eight in 1998. We intend to
open 13 new restaurants in fiscal 1999, of which one opened in Louisville,
Kentucky, in January, one opened in Claremont, California, in April, eight are
under construction and the remaining three have signed leases.
We believe that the sales growth pattern of our new restaurants in the two
years after they open differs from the typical sales growth pattern for new
restaurants in other casual dining concepts. Our restaurants typically
experience lower restaurant sales during the first few periods after opening,
with gradually increasing restaurant sales during the remainder of the
restaurant's first year of operation. In the second year of operation, our
restaurants experience significant comparable restaurant sales growth. In
calculating comparable restaurant sales, we include a restaurant in the
comparable base once it has been open for 12 full calendar months. We believe
we have this "discovery" growth pattern over the first two years of operations
because we rely primarily on word-of-mouth advertising and repeat business to
generate increased restaurant sales. This new restaurant opening trend has
contributed to our high levels of comparable restaurant sales increases of 8.9%
in fiscal 1997 and 13.3% in fiscal 1998. After two years of operation, our
restaurants typically experience lower comparable restaurant sales increases
than experienced in prior periods. We expect this sales growth trend for new
restaurants to continue in the future; however, we expect that the impact of
new restaurant openings on total comparable restaurant sales will decrease as
our mature restaurant base continues to increase.
During fiscal 1997 and fiscal 1998, we expanded the use of daily specials and
began other measures to build sales in existing restaurants and reduce our
product costs as a percentage of restaurant sales. Each day, every restaurant
offers from two to four specials. These daily specials are selected from a list
of approximately 60 recipes. These daily specials typically are priced higher
than normal menu items and generate higher margins. We have increased sales of
specials to approximately 15% of restaurant sales in fiscal 1998. The increase
in sales of specials along with price increases of approximately 2% in fiscal
1997 and 3% in fiscal 1998 have produced an increase in our average check from
$17.50 in fiscal 1996 to $18.80 in fiscal 1997 and to $20.00 in fiscal 1998. In
addition to achieving reduced costs through our sales of daily specials, we
have achieved cost efficiencies through the improved management of product
purchasing. Each restaurant orders items primarily from our national
distributor, SYSCO Corporation, on terms negotiated by our centralized
purchasing staff. We expect to introduce a new wine list in the second quarter
of fiscal 1999, which is intended to increase wine sales and reduce the cost of
wine as a percentage of wine sales.
During fiscal 1999, we expect to incur special non-cash charges in the
aggregate amount of approximately $3.0 million related to the early repayment
of debt. On February 5, 1999, we entered into a new credit facility with U.S.
Bank. A portion of this facility was used to repay our outstanding subordinated
debt in the amount of $6.0 million. This early repayment of debt resulted in a
one-time extraordinary charge of approximately $1.4 million in the first
quarter of fiscal 1999. We also have outstanding $1.8 million of convertible
subordinated debt that is convertible, at the option of the holders, into
common stock at a conversion price equal to 60% of
17
<PAGE>
the initial public offering price. As a consequence of this right, we will
recognize a special non-cash charge of approximately $1.3 million in the second
quarter of fiscal 1999. Holders of $825,000 in aggregate principal amount of
the outstanding convertible subordinated debt have elected to convert their
debt into shares of common stock in connection with this offering. In addition,
the $7.0 million term loan portion of our credit facility with U.S. Bank is
required to be repaid upon the completion of this offering. This will result in
a one-time extraordinary charge of approximately $300,000 in the second quarter
of fiscal 1999 for the write-off of costs related to this loan.
Our restaurant sales are comprised almost entirely of the sales of food and
beverages. In fiscal 1998, alcohol sales accounted for 26.6% of total
restaurant sales. Product costs include the costs of food and beverages. Labor
costs include direct hourly and management wages, bonuses, taxes and benefits
for restaurant employees. Direct and occupancy costs include restaurant
supplies, marketing costs, rent, utilities, real estate taxes, repairs and
maintenance and other related costs.
Depreciation and amortization principally includes depreciation on capital
expenditures for restaurants. Preopening costs consist of direct costs related
to hiring and training the initial restaurant workforce and certain other
direct costs associated with opening new restaurants. General and
administrative expenses are composed of expenses associated with all corporate
and administrative functions that support existing operations, management and
staff salaries, employee benefits, travel, information systems and training and
market research. Management believes that future expansion and resulting
increases in restaurant sales will require proportionately smaller incremental
increases in general and administrative expenses, causing general and
administrative expenses as a percentage of sales to decrease further in the
future.
We adopted a fiscal year ending on the last Sunday in December beginning in
1997. Prior to that, our fiscal year followed the calendar year. Therefore,
fiscal 1997 included only 362 days instead of 364 days. Our fiscal quarters
include two four week periods followed by a five week period. Fiscal 2000 will
be a 53-week-year, with the final quarter of the fiscal year totaling 14 weeks.
Results of Operations
Our operating results for fiscal years 1996, 1997 and 1998 expressed as a
percentage of restaurant sales were as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------
December 31, December 28, December 27,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Consolidated Statement of Operations
Data:
Restaurant sales....................... 100.0% 100.0% 100.0%
Restaurant costs:
Product.............................. 30.7 29.0 28.3
Labor................................ 32.9 34.0 32.6
Direct and occupancy................. 19.8 19.7 20.4
Depreciation and amortization ....... 3.4 4.1 4.2
Income from restaurant operations...... 13.2 13.1 14.5
General and administrative expenses.... 17.6 19.8 14.5
Preopening costs....................... 3.8 6.0 4.9
----- ----- -----
Operating loss......................... (8.1) (12.6) (4.9)
Interest expense....................... 2.6 2.6 2.7
----- ----- -----
Loss before income taxes and cumulative
effect of change in accounting princi-
ple................................... (10.7) (15.2) (7.6)
(Benefit) provision for income taxes... (0.9) 0.4 --
Net loss............................... (9.8)% (17.4)% (7.7)%
===== ===== =====
</TABLE>
18
<PAGE>
Fiscal Year Ended December 27, 1998 Compared to Fiscal Year Ended December 28,
1997
Restaurant Sales. Restaurant sales increased by $19.5 million, or 102.2%, to
$38.5 million in fiscal 1998 from $19.0 million in fiscal 1997. The increase
was attributable to restaurant sales of $9.8 million at new restaurants opened
in fiscal 1998 and to increased sales at restaurants open prior to fiscal 1998.
Comparable restaurant sales increased by 13.3% in fiscal 1998, primarily as a
result of an increase in guest visits of approximately 7%, a price increase of
approximately 3% in July 1998 and increased sales of daily specials. The price
increase and sales of daily specials resulted in an increase in the average
check per guest to $20.00 in fiscal 1998 from $18.80 in fiscal 1997.
Product. Product costs increased by $5.4 million to $10.9 million in fiscal
1998 from $5.5 million in fiscal 1997. Product costs as a percentage of
restaurant sales decreased to 28.3% in fiscal 1998 from 29.0% in fiscal 1997.
This reduction was a result of management's efforts to reduce the cost of food
products and improve margins. We entered into an agreement with a national food
distributor which reduced our food product costs beginning in the second
quarter of fiscal 1997. We also sought to increase the percentage of daily
specials that are sold at the restaurants.
Labor. Labor costs increased by $6.1 million to $12.6 million in fiscal 1998
from $6.5 million in fiscal 1997. Labor costs decreased as a percentage of
restaurant sales to 32.6% in fiscal 1998 from 34.0% in fiscal 1997. This
decrease resulted from a reduction in hourly labor to 18.3% of restaurant sales
in fiscal 1998 from 19.0% in fiscal 1997. This decrease in hourly labor
resulted from lower average wage costs due to the opening of new stores in
states that allow tips credit toward minimum wage requirements. The decrease in
labor costs as a percentage of restaurant sales from fiscal 1997 to fiscal 1998
also resulted from improved management of hourly staff levels, particularly
during the new store openings.
Direct and Occupancy. Direct and occupancy costs increased by $4.1 million to
$7.9 million in fiscal 1998 from $3.8 million in fiscal 1997. Direct and
occupancy costs increased as a percentage of restaurant sales to 20.4% in
fiscal 1998 from 19.7% in fiscal 1997. This increase was a result of the higher
occupancy costs in our California restaurants opened in the last half of fiscal
1997 and during fiscal 1998.
Depreciation and Amortization. Depreciation and amortization expenses increased
by $836,000 to $1.6 million in fiscal 1998 from $781,000 in fiscal 1997. This
increase was the result of depreciation recognized on capital expenditures for
new restaurants.
General and Administrative. General and administrative expenses increased by
$1.8 million to $5.6 million in fiscal 1998 from $3.8 million in fiscal 1997.
General and administrative expenses decreased as a percentage of restaurant
sales to 14.5% in fiscal 1998 from 19.8% in fiscal 1997. This increase in
dollars was primarily the result of the addition of management personnel in
fiscal 1997 and fiscal 1998, resulting in $600,000 of additional compensation
and benefits and $300,000 of additional travel expenses, and an increase in
legal fees of $600,000. We expect that general and administrative expenses will
continue to increase in dollar amount in the future, but decrease as a
percentage of restaurant sales because our expansion plans will require
proportionately smaller incremental increases in general and administrative
expenses.
Preopening. Preopening costs increased by $400,000 to $1.9 million in fiscal
1998 from $1.5 million in fiscal 1997, including the cumulative effect of the
change in accounting principle related to preopening expenses, due to the
greater number of restaurants that were opened or under development in fiscal
1998 compared to fiscal 1997.
Interest Expense. Interest expense increased by $539,000 to $1.0 million in
fiscal 1998 from $497,000 in fiscal 1997 due to an increase in our long-term
debt.
Provision for Income Taxes. The provision for income taxes for fiscal 1998 and
fiscal 1997 represents certain minimum state taxes based on taxable factors
other than earnings and a minor charge for federal taxes primarily related to
deferred income taxes. We did not record a tax benefit in fiscal 1998 or fiscal
1997 for the losses generated in previous years as utilization of these losses
in future periods was deemed uncertain. At December
19
<PAGE>
27, 1998, we had a net operating loss carryforward of $3.5 million. The net
operating loss carryforwards begin to expire in fiscal 2003. The expected
income tax benefit derived by applying the statutory income tax rate has been
eliminated as a result of an increase in the deferred income tax asset
valuation allowance.
Fiscal Year Ended December 28, 1997 Compared to Fiscal Year Ended December 31,
1996
Restaurant Sales. Restaurant sales increased by $7.7 million, or 68.2%, to
$19.0 million in fiscal 1997 from $11.3 million in fiscal 1996. The increase
was attributable to restaurant sales of $2.8 million at restaurants opened in
fiscal 1997, increased sales of $4.2 million at restaurants opened in the third
and fourth quarters of fiscal 1996 and the comparable restaurant sales increase
of 8.9%. The increase in comparable restaurant sales resulted primarily from an
increase in guest visits of approximately 3%, a price increase of approximately
2% in June of 1997 and increased sales of daily specials. The increased sales
of daily specials and the price increase in fiscal 1997 contributed to the
increase in the average check per guest to $18.80 in fiscal 1997 from $17.50 in
fiscal 1996.
Product. Product costs increased by $2.0 million to $5.5 million in fiscal 1997
from $3.5 million in fiscal 1996. Product costs as a percentage of restaurant
sales decreased to 29.0% in fiscal 1997 from 30.7% in fiscal 1996. This
decrease was a result of the agreement entered into with a national food
distributor in the second quarter of fiscal 1997, as well as efforts to reduce
excess food preparation costs and the increased sales of daily specials.
Labor. Labor costs increased by $2.8 million to $6.5 million in fiscal 1997
from $3.7 million in fiscal 1996. Labor costs increased as a percentage of
restaurant sales to 34.0% in fiscal 1997 from 32.9% in fiscal 1996. This
increase was a result of the increased number of new restaurants opened in
fiscal 1997 compared to fiscal 1996, and the timing of these openings in each
year. Labor costs at new restaurants generally are higher both in dollars and
as a percentage of restaurant sales for the first six months after opening.
Direct and Occupancy. Direct and occupancy costs increased by $1.5 million to
$3.8 million in fiscal 1997 from $2.2 million in fiscal 1996. Direct and
occupancy costs decreased as a percentage of restaurant sales to 19.7% in
fiscal 1997 from 19.8% in fiscal 1996. This decrease was primarily due to lower
occupancy costs in the restaurants opened in the third and fourth quarters of
fiscal 1996 and during fiscal 1997.
Depreciation and Amortization. Depreciation and amortization increased by
$400,000 to $781,000 in fiscal 1997 from $381,000 in fiscal 1996. This increase
was principally the result of depreciation recognized on capital expenditures
for new restaurants opened in fiscal 1997.
General and Administrative. General and administrative expenses increased
$1.8 million to $3.8 million in fiscal 1997, from $2.0 million in fiscal 1996.
General and administrative expenses increased as a percentage of restaurant
sales to 19.8% in fiscal 1997 from 17.6% in fiscal 1996. The increase in fiscal
1997 was primarily related to the costs associated with adding management staff
necessary to operate BUCA as a separate company. For most of fiscal 1996, we
operated as wholly owned subsidiary of Parasole Restaurant Holdings, Inc.
Preopening. Preopening costs increased by $1.1 million to $1.5 million in
fiscal 1997 from $430,000 in fiscal 1996. This increase was a result of the
increased number of new stores developed in fiscal 1997 as well as the $351,000
charge for the change in accounting principle related to preopening costs.
Interest Expense. Interest expense increased by $202,000 to $497,000 in fiscal
1997 from $295,000 in fiscal 1996 due primarily to the increase in our long-
term debt.
Benefit/Provision for Income Taxes. The provision for income taxes for fiscal
1997 represents certain minimum state taxes based upon taxable factors other
than earnings and a minor charge for federal taxes primarily related to
deferred income taxes. In fiscal 1996, we recorded a benefit of $101,000
related to the net
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operating loss carryforwards. In fiscal 1997, the expected income tax benefit
derived by applying the statutory income tax rate has been eliminated as a
result of an increase in the deferred income tax asset valuation allowance.
Quarterly Results
Our quarterly operating results will fluctuate significantly as a result of a
variety of factors, including the timing of new restaurant openings and related
expenses, profitability of new restaurants, increases or decreases in
comparable restaurant sales, general economic conditions, consumer confidence
in the economy, changes in consumer preferences, competitive factors and
weather conditions. In the past, we have experienced significant variability in
preopening costs from quarter to quarter. These fluctuations are primarily a
function of the timing of restaurant openings. We typically incur the most
significant portion of preopening costs associated with a given restaurant
within the two months immediately preceding, and the month of, the opening of
the restaurant. In addition, our experience to date has been that labor and
direct and occupancy costs associated with a newly opened restaurant for the
first three to six months of operation are materially greater than what can be
expected after that time, both in aggregate dollars and as a percentage of
restaurant sales. Accordingly, the volume and timing of new restaurant openings
in any quarter has had and is expected to continue to have a significant impact
on quarterly preopening costs and labor and direct and occupancy costs. We
anticipate that this effect will significantly increase preopening costs, labor
and direct and occupancy costs as a percentage of sales in the second and third
quarters of fiscal 1999.
Liquidity and Capital Resources
Since we were formed, we have incurred significant net losses, primarily due to
restaurant development and the costs of hiring senior management to develop and
implement our expansion strategy. We have generated income from our restaurant
operations, but have incurred aggregate net losses of $7.6 million. We have
funded our capital requirements through private sales of equity securities,
debt financing and sale-leaseback arrangements. Net cash used in operating
activities was $1.5 million for fiscal 1997 and net cash provided by operations
was $338,000 for fiscal 1998.
Accounts receivable increased by $876,000 to $1.2 million at December 27, 1998.
Of this increase, $504,000 was due to greater credit card receivables and
$336,000 was related to property insurance damage claims. Our property
insurance carrier has paid a substantial portion of the receivable subsequent
to December 27, 1998.
We use cash primarily to fund the development and construction of new
restaurants. Net cash used in investing activities was $8.1 million for fiscal
1997 and $15.6 million for fiscal 1998. Capital expenditures were $7.9 million
for fiscal 1997 and $17.9 million for fiscal 1998. During fiscal 1997 and 1998,
we purchased the land and building for our Wheeling, Cleveland and St. Paul
locations. We subsequently entered into sale-leaseback arrangements for both
the Wheeling and Cleveland locations during 1998. These purchases of land and
buildings, along with our expansions of the Seattle and St. Paul restaurants,
accounted for $2.2 million of fiscal 1998 capital expenditures. We intend to
open 13 restaurants in fiscal 1999, two of which have already opened. Total
capital expenditures are expected to be approximately $17.0 million in fiscal
1999. Each new restaurant is expected to require, on average, a total cash
investment of between $1.0 million and $1.5 million, excluding preopening costs
expected to range from $175,000 to $210,000. Total capitalized investment
includes the capitalized lease value of the property, which can vary greatly
depending on the specific trade area. To date, all of our restaurants are
renovations of existing facilities ranging in size from 4,500 to 10,000 square
feet. We anticipate that future restaurants will typically range in size from
7,000 to 9,000 square feet. In 1999, we will build at least two restaurants
based on our prototype designs. These designs are expected to require between
$1.5 million and $2 million in total cash investment per restaurant. This
investment represents an incremental $500,000 increase over the historical cash
investment for remodeled restaurants. We plan to refinance any purchases of
land or buildings through sale-leaseback transactions. We cannot predict
whether this financing will be available when needed or on terms acceptable to
us.
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Net cash provided by financing activities was $9.9 million in fiscal 1997 and
$15.8 million in fiscal 1998. Financing activities in fiscal 1997 and fiscal
1998 consisted primarily of sales of preferred stock as well as the incurrence
of additional long-term debt. We have an $8.0 million revolving line of credit
which matures on December 31, 2000 under which we currently have $2.0 million
in borrowings and which bears interest at the bank's reference rate plus .75%
to 1.25%. We also have a $7.0 million term loan which expires on December 31,
2000 and bears a fixed rate of interest of 9.63%. Pursuant to the terms of the
credit agreement, the term loan must be repaid upon the consummation of this
offering. In addition, we must repay any borrowings under the revolving line of
credit in excess of $3.0 million, which will become the line's credit limit.
The credit agreement contains covenants which place restrictions on sales of
properties, transactions with affiliates, creation of additional debt, and
other customary covenants. Borrowings under the credit agreement are
collateralized by substantially all of our assets. We do not anticipate that
the above covenants and restrictions will have a significant impact on us.
After this offering, we intend to renegotiate our line of credit and we believe
that the lender will be willing to increase the amount of the line of credit on
terms and conditions which are comparable to those contained in our existing
line of credit, or that other financing will be available in an amount and on
terms and conditions which are adequate to meet our currently planned working
capital and liquidity needs. However, we cannot predict whether our existing
lender will ultimately agree to any increase or whether any alternative
financing will be available.
Our capital requirements, including development costs related to the opening of
additional restaurants, have been and will continue to be significant. We will
need substantial capital to finance our expansion plans, which require funds
for capital expenditures, preopening costs and initial operating losses related
to new restaurant openings. The adequacy of available funds after this offering
and our future capital requirements will depend on many factors, including the
pace of expansion, the costs and capital expenditures for new restaurant
development and the nature of contributions, loans and other arrangements
negotiated with landlords. Although we can make no assurance, we believe that
cash flow from operations together with the net proceeds from this offering and
available borrowings will be sufficient to fund our capital requirements
through at least the next twelve months. We will need to raise additional
capital in fiscal 2000 through public or private equity or debt financings to
continue our growth. Future capital funding transactions may result in dilution
to you. We cannot predict whether additional capital will be available on
favorable terms, if at all.
We lease restaurant and office facilities and certain real property under
operating leases expiring between fiscal 1999 and fiscal 2018. Future minimum
lease payments under operating leases, including restaurant facilities
currently under construction or yet to be constructed as of December 27, 1998
were as follows: $3.0 million in fiscal 1999, $4.0 million in fiscal 2000, $4.0
million in fiscal 2001, $4.1 million in fiscal 2002, $4.2 million in fiscal
2003 and thereafter $29.4 million.
Inflation
The primary inflationary factors affecting our operations are food and labor
costs. A large number of our restaurant personnel are paid at rates based on
the applicable minimum wage, and increases in the minimum wage directly affect
our labor costs. To date, inflation has not had a material impact on our
operating results. See "Business--Government Regulation" for a discussion of
the effects of changes in applicable minimum wage requirements.
Year 2000 Compliance
We are aware of the issues associated with the programming code in existing
computer systems as the year 2000 approaches. The "year 2000 problem" is
pervasive and complex as virtually every computer operation will be affected in
some way by the rollover of the two digit year value to "00". The issue is
whether computer systems will properly recognize date-sensitive information
when the year changes to 2000. We have reviewed both our information technology
and our non-information technology systems to determine whether they are year
2000 compliant, and we have not identified any material systems which are not
year 2000 compliant. We have substantially completed year 2000 testing of our
systems and have identified those components deemed
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noncompliant. We have initiated formal communications with all significant
suppliers and service providers to determine the extent to which we are
vulnerable to those third parties' failure to solve the year 2000 problem. We
have received written assurances of year 2000 compliance from a majority of the
third parties with whom we have relationships, including our national food
distributor, and payroll and credit card service providers. Unless public
suppliers of water, electricity and natural gas are disrupted for a substantial
period of time, we believe that our operations will not be significantly
disrupted even if third parties with whom we have relationships are not year
2000 compliant. If public suppliers of water, electricity and natural gas are
disrupted for a substantial period of time, our business may be materially
adversely affected. We will develop a contingency plan to deal with potential
third party failure issues. Testing and replacement of all systems is scheduled
to be completed by June 30, 1999. A decision to implement a contingency plan is
expected by June 30, 1999. We estimate that we incurred approximately $100,000
in fiscal 1998 to address year 2000 issues, principally testing our existing
systems, and that we will incur an additional $100,000 in fiscal 1999 to
replace certain system components deemed non-year 2000 compliant. These amounts
do not include insurance proceeds used to replace hardware and software systems
destroyed in the recent fire at our headquarters with new systems represented
to be year 2000 compliant. However, uncertainty exists concerning the potential
costs and effects associated with any year 2000 compliance, and we intend to
continue to make efforts to ensure that third parties with whom we have
relationships are year 2000 compliant. Any year 2000 compliance problem of ours
or our vendors could materially adversely affect our business, financial
condition, operating results or cash flows, and could prohibit us from
operating our restaurants.
Quantitative and Qualitative Disclosure About Market Risks
We are exposed to market risk from changes in interest rates on borrowings
under our revolving line of credit that bears interest from time to time at the
lending bank's reference rate plus 0.75% to 1.25%. Because we do not believe
that the maximum available borrowings under the revolving line of credit are
material, we do not believe this risk will be material.
We have no derivative financial instruments or derivative commodity instruments
in our cash and cash equivalents and investments. We invest our cash and cash
equivalents and investments in investment grade, highly liquid investments,
consisting of money market instruments, bank certificates of deposit and
overnight investments in commercial paper. We anticipate investing our net
proceeds from this offering in similar investment grade and highly liquid
investments pending their use as described in this prospectus. See "Use of
Proceeds." Primarily all of our transactions are conducted, and our accounts
are denominated, in United States dollars. Accordingly, we are not exposed to
foreign currency risk.
Many of the food products purchased by us are affected by commodity pricing and
are, therefore, subject to price volatility caused by weather, production
problems, delivery difficulties and other factors which are outside our
control. To control this risk in part, we have fixed price purchase commitments
with terms of one year or less for food and supplies from vendors who supply
our national food distributor. In addition, we believe that substantially all
of our food and supplies are available from several sources, which helps to
control food commodity risks. We believe we have the ability to increase menu
prices, or vary the menu items offered, if needed in response to a food product
price increases. To compensate for a hypothetical price increase of 10% for
food and supplies, we would need to increase menu prices by an average of 3%,
which is consistent with average price increases of 3% in fiscal 1998 and 2% in
fiscal 1997. Accordingly, we believe that a hypothetical 10% increase in food
product costs would not have a material effect on our operating results.
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BUSINESS
Overview
BUCA, Inc. owns and operates 21 full service, dinner-only restaurants under the
name BUCA di BEPPO. Our restaurants offer high quality, immigrant Southern
Italian cuisine served family-style in large portions in a fun and energetic
atmosphere that parodies the decor and ambiance of post-War Italian/American
restaurants.
Our Business Strategy
Our objective is to become the dominant family-style, immigrant Southern
Italian restaurant in each of our markets. To achieve our objective, we have
developed the following strategies:
Offer Vital, Vibrant and Powerfully Flavored Food. BUCA di BEPPO restaurants
feature foods with the pure, powerful flavors of the immigrant Southern Italian
kitchen. Our BUCA di BEPPO 1893 salad, for example, combines a large bed of
greens with olives, two kinds of cheese, mortadella, pepperoni, peperoncini,
onions, cucumbers and tomatoes. Our chicken vesuvio features fresh, tender
chicken, seasoned with oregano, sauteed with spicy Italian sausage and tossed
in a sauce of olive oil, sweet white wine, garlic, chunks of tomato, broccoli,
red onion and white cannellini beans. For dessert, our cannoli's three crispy
shells are covered with powdered sugar and filled with a thick, creamy ricotta
and sweet mascarpone, sprinkled with pistachios and covered in chocolate sauce.
Create a Fun, Energetic, Destination Dining Experience. BUCA di BEPPO promotes
a fun, irreverent and socially interactive atmosphere. The family-style,
participatory dining format, "kitschy" decor, unique restaurant layouts, and
festive atmosphere all combine to make our restaurants entertaining and fun for
guests. We believe that this atmosphere results in BUCA di BEPPO restaurants
being a destination for diners who will seek out our restaurant locations. We
also believe this atmosphere is attractive for a wide variety of dining
occasions, including weekend evenings, business occasions, family celebrations
as well as regular weeknight dining.
Provide Superior Dining Value. Our restaurants provide high quality,
moderately priced food in oversized portions. We believe that the generous
portions, combined with an average check per guest of approximately $20.00,
including beverages, offer our guests exceptional value. We reinforce this
value by encouraging guests to take home their extra food in our logo-bearing
BUCA Bags, allowing guests to enjoy an additional BUCA meal at home.
Achieve Excellent Restaurant Economics. We believe that our restaurants
provide superior unit level economics. During fiscal 1998, our restaurants with
at least two full years of operating history generated average restaurant sales
of approximately $3.0 million and average cash flow of approximately $693,000,
or 23.5% of restaurant sales.
Leverage Our Paisano Partners Program. We believe that our Paisano Partners
program, in which restaurant general managers purchase BUCA stock, receive
stock options and share in their restaurant's profits, enables us to attract
and retain experienced and high caliber managers. We believe this program
motivates our Paisanos to achieve significantly greater operating efficiencies,
results in lower turnover and contributes to our superior unit level economics.
Pursue Rapid but Disciplined Restaurant Expansion. Since fiscal 1997, BUCA has
pursued a rapid but disciplined restaurant development strategy. Our current
development plan is to open 13 new restaurants in fiscal 1999, of which two are
already open, eight are under construction and the remaining three have signed
leases.
Create a Passionate Culture of Service. We foster a passionate culture of
guest service among our employees by emphasizing consideration of the guest
first in all decisions. From the moment a guest walks in
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the front door, the BUCA di BEPPO experience is enhanced by a high level of
guest service provided by a knowledgeable, energetic staff. Servers are trained
to introduce guests to the BUCA di BEPPO concept, explain the menu and
encourage guest interaction. The Paisano also interacts with guests to make
them feel welcome and is responsible for ensuring their satisfaction with the
dining experience.
The BUCA di BEPPO Concept
The BUCA di BEPPO concept irreverently exaggerates the cliches of traditional
post-War neighborhood Italian/American restaurants but also pays tribute to and
emulates their reverence for food, vibrant atmosphere, colorful decor and high
degree of social interaction. The innovation of this concept has attracted
national attention as evidenced by national awards won by BUCA, including a
1998 "Hot Concepts!" award from Nation's Restaurant News, and awards in all of
our local markets.
Powerfully Flavored High Quality Food. We believe that the authenticity,
quality and consistency of our food is the most important component of our
long-term success. In contrast to the levity of our decor and ambiance, we take
menu development and food preparation very seriously. Our menu is based on
authentic family recipes enjoyed for generations in the villages of Southern
Italy and then adapted to American ingredients. We make regular trips to
Southern Italy and Sicily to find new recipes for our menu that are then
extensively tested and refined before introduction in our restaurants.
Some of our most popular menu items include the BUCA di BEPPO 1893 salad,
chicken cacciatore, spaghetti with half-pound meat balls, eggplant parmigiana,
ravioli al pomodoro, veal marsala, garlic mashed potatoes, pizza arrabiatta and
tiramisu. Our foods, often seasoned with garlic and served with vine-ripened
tomatoes, communicate the pure, powerful flavors of the immigrant Southern
Italian kitchen. We also offer daily specials centered around a genre of
Southern Italian cooking called "cucina di povera," which translates as
"cuisine of the poor." These daily specials consist of year-round specials such
as manicotti or cannelloni as well as seasonal specials such as mozzarella
caprese that is offered only in the summer in order to assure the availability
of high quality ingredients and to take advantage of seasonal customer demand.
We believe that our daily specials play a vital role in keeping the menu fresh
and allow us to test prospective permanent menu items. In fiscal 1998, daily
specials accounted for approximately 15% of food sales.
To ensure that the food we are serving is of consistently high quality, we have
developed extensive quality control practices. For example, every member of our
kitchen staff must participate in a thorough training program. We also have
strict specifications that ensure only high quality ingredients are used in our
food. A kitchen manager at each restaurant is responsible for making a final
check of each item to assure it meets our high quality standards before it
leaves the kitchen.
Our menu pricing is consistent within a market, but may differ slightly from
one market to the next. Menu entrees range in price from $9.95 to $19.95 and
are designed to be shared by the entire party at the table. The average check
per guest is approximately $20.00, including beverages. In fiscal 1998,
alcoholic beverages, primarily table wine, accounted for 26.6% of total
restaurant sales.
Family-Style Serving and Ambiance. BUCA di BEPPO restaurants' oversized
portions, served family-style on large platters, are designed to overwhelm
guests with an abundance of high quality food. An order of our spaghetti and
meatballs, for example, features 2.5 pounds of pasta and three half-pound
meatballs, covered by a pound of marinara sauce. Our chicken cacciatore
consists of a whole chicken served on two pounds of garlic mashed potatoes,
ladled with cacciatore sauce and weighs seven pounds. Guests can enjoy their
meal with bottles of Italian table wine of up to five liters in size.
In family-style serving, each item is shared by the entire table, which
encourages guests to interact and enjoy the meal together. We locate menu
boards on our restaurant's walls instead of distributing individual menus,
encouraging guests to wander from their seats to read the menu. Guests take
note of what other tables have ordered and may interact with other parties. We
believe the fun and socially interactive dining experience
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typical of a meal at one of our restaurants differentiates us from our
competitors and promotes guest loyalty from a wide range of guests. We maintain
a policy of serving dinner-only which reinforces our family-style concept.
We believe that serving guests family-style offers us a competitive advantage.
Because larger portions are more efficient to produce and serve, cost savings
are passed along to the guest. Furthermore, by exclusively serving larger
portions, we are able to consistently and emphatically make a value statement
to our guests.
Irreverent Decor and Unique Layout. Our restaurants are designed with an
irreverence that exaggerates the cliches of traditional post-War
Italian/American neighborhood restaurants. Our restaurant exteriors are
typically clad in faux flagstone and painted Tuscan red, feature flashing bare
bulb signage, statuary, fake flowers and humorous neon window signs promising
"elegant dining," "sanitary bathrooms" and "air conditioning." Our restaurant
interiors are decorated with hundreds of vintage photos of Italian and
Italian/American families and celebrities, bright strings of Christmas lights
displayed year-round and numerous other icons of Italian heritage. Boxes of
pasta, cans of olive oil and roasted peppers and jugs of wine fill window sills
and shelves throughout our restaurants. Lively music from classic artists such
as Frank Sinatra and Dean Martin adds to the fun and energetic atmosphere. The
combined effect of these exaggerated cliches is a lighthearted, tongue-in-
cheek, "kitschy" atmosphere that makes BUCA di BEPPO restaurants fun and
entertaining destinations.
The individual layout of each BUCA di BEPPO restaurant in a market is unique.
The restaurant's collection of individual dining rooms provide a variety of
seating possibilities. We believe that this individuality reinforces the image
of BUCA as a collection of quirky neighborhood restaurants. In most of our
restaurants, for example, guests must pass through the kitchen before being
seated. Some elements such as the signage, menu and service are consistent
throughout all restaurants. All restaurants feature a visible pizza kitchen,
several distinct dining rooms and a bar that is used primarily as a waiting
area.
BUCA di BEPPO restaurants are designed to accommodate groups, with a
predominance of tables seating four to six guests and many tables seating
parties of eight or more. Additionally, most locations feature a "Pope's Table"
and a "Kitchen Table." The Pope's Table is a large table that seats 16 to 20
people and occupies a marquee location in the restaurant. The Kitchen Table
seats six to ten people in the heart of the restaurant's loud and boisterous
kitchen, providing the ultimate BUCA di BEPPO experience.
Exemplary Guest Service. At BUCA, we are committed to guest satisfaction. From
the moment guests walk in the door, they are treated as part of the BUCA di
BEPPO family. The server ensures that first-time guests understand the BUCA di
BEPPO family-style servings and provides an explanation of the menu, if
necessary. When guests are ordering, our server highlights the daily specials
and helps them determine an appropriate amount of food to order. We emphasize
to our employees that they should consider the guest first in all decisions
they make. The restaurant's Paisano Partner interacts with guests to make them
feel welcome and is responsible for ensuring their satisfaction with the dining
experience. We also contract with an independent company to send its personnel
to dine in each of our restaurants unannounced at least twice each month. After
each visit, these anonymous diners issue a written report with both subjective
impressions and objective grading of our restaurants in several operational
areas.
Unit Level Economics
During fiscal 1998, our restaurants with at least two full years of operating
history generated average restaurant sales of approximately $3.0 million.
During fiscal 1998, these mature restaurants generated average cash flow of
approximately $693,000, or 23.5% of restaurant sales, and average restaurant
operating income of approximately $593,000, or 20.0% of restaurant sales. We
currently lease all but one of our restaurant locations and plan to lease most,
if not all, of our future restaurant sites. We anticipate that, on average, new
restaurants will require a cash investment of $1.0 million to $1.5 million. In
fiscal 1998, our total cash investment per restaurant averaged approximately
$1.4 million, excluding preopening costs of approximately $195,000. Preopening
costs for future restaurants are expected to range from $175,000 to $210,000
per restaurant.
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However, individual unit investment costs could vary due to a variety of
factors, including competition for sites, location, construction costs, unit
size and the mix of conversions, build-to-suit and leased locations.
Our current restaurants range in size from 4,500 to 10,000 square feet and have
approximately 170 to 375 seats. We anticipate that future restaurants will
typically range in size from 7,000 to 9,000 square feet and have approximately
250 to 350 seats. From time to time, we have expanded the size of existing
restaurants to meet demand.
Current Restaurant Locations
We currently own and operate the following 21 restaurants, located in 11
markets:
<TABLE>
<CAPTION>
Location Date Opened Square Feet Seats
- -------- ------------- ----------- -----
<S> <C> <C> <C>
Minneapolis, Minnesota.......................... July 1993 4,465 172
St. Paul, Minnesota............................. May 1994 9,991 375
Eden Prairie, Minnesota......................... June 1995 8,025 230
Milwaukee, Wisconsin............................ November 1995 9,210 293
Palo Alto, California........................... July 1996 5,192 197
Seattle, Washington............................. November 1996 8,213 328
Chicago, Illinois............................... May 1997 5,340 185
Wheeling, Illinois.............................. May 1997 6,426 225
San Francisco, California....................... August 1997 6,393 202
Lynnwood, Washington............................ November 1997 6,890 262
Pasadena, California............................ December 1997 6,739 250
Indianapolis, Indiana........................... February 1998 7,678 326
Encino, California.............................. March 1998 6,080 248
Redondo Beach, California....................... June 1998 6,152 272
Lombard, Illinois............................... July 1998 8,278 328
Scottsdale, Arizona............................. October 1998 8,230 298
Burnsville, Minnesota........................... November 1998 7,340 312
Cleveland, Ohio................................. November 1998 9,430 256
Kansas City, Kansas............................. December 1998 7,494 298
Louisville, Kentucky............................ January 1999 8,315 244
Claremont, California........................... April 1999 10,174 330
</TABLE>
We expect that eleven additional restaurants will open during the remainder of
fiscal 1999. Construction has commenced on eight of these sites, one each in
Denver, Colorado; Washington, D.C.; Daytona Beach, Florida; Des Moines, Iowa;
Detroit, Michigan; Buffalo, New York; Columbus, Ohio; and Philadelphia,
Pennsylvania. In addition, we have 12 signed leases for future sites, including
three sites for restaurants we expect to open in 1999. We also have entered
into a lease for a 10,000 square foot restaurant to be opened during fiscal
2000 at Universal Studios in Los Angeles. We are currently negotiating
additional leases for potential future locations.
Expansion Strategy and Site Selection
Beginning in fiscal 1997, following the hiring of Joseph P. Micatrotto as our
President and CEO, we accelerated our rate of restaurant expansion. Mr.
Micatrotto previously had been instrumental in the expansion of two national
restaurant chains, Chi-Chi's Mexican Restaurants and Panda Express. Today we
are focused on growing our restaurant base in a rapid but disciplined manner.
We intend to open 13 new restaurants in fiscal 1999, of which two are already
open, eight are under construction and the remaining three have signed leases.
By the end of fiscal 1999, we plan to have 32 restaurants open in at least 17
markets. We intend to continue expanding BUCA primarily in metropolitan markets
of the United States with a population of at least 800,000 which we believe can
support multiple BUCA di BEPPO restaurants. We do, however, plan to enter one
or more smaller markets within the next 12 months. We believe that the majority
of our future growth will come
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from opening new restaurants. We will, however, evaluate opportunities to
acquire other restaurant operations, but we do not currently have any
definitive agreements, arrangements or understandings regarding any particular
acquisition.
We have designated teams of employees that are responsible for opening new
restaurant locations, including kitchen personnel and other individuals who are
trained as hosts, servers, bartenders and managers. Our training programs
enable us to promote existing employees and managers as new restaurants open.
We believe that through our training programs and the hiring of outside
personnel we will be able to support our expansion strategy.
We believe that our concept is extremely flexible and can be successfully
operated in a number of different settings. We have located our restaurants in
both urban and suburban areas with equal success. Our restaurants have been
successfully opened both as freestanding structures and as tenants in larger
multi-purpose buildings. To date, all of our restaurant sites involved the
remodeling of existing structures. To develop efficiencies and to increase
flexibility with respect to locations, we have developed prototype designs for
new construction. While our restaurants typically share common interior decor
elements, the layouts of our restaurants differ to accommodate different types
of buildings and different square footage of available space.
We believe that a restaurant's location is a critical factor in determining its
success. Accordingly, we thoroughly analyze each prospective site before
signing a lease. Restaurant sites must be approved by the Real Estate Site
Approval Committee, consisting of two outside directors, our Chairman, CEO,
CFO, COO and the prospective Divisional Vice President. As a dinner-only
concept, we are most concerned about locating restaurants close to areas where
our guests typically spend their evening hours. The criteria we consider when
selecting a site include: the site's visibility, traffic patterns, general
accessibility and availability of suitable parking, competition within the
site's trade area, availability of restaurant-level employees and proximity of
shopping, entertainment activities, office parks, and tourist attractions. In
general, we prefer to open our restaurants within larger metropolitan areas
with higher population densities and above-average household incomes.
Operations
Restaurant Management. Our ability to effectively manage restaurants over a
diverse geographic area will continue to be critical to our overall success. We
currently have three Divisional Vice Presidents of Operations who report
directly to the Chief Operations Officer. Each Divisional Vice President
supervises a multi-state geographic area and is expected to effectively manage
up to 15 restaurants. Our Divisional Vice Presidents supervise each Paisano
within his or her territory with the goal of achieving an expected return on
investment through the successful implementation and operation of the BUCA di
BEPPO concept. We believe that our Divisional Vice Presidents can accomplish
this broad supervisory task in large part because of the experience and high
caliber of our Paisano Partners. In addition, because we are a dinner-only
concept, the number of meal shifts that the Paisano Partner and, indirectly,
the Divisional Vice President, must supervise are approximately one-half of
most restaurants in the industry. The typical restaurant management team
consists of the Paisano Partner, Kitchen Manager, Assistant General Manager and
Assistant Kitchen Manager. Under the Paisano Partners program, this management
team receives a percentage of incremental restaurant cash flow after their
restaurant achieves certain minimum performance levels. Each member of our
restaurant management team is cross-trained in all operational areas. As we
grow our restaurants and expand geographically, we expect to add additional
Divisional Vice Presidents.
Recruiting. We actively recruit and select individuals who share our passion of
guest service. Testing and multiple interviews are used to aid in the selection
of new employees at all levels. We have developed a competitive compensation
plan for restaurant management that includes a base salary, competitive
benefits package including a 401(k) plan, and participation in a management
incentive plan that rewards the restaurant management team for achieving
performance objectives. All of our employees are entitled to discounted meals
at our restaurants; in addition, all restaurant employees are invited to the
daily pre-shift meal held at each
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<PAGE>
restaurant. We also enjoy the recruiting advantage of being a one-meal-period-
only restaurant concept, which provides employees with a more regular schedule
than they might have at other restaurant concepts. In addition, because they
are working only a dinner shift, where tips are usually greater than other
meals, servers realize better per hour compensation than most other multiple
meal concepts. It is our policy to promote from within, but we recognize the
need to supplement this policy with outside recruiting at this stage of our
growth and as new markets are opened.
Training. We provide all new employees with intensive training to ensure they
are provided with the tools to excel in their position. This training
encompasses classroom instruction, on-the-job training programs for each
position, and testing of the new employee's progress at pre-determined stages
within the training schedule. Each new member of the restaurant management team
receives a minimum of 12 weeks of training before being assigned to a
restaurant location. All management employees receive kitchen training. In
addition to the formal training programs, we maintain detailed operating
procedure manuals, standards, controls, food line management systems and a food
culture book to complement the training received at all levels.
Operational Control Systems. All of our restaurants use personal computer
systems integrated with management systems to monitor restaurant sales, product
costs and labor costs on a daily basis. Financial controls are maintained
through a centralized accounting system, which includes a sophisticated
theoretical food cost program and a labor scheduling and tracking program.
Physical inventories of food and beverage items are taken on a weekly basis.
Daily, weekly and monthly financial information is provided to each restaurant
and to the Divisional Vice Presidents for analysis and comparison to our budget
and to comparable restaurants. We closely monitor restaurant sales, cost of
sales, labor and other restaurant trends on a daily, weekly and monthly basis.
We believe that our current systems are adequate for our planned expansion
strategy.
Hours of Restaurant Operation. BUCA di BEPPO restaurants are open seven days a
week for dinner only, typically opening at 5:00 p.m. during the week and 4:00
p.m. on the weekends and closing at the Paisano's discretion, typically 10:00
p.m. on weekdays and 11:00 p.m. on weekends. Additionally, our restaurants open
at noon on selected holidays.
Marketing
Our marketing strategy is to communicate the BUCA di BEPPO brand through many
creative and non-traditional avenues. We focus our efforts on getting people in
the local community, particularly civic, business and media leaders, to talk
about the BUCA di BEPPO experience. During fiscal 1998, we spent an aggregate
of 2.5% of restaurant sales on marketing efforts. We expect to continue
investing approximately 2% to 3% of restaurant sales in marketing efforts in
the future, primarily in connection with the opening of new restaurants.
In connection with new restaurant openings, we contract with local public
relations firms to assist us in establishing and sustaining the BUCA di BEPPO
brand. By organizing events like pre-opening parties and concierge dinners,
these firms focus primarily on introducing BUCA di BEPPO restaurants to opinion
leaders, such as civic and media personalities, and to hospitality industry
leaders such as key hotel staff, meeting planners and convention and visitors
bureau representatives.
We sustain restaurant awareness primarily through unpaid media exposure and
word-of-mouth advertising, including grassroots neighborhood marketing efforts,
primarily by the Paisano Partner. BUCA di BEPPO restaurants have achieved
particular success by delivering a sample of menu items to drive-time radio
personalities and morning television hosts, earning free media exposure, and
often invitations for scheduled return engagements, while developing
relationships with high-profile media personalities.
To reinforce our image as a collection of unique neighborhood restaurants, the
Paisano Partner works diligently to establish a community presence. Through
ongoing neighborhood marketing efforts, supported by our marketing department,
the Paisano Partner establishes relationships with area businesses and
residents,
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<PAGE>
participates in high-profile events and festivals, and takes advantage of
opportunities to introduce area residents and workers to the restaurant.
Because of their credibility as local business owners and community members,
Paisano Partners play an integral role in establishing BUCA di BEPPO in the
neighborhood.
We engage to a limited extent in paid advertising, including billboards, radio
spots, and newspaper and magazine ads. We also utilize a variety of printed
marketing materials, including restaurant location brochures, hotel concierge
cards, take-out menus and direct mailings. Typical themes in these materials
include: "Recorded Music in Every Room," "Cocktails in the Lounge and at Your
Table" and "Vinyl Booths Mean No Static Cling For the Ladies." All marketing
communications work to establish each of our restaurants as an irreverent,
distinct, casual and welcoming neighborhood immigrant Southern Italian
restaurant.
Purchasing
We endeavor to obtain high quality menu ingredients and other supplies and
services for our operations from reliable sources at competitive prices. To
this end, we continually research and evaluate various ingredients and products
in an effort to maintain the highest quality and to be responsive to changing
consumer tastes. Our centralized purchasing staff, under the direction of our
Vice President of Purchasing, procures the products specified by our Food and
Beverage Department, specifies the products to be used at our restaurants,
designates the vendors and provides suppliers with detailed ingredient
specifications. To maximize purchasing efficiencies and to provide for the
freshest ingredients for our menu items, each restaurant's management
determines the quantities of food and supplies required. To obtain the lowest
possible prices for the required high quality and consistency, each restaurant
orders items primarily from our national food distributor, SYSCO Corporation,
on terms negotiated by our centralized purchasing staff. We believe that all
essential food and beverage products are available from several qualified
suppliers at competitive prices should an alternative source be required.
Competition
The restaurant industry is intensely competitive. We compete on the basis of
taste, quality, and price of food offered, guest service, location, ambiance
and overall dining experience. We have many well established competitors, both
nationally and locally owned Italian and non-Italian concepts, with
substantially greater financial resources and a longer history of operations
than we do. Their resources and market presence may provide advantages in
marketing, purchasing and negotiating leases. We compete with other restaurant
and retail establishments for sites. Changes in consumer tastes, economic
conditions, demographic trends and the location and number of, and type of food
served by, competing restaurants could adversely affect our business as could
the unavailability of experienced management and hourly employees.
Our History
The BUCA di BEPPO concept was created in Minneapolis in 1993 by our founder,
Philip A Roberts, and originally operated by a company owned by Mr. Roberts,
Don W. Hays and Peter J. Mihajlov. On December 31, 1994, this company was
acquired by Parasole Restaurant Holdings, Inc., a diversified restaurant
company operating in the Minneapolis/St. Paul metropolitan area. Mr. Roberts,
Mr. Hays and Mr. Mihajlov are the principle shareholders of Parasole. From
January 1995 through September 1996, BUCA operated as a wholly owned subsidiary
of Parasole. On September 30, 1996, we were spun-off from Parasole through a
share dividend of our common stock pro rata among the Parasole shareholders to
create a better vehicle for obtaining financing for our expansion plans. See
"Certain Relationships and Related Transactions" for a discussion of the
relationship between us and Parasole and with Mr. Roberts, Mr. Hays and Mr.
Mihajlov.
Properties
All of our restaurants but one are located in leased facilities. Current
restaurant leases have expiration dates ranging from 2003 to 2018, with all of
the leases providing for five-year options to renew for at least one additional
term.
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<PAGE>
The building formerly housing our executive offices suffered extensive fire
damage in December 1998. Our executive offices are now temporarily located in
approximately 10,000 square feet of leased space in Minneapolis, Minnesota.
Employees
At January 31, 1999, we had 1,400 employees. Forty served in administrative or
executive capacities, 85 served as restaurant management personnel, and the
remainder were hourly restaurant personnel.
None of our employees are covered by collective bargaining agreements, and we
have never experienced an organized work stoppage or strike. We believe that
our working conditions and compensation packages are competitive and consider
relations with our employees to be very good.
Intellectual Property
We have registered the servicemarks "BUCA" and "BUCA di BEPPO" with the United
States Patent and Trademark Office. We believe that our trademarks and other
proprietary rights have significant value and are important to the marketing of
our restaurant concept. We have in the past and expect to continue to
vigorously protect our proprietary rights. We cannot predict, however, whether
steps taken by us to protect our proprietary rights will be adequate to prevent
misappropriation of these rights or the use by others of restaurant features
based upon, or otherwise similar to, our concept. It may be difficult for us to
prevent others from copying elements of our concept and any litigation to
enforce our rights will likely be costly. In addition, other local restaurant
operations with names similar to those we use may try to prevent us from using
our marks in those locales.
Government Regulations
Our restaurants are subject to regulation by federal agencies and to licensing
and regulation by state and local health, sanitation, building, zoning, safety,
fire and other departments relating to the development and operation of
restaurants. These regulations include matters relating to environmental,
building, construction and zoning requirements and the preparation and sale of
food and alcoholic beverages. Our facilities are licensed and subject to
regulation under state and local fire, health and safety codes.
Each of our restaurants is required to obtain a license to sell alcoholic
beverages on the premises from a state authority and, in certain locations,
county and/or municipal authorities. Typically, licenses must be renewed
annually and may be revoked or suspended for cause at any time. Alcoholic
beverage control regulations relate to numerous aspects of the daily operations
of each of our restaurants, including minimum age of patrons and employees,
hours of operation, advertising, wholesale purchasing, inventory control and
handling, and storage and dispensing of alcoholic beverages. We have 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 that restaurant and our ability to obtain such
a license elsewhere.
We are subject to "dram-shop" statutes in the states in which restaurants are
located. These statutes 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 individual. We carry liquor
liability coverage as part of our existing comprehensive general liability
insurance, which we believe is consistent with coverage carried by other
entities in the restaurant industry. Although we are covered by insurance, a
judgement against us under a dram-shop statute in excess of our liability
coverage could have a material adverse effect on us.
Our operations are also subject to federal and state laws governing such
matters as wages, working conditions, citizenship requirements and overtime.
Some states have set minimum wage requirements higher than the federal level.
Significant numbers of hourly personnel at our restaurants are paid at rates
related to the federal minimum wage and, accordingly, increases in the minimum
wage will increase labor costs. Other governmental initiatives such as mandated
health insurance, if implemented, could adversely affect us as well as the
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restaurant industry in general. We are also subject to the Americans With
Disability Act of 1990, which, among other things, may require certain
renovations to its restaurants to meet federally mandated requirements. The
cost of these renovations is not expected to materially affect us.
Legal Proceedings
From time to time, we are a defendant in litigation arising in the ordinary
course of our business, including claims resulting from "slip and fall"
accidents, claims under federal and state laws governing access to public
accommodations, employment-related claims and claims from guests alleging
illness, injury or other food quality, health or operational concerns. To date,
none of such litigation, some of which is covered by insurance, has had a
material effect on us.
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<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Employees
Set forth below is certain information concerning our executive officers,
directors and key employees:
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ------------------------------------------------
<S> <C> <C>
Joseph P.
Micatrotto(/1/) 47 President, Chief Executive Officer and Director
Greg A. Gadel 39 Chief Financial Officer, Treasurer and Secretary
Leonard A. Ghilani 38 Chief Operations Officer
Philip A. Rob-
erts(/1/)(/2/) 60 Chairman of the Board
Peter J. Mihajlov(/3/) 59 Director
Don W. Hays(/2/) 57 Director
John P. Whaley(/2/)(/3/) 46 Director
David Yarnell(/1/)(/3/) 43 Director
Paul Zepf(/2/) 34 Director
Daniel E. Durenberger 31 Divisional Vice President
Joseph J. Kohaut 35 Divisional Vice President
Joseph J. Talarico 44 Divisional Vice President
John J. Motschenbacher 36 Vice President of Finance and Purchasing
Robert R. Parent 51 Vice President of Development
Jennifer Percival 39 Vice President of Family Relations
Vittorio Renda 44 Vice President of Food and Beverage
Lane Schmiesing 42 Vice President of Marketing
</TABLE>
- --------
(/1/)Member of executive committee.
(/2/)Member of compensation committee.
(/3/)Member of audit committee.
Joseph P. Micatrotto joined BUCA in 1996 as our President and Chief Executive
Officer, and as a director. Mr. Micatrotto's twenty-five year career in
restaurant management includes being CEO of Panda Management Company, Inc.
where he led the company's expansion and president and CEO of Chi-Chi's Mexican
Restaurant, Inc., where he was instrumental in its national growth. Mr.
Micatrotto is active on various boards and industry groups. He has been
nominated to the board of directors of the National Restaurant Association.
Greg A. Gadel has been BUCA's Chief Financial Officer and Treasurer since 1997
and its Secretary since 1998. Prior to joining BUCA, Mr. Gadel was CFO for the
32-unit restaurant chain, Leeann Chin. In addition he previously was vice
president and controller for the largest Chi-Chi's franchisee, Consul
Corporation. He has also worked for Marriot, McDonald's and the Deloitte &
Touche LLP accounting firm, and has over 15 years experience in the restaurant
industry. Mr. Gadel is a member of the American Institute of Certified Public
Accountants.
Leonard A. Ghilani joined BUCA in 1998 as a Divisional Vice President and was
named Chief Operations Officer in 1999. He was previously with Einstein Noah
Bagel Corporation where he spent two and a half years as Vice President of
Operations. Prior to his employment with Einstein Noah Bagel Corporation, Mr.
Ghilani worked for Chi-Chi's Mexican Restaurant, Inc., where he held several
positions including Divisional Vice President, District Manager, General
Manager and Kitchen Manager.
Philip A. Roberts co-founded BUCA in 1993. He has been a director since 1993
and currently serves as Chairman of our board of directors. Mr. Roberts is also
a principal of Parasole Restaurant Holdings, Inc., which he co-founded in 1986.
Mr. Roberts has been involved in the restaurant industry since 1977, when he
co-founded with Mr. Mihajlov the first of several privately-held restaurant
companies, which later merged to form Parasole.
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<PAGE>
Peter J. Mihajlov co-founded BUCA in 1993 and has served as a director since
1993. Mr. Mihajlov is also a principal of Parasole, which he co-founded in
1986. Mr. Mihajlov has been in the restaurant industry since 1977, when he and
Mr. Roberts co-founded the first of several privately-held restaurant
companies, which later merged to form Parasole. Prior to that, Mr. Mihajlov
served in a variety of marketing and business management positions within The
Pillsbury Company over the course of seventeen years.
Don W. Hays co-founded BUCA in 1993 and has served as a director since 1993.
Mr. Hays is also a principal of Parasole, which he co-founded in 1986. Prior to
that, Mr. Hays founded Hospitality Management Group, Inc. in 1977, which later
merged to form Parasole. Mr. Hays has been involved in the restaurant industry
since 1964, when he joined Dayton's Restaurant Division, of which he later
became Director of Operations.
John P. Whaley has served as a director of BUCA since 1996. He is a partner of
Norwest Equity Partners and Norwest Venture Partners, and has been a partner or
officer of these and affiliated private equity investment funds since 1977. He
is also a director of several privately held companies.
David Yarnell has served as a director of BUCA since 1996. He has been a Vice
President of Consumer Venture Partners since June 1993. He has been a General
Partner of Brand Equity Ventures since April 1997. Mr. Yarnell also serves on
the board of directors of Cyberian Outpost, a publicly held company.
Paul Zepf has served as a director of BUCA since 1998. He has been a Managing
Director of Centre Partners Management L.L.C., which manages Centre Capital
Investors II, L.P. and related private equity investment funds, since 1995. He
is also a Managing Director of Corporate Advisors, L.P., which he joined in
1989. He is a director of The Learning Company, LaSalle Re Holdings Limited,
Firearms Training Systems, Inc., and Nationwide Credit, Inc.
Daniel E. Durenberger joined BUCA in 1993 as Paisano of the original BUCA di
BEPPO restaurant in Minneapolis, Minnesota and was promoted to his current
position of Divisional Vice President in 1998. From 1996 to 1998, Mr.
Durenberger served as Director of Training and Team Development at BUCA. Prior
to joining BUCA, he held various management positions at the Madison Hotel in
Washington, D.C.
Joseph J. Kohaut joined BUCA in 1997 as a Divisional Vice President. From 1994
to 1997, Mr. Kohaut was a regional manager with Panda Management Company, Inc.,
where he was responsible for developing his region from five to 14 operating
units. Mr. Kohaut has more than 18 years of restaurant industry experience,
including general management and operations positions with Chi-Chi's and Ground
Round prior to joining Panda.
Joseph J. Talarico joined BUCA in 1997 as a Divisional Vice President. Prior to
joining BUCA, Mr. Talarico served as Vice President of Development and Training
for the Chevy's Mexican Restaurant division of Pepsico from 1994 to 1997. For
the 12 years prior to joining Pepsico, Mr. Talarico held several positions with
Chi-Chi's, including General Manager, Area Supervisor and Vice President of
Training and Development.
John J. Motschenbacher joined BUCA as Corporate Controller in 1998 and was
named Vice President of Finance and Purchasing in 1999. Prior to joining BUCA,
Mr. Motschenbacher held the position of Controller at Cafe Odyssey, Leann Chin
and Bon Appetit. He also held various accounting positions at Consul
Corporation, the largest Chi-Chi's franchisee.
Robert R. Parent joined BUCA in 1998 as Vice President of Development. He was
previously with Don Pablo's, the Dallas-based division of Apple South, Inc.
(renamed Avado Brands, Inc.) and operator of the 93-unit Don Pablo's Mexican
restaurant chain, where he served as Senior Vice President of Development. Mr.
Parent brings 17 years of retail and restaurant site development experience to
BUCA. He previously held various real estate development positions with the Red
Lobster and Olive Garden casual dining restaurant chains.
Jennifer Percival joined BUCA in 1999 as Vice President of Family Resources.
Ms. Percival was previously with Lufthansa Service USA Corp.'s Venice Market
division, a Dallas-based company operating in-flight
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<PAGE>
catering and specialty concepts, where she served as Vice President of Human
Resources for the United States. Ms. Percival has more than 20 years of
restaurant industry and human resources experience. Prior to her work with
Lufthansa, she held various management and human resources positions with La
Madeleine and TGI Friday's restaurant companies.
Vittorio Renda has been with BUCA since 1993, first as its Director of Culinary
Development and since 1996 as Vice President of Food and Beverage. From 1982 to
1993, Mr. Renda served in various culinary and management roles for Parasole
and its predecessor companies, with the exception of 1989-1991 when he was
General Manager and Executive Chef with the DeBartolo Corporation. Mr. Renda
developed his culinary skills working throughout Italy in the twelve years
prior to joining Parasole. Mr. Renda was born and raised in Calabria, Italy.
Lane Schmiesing joined BUCA in 1997 as Vice President of Marketing. He was
formerly with Rare Hospitality, Inc., where he spent three years as Vice
President of Marketing. He brings to BUCA 20 years of restaurant marketing
experience. He has developed award winning advertising and promotional
campaigns for such brands as Dairy Queen, Bonanza Restaurants and Longhorn
Steakhouses. A member of the board of directors of the Marketing Executive
Group of the National Restaurant Association, he is also a frequent guest
lecturer at colleges and universities on the topics of strategic marketing and
brand identity.
Board of Directors; Committees
Our board of directors consists of seven members. In accordance with our
Articles of Incorporation, upon the closing of this offering, the board will be
divided into three classes with staggered three-year terms. One class will
consist of Mr. Yarnell and Mr. Hays, whose terms will expire at the annual
shareholders' meeting in 2000. A second class will consist of Mr. Mihajlov and
Mr. Zepf, whose terms will expire at the annual shareholders' meeting in 2001.
A third class will consist of Mr. Micatrotto, Mr. Roberts and Mr. Whaley, whose
terms will expire at the annual shareholders' meeting in 2002. At each annual
meeting of shareholders after the closing of this offering, the successors to
directors whose terms then expire will be elected to serve for a full term of
three years. This classification of the board may delay or prevent changes in
our control or in our management. Pursuant to the terms of Mr. Micatrotto's
employment agreement, the board is required to use its best efforts to cause
Mr. Micatrotto to continue to be elected to the board as long as he is our
Chief Executive Officer.
The executive committee of the board, comprised of Messrs. Micatrotto, Roberts
and Yarnell, provides advice and counsel to the Chief Executive Officer
regarding the day to day operations of BUCA. While the executive committee may
recommend policies and actions for the board's consideration, it does not have
the authority to take any action on behalf of the board.
The compensation committee of the board, comprised of Messrs. Roberts, Hays,
Whaley and Zepf, is responsible for reviewing and establishing the compensation
structure for our officers and directors, including salaries, participation in
incentive compensation and benefit plans, stock option plans and other forms of
compensation, and is responsible for administering our 1996 Incentive Plan and
the Stock Option Plan for Non-employee Directors. See "Stock Incentive Plan and
Stock Options" for a discussion of this plan.
The audit committee of the board, comprised of Messrs. Mihajlov, Whaley and
Yarnell, is responsible for recommending to the board our independent auditors,
analyzing the reports and recommendations of the auditors and reviewing
internal audit procedures and controls.
Limitation of Liability and Indemnification
Pursuant to provisions of the Minnesota Business Corporation Act, we have
adopted provisions in our Articles of Incorporation that provide that our
directors shall not be personally liable for monetary damages to us or our
shareholders for a breach of fiduciary duty as a director to the full extent
that the act permits the limitation or elimination of the liability of
directors.
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<PAGE>
Director Compensation
Our directors are reimbursed for certain reasonable expenses incurred in
attending board meetings. Directors who are also our employees receive no
remuneration for services as members of the board of directors or any board
committee. Directors who are not employed by us have received certain grants of
stock options. See "Stock Incentive Plans and Stock Options" for a discussion
of grants previously made to our directors.
Executive Compensation
Summary Compensation Table. The following table contains information concerning
compensation for fiscal 1998 earned by our President and Chief Executive
Officer and our Chief Financial Officer, our executive officers whose total
salary and bonus for this period exceeded $100,000.
Fiscal 1998 Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------- ------------
Other Annual Securities
Name and Salary Bonus Compensation Underlying
Principal Position ($) ($) ($) Options (#)
------------------ ------- ------ ------------ ------------
<S> <C> <C> <C> <C>
Joseph P. Micatrotto................... 300,573 38,139 65,200(/1/) 13,333
President and Chief Executive Officer
Greg A. Gadel.......................... 139,326 54,000 6,000(/2/) 23,333
Chief Financial Officer
</TABLE>
- ---------------
(/1/)Includes car allowance, living expenses and college tuition for Mr.
Micatrotto's child.
(/2/)Represents car allowance.
Stock Option Grants Table. The following table sets forth certain information
concerning all stock options granted during fiscal 1998 to the named executive
officers. We did not grant any stock appreciation rights or restricted stock
awards during fiscal 1998.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation For
Option Term Option Term(/2/)
-------------------------------- -----------------------
Number of Percent of
Shares Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted 1998 ($/Share)(/1/) Date 5% ($) 10% ($)
---- ---------- ------------- -------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Joseph P. Micatrotto.... 13,333(/3/) 5.17 7.68 December 15, 2008 147,360 295,300
Greg A. Gadel........... 23,333(/4/) 9.04 7.68 December 15, 2008 257,883 516,780
</TABLE>
Fiscal 1998 Stock Option Grants
- ---------------
(/1/)The exercise price may be paid in cash, in shares of common stock valued
at fair market value on the exercise date, or in a combination of cash and
shares.
(/2/)The hypothetical potential appreciation shown in these columns reflects
the required calculations at annual assumed appreciation rates of 5% and
10%, as set by the Securities and Exchange Commission, and therefore is
not intended to represent either historical appreciation or anticipated
future appreciation of the common stock.
(/3/)The entire grant of options vested immediately upon grant and all options
are transferrable.
(/4/)The grant vests 20% per year beginning one year from the date of grant.
No stock options were exercised by the named executive officers during fiscal
1998. Mr. Micatrotto also received certain options to purchase common stock in
February 1999 in connection with the amendment of his
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<PAGE>
employment agreement. See "Employment Agreements" for a discussion of Mr.
Micatrotto's employment agreement.
Fiscal Year-End Option Value Table. The following table sets forth certain
information concerning unexercised stock options held by the named executive
officers as of fiscal 1998 year-end.
Aggregate 1998 Fiscal Year-End Option Value Table
<TABLE>
<CAPTION>
Number of Shares Value of
Underlying Unexercised In-the-Money
Options at Options at
December 27, 1998 December 27, 1998(/1/)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Joseph P. Micatrotto........ 131,520 140,000 $1,067,114 $822,488
Greg A. Gadel............... 10,335 66,331 58,468 321,495
</TABLE>
- ---------------
(/1/)There was no public trading market for the common stock as of December 27,
1998. Accordingly, these values have been calculated, in accordance with
the rules of the SEC, on the basis of an assumed initial public offering
price per share of $11.50 minus the applicable exercise price per share.
Employment Agreements
We entered into an employment agreement with Joseph P. Micatrotto on July 22,
1996, which was subsequently amended and restated in February 1999. Under the
terms of the agreement, Mr. Micatrotto is currently serving as our President
and Chief Executive Officer for a term expiring on December 31, 2003. The
agreement provides that Mr. Micatrotto's annual salary will be $325,000 for the
current year, $335,000 for the year ended December 31, 2000, $350,000 for the
year ended December 31, 2001 and for the remainder of the term it will be an
amount determined by the board of directors, but not less than the prior year's
amount. Mr. Micatrotto is eligible to receive a yearly bonus based upon certain
performance criteria established by the board. In connection with the amendment
of Mr. Micatrotto's employment agreement in February 1999, Mr. Micatrotto
received options to purchase 126,666 shares of our common stock at an exercise
price of $11.25 per share, 6,666 of which vest on each of December 31, 1999,
2000 and 2001 and 53,334 of which vest on each of December 31, 2002 and 2003.
We also have agreed to reimburse Mr. Micatrotto's reasonable and necessary
business expenses, including relocation expenses. Mr. Micatrotto is entitled to
the following termination benefits:
. If Mr. Micatrotto is terminated by us for cause or if
Mr. Micatrotto terminates his employment, he will receive no
additional compensation or termination benefits.
. If Mr. Micatrotto is terminated because of death or physical or
mental disability, he or his estate will be entitled to a
termination payment of two years' base salary then in effect,
payable in 24 equal monthly installments.
. If Mr. Micatrotto terminates his employment upon 30 days' prior
written notice following a change in control of the company,
because his duties are substantially reduced or negatively altered
without his prior written consent, or if Mr. Micatrotto's
employment is terminated by us without cause following a change in
control or within 180 days prior to a change in control and the
termination is related to the change in control, he will be
entitled to a termination payment of 18 months' base salary then
in effect, payable in 18 monthly installments. If Mr. Micatrotto
terminates employment as a result of a change in control, but his
duties have not been substantially reduced or negatively altered,
he will be entitled to a termination payment of 12 months' base
salary then in effect, payable in 12 monthly installments.
37
<PAGE>
. If Mr. Micatrotto is terminated by us without cause and not
associated with a change in control, he will be entitled to a
termination payment of 18 months' base salary then in effect,
payable in 18 monthly installments.
The agreement also contains fringe benefits, confidentiality and non-
competition provisions.
On April 1, 1997, we entered into a letter agreement with Greg A. Gadel under
which Mr. Gadel will be entitled one year's base compensation in effect at the
time of termination if his employment is terminated as a result of a change in
control of BUCA or if he terminates his employment following a change in
control if his duties are substantially reduced or negatively altered.
Stock Incentive Plan and Stock Options
1996 Stock Incentive Plan. The 1996 Stock Incentive Plan of BUCA, Inc. and
Affiliated Companies provides an incentive to our key employees through the
award of stock options, stock appreciation rights, restricted stock, restricted
stock units, stock-based awards, or other performance awards that may be
granted in cash, shares of stock, or other property and are related to
performance goals. The plan is administered by the compensation committee of
the board of directors. The committee has full power and authority, subject to
the terms of the plan, to designate participants and the type and terms of any
awards. Any options granted may be incentive stock options or nonqualified
stock options, must be for no longer than 10 years and, except under limited
circumstances, are not transferable. The base price for any stock appreciation
right must be not less than 100% of the fair market value of a share of stock
at the date of grant.
The plan will be effective until October 1, 2006, but may be amended, altered,
suspended or discontinued at any time by the Board, subject to certain limited
exceptions. We have reserved 1,500,000 shares for issuance under the plan.
Stock Option Plan for Non-Employee Directors. The Stock Option Plan for Non-
Employee Directors is also administered by the compensation committee of the
board of directors. Prior to its termination in February 1999, the plan
provided for option grants of common stock to each director who was not an
employee of BUCA and had not been an employee for at least one year, in the
amount of 1,333 shares on first election or appointment to the Board and 666
shares on each of the following anniversaries. The purchase price was 100% of
the fair market value of the common stock, as defined in the plan, at the time
the option was granted. The term of each option is ten years; however, the
option is not exercisable for the first year and will terminate if the optionee
ceases to be a director in the one-year period following the grant of the
option. The options are not transferable other than by will or the laws of
descent and distribution. We have reserved 26,666 shares for issuance under the
plan. All options outstanding under the plan when terminated shall remain
outstanding. In connection with the termination of the plan, the board approved
grants of options to purchase 8,000 shares of common stock to each of our six
non-employee directors under the 1996 Stock Incentive Plan. These options have
an exercise price of $11.25 per share, are immediately exercisable and expire
10 years after grant. Non-employee directors will continue to be eligible for
option grants under the 1996 Stock Incentive Plan.
Paisano Partners Program. We have established the Paisano Partners program for
our general managers, kitchen managers and assistant managers. The program for
general managers has three primary components: profit sharing, the purchase of
shares of our common stock and a stock option grant. The profit sharing
component allows the general manager to participate in the profits of the
restaurant he or she manages. To participate in the Paisano Partners program,
general managers are required to purchase shares of our common stock worth
approximately $20,000, at fair market value. We will also loan the general
managers the purchase price of the stock at 8% interest, with the entire amount
payable over five years. Under the stock purchase agreement we enter into with
each general manager, we have certain repurchase rights regarding the stock.
General managers also receive a one-time option grant to purchase 2,000 shares
of our common stock at fair market value on the date of grant. The options are
exercisable only upon completion of five years of employment as a Paisano
Partner and expire 10 years after the date of grant. Participants in the
38
<PAGE>
Paisano Partners program for kitchen managers participate in profit sharing and
receive a one-time option grant to purchase 1,000 shares of our common stock on
the same terms as that provided to general managers, but have no right to
purchase shares under the program. Participants in the Paisano Partners program
for assistant managers participate in profit sharing but receive no options and
have no right to purchase shares.
Compensation Committee Interlocks and Insider Participation
Philip A. Roberts, Don W. Hays, John P. Whaley and Paul Zepf, each a director,
are members of the compensation committee of the board of directors.
39
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 30, 1996, we were spun off from our parent, Parasole Restaurant
Holdings, Inc. through a share dividend of our common stock pro rata among the
Parasole shareholders. The Parasole shareholders at the time of the dividend
included the Parasole Employer Stock Ownership Trust, owner of more than 5% of
a class of our capital stock, and Philip A. Roberts, Peter J. Mihajlov and Don
W. Hays, directors and owners of more than 5% of a class of our capital stock.
Series A Preferred Financing. In October 1996, we sold shares of Series A
convertible preferred stock convertible into 1,493,331 shares of common stock
for an aggregate purchase price of $8,400,000, or $5.625 per common share. Upon
completion of this offering, all shares of our outstanding Series A convertible
preferred stock will automatically convert into shares of common stock.
The following beneficial holders of more than 5% of a class of our capital
stock purchased shares of the Series A convertible preferred stock having an
aggregate purchase price of at least $60,000:
<TABLE>
<CAPTION>
5% Shareholders(/1/) Shares Purchased(/2/)
-------------------- ---------------------
<S> <C>
Norwest Equity Partners V, L.P....................... 711,111
Consumer Venture Partners II, L.P.................... 266,666
Northwood Ventures................................... 266,666
Regent Capital Partners, L.P......................... 177,778
</TABLE>
- ---------------
(/1/)See notes to "Principal Shareholders" for information relating to the
beneficial ownership of shares and identification of affiliated
shareholders.
(/2/)Represents number of shares of common stock issuable upon conversion of
purchased shares of Series A convertible preferred stock.
Series B Preferred Financing. In September 1997, we sold shares of Series B
convertible preferred stock convertible into 640,739 shares of common stock for
an aggregate purchase price of $4,324,999.50, or $6.75 per common share. In
December 1997, we sold additional shares of Series B convertible preferred
stock convertible into 640,738 shares of common stock for an aggregate purchase
price of $4,324,999.50, or $6.75 per common share. Upon completion of this
offering, all shares of our outstanding Series B convertible preferred stock
will automatically convert into shares of common stock.
The following beneficial holders of more than 5% of a class of our capital
stock purchased shares of the Series B convertible preferred stock having an
aggregate purchase price of at least $60,000:
<TABLE>
<CAPTION>
5% Shareholders(/1/) Shares Purchased(/2/)
-------------------- ---------------------
<S> <C>
Norwest Equity Partners V, L.P....................... 370,370
National Dining Concepts, Inc........................ 296,296
Walden Investors..................................... 237,036
Consumer Venture Partners II, L.P.................... 148,148
Northwood Ventures................................... 148,147
</TABLE>
- ---------------
(/1/)See notes to "Principal Shareholders" for information relating to the
beneficial ownership of shares and identification of affiliated
shareholders.
(/2/)Represents number of shares of common stock issuable upon conversion of
purchased shares of Series B convertible preferred stock.
Series C Preferred Financing. In October 1998, we sold shares of Series C
convertible preferred stock convertible into 1,092,679 shares of common stock
and related contingent value rights for an aggregate purchase price of
$8,400,007.02, or $7.6875 per common share. In December 1998, we sold
additional shares
40
<PAGE>
of Series C convertible preferred stock convertible into 637,752 shares of
common stock and related contingent value rights for an aggregate purchase
price of $5,000,000, or $7.84 per common share. The contingent value rights
entitle the holders to receive, in the aggregate, up to 610,082 shares of
common stock if certain events regarding our common stock do not occur prior to
October 2001.
Upon completion of this offering, all shares of our outstanding Series C
convertible preferred stock will automatically convert into shares of common
stock and the related contingent value rights will terminate. In connection
with such conversion and termination, an aggregate of 40,195 additional shares
of common stock will be issued to the holders of the Series C convertible
preferred stock immediately after the completion of this offering.
The following beneficial holders of more than 5% of a class of our capital
stock purchased shares of the Series C convertible preferred stock having an
aggregate purchase price of at least $60,000:
<TABLE>
<CAPTION>
5% Shareholders(/1/) Shares Purchased(/2/)
-------------------- ---------------------
<S> <C>
Centre Capital Investors II, L.P..................... 1,288,156
Norwest Equity Partners V, L.P....................... 282,802
Northwood Ventures................................... 65,040
Walden-SBIC, L.P..................................... 45,994
Regent Capital Partners, L.P......................... 48,439
</TABLE>
- ---------------
(/1/)See notes to "Principal Shareholders" for information relating to the
beneficial ownership of shares and identification of affiliated
shareholders.
(/2/)Represents number of shares of common stock issuable upon conversion of
purchased shares of Series C convertible preferred stock.
Subordinated Debt Transactions. In October 1997, we entered into a subordinated
loan transaction under which we borrowed $2,500,000, including $500,000 from
Regent Capital Partners, L.P. Regent is a beneficial owner of more than 5% of a
class of our capital stock. In connection with the transaction, we also issued
warrants to purchase 16,111 shares of our common stock at $0.01 per share to
Regent. In May 1998, we borrowed an additional $3,500,000, including $1,500,000
from Regent. In connection with the May transaction, we also issued warrants to
purchase 48,332 shares of our common stock at $0.01 per share to Regent. The
indebtedness was repaid by us from amounts borrowed under our current credit
facilities.
In connection with these subordinated debt transactions, we issued warrants to
purchase an aggregate of 66,663 shares of our common stock at $0.01 per share
to the purchasers of our Series B convertible preferred stock. The warrants
vest upon completion of our initial public offering, but only if the public
offering price per share is less than $13.50.
Agreements with Parasole. We have entered into an Amended and Restated
Management Agreement dated January 1, 1997, as amended, with Parasole. Philip
Roberts, Don Hays and Peter Mihajlov are officers, directors and shareholders
of Parasole as well as our directors and holders of more than 5% of a class of
our capital stock. Under the management agreement, Parasole provides
development and design support in connection with our new restaurants. In
exchange for these services, we pay Parasole a fee of $12,500 for each new
restaurant we open. Prior to the amendment of the management agreement, we
agreed to pay Parasole an accounting charge of $1,000 per month for the first
24 months after a new restaurant's opening. While we no longer incur new
charges under the amended management agreement, the 24-month period has not
expired for all of our restaurants opened prior to the amendment of the
management agreement. The amount paid by us to Parasole under the management
agreement in fiscal 1996 was $354,000, in fiscal 1997 was $270,000 and fiscal
1998 was $248,000.
We have a vendor relationship with Parasole Good Earth Bakery, owned by
Parasole, through which the bakery provides various baked goods to our
restaurants in the Minneapolis/St. Paul market. The relationship can be
41
<PAGE>
terminated at any time at our discretion. The amount paid by us to the bakery
in fiscal 1996 was $211,000, in fiscal 1997 was $180,000, and in fiscal 1998
was $169,000. We believe the terms of the supply arrangement are at least as
favorable as we could obtain from unrelated parties.
We have a redemption agreement with Parasole under which we are obligated to
repurchase shares of our common stock held by the Parasole Employee Stock
Ownership Trust until our stock is publicly traded. The Parasole Employee Stock
Ownership Plan holds a total of 499,936 shares of our common stock. Parasole
has similar obligations regarding its stock held by our ESOP.
Agreement with Steven Roberts. Steven Roberts, son of Philip Roberts, our
director and a holder of more than 5% of a class of our capital stock, from
time to time performs architectural services for us under a letter agreement.
The amount paid by us to Mr. Roberts for these services in fiscal 1998 was
$99,947. We believe the terms of the letter agreement are at least as favorable
as we could obtain from unrelated parties.
42
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial ownership
of our common stock as of the date of this prospectus and as adjusted to
reflect the sale of the 2,500,000 shares of common stock offered by us by this
prospectus by:
. each shareholder known by us to beneficially own more than five percent of
any class of our capital stock,
. each of our directors,
. the named executive officers, and
. all of our directors and executive officers as a group.
Except as otherwise noted below, each of the shareholders identified in the
table has sole voting and investment power with respect to the shares of common
stock beneficially owned by the person. The following table assumes the vesting
of outstanding contingent warrants and gives effect to:
. the conversion of all outstanding shares of our preferred stock, which will
occur automatically upon the closing of the offering,
. the conversion of $825,000 in aggregate principal amount of our outstanding
subordinated debt, assuming a public offering price of $11.50 per share, and
. the exercise of warrants to purchase 64,444 shares of common stock to be
sold in this offering .
<TABLE>
<CAPTION>
Shares
Beneficially
Owned Prior to Shares Beneficially
the Offering(/1/) Shares Owned After Offering
----------------- Being -----------------------
Name of Beneficial Owner Number Percent Offered Number Percent
- ------------------------ --------- ------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Norwest Equity Partners V,
L.P.(/2/).................... 1,423,246 19.5 -- 1,423,246 14.5
Centre Capital Investors II,
L.P.(/3/).................... 1,348,249 18.5 -- 1,348,249 13.8
Don W. Hays(/4/).............. 1,132,330 15.6 50,000 1,082,330 11.1
Philip A. Roberts(/5/)........ 1,128,898 15.5 50,000 1,078,898 11.0
Peter J. Mihajlov(/6/)........ 1,125,796 15.5 50,000 1,075,796 11.0
Parasole Employee Stock
Ownership Trust(/7/)......... 499,936 6.9 -- 499,936 5.1
Northwood Ventures(/8/)....... 499,210 6.9 -- 499,210 5.1
Consumer Venture Partners II,
L.P.(/9/).................... 438,904 6.0 -- 438,904 4.5
National Dining Concepts,
Inc.(/10/)................... 311,710 4.3 -- 311,710 3.2
Regent Capital Partners,
L.P.(/11/)................... 303,539 4.1 -- 303,539 3.1
Walden Investors(/12/)........ 296,420 4.1 -- 296,420 3.0
John P. Whaley(/13/).......... 1,423,246 19.5 -- 1,423,246 14.5
David Yarnell(/14/)........... 438,904 6.0 -- 438,904 4.5
Paul Zepf(/15/)............... 1,348,249 18.5 -- 1,348,249 13.8
Joseph P. Micatrotto(/16/).... 244,747 3.3 * 244,747 2.5
Greg A. Gadel(/17/)........... 10,335 -- -- 10,335 --
All directors and officers as
a group (9 persons).......... 5,560,955 73.9 5,410,955 54.0
</TABLE>
- --------
* Mr. Micatrotto has granted to the underwriters an option to purchase up to
an additional 16,000 shares of common stock as part of their option to cover
over-allotments, if any. This option will be exercised on a pro rata basis
with the option granted by us.
(/1/)Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission that generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those securities and includes
shares of common stock issuable pursuant to the exercise of stock options
that are immediately exercisable or exercisable within 60 days. Unless
otherwise indicated, the persons or entities identified in this table have
43
<PAGE>
sole voting and investment power with respect to all shares shown as
beneficially owned by them. Percentage ownership calculations prior to and
after the offering are based on 7,256,612 shares and 9,756,612 shares,
respectively, of common stock outstanding. As of April 16, 1999, we had 113
shareholders of record.
(/2/)Includes (1) warrants for the purchase of 42,442 shares of common stock
exercisable within 60 days held by Norwest; (2) 6,522 shares of common
stock to be issued to Norwest upon completion of the offering; and (3)
options for the purchase of 9,999 shares of common stock exercisable
within 60 days granted to John P. Whaley. The address for Norwest is 222
South Ninth Street, Minneapolis, Minnesota 55402.
(/3/)Includes (1) 602,561 shares owned by State Board of Administration of
Florida; (2) 129,122 shares owned by Centre Capital Tax-Exempt Investors
II, L.P.; (3) 86,338 shares owned by Centre Capital Offshore Investors II,
L.P.; (4) 67,264 shares owned by Centre Partners Coinvestment, L.P.; (5)
6,082 shares owned by Centre Parallel Management Partners, L.P.; (6) 9,240
shares of common stock to be issued upon completion of the offering to
Centre Capital Investors II, L.P.; (7) 14,033 shares of common stock to be
issued upon completion of the offering to State Board of Administration of
Florida; (8) 3,007 shares of common stock to be issued upon completion of
the offering to Centre Capital Tax-Exempt Investors II, L.P.; (9) 2,010
shares of common stock to be issued upon completion of the offering to
Centre Capital Offshore Investors II, L.P.; (10) 1,566 shares of common
stock to be issued upon completion of the offering to Centre Partners
Coinvestment, L.P.; (11) 141 shares of common stock to be issued upon
completion of the offering to Centre Parallel Management Partners, L.P.;
(12) options for the purchase of 8,000 shares of common stock exercisable
within 60 days granted to Paul Zepf; (13) warrants for the purchase of
6,806 shares of common stock exercisable within 60 days held by Centre
Capital Investors II, L.P.; (14) warrants for the purchase of 2,216 shares
of common stock exercisable within 60 days held by Centre Capital Tax-
Exempt Investors II, L.P.; (15) warrants for the purchase of 1,482 shares
of common stock exercisable within 60 days held by Centre Capital Offshore
Investors II, L.P.; (16) warrants for the purchase of 103 shares of common
stock exercisable within 60 days held by Centre Parallel Management
Partners, L.P.; (17) warrants for the purchase of 10,336 shares of common
stock exercisable within 60 days held by State Board of Administration of
Florida and (18) warrants for the purchase of 1,153 shares of common stock
exercisable within 60 days held by Centre Partners Coinvestment, L.P. The
address for Centre is 30 Rockefeller Plaza, New York, New York 10020.
(/4/)Includes (1) 133,333 shares owned by the Hays Family Limited Partnership;
(2) 100,133 shares owned by Mr. Hays' wife; (3) options for the purchase
of 8,000 shares of common stock exercisable within 60 days granted to Mr.
Hays; (4) 499,936 shares of common stock held by the Parasole ESOT, of
which Mr. Hays is a co-trustee; and (5) 97,226 shares of common stock held
by the BUCA Employee Stock Ownership Plan, of which Mr. Hays is a co-
trustee. The address for Mr. Hays is 2908 Hennepin Avenue South,
Minneapolis, Minnesota 55408.
(/5/)Includes (1) 123,333 shares owned by the Roberts Family Limited
Partnership II; (2) 106,666 shares owned by Mr. Roberts' wife; (3) options
for the purchase of 8,000 shares of common stock exercisable within 60
days granted to Mr. Roberts; (4) options for the purchase of 35 shares of
common stock exercisable within 60 days granted to Mr. Robert's wife; (5)
499,936 shares of common stock held by the Parasole ESOT, of which Mr.
Roberts is a co-trustee, and (6) 97,226 shares of common stock held by the
BUCA Employee Stock Ownership Plan, of which Mr. Roberts is a co-trustee.
The address for Mr. Roberts is 1300 Nicollet Mall, Minneapolis, Minnesota
55403.
(/6/)Includes (1) 166,666 shares owned by the Mihajlov Family Limited
Partnership; (2) 106,666 shares owned by Mr. Mihajlov's wife; (3) options
for the purchase of 8,000 shares of common stock exercisable within 60
days granted to Mr. Mihajlov; (4) 499,936 shares of common stock held by
the Parasole ESOT, of which Mr. Mihajlov is a co-trustee; and (5) 97,226
shares of common stock held by the BUCA Employee Stock Ownership Plan, of
which Mr. Mihajlov is a co-trustee. The address for Mr. Mihajlov is 2908
Hennepin Avenue South, Minneapolis, Minnesota 55408.
(/7/)The address for the Parasole ESOT is 2908 Hennepin Avenue South,
Minneapolis, Minnesota 55408.
(/8/)Includes (1) 89,466 shares owned by Northwood Capital Partners LLC; (2)
1,350 shares of common stock to be issued upon completion of the offering
to Northwood Ventures; (3) 149 shares of common stock to
44
<PAGE>
be issued upon completion of the offering to Northwood Capital Partners LLC;
(4) warrants for the purchase of 14,318 shares of common stock exercisable
within 60 days held by Northwood Ventures; (5) warrants for the purchase of
1,541 shares of common stock exercisable within 60 days held by Northwood
Capital Partners LLC; and (6) options for the purchase of 1,999 shares of
common stock exercisable within 60 days granted to Henry T. Wilson. The
address for Northwood is 485 Underhill Boulevard, Syosset, New York 11791.
(/9/)Includes (1) warrants for the purchase of 14,757 shares of common stock
exercisable within 60 days held by Consumer Venture Partners II, L.P.; and
(2) options for the purchase of 9,333 shares of common stock exercisable
within 60 days granted to David Yarnell. The address for Consumer Venture
is 3 Pickwick Plaza, Greenwich, Connecticut 06830.
(/10/)Includes warrants to purchase 15,414 shares of common stock exercisable
within 60 days held by National Dining Concepts, Inc. As of the date of
this prospectus National Dining Concepts, Inc. holds 23.1% of our Series
B Preferred Stock and upon closing of the offering, National Dining
Concepts, Inc. will hold less than 5% of our Common Stock.
(/11/)Includes (1) warrants to purchase 68,798 shares of common stock
exercisable within 60 days held by Regent Capital Partners, L.P.; and (2)
1,117 shares of common stock to be issued upon completion of the offering
to Regent Capital Partners, L.P. As of the date of this prospectus,
Regent Capital Partners, L.P. holds 11.9% of our Series A Preferred Stock
and upon closing of the offering, Regent Capital Partners, L.P. will hold
less than 5% of our common stock. The address for Regent Capital
Partners, L.P. is 505 Park Avenue, Suite 1700, New York, New York 10022.
(/12/)Includes (1) 22,222 shares owned by Walden Ventures; (2) 7,407 shares
owned by Walden Capital Partners; (3) 172,780 shares owned by Walden-
SBIC, L.P.; (4) 28,770 shares owned by Walden Technology Ventures II,
L.P. (5) warrants to purchase 2,697 shares of common stock exercisable
within 60 days held by Walden Investors; (6) warrants to purchase 1,156
shares of common stock exercisable within 60 days held by Walden
Ventures; (7) warrants to purchase 385 shares of common stock exercisable
within 60 days held by Walden Capital Partners; (8) warrants to purchase
6,936 shares of common stock exercisable within 60 days held by Walden-
SBIC, L.P.; (9) warrants to purchase 1,156 shares of common stock
exercisable within 60 days held by Walden Technology Ventures II, L.P.;
(10) 909 shares of common stock to be issued upon completion of the
offering to Walden-SBIC, L.P.; and (11 ) 151 shares of common stock to be
issued upon completion of the offering to Walden Technology Ventures II,
L.P. As of the date of this Prospectus, Walden holds 18.5% of our Series
B Preferred Stock and upon closing of the offering, Walden will hold less
than 5% of our common stock. The address for Walden is 750 Battery
Street, Suite 700, San Francisco, California 94111.
(/13/)Consists of options for the purchase of 9,999 shares of common stock
exercisable within 60 days granted to Mr. Whaley and 1,413,247 shares of
common stock beneficially owned by Norwest Equity Partners V, L.P. Mr.
Whaley disclaims beneficial ownership of the 1,413,247 shares of common
stock owned by Norwest Equity Partners V, L.P. The address for Mr. Whaley
is 222 South Ninth Street, Minneapolis, Minnesota 55402.
(/14/)Consists of (1) options for the purchase of 9,333 shares of common stock
exercisable within 60 days granted to Mr. Yarnell; (2) 429,571 shares of
common stock beneficially owned by Consumer Venture Partners II, L.P.
(/15/)Consists of (1) options to purchase 8,000 shares of common stock
exercisable within 60 days granted to Mr. Zepf; and (2) 1,340,249 shares
of common stock beneficially owned by Centre Capital Investors II, L.P.
The address for Mr. Zepf is 30 Rockefeller Plaza, New York, New York
10020.
(/16/)Includes (1) options for the purchase of 131,521 shares of common stock
exercisable within 60 days granted to Mr. Micatrotto and (2) 97,226
shares of common stock held by the BUCA Employee Stock Ownership Plan, of
which Mr. Micatrotto is a co-trustee.
(/17/Consists)of options for the purchase of 10,335 shares of common stock
exercisable within 60 days granted to Mr. Gadel.
45
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth information regarding the beneficial ownership
of our common stock as of the date of this prospectus and as adjusted to
reflect the sale of the 2,500,000 shares of common stock offered by us by this
prospectus by each shareholder selling in this offering. Except as otherwise
noted below, each of the shareholders identified in the table has sole voting
and investment power with respect to the shares of common stock beneficially
owned by the person. The following table assumes the vesting of outstanding
contingent warrants and gives effect to:
. the conversion of all outstanding shares of our preferred stock, which will
occur automatically upon the closing of the offering,
. the conversion of $825,000 in aggregate principal amount of our outstanding
subordinated debt, assuming a public offering price of $11.50 per share, and
. the exercise of warrants to purchase 64,444 shares of common stock to be
sold in this offering.
<TABLE>
<CAPTION>
Shares
Beneficially
Owned Prior to Shares Beneficially
the Offering(/1/) Shares Owned After Offering
----------------- Being -----------------------
Name of Beneficial Owner Number Percent Offered Number Percent
- ------------------------ --------- ------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Sirrom Funding
Corporation(/2/)............. 64,444 -- 64,444 0 --
Don W. Hays(/3/).............. 1,132,330 15.6 50,000 1,082,330 11.1
Philip A. Roberts(/4/)........ 1,128,898 15.5 50,000 1,078,898 11.0
Peter J. Mihajlov(/5/)........ 1,125,796 15.5 50,000 1,075,796 11.0
Wedgewood Capital Limited
Partnership(/6/)............. 11,740 -- 7,246 4,494 --
Michael Silverman(/7/)........ 11,740 -- 7,246 4,494 --
Thomas Wuerzberger(/8/)....... 11,740 -- 4,500 7,240 --
Harvey Ernest and Doris
Ernest(/9/).................. 11,740 -- 3,623 8,117 --
Dermot Rowland and Marvin
Schenk(/10/)................. 10,578 -- 4,500 6,078 --
Daniel H. Dunn(/11/).......... 7,246 -- 7,246 0 --
Kevin Kuester and Gerri
Kuester(/11/)(/12/).......... 7,246 -- 7,246 0 --
Jennifer A. Roberts(/13/)..... 5,000 -- 5,000 0 --
Steven Roberts(/14/).......... 5,000 -- 5,000 0 --
Donn Osmon(/11/).............. 7,246 -- 4,000 3,246 --
Thomas Grossman(/11/)......... 7,246 -- 3,646 3,600 --
Timothy Alevizos(/11/)(/15/).. 7,246 -- 3,500 3,746 --
Howard Kuretsky(/16/)......... 2,934 -- 1,811 1,123 --
Toby Silverman(/17/).......... 2,934 -- 1,811 1,123 --
Joseph P. Micatrotto(/18/).... 244,747 3.3 * 244,747 2.5
</TABLE>
- --------
* Mr. Micatrotto has granted to the underwriters an option to purchase up to
an additional 16,000 shares of common stock as part of their option to cover
over-allotments, if any. This option will be exercised on a pro rata basis
with the option granted by us.
(/1/)Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission that generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those securities and includes
shares of common stock issuable pursuant to the exercise of stock options
that are immediately exercisable or exercisable within 60 days. Unless
otherwise indicated, the persons or entities identified in this table have
sole voting and investment power with respect to all shares shown as
beneficially owned by them. Percentage ownership calculations prior to and
after the offering are based on 7,256,612 shares and 9,756,612 shares,
respectively, of common stock outstanding.
(/2/Consists)of warrants for the purchase of 64,444 shares of common stock
exercisable within 60 days issued to Sirrom. In each of October 1997 and
May 1998 we borrowed $2 million from Sirrom in a subordinated debt
transaction, In connection with the transaction we issued warrants to
purchase an aggregate of 128,888 shares of our common stock at $0.01 per
share to Sirrom. The indebtedness was subsequently repaid by us from
amounts borrowed under our credit facilities.
46
<PAGE>
(/3/)Includes (1) 133,333 shares owned by the Hays Family Limited Partnership;
(2) 100,133 shares owned by Mr. Hays' wife; (3) options for the purchase
of 8,000 shares of common stock exercisable within 60 days granted to Mr.
Hays; (4) 499,936 shares of common stock held by the Parasole ESOT, of
which Mr. Hays is a co-trustee; and (5) 97,226 shares of common stock held
by the BUCA Employee Stock Ownership Plan, of which Mr. Hays is a co-
trustee. The address for Mr. Hays is 2908 Hennepin Avenue South,
Minneapolis, Minnesota 55408. Mr. Hays is one of our directors.
(/4/)Includes (1) 123,333 shares owned by the Roberts Family Limited
Partnership II; (2) 106,666 shares owned by Mr. Roberts' wife; (3) options
for the purchase of 8,000 shares of common stock exercisable within 60
days granted to Mr. Roberts; (4) options for the purchase of 35 shares of
common stock exercisable within 60 days granted to Mr. Robert's wife; (5)
499,936 shares of common stock held by the Parasole ESOT, of which Mr.
Roberts is a co-trustee, and (6) 97,226 shares of common stock held by the
BUCA Employee Stock Ownership Plan, of which Mr. Roberts is a co-trustee.
The address for Mr. Roberts is 1300 Nicollet Mall, Minneapolis, Minnesota
55403. Mr. Roberts is one of our directors and our chairman of the board.
(/5/)Includes (1) 166,666 shares owned by the Mihajlov Family Limited
Partnership; (2) 106,666 shares owned by Mr. Mihajlov's wife; (3) options
for the purchase of 8,000 shares of common stock exercisable within 60
days granted to Mr. Mihajlov; (4) 499,936 shares of common stock held by
the Parasole ESOT, of which Mr. Mihajlov is a co-trustee; and (5) 97,226
shares of common stock held by the BUCA Employee Stock Ownership Plan, of
which Mr. Mihajlov is a co-trustee. The address for Mr. Mihajlov is 2908
Hennepin Avenue South, Minneapolis, Minnesota 55408. Mr. Mihajlov is one
of our directors.
(/6/Consists)of 7,246 shares of common stock issuable upon conversion of
$50,000 in aggregate principal amount of our subordinated debt, assuming a
public offering price of $11.50 per share, and 4,494 shares of common stock
held by Wedgewood.
(/7/Consists)of 7,246 shares of common stock issuable upon conversion of
$50,000 in aggregate principal amount of our subordinated debt, assuming a
public offering price of $11.50 per share and 4,494 shares of common stock
held by Mr. Silverman.
(/8/Consists)of 7,246 shares of common stock issuable upon conversion of
$50,000 in aggregate principal amount of our subordinated debt, assuming a
public offering price of $11.50 per share, and 4,494 shares of common stock
held by Mr. Wuerzberger.
(/9/Consists)of (1) 7,246 shares of common stock issuable upon conversion of
$50,000 in aggregate principal amount of our subordinated debt held by Mr.
Ernest and Ms. Ernest, assuming a public offering price of $11.50 per
share; (2) 2,247 shares of common stock held by Mr. Ernest; and (3) 2,247
shares of common stock held by Ms. Ernest.
(/10/Consists)of (1) 7,246 shares of common stock issuable upon conversion of
$50,000 in aggregate principal amount of our subordinated debt, assuming a
public offering of $11.50 per share, (2) 1,666 shares of common stock held
by Mr. Rowland and (3) 1,666 shares of common stock held by Mr. Schenk.
(/11/Consists)of 7,246 shares of common stock issuable upon conversion of
$50,000 in aggregate principal amount of our subordinated debt, assuming a
public offering price of $11.50 per share.
(/12/Mr.)Kuester and Ms. Kuester are owners and officers of Kuester Partners
Inc., which has provided advertising and marketing services for us.
(/13/Ms.)Roberts is the daughter of Philip A. Roberts and is one of our
employees.
(/14/Mr.)Roberts is the son of Philip A. Roberts and has from time to time
provided architectural services to us.
(/15/Mr.)Alevizos is an employee of Kuester Partners Inc., which has provided
advertising and marketing services for us.
(/16/Consists)of 1,811 shares of common stock issuable upon conversion of
$12,500 in aggregate principal amount of our subordinated debt, assuming a
public offering price of $11.50 per share and 1,123 shares of common stock
held by Mr. Kuretsky.
(/17/Consists)of 1,811 shares of common stock issuable upon conversion of
$12,500 in aggregate principal amount of our subordinated debt, assuming a
public offering price of $11.50 per share, and 1,123 shares of common
stock held by the Toby Silverman Revocable Trust, of which Mr. Silverman
is the beneficial owner.
(/18/)Includes (1) options for the purchase of 131,521 shares of common stock
exercisable within 60 days granted to Mr. Micatrotto and (2) 97,226
shares of common stock held by the BUCA Employee Stock Ownership Plan, of
which Mr. Micatrotto is a co-trustee. Mr. Micatrotto is our president and
chief executive officer and one of our directors.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the 2,780,819 shares sold in this
offering will be freely tradable without restriction under the Securities Act,
unless purchased by an "affiliate" of ours, as that term is defined in Rule 144
under the Securities Act. The remaining 6,975,793 shares are "restricted
shares," as that term is defined in Rule 144. Of these shares:
. 1,604,797 will be eligible for immediate sale in the public market, subject
to the limitations of Rule 144,
. 3,410,560 will be eligible for sale in the public market 90 days from the
completion of this offering, subject to the limitations of Rule 144 and
. the remaining 1,960,436 shares will be eligible for sale pursuant to Rule
144.
Of the 6,975,793 restricted shares, holders of an aggregate of 6,811,842 shares
have entered into lock-up agreements under which they have agreed that they
will not, without the prior written consent of U.S. Bancorp Piper Jaffray,
offer, sell or otherwise dispose of, any shares of common stock, options or
warrants to acquire shares of common stock or securities exchangeable for or
convertible into shares of common stock owned by them during the 180-day period
following the date of this prospectus. U.S. Bancorp Piper Jaffray may, in its
sole discretion at any time without notice, release any portion of the shares
subject to the lock-up agreements during the 180-day period.
In general, under Rule 144 as currently in effect, a person, or persons whose
shares are aggregated, including an affiliate, who has beneficially owned
shares for at least one year, within any three-month period commencing 90 days
after the date of this prospectus, may sell a number of shares that does not
exceed the greater of:
. one percent of the number of shares of common stock then outstanding, this
would be 97,566 shares immediately after this offering, or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are generally subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who is not deemed to have been our
affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell the shares without having to comply with the manner of sale,
public information, volume limitation or notice provisions of Rule 144. Under
Rule 701 under the Securities Act, persons who purchase shares upon exercise of
options granted prior to the effective date of this offering are entitled to
sell the shares 90 days after the effective date of this offering in reliance
on Rule 144, without having to comply with the holding period requirements of
Rule 144 and, in the case of non-affiliates, without having to comply with the
public information, volume limitation or notice provisions of Rule 144.
We intend to file a registration statement on Form S-8 covering all shares of
common stock issuable upon exercise of stock options in effect on the date of
this prospectus and stock option or other benefits to be granted under our 1996
Stock Incentive Plan and Stock Option Plan for Non-Employee Directors. We have
outstanding stock options with respect to an aggregate of 1,052,154 shares of
common stock as of the date of this prospectus. Upon this registration on Form
S-8, an additional 1,052,154 shares of common stock, together with any
additional shares of common stock which will be issuable pursuant to stock
options or other benefits to be granted under the 1996 Stock Incentive Plan,
will be eligible for sale in the public market.
Prior to the offering, there has been no market for the common stock, and we
cannot predict the effect, if any, that public sales of shares or the
availability of shares for sale will have on the market price prevailing from
time to time. Sales of substantial amounts of common stock in the public market
following the offering, or the perception that sales may occur, could adversely
affect the prevailing market price of the common stock and our ability to raise
capital through a public offering our equity securities.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will consist of
20,000,000 shares of common stock, par value $.01 per share, and 5,000,000
undesignated shares.
Common Stock
As of the date of this prospectus, there are 7,072,610 shares of common stock
outstanding, after giving effect to the conversion of preferred stock into
common stock in connection with this offering. These shares are held of record
by 113 persons.
Holders of common stock are entitled to one vote per share on all matters to be
voted upon by shareholders. All shares of common stock rank equally as to
voting and all other matters. The shares of common stock have no preemptive or
conversion rights, no redemption or sinking fund provisions, are not liable for
further call or assessment, and are not entitled to cumulative voting rights.
However, shares of common stock held in the Parasole Employee Stock Ownership
Trust and the Buca Employee Stock Ownership Plan have contractual redemption
rights that will terminate upon the closing of this offering. See note 6 to
notes to the consolidated financial statements for additional information
regarding these plans.
Subject to the prior rights of holders of preferred stock, the holders of
common stock are entitled to receive dividends when and as declared by the
board of directors out of funds legally available for dividends. We have never
declared or paid cash dividends. We currently intend to retain all future
earnings for the operation and expansion of our business and do not anticipate
paying cash dividends on the common stock in the foreseeable future.
Upon a liquidation of BUCA, creditors and holders of our preferred stock with
preferential liquidation rights will be paid before any distribution to holders
of our common stock. The holders of common stock would be entitled to receive a
pro rata distribution per share of any excess amount.
Our common stock has been approved for listing on the Nasdaq National Market
under the symbol "BUCA," subject to notice of issuance.
Preferred Stock
Upon completion of the offering, all of our issued and outstanding Series A
convertible preferred stock, Series B convertible preferred stock, and Series C
convertible preferred stock will be converted into an aggregate of 4,505,239
shares of common stock. The conversion will occur at the applicable conversion
price of each series of preferred stock as provided in our Articles of
Incorporation. Upon conversion, all accrued and unpaid dividends on the
preferred stock will be eliminated.
Additional Preferred Stock
Our Articles of Incorporation empower the board of directors to issue the
undesignated stock from time to time in one or more series. The board also may
fix the designation, privileges, preferences and rights and the qualifications,
limitations and restrictions of those shares, including dividend rights,
conversion rights, voting rights, redemption rights, terms of sinking funds,
liquidation preferences and the number of shares constituting any series or the
designation of the series. Terms selected could decrease the amount of earnings
and assets available for distribution to holders of common stock or adversely
affect the rights and powers, including voting rights, of the holders of the
common stock without any further vote or action by the shareholders. The rights
of holders of common stock will be subject to, and may be adversely affected
by, the rights of the holders of any preferred shares that may be issued by us
in the future. The issuance of new preferred stock could have the effect of
delaying or preventing a change in control of the company or make removal of
management more difficult. Additionally, the issuance of new preferred stock
may have the effect of decreasing the market price of the common stock, and may
adversely affect the voting and other rights of the holders of common stock.
While we have no present intention to issue any shares of new preferred stock,
any issuance could have the effect of making it more difficult for a third
party to acquire a majority of our outstanding voting stock.
49
<PAGE>
Series A Convertible Subordinated Debentures
We have outstanding $1.8 million in principal amount of Series A convertible
subordinated debentures due July 30, 2001. Under the debentures, we have agreed
to pay interest at a rate adjusted semi-annually equal to one percent in excess
of the rate announced or published by U.S. Bank as its reference or prime rate
in effect on the banking day immediately prior to January 1 and July 1 of each
year. The holders may elect to have their debentures paid in full on July 30,
1999 and receive a premium payment from us equal to 10% of the original
principal sum of the debenture. Upon completion of this offering, the holders
of the debentures will have the right, for a period of one year, to convert the
entire principal amount of their debentures into shares of our common stock at
a price per share equal to 60% of the price of the common stock being sold in
this offering. If the holder holds the debenture until maturity, the holder is
entitled to a premium payment from us equal to 20% of the original principal
sum of the debenture. Holders of $825,000 in aggregate principal amount of the
debentures have elected to convert them into shares of common stock in
connection with this offering.
Stock Option
In 1998, we granted a non-qualified stock option to purchase up to 16,000
shares of our common stock at an exercise price of $6.75 per share to
1204 Harmon Partnership. The options vest in eight equal annual amounts
beginning on May 31, 1999. The option expires upon the earlier to occur of
May 31, 2008 or, at our option, upon payment to 1204 Harmon Partnership of the
excess of the fair market value of the common stock underlying the option over
the exercise price upon the occurrence of certain circumstances. The options
provide for adjustments in the number of shares, to the nearest whole share,
subject to the option and the exercise price to give effect to any distribution
of assets, other than regular dividends, or debt securities to holders of
common stock or any change made in the number of outstanding common stock by a
recapitalization, reclassification, combination, share dividend, share
division, share combination or other similar change.
Warrants
We issued warrants to purchase 156,800 shares of Series A convertible preferred
stock at an exercise price of $3.75 per share to our placement agents in
connection with the private placement of our Series A Convertible Preferred
Stock in October 1996. These warrants expire on October 23, 2003. Upon the
closing of this offering, these warrants will automatically convert into
warrants to purchase 104,532 shares of common stock at an exercise price of
$5.625 per common share.
We issued warrants to purchase 50,000 shares of Series B convertible preferred
stock at an exercise price of $4.50 per share to our placement agent in the
connection with the private placement of our Series B convertible preferred
stock. These warrants expire on September 2, 2004. Upon closing of this
offering, these warrants will automatically convert into warrants to purchase
33,333 shares of common stock at an exercise price of $6.75 per common share.
We issued warrants to purchase an aggregate of 66,663 shares of common stock at
an exercise price of $.01 per share to the purchasers of our Series B
convertible preferred stock. These warrants will become vested and exercisable
if the public offering price per share in this offering is less than $13.50.
These warrants expire on September 30, 2002.
As partial consideration for subordinated loan financings of $6.0 million, we
issued warrants to purchase a total of 193,331 shares of common stock at an
exercise price of $.01 per share to our lenders. These warrants expire on
September 20, 2002 with respect to 80,555 shares and on June 30, 2003 with
respect to the remaining shares. We granted the warrantholders the right to
sell their warrants to us for a period of 30 days immediately prior to their
expiration at a purchase price equal to the fair market value of the shares of
common stock issuable upon exercise of the warrant. This right will expire upon
the closing of this offering. Warrants to purchase 64,444 shares of common
stock are being exercised in connection with this offering, and the shares
issued are being included in this offering.
50
<PAGE>
All of these warrants provide for anti-dilution adjustments in the event of
stock splits, stock dividends, sales by us of our stock at, or issuance of
options or warrants containing an exercise price of, less than fair market
value or merger, consolidation, recapitalization or similar transactions.
Registration and Other Rights
We have granted registration rights to the holders of shares of common stock
issued in exchange for any of our preferred stock under the terms of the
Securities Purchase Agreement dated as of October 13, 1998 by and between us
and the purchasers named in the agreement. Following the closing of this
offering, approximately 4,571,902 shares of common stock, including 66,663
shares subject to outstanding warrants, will be entitled to these rights. Under
the terms of the Securities Purchase Agreement, the holders have the right to
require us to register their shares at our expense under the circumstances
described in that agreement. In addition, the holders have the right to have
any or all of their shares included, at our expense, in a registration
statement relating to common stock filed by us, subject to the right of an
underwriter to limit the number of the holders' shares to be included in the
registration. In connection with any registration under these provisions, we
are required to indemnify the holders participating in an offering against
civil liabilities under the Securities Act. Warrants to purchase an aggregate
of 137,865 shares of our common stock issued in connection with the sales of
the Series A convertible preferred stock and the Series B convertible preferred
stock contain similar registration rights provisions.
We also granted piggyback registration rights under the warrants to purchase
193,331 shares of our common stock granted to the lenders in our subordinated
debt transactions. Upon completion of this offering 128,887 shares will be
subject to these rights. See "Certain Relationships and Related Transactions--
Subordinated Debt Transactions" for a discussion of these subordinated debt
transactions. The rights are subject to the right of an underwriter to limit
the number of the holders' shares to be included in the registration. The
warrants grant the holders the right to sell the warrants back to us for a
period of 30 days prior to their expiration at a purchase price equal to the
fair market value of the shares of common stock issuable upon exercise of the
warrants and grant the holders co-sale rights with respect to sales of shares
by Philip A. Roberts, Peter J. Mihajlov, Don W. Hays, Joseph P. Micatrotto or
Barbara Marshall.
Under the terms of a Non-Statutory Stock Option Agreement between us and 1204
Harmon Partnership, we have granted the holder piggyback registration rights
with respect to the 16,000 shares covered by the option agreement. The rights
are subject to the right of an underwriter to limit the number of the holders'
shares to be included in the registration. In connection with any registration
under these provisions, we are required to indemnify the holder participating
in an offering against civil liabilities under the Securities Act.
Potential Anti-Takeover Effect of Provisions of Charter Documents and Minnesota
Law
Provisions of our Articles of Incorporation and By-Laws to be effective upon
the closing of this offering and of Minnesota law described below could have an
anti-takeover effect. These provisions are intended to provide management
flexibility to enhance the likelihood of continuity and stability in the
composition of our board of directors and in the policies formulated by the
board and to discourage an unsolicited takeover of the company, if the board
determines that such a takeover is not in the best interests of the company and
our shareholders. However, these provisions could have the effect of
discouraging attempts to acquire us which could deprive our shareholders of
opportunities to sell their shares of common stock at prices higher than
prevailing market prices.
Under the Articles, the board of directors will be classified into three
classes of directors, and directors may be removed by shareholders only by a
vote of holders of at least 75% of the voting power. For the shareholders to
call a meeting to take action concerning a business combination, the By-Laws
require that holders of at least
51
<PAGE>
25% of the voting power must join in the request. The By-Laws establish
procedures, including advance notice procedures, with regard to shareholder
proposals and the nomination of candidates for election as directors.
Section 302A.671 of the Minnesota Statutes applies, with certain exceptions, to
any acquisitions of our voting stock from a person other than us, and other
than in connection with certain mergers and exchanges to which we are party
resulting in the beneficial ownership of 20% or more of the voting stock then
outstanding. Section 302A.671 requires approval of the granting of voting
rights for the shares received pursuant to any such acquisitions by a majority
vote of our shareholders. In general, shares acquired without this approval are
denied voting rights and can be called for redemption at their then fair market
value by us within 30 days after the acquiring person has failed to deliver a
timely information statement to us or the date the shareholders voted not to
grant voting rights to the acquiring person's shares.
Section 302A.673 of the Minnesota Statutes generally prohibits any business
combination by us, or any subsidiary of us, with any shareholder that purchases
10% or more of our voting shares (an "interested shareholder") within four
years following the interested shareholder's share acquisition date, unless the
business combination is approved by a committee of all of the disinterested
members of our board of directors before the interested shareholder's share
acquisition date.
Section 302A.675 of the Minnesota Statutes generally prohibits an offeror from
acquiring shares of a publicly held Minnesota corporation within two years
following the offeror's last purchase of the corporation's shares pursuant to a
takeover offer with respect to that class, unless the corporation's
shareholders are able to sell their shares to the offeror upon substantially
equivalent terms as those provided in the earlier takeover offer. This statute
will not apply if the acquisition of shares is approved by a committee of all
of the disinterested members of our board of directors before the purchase of
any shares by the offeror pursuant to a takeover offer.
Transfer Agent and Registrar
Norwest Bank Minnesota, National Association has been appointed as the transfer
agent and registrar for our common stock.
52
<PAGE>
UNDERWRITING
The underwriters named below, for whom U.S. Bancorp Piper Jaffray Inc. and
NationsBanc Montgomery Securities LLC are acting as representatives, have
agreed to buy, subject to the terms and conditions of the purchase agreement,
the number of shares listed opposite their names below. Shares purchased from
the selling shareholders include 64,444 shares issuable upon exercise of a
warrant that the underwriters are purchasing from a selling shareholder. The
underwriters are committed to purchase and pay for all of the shares if any are
purchased, other than those shares covered by the over-allotment option
described below.
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
U.S. Bancorp Piper Jaffray Inc. ............................
NationsBanc Montgomery Securities LLC.......................
---------
Total................................................... 2,780,819
=========
</TABLE>
The underwriters have advised us and the selling shareholders that they propose
to offer the shares to the public at $ per share. The underwriters propose
to offer the shares to certain dealers at the same price less a concession of
not more than $ per share. The underwriters may allow and the dealers may
reallow a concession of not more than $ per share on sales to certain other
brokers and dealers. After the offering, these figures may be changed by the
representatives.
Of the 2,500,000 shares of common stock offered by us, up to 200,000 shares
will be reserved for sale to persons designated by us. Shares not sold to these
persons will be reoffered immediately by the underwriters to the public at the
initial public offering price.
We have granted to the underwriters an option to purchase up to an additional
401,122 shares of common stock from us and Joseph P. Micatrotto has granted to
the underwriters an option to purchase up to an additional 16,000 shares of
common stock, on a pro rata basis, at the same price to the public, and with
the same underwriting discount, as set forth in the table on the cover page of
this prospectus. The underwriters may exercise this option any time during the
30-day period after the date of this prospectus, but only to cover over-
allotments, if any. To the extent the underwriters exercise the option, each
underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of the additional shares as it was obligated
to purchase under the purchase agreement.
We intend to use more than 10% of the net proceeds from the sale of the shares
offered by us by this prospectus to repay indebtedness owed by us to U.S. Bank,
an affiliate of U.S. Bancorp. See "Use of Proceeds". U.S. Bancorp is an
affiliate of U.S. Bancorp Piper Jaffray, one of the underwriters. The decision
of U.S. Bancorp Piper Jaffray to underwrite this offering was made
independently of U.S. Bancorp, which had no involvement in determining whether
or when to underwrite this offering or the terms of this offering. U.S. Bancorp
Piper Jaffray will not receive any benefit from this offering other than its
respective portion of the underwriting fees payable by us. The offering is
being made in compliance with the requirements of Rule 2710(c)(8) of the
National Association of Securities Dealers, Inc. Conduct Rules. This rule
provides generally that if more than 10% of the net proceeds from the sale of
stock, not including underwriting compensation, is paid to the underwriters or
their affiliates, the initial public offering price of the stock may not be
higher than that recommended by a qualified independent underwriter meeting
standards set forth in Rule 2720(c)(3) of the NASD Conduct Rules. NationsBanc
Montgomery Securities LLC has agreed to act as the qualified independent
underwriter in pricing the offering and conducting due diligence. The initial
public offering price of the shares
53
<PAGE>
set forth on the cover page of this prospectus is no higher than the price
recommended by NationsBanc Montgomery. Moreover, NationsBanc Montgomery, as the
qualified independent underwriter, has performed due diligence investigations
and has reviewed and participated in the preparation of this prospectus.
The following table shows the underwriting fees to be paid to the underwriters
in connection with this offering. These amounts are shown assuming both no
exercise and full exercise of the over-allotment option.
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share.................................... $ $
Total........................................ $ $
</TABLE>
U.S. Bancorp Piper Jaffray acted as placement agent in connection with the
private placement of our Series A convertible preferred stock in October 1996.
We issued warrants to purchase 112,000 shares of Series A convertible preferred
stock convertible into 74,666 shares of common stock at an exercise price of
$5.625 per common share to U.S. Bancorp Piper Jaffray for its services as
placement agent. These warrants became exercisable in May 1997 and expire on
October 23, 2003. We paid U.S. Bancorp Piper Jaffray $421,000 for its services
as placement agent. U.S. Bancorp Piper Jaffray also purchased 53,333 shares of
Series A convertible preferred stock convertible into 35,555 shares of common
stock at a price of $5.625 per common share, the same price paid by other
investors for the Series A convertible preferred stock.
U.S. Bancorp Piper Jaffray also acted as placement agent in connection with the
private placement of our Series B convertible preferred stock in September
1997. We issued warrants to purchase 50,000 shares of Series B convertible
preferred stock convertible into 33,333 shares of common stock at an exercise
price of $6.75 per common share to U.S. Bancorp Piper Jaffray for its services
as placement agent. These warrants became exercisable on October 31, 1997 and
expire on September 2, 2004. We paid U.S. Bancorp Piper Jaffray $75,000 for its
services as placement agent.
Standby Fund 1997, an entity controlled by affiliates of U.S. Bancorp Piper
Jaffray, and U.S. Bancorp Piper Jaffray also purchased a total of 55,556 shares
of Series B convertible preferred stock convertible into 37,037 shares of
common stock at a price of $6.75 per common share, the same price paid by other
investors for the Series B convertible preferred stock. Along with the other
purchasers of Series B convertible preferred stock, Standby Fund was issued,
pro rata, warrants to purchase 1,926 shares of our common stock at an exercise
price of $.01 per share. These warrants only become vested and exercisable upon
completion of this offering if the public offering price per share is less than
$13.50.
U.S. Bancorp Piper Jaffray has provided investment banking services to us in
1998 and 1999 and will receive fees in the amount of $45,000 for such services.
We and the selling shareholders have agreed to indemnify the underwriters
against liabilities, including liabilities under the Securities Act, or to
contribute to payments that the underwriters may be required to make in respect
to those liabilities.
The underwriters have informed us that neither they, nor any other underwriter
participating in the distribution of the offering, will make sales of the
common stock offered by this prospectus to accounts over which they exercise
discretionary authority without the prior written approval of the customer
specifically relating to the shares offered in this prospectus.
The offering of our shares of common stock is made for delivery when, as and if
accepted by the underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offering without notice. The underwriters
reserve the right to reject an order for the purchase of shares in whole or
part.
We and each of our directors, executive officers and principal shareholders and
the selling shareholders have agreed to restrictions on our ability to sell
additional shares of our common stock for a period of 180 days after the date
of this prospectus. We have agreed not to directly or indirectly offer for
sale, sell, contract to sell,
54
<PAGE>
grant any option for the sale of, or otherwise issue or dispose of, any shares
of common stock, options or warrants to acquire shares of common stock, or any
related security or instrument, without the prior written consent of U.S.
Bancorp Piper Jaffray. The agreements provide exceptions for sales to
underwriters pursuant to the purchase agreement and our sales in connection
with the exercise of options granted and the granting of options to purchase
shares under our existing stock option plans.
Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price for the shares of common stock
offered by this prospectus was negotiated by us and the underwriters as
recommended by the qualified independent underwriter. The factors considered in
determining the initial public offering price include the history of and the
prospects for the industry in which we compete, our past and present
operations, our historical results of operations, our prospects for future
earnings, the recent market prices of securities of generally comparable
companies and the general condition of the securities markets at the time of
the offering and other relevant factors. There can be no assurance that the
initial public offering price of the common stock will corresponded to the
price at which the common stock will trade in the public market subsequent to
this offering or that an active public market for the common stock will develop
and continue after this offering.
To facilitate the offering, the underwriters may engage in transactions that
stabilize, maintain or otherwise affect the price of the common stock during
and after the offering. Specifically, the underwriters may over-allot or
otherwise create a short position in the common stock for their own account by
selling more shares of common stock than have been sold to them by us and the
selling shareholders. The underwriters may elect to cover any such short
position by purchasing shares of common stock in the open market or by
exercising the over-allotment option granted to the underwriters. In addition,
the underwriters may stabilize or maintain the price of the common stock by
bidding for or purchasing shares of common stock on the open market and may
impose penalty bids. If penalty bids are imposed, selling concessions allowed
to syndicate members or other broker-dealers participating in the offering are
reclaimed if shares of common stock previously distributed in the offering are
repurchased, whether in connection with stabilization transactions or
otherwise. The effect of these transactions may be to stabilize or maintain the
market price of the common stock at a level above that which might otherwise
prevail in the open market. The imposition of a penalty bid may also affect the
price of the common stock to the extent that it discourages resales of the
common stock. The magnitude or effect of any stabilization or other
transactions is uncertain. These 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 by this prospectus and other
legal matters will be passed upon for us by Faegre & Benson LLP, Minneapolis,
Minnesota. The validity of the shares of common stock offered by this
prospectus will be passed upon for the underwriters by Dorsey & Whitney LLP,
Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements at December 27, 1998 and December 28,
1997 and for each of the two fiscal years in the period ended December 27,
1998, included in this prospectus and registration statement have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the registration statement and are included
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
The consolidated financial statements for the year ended December 31, 1996
included in this prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public
55
<PAGE>
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC for the stock
we are offering by this prospectus. This prospectus does not include all of the
information contained in the registration statement. You
should refer to the registration statement and its exhibits for additional
information. Whenever we make reference in this prospectus to any of our
contracts, agreements or other documents, the references are not necessarily
complete and you should refer to the exhibits attached to the registration
statement for copies of the actual contract, agreement or other document. When
we complete this offering, we will also be required to file annual, quarterly
and special reports, proxy statements and other information with the SEC.
You can read our SEC filings, including the registration statement, over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file with the SEC at its public reference facilities at
450 Fifth Street, NW, Washington, DC 20549, 7 World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. You may also obtain copies of the documents
at prescribed rates by writing to the Public Reference Section of the SEC at
450 Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC-
0330 for further information on the operation of the public reference
facilities. Our SEC filings are also available at the office of the Nasdaq
National Market. For further information on obtaining copies of our public
filings at the Nasdaq National Market you should call (212) 656-5060.
56
<PAGE>
BUCA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report........................................ F-2
Report of Independent Public Accountants............................ F-3
Consolidated Balance Sheets as of December 28, 1997 and December 27,
1998............................................................... F-4
Consolidated Statements of Operations for the fiscal years ended
December 31, 1996, December 28, 1997 and December 27, 1998 ........ F-5
Consolidated Statements of Shareholders' Deficit for the fiscal
years
ended December 31, 1996, December 28, 1997 and December 27, 1998... F-6
Consolidated Statements of Cash Flows for the fiscal years ended
December 31, 1996, December 28, 1997 and December 27, 1998......... F-7
Notes to Consolidated Financial Statements.......................... F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
BUCA, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of BUCA, Inc. and
Subsidiaries (the Company) as of December 28, 1997 and December 27, 1998, and
the related consolidated statements of operations, shareholders' deficit, and
cash flows for the fiscal years ended December 28, 1997 and December 27, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 1997 and 1998 consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1997 and 1998 consolidated financial statements present
fairly, in all material respects, the financial position of BUCA, Inc. and
Subsidiaries as of December 28, 1997 and December 27, 1998, and the results of
their operations and their cash flows for the fiscal years then ended in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in fiscal 1997
the Company changed its method of accounting for preopening costs.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
February 17, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To BUCA, Inc:
We have audited the accompanying consolidated statements of operations,
shareholders' deficit and cash flows of BUCA, Inc. (a Minnesota corporation)
and Subsidiaries (the Company) for the year ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based upon 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 our audit provides a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
BUCA, Inc. and Subsidiaries for the year ended December 31, 1996, in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Minneapolis, Minnesota
March 14, 1997
F-3
<PAGE>
BUCA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 28, 1997 and December 27, 1998
(in thousands, except for share and per share data)
<TABLE>
<CAPTION>
Pro forma
Shareholders'
Equity 1998
1997 1998 (Note 12)
------- -------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................... $ 6,099 $ 6,576
Accounts receivable.......................... 284 1,160
Inventories.................................. 545 935
Prepaids and other........................... 457 585
------- --------
Total current assets....................... 7,385 9,256
PROPERTY AND EQUIPMENT, net................... 13,428 27,697
OTHER ASSETS.................................. 475 607
------- --------
$21,288 $ 37,560
======= ========
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable............................. $ 2,309 $ 3,257
Accrued expenses............................. 962 2,638
Current maturities of long-term debt......... 320 205
------- --------
Total current liabilities.................. 3,591 6,100
LONG-TERM DEBT, less current maturities....... 5,140 7,661
DEFERRED RENT................................. 17 239
OTHER LIABILITIES............................. 127
COMMITMENTS AND CONTINGENCIES (Notes 6, 7, and
8)
REDEEMABLE STOCK (Notes 6 and 9):
Preferred stock, $.01 par value, cumulative,
Series A convertible--2,396,800 shares
authorized; 2,240,000 shares issued and
outstanding................................. 8,984 9,665 $ --
Preferred stock, $.01 par value, cumulative,
Series B convertible--2,100,000 shares
authorized; 1,922,222 shares issued and
outstanding................................. 8,777 9,441 --
Preferred stock, $.01 par value, cumulative,
Series C convertible--3,679,053 shares
authorized; 2,614,634 shares issued and
outstanding................................. 13,154 --
Common stock, $.01 par value; 601,929 shares
issued and outstanding...................... 4,063 4,713 --
------- -------- --------
21,824 36,973 --
SHAREHOLDERS' (DEFICIT) EQUITY:
Undesignated stock, 617,147 shares
authorized, none issued or outstanding
Common stock, $.01 par value--13,100,000
shares authorized; 1,899,246 and 1,918,056
shares issued and outstanding,
respectively................................ 19 19 93
Additional paid-in capital................... 36,899
Accumulated deficit.......................... (9,032) (13,266) (13,266)
------- -------- --------
(9,013) (13,247) 23,726
Notes receivable from shareholders........... (271) (293) (293)
------- -------- --------
Total shareholders' (deficit) equity ...... (9,284) (13,540) 23,433
------- -------- --------
$21,288 $ 37,560 $ 37,560
======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
BUCA, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Fiscal Years Ended December 31, 1996,
December 28, 1997 and December 27, 1998
(in thousands, except for share and per share data)
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
RESTAURANT SALES........................... $ 11,316 $ 19,030 $ 38,483
RESTAURANT COSTS:
Product................................... 3,471 5,520 10,876
Labor..................................... 3,723 6,478 12,548
Direct and occupancy...................... 2,242 3,750 7,861
Depreciation and amortization............. 381 781 1,617
---------- ---------- ----------
Total restaurant costs................. 9,817 16,529 32,902
---------- ---------- ----------
INCOME FROM RESTAURANT OPERATIONS.......... 1,499 2,501 5,581
GENERAL AND ADMINISTRATIVE EXPENSES........ 1,988 3,760 5,579
PREOPENING COSTS........................... 430 1,140 1,895
---------- ---------- ----------
OPERATING LOSS............................. (919) (2,399) (1,893)
INTEREST EXPENSE........................... 295 497 1,036
---------- ---------- ----------
LOSS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE.. (1,214) (2,896) (2,929)
(BENEFIT) PROVISION FOR INCOME TAXES....... (101) 72 17
---------- ---------- ----------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE...................... (1,113) (2,968) (2,946)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE RELATED TO PREOPENING COSTS..... (351)
---------- ---------- ----------
NET LOSS................................... $ (1,113) $ (3,319) $ (2,946)
========== ========== ==========
CUMULATIVE PREFERRED STOCK DIVIDENDS,
ACCRETION OF PREFERRED STOCK TO REDEMPTION
VALUE, AND CHANGE IN REDEEMABLE COMMON
STOCK..................................... (3,687) (1,986) (2,189)
---------- ---------- ----------
NET LOSS APPLICABLE TO COMMON STOCK........ $ (4,800) $ (5,305) $ (5,135)
========== ========== ==========
NET LOSS PER COMMON SHARE--BASIC AND
DILUTED................................... $ (1.96) $ (2.13) $ (2.04)
========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES ASSUMED
OUTSTANDING--BASIC AND DILUTED............. 2,444,666 2,490,136 2,512,309
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
BUCA, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Deficit
(in thousands, except for share data)
<TABLE>
<CAPTION>
Notes
Common Stock Stock Additional Receivable Total
----------------- Subscription Paid-in Accumulated from Shareholders'
Shares Amount Receivable Capital Deficit Shareholders Deficit
--------- ------ ------------ ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1995................... 1,842,738 $18 $ (6) $ 13 $ (173) $ (148)
Collection on stock
subscription
receivable............ 6 6
Change in redeemable
common stock.......... (13) (3,373) (3,386)
Preferred stock
dividends............. (111) (111)
Accretion of preferred
stock................. (190) (190)
Net loss............... (1,113) (1,113)
--------- --- ---- ----- -------- --------
BALANCE AT DECEMBER 31,
1996................... 1,842,738 18 -- -- (4,960) (4,942)
Issuance of common
stock options......... 350 350
Issuance of common
stock warrants........ 544 544
Issuance of common
stock................. 65,766 1 389 $(275) 115
Repurchase of common
stock................. (9,258) (50) (50)
Payments of notes
receivable due from
shareholders.......... 4 4
Change in redeemable
common stock.......... (677) (677)
Preferred stock
dividends............. (556) (229) (785)
Accretion of preferred
stock................. (524) (524)
Net loss............... (3,319) (3,319)
--------- --- ---- ----- -------- ----- --------
BALANCE AT DECEMBER 28,
1997................... 1,899,246 19 -- -- (9,032) (271) (9,284)
Issuance of common
stock warrants........ 761 761
Issuance of common
stock................. 28,882 200 (160) 40
Repurchase of common
stock................. (10,072) (60) (60)
Payments of notes
receivable due from
shareholders.......... 138 138
Change in redeemable
common stock.......... (650) (650)
Preferred stock
dividends............. (251) (1,041) (1,292)
Accretion of preferred
stock................. (247) (247)
Net loss............... (2,946) (2,946)
--------- --- ---- ----- -------- ----- --------
BALANCE AT DECEMBER 27,
1998................... 1,918,056 $19 $-- $ -- $(13,266) $(293) $(13,540)
========= === ==== ===== ======== ===== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
BUCA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Fiscal Years Ended December 31, 1996,
December 28, 1997, and December 27, 1998
(in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $(1,113) $(3,319) $ (2,946)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization.................... 381 781 1,617
Cumulative effect of change in accounting
principle....................................... 351
Deferred income taxes............................ 34
Loss (gain) on sale of property and equipment.... 112 (52)
Accretion of call premium........................ 50 51 51
Amortization of debt discount.................... 216
Issuance of common stock and common stock options
for services.................................... 439
Change in assets and liabilities:
Accounts receivable............................. (43) (130) (876)
Inventories..................................... (101) (247) (390)
Preopening costs................................ (134)
Prepaids and other.............................. (27) (370) (128)
Accounts payable................................ 582 985 948
Accrued expenses................................ 236 (137) 1,676
Other liabilities............................... 222
------- ------- --------
Net cash (used in) provided by operating
activities................................... (169) (1,450) 338
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................ (2,783) (7,896) (17,864)
Escrow deposits................................... (551) (131)
Increase in other assets.......................... (33) (45) (48)
Proceeds from sale of property and equipment...... 2,263
------- ------- --------
Net cash used in investing activities......... (3,367) (8,072) (15,649)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.......... 896 2,500 3,500
Principal payments on long-term debt.............. (331) (489) (599)
Collection on stock subscription receivable....... 6
Payments of notes receivable from shareholders.... 4 80
Repurchase of common stock........................ (30)
Net proceeds from issuance of preferred stock..... 7,614 8,537 12,958
Issuance of common stock.......................... 40
Loan and lease acquisition costs.................. (251) (191)
Principal payments on note payable................ (104) (400)
Proceeds from issuance of note payable............ 400
------- ------- --------
Net cash provided by financing activities..... 8,481 9,871 15,788
------- ------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS.......... 4,945 349 477
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..... 805 5,750 6,099
------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR........... $ 5,750 $ 6,099 $ 6,576
======= ======= ========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
BUCA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Fiscal Years Ended December 31, 1996, December 28, 1997,
and December 27, 1998
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business--BUCA, Inc. and Subsidiaries (BUCA or the Company) develops
and operates family-style, immigrant Southern Italian restaurants located in
Minnesota, Wisconsin, California, Illinois, Indiana, Arizona, Ohio, Kansas, and
Washington. Effective December 31, 1994, Parasole Restaurant Holdings, Inc.
(Parasole) acquired all the common stock of BUCA, which resulted in BUCA
becoming a wholly owned subsidiary of Parasole. On September 30, 1996, the
Parasole Board of Directors in a spin-off distributed all of the outstanding
common stock of BUCA pro rata to the Parasole shareholders. Prior to a written
action of the Board of Directors on May 14, 1996, the Company was known as BUCA
Ventures, Inc.
The Company incurred net losses of $1,113,000, $3,319,000 and $2,946,000 in
1996, 1997 and 1998, respectively, and as of December 27, 1998, had an
accumulated deficit of $13,266,000. Losses have been primarily attributable to
costs and expenses incurred in the completion of the development and opening of
new restaurants and the costs associated with the hiring of senior corporate
management to position the Company for its future expansion plans. Future
revenues and results from operations will depend upon various factors,
including the Company's ability to open new restaurants on a timely and
profitable basis and general economic conditions. The Company's ability to meet
its expansion plans and achieve profitability depends on its ability to obtain
additional financing for the development of new locations currently under
consideration. There are no assurances that such financing will be available on
terms acceptable or favorable to the Company.
The Company manages its operations by restaurant. All of the Company's
restaurants operate under the same concept, are marketed to similar customers,
and have comparable economic characteristics. The Company has aggregated its
operating segments into one reportable segment.
Principles of Consolidation--The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated.
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 sales and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents--The Company considers all unrestricted demand
deposits and all unrestricted highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents. At December
28, 1997 and December 27, 1998, cash and cash equivalents consisted primarily
of money market funds.
Fair Value of Financial Instruments--At December 28, 1997 and December 27,
1998, the fair values of cash and cash equivalents, accounts receivable, and
accounts payable approximate their carrying value due to the short-term nature
of the instrument. The fair value of debt is estimated at its carrying value
based upon current rates available to the Company. The fair value of the
redeemable preferred stock is estimated at $35,375,000 based upon the December
1998 closing of the Series C preferred stock private placement.
F-8
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inventories--Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method of valuation. Inventories
consisted of the following as of December 28, 1997 and December 27, 1998 (in
thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Food and beverage............................................... $300 $521
Supplies........................................................ 245 414
---- ----
$545 $935
==== ====
</TABLE>
Other Assets--Other assets consisted of the following as of December 28, 1997
and December 27, 1998 (in thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Loan and lease acquisition costs, net.......................... $300 $365
Escrow deposits................................................ 131 131
Other.......................................................... 44 111
---- ----
$475 $607
==== ====
</TABLE>
Loan and lease acquisition costs are being amortized over the term of the
related debt or lease. Accumulated amortization as of December 28, 1997 and
December 27, 1998 was $94,000 and $206,000, respectively.
Accrued expenses--Accrued expenses consisted of the following as of December
28, 1997 and December 27, 1998 (in thousands):
<TABLE>
<CAPTION>
1997 1998
---- ------
<S> <C> <C>
Accrued payroll and related benefits......................... $315 $1,117
Gift certificate liability................................... 230 518
Accrued sales taxes.......................................... 241 546
Other accrued expenses....................................... 176 457
---- ------
$962 $2,638
==== ======
</TABLE>
Recoverability of Long-Lived Assets--The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate the carrying
value amount of an asset or group of assets may not be recoverable. The Company
considers a history of operating losses to be its primary indicator of
potential impairment. Assets are grouped and evaluated for impairment at the
lowest level for which there are identifiable cash flows, individual
restaurants. A restaurant is deemed to be impaired if a forecast of
undiscounted future operating cash flows directly related to the restaurant is
less than its carrying amount. If a restaurant is determined to be impaired,
the loss is measured as the amount by which the carrying amount of the
restaurant exceeds its fair value. Fair value is an estimate based on the best
information available, including prices for similar assets or the results of
valuation techniques such as discounted estimated future cash flows as if the
decision to continue to use the impaired restaurant was a new investment
decision. The Company generally measures fair value by discounting estimated
future cash flows.
Net Loss Per Share--Basic loss per share is computed by dividing net loss by
the weighted average number of common shares outstanding. Diluted earnings per
share assumes conversion of the convertible subordinated debentures and
convertible preferred stock as of the beginning of the year and exercise of
stock options and warrants using the treasury stock method, if dilutive.
Dilutive net loss per share for 1996, 1997, and 1998 are the same as basic net
loss per share due to the antidilutive effect of the assumed exercise of stock
options, warrants, convertible subordinated debentures, and convertible
preferred stock securities.
F-9
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Diluted loss per share excludes the following due to their antidilutive effect:
<TABLE>
<CAPTION>
1996 1997 1998
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Price Price Price
Number Of Per Number of Per Number of Per
Shares Share Shares Share Shares Share
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Stock warrants.......... 104,532 $5.63 218,420 $3.73 331,196 $2.46
Stock options........... 13,331 4.84 581,507 5.38 854,155 6.08
Convertible preferred
stock.................. 1,493,331 5.63 2,774,808 6.14 4,505,239 6.76
Convertible subordinated
debentures............. 565,079 3.15 565,079 3.15 439,506 4.05
--------- ----- --------- ----- --------- -----
2,176,273 $4.98 4,139,814 $5.50 6,130,096 $6.24
========= ===== ========= ===== ========= =====
</TABLE>
Postemployment and Postretirement Benefits--The Company does not provide
postemployment health care or postretirement benefits.
Stock Compensation--The Company accounts for its stock-based compensation
awards to employees under Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and will disclose the required pro
forma effect on net loss as recommended by Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation.
Accounting Change--Effective January 1, 1997, the Company changed its method of
accounting for restaurant preopening costs in accordance with Statement of
Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities. Prior to
fiscal 1997, preopening costs were deferred and amortized over the initial 12
months of a restaurant's operation. Under the new method, preopening costs are
expensed as incurred. The expensing of preopening costs is prevalent in
industry practice. The change in accounting method increased the 1997 loss
before cumulative effect of change in accounting principle by $834,000.
Fiscal Year--The Company changed its fiscal year-end from December 31 to the
last Sunday in December, beginning with the fiscal year ended December 28,
1997. The fiscal years ended December 31, 1996, December 28, 1997, and December
27, 1998 were 52-week years.
Comprehensive Income--The Company does not have any items of other
comprehensive income in any of the periods presented.
Accounting Pronouncements--In June 1998, the Financial Accounting Standards
Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133 requires companies to record derivatives on
the balance sheet as assets and liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999, with earlier adoption encouraged. Management has not yet
determined the effects SFAS No. 133 will have on its financial position or the
results of its operations.
2. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for renewals and
betterments are capitalized while repairs and maintenance costs are charged to
expense. The cost of property and equipment is depreciated on the straight-line
method over their estimated useful lives. Leasehold improvements are amortized
on the straight-
F-10
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
line method over the shorter of the life of the lease including extensions or
their estimated useful lives. Estimated useful lives are as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Leasehold improvements.............................................. 5-20
Furniture, fixtures, and equipment.................................. 5-10
Building............................................................ 20
</TABLE>
Property and equipment consisted of the following as of December 28, 1997 and
December 27, 1998 (in thousands):
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Leasehold improvements................................... $ 8,639 $19,214
Furniture, fixtures, and equipment....................... 4,991 10,869
Land..................................................... 793 267
Building................................................. 300 114
------- -------
14,723 30,464
Less accumulated depreciation and amortization........... 1,295 2,767
------- -------
$13,428 $27,697
======= =======
</TABLE>
In 1998, the Company sold the building and land associated with a restaurant in
Illinois for approximately $1,200,000 and simultaneously entered into an
operating lease for a term of 20 years. The assets were removed from the
financial statements and a deferred gain included as other liabilities on the
consolidated balance sheet of approximately $132,000 was recorded which is
being amortized over the lease term.
Additionally, in 1998, the Company purchased the land and building associated
with a restaurant in Minnesota for approximately $375,000.
3. NOTE PAYABLE
The Company had a $1,000,000 line of credit agreement secured by the assets of
the Company that expired on June 30, 1998.
F-11
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. LONG-TERM DEBT
Long-term debt consisted of the following as of December 28, 1997 and December
27, 1998 (in thousands):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Notes payable maturing October 2002, $2,500,000 and June
2003, $3,500,000, with interest payable monthly at 13.5%
and accretion of common stock warrant value of 4.4%.
Collateralized by equipment, inventory, accounts
receivable, trademarks, and copyrights. Net of discounts of
$544,000 and $1,089,000, respectively, resulting from
common stock warrants issued to lenders.................... $1,956 $4,911
Convertible subordinated debentures maturing July 2001 with
interest payable quarterly at 8.0% until January 1997, at
which time interest will be adjusted semiannually to 1.0%
in excess of the prime rate, not to exceed 12.0% per annum
(9.50% and 8.75% at December 28, 1997 and December 27,
1998, respectively); includes call premium accretion of
$165,000 and $216,000, respectively........................ 1,945 1,996
Note payable to bank in monthly installments, including
interest at 2.0% in excess of the prime rate (10.50% and
9.75% at December 28, 1997 and December 27, 1998,
respectively), maturing July 2000, with a principal balloon
payment upon maturity of $185,000, collateralized by
equipment, accounts receivable, and inventory.............. 363 296
Note payable to bank in monthly installments, including
interest at 2.0% in excess of the prime rate (10.50% and
9.75% at December 28, 1997 and December 27, 1998,
respectively), maturing May 1999, collateralized by
equipment, accounts receivable, and inventory.............. 97 29
Note payable to bank in monthly installments including
interest at 2.0% in excess of the prime rate (10.50% and
9.75% at December 28, 1997 and December 27, 1998,
respectively), maturing March 2003, collateralized by
equipment, accounts receivable, and inventory.............. 332 269
Note payable in monthly installments, including interest at
7.153%, maturing May 2006, collateralized by equipment, a
guarantee of Parasole, and the personal guarantees of
certain shareholders and the U.S. Small Business
Administration............................................. 402 365
Capitalized leases.......................................... 365 --
------ ------
Total.................................................... 5,460 7,866
Less current maturities..................................... 320 205
------ ------
Total long-term maturities............................... $5,140 $7,661
====== ======
</TABLE>
The Company's loan agreements, among other things, restrict additional
indebtedness and dividend payments and requires the Company to meet certain
financial covenants, the most restrictive of which includes maintaining
tangible net worth of $4,000,000. The Company was in compliance with these
financial covenants at December 27, 1998.
The holders of the convertible subordinated debentures are entitled, at their
option for a one year period commencing upon an initial public offering (IPO)
of common stock by BUCA, to convert the entire principal amount held by such
person into fully paid shares of common stock at a specified discount. The
discount amount is based upon the effective date of the IPO: a 30% discount if
the effective date is on or prior to August 1, 1997; a 40% discount if the
effective date is after August 1, 1997 but on or prior to August 1, 1999; and a
50% discount if the effective date is after August 1, 1999 but on or prior to
the conversion rights
F-12
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
termination date of July 30, 2001. In accordance with EITF 98-5, Accounting for
Convertible Securities with Beneficial Conversion Features or Contigently
Adjustable Conversion Ratios, the Company will record an expense associated
with the beneficial conversion feature at the effective date of the IPO. The
individual holders of the debentures may elect to have the debentures paid in
full in July 1999, at which time any holder would be entitled to a premium
payment equal to 10% of the original principal sum of the debenture. In the
event the holder retains the debenture to maturity, the holder will be entitled
to a premium payment equal to 20% of the original principal sum of the
debenture. The 20% premium is being accreted over the debenture term. The
debentures are fully subordinated to all obligations of BUCA to the bank.
The future maturities of long-term debt, excluding the discount related to
common stock warrants, are as follows (in thousands):
<TABLE>
<S> <C>
1999............................................................... $ 205
2000............................................................... 328
2001............................................................... 2,104
2002............................................................... 2,612
2003............................................................... 3,570
Thereafter......................................................... 136
------
$8,955
======
</TABLE>
On February 5, 1999, the Company refinanced its existing term debt, excluding
the convertible subordinated debentures and the note payable guaranteed by the
U.S. Small Business Administration, with a $15 million credit arrangement that
expires on December 31, 2000. The credit arrangement includes a $7 million term
loan which bears a fixed rate of interest of 9.63% and an $8 million revolving
line of credit which bears interest at prime plus .75% to 1.25%, depending on
the then-applicable cash flow coverage ratio of the Company. In accordance with
the credit agreement, the term loan must be repaid upon the consummation of an
initial public offering along with any borrowings under the revolving line of
credit in excess of $3 million. The credit agreement, among other things,
restricts additional indebtedness and requires the Company to meet certain
financial covenants. In conjunction with the refinancing, the Company will
recognize an extraordinary loss on extinguishment of debt of approximately $1.4
million in 1999 which includes deferred financing costs associated with the
refinanced debt.
5. INCOME TAXES
Deferred income taxes are recognized for the tax consequences of differences
between the tax basis of assets and liabilities and their financial reporting
amounts at each year-end based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. At December 28, 1997 and December 27, 1998 the Company has
recorded a valuation allowance to reduce recorded deferred tax assets to zero.
At December 27, 1998, for income tax return purposes, the Company has estimated
net operating loss carryforwards of approximately $3,500,000. If not used,
these carryforwards will begin to expire in 2003.
F-13
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The (benefit) provision for income taxes consisted of the following for the
fiscal years ended December 31, 1996, December 28, 1997, and December 27, 1998
(in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
----- ------- -------
<S> <C> <C> <C>
Federal......................................... $(107) $ 34
State........................................... 6 4 $ 17
Deferred........................................ 34
----- ------- -------
(Benefit) provision for income taxes............ $(101) $ 72 $ 17
===== ======= =======
A reconciliation between taxes computed at the expected federal income tax rate
and the effective tax rate for the fiscal years ended December 31, 1996,
December 28, 1997, and December 27, 1998 is as follows (in thousands):
<CAPTION>
1996 1997 1998
----- ------- -------
<S> <C> <C> <C>
Tax benefit computed at statutory rates......... $(425) $(1,162) $(1,025)
State taxes, net of federal effect.............. (47) (129) (114)
Other........................................... 12
Change in valuation allowance................... 371 1,363 1,144
----- ------- -------
$(101) $ 72 $ 17
===== ======= =======
</TABLE>
The tax effect of significant temporary differences representing deferred tax
assets is as follows as of December 28, 1997 and December 27, 1998 (in
thousands):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Current:
Preopening costs......................................... $ 108 $ 228
Accrued liabilities...................................... 131
Less valuation allowance................................. (108) (359)
------ ------
$ -- $ --
====== ======
Noncurrent:
Preopening costs and property and equipment.............. $ 400 $ 873
Call premium accretion................................... 65 84
Net operating loss carryforwards......................... 1,028 1,380
Other.................................................... 49
Less valuation allowance................................. (1,493) (2,386)
------ ------
$ -- $ --
====== ======
</TABLE>
6. EMPLOYEE BENEFIT PLANS
Effective with the spin-off of BUCA discussed in Note 1, the BUCA employee
stock ownership plan (ESOP) was established for the benefit of eligible
employees of BUCA. A pro rata portion of the assets held by the Parasole ESOT
were transferred to the BUCA ESOP as of that date, and the BUCA participants
became 100% vested in their accounts. The Parasole ESOT retained the entire
unallocated stock account and the entire obligation under the loan agreement
with the bank. The BUCA ESOP was frozen upon its establishment and no
contributions were made during fiscal 1997 or 1998. BUCA's pro rata portion of
compensation expense related to the Parasole ESOT was $50,000 in 1996.
F-14
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
BUCA has entered into a redemption agreement with Parasole whereby BUCA has
agreed to redeem at fair value shares of BUCA stock distributed by the Parasole
ESOT if no public market exists. Additionally, the BUCA stock held in the BUCA
ESOP must be redeemed by the Company in accordance with the plan agreement. At
December 28, 1997 and December 27, 1998, 504,702 and 97,227 shares were held in
the Parasole ESOT and BUCA ESOP, respectively. Such shares have been classified
as redeemable stock on the consolidated balance sheet.
Company employees with one year of service, age 21 or older, who worked at
least 1,000 hours in the prior year are eligible to participate in the
Company's 401(k) Plan. Under the provisions of the plan, the Company may, at
its discretion, make contributions to the 401(k) Plan. Participants are 100%
vested in their own contributions. No contributions were made by the Company
during 1996, 1997 or 1998.
7. COMMITMENTS AND CONTINGENCIES
Leases--The Company is obligated under various operating leases for restaurant
and storage space and equipment. Generally, the base lease terms are between 5
and 15 years. Certain of the leases provide for additional rents based on a
percentage of annual sales in excess of stipulated minimums. The leases also
require the Company to pay its pro rata share of real estate taxes, operating
expenses, and common area costs. In addition, the Company has received lease
incentives in connection with certain leases. The Company is recognizing the
benefits related to the lease incentives on a straight-line basis over the
applicable lease term. The Company has recorded deferred rent related to their
lease incentives of $17,000 and $239,000 as of December 28, 1997 and December
27, 1998, respectively.
Total rent expense, including real estate taxes, operating expenses, and
percentage rent, was $941,000, $1,754,000, and $3,812,000 in 1996, 1997, and
1998, respectively.
Approximate future minimum lease obligations, including units which are not yet
open and excluding percentage rents, at December 27, 1998, are as follows (in
thousands):
<TABLE>
<S> <C>
1999............................................................. $ 2,989
2000............................................................. 3,950
2001............................................................. 4,038
2002............................................................. 4,118
2003............................................................. 4,189
Thereafter....................................................... 29,405
-------
Total future minimum base rents.................................. $48,689
=======
</TABLE>
Litigation--The Company is subject to certain legal actions arising in the
normal course of business, none of which are expected to have a material effect
on the Company's results of operations, financial condition or cash flows.
8. RELATED-PARTY TRANSACTIONS
Management Agreement--The Company has entered into a management agreement with
Parasole to provide for certain management and administrative services. The
management agreement may be terminated by Parasole upon one year's written
notice and the Company may terminate the management agreement upon 60 days'
written notice. Management fees of approximately $354,000, $270,000, and
$248,000 were charged to operations in 1996, 1997, and 1998, respectively.
Purchase of Inventory--The Company has entered into a vendor relationship with
Parasole whereby the Company purchases bread products and a majority of the
dessert products offered at the Company's
F-15
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Minneapolis-Saint Paul metropolitan area restaurants. The Company purchases the
products at rates which management believes approximate market rates. The
relationship can terminate at any time at the discretion of the Company;
however, the Company expects this relationship to continue. The Company
purchased bakery products in the amount of $211,000, $180,000, and $169,000 in
1996, 1997, and 1998, respectively.
Employment Agreement--The Company entered into an employment agreement with one
of its officers which requires the payment of annual compensation and certain
fringe benefits through 2001 and includes bonus provisions in the form of both
a stock grant and stock options.
9. REDEEMABLE STOCK
Series A Preferred Stock Private Placement--During October 1996, the Company
issued 2,240,000 shares of Series A preferred stock in a private placement at
an offering price of $3.75 per share. This stock is convertible into 1,493,331
shares of common stock and the preferred shares are redeemable in cash on
October 1, 2003, 2004, and 2005 at the election of the holder and accumulate
dividends at a rate of $.2625 per share annually beginning October 24, 1996.
The shares are redeemable at $3.75 per share plus unpaid and accumulated
dividends. Accumulated undeclared dividends amounted to $699,000 and $1,287,000
at December 28, 1997 and December 27, 1998, respectively. Total liquidation
preference of outstanding shares is $3.75 per share plus, unpaid and
accumulated dividends. The Company received net proceeds of $7,614,000 after
the payment of $786,000 in related offering costs. The net proceeds were used
to pay off certain indebtedness and to fund expansion and operating expenses.
Series B Preferred Stock Private Placement--During 1997, the Company issued a
total of 1,922,222 shares of Series B preferred stock in a private placement at
an offering price of $4.50 per share. The stock is convertible into 1,281,477
shares of common stock and the preferred shares are redeemable in cash on
October 1, 2003, 2004, and 2005 at the election of the holder and accumulate
dividends at a rate of $.315 per share annually beginning September 3, 1997.
The shares are redeemable at $4.50 per share plus unpaid and accumulated
dividends. Accumulated undeclared dividends amounted to $197,000 and $802,000
at December 28, 1997 and December 27, 1998, respectively. Total liquidation
preference of outstanding shares is $4.50 per share plus, unpaid and
accumulated dividends. The Company received net proceeds of $8,537,000 after
the payment of $113,000 in related offering costs. The net proceeds were used
to fund expansion and operating expenses.
Series C Preferred Stock Private Placement--In October 1998, the Company sold
1,639,025 shares of Series C preferred stock in a private placement at an
offering price of $5.125 per share. The stock is convertible into 1,092,679
shares of common stock. In December 1998, the Company sold an additional
975,609 shares of Series C preferred stock at an offering price of $5.125 per
share. The stock is convertible into 637,752 shares of common stock. Preferred
shares are redeemable in cash on October 1, 2003, 2004, and 2005 at the
election of the holder and accumulate dividends at a rate of $.35875 per share
annually beginning October 13, 1998. The shares are redeemable at $5.125
(1,639,025 shares) and $5.22 (975,609 shares) per share plus unpaid and
accumulated dividends. Accumulated undeclared dividends amounted to $99,000 at
December 27, 1998. Total liquidation preference of outstanding shares is $5.125
(1,639,025) and $5.22 (975,609) per share plus, unpaid and accumulated
dividends. The Company received net proceeds of $12,958,000 after the payment
of $442,000 in related offering expenses. The net proceeds were used to fund
expansion, operating expenses, and pay off certain indebtedness.
Additionally, the purchasers of the Series C preferred stock received 2,614,634
"Contingent Value Rights" which entitles the holder to receive additional
shares of common stock if, on or prior to October 12, 2001, the Company has not
effected a qualified public offering or had a publicly traded security with an
average closing price of $18 per share for a period of at least 120 consecutive
trading days. In 1999, the Company agreed to
F-16
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
issue 40,195 shares of common stock contingent upon the completion of the
initial public offering (IPO) in exchange for an agreement which results in the
termination of the contingent value rights.
The Series A, B, and C preferred stock are automatically convertible to common
stock upon a public offering that meets each of the following requirements: (i)
the aggregate public offering price is $15 million, (ii) the public offering is
underwritten on a firm commitment basis by an underwriter that is a member of
the New York Stock Exchange, and (iii) the public offering price per share is
at least $18, except as one or more of such requirements may be modified or
waived by holders of two-thirds of the shares of preferred stock then
outstanding.
The carrying value of the preferred stock includes cumulative undeclared
dividends and the accretion to the redemption value.
10. SHAREHOLDERS' EQUITY
Stock Split--On February 17, 1999, the Company effected a two-for-three reverse
stock split which has been retroactively reflected in the consolidated
financial statements.
Warrants--The Company has issued warrants to placement agents and debt holders
in connection with the issuances of debt and equity securities. The warrants
are exercisable at various dates through September 2004. No warrants have been
exercised. The fair market value of the warrants were recorded as additional
paid-in capital. The excess of fair market value over exercise price is being
amortized over the respective debt maturity term. A summary of the Company's
common stock warrant activity is as follows:
<TABLE>
<CAPTION>
Number of Weighted
Common Average
Stock Price
Shares Per Share
--------- ---------
<S> <C> <C>
Warrants issued--Series A placement agents............ 104,532 $5.63
------- -----
Outstanding, December 31, 1996........................ 104,532 5.63
Warrants issued--Series B placement agents............ 33,333 6.75
Warrants issued--debt holders......................... 80,555 .01
------- -----
Outstanding, December 28, 1997........................ 218,420 3.73
Warrants issued--debt holders......................... 112,776 .01
------- -----
Outstanding and exercisable, December 27, 1998........ 331,196 $2.46
======= =====
</TABLE>
Additionally, the Company issued warrants to purchase 66,663 shares of common
stock at $.01 per share to the purchasers of Series B preferred stock. The
warrants vest upon completion of an IPO, but only if the public offering price
per share is less than $13.50.
Stock Option Plans--During 1996, the Company adopted the 1996 Incentive Stock
Option Plan (the 1996 Plan), pursuant to which options to acquire an aggregate
of 433,333 shares of the Company's common stock may be granted. Under the 1996
Plan, the Board of Directors may grant options to purchase shares of the
Company's stock to eligible employees for both incentive and nonstatutory stock
options. Options granted under the 1996 Plan vest as determined by the Board of
Directors and are exercisable for a term not to exceed ten years.
During 1998, the Board of Directors approved amendments to the 1996 Plan to
increase the number of shares available for issuance under the 1996 Plan to
1,000,000 shares.
F-17
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 1996, the Company adopted the 1996 Stock Option Plan for Nonemployee
Directors (the Directors' Plan) pursuant to which options to acquire an
aggregate of 26,666 shares of the Company's common stock may be granted to
outside directors. Under the Directors' Plan, 1,333 options will automatically
be granted to each outside director upon election to the Board of Directors,
and thereafter 666 options will be granted annually for each year of continued
service by the outside director. Options granted under the Directors' Plan vest
over one year from date of grant and are exercisable for ten years.
A summary of the status of the Company's stock options are presented in the
table and narrative below:
<TABLE>
<CAPTION>
Options
Weighted Available
Average for
Extended Price Future
Shares Price Range Grant
-------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Granted.......................... 13,331 $4.84 $4.50-5.63
-------- ----- ---------- -------
Outstanding, December 31, 1996... 13,331 4.84 1.13-5.63 413,335
=======
Granted.......................... 700,353 4.61 1.13-6.75
Terminated....................... (132,177) 1.25 1.13-5.63
-------- ----- ---------- -------
Outstanding, December 28, 1997... 581,507 5.38 1.13-6.75 111,826
=======
Granted.......................... 273,314 7.59 6.75-7.68
Terminated....................... (666) 7.68 7.68
-------- ----- ---------- -------
Outstanding, December 27, 1998... 854,155 $6.08 $1.13-7.68 172,511
======== ===== ========== =======
Exercisable, December 27, 1998... 212,109 $4.47 $1.13-7.68
======== ===== ==========
</TABLE>
During 1998, the Company granted 16,000 stock options to a landlord at a price
of $6.75 per share which were outside of the two stock option plans.
The Company has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed by APB Opinion No. 25 and related
interpretations. No compensation cost has been recognized for options issued to
employees under the Plans when the exercise price of the options granted are at
least equal to the fair value of the common stock on the date of grant. Had
compensation costs for these plans been determined consistent with SFAS No.
123, the Company's net loss would have been increased to the following pro
forma amounts for 1996, 1997, and 1998 (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Net loss applicable to common stock:
As reported.................................. $(4,800) $(5,305) $(5,135)
Pro forma.................................... (4,800) (5,773) (5,380)
Net loss per common share, basic and diluted:
As reported.................................. $ (1.96) $ (2.13) $ (2.04)
Pro forma.................................... (1.96) (2.32) (2.14)
</TABLE>
F-18
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
The fair value of each option grant for the pro forma disclosure required by
SFAS No. 123 is estimated on the grant date using the Black-Scholes option-
pricing model with the following assumptions and the results for the grants:
<TABLE>
<CAPTION>
1996 1997 1998
------- --------- ---------
<S> <C> <C> <C>
Dividend yield............................. None None None
Expected volatility........................ None None None
Expected life of option.................... 7 years 7 years 7 years
Risk-free interest rate.................... 6.38% 5.76-6.70% 4.63-5.68%
</TABLE>
Paisano Partners Program--On January 1, 1997, the Company implemented the
Paisano Partners program for certain restaurant employees. This program
requires restaurant general managers known as Paisano Partners to purchase
approximately $20,000 of the Company's common stock and they also receive stock
options. In addition, kitchen managers also receive stock options. The Company
allows the Paisano Partners the option to finance the initial stock purchase
over five years at an interest rate of 8%. At December 28, 1997 and December
27, 1998 the notes receivable balances related to this financing were $271,000
and $293,000, respectively, were included as contra-equity. At December 28,
1997 and December 27, 1998, 31,998 and 81,396 shares of common stock was issued
under this program.
11. SUPPLEMENTAL CASH FLOW INFORMATION
The following is supplemental cash flow information for the years ended:
<TABLE>
<CAPTION>
1996 1997 1998
----- ---- -----
<S> <C> <C> <C>
Cash paid during year for:
Interest.............................................. $ 359 $527 $ 714
Income taxes.......................................... 9 17
Noncash investing and financing activities:
Property and equipment additions financed through
capital lease obligation............................. 18 401
Shareholder receivable from issuance of common stock.. 275 160
Shareholder receivable reduction due to retirement of
stock................................................ 58
Escrow deposit transferred to property and equipment.. 551
Accretion of redeemable preferred stock to redemption
value................................................ 190 524 247
Dividends accrued on redeemable preferred stock....... 111 785 1,292
Change in value of redeemable common stock............ 3,386 677 650
</TABLE>
12. PRO FORMA SHAREHOLDERS' EQUITY
The redeemable preferred and common stock will convert to common or the
obligation to redeem shares will terminate in conjunction with the closing of a
initial public offering. Pro forma shareholders' equity represents the
conversion of redeemable preferred stock and the termination of the obligation
to redeem shares of common stock excluding the effect of any offering proceeds.
The pro forma adjustment does not include the 1999 $1.4 million extraordinary
loss on extinguishment of debt disclosed in Note 4.
F-19
<PAGE>
[Restaurant Menu]
Buon
Appetito!
BUCA(TM)
di BEPPO
<PAGE>
ANTIPASTI
Meant to be shared, Buca di Beppo antipasti ($5.95-$12.95) arrive in
family-style portions ("That's Italian family, not nuclear family" warns the
Seattle Post-Intelligencer). From our signature garlic bread to mussels
marinara, each boasts the powerful flavors of our immigrant southern
Italian roots.
GARLIC BREAD
BRUSCHETTA
ROASTED PEPPERS WITH GARLIC AND ANCHOVIES
FRIED CALAMARI
MUSSELS MARINARA
INSALATE
Overflowing from their platters right onto the table, Buca di Beppo
salads ($7.95-$13.95) will feed your family and all the in-laws.
A small Ceasar easily serves four, our signature "Beppo 1893" salad,
laden with imported mortadella, pepperoni, and pepperoncini --
has yet to be consumed in one sitting.
MIXED GREEN SALAD SMALL AND LARGE
MIXED GREEN SALAD SMALL AND LARGE
WITH PROSCIUTTO AND GORGONZOLA CHEESE
CEASAR SALAD SMALL AND LARGE
DI BEPPO "1893" SALAD
FRESH TOMATOES
WITH RED ONIONS, OLIVE OIL, AND BASIL
FRESH TOMATOES
WITH RED ONIONS, FRESH MOZZARELLA, BASIL, SALAMI AND MORTADELLA
NEAPOLITAN PIZZA
Bigger than the 1-by-2-foot slabs they're served on, Buca di Beppo
pizzas ($9.95 up to $17.95) evoke the best of Napoli,
with their purity and simplicity of both flavor and texture.
MARINARA
TOMATOES GARLIC, BASIL AND OREGANO (NO CHEESE)
CALABRESE
TOMATOES, POTATOES, ROSEMARY, OLIVES, ONIONS, PROCIUTTO AND
PECORINO CHEESE
ARRABBIATA
FOUR CHEESES, PEPPERONI, SAUSAGE, AND CARMELIZED ONIONS
MARGHERITA
TOMATOES, FRESH MOZZARELLA AND BASIL
PIZZA BIANCA
GORGONZOLA, PROVOLONE, MOZZARELLA, ROMANO AND RED ONIONS
PEPPERONI
WITH PEPPERONCINI
VEGETALE RUSTICA
EGGPLANT, ESCAROLE, ONIONS, TOMATOES, ARTICHOKES, BROCCOLI AND
PROVOLONE CHEESE
SAUSAGE AND MUSHROOMS
SIDE DISHES
Powerfully flavored and utterly fresh, each of our side dishes
($6.95-$8.95) demonstrates the vitality and simplicity of immigrant
southern Italian cooking. And each is meant for family-style sharing.
GARLIC MASHED POTATOES
ESCAROLE
SAUTEED WITH OLIVE OIL AND GARLIC
ONE OF OUR NICE POCKET PROTECTORS
MEAT BALLS (3)
GREENS AND BEANS
ESCAROLE, CANNELLINI BEANS AND TOMATOE SAUCE
ITALIAN SAUSAGE (4)
GREEN BEANS
WITH OLIVE OIL AND LEMON
A HANDY REFRIGERATOR MAGNET
PASTA
Portioned to withstand the most powerful appetites, Buca di Beppo
pastas ($7.95-$19.95) overwhelm with flavor. We make all sauces daily;
serve only imported, 100% durum semolina (two pounds to an order);
and slow-cook our meatballs in pure marinara.
SPAGHETTI MARINARA SMALL AND LARGE
SPAGHETTI MEAT SAUCE SMALL AND LARGE
SPAGHETTI AGLIO OLIO SMALL AND LARGE
WITH FRESH VEGETABLES AND GARLIC
SPAGHETTI MATRICIANA
TOMATOES, RED ONIONS, BACON & PECORINO ROMANO CHEESE
SPAGHETTI MEAT BALLS SMALL AND LARGE
LINGUINI CLAM SAUCE (RED OR WHITE) SMALL AND LARGE
LINGUINI FRUTTI DI MARE
MUSSELS, CLAMS AND CALAMARI
HOMEMADE RAVIOLI AL POMODORO
HOMEMADE RAVIOLI - MEAT SAUCE
RIGATONI POSITANO
WITH CHIKEN, EGGPLANT, MARINARA SAUCE AND FRESH MOZZARELLA
BUCA(TM) RIGATONI COUNTRY STYLE
WITH WHITE BEANS, SAUSAGE, RED ONIONS, BROCCOLI AND TOMATOES
MACARONI ROSA
WITH CHICKEN, BROCCOLLI, MUSHROOMS AND PEAS IN PINK SAUCE
TORTELLONI
WITH CREAM, MUSHROOMS, TOMATOES, PEAS, BROCCOLI
<PAGE>
ENTREES
If you're not Italian, you'll feel like one after partaking in entrees
($14.95-$19.95) like eggplant parmigiana, veal Marsala,
or our signature chicken cacciatore -- consisting of an entire bird,
served over garlic mashed potatoes, ladled with spicy cacciatore sauce.
EGGPLANT PARMIGIANA
CHICKEN WITH LEMON
CHICKEN PARMIGIANA
CHICKEN MARSALA WITH FRESH MUSHROOMS
CHICKEN CACCIATORE
OVER GARLIC MASHED POTATOES
BUCA(TM) CHICKEN VESUVIO
WHITE BEANS, SAUSAGE, OREGANO AND POTATOES
VEAL LIMONE
WITH WHITE BEANS, ESCAROLE AND LEMON SAUCE
VEAL MARSALA WITH FRESH MUSHROOMS
VEAL PARMIGIANA
DOLCI
One glimpse of our dolci ($5.95-$8.95) will goad you into
"joyous gluttony" (Pasadena Star News). One taste will justify
the indulgence--whether you order a slab of spumoni, a platter of
chocolate-drenched cannoli, or a quart-sized bowl of rum- and
espresso-soaked tiramisu.
SPUMONI
SPUMONI WITH CHOCOLATE SAUCE
CHOCOLATE CANNOLI (3)
BUCA(TM) BREAD PUDDING CARAMELLO
TIRAMISU
TORTA FORMAGGIO CON RASBERRY
BOTTLE OF LIMONCELLO
-----------------------------
WE PROUDLY FEATURE PERONI,
ITALY'S #1 BEER
<PAGE>
LIKE LITTLE ITALY IN THE '50S,
Buca di Beppo celebrates the hearty
cooking of southern Italian immigrants.
It's a place where meats and
pastas overflow from their HEALTH
plates right onto the table, INSPECTED
wine flows from the jug,
and laughter often drowns SANITARY
out the music. BATHROOMS
You'll smell the sauces before you reach
the door. Inside, Neapolitan pizzas, as grand as
our ovens can accommodate, pass before your
eyes. Family platters of ravioli al pomodoro and
chicken cacciatore. And our signature spaghetti
and meatballs, two pounds of pasta,
and ladles of fresh marinara sauce.
You won't have room for dessert, but
order some anyway -- maybe our house-made
tiramisu or chocolate cannoli, with three ricotta-
stuffed pastry shells, submerged in chocolate.
Looking for something on the lighter side?
Though buried under raspberries, the torta
formaggio is as white as snow.
This is real immigrant Italian food. Smell it,
taste it, wander into the kitchen to watch us
prepare it.
<PAGE>
"Joyous Gluttony"
"1998 Hot Concepts Award Winner" Pasadena Star News
Nation's Restaurant News
"BEST ITALIAN
BEST VALUE,
TOP 10 BEST"
Minneapolis-
St. Paul Magazine
Readers' Poll
Lynwood Eden Prairie Burnsville Minneapolis
[PHOTO OF [PHOTO OF [PHOTO OF
Seattle STORE EXTERIOR] STORE EXTERIOR] STORE EXTERIOR]
St. Paul
[MAP OF UNITED STATES WITH ARROWS
San Francisco POINTING OUT RESTAURANT LOCATIONS] Milwaukee
"Feeds an American hunger for community" Westlake
Palo Alto Minneapolis Star-Tribune
Indianapolis
Redondo Beach Louisville [PHOTO OF
[PHOTO OF STORE EXTERIOR]
STORE EXTERIOR] Lenexa Lombard
"Bawdy
informality
Encino Scottsdale Chicago Wheeling and delicious
[PHOTO OF [PHOTO OF [PHOTO OF [PHOTO OF Italian fare"
STORE EXTERIOR] STORE EXTERIOR] STORE EXTERIOR] STORE EXTERIOR] Chicago Tribune
Pasadena "Voted BEST New Restaurant" "WHERE TO EAT"
[PHOTO OF Pasadena Weekly Readers' Poll The New York Times
STORE EXTERIOR]
<PAGE>
[PHOTO OF MAN PEELING ARTICHOKE]
"Packed Like a Ravioli"
Indianapolis Star/News
"Boisterously BIG in every way"
Seattle Post-Intelligencer
"Best Pizza for Sharing"
Chicago
"Vital, vibrant and powerfully flavored"
San Jose Mercury News
"OUT-AND-OUT GOOD"
The Courier Journal
Louisville
<PAGE>
2,780,819 Shares
BUCA, INC.
Common Stock
---------------
PROSPECTUS
---------------
Until , all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
U.S. Bancorp Piper Jaffray
NationsBanc Montgomery Securities LLC
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Expenses in connection with the issuance and distribution of the shares of
Common Stock being registered hereunder, other than underwriting commissions
and expenses, are estimated below.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 10,591
NASD filing fee.................................................. 4,333
Nasdaq listing fee............................................... 53,700
Legal fees and expenses.......................................... 225,000
Accounting fees and expenses..................................... 225,000
Blue Sky fees and expenses....................................... 5,000
Printing expenses................................................ 210,000
Transfer agent fees and expenses................................. 15,000
Miscellaneous expenses........................................... 113,876
--------
Total........................................................ $862,500
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 302A.521 of the Minnesota Statutes requires the Company to indemnify a
person made or threatened to be made a party to a proceeding, by a reason of
the former or present official capacity of the person with respect to the
Company, against judgments, penalties, fines, including without limitation,
excise taxes assessed against the person with respect to an employee benefit
plan, settlements, and reasonable expenses, including attorneys' fees and
disbursements, if, with respect to the acts or omissions of the person
complained of in the proceeding, such person (1) has not been indemnified by
another organization or employee benefit plan for the same judgments,
penalties, fines, including without limitation, excise taxes assessed against
the person with respect to an employee benefit plan, settlements, and
reasonable expenses, including attorneys' fees and disbursements, incurred by
the person in connection with the proceeding with respect to the same acts or
omissions; (2) acted in good faith; (3) received no improper personal benefit,
and statutory procedure has been followed in the case of any conflict of
interest by a director; (4) in the case of a criminal proceeding, had no
reasonable cause to believe the conduct was unlawful; and (5) in the case of
acts or omissions occurring in the person's performance in the official
capacity of director or, for a person not a director, in the official capacity
of officer, committee member, employee or agent, reasonably believed that the
conduct was in the best interests of the Company, or in the case of performance
by a director, officer, employee or agent of the Company as a director,
officer, partner, trustee, employee or agent of another organization or
employee benefit plan, reasonably believed that the conduct was not opposed to
the best interests of the Company. In addition, Section 302A.521, subd. 3
requires payment by the Company, upon written request, of reasonable expenses
in advance of final disposition in certain instances. A decision as to required
indemnification is made by a majority of the disinterested Board of Directors
present at a meting at which a disinterested quorum is present, or by a
designated committee of disinterested directors, by special legal counsel, by
the disinterested shareholders, or by a court.
Insofar as indemnification for liabilities arising under the 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 Commission, such indemnification is against public policy as expressed in
the Act, and is therefore unenforceable.
Under the terms of the form of Purchase Agreement filed as Exhibit 1.1 hereto,
the Underwriters have agreed to indemnify, under certain conditions, the
Company, its directors, certain of its officers and persons who control the
Company within the meaning of the Act, against certain liabilities.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
During the past three years, the Company has sold the following securities
pursuant to exemptions from registration under the Act. The sales referred to
in numbers 1, 2, 3, 4, 6, 7, 12, 14, 15, 16, 17, 20, 21, 28, 30, 33, 34, 37,
39, 40 and 41 were made in reliance upon the exemptions from registration
provided under Section 4(2) of the Act for transactions not involving a public
offering and the sales referred to in numbers 5, 8, 9, 10, 11, 13, 18, 19, 22,
23, 24, 25, 26, 27, 29, 31, 32, 35, 36, 38 and 42 were made in reliance upon
the exemptions from registration provided pursuant to Rule 701 under the Act
for securities sold pursuant to certain compensatory benefit plans and
contracts relating to compensation, and related state securities laws. Unless
otherwise stated, all shares were issued directly by the Company, no
underwriters were involved and, except as otherwise noted below, no discount,
commission or other transaction-related remuneration was paid. Share figures
have been adjusted for the 2-for-3 reverse stock split that was effective on
February 17, 1999.
1. On August 27, 1996, the Company granted options to purchase an
aggregate of 9,332 shares of the Company's common stock at $4.50 per
share to two of the Company's directors.
2. On October 23, 1996, the Company issued warrants to purchase an
aggregate of 156,800 shares of its Series A Convertible Preferred
Stock convertible into 104,532 shares of common stock at $5.625 per
common share to U.S. Bancorp Piper Jaffray Inc. and Michael Bochert.
3. On October 23, 1996, the Company issued 2,240,000 shares of its Class
A Convertible Preferred Stock convertible into 1,493,331 shares of
common stock to outside investors for $8,400,000 or $5.625 per common
share.
4. On October 24, 1996, the Company granted options to purchase an
aggregate of 3,999 shares of the Company's common stock at $5.625 per
share to the Company's directors.
5. On February 1, 1997, the Company granted options to purchase an
aggregate of 78,331 shares of the Company's common stock at $5.625
per share to employees of the Company.
6. On February 1, 1997, the Company granted options to purchase 122,854
shares of the Company's common stock at $1.125 per share to Joseph P.
Micatrotto under the terms of his employment agreement with the
Company.
7. On February 1, 1997, the Company sold 16,000 shares of common stock
to Joseph P. Micatrotto under the terms of his employment agreement
with the Company for $90,000 or $5.625 per share.
8. On February 6, 1997, the Company granted options to purchase 33,333
shares of the Company's common stock at $5.625 per share to an
employee of the Company.
9. On March 1, 1997, the Company granted options to purchase 13,333
shares of the Company's common stock at $5.625 per share to an
employee of the Company.
10. On April 21, 1997, the Company sold an aggregate of 31,995 shares of
common stock to employees of the Company for $179,998.75 or $5.625
per share.
11. On June 1, 1997, the Company granted options to purchase an
aggregate of 4,000 shares of the Company's common stock at $5.625
per share to two of the Company's employees.
12. On July 8, 1997, the Company granted options to purchase 1,333
shares of the Company's common stock at $5.625 per share to a
director of the Company.
13. On August 1, 1997, the Company granted options to purchase 13,333
shares of the Company's common stock at $5.625 per share to an
employee of the Company.
14. On September 3, 1997, the Company issued warrants to purchase 50,000
shares of the Company's Class B Convertible Preferred Stock
convertible into 33,333 shares of common stock at $6.75 per common
share to U.S. Bancorp Piper Jaffray Inc.
II-2
<PAGE>
15. On September 3, 1997, the Company sold an aggregate of 961,000
shares of its Class B Convertible Stock convertible into 640,739
shares of common stock to outside investors for $4,324.999.50 or
$6.75 per common share.
16. On October 24, 1997, the Company granted options to purchase an
aggregate of 1,332 shares of common stock at $6.75 per share to
directors of the Company.
17. On October 31, 1997, the Company issued warrants to purchase an
aggregate of 147,218 shares of the Company's common stock at $0.01
per share to its investors and lenders in connection with the
Company's subordinated debt transaction.
18. On November 4, 1997, the Company granted options to purchase an
aggregate of 214,327 shares of the Company's common stock at $6.75
per share to employees of the Company.
19. On December 18, 1997, the Company sold an aggregate of 11,848 shares
of common stock to employees of the Company for $79,992, or $6.75
per share.
20. On December 18, 1997, the Company granted options to purchase 51,511
shares of the Company's common stock at $1.125 per share and options
to purchase 186,666 shares of the Company's common stock at $5.675
per share to Joseph P. Micatrotto under the terms of his employment
agreement with the Company.
21. On December 19, 1997, the Company sold an aggregate of 961,000
shares of Series B Convertible Preferred Stock convertible into
640,739 shares of common stock to outside investors for
$4,324,999.50 or $6.75 per common share.
22. On January 1, 1998, the Company sold 2,962 shares of common stock to
an employee of the Company for $20,000, or $6.75 per share.
23. On February 1, 1998, the Company sold 5,924 shares of common stock
to an employee of the Company for $40,000, or $6.75 per share.
24. On February 1, 1998, the Company granted options to purchase 2,000
shares of the Company's common stock at $6.75 per share to an
employee of the Company.
25. On March 1, 1998, the Company sold 2,962 shares of common stock to
an employee of the Company for $20,000, or $6.75 per share.
26. On April 28, 1998, the Company granted options to purchase 13,333
shares of the Company's common stock at $6.75 per share to an
employee of the Company.
27. On May 1, 1998, the Company granted options to purchase 2,000 shares
of the Company's common stock at $6.75 per share to an employee of
the Company.
28. On May 18, 1998, the Company issued warrants to purchase an
aggregate of 112,776 shares of the Company's common stock at $0.01
per share to its lenders in connection with the Company's
subordinated debt transaction.
29. On June 1, 1998, the Company granted options to purchase an
aggregate of 10,000 shares of the Company's common stock at $6.75
per share and sold 8,886 shares of the Company's common stock for
$60,000, or $6.75 per share, to employees of the Company.
30. On July 1, 1998, the Company granted options to purchase 666 shares
of the Company's common stock at $6.75 per share to a director of
the Company.
II-3
<PAGE>
31. On September 1, 1998, the Company granted options to purchase an
aggregate of 8,000 shares of the Company's common stock at $6.75 per
share to employees of the Company.
32. On September 1, 1998, the Company sold an aggregate of 10,404 shares
of common stock to employees of the Company for $80,000, or $6.75
per share.
33. On October 13, 1998, the Company sold an aggregate of 1,639,025
shares of its Series C Convertible Preferred Stock convertible into
1,092,679 shares of common stock to outside investors for
$8,400,007.02 or $7.6875 per common share.
34. On October 24, 1998, the Company granted options to purchase 1,332
shares of the Company's common stock at $7.6875 per share to
directors of the Company.
35. On October 27, 1998, the Company sold 2,601 shares of common stock
to an employee of the Company for $20,000 or $7.6875 per share.
36. On October 27, 1998, the Company granted options to purchase an
aggregate of 235,983 shares of the Company's common stock at $7.6875
per share to employees of the Company.
37. On December 23, 1998, the Company issued 975,609 shares of its
Series C Convertible Preferred Stock convertible into 637,752 shares
of common stock to outside investors, for $5,000,000 or $7.84 per
common share.
38. On January 26, 1999, the Company granted options to purchase 3,333
shares of the Company's common stock at $7.6875 per share to an
employee at the Company.
39. On February 15, 1999, the Company granted options to purchase 48,000
shares of the Company's common stock at $11.25 per share to
directors of the Company.
40. On February 15, 1999, the Company granted options to purchase
126,666 shares of the Company's common stock at $11.25 per share to
Joseph P. Micatrotto.
41. On February 15, 1999, the Company agreed to issue 40,195 shares of
the Company's common stock to holders of the Series C Preferred
Stock in connection with the conversion of the Series C Preferred
Stock.
42. On April 15, 1999, the Company sold 10,434 shares of common stock to
employees of the Company for $120,000 or $11.50 per share and
granted options to purchase 18,000 shares of the Company's common
stock at $11.50 per share to employees of the Company.
II-4
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Amended and Restated Articles of Incorporation of the Registrant.
*3.2 Amendment to Amended and Restated Articles of Incorporation of the
Registrant.
*3.3 By-Laws of the Registrant.
*3.4 Amended and Restated Articles of Incorporation of the Registrant,
adopted subject to completion of this offering.
*3.5 Amended and Restated By-Laws of the Registrant, adopted subject to
completion of the offering.
*4.1 Specimen of Common Stock certificate.
*5.1 Opinion of Faegre & Benson LLP.
*10.1 1996 Stock Incentive Plan of BUCA, Inc. and Affiliated Companies.
*10.2 Stock Option Plan for Non-Employee Directors
*10.3 BUCA, Inc. Employee Stock Ownership Plan.
*10.4 BUCA, Inc. 401(k) Plan.
*10.5 Employment Agreement dated as of July 22, 1996, between the
Registrant and Joseph P. Micatrotto, including amendments and
option agreements related thereto.
*10.6 Letter Agreement dated April 1, 1997 between the Registrant and
Greg A. Gadel.
*10.7 Credit Agreement dated as of February 5, 1999 between the
Registrant, as Borrower, and U.S. Bank National Association, as
Lender.
*10.8 Security Agreement dated as of February 5, 1999 by the Registrant,
in favor of U.S. Bank National Association.
*10.9 Form of Series A Convertible Subordinated Debenture due July 30,
2001 of the Registrant.
*10.10 Form of Stock Purchase Warrant for the purchase of Series A
Convertible Preferred Stock of the Registrant.
*10.11 Form of Stock Purchase Warrant for the purchase of Series B
Convertible Preferred Stock of the Registrant.
*10.12 Form of Stock Purchase Warrant dated as of October 31, 1997.
*10.13 Form of Stock Purchase Warrant for the purchase of common stock of
the Registrant, dated October 31, 1997.
*10.14 Form of Stock Purchase Warrant for the purchase of common stock of
the Registrant, dated May 19, 1998.
*10.15 Non-Statutory Stock Option Agreement between the Registrant and
1204 Harmon Partnership for the purchase of 24,000 shares of
common stock of the Registrant, dated as of June 1, 1998.
*10.16 Stock Purchase Agreement dated as of September 2, 1997 between the
Registrant and the Purchasers.
*10.17 Securities Purchase Agreement dated as of October 13, 1998 between
the Registrant and the Purchasers.
*10.18 Redemption Agreement between BUCA, Inc. and Parasole Restaurant
Holdings, Inc. regarding the Parasole Employee Stock Ownership
Plan.
*10.19 Form of BUCA, Inc. Contingent Value Rights to Receive Shares of
Capital Stock.
*10.20 Amended and Restated Employment Agreement dated as of February 17,
1999, between the Registrant and Joseph P. Micatrotto.
*21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Deloitte & Touche LLP.
*23.3 Consent of Faegre & Benson LLP (included in Exhibit No. 5.1 to the
Registration Statement).
*24.1 Powers of Attorney.
*27.1 Financial Data Schedule.
</TABLE>
* Previously filed
(b) Financial Statement Schedules
None required.
II-5
<PAGE>
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the Company
pursuant to the provisions summarized in Item 14 above, or otherwise, the
Company has been advised that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification is
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 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.
The undersigned Company hereby undertakes to provide to the Underwriters, at
the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Act, the information
omitted from 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 Company under Rule 424(b)(1) or (4) or 497(h) under the Act
shall be deemed to be part of this registration statement as of the time it
was declared effective.
(2) For the purpose of determining any liability under the 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.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 3 to the registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on April 16, 1999.
BUCA, INC.
/s/ Joseph P. Micatrotto
By___________________________________
Joseph P. Micatrotto
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
3 to the Registration Statement has been signed by the following persons in the
capacities indicated on April 16, 1999.
Signature Title
/s/ Joseph P. Micatrotto President and Chief Executive
_____________________________________ Officer
Joseph P. Micatrotto (Principal Executive Officer) and
Director
/s/ Greg A. Gadel
_____________________________________ Chief Financial Officer
Greg A. Gadel (Principal Financing and Accounting
Officer)
Don W. Hays Board of Directors
Peter J. Mihajlov
Philip A. Roberts
John P. Whaley
David Yarnell
Paul Zepf
- --------
* Joseph P. Micatrotto, by signing his name hereto, does hereby sign this
document on behalf of each of the above-named officers and/or directors of
the Company pursuant to powers of attorney duly executed by such persons.
/s/ Joseph P. Micatrotto
By___________________________________
Joseph P. Micatrotto, Attorney-in-
Fact
II-7
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Minneapolis, Minnesota ARTHUR ANDERSEN LLP
April 16, 1999
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No. 333-
72593 of BUCA, Inc. and Subsidiaries on Form S-1 of our report dated February
17, 1999 appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
Minneapolis, Minnesota
April 15, 1999
/s/ Deloitte & Touche LLP
