IL FORNAIO AMERICA CORP, S-1/A, 1997-08-22

IL FORNAIO AMERICA CORP
S-1/A, 1997-08-22
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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 1997

REGISTRATION NO. 333-23605
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

IL FORNAIO (AMERICA) CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

<TABLE>
<S> <C> <C>
CALIFORNIA (PRIOR TO
REINCORPORATION)
DELAWARE (AFTER REINCORPORATION) 5812 94-2766571
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

------------------------

1000 SANSOME STREET, SUITE 200
SAN FRANCISCO, CALIFORNIA 94111
(415) 986-1505
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

LAURENCE B. MINDEL
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
IL FORNAIO (AMERICA) CORPORATION
1000 SANSOME STREET, SUITE 200
SAN FRANCISCO, CALIFORNIA 94111
(415) 986-1505
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------

COPIES TO:

<TABLE>
<S> <C>
KENNETH L. GUERNSEY PETER LILLEVAND
CYDNEY S. POSNER LOWELL D. NESS
JAMES R. VIDANO ANDREW P. JOHNSON
LAURA M. RANDALL ORRICK, HERRINGTON & SUTCLIFFE LLP
COOLEY GODWARD LLP 400 SANSOME STREET
ONE MARITIME PLAZA, 20TH FLOOR SAN FRANCISCO, CA 94111
SAN FRANCISCO, CA 94111 (415) 392-1122
(415) 693-2000
</TABLE>

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement number for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

================================================================================
<PAGE> 2

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.

SUBJECT TO COMPLETION, DATED AUGUST 22, 1997

1,500,000 SHARES

[IL FORNAIO LOGO]
COMMON STOCK

Of the 1,500,000 shares of Common Stock offered hereby, 1,000,000 are being
sold by Il Fornaio (America) Corporation ("Il Fornaio" or the "Company") and
500,000 are being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders.

Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $9.00 and $10.50 per share. See "Underwriting" for a
discussion of factors to be considered in determining the initial public
offering price. The Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "ILFO."

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<S> <C> <C> <C> <C>
==========================================================================================
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount(1) Company (2) Stockholders
- ------------------------------------------------------------------------------------------

Per Share......... $ $ $ $
Total(3).......... $ $ $ $
==========================================================================================
</TABLE>

(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $850,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 225,000 shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to Public will total $ , the Underwriting Discount will
total $ and the Proceeds to Company will total $ . See
"Underwriting."

The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1997.

------------------------

MONTGOMERY SECURITIES ALEX. BROWN & SONS
INCORPORATED

, 1997
<PAGE> 3

[PHOTOGRAPH OF A TABLE DISPLAYING ASSORTED

BREADS AND PASTRIES, AN ITALIAN NEWSPAPER,

A PAIR OF GLASSES, AN ESPRESSO MAKER, A COFFEE CUP

AND IL FORNAIO BRAND RETAIL PRODUCTS,

INCLUDING PACKAGES OF PASTA AND BOTTLES OF WINE]

IL FORNAIO'S MISSION

IS TO PROVIDE OUR CUSTOMERS WITH

THE MOST AUTHENTIC ITALIAN EXPERIENCE OUTSIDE OF ITALY.

We realize our mission by being students and teachers of Italian
culinary traditions,

preparations and presentations, infusing our heritage into
everything we do.

We realize our mission by putting our employees first so that
our customers can
come first.

We realize our mission by executing a profitable business
strategy that rewards our
shareholders without compromising the quality of our products.

We realize our mission by developing an atmosphere of
camaraderie and fun in all
our endeavors, of celebrating everyday the Italian in all of us.

------------------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF
PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."

<PAGE> 4
[IL FORNAIO LOGO]

[Photograph of main dining room [Photograph of exterior of
in Beverly Hills restaurant] Las Vegas restaurant]

Beverly Hills Las Vegas

[Photograph of main dining room [Photograph of retail bakery in
and bar area in Irvine restaurant] Burlingame restaurant]

Irvine Burlingame

[Photograph of main dining room and [Graphic depictions of
outdoor patio in Portland restaurant] Il Fornaio's Bakerman logo]

Portland
<PAGE> 5
[Photograph of main dining room [Photograph of the loggia in
and sunroom in Carmel restaurant] Sacramento restaurant]

Carmel-by-the-Sea Sacramento

[Photograph of main dining room [Photograph of bar area in
in Corte Madera restaurant] San Jose Restaurant]

Corte Madera San Jose

[Photograph of main dining room
in San Francisco restaurant
overlooking outdoor plaza]

San Francisco
<PAGE> 6

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. Except as set forth in the financial statements or as
otherwise indicated herein, information in this Prospectus (i) gives effect to
the anticipated reincorporation of the Company from California to Delaware to be
effected prior to the closing of this offering, (ii) reflects the conversion of
all of the Company's outstanding shares of Preferred Stock into shares of Common
Stock, which will occur automatically upon the closing of this offering, and
(iii) assumes that the Underwriters' over-allotment option is not exercised. See
"Description of Capital Stock" and "Underwriting."

This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual events or results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.

THE COMPANY

Il Fornaio owns and operates 13 full-service, white tablecloth Italian
restaurants serving creatively prepared, premium quality Italian cuisine based
on authentic regional recipes. The Company's restaurants offer an extensive
menu, featuring house-made and imported pasta, poultry and game roasted over a
wood-fired rotisserie, meat and fresh fish from a charcoal grill, pizza from a
wood-burning oven, soups, salads and desserts. Il Fornaio's menu is
distinguished by fresh, hand-made breads, pastries and other baked goods that
are produced in the Company's restaurants and five wholesale bakeries. Il
Fornaio's wholesale bakeries also sell baked goods to quality grocery stores,
specialty retailers, hotels and other fine restaurants. In addition, the Company
operates a retail market in each restaurant, which sells baked goods, prepared
foods and a variety of Il Fornaio-brand products, allowing guests to recreate
the Il Fornaio dining experience at home.

The Company's objectives are to offer guests the most authentic Italian
dining experience available outside of Italy and to establish a brand identity
that provides a competitive advantage in every market in which the Company
operates. The Company's strategy to achieve these objectives includes the
following key elements: (i) serve premium quality, authentic regional Italian
cuisine created by native-born Italian chefs and complemented by hand-made Il
Fornaio baked goods; (ii) build brand awareness through its wholesale bakeries
and retail markets, which reinforce the Company's image as a provider of premium
quality, authentic Italian food and enable guests to recreate the Il Fornaio
dining experience at home; (iii) create a distinctive authentic Italian
atmosphere with restaurant designs unique to each location; (iv) consistently
execute Il Fornaio's high standards of food quality, service and cleanliness
through its employee-designed Five Star Service Program; and (v) foster a strong
corporate culture which attracts and retains highly qualified management, chefs
and hourly employees. The Company believes that these elements, combined with an
average check per guest of $20.93, provide an excellent dining value.

The Company operates 11 restaurants in California and has most recently
opened restaurants in Portland and Las Vegas. The Company believes that its
restaurants provide superior unit economics. In 1996, the Company's 10
comparable restaurants generated average sales of approximately $4.5 million and
average cash flow of approximately $884,000, or 19.9% of restaurant sales. Since
1991, the Company's total investment per restaurant, net of landlord
contributions, has averaged approximately $1.7 million, with additional average
pre-opening costs per restaurant of approximately $200,000. The restaurants
range in size from 5,000 to 10,900 square feet, seat between 76 and 220 guests
and serve both lunch and dinner.

Il Fornaio intends to develop restaurants in both existing and new
geographic markets and to locate restaurants at sites in affluent urban and
suburban areas. The flexibility of the Il Fornaio concept enables the Company to
develop successful restaurants in a variety of locations, including residential
neighborhoods, shopping centers, office buildings and hotels. The Company
intends to open one additional restaurant in 1997 in Denver and three new
restaurants in 1998, including locations in Santa Monica and Seattle, for which
leases have been signed. The Company expects that its planned future restaurants
will generally range in size from 7,000 to 10,000 square feet and will require,
on average, a total investment by the Company per restaurant, net

3
<PAGE> 7

of anticipated landlord contributions, of approximately $1.7 million, with
additional average pre-opening costs per restaurant of approximately $200,000.

Il Fornaio's business and expansion strategy has been developed and
implemented by an experienced senior management team with a record of successful
restaurant operations. In 1987, Laurence B. Mindel joined the Company as
Chairman, Chief Executive Officer and President, after spending over 15 years at
Spectrum Foods, where he created and operated innovative restaurants throughout
California, including Chianti, MacArthur Park, Harry's Bar and American Grill,
Ciao, Prego and Guaymas. In 1995, Michael J. Hislop joined the Company as
President and Chief Operating Officer, after serving as Chairman and Chief
Executive Officer of Chevy's Mexican Restaurants for four years and guiding its
expansion from 17 to 63 restaurants. These individuals, along with the seven
other members of senior management, have over 150 years of combined experience
in the restaurant and bakery businesses. Because of the experience level of its
senior management, the Company believes it has a competitive advantage in its
industry with respect to concept development and execution, site selection, unit
operations, training, product quality and service.

The Company was incorporated in California in June 1980, and intends to
reincorporate in Delaware prior to the closing of this offering. The Company's
executive office is located at 1000 Sansome Street, Suite 200, San Francisco,
California 94111. The Company's telephone number is (415) 986-1505.

Il Fornaio(R) and the Il Fornaio logo are registered marks of the Company
and Festa Regionale and Passaporto are marks used and owned by the Company.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company............... 1,000,000 shares
Common Stock offered by the Selling
Stockholders.................................... 500,000 shares
Common Stock to be outstanding after the
offering........................................ 5,582,891 shares(1)
Use of proceeds................................... To finance the development of additional
restaurants and for general corporate purposes.
Proposed Nasdaq National Market symbol............ ILFO
</TABLE>

- ---------------

(1) Excludes, as of August 15, 1997, outstanding options to purchase 980,295
shares of Common Stock and outstanding warrants to purchase 32,487 shares of
Common Stock. See "Management -- Employee Benefit Plans" and "Description of
Capital Stock -- Warrants."

4
<PAGE> 8

SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE, OPERATING AND FOOTNOTE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED(1) ------------------
------------------------------------------------------------------------ JUNE
DECEMBER 27, DECEMBER 29, DECEMBER 25, DECEMBER 31, DECEMBER 29, JUNE 30, 29,
1992 1993 1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Restaurants................. $ 30,737 $ 42,402 $ 39,485 $ 43,647 $ 50,599 $ 24,733 $32,116
Wholesale bakeries.......... 4,049 4,328 4,951 5,181 6,016 2,891 3,150
Retail bakeries............. 3,727 4,866 5,208 5,312 4,137 2,600 311
------- ------- ------- ------- ------- ------- -------
Total revenues....... 38,513 51,596 49,644 54,140 60,752 30,244 35,577
Income (loss) from
operations(2)............... 716 (2,670) 2,300 2,013 2,224 1,125 2,111
Income (loss) before provision
(benefit) for income
taxes....................... 687 (2,820) 2,247 2,072 2,351 1,169 2,220
Provision (benefit) for income
taxes(3).................... 6 70 332 (2,432) 898 476 915
Net income (loss)............. 681 (2,890) 1,915 4,504 1,453 693 1,305
Net income (loss) per share
(fully diluted)............. $ 0.20 $ (0.67) $ 0.43 $ 1.00 $ 0.32 $ 0.16 $ 0.27
Weighted average common shares
outstanding (fully
diluted).................... 3,424 4,344 4,477 4,499 4,839 4,809 5,037
OPERATING DATA:
Comparable restaurant sales
increase (decrease)(4)...... 1.5% (4.8%) (3.4%) (1.7%) 4.8% 2.9% 6.1%
Restaurants open at end of
period(5)................... 9 9 9 11 12 12 13
Wholesale bakeries open at end
of period................... 5 6 6 6 6 6 5
Retail bakeries open at end of
period(6)................... 6 9 8 8 4 8 --
</TABLE>

<TABLE>
<CAPTION>
JUNE 29, 1997
------------------------------
ACTUAL AS ADJUSTED(7)
------------ ---------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................... $ 1,116 $ 9,333
Total assets...................................................................... 37,180 45,397
Long-term debt (excluding current portion)........................................ -- --
Stockholders' equity.............................................................. 24,489 32,706
</TABLE>

- ---------------
(1) All years reported include 52 weeks, except the year ended December 31,
1995, which includes 53 weeks.

(2) Includes (i)a $2.3 million pre-tax charge recorded in 1993 associated with
the Company's decision to dispose of its restaurant in Costa Mesa and a
free-standing retail bakery in Los Angeles, (ii) a $932,000 pre-tax charge
recorded in 1995 associated with the default by the buyer of the Company's
Etrusca restaurant and (iii) a $470,000 pre-tax reversal of the 1993 reserve
recorded in the first six months of 1997 associated with the disposition of
the Company's Costa Mesa restaurant.

(3) Includes a tax benefit of $2.7 million recorded in 1995 as a result of the
recognition of deferred tax assets. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."

(4) A new restaurant is included in the calculation of the change in comparable
restaurant sales after the first full month following the eighteenth month
of that restaurant's operation.

(5) During 1993, the Company opened two new restaurants and commenced the
disposition of two existing restaurants that differed from the Il Fornaio
restaurant concept. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Closure of Non-Core Operations."

(6) Reflects the disposition of four of the Company's free-standing retail
bakeries in the third quarter of 1996 and the disposition of the Company's
four remaining free-standing retail bakeries in the first quarter of 1997.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Closure of Non-Core Operations."

(7) As adjusted to reflect the sale of 1,000,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $9.75
per share and the application of the estimated net proceeds therefrom.

5
<PAGE> 9

RISK FACTORS

In addition to the other information in this Prospectus, prospective
investors should carefully consider the following risk factors in evaluating an
investment in the Company and its business before purchasing any shares of
Common Stock offered hereby. This Prospectus contains forward-looking statements
which involve risks and uncertainties. Prospective investors are cautioned that
actual events or results may differ materially from those discussed in the
forward-looking statements. Factors that might cause actual events or results to
differ materially from those indicated by such forward-looking statements may
include the matters set forth below and elsewhere in this Prospectus.

UNCERTAINTIES ASSOCIATED WITH FUTURE GROWTH

The Company has experienced limited growth in recent years, expanding from
nine restaurants at the end of 1993 to 12 restaurants at the end of 1996. The
Company is currently pursuing a more aggressive growth strategy. To date in
1997, the Company has opened its Las Vegas restaurant and a 12,000-square foot
wholesale bakery in Burlingame, California. The Company expects to open a
restaurant in Denver in the fourth quarter of 1997 and expects to open three
restaurants in 1998. The Company's ability to expand successfully will depend on
a number of factors, including the identification and availability of suitable
locations, the negotiation of favorable lease arrangements, timely development
and construction of any new shopping center, hotel or other site in which the
restaurant or bakery may be located, management of the costs of construction and
development of new restaurants and bakeries, securing required governmental
approvals and permits, recruitment of qualified operating personnel
(particularly managers and chefs), general economic conditions and other
factors, some of which are beyond the control of the Company. Moreover, the
opening of additional restaurants and bakeries in the future will depend, in
part, upon the Company's ability to generate sufficient funds from existing
operations or to obtain sufficient equity or debt financing on favorable terms
to support such expansion. There can be no assurance that the Company will be
successful in addressing these risks in each case, that the Company will be able
to open all of its planned new operations on a timely basis, if at all, or, if
opened, that those operations will be operated profitably. Delays in opening, or
failure to open, planned new restaurants could have a material adverse effect on
the Company's business, financial condition and results of operations.

The Company's growth strategy may place a strain on the Company's
management, financial and other resources. To manage its growth effectively, the
Company must maintain its high level of quality and service at its existing and
future restaurants, continue to enhance its operational, financial and
management systems, and locate, hire, train and retain experienced and dedicated
operating personnel, particularly managers and chefs. There can be no assurance
that the Company will be able to effectively manage this expansion in any one or
more of these areas, and any failure to do so could have a material adverse
effect on the Company's business, financial condition and results of operations.

RISKS ASSOCIATED WITH SMALL OPERATIONS BASE

The Company currently operates 13 restaurants. Because of the relatively
small number of restaurants operated by the Company, adverse results experienced
by any one location could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's Las Vegas
restaurant opened in January 1997 and has performed at levels above that of any
other restaurant previously opened by the Company. There can be no assurance
that the Las Vegas restaurant will continue to perform at the level achieved to
date. In addition, the results achieved to date by the Company's relatively
small number of restaurants may not be indicative of those restaurants'
long-term performance or the potential market acceptance of restaurants in other
geographic locations.

GEOGRAPHIC CONCENTRATION

Eleven of the Company's 13 restaurants are located in California. Because
of this geographic concentration, the Company is susceptible to local and
regional risks, such as increased government regulation, adverse economic
conditions, adverse weather conditions, earthquakes and other natural disasters,
any of which could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, in light of the
Company's current geographic concentration, adverse publicity relating to the

6
<PAGE> 10

Company's restaurants could have a more pronounced adverse effect on the
Company's overall sales than might be the case if the Company's restaurants were
more broadly dispersed.

The Company has opened only two restaurants located outside of California.
Over the next several years, the Company expects that some of its expansion will
involve opening restaurants in other states. Expansion into new geographic
regions involves a number of risks, in addition to those identified above,
including uncertainties related to local customs, demographics, legal
requirements, wages, costs and other economic conditions, the need to develop
relationships with local distributors and suppliers for fresh produce and other
ingredients, and potential difficulties related to management of operations
located in a number of broadly dispersed locations. There can be no assurance
that the Company will be successful in addressing these risks in each case, that
the Company will be able to open all of its planned new operations on a timely
basis, if at all, or, if opened, that those operations will be operated
profitably. Delays in opening, or failure to open, planned new restaurants could
have a material adverse effect on the Company's business, financial condition
and results of operations.

FLUCTUATIONS IN OPERATING RESULTS

The Company's quarterly operating results may fluctuate significantly as a
result of a variety of factors, including general economic conditions, consumer
confidence in the economy, changes in consumer preferences, competitive factors,
weather conditions, the timing of new restaurant openings and related expenses,
net sales contributed by new restaurants and increases or decreases in
comparable restaurant revenues. For example, weather conditions have generally
had the most significant adverse impact in the first quarter of each year. Due
to the foregoing factors, results for any one quarter are not necessarily
indicative of results to be expected for any other quarter or for any year and,
from time to time in the future, the Company's results of operations may be
below the expectations of public market analysts and investors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results."

A variety of factors also affect the Company's comparable restaurant sales
results, including general economic conditions, consumer confidence in the
economy, changes in consumer preferences, competitive factors, weather
conditions and the Company's ability to execute its business strategy. The
Company had a 4.8% increase in comparable restaurant sales in 1996. While that
trend has continued in 1997 (comparable restaurant sales were up 6.1% for the
first half of 1997 as compared to the corresponding period in 1996), no
assurance can be given that comparable restaurant sales for any particular
future period will not decrease.

CHANGES IN FOOD AND LABOR COSTS

The Company's profitability is dependent in part on its ability to
anticipate and react to changes in food and labor costs. Various factors beyond
the Company's control, including adverse weather conditions and governmental
regulation, may affect the Company's food costs. There can be no assurance that
the Company will be able to anticipate and react to changing food costs through
its purchasing practices and menu price adjustments in the future, and failure
to do so could have a material adverse effect on the Company's business,
financial condition and results of operations.

A substantial number of the Company's employees are subject to various
minimum wage requirements. Many of the Company's employees work in restaurants
located in California and receive salaries equal to the California minimum wage.
In November 1996, California voters approved a proposal that raised the minimum
wage in California to $5.00 an hour effective March 1, 1997 and will increase it
to $5.75 an hour effective March 1, 1998. There can be no assurance that similar
proposals will not come before the voters in other jurisdictions in which the
Company operates or seeks to operate. In addition, recent federal legislation
increased the federal minimum wage from $4.25 an hour to $4.75 effective October
1, 1996 and will raise the minimum wage again to $5.15 effective September 1,
1997. In the fourth quarter of 1996, the Company introduced its first menu price
increase in three years due, in part, to increases in labor costs. There can be
no assurance that the Company will be able to pass additional increases in labor
costs through to its guests in the form of menu price adjustments in the future
and, accordingly, such minimum wage increases could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

7
<PAGE> 11

DEPENDENCE ON KEY PERSONNEL

The success of the Company's business will continue to be highly dependent
on its key operating officers and employees, including Laurence B. Mindel, the
Company's Chairman of the Board and Chief Executive Officer, and Michael J.
Hislop, the Company's President and Chief Operating Officer. The Company
currently maintains a $5.0 million term life insurance policy covering Mr.
Mindel and a $3.0 million term life insurance policy covering Mr. Hislop. The
Company's success in the future will be dependent on its ability to attract,
retain and motivate qualified management and operating personnel, including
restaurant managers and chefs. Failure by the Company to attract and retain such
key employees in the future could have a material adverse effect on the
Company's business, financial condition and results of operations.

COMPETITION AND INDUSTRY CONDITIONS

The restaurant and bakery industries are each intensely competitive with
respect to food quality, price-value relationships, ambiance, service and
location, and many restaurants and bakeries compete with the Company at each of
its locations. There are many well-established competitors with substantially
greater financial, marketing, personnel and other resources than the Company. In
addition, many of the Company's competitors are well established in the markets
where the Company's operations are, or in which they may be, located. While the
Company believes that its restaurants and bakeries are distinctive in design and
operating concept, other companies may develop restaurants and bakeries that
operate with similar concepts.

The restaurant business is often affected by changes in consumer tastes,
national, regional or local economic conditions, demographic trends, consumer
confidence in the economy, discretionary spending priorities, weather
conditions, tourist travel, traffic patterns, and the type, number and location
of competing restaurants. Changes in these factors could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Competition."

LONG-TERM, NON-CANCELABLE LEASES; TERMINATION PROVISIONS

The Company's current leases have annual base rents ranging from $60,000 to
$336,000, are non-cancelable and typically have terms of 10 to 20 years. Leases
entered into by the Company in the future will also be long-term and
noncancelable. If a decision is made to close any restaurant or bakery, the
Company may be committed to perform its obligations under the applicable lease,
which would include, among other things, payment of the base rent for the
balance of the lease term. In 1993 and 1995, the Company recorded provisions of
$2.3 million and $932,000, respectively, for liabilities associated with the
closure of facilities subject to non-cancelable, long-term leases. The Company
may incur liabilities of this nature in the future if a decision is made to
close one or more restaurants or bakeries, and such liabilities, if incurred,
could have a material adverse effect on the Company's business, financial
condition and results of operations.

In addition, the Las Vegas restaurant lease contains provisions that allow
the hotel landlord to terminate the Company's lease without compensation if,
during any six-month period in which the hotel has achieved a specified
occupancy rate, the restaurant's monthly gross sales average less than a
specified minimum amount. To date, the Las Vegas restaurant's sales have been
more than triple the specified minimum amount, although there can be no
assurance that restaurant sales will continue to exceed the specified minimum.
In addition, the lease contains provisions allowing the landlord to relocate the
Company's restaurant to another site within the hotel possessing retail
characteristics similar to the site currently occupied by the Company. The
landlord may not use the site vacated for restaurant operations. Should the
Company elect not to relocate the restaurant, the lease may be terminated by the
Company and, in that event, the landlord is obligated to reimburse the Company
for the unamortized cost of its improvements to the site and any of the
Company's furniture, fixtures and equipment not removed by the Company. Such
termination or relocation could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Properties."

GOVERNMENTAL REGULATION

The Company's operations are subject to regulation by federal agencies and
to licensing and regulation by state and local health, environmental, labor
relations, sanitation, building, zoning, safety, fire and other departments
relating to the development and operation of restaurants and retail
establishments. The Company's activities are also subject to the federal
Americans With Disabilities Act and related regulations,

8
<PAGE> 12

which prohibit discrimination on the basis of disability in public
accommodations and employment. The Company is also subject to state "dram-shop"
laws and regulations, which generally provide that a person injured by an
intoxicated person may seek to recover damages from an establishment that
wrongfully served alcoholic beverages to such person. Changes in any or all of
these laws or regulations, such as government-imposed increases in minimum
wages, paid leaves of absence or mandated health benefits, or increased tax
reporting and tax payment requirements for employees who receive gratuities,
could have a material adverse effect on the Company's business, financial
condition and results of operations. Delays or failures in obtaining or
maintaining the required construction and operating licenses, permits or
approvals could delay or prevent the opening of new restaurants or could
materially and adversely affect the operation of existing restaurants. In
addition, there can be no assurance that the Company will be able to obtain
necessary variances or amendments to required licenses, permits or other
approvals on a cost-effective and timely basis in order to construct and develop
restaurants and bakeries in the future. See "Business -- Governmental
Regulation."

UNINSURED LOSSES

The Company has comprehensive insurance, including general liability, fire
and extended coverage. However, there are certain types of losses that may be
uninsurable or that the Company believes are not economically insurable, such as
earthquakes and other natural disasters. In view of the location of many of the
Company's existing and planned restaurants in California, the Company's
operations are particularly susceptible to damage and disruption caused by
earthquakes. In the event of an earthquake or other natural disaster affecting
the Company's geographic area of operations, the Company could suffer a loss of
the capital invested in, as well as anticipated earnings from, the damaged or
destroyed properties. In addition, the Company does not currently maintain any
insurance coverage for employee-related litigation or the effects of adverse
publicity, and such litigation or adverse publicity could have a material
adverse effect on the Company's business, financial condition and results of
operations.

CONTROL BY EXISTING STOCKHOLDERS AND MANAGEMENT

Following the closing of this offering, the Company's directors, officers
and their affiliates will beneficially own approximately 36.9% of the
outstanding Common Stock (assuming exercise of vested stock options). As a
result of such Common Stock ownership, the Company's directors, officers and
their affiliates, if they voted together, would be able to exercise significant
influence over the election of members of the Company's Board of Directors and
other corporate actions requiring stockholder approval. See "Principal and
Selling Stockholders."

ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE

Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop or,
if one develops, that it will be maintained. The initial public offering price
of the Common Stock will be established by negotiation among the Company, the
Selling Stockholders and the Underwriters. See "Underwriting" for factors to be
considered in determining the initial public offering price. The market price of
the shares of Common Stock could be subject to significant fluctuations in
response to the Company's operating results and other factors, including general
economic and market conditions. In addition, the stock market in recent years
has experienced and continues to experience extreme price and volume
fluctuations, which have affected the market price of the stock of many
companies and which have often been unrelated or disproportionate to the
operating performance of these companies. These fluctuations, as well as a
shortfall in sales or earnings compared to securities analysts' expectations,
changes in analysts' recommendations or projections or general economic and
market conditions, may adversely affect the market price of the Common Stock. In
the past, securities class action litigation has often been instituted following
periods of volatility in the market price for a company's securities. Such
litigation could result in substantial costs and a diversion of management
attention and resources, which could have a material adverse effect on the
Company's business, financial condition and results of operations.

POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS

The Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") authorizes the Board of Directors to issue up to 5
million shares of Preferred Stock and to determine the powers, preferences,
privileges, rights including voting rights, qualification, limitations and
restrictions of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be

9
<PAGE> 13

subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The Restated Certificate and
By-laws, among other things, provide for a classified Board of Directors,
require that stockholder actions occur at duly called meetings of the
stockholders, limit who may call special meetings of stockholders, do not permit
cumulative voting in the election of directors and require advance notice of
stockholder proposals and director nominations. These and other provisions could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company, discourage a hostile
bid or delay, prevent or deter a merger, acquisition or tender offer, in which
the Company's stockholders could receive a premium for their shares, or a proxy
contest for control of the Company or other change in the Company's management.
See "Management" and "Description of Capital Stock."

ADDITIONAL SHARES ELIGIBLE FOR FUTURE SALE IN THE PUBLIC MARKET

The sale of a substantial number of shares of Common Stock in the public
market following this offering could adversely affect the market price of the
Common Stock. Upon completion of this offering, the Company will have
outstanding an aggregate of 5,582,891 shares of Common Stock, assuming no
exercise of outstanding options and warrants.

The 1,500,000 shares of Common Stock sold in this offering will be freely
tradeable without restriction under the Securities Act of 1933, as amended (the
"Securities Act"). The remaining 4,082,891 shares of Common Stock are
"Restricted Shares" and are subject to restrictions under the Securities Act. Of
these Restricted Shares, 3,507,540 are subject to lock-up agreements under which
the holders have agreed not to sell or otherwise dispose of any of their shares
for a period of 180 days after the date of this Prospectus without the prior
written consent of Montgomery Securities. In its sole discretion and at any time
without notice, Montgomery Securities may release all or any portion of the
shares subject to the lock-up agreements. All of the Restricted Shares subject
to lock-up agreements will become available for sale in the public market
immediately following expiration of the 180-day lock-up period, subject (to the
extent applicable) to the volume and other limitations of Rule 144 or Rule 701
under the Securities Act. An additional 416,095 Restricted Shares are subject to
contractual restrictions with the Company similar to those contained in the
lock-up agreements, of which 78,033 shares will become available for sale in the
public market beginning 120 days after the date of this Prospectus and 338,062
shares will become available for sale beginning 180 days after the date of this
Prospectus. In addition, beginning 90 days after the date of this Prospectus,
38,428 Restricted Shares not subject to lock-up agreements or contractual
restrictions will become available for sale in the public market, subject to the
volume and other limitations of Rule 144 or Rule 701. The remaining 120,828
Restricted Shares not subject to lock-up agreements or contractual restrictions
will be eligible for sale in the public market pursuant to Rule 144(k) under the
Securities Act as of the date of this Prospectus. In addition, certain
securityholders of the Company have the right to register shares of Common Stock
for sale in the public market, and the Company intends to register shares of
Common Stock authorized for issuance under the Company's equity incentive plans.
See "Shares Eligible for Future Sale."

DILUTION

The price to the public in this offering is substantially higher than the
book value per share of Common Stock. Investors purchasing shares of Common
Stock in this offering will therefore incur immediate and substantial dilution.
See "Dilution."

FORWARD-LOOKING STATEMENTS

This Prospectus contains forward-looking statements that involve risks and
uncertainties. Such forward-looking statements may be deemed to include the
schedule of anticipated restaurant and wholesale bakery openings, the projected
costs and sizes of future restaurants and bakeries, plans for future wholesale
bakeries, the adequacy of certain reserves and the adequacy of anticipated
sources of cash, including the proceeds from this offering, to fund the
Company's future capital requirements through 1998. Words such as "believes,"
"anticipates," "expects," "intends" and similar expressions are intended to
identify forward-looking statements, but are not the exclusive means of
identifying such statements. Actual results or events could differ materially
from those anticipated in any forward-looking statements for a number of
reasons, including the reasons discussed in other portions of this "Risk
Factors" section and elsewhere in this Prospectus.

10
<PAGE> 14

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered by the Company at an assumed initial public offering price
of $9.75 per share are estimated to be approximately $8.2 million ($10.3 million
if the Underwriters' over-allotment option is exercised in full). The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Stockholders. See "Principal and Selling Stockholders." The Company expects to
use the net proceeds of this offering for general corporate purposes, primarily
to finance the development of additional restaurants. Pending application of the
net proceeds as described above, the Company intends to invest the net proceeds
of the offering in short-term, investment-grade, interest-bearing securities.

DIVIDEND POLICY

The Company has never paid any cash dividends on its Common Stock. The
Board of Directors intends to retain earnings to support operations and to
finance expansion and does not intend to pay cash dividends on the Common Stock
for the foreseeable future. In addition, certain financial covenants contained
in the Company's bank line of credit restrict the Company's ability to pay cash
dividends.

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
29, 1997, (i) on an actual basis and (ii) as adjusted to give effect to the
conversion of all outstanding shares of Preferred Stock into Common Stock and to
reflect the sale of 1,000,000 shares of Common Stock offered by the Company
hereby at an assumed initial public offering price of $9.75 per share and the
application of the estimated net proceeds therefrom:

<TABLE>
<CAPTION>
JUNE 29, 1997
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt (excluding current portion)..................... $ -- $ --
Stockholders' equity:
Convertible Preferred Stock, no par value, 3,500,000 shares
authorized, 2,308,196 shares outstanding; $.001 par value,
5,000,000 shares authorized, no shares outstanding, as
adjusted.................................................. 16,885 --
Common Stock, no par value, 15,000,000 shares authorized,
1,669,985 shares outstanding; $.001 par value, 20,000,000,
shares authorized, 5,582,891 shares outstanding, as
adjusted(1)............................................... 8,228 33,330
Accumulated deficit............................................ (624) (624)
------- -------
Total stockholders' equity........................... 24,489 32,706
------- -------
Total capitalization................................. $24,489 $32,706
======= =======
</TABLE>

- ---------------

11
<PAGE> 15

DILUTION

The net tangible book value of the Company at June 29, 1997 was
approximately $24.5 million or $5.34 per share of Common Stock. Net tangible
book value per share is equal to the Company's total tangible assets less its
total liabilities divided by the number of shares of Common Stock outstanding.
After giving effect to the sale by the Company of the 1,000,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $9.75 per
share and the receipt of the net proceeds therefrom, the pro forma net tangible
book value of the Company as of June 29, 1997 would have been $32.7 million, or
$5.86 per share. This represents an immediate increase in net tangible book
value of $0.52 per share to existing stockholders and an immediate dilution in
net tangible book value of $3.89 per share to new investors purchasing shares at
the assumed initial public offering price. The following table illustrates this
per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price.............................. $ 9.75
Net tangible book value before offering.......................... $ 5.34
Increase attributable to new investors........................... 0.52
------
Pro forma net tangible book value after offering................... 5.86
------
Dilution to new investors.......................................... $ 3.89
======
</TABLE>

The following table summarizes, on a pro forma basis as of June 29, 1997,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing stockholders and by the new investors (at an assumed initial public
offering price of $9.75 per share for shares purchased in this offering):

<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)............ 4,582,891 82.1% $25,113,000 72.0% $5.48
New investors(2).................... 1,000,000 17.9 9,750,000 28.0 9.75
--------- ----- ----------- -----
Total..................... 5,582,891 100.0% $34,863,000 100.0%
========= ===== =========== =====
</TABLE>

- ---------------

(1) The foregoing computations assume no exercise of outstanding stock options
or warrants. As of August 15, 1997, options were outstanding to purchase
980,295 shares of Common Stock at a weighted average exercise price of $4.78
per share. At August 15, 1997, options to purchase 448,475 of such shares
were exercisable. At the same date, warrants were outstanding to purchase
32,487 shares of Common Stock at an exercise price of $9.90 per share, all
of which were exercisable. To the extent that outstanding options are
exercised, there will be further dilution to new investors. See
"Management -- Employee Benefit Plans" and "Description of Capital
Stock -- Warrants."

(2) Sales by the Selling Stockholders in the offering will reduce the number of
shares held by existing stockholders to 4,082,891 shares, or approximately
73.1% of the total shares of Common Stock outstanding as of June 29, 1997,
and will increase the number of shares held by new investors to 1,500,000,
or approximately 26.9%, of the total shares of Common Stock outstanding
after the offering. See "Principal and Selling Stockholders."

12
<PAGE> 16

SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE, OPERATING AND FOOTNOTE DATA)

The statement of operations data for each of the years in the three-year
period ended December 29, 1996 and the balance sheet data as of December 31,
1995 and December 29, 1996, have been derived from the audited financial
statements of the Company included elsewhere in this Prospectus that have been
audited by Deloitte & Touche LLP, independent auditors. The balance sheet data
as of December 27, 1992, December 29, 1993 and December 25, 1994 and the
statement of operations data for each of the years in the two-year period ended
December 29, 1993 have been derived from the audited financial statements of the
Company not included in this Prospectus. The statement of operations data for
the six months ended June 30, 1996 and June 29, 1997 and the balance sheet data
at June 29, 1997 have been derived from unaudited financial statements included
elsewhere in this Prospectus, and the balance sheet data at June 30, 1996 have
been derived from unaudited financial statements not included in this
Prospectus. These unaudited financial statements were prepared on the same basis
as the audited financial statements and, in the opinion of management, contain
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial position and results of operations for such
periods. The results of operations for the six months ended June 29, 1997 are
not necessarily indicative of results to be expected for the full year. The data
set forth below should be read in conjunction with the Financial Statements of
Il Fornaio (America) Corporation, including the notes thereto, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED(1) SIX MONTHS ENDED
------------------------------------------------------------------------ -------------------
DECEMBER 27, DECEMBER 29, DECEMBER 25, DECEMBER 31, DECEMBER 29, JUNE 30, JUNE 29,
1992 1993 1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Restaurants.................... $ 30,737 $ 42,402 $ 39,485 $ 43,647 $ 50,599 $ 24,733 $ 32,116
Wholesale bakeries............. 4,049 4,328 4,951 5,181 6,016 2,891 3,150
Retail bakeries................ 3,727 4,866 5,208 5,312 4,137 2,600 311
------ ------ ------ ------ ------ ------ ------
Total revenues........... 38,513 51,596 49,644 54,140 60,752 30,224 35,577
------ ------ ------ ------ ------ ------ ------
Costs and expenses:
Cost of sales.................. 9,320 12,097 11,300 12,772 14,792 7,273 8,350
Operating expenses............. 23,121 32,258 29,290 31,036 35,152 17,569 20,703
Depreciation and
amortization................. 2,045 3,512 3,162 3,304 3,860 1,934 1,927
General and administrative
expenses..................... 3,311 4,060 3,592 4,083 4,724 2,323 2,956
Provision for store
closures(2).................. -- 2,339 -- 932 -- -- (470)
------ ------ ------ ------ ------ ------ ------
Total costs and
expenses............... 37,797 54,266 47,344 52,127 58,528 29,099 33,466
------ ------ ------ ------ ------ ------ ------
Income (loss) from operations.... 716 (2,670) 2,300 2,013 2,224 1,125 2,111
Interest (income) expense, net... 29 150 53 (59) (127) (44) (109)
------ ------ ------ ------ ------ ------ ------
Income (loss) before provision
(benefit) for income taxes..... 687 (2,820) 2,247 2,072 2,351 1,169 2,220
Provision (benefit) for income
taxes(3)....................... 6 70 332 (2,432) 898 476 915
------ ------ ------ ------ ------ ------ ------
Net income (loss)................ $ 681 $ (2,890) $ 1,915 $ 4,504 $ 1,453 $ 693 $ 1,305
====== ====== ====== ====== ====== ====== ======
Net income (loss) per share
(fully diluted)................ $ 0.20 $ (0.67) $ 0.43 $ 1.00 $ 0.32 $ 0.16 $ 0.27
====== ====== ====== ====== ====== ====== ======
Weighted average common shares
outstanding (fully diluted).... 3,424 4,344 4,477 4,499 4,839 4,809 5,037
OPERATING DATA:
Comparable restaurant sales
increase (decrease)(4)......... 1.5% (4.8%) (3.4%) (1.7%) 4.8% 2.9% 6.1%
Restaurants open at end of
period(5)...................... 9 9 9 11 12 12 13
Wholesale bakeries open at end of
period......................... 5 6 6 6 6 6 5
Retail bakeries open at end of
period(6)...................... 6 9 8 8 4 8 --
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital (deficit)........ $ (9,779) $ (4,602) $ (496) $ 807 $ 158 $ 1,791 $ 1,116
Total assets..................... 29,623 29,723 30,164 34,194 34,855 34,540 37,180
Long-term debt (excluding current
portion)....................... -- -- 750 150 -- -- --
Stockholders' equity............. 10,076 14,717 16,678 21,283 22,936 21,947 24,489
</TABLE>

13
<PAGE> 17

- ---------------
(1) All years reported include 52 weeks, except the year ended December 31,
1995, which includes 53 weeks.

(2) Includes (i) a $2.3 million pre-tax charge recorded in 1993 associated with
the Company's decision to dispose of its restaurant in Costa Mesa and a
free-standing retail bakery in Los Angeles, (ii) a $932,000 pre-tax charge
recorded in 1995 associated with the default by the buyer of the Company's
Etrusca restaurant and (iii) a $470,000 pre-tax reversal of the 1993 reserve
recorded in the first six months of 1997 associated with the disposition of
the Company's Costa Mesa restaurant. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Closure of
Non-Core Operations."

(3) Includes a tax benefit of $2.7 million in 1995 as a result of the
recognition of deferred tax assets. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."

(4) A new restaurant is included in the calculation of the change in comparable
restaurant sales after the first full month following the eighteenth month
of that restaurant's operation.

(6) Reflects the disposition of four of the Company's free-standing retail
bakeries in the third quarter of 1996 and the disposition of the four
remaining free-standing retail bakeries in the first quarter of 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Closure of Non-Core Operations."

14
<PAGE> 18

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

As of June 29, 1997, the Company owned and operated 13 restaurants and five
wholesale bakeries. Eleven of the restaurants and all of the wholesale bakeries
are located in California. One restaurant is located in Portland and one
restaurant is located in Las Vegas.

In 1993, management analyzed the economics of each of the Company's
business units and established criteria for future growth. Based on this
analysis, management developed a strategic plan to focus the Company's
operations on Il Fornaio restaurants and wholesale bakeries. The plan provided
for the disposition of two restaurants that differed from the Il Fornaio
restaurant concept. Management also concluded that, while the Company would
continue to evaluate its existing free-standing retail bakeries, no additional
free-standing retail bakeries would be developed. In 1995, Michael J. Hislop
joined the Company as President and Chief Operating Officer and implemented a
number of new strategic initiatives to accelerate Il Fornaio's restaurant growth
and facilitate its expansion into new geographic markets. Management also took
steps to develop the Company's infrastructure and to increase sales and guest
visit frequency by emphasizing service and implementing new marketing and
training programs. In addition, the decision was made to dispose of the
Company's free-standing retail bakery operations. These initiatives contributed
to comparable restaurant sales increases of 4.8% in 1996 and 6.1% for the first
half of 1997. From 1995 through the first half of 1997, the Company opened four
new full-service restaurants, two in California and one each in Portland and Las
Vegas, as well as a large free-standing wholesale bakery in Burlingame,
California.

The Company's revenues consist of restaurant sales, wholesale bakery sales
and free-standing retail bakery sales. For fiscal 1996, restaurant sales were
approximately 83.3% of total revenues, and wholesale and free-standing retail
bakery sales were 9.9% and 6.8% of total revenues, respectively. In July 1996,
the Company disposed of its four Northern California free-standing retail
bakeries and, in February 1997, sold the balance of its free-standing retail
bakeries, all of which were located in Southern California.

Comparable restaurant sales are calculated to include a new restaurant only
after the first full month following the eighteenth month of its operation.
Comparable restaurant revenues may fluctuate significantly as a result of a
variety of factors. See "Risk Factors -- Fluctuations in Operating Results."

Cost of sales is composed primarily of the cost of food and beverages.
Operating expenses include payroll and fringe benefit costs, occupancy costs,
marketing costs and other store-level costs. The majority of these costs are
variable and are expected generally to increase with sales volume. Occupancy
costs include both a fixed and percentage portion of rent. Depreciation and
amortization includes the amortization of pre-opening costs associated with the
opening of new locations. The Company capitalizes pre-opening expenses for each
of its new units and amortizes such costs over the 12-month period following the
opening of the unit. Pre-opening costs consist of direct costs related to hiring
and training the initial workforce and certain other direct costs related to
opening new restaurants. General and administrative expenses are composed of
expenses associated with all corporate and administrative functions that support
existing operations and provide an infrastructure to support future growth,
including management and staff salaries, employee benefits, travel, information
systems and training and market research. Certain expenses of recruiting and
training unit management personnel are also included as general and
administrative expenses.

This Prospectus contains forward-looking statements that involve risks and
uncertainties related to future events. Prospective investors are cautioned that
actual events or results may differ materially from those discussed in the
forward-looking statements. Factors that might cause actual events or results to
differ materially from those indicated by such forward-looking statements may
include the matters set forth herein, in "Risk Factors" and elsewhere in this
Prospectus.

15
<PAGE> 19

RESULTS OF OPERATIONS

The operating results of the Company expressed as a percentage of total
revenues were as follows:

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
---------------------------------------- --------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29, JUNE 30, JUNE 29,
1994 1995 1996 1996 1997
------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Restaurants................................. 79.5% 80.6% 83.3% 81.8% 90.3%
Wholesale bakeries.......................... 10.0 9.6 9.9 9.6 8.9
Retail bakeries............................. 10.5 9.8 6.8 8.6 0.8
----- ----- ----- ----- -----
Total revenues...................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Costs and expenses:
Cost of sales............................... 22.8 23.6 24.3 24.1 23.5
Operating expenses.......................... 59.0 57.3 57.9 58.1 58.2
Depreciation and amortization............... 6.4 6.1 6.3 6.3 5.4
General and administrative expenses......... 7.2 7.6 7.8 7.7 8.3
Provision for store closures................ 0.0 1.7 0.0 -- (1.3)
----- ----- ----- ----- -----
Total costs and expenses............ 95.4 96.3 96.3 96.2 94.1
----- ----- ----- ----- -----
Income from operations........................ 4.6 3.7 3.7 3.8 5.9
Interest (income) expense, net................ 0.1 (0.1) (0.2) (0.1) (0.3)
----- ----- ----- ----- -----
Income before provision (benefit) for income
taxes....................................... 4.5 3.8 3.9 3.9 6.2
Provision (benefit) for income taxes.......... 0.7 (4.5) 1.5 1.6 2.5
----- ----- ----- ----- -----
Net income.................................... 3.8% 8.3% 2.4% 2.3% 3.7%
===== ===== ===== ===== =====
</TABLE>

Six Months Ended June 29, 1997 Compared to Six Months Ended June 30, 1996

Revenues increased by $5.3 million, or 17.7%, to $35.6 million in the six
months ended June 29, 1997 from $30.2 million in the six months ended June 30,
1996. The increase primarily reflected sales of $6.0 million attributable to the
opening of two new restaurants, including one that opened in January 1997, as
well as a 6.1% increase in comparable restaurant sales and a 9.0% increase in
comparable wholesale bakery sales. These factors more than offset the $2.3
million decrease in revenues attributable to the disposition of four
free-standing retail bakeries in 1996 and the disposition of the four remaining
free-standing retail bakeries in February 1997.

Cost of sales decreased as a percentage of revenues to 23.5% in the six
months ended June 29, 1997 from 24.1% in the six months ended June 30, 1996,
primarily as a result of a menu price increase in December 1996 as well as
improved purchasing capabilities and stable food and beverage prices during the
1997 period.

Operating expenses as a percentage of revenues increased slightly to 58.2%
in the six months ended June 29, 1997 from 58.1% in the six months ended June
30, 1996. Depreciation and amortization decreased as a percentage of revenues to
5.4% in the six months ended June 29, 1997 from 6.4% in the six months ended
June 30, 1996, primarily reflecting increased revenues in the 1997 period.

General and administrative expenses increased as a percentage of revenues
to 8.3% in the six months ended June 29, 1997 from 7.7% in the six months ended
June 30, 1996. This increase was primarily due to the accrual of higher
performance-based management bonuses in the 1997 period and, to a lesser extent,
market research costs.

As a result of the disposition of the Costa Mesa restaurant, a $470,000
pre-tax reversal was recorded in the six months ended June 29, 1997 against the
provision for store closures originally recorded in 1993. See "-- Closure of
Non-Core Operations" below.

16
<PAGE> 20

1996 Compared to 1995

Revenues increased by $6.6 million, or 12.2%, to $60.8 million in 1996 from
$54.1 million in 1995. The increase primarily reflected sales of $5.8 million
attributable to the opening of three new restaurants, two of which opened in
1995 and one of which opened in 1996, as well as a 4.8% increase in comparable
restaurant sales and an 18.4% increase in comparable wholesale bakery sales.
These factors more than offset the decrease in revenues attributable to the
disposition in 1996 of four free-standing retail bakeries and the inclusion of
one additional accounting week in 1995 compared to 1996. The impact of menu
price increases in 1996 was negligible.

Cost of sales increased as a percentage of revenues to 24.3% in 1996 from
23.6% in 1995, primarily as a result of higher food costs that were not passed
through in corresponding menu price adjustments until December 1996.

Operating expenses increased as a percentage of revenues to 57.9% in 1996
from 57.3% in 1995, principally as a result of higher marketing costs associated
with the Festa Regionale marketing program. Depreciation and amortization
increased as a percentage of revenues to 6.3% in 1996 from 6.1% in 1995. This
increase was primarily the result of an increase in pre-opening amortization
related to the opening of two new restaurants (one of which opened in late
1995), offset in part by a decrease in depreciation as a percentage of revenues
as a result of an increase in comparable store revenues.

General and administrative expenses increased as a percentage of revenues
to 7.8% in 1996 from 7.6% in 1995. This increase was largely due to the
continued expansion of management infrastructure and training expenses, which
commenced in mid-1995 to help implement the Company's growth strategy.

In 1995, the Company recorded a $932,000 provision for the write-down of
the fixed assets and rent liability for one restaurant that differed from the Il
Fornaio restaurant concept. See "-- Closure of Non-Core Operations" below.

The effective income tax rate for 1996 was 38.2%, which reflects the
statutory rates, net of investment tax credits. In 1995, in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"), the Company recorded an income tax benefit of $2.7 million,
reflecting the recognition of various deductible deferred assets, including
prior years' net operating loss carryforwards, business tax credits and various
temporary accounting differences.

1995 Compared to 1994

Revenues increased by $4.5 million, or 9.1%, to $54.1 million during 1995
from $49.6 million in 1994. This increase primarily reflected sales of $4.4
million attributable to the opening of two new restaurants in 1995, as well as
revenues of $762,000 attributable to the inclusion of one additional accounting
week in 1995 compared to 1994. These increases more than offset the 1.7%
decrease in comparable restaurant sales. There were no menu price increases in
1995.

Cost of sales increased as a percentage of revenues to 23.6% in 1995 from
22.8% in 1994. This increase was principally a result of higher food costs
associated with the initial year of the Festa Regionale marketing program and
significant increases in coffee prices.

Operating expenses declined as a percentage of revenues to 57.3% in 1995
from 59.0% in 1994, largely as a result of labor efficiencies and reductions in
workers' compensation insurance expense. Depreciation and amortization decreased
to 6.1% in 1995 from 6.4% in 1994, principally as a result of reduced
amortization of pre-opening expenses due to the timing of opening of
restaurants.

General and administrative expenses increased as a percentage of revenues
to 7.6% in 1995 from 7.2% in 1994. This increase reflected compensation expense
associated with the addition of senior management and other key corporate
positions, as well as expenses related to the improvement of management
information systems, all of which were incurred to help implement the Company's
growth strategy.

17
<PAGE> 21

In 1995, the Company recorded a $932,000 provision for the write-down of
the fixed assets and rent liability for one restaurant that differed from the Il
Fornaio restaurant concept.

In 1995, the Company recorded an income tax benefit of $2.7 million,
reflecting the recognition of various deductible deferred assets, including
prior years' net operating loss carryforwards, business tax credits and various
temporary accounting differences.

Quarterly Results

The following tables set forth certain unaudited quarterly information for
1995 and 1996 and for the first half of 1997. This quarterly information has
been prepared on a consistent basis with the audited financial statements and,
in the opinion of management, includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
information for the periods presented. The Company's quarterly operating results
may fluctuate significantly as a result of a variety of factors, and operating
results for any quarter are not necessarily indicative of results for any future
period. See "Risk Factors -- Fluctuations in Operating Results."

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 29, 1996 JUNE 29, 1997
------------------------------------- ------------------------------------- -----------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $11,926 $13,790 $13,254 $15,170 $14,214 $16,010 $15,172 $15,356 $17,682 $17,895
Costs and expenses:
Cost of sales............. 2,760 3,222 3,123 3,667 3,426 3,847 3,735 3,784 4,168 4,182
Operating expenses........ 7,009 7,825 7,674 8,528 8,451 9,118 8,748 8,835 10,245 10,458
Depreciation and
amortization............ 726 832 855 891 917 1,017 995 931 992 935
General and administrative
expenses................ 885 979 968 1,251 1,125 1,198 1,203 1,198 1,425 1,531
Provision for store
closures................ -- -- -- 932 -- -- -- -- -- (470)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total costs and
expenses.......... 11,380 12,858 12,620 15,269 13,919 15,180 14,681 14,748 16,830 16,636
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations................ 546 932 634 (99) 295 830 491 608 852 1,259
Interest (income) expense,
net....................... 3 (9) (14) (39) (27) (17) (43) (40) (50) (59)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
provision (benefit) for
income taxes.............. 543 941 648 (60) 322 847 534 648 902 1,318
Provision (benefit) for
income taxes.............. 109 185 266 (2,992) 132 344 222 200 375 540
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income.................. $ 434 $ 756 $ 382 $2,932 $ 190 $ 503 $ 312 $ 448 $ 527 $ 778
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

CLOSURE OF NON-CORE OPERATIONS

As a result of a strategic review conducted in 1993, the Company decided to
dispose of a free-standing retail bakery located in Los Angeles and restaurants
located in San Francisco and Costa Mesa, California that differed from the Il
Fornaio restaurant concept. In 1993, in connection with the proposed disposition
of the Los Angeles retail bakery and Costa Mesa restaurant, the Company recorded
a $2.3 million provision to cover anticipated write-offs and other expenses
associated with these dispositions. Thereafter, the Company actively sought to
dispose of both of these operations. The results of operations of these two
units have not been included in the Company's statement of operations subsequent
to the end of 1993 as the effect on total revenues, total costs and expenses and
net income (loss) was immaterial for all periods presented. The Company disposed
of the Los Angeles retail bakery in January 1995. In June 1997, the Company
disposed of the Costa Mesa restaurant and recorded a $470,000 pre-tax reversal
of the 1993 reserve.

In 1993, the net assets of the remaining restaurant designated for
disposition, the Etrusca restaurant located in San Francisco, were sold for cash
and a promissory note secured by the assets sold. In 1995, following a default
by the buyer, the Company reclaimed the remaining assets and once again became
primarily obligated on the lease. In connection therewith, the Company recorded
a provision of $932,000 to

18
<PAGE> 22

write off the remaining balance of the assets and recognize the expenses
incurred in connection with the redisposition of this facility in the second
quarter of 1997.

In July 1996, the Company disposed of its four Northern California
free-standing retail bakeries and, in February 1997, sold the four remaining
free-standing retail bakeries, all of which were located in Southern California.

LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its capital requirements over the past three and
one-half years with cash flow from operations. The Company's cash flow from
operations was $5.0 million, $4.8 million, $4.9 million and $4.1 million for
1994, 1995, 1996 and the six months ended June 29, 1997, respectively. The
Company also has a credit agreement which provides for a $3.0 million line of
credit. The Company had no borrowings outstanding under the credit line during
these periods.

Net cash used in financing activities in 1994, 1995 and 1996 was $1.3
million, $702,000 and $400,000, respectively. Net cash provided by financing
activities was $98,000 in the six months ended June 29, 1997. In all of these
periods, cash used in financing activities related primarily to repayment of a
term loan held by a commercial bank. This loan, which had a balance of $150,000
as of December 29, 1996, was repaid in full as of March 1, 1997.

Capital expenditures were $971,000, $4.8 million, $5.8 million and $3.0
million for 1994, 1995, 1996 and the six months ended June 29, 1997,
respectively. To date in 1997, the Company has opened one restaurant and one
wholesale bakery and has completed a major renovation of one of its existing
restaurants. The Company intends to open one additional restaurant in 1997.
Total capital expenditures are expected to be approximately $6.0 million in
1997. The Company currently plans to open three restaurants in 1998. The Company
expects that its planned future restaurants will require, on average, a total
investment by the Company per restaurant, net of anticipated landlord
contributions, of approximately $1.7 million, with additional average
pre-opening costs per restaurant of approximately $200,000.

The Company's future capital requirements and the adequacy of its available
funds will depend on many factors, including the pace of expansion, the size of
restaurants developed and the nature of the arrangements negotiated with
landlords. Although no assurance can be given, the Company believes that
anticipated cash flow from operations, borrowings under the credit agreement and
proceeds from this offering will be sufficient to fund its capital requirements,
including planned expansion and ongoing maintenance and renovation of existing
restaurants, at least through 1998. In the event that additional capital is
required, the Company may seek to raise that capital through public or private
equity or debt financings. Future capital funding transactions may result in
dilution to purchasers in this offering. There can be no assurance that such
capital will be available on favorable terms, if at all.

INFLATION

The primary inflationary factors affecting the Company's operations are
food and labor costs. A large number of the Company's restaurant personnel are
paid at rates based on the applicable minimum wage, and increases in the minimum
wage directly affect the Company's labor costs. Minimum wage increases in 1996
led the Company to introduce its first menu price increase in three years. To
date, inflation has not had a material impact on the Company's results of
operations. See "Risk Factors -- Changes in Food and Labor Costs."

19
<PAGE> 23

BUSINESS

BACKGROUND

Il Fornaio, which means "the baker" in Italian, can trace its roots to a
bakers' school founded outside of Milan, Italy in the early 1970s by Carlo
Veggetti. In order to preserve the disappearing craft of Italian artisan baking,
Mr. Veggetti and his family gathered centuries-old recipes from every region in
Italy. The Il Fornaio baking school taught bakers these traditional recipes and
methods and provided them with the materials necessary to open their own
bakeries under the Il Fornaio name. Today, there are numerous Il Fornaio
bakeries located throughout Italy.

The Il Fornaio bakery concept was brought to the United States in 1980 when
the Company acquired the exclusive rights in the United States to the Il Fornaio
trademark, as well as to certain recipes which continue to be central to the Il
Fornaio restaurant and bakery concept. The Company has no other formal
affiliation with Il Fornaio in Italy, although it has discussions from time to
time with the Veggetti family regarding baking techniques and equipment and the
potential hiring of employees from Italy. In addition, Mr. Veggetti holds
approximately 2% of the Company's outstanding equity. From 1980 to 1986, the
Company opened a number of Il Fornaio free-standing retail and wholesale
bakeries in California.

In 1987, Laurence B. Mindel joined Il Fornaio as Chairman, Chief Executive
Officer and President. In 1970, Mr. Mindel co-founded Spectrum Foods, which
created and operated innovative and successful restaurants throughout
California, including Chianti, MacArthur Park, Harry's Bar and American Grill,
Ciao, Prego and Guaymas, all of which remain in operation today. Upon the
acquisition of Spectrum Foods by Saga Corporation in 1984, Mr. Mindel became the
President of Saga Corporation's Restaurant Group, which included Stuart
Anderson's Black Angus, Velvet Turtle, Spoons, Hotel Food Services and the newly
acquired Spectrum Foods restaurants.

Mr. Mindel reorganized the Company and developed a new business strategy
which, in addition to the Company's free-standing retail bakeries, focused on
the development of full-service restaurants that showcased the baked goods
produced by the Company's bakeries and offered a varied menu of premium quality
Italian food and beverages. This strategy was predicated on the development of
an Il Fornaio brand based on Il Fornaio's authentic Italian heritage. The
Company decided to incorporate a retail market into the design of each location
to allow guests to purchase the Company's baked goods, prepared foods and other
branded products for consumption at home. In 1987, the Company opened its first
full-service restaurant in Corte Madera, California and, through the end of
1992, had expanded to include nine full-service restaurants in California.

In 1995, Michael J. Hislop joined the Company as President and Chief
Operating Officer. From 1991 to 1995, Mr. Hislop had served as the Chairman and
Chief Executive Officer of Chevy's Mexican Restaurants,

20
<PAGE> 24

guiding Chevy's expansion from 17 to 33 units prior to the sale of Chevy's to
PepsiCo in 1993. Mr. Hislop continued to expand Chevy's as part of PepsiCo's
full-service restaurant division, entering new geographic markets and increasing
the number of restaurants to 63, prior to joining Il Fornaio in July 1995.

In 1995, Mr. Hislop implemented a number of new strategic initiatives to
accelerate Il Fornaio's restaurant growth and facilitate its expansion into new
geographic markets. Mr. Hislop also took steps to develop the Company's
infrastructure and to focus on increasing sales and guest visit frequency by
emphasizing service and implementing new marketing and training programs. In
addition, the decision was made to dispose of the Company's free-standing retail
bakery operations. These initiatives contributed to comparable restaurant sales
increases of 4.8% in 1996 and 6.1% for the first half of 1997. From 1995 through
the first half of 1997, the Company opened four new full-service restaurants,
two in California and one each in Portland and Las Vegas, as well as a large
free-standing wholesale bakery in Burlingame, California.

IL FORNAIO CONCEPT AND STRATEGY

The Company's objectives are to develop and operate full-service
restaurants and bakeries that offer guests the most authentic Italian dining
experience available outside of Italy and to establish a brand identity that
provides a competitive advantage in every market in which the Company operates.
To achieve these objectives, the Company has developed the following concept and
strategy:

Offer Premium Quality, Authentic Regional Italian Cuisine. Il Fornaio
seeks to differentiate its restaurants from other restaurants in the Italian
food segment by offering creatively prepared, premium quality Italian cuisine
based on authentic regional recipes. The core menu served at both lunch and
dinner features a variety of dishes, including house-made and imported pasta,
poultry and game roasted over a wood-fired rotisserie, meat and fresh fish from
a charcoal grill, pizza from a wood-burning oven, soups, salads and desserts.
Native-born Italian chefs develop all of the core menu items, which vary
depending on the seasonal availability of raw ingredients. The Company's chefs
also develop special menus each month based on the local cuisine and culinary
style of one of Italy's 20 geographic regions as part of the Company's Festa
Regionale marketing program. Hand-made, preservative-free Il Fornaio baked
goods, based on centuries-old regional Italian recipes, are provided by Il
Fornaio's bakeries for use in a variety of menu items. Fresh breads and rolls
are served with each meal, providing an authentic and high quality complement to
the menus. Il Fornaio's restaurants have received numerous awards and
commendations, including "Best Italian Restaurant" in the San Francisco Bay Area
and "Best Restaurant in Santa Clara County" as selected by readers of a San
Francisco-based magazine.

Build Brand Awareness. The Company believes that its restaurants,
wholesale bakeries and retail markets work together to reinforce its image as a
provider of premium quality, authentic Italian food, enhance Il Fornaio's brand
image and reputation and attract guests over a wide variety of occasions for
dining out or dining in. The Company's wholesale bakeries supply the same fresh,
award-winning breads and other baked goods served at the Company's restaurants
to quality grocery stores, specialty retailers, hotels and other fine
restaurants as well as to retail markets within Il Fornaio restaurants. The
restaurants' retail markets offer prepared foods and Il Fornaio brand items,
including fresh baked goods, oakwood-roasted coffee, pasta, risotto, extra
virgin olive oil and balsamic vinegar imported from Modena, Italy, enabling
guests to recreate the Il Fornaio dining experience at home. The retail markets
also offer an Il Fornaio-brand Chianti Classico from a Tuscan vineyard that was
originally planted in the 11th century and is designated for Il Fornaio's
exclusive use. The Company has implemented a number of marketing initiatives
designed to build brand awareness, including monthly mailings of its Festa
Regionale menus, food and wine tastings, baking classes, Italian culture
seminars and the Passaporto program, which rewards frequent guests with
complimentary menu items and commemorative plates.

Create a Distinctive Authentic Italian Atmosphere. The Company seeks to
create a distinctive authentic Italian atmosphere with restaurant designs that
are unique to each location. The restaurants' sophisticated, yet informal and
friendly atmosphere is intended to be suitable for a variety of meal occasions.
Exhibition kitchens with wood-fired rotisseries, charcoal grills and
wood-burning pizza ovens are in full display of the guests and create appealing
cooking aromas that reinforce the guests' perceptions of quality, freshness and
authenticity.

21
<PAGE> 25

Retail markets located at the entrance to each restaurant are designed to
provide an inviting initial impression as well as to enhance the perception of
an authentic Italian dining experience through the prominent display of Il
Fornaio's Italian food. Design elements, which may include terracotta or
European slate floors, marble bars, mahogany trim, outdoor piazzas, hand-painted
ceilings and fine art, are selected to evoke the charm and elegance of a
memorable dining experience in Italy. Il Fornaio's Sacramento restaurant was
awarded the grand prize for best new restaurant design worldwide by a national
hospitality design magazine.

Focus on Five Star Service. The Company believes that its emphasis on
service through the implementation of its Five Star Service Program has been an
important factor in its success. The Company's Five Star Service Program,
designed by the Company's employees, defines Il Fornaio's high standards for
food quality, service and cleanliness. The Company has invested significant
resources in the training of its service personnel and staffs each restaurant
with an experienced management team to ensure attentive guest service and
consistent food quality. Through employee and guest questionnaires, the Company
receives valuable feedback and implements measures designed to reinforce its
commitment to outstanding service and guest satisfaction. Results of the Five
Star Service Program are considered in the evaluation and advancement of
restaurant management.

Foster a Strong Corporate Culture. The Company believes that qualified
employees are critical to its success. The Company believes that, by providing
extensive training, attractive compensation and significant opportunities for
employee feedback and advancement, it fosters a strong corporate culture that
helps to attract and retain highly qualified employees. In 1995, the Company
instituted a Partnership Program, which provides equity participation to chefs
and restaurant managers. The Company also provides medical, dental and other
benefits to hourly employees and believes that the availability of these
benefits contributes to an employee turnover rate that is below the industry
average.

Provide an Attractive Price-Value Relationship. The Company believes that
its restaurants provide guests with excellent value by offering high quality
authentic Italian food, a distinctive atmosphere and superior service, all for
an average check per guest in 1996 of $20.93 (including alcohol). As a result,
the Company's restaurants attract a broad variety of guests who desire a more
authentic Italian experience than may be available from other restaurants in the
Italian food segment, without a substantially higher cost.

UNIT ECONOMICS

For 1996, the Company's 10 restaurants that qualified as comparable
restaurants had average revenues of approximately $4.5 million, average
operating income of approximately $708,000, or 15.9% of restaurant sales, and
average cash flow of approximately $884,000, or 19.9% of restaurant sales. Cash
flow represents operating income before depreciation and amortization. The
Company's restaurants range in size from 5,000 square feet to 10,900 square
feet. Since 1991, the Company's total investment per restaurant, net of landlord
contributions, has averaged approximately $1.7 million, with additional average
pre-opening costs per restaurant of approximately $200,000. The Company expects
that its planned future restaurants will generally range in size from 7,000 to
10,000 square feet and that its total investment and pre-opening costs per
restaurant will be similar to these historical averages.

LOCATIONS

Il Fornaio owns and operates 13 full-service, white tablecloth Italian
restaurants and five wholesale bakeries. Four of these wholesale bakeries are
located adjacent to certain of the Company's restaurants and provide fresh
breads, pastries and other baked goods to the restaurants, as well as to a
variety of quality grocery stores, specialty retailers, hotels and other fine
restaurants. All restaurants and wholesale accounts in the San Francisco Bay
Area are supplied by the Company's recently opened 12,000-square foot wholesale
bakery located in Burlingame, California. Restaurants that cannot be supplied by
one of the Company's wholesale bakeries are designed with an in-house bakery.
All of the restaurants feature a retail market.

22
<PAGE> 26

The following table provides information about the Company's current and
planned operations.

CURRENT OPERATIONS

<TABLE>
<CAPTION>
YEAR SIZE NUMBER OF
LOCATION OPENED (SQ. FT.) SEATS(1)
- --------------------------------------------- ------ --------- ---------
<S> <C> <C> <C>
Restaurants
Corte Madera, CA........................... 1987 5,600 104
San Francisco, CA.......................... 1988 7,800 148
Del Mar, CA................................ 1989 5,700 110
Palo Alto, CA.............................. 1989 7,300 136
Irvine, CA................................. 1991 9,600 220
Beverly Hills, CA.......................... 1992 5,000 76
San Jose, CA............................... 1992 8,000 171
Pasadena, CA............................... 1993 8,000 152
Sacramento, CA............................. 1993 7,900 158
Burlingame, CA............................. 1995 9,200 185
Carmel, CA................................. 1995 7,500 120
Portland, OR............................... 1996 7,300 170
Las Vegas, NV.............................. 1997 10,900 218

Wholesale Bakeries
Beverly Hills, CA.......................... 1983 1,500 --
Irvine, CA................................. 1991 3,400 --
Pasadena, CA............................... 1993 3,400 --
Sacramento, CA............................. 1993 2,500 --
Burlingame, CA(2).......................... 1997 12,000 --
</TABLE>

PLANNED RESTAURANTS (3)

<TABLE>
<CAPTION>
SCHEDULED SIZE
LOCATION OPENING (SQ. FT.)
- ---------------------------------------------------- ------------------- ---------
<S> <C> <C>
Denver, CO.......................................... Fourth Quarter 1997 9,200
Santa Monica, CA.................................... 1998 7,500
Seattle, WA......................................... 1998 13,200
Walnut Creek, CA.................................... 1998 7,500
</TABLE>

- ---------------

(1) Excludes patio seating.

(2) In connection with opening the Burlingame wholesale bakery, the Company
closed its wholesale bakeries in San Francisco and Palo Alto.

(3) Leases have been signed for each identified location except the Walnut Creek
location, for which a letter of intent has been signed.

EXPANSION STRATEGY AND SITE SELECTION

The Company intends to continue to expand its operations by addressing both
existing and new geographic markets. The Company plans to open one additional
restaurant in 1997 to be located in Denver, and construction has commenced at
this site. The Company currently plans to open three new restaurants in 1998,
including restaurants in Santa Monica and Seattle, for which leases have been
signed, and in Walnut Creek, for which a letter of intent has been signed.

23
<PAGE> 27

The Company believes that the location of each restaurant is critical to
its long-term success and devotes significant effort to finding appropriate
sites. The Company's site selection strategy is to locate restaurants in
affluent urban and suburban areas, often located near or on main traffic routes.
The Company takes into account a variety of local factors, including demand and
consumer preferences, competition, availability of suitable locations and
personnel, local demographics and household income levels, as well as specific
site characteristics, such as visibility, accessibility and traffic volume.
Senior management selects each restaurant site. The flexibility of the Il
Fornaio concept enables the Company to develop successful restaurants in a
variety of locations, including residential neighborhoods, shopping centers,
office buildings and hotels.

The Company expects that its planned future restaurants will generally
range in size from 7,000 to 10,000 square feet and will require, on average, a
total investment by the Company per restaurant, net of anticipated landlord
contributions, of approximately $1.7 million, with additional average
pre-opening costs per restaurant of approximately $200,000.

The Company's success in implementing its expansion plans will depend, in
each case, on the Company's ability to effectively address a number of risks.
There can be no assurance that the Company will be able to open all of its new
operations on a timely basis, if at all, or, if opened, that those operations
will be operated profitably. See "Risk Factors."

The Company's restaurants feature creatively prepared, premium quality
Italian food based on authentic regional recipes. All recipes are created by
native-born Italian chefs. As guests are seated, Il Fornaio breads and rolls are
placed on the table and served with Il Fornaio olive oil. Guests may then select
from a menu featuring a variety of dishes, including house-made and imported
pasta, poultry and game roasted over a wood-fired rotisserie, meat and fresh
fish from a charcoal grill, pizza from a wood-burning oven, soups, salads and
desserts. The core menu includes several flavorful low-salt and low-fat
selections oriented toward health-or diet-conscious guests. The restaurants also
offer Italian appetizers, creative desserts prepared on site, full liquor
service and an award-winning, extensive wine list emphasizing Italian and
California varietals. The wine list includes an Il Fornaio-brand Chianti
Classico from a Tuscan vineyard that was originally planted in the 11th century
and is designated for Il Fornaio's exclusive use. The core menu is virtually
identical at most of Il Fornaio's restaurants. A daily insert, which varies by
restaurant, lists specials developed by chefs at each restaurant, featuring
creative dishes inspired by seasonal availability of fresh local produce, fish,
meats and game. Il Fornaio's restaurants have received numerous awards and
commendations, including "Best Italian Restaurant" in the San Francisco Bay Area
and "Best Restaurant in Santa Clara County" as selected by readers of a San
Francisco-based magazine.

In addition, for two weeks of every month, the restaurants feature the
Festa Regionale, innovative menus developed, on a rotating basis, by one of Il
Fornaio's Chef-Partners, based on authentic recipes of one of Italy's 20
geographic regions. Each menu is intended to capture both the unique flavors and
culinary style that characterize that region's local cuisine and includes menu
items based on produce, cheese, meat, poultry and seafood indigenous to the
region. Selected wines of the region are also offered to complement menu items.
The most popular menu items developed as part of Festa Regionale are frequently
added to the core menu. During 1996, revenues from the Festa Regionale menu
accounted for, on average, approximately 25% of total dinner sales (including
wine) during the periods in which the Festa Regionale menu was offered.

Il Fornaio's bakeries supply the restaurants with over 30 varieties of
breads and rolls, based on centuries-old, regional Italian recipes. Breads
include ciabatta (a long, flat loaf with a porous interior and crunchy crust),
panmarino (a dome-shaped loaf infused with rosemary and sprinkled with coarse
sea salt), filone (a classic Italian white bread with a light crust and soft
interior), pagnotta (a round, rustic loaf with a soft interior), pane all'uva (a
rich, moist bread filled with golden raisins), pane alle olive (a soft-textured
bread studded with green olives), and foccacia (a flat bread brushed with olive
oil and finished with a variety of fresh toppings). Pastries include cornetti
(croissants) and cannelle (cinnamon twists). The Company's authentic Italian
artisan breads have received numerous awards and commendations.

24
<PAGE> 28

The Company's average check per guest in 1996 at its restaurants, including
alcoholic beverages, was $20.93. Five of the restaurants also offer breakfast
service which, during 1996, accounted for approximately 3% of restaurant
revenues. During the same period, wine sales represented approximately 18% of
restaurant revenues, while other alcoholic beverages accounted for approximately
6% of restaurant revenues.

Take-out prepared food and retail brand items accounted for approximately
10% of restaurant revenues in 1996. The restaurants' retail markets enable
guests to recreate the Il Fornaio dining experience at home by offering prepared
foods, including assorted cold pasta and risotto salads, Il Fornaio breads,
green salads, whole roasted chickens, stuffed artichokes, individual pizzette
and assorted Italian sandwiches, as well as Il Fornaio brand retail items,
including oakwood-roasted coffee, pasta, risotto, extra virgin olive oil,
balsamic vinegar imported from Modena, Italy, and Chianti Classico.

DECOR AND ATMOSPHERE

The Company seeks to create a distinctive, authentic Italian atmosphere
with restaurant designs that are unique to each location. The restaurants'
sophisticated, yet informal and friendly atmosphere is intended to be suitable
for a variety of meal occasions. Exhibition kitchens with wood-fired
rotisseries, charcoal grills and wood-burning pizza ovens in full display of the
guests create appealing cooking aromas that reinforce the guests' perceptions of
quality, freshness and authenticity. Retail markets located at the entrance to
each restaurant are designed to provide an inviting initial impression as well
as to enhance the perception of an authentic Italian dining experience through
the prominent display of Il Fornaio's Italian food. Design elements, which may
include terracotta or European slate floors, marble bars, mahogany trim,
hand-painted ceilings and fine art, are selected to evoke the charm and elegance
of a memorable dining experience in Italy. The tables are a mix of booths and
free-standing tables with chairs. White tablecloths and Italian flatware dress
the tables. Service is intended to be professional and friendly but not
intrusive. In addition to table service, food is available at an indoor or
outdoor liquor/coffee bar, as well as at counter seats overlooking the large
pizza oven and open kitchen. The restaurants range in size from approximately
5,000 to 10,900 square feet with indoor seating ranging from 76 to 220 guests.
Outdoor piazzas provide additional seating during warmer weather. Il Fornaio's
Sacramento restaurant was awarded the grand prize for best new restaurant design
worldwide by a national hospitality design magazine.

OPERATIONS

The Company seeks to create a fine dining experience through the careful
selection, training and supervision of personnel. The staff of a typical
restaurant consists of a Managing Partner, two or three managers, a
Chef-Partner, two or three sous chefs and approximately 65 to 125 hourly
employees, many of whom work part-time. The Managing Partner of each restaurant
is responsible for the day-to-day operation of that restaurant, including
hiring, training and development of personnel, as well as operating results. The
Chef-Partner is responsible for product quality, food costs and kitchen labor
costs. The Company requires its Managing Partners and Chef-Partners to have
significant experience in the full-service restaurant industry.

Comprehensive management manuals exist to ensure consistency in all facets
of restaurant operations, including food, service, safety and accounting.
Working in concert with Managing Partners and Chef-Partners, the Company's
senior management defines operations and performance objectives for each
restaurant and monitors implementation. The Company maintains quality and
consistency in its restaurants through its Five Star Service Program, which
establishes standards relating to food and beverage preparation, maintenance of
facilities and conduct of personnel. A restaurant survey firm regularly visits
the Company's restaurants and reports to senior management on the effectiveness
of the Five Star Service Program. In addition to the Five Star Service Program,
the Company's senior management regularly visit each restaurant and bakery to
ensure adherence to the Company's concept, strategy and standards of quality in
all aspects of restaurant operations. Senior management also meets once a month
with Managing Partners and Chef-Partners to discuss operational, marketing and
financial issues and to review the Five Star Service Program.

The Company has implemented a comprehensive compensation and benefits
package in order to attract and retain highly qualified personnel. The Company
has a Partnership Program, which provides equity

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<PAGE> 29

participation for Managing Partners and Chef-Partners in the form of stock
options, to encourage commitment to the long-term success of the restaurants and
the Company. The Company believes that this equity participation differentiates
the compensation package from that of many of its competitors. The Company's
bonus program is designed to reward the restaurant management team for
achievement of superior operating results, and all members of management at the
restaurant level are eligible to participate. The bonus may provide a large
percentage of management's total compensation.

The Company has a comprehensive four-to-six week training program which all
operating management personnel are required to complete. The program emphasizes
the Company's operating strategy, philosophy, procedures and standards. The
training encompasses all aspects of both restaurant and kitchen management. As
part of the training program, a series of written tests is administered to
evaluate the trainee's progress. The trainee must achieve a certain score to
progress to the next section of the program. This training program is
administered by the Company's Director of Training in conjunction with the Vice
President of Operations and Executive Chef. The Managing Partners and
Chef-Partners are responsible for selecting and training employees for each
restaurant. The training period for new hourly employees lasts approximately one
to two weeks and utilizes training manuals and seminars developed by the
Company's training department. To foster a strong corporate culture and
encourage employee commitment and enthusiasm, management regularly solicits
employee suggestions concerning Company operations through extensive employee
feedback surveys.

WHOLESALE BAKERIES

The Company currently has five wholesale bakeries, four of which range in
size from 1,500 to 3,400 square feet and are located adjacent to certain of the
Company's restaurants. Bakery products are sold to quality grocery stores,
specialty retailers, hotels and other fine restaurants, in addition to the
Company's own restaurants. During 1996, the Company's wholesale bakeries
accounted for approximately 10% of gross revenues.

In March 1997, the Company commenced operation of a free-standing
12,000-square foot wholesale bakery, located in Burlingame, California. This
facility provides freshly baked goods to all restaurants and wholesale customers
throughout the San Francisco Bay Area. This bakery is designed to provide
efficiencies in production (both labor and ingredients) and distribution, as
well as the capacity to substantially grow this part of Il Fornaio's business.
This facility permits the Company to employ improved processes, which enhance
quality and consistency, while maintaining the Il Fornaio commitment to
preservative-free, hand-made authentic Italian breads. The Company's total
investment, net of landlord contributions, to construct this bakery, including
leasehold improvements, machinery and equipment, was approximately $800,000.

The Company's bakeries produce over 30 varieties of breads and rolls based
on regional Italian recipes, as well as a wide assortment of Italian cookies,
cakes and pastries. Recipes are standardized to ensure consistency. The
Company's bread doughs, based on centuries-old recipes, are mixed and then
fermented for up to 20 hours to increase flavor. Each loaf is hand-formed,
proofed, and baked in European deck ovens that eject steam around the bread at
timed intervals. The Company believes that these processes contribute to a
characteristically irregular-shaped and crusty bread. Bakers create a wide
variety of breads by varying proportions of ingredients, length and number of
risings, temperature of the oven and size and shape of the loaves. Some recipes
include fresh aromatic herbs and spices, such as rosemary or fennel, or other
ingredients, such as parmesan cheese, raisins, nuts and sesame seeds. To
maintain the high quality of its bakery products, the Company maintains strict
criteria for ingredients.

The management staff of a typical wholesale bakery consists of a production
manager, an assistant production manager and a business manager. A wholesale
bakery employs 10 to 45 hourly employees, depending on the bakery's size. The
production manager carries responsibility for day-to-day results of the
wholesale bakery. Each production manager is required to have significant bread
baking experience in addition to other general baking and management skills.
Both the production manager and the assistant production manager are also
trained in the Company's systems, recipes and procedures. The business manager
is responsible for all accounting, including the preparation of sales reports,
which are electronically transmitted to the corporate office on a daily basis.
The business manager is also responsible for customer service and

26
<PAGE> 30

distribution. Monthly financial statements are prepared by the corporate office
and reviewed with the wholesale bakery management team by senior management. The
Director of Wholesale Bakeries spends significant time at each wholesale bakery,
monitoring compliance with recipes and procedures.

The Company maintains a fleet of vehicles for distribution of its products
to wholesale customers and Company locations. A majority of the products are
packed and delivered in the early morning to ensure timely delivery, and a
second delivery is normally scheduled for Company locations to provide
fresh-baked products for late afternoon and evening sale and consumption.
Restaurants that cannot be supplied by one of the Company's wholesale bakeries
are designed with in-house bakeries.

MARKETING

The Company believes that providing an authentic Italian dining experience
by offering quality food and bakery products, distinctive decor, Five Star
Service and an attractive price-value relationship is the most effective
approach to attracting new and repeat guests. Accordingly, Il Fornaio has relied
primarily on reputation, local reviews and awards, and word of mouth to promote
its restaurants and bakeries in each community in which it operates. The Company
has also implemented a program of marketing and public relations activities
designed to create awareness of the Il Fornaio name, encourage guests to
associate that name with authentic, high-quality Italian food and increase the
frequency of return visits to Il Fornaio.

To encourage repeat patronage, the Company has developed the Festa
Regionale program. As part of this program, innovative menus are developed
monthly by Chef-Partners, on a rotating basis, based on authentic recipes from
one of Italy's 20 geographic regions. Menu items are accompanied by selected
wines from the region and a regional bread is provided by the Company's
bakeries. Mailers describing each month's Festa Regionale offerings are sent
monthly to over 100,000 households identified by the Company through customer
mailing lists or geographic proximity to an Il Fornaio restaurant. The
Passaporto program also encourages frequent dining at the Company's restaurants
by rewarding those who participate in each month of the six-month program with a
commemorative plate. In addition, guests may receive a complimentary item, such
as a loaf of Il Fornaio bread or a glass of wine, from the regional menu.

The Company has developed a program that focuses marketing efforts on each
restaurant's immediate neighborhood. Under this program, each restaurant is
responsible for the execution of an annual Neighborhood Marketing Plan, which
includes initiatives to build awareness, sales and frequency from the immediate
trade area, typically defined as a one-mile radius around that location. These
initiatives include both on-site and off-site activities, such as large party,
special event and meeting planning, bread and baked goods classes, Italian
culture seminars, food and wine tastings, anniversary parties, community group
fund-raisers as well as programs designed to encourage concierges from local
hotels and office buildings to recommend Il Fornaio to their clients. Restaurant
management, in conjunction with the Director of Neighborhood Marketing, develops
a calendar of events based on quarterly and annual sales objectives. Each
location is provided with a comprehensive Neighborhood Marketing Resource Guide
and Neighborhood Marketing Calendar designed to assist management and staff with
event planning, sales building strategies and guest communication guidance.
These programs and initiatives are specifically tailored to the food service
needs of the current and potential guests that are employed or reside in the
immediate trade areas. Other public relations activities include special events,
such as chef demonstrations at local stores, charitable donations and
participation in community activities, such as fundraisers for schools,
hospitals and other non-profit organizations.

MANAGEMENT INFORMATION SYSTEMS

The Company has developed and recently implemented an integrated management
information system that is utilized in all of its restaurants and bakeries. This
system currently includes a computerized point-of-sale system in its restaurant
operations and a proprietary accounts receivable system in its wholesale
bakeries. The restaurant point-of-sale system facilitates the movement of guest
food and beverage orders between the guest areas and kitchen and bar, controls
cash, handles credit card authorizations and provides management with revenue
data. The integrated system electronically transmits sales and guest counts to
Company headquarters on a daily basis. Additionally, the Company has developed a
proprietary back-office system for

27
<PAGE> 31

processing daily and weekly paperwork (sales, accounts payable, labor and
inventory). This system generates a weekly operating statement, which compares
both weekly and month-to-date results versus budget. The Company has completed
the installation of a new computerized time management system at each of its
locations. The system calculates the time worked by each employee, allows
management to gather data and schedule labor hours and produces payroll reports.
This system is also integrated with the Company's point-of-sale system, allowing
management to review labor compared with sales on a real-time basis.

The Company has recently converted from a proprietary accounting system to
a scalable, relational database. The Company's automated restaurant and bakery
point-of-sale, time management and unit accounting system provides data for
posting directly to the Company's centralized system. The centralized database
provides flexibility in generating various management reports against
predetermined operating budgets. Such reporting includes (i) weekly reports of
revenues, cost of revenues and selected controllable operating budgets, (ii)
detailed monthly restaurant and bakery-level performance of revenues and
expenses and (iii) monthly reports of administrative expense performance. The
system allows management to review the mix of menu items in order to better
match guest preferences and improve profitability. Detailed monthly profit and
loss statements are compiled at the corporate office and reviewed with
restaurant and bakery management every month by senior management.

PURCHASING

The Company seeks to obtain ingredients of high quality at competitive
prices from reliable sources. To ensure freshness and quality, maintain low
inventory levels and facilitate the unique preparation of menu items, the
Company purchases most of its ingredients in an unprocessed state. In order to
maximize operating efficiencies and to provide the freshest ingredients for its
food products, the management team of each restaurant and bakery determines the
daily quantities of food items needed and orders accordingly. The Company's
purchasing department seeks to obtain the lowest possible prices available to
the Company by negotiating bulk purchasing contracts for a number of the
ingredients utilized by the restaurants and bakeries. Ingredients and supplies
are shipped directly to the restaurant or bakery, as the Company does not
maintain a central food product warehouse or commissary.

COMPETITION

The restaurant and bakery businesses are each intensely competitive with
respect to food quality, price-value relationships, ambiance, service and
location, and many existing restaurants and bakeries compete with the Company at
each of its locations. There are many well-established competitors with
substantially greater financial, marketing, personnel and other resources than
the Company. In addition, many of the Company's competitors are well established
in the markets where the Company's operations are, or in which they may be,
located. While the Company believes that its restaurants and bakeries are
distinctive in design and operating concept, other companies may develop
restaurants and bakeries that operate with similar concepts.

PROPERTIES

All of the Company's operations are located in leased facilities. Current
restaurant and bakery leases have expiration dates ranging from 2000 to 2016,
with the majority of the leases providing for five-year options to renew for at
least one additional term. All of the Company's leases provide for a minimum
annual rent, and most leases require additional percentage rent based on sales
volume in excess of minimum levels at the particular location. Some of the
leases require the Company to pay the costs of insurance, taxes and a portion of
the lessors' operating costs. For 1996, the Company's rental expense represented
4.7% of revenues. The

28
<PAGE> 32

Company's lease for its Las Vegas restaurant contains certain termination and
relocation provisions. See "Risk Factors -- Long-Term, Non-Cancelable Leases;
Termination Provisions."

The Company does not anticipate any difficulties renewing existing leases
as they expire. However, there can be no assurance that the Company will be able
to renew any leases on favorable terms, if at all. Inability of the Company to
renew a particular lease or closure of a facility subject to a long-term,
non-cancelable lease could have a material adverse effect on the Company's
business, financial condition and results of operations.

The Company's executive offices are located in approximately 6,850 square
feet of leased space in San Francisco, California.

EMPLOYEES

At August 15, 1997, the Company employed approximately 1,752 persons, 39 of
whom were executive office personnel, 160 of whom were unit management personnel
and the remainder of whom were hourly restaurant or wholesale bakery personnel.
None of the Company's employees is covered by a collective bargaining agreement.
The Company considers its employee relations to be good.

TRADEMARKS

The Company has registered and applied for registration with the United
States Patent and Trademark Office for a number of trademarks and service marks
used in connection with its business. The Italian corporation which owned the
rights to the Il Fornaio marks in the United States has assigned to the Company
all of its United States rights and related goodwill. The Company regards its
trademarks and related rights as having substantial value and as being an
important factor in the marketing of its Il Fornaio restaurants and brand items.

GOVERNMENTAL REGULATION

The Company's 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 and retail establishments. These regulations include
matters relating to environmental, building construction, zoning requirements
and the preparation and sale of food and alcoholic beverages. The Company's
facilities are licensed and subject to regulation under state and local fire,
health and safety codes, and the operation of its trucks is subject to
Department of Transportation regulations.

The development and construction of additional restaurants and bakeries
will be subject to compliance with applicable zoning, land use and environmental
regulations. There can be no assurance that the Company will be able to obtain
necessary licenses or other approvals on a cost effective and timely basis in
order to construct and develop restaurants and bakeries in the future. Various
federal and state labor laws govern the Company's operations and its
relationship with its employees, including minimum wage, overtime, working
conditions, fringe benefit and citizenship requirements.

During 1996, approximately 24% of restaurant revenues was attributable to
the sale of alcoholic beverages, primarily wine. The Company is required to
comply with the alcohol licensing requirements of the federal government, states
and municipalities where its restaurants are located. Alcoholic beverage control
regulations require applications to state authorities and, in certain locations,
county and municipal authorities for a license and permit to sell alcoholic
beverages. 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 the restaurants, including
minimum age of guests and employees, hours of operation, advertising, wholesale
purchasing, inventory control and handling, storage and dispensing of alcoholic
beverages. Failure to comply with federal, state or local regulations could
cause the Company's licenses to be revoked or force it to terminate the sale of
alcoholic beverages at one or more of its restaurants.

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<PAGE> 33

The Company is subject to state "dram-shop" laws and regulations, which
generally provide that a person injured by an intoxicated person may seek to
recover damages from an establishment that wrongfully served alcoholic beverages
to such person. While the Company carries liquor liability coverage as part of
its existing comprehensive general liability insurance, there can be no
assurance that it will not be subject to a judgment in excess of such insurance
coverage or that it will be able to obtain or continue to maintain such
insurance coverage at reasonable costs, or at all.

The federal Americans With Disabilities Act prohibits discrimination on the
basis of disability in public accommodations and employment. The Company is
required to comply with the Act and regulations relating to accommodating the
needs of the disabled in connection with the construction of new facilities and
with significant renovations of existing facilities.

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<PAGE> 34

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Information with respect to the executive officers and directors of the
Company is set forth below:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --- -----------------------------------------
<S> <C> <C>
Laurence B. Mindel....................... 59 Chairman of the Board and Chief Executive
Officer
Michael J. Hislop........................ 42 President, Chief Operating Officer and
Director
Paul J. Kelley........................... 41 Vice President, Finance, Chief Financial
Officer and Secretary
Michael J. Beatrice...................... 43 Vice President, Operations
Dean A. Cortopassi(2).................... 59 Director
W. Scott Hedrick(1)...................... 51 Director
F. Warren Hellman(2)..................... 63 Director
W. Howard Lester(1)...................... 62 Director
Pierre W. Mornell(1)..................... 62 Director
T. Gary Rogers(1)........................ 55 Director
</TABLE>

- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee

Laurence B. Mindel joined the Company as Chairman of the Board, President
and Chief Executive Officer in January 1987. From 1964 to 1970, Mr. Mindel was
President and Chief Executive Officer of Caswell Coffee Company in San
Francisco. In 1970, Mr. Mindel co-founded Spectrum Foods, where he served as
Chairman of the Board, President and Chief Executive Officer. Under Mr. Mindel's
direction, Spectrum created 14 restaurants in Northern and Southern California,
including Chianti, MacArthur Park, Harry's Bar and American Grill, Ciao, Prego
and Guaymas. In 1984, Saga Corporation acquired Spectrum Foods, and from that
time until he joined the Company, Mr. Mindel served as President of the Saga
Restaurant Group, which included Stuart Anderson's Black Angus, Velvet Turtle,
Spoons, Hotel Food Services and the newly acquired Spectrum Foods restaurants.
In 1985, Mr. Mindel became the first person of non-Italian descent and the first
American to be awarded the Caterina di Medici medal. Awarded by the Italian
government, the medal recognizes persons who have excelled in preserving the
Italian heritage outside of Italy.

Michael J. Hislop joined the Company as President and Chief Operating
Officer in July 1995. From April 1991 to May 1995, Mr. Hislop served as Chairman
and Chief Executive Officer of Chevy's Mexican Restaurants which, under his
direction, grew from 17 locations to 63 locations nationwide. From 1982 to 1991,
Mr. Hislop was employed by El Torito Mexican Restaurants, Inc., serving first as
Regional Operator, then as Executive Vice President of Operations and for the
last three years as Chief Operating Officer. From 1979 to 1982, Mr. Hislop was
employed by T.G.I. Fridays Restaurants, Inc. as a Regional Manager.

Paul J. Kelley joined the Company as Vice President, Finance, Chief
Financial Officer and Secretary in April 1991. From 1988 to 1991, he served as
Vice President of Finance of Bon Appetit Management, a contract food service
operator. From 1977 to 1988, he served in a variety of positions for Saga
Corporation, most recently as Vice President and Controller of Velvet Turtle and
Spoons.

Michael J. Beatrice joined the Company as Vice President, Operations, in
April 1996. From 1994 to 1996, Mr. Beatrice was Vice President, Operations, for
an area developer of Boston Chicken, a restaurant company. From 1991 through
1994, he owned and operated an upscale, full-service Italian restaurant north of
Boston. From 1983 to 1991, he served in a variety of positions with El Torito
Mexican Restaurants, Inc., most recently as Regional Vice President.

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<PAGE> 35

Dean A. Cortopassi has been a director of the Company since April 1996. Mr.
Cortopassi founded and has served as Chief Executive Officer of San Tomo Group,
a holding company which owns and operates a number of food processing and
marketing companies, including Stanislaus Food Products, Gilroy Canning Company,
Sierra Quality Canners and Muir Glen Organics. Mr. Cortopassi is also a director
of the National Food Processors Association and Aidells' Sausage Company.

W. Scott Hedrick has been a director of the Company since 1987. Mr. Hedrick
co-founded InterWest Partners, a venture capital management firm, in 1979 and
has been a general partner of that firm since that time. From 1974 to 1979, Mr.
Hedrick was a partner of American-Euro Interfund, a venture capital corporation.
From 1970 to 1974, he was an Assistant Vice President with Small Business
Enterprise Company, a venture capital subsidiary of Bank of America NT & SA. Mr.
Hedrick is also a director of Office Depot, Inc.

F. Warren Hellman has been a director of the Company since 1983. Since
1984, he has been a general partner of Hellman & Friedman, an investment firm.
He has also been a partner of Matrix Partners, a venture capital firm, since
1982 and a partner of FWH Associates, an investment firm, since 1985. From 1962
to 1977, Mr. Hellman was a partner of Lehman Brothers in New York, where he
served at various times as head of Lehman's Investment Banking Division,
President and Director of Lehman Brothers, Inc., and Chairman of Lehman
Corporation, a closed-end investment company. From October 1981 to March 1984,
Mr. Hellman also served as Managing Director of Lehman Brothers Kuhn Loeb. Mr.
Hellman is also a director of Williams-Sonoma, Inc., Levi Strauss Associates
Inc., APL Limited, Eller Media Company, Franklin Resources, MobileMedia
Communications, Osterweis Capital Management, Powerfood, Inc., D.N.& E. Walter &
Co. and Young & Rubicam Holdings, Inc.

W. Howard Lester has been a director of the Company since 1980. Mr. Lester
has served as Chairman of the Board and Chief Executive Officer of
Williams-Sonoma, Inc., a retail kitchen furnishings and housewares company,
since 1978. Mr. Lester is also a director of The Good Guys, Inc., CKE (Carl's)
and Harold's Corporation.

Pierre Mornell has been a director of the Company since 1991. Since 1969,
Dr. Mornell has been a psychiatrist and a consultant in private practice. Since
1985, he has lectured in the IBM Advanced Management Seminar and International
Executive Programs. Dr. Mornell has also lectured at the Stanford University and
Harvard University business schools. Dr. Mornell was a founding director of the
Trust for Public Land. He has served as a consultant to a number of presidents
of organizations, including Northern Telecom (Canada), Intuit Inc. and Kinko's.

T. Gary Rogers has been a director of the Company since 1989. He has been
Chairman of the Board and Chief Executive Officer of Dreyer's Grand Ice Cream,
Inc., a manufacturer and distributor of premium ice cream products, since 1977.
In 1973, he founded Vintage Management Company, a restaurant company operating
Vintage House Restaurants, and served as its President until 1977.

Each officer serves at the discretion of the Board of Directors. The
Company's By-laws permit the Board of Directors to establish by resolution the
authorized number of directors, and the Company currently has eight directors
authorized. There are no family relationships among any of the directors or
executive officers of the Company.

OTHER KEY EMPLOYEES

In addition to directors and executive officers, the Company has the
following key employees:

Maurizio Mazzon joined the Company in 1989 as Chef of Il Fornaio in Palo
Alto. Mr. Mazzon also served as Chef of Il Fornaio in San Jose from 1992 to
1995, when he was promoted to Executive Chef of the Company. In 1997, Mr. Mazzon
was also appointed Vice President. As Vice President and Executive Chef, he is
responsible for all menus, recipes and the supervision of all Chef-Partners and
other kitchen personnel.

Michael Mindel joined the Company in January 1990 as a restaurant manager
and, in February 1992, was promoted to Director of Retail Operations. In 1994,
Mr. Mindel became the Director of Marketing and served in that capacity until
1997, when he was promoted to Vice President of Marketing. His duties include
the

32
<PAGE> 36

development and management of marketing programs. Prior to joining the Company,
Mr. Mindel was employed by Chiat/Day Advertising, Inc., a national advertising
firm, as an account manager. Laurence B. Mindel is the father of Michael Mindel.

Mark Walker joined the Company in March 1990 as Vice President, Operations,
a position he held until April 1996, when he assumed his current position as
Vice President, Concept Development. His duties include the management of
purchasing and construction programs. From 1989 to 1990, he served as President
of Hodge Food Services, Inc., a restaurant corporation. From 1981 to 1988, Mr.
Walker was employed at Spectrum Foods, most recently as Vice President,
Operations.

Anne Goldberg joined the Company in December 1995 as Director of Wholesale
Bakeries. Her duties include directly supervising the wholesale bakeries
operations. Prior to joining the Company, Ms. Goldberg was an independent
consultant specializing in the food service industry and, from 1992 to 1995, she
was the general manager of Auntie Pasta, Inc., a manufacturer and retailer of
prepared foods.

Peter Hausback joined the Company in February 1992 as Controller. His
duties at the Company include supervising the accounting and tax functions.
Prior to joining the Company, Mr. Hausback was employed for five years with
Price Waterhouse LLP. He is a certified public accountant.

BOARD COMPOSITION

The Company currently has authorized eight directors. In accordance with
the Company's Certificate of Incorporation, upon the closing of this offering,
the Board of Directors will be divided into three classes with staggered
three-year terms. Class I will consist of Mr. Hedrick, Mr. Lester and Mr.
Mindel, whose terms will expire at the annual stockholders' meeting in 1998,
Class II will consist of Mr. Hellman, Mr. Hislop and Mr. Rogers, whose terms
will expire at the annual stockholders' meeting in 1999, and Class III will
consist of Mr. Cortopassi and Dr. Mornell, whose terms will expire at the annual
stockholders' meeting in 2000. At each annual meeting of stockholders after the
closing of this offering, the successors to directors whose term will then
expire will be elected to serve from the time of election and qualification
until the third annual meeting following election. This classification of the
Board of Directors may have the effect of delaying or preventing changes in
control or management of the Company.

BOARD COMMITTEES

The Audit Committee of the Board of Directors, currently composed of Mr.
Cortopassi and Mr. Hellman, reviews the internal accounting procedures of the
Company and consults with and reviews the services provided by the Company's
independent auditors. The Compensation Committee of the Board of Directors,
currently composed of Mr. Hedrick, Mr. Lester, Dr. Mornell and Mr. Rogers,
reviews and recommends to the Board the compensation and benefits of all
officers of the Company and reviews general policy relating to compensation and
benefits of employees of the Company. The Compensation Committee also
administers the issuance of stock options and other awards under the Company's
equity incentive and bonus plans.

COMPENSATION OF DIRECTORS

Directors who are not employees of the Company currently receive stock
options as compensation from the Company for their service as members of the
Board of Directors. Non-employee directors are eligible to receive options to
purchase Common Stock pursuant to the Company's 1997 Non-Employee Directors'
Stock Option Plan. See "Employee Benefit Plans -- 1997 Non-Employee Directors'
Stock Option Plan." In March 1996, the Company granted stock options pursuant to
a predecessor to the Plan to each of Mr. Hedrick, Mr. Hellman, Mr. Lester, Dr.
Mornell, Mr. Rogers and Mr. Cortopassi, to purchase 1,500 shares of the
Company's Common Stock at an exercise price of $5.00 per share.

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<PAGE> 37

COMPENSATION OF EXECUTIVE OFFICERS

The following table sets forth the cash compensation awarded or paid to, or
earned by, the Company's Chief Executive Officer and each of the Company's other
executive officers whose combined salary and bonus for 1996 exceeded $100,000
(the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
ANNUAL AWARDS
COMPENSATION(1) ---------------------
------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS(2) OPTIONS
- -------------------------------------------------------- -------- -------- ---------------------
<S> <C> <C> <C>
Laurence B. Mindel...................................... $369,519 $ -- 17,695
Chairman of the Board and
Chief Executive Officer
Michael J. Hislop....................................... 313,615 -- 15,200
President and Chief Operating Officer
Paul J. Kelley.......................................... 139,495 28,000 6,350
Vice President, Finance, Chief
Financial Officer and Secretary
</TABLE>

- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), the compensation described in this table does not include
medical, group life insurance or other benefits received by the Named
Executive Officers that are available generally to all salaried employees of
the Company, and certain perquisites and other personal benefits received by
the Named Executive Officers that do not exceed the lesser of $50,000 or 10%
of any such officer's salary and bonus disclosed in this table.

(2) Includes bonuses paid in 1997 for services rendered in 1996, but does not
include bonuses paid in 1996 for services rendered in 1995.

OPTION GRANTS IN 1996

The following table sets forth certain information for each grant of stock
options made during 1996 to each of the Named Executive Officers:

<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
--------------------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERMS
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------
NAME GRANTED (1) 1996(2) PER SHARE (3) DATE(4) 5% 10%
- ----------------------------- ----------- ------------- -------------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Laurence B. Mindel........... 17,695 10.84% $ 5.50 04/25/01 $26,888 $ 59,416
Michael J. Hislop............ 15,200(5) 9.31 5.00 04/25/06 47,728 121,144
Paul J. Kelley............... 6,350 3.89 5.00 04/25/06 19,939 50,610
</TABLE>

- ---------------
(1) Options generally become exercisable on an annual basis at a rate of 20% per
year for five years. Options generally expire 10 years from the date of
grant or earlier upon termination of employment.

(2) Based on options to purchase an aggregate of 163,265 shares of Common Stock
granted to employees and directors of, and consultants to, the Company
during 1996, including the Named Executive Officers.

(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board of
Directors except that, with respect to the option granted to Mr. Mindel, the
exercise price was equal to 110% of such fair market value.

34
<PAGE> 38

(4) The potential realizable value is calculated based on the term of the option
at its date of grant (five years for Mr. Mindel's option and 10 years for
options held by other officers). It is calculated based on the assumption
that the stock price on the date of grant appreciates from the date of grant
at the indicated annual rate compounded annually for the entire term of the
option and that the option is exercised and sold on the last day of its term
for the appreciated stock price. The 5% and 10% assumed rates of
appreciation are derived from the rules of the Commission and do not
represent the Company's estimate or projection of future Common Stock price.

(5) In the event of a change in control of the Company, the unvested portion of
Mr. Hislop's option accelerates and he has the right to exercise all or any
portion of the option.

AGGREGATED OPTION EXERCISES IN 1996 AND DECEMBER 29, 1996 OPTION VALUES

The following table sets forth certain information concerning the number
and value of unexercised stock options held as of December 29, 1996 by each of
the Named Executive Officers.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 29, 1996 DECEMBER 29, 1996 (1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Laurence B. Mindel......................... 26,665 50,714 $ 140,923 $ 244,919
Michael J. Hislop.......................... 184,000 291,200 966,000 1,521,200
Paul J. Kelley............................. 15,179 38,857 84,192 204,728
</TABLE>

- ---------------
(1) There was no public trading market for the Common Stock as of December 29,
1996. Accordingly, these values have been calculated, in accordance with the
rules of the Commission, on the basis of an assumed initial public offering
price of $9.75 per share minus the applicable exercise price per share.

EMPLOYMENT AGREEMENT

In April 1995, the Company entered into an at-will employment agreement
with Michael J. Hislop as President and Chief Operating Officer. The agreement
provides for a base salary, annual bonus and a monthly car allowance, subject to
annual review. In addition, pursuant to the agreement, in April 1995, the
Company granted Mr. Hislop options to purchase 460,000 shares of Common Stock.
As set forth in the employment agreement, in the event of a change of control
(as defined in the agreement), the unvested portion of the option automatically
accelerates and Mr. Hislop has the right to exercise all or any portion of the
option. The agreement provides further that in the event Mr. Hislop's employment
is involuntarily terminated by the Company for any reason other than death,
disability or cause (as defined in the agreement) or in the event Mr. Hislop
voluntarily terminates his employment within 30 days of a change of control (as
defined in the agreement), Mr. Hislop will receive, in lieu of any severance
benefits which he may otherwise be entitled to receive under any Company
severance plan or program, a cash severance payment in an aggregate amount equal
to 100% of Mr. Hislop's annual base salary at the time of such termination.

EMPLOYEE BENEFIT PLANS

1997 Equity Incentive Plan. In March 1997, the Board of Directors adopted
and, in April 1997, the stockholders approved, the Company's 1997 Equity
Incentive Plan (the "1997 Plan"), as an amendment and restatement of the
Company's existing 1992 Stock Option Plan and 1995 Stock Option Plan
(collectively, the "Prior Plans"). An aggregate of 1,300,000 shares of Common
Stock are authorized for issuance under the 1997 Plan. The terms of options
granted under the Prior Plans are substantially similar to options that may be
granted under the 1997 Plan.

The 1997 Plan provides for the grant of incentive stock options under the
Internal Revenue Code of 1986, as amended (the "Code"), to employees (including
officers and employee-directors) and nonstatutory stock options to employees
(including officers and employee-directors), non-employee directors and
consultants of

35
<PAGE> 39

the Company. The 1997 Plan is administered by the Board of Directors or a
Committee appointed by the Board (the "Committee"), which determines recipients
and types of options to be granted, including the exercise price, number of
shares subject to the option and the exercisability thereof.

The terms of stock options granted under the 1997 Plan generally may not
exceed 10 years. The exercise price of options granted under the 1997 Plan is
determined by the Board or the Committee, provided that the exercise price for a
nonstatutory stock option cannot be less than 85% of the fair market value of
the Common Stock on the date of the option grant, and the exercise price for an
incentive stock option cannot be less than 100% of the fair market value of the
Common Stock on the date of the option grant. Options granted under the 1997
Plan typically vest annually at the rate at 20% per year over five years. A
nonstatutory stock option may be transferred by the optionee if the stock option
agreement evidencing such option specifically provides for transferability. An
incentive stock option may not be transferred by the optionee other than by will
or the laws of descent or distribution. In addition, an optionee may designate a
beneficiary who may exercise the option (whether a nonstatutory or incentive
stock option) following the optionee's death. An optionee whose relationship
with the Company or any affiliate terminates for any reason (other than by death
or permanent and total disability) may generally exercise options in the
three-month period following such termination (unless such options terminate or
expire sooner by their terms) or in such longer or shorter period as may be
determined by the Board or the Committee and evidenced in the option agreement.
Options may generally be exercised for up to 18 months after an optionee's
relationship with the Company or any affiliate terminates due to death and for
up to 12 months if due to disability.

No incentive stock option may be granted to any person who, at the time of
grant, owns (or is deemed to own) stock possessing more than 10% of the total
combined voting power of the Company or any affiliate of the Company, unless the
option exercise price is at least 110% of the fair market value of the stock
subject to the option on the date of grant and the term of the option does not
exceed five years from the date of grant. The aggregate fair market value,
determined at the time of grant, of the shares of Common Stock with respect to
which incentive stock options are exercisable for the first time by an optionee
during any calendar year (under all such plans of the Company and its
affiliates) may not exceed $100,000.

Upon certain changes in control of the Company, unless otherwise specified
in the option agreement, all outstanding options under the 1997 Plan will either
be assumed or substituted by the surviving entity. If the surviving entity
determines not to assume or substitute such options then, with respect to
persons then performing services as employees, directors or consultants, the
time during which such options may be exercised shall be accelerated and the
options terminated if not exercised prior to such change in control.

As of August 15, 1997, options to purchase 902,795 shares of Common Stock
were outstanding under the 1997 Plan and predecessor plans of the Company.
Shares subject to stock options that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
options under the 1997 Plan. The 1997 Plan will terminate in March 2007 unless
sooner terminated by the Board of Directors.

1997 Non-Employee Directors' Stock Option Plan. In March 1997, the Board
of Directors adopted and, in April 1997, the stockholders approved, the 1997
Non-Employee Directors' Stock Option Plan (the "Directors' Plan"), which
provides for the automatic grant of options to purchase shares of Common Stock
to non-employee directors of the Company. The Directors' Plan is administered by
the Board, unless the Board delegates administration to the Committee.

The Directors' Plan provides for the issuance of up to 100,000 shares of
Common Stock. Under the Directors' Plan, each current non-employee director was
automatically granted, in April 1997, an option to purchase 4,500 shares of
Common Stock, and each person who is subsequently elected for the first time to
be a non-employee director will automatically be granted an option to purchase
4,500 shares upon the date of his or her election to the Company's Board of
Directors. On each third anniversary of such grants, each non-employee director
who has continued to serve in that capacity, will automatically be granted an
option to purchase an additional 4,500 shares of Common Stock. Options under the
Directors' Plan have a 10-year term and will vest ratably on an annual basis
over three years. The exercise price of options under the Directors' Plan must
equal the fair market value of the Common Stock on the date of grant. Options
granted under the

36
<PAGE> 40

Directors' Plan are generally nontransferable. Upon certain changes of control
of the Company, the exercisability of options granted under the Directors' Plan
will be accelerated and the options terminated if not exercised prior to such
change of control. Unless otherwise terminated by the Board of Directors, the
Directors' Plan will terminate in March 2007.

As of August 15, 1997, options to purchase an aggregate of 77,500 shares of
Common Stock with a weighted average exercise price of $4.41 per share were
outstanding under the Directors' Plan and predecessor plans of the Company and
held by the Company's non-employee directors. The terms of the options under the
predecessor plans are substantially similar to those available under the Plan
described above.

1997 Employee Stock Purchase Plan. In March 1997, the Board of Directors
adopted and, in April 1997, the stockholders approved, the 1997 Employee Stock
Purchase Plan (the "Purchase Plan"). The Purchase Plan provides for the issuance
of up to 300,000 shares of Common Stock to employees of the Company. The rights
to purchase Common Stock under the Purchase Plan are intended to qualify as
options issued under an "employee stock purchase plan" as that term is defined
in Section 423(b) of the Code.

The Purchase Plan is administered by the Board of Directors or the
Committee, unless such authority is delegated to a committee composed of two or
more members of the Board. Subject to certain limitations, the Board has the
authority to determine when and how rights to purchase Common Stock will be
granted and the terms of each offering of such rights, and to amend or revoke
the rules and regulations for the administration of the Purchase Plan. The Board
has authorized an initial offering under the Purchase Plan, which will commence
upon the effectiveness of this public offering.

Under the Purchase Plan, all eligible employees are granted identical
rights to purchase Common Stock for each Board-authorized offering under the
Purchase Plan. Subject to limited exceptions, any person who has been employed
by the Company for at least one year and is customarily employed for at least 20
hours per week and 5 months per calendar year is eligible to participate in an
offering under the Purchase Plan. An eligible employee participates in the
Purchase Plan by authorizing payroll deductions of up to 15% of such employee's
earnings as defined in the Purchase Plan. The purchase price per share at which
shares are sold in an offering under the Purchase Plan cannot be less than the
lower of (i) 85% of the fair market value of a share of Common Stock on the date
of commencement of the offering or (ii) 85% of the fair market value of a share
of Common Stock on the date of purchase. Rights granted pursuant to any offering
under the Purchase Plan terminate immediately upon cessation of an employee's
employment for any reason and the Company will distribute to such employee all
of his or her net accumulated payroll deductions. In general, an employee may
withdraw from participation in an offering at any time during the purchase
period for such offering. Rights granted under the Purchase Plan are not
transferable and may be exercised only by the person to whom such rights are
granted.

In the event of certain changes of control, the Board of Directors has the
discretion to provide that each right under the Purchase Plan to purchase Common
Stock shall be assumed or substituted with an equivalent right by the acquiring
corporation, or the Board may shorten the offering and provide for all sums
collected to be applied toward the purchase of Common Stock immediately prior to
such change in control.

Bonus Plan. The Company has a bonus plan (the "Bonus Plan"), pursuant to
which certain members of corporate management of the Company are eligible to
receive annual cash bonuses based on a percentage of their respective base
salaries if certain performance targets established by management and approved
by the Board of Directors are met. The bonuses paid under the Bonus Plan are
subject to the approval of the Board of Directors. The bonuses paid to the
executive officers for services rendered in 1996 are included in the Summary
Compensation Table.

Management Incentive Plans. The Company has also established a number of
incentive plans under which restaurant and bakery managers of the Company are
eligible to receive bonuses at the end of each of the Company's fiscal quarters
if certain financial goals, set annually by senior management, are achieved.

37
<PAGE> 41

CERTAIN TRANSACTIONS

INDEMNIFICATION AND LIMITATION OF DIRECTOR AND OFFICER LIABILITY

The Company has entered into indemnity agreements with each of the
Company's directors and executive officers which provide that, subject to
certain limitations, the Company will indemnify against any and all expenses of
the director or executive officer who incurred such expenses because of his or
her status as a director or executive officer, to the fullest extent permitted
by the Company's By-laws and Delaware law. In addition, the Company's By-laws
provide that the Company shall indemnify its directors and executive officers to
the fullest extent not prohibited by Delaware law, subject to certain
limitations, and may also secure insurance, to the fullest extent permitted by
Delaware law, on behalf of any director, officer, employee or agent against any
expense, liability or loss arising out of his or her actions in such capacity.

The Company's Restated Certificate provides that a director of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for any breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful payment
of dividends or unlawful stock repurchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
Delaware law is amended to authorize corporate action further eliminating or
limiting the personal liability of a director, then the liability of a Company
director shall be eliminated or limited to the fullest extent permitted by the
Delaware law, as so amended. The provision in the Restated Certificate does not
eliminate the duty of care and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.

38
<PAGE> 42

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth, as of August 15, 1997, certain information
regarding beneficial ownership of the Company's Common Stock by (i) each person
(or group of affiliated persons) who is known by the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, (ii) each
director of the Company, (iii) each of the Named Executive Officers, (iv) all
directors and executive officers as a group and (v) the Selling Stockholders.
Except as otherwise indicated, the Company believes that the beneficial owners
of the Common Stock listed below, based on information furnished by such owners,
have sole investment and voting power with respect to such shares, subject to
community property laws where applicable.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR SHARES BENEFICIALLY
TO OFFERING SHARES OWNED AFTER OFFERING
DIRECTORS, EXECUTIVE OFFICERS AND 5% ----------------------- BEING -----------------------
STOCKHOLDERS NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
InterWest Partners(1)................ 768,145 16.8% 61,367 706,778 12.7%
Building Three, Suite 255
3000 Sand Hill Road
Menlo Park, CA 94025
Sequoia Capital(2)................... 287,799 6.3 22,935 264,864 4.7
Building Four, Suite 280
3000 Sand Hill Road
Menlo Park, CA 94025
Mayfield Fund(3)..................... 237,945 5.2 19,010 218,935 3.9
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Laurence B. Mindel(4)................ 695,515 15.0 -- 695,515 12.4
Michael J. Hislop(5)................. 279,040 5.7 -- 279,040 4.8
Paul J. Kelley(6).................... 46,723 1.0 -- 46,723 *
Michael J. Beatrice(7)............... 10,000 * -- 10,000 *
Dean A. Cortopassi(8)................ 60,794 1.3 -- 60,794 1.1
W. Scott Hedrick(1)(9)............... 779,645 17.0 61,367 718,278 12.8
F. Warren Hellman(10)................ 135,055 2.9 -- 135,055 2.4
W. Howard Lester(11)................. 186,701 4.1 -- 186,701 3.3
Pierre W. Mornell(12)................ 24,497 * -- 24,497 *
T. Gary Rogers(13)................... 52,962 1.2 -- 52,962 *
All executive officers and directors
as a group (10 persons)(14)........ 2,270,932 45.5 61,367 2,209,565 36.9
OTHER SELLING STOCKHOLDERS
- -------------------------------------
Wells Fargo & Company................ 219,478 4.8 219,478 -- --
Other Selling Stockholders(15)....... 313,019 6.8 177,210 135,809 2.4
</TABLE>

- ---------------
* Less than one percent

(1) Includes 218,998 shares held of record by InterWest Partners I, 220,219
shares held of record by InterWest Partners II, 321,125 shares held of
record by InterWest Partners IV and 7,803 shares held of record by
InterWest Entrepreneurs. HBH Partners I is the general partner of InterWest
Partners I, HBH Partners II is the general partner of InterWest Partners
II, InterWest Management Partners IV is the general partner of InterWest
Partners IV and InterWest Partners II is the general partner of InterWest
Entrepreneurs. Mr. Hedrick is a general partner of HBH Partners I, HBH
Partners II and InterWest Management IV. Mr. Hedrick disclaims beneficial
ownership of shares held by such entities except to the extent of his pro
rata interests in such partnerships.

39
<PAGE> 43

(2) Includes 270,532 shares held of record by Sequoia Capital Growth Fund and
17,267 shares held of record by Sequoia Technology Partners III. Sequoia
Capital is a general partner of each of these funds.

(3) Includes 228,428 shares held of record by Mayfield V and 9,517 shares held
of record by Mayfield Associates.

(4) Includes 7,195 shares held by the Mindel Family Trust and 2,587 shares held
by The Mindel Living Trust, of which Mr. Mindel is the trustee. Excludes an
aggregate of 195,944 shares held in trusts for five children of Mr. Mindel,
as to which Mr. Mindel is not a trustee and disclaims beneficial ownership.
Includes 42,141 shares issuable upon the exercise of stock options that are
exercisable within 60 days.

(5) Includes 279,040 shares issuable upon the exercise of stock options that
are exercisable within 60 days.

(6) Includes 25,986 shares issuable upon the exercise of stock options that are
exercisable within 60 days.

(7) Includes 10,000 shares issuable upon the exercise of stock options that are
exercisable within 60 days.

(8) Includes 57,794 shares held of record by Stanislaus Food Products Company,
a California Corporation. Mr. Cortopassi is Chief Executive Officer and
controlling shareholder of Stanislaus Food Products Company. Includes 3,000
shares issuable upon the exercise of stock options that are exercisable
within 60 days.

(9) Includes 11,500 shares issuable upon the exercise of stock options that are
exercisable within 60 days.

(10) Includes 123,555 shares held of record by FWH Associates, a California
Limited Partnership. Mr. Hellman is a general partner of FWH Associates.
Includes 1,500 shares issuable upon the exercise of stock options that are
exercisable within 60 days.

(11) Includes 23,535 shares held of record by Williams-Sonoma, Inc. Mr. Lester
is the Chairman of the Board and Chief Executive Officer of
Williams-Sonoma, Inc. Includes 11,500 shares issuable upon the exercise of
stock options that are exercisable within 60 days.

(12) Includes 2,145 shares held of record by an individual retirement account
for the benefit of Dr. Mornell's wife and 4,620 shares held by Pierre
Mornell, M.D., Sole Proprietor Profit Sharing Plan. Includes 11,500 shares
issuable upon the exercise of stock options that are exercisable within 60
days.

(13) Includes 5,487 shares held of record by Rogers Revocable Trust and 35,975
shares held of record by Four Rogers Trust. Mr. Rogers is a trustee of both
Rogers Revocable Trust and Four Rogers Trust. Includes 11,500 shares
issuable upon the exercise of stock options that are exercisable within 60
days.

(14) Includes information contained in the notes above, as applicable. Includes
1,031,038 shares held by entities affiliated with directors. Includes
407,667 shares issuable upon the exercise of stock options that are
exercisable within 60 days.

(15) Includes stockholders each of whom owned less than 1% of the Company's
Common Stock prior to the offering and will own less than 1% of the
Company's Common Stock following the offering. Such stockholders (and the
number of shares to be sold by such stockholders in the offering) include:
Donald L. Schwarz, Trustee FBO Candice E. Appleton Family Trust (5,000
shares); Douglas Appleton (5,000 shares); Andrew D. Berkey II (3,000
shares); Stephen W. Bershad (12,620 shares); Dennis Bookshester (6,310
shares); Collingwood Partners (25,240 shares); Dorskind 1982 Trust (3,000
shares); Phyllis and Donald Epstein (6,310 shares); Aaron Eshman (4,000
shares) Oak Brook Bank, Trustee Cust. FBO Arthur P. Frigo IRA (6,310
shares); Barry Goldfarb (12,620 shares); Bernard A. Greenberg (3,000
shares); Marilyn Karsten (3,000 shares); C. Joseph LaBonte (3,046 shares);
C. Joseph LaBonte Defined Benefit Plan (6,894 shares); Edward N. Levine
(8,000 shares); Mark T. Lindee (6,000 shares); Delaware Charter Guaranteed
Trust Co. FBO Jerry Magnin (3,000 shares); Jerry Allan Magnin and Lois
Magnin Declaration of Trust (12,620 shares); Master Trust Pursuant to
Hewlett Packard Deferred Profit Sharing Plan and Retirement Plan (25,240
shares); Joseph and Ann H. Nadel Living Trust (3,000); Delaware Charter
Guarantee & Trust, Trustee FBO Donald L. Schwarz IRA (4,000 shares); and
Wilderness Associates (10,000 shares).

40
<PAGE> 44

DESCRIPTION OF CAPITAL STOCK

Upon the closing of this offering, the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock, $.001 par value, and
5,000,000 shares of Preferred Stock, $.001 par value.

COMMON STOCK

As of August 15, 1997, there were 4,582,891 shares of Common Stock (after
giving effect to the conversion of Preferred Stock into Common Stock upon the
closing of this offering) outstanding held of record by 230 stockholders.

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding shares of the Preferred
Stock, the holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preferences of any outstanding shares of Preferred Stock.
Holders of Common Stock have no preemptive rights and no right to convert their
Common Stock into any other securities. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and all shares of Common Stock to be outstanding upon the closing of
this offering will be, fully paid and nonassessable.

PREFERRED STOCK

Pursuant to the Company's Restated Certificate to be effective upon the
closing of this offering, the Board of Directors has the authority, without
further action by the stockholders, to issue up to 5,000,000 shares of Preferred
Stock in one or more series and to fix the designations, powers, preferences,
privileges and relative participating, optional or special rights and the
qualifications, limitations or restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the Common
Stock. The Board of Directors, without stockholder approval, can issue Preferred
Stock with voting, conversion or other rights that could adversely affect the
voting power and other rights of the holders of Common Stock. Preferred Stock
could thus be issued quickly with terms calculated to delay or prevent a change
in control of the Company or make removal of management more difficult.
Additionally, the issuance of 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. Upon the closing of this offering,
there will be no shares of Preferred Stock outstanding and the Company currently
has no plans to issue any of its Preferred Stock.

WARRANTS

As of August 15, 1997, there were warrants outstanding to purchase 32,487
shares of Common Stock at an exercise price of $9.90 per share. The warrants
expire December 31, 1997.

ANTITAKEOVER EFFECTS OF PROVISIONS OF CHARTER DOCUMENTS AND DELAWARE LAW

Charter Documents. The Restated Certificate and By-laws to be effective
upon the closing of this offering, include a number of provisions that may have
the effect of deterring hostile takeovers or delaying or preventing changes in
control or management of the Company. First, the Company's Board of Directors
will be classified into three classes of directors. The Restated Certificate
provides that directors may be removed for cause by the vote of the holders of a
majority of the voting power and without cause by the vote of the holders of
66 2/3% of the voting power. See "Management -- Executive Officers and
Directors." In addition, the Restated Certificate provides that all stockholder
action must be effected at a duly called meeting of stockholders and not by a
consent in writing. Further, the By-laws limit who may call special meetings of
the stockholders. The Company's Restated Certificate does not include a
provision for cumulative voting for directors. Under cumulative voting, a
minority stockholder holding a sufficient percentage of a class of shares may be
able to ensure the election of one or more directors. Finally, the By-laws
establish procedures,

41
<PAGE> 45

including advance notice procedures, with regard to stockholder proposals and
the nomination of candidates for election as directors. These and other
provisions of the Restated Certificate and By-laws and Delaware law could
discourage potential acquisition proposals and could delay or prevent a change
in control or management of the Company. See "Risk Factors -- Effects of Certain
Charter and By-law Provisions."

Delaware Takeover Statute. The Company is subject to the provisions of
Section 203 of the Delaware General Corporation Law. In general, the statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's voting stock.

REGISTRATION RIGHTS

Following this offering, the holders of 2,474,343 shares of Common Stock
(the "Registrable Securities") and warrants to purchase 32,487 shares of Common
Stock are entitled to certain registration rights with respect to such shares.
Subject to certain exceptions, including the right of the Company to defer a
demand registration for a period of 120 days under certain conditions, the
holders of at least 40% of the Registrable Securities may require that the
Company use its best efforts to register for public resale under the Securities
Act beginning six months after the closing of this offering all Registrable
Securities requested to be registered. Subject to certain limitations, the
holders of at least 10% of the outstanding Registrable Securities may require on
two occasions, but not more than once in any 12-month period, that the Company
use its best efforts to register on Form S-3 for public resale all Registrable
Securities requested to be registered. In addition, subject to certain
limitations, in the event the Company elects to register any of its Common Stock
under the Securities Act, either for its own account or for the account of any
other stockholders, the Company is required to notify, and subject to certain
marketing and other limitations, is required to include in such registration the
Registrable Securities of holders requesting registration. The Company is
required to bear all registration expenses incurred in connection with the
registration of Registrable Securities in the one demand registration, in the
two S-3 registrations and in all Company registrations.

Subject to certain limitations, registration rights may be transferred to
an assignee or transferee who is an affiliate of the transferor who acquires a
minimum number of shares of the transferor's Registrable Securities. In
addition, registration rights may be assigned in connection with a distribution
by a transferor to a partner of the transferor, former partner or the estate of
any such partner regardless of the number of shares of the transfer's
Registrable Securities with notice.

TRANSFER AGENT AND REGISTRAR

BankBoston has been appointed as the transfer agent and registrar for the
Company's Common Stock.

42
<PAGE> 46

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for the Company's
Common Stock. As described herein, only a limited number of shares will be
available for sale shortly after this offering because of certain contractual
and legal restrictions on resale. Sales of substantial amounts of Common Stock
of the Company in the public market after the restrictions lapse could adversely
affect the prevailing market price and the ability of the Company to raise
equity capital in the future.

Upon the closing of this offering, the Company will have outstanding an
aggregate of 5,582,906 shares of Common Stock. Of these shares, all the shares
sold in this offering will be freely tradeable without restrictions or further
registration under the Securities Act and the remaining 4,082,891 shares of
Common Stock held by existing stockholders are "restricted securities" as that
term is defined in Rule 144 under the Securities Act or were issued pursuant to
Regulation S under the Securities Act (the "Restricted Shares"). Restricted
Shares may be sold in the public market only if registered or if they qualify
for an exemption from registration, such as Rules 144, 144(k) or 701 promulgated
under the Securities Act.

Each officer, director and certain stockholders of the Company and holders
of options to acquire Common Stock have agreed with the representatives of the
Underwriters for a period of 180 days after the date of this Prospectus, subject
to certain exceptions, not to directly or indirectly sell, offer, contract or
grant any option to sell (including, without limitation, any short sale),
pledge, transfer, establish an open "put equivalent position" or otherwise
dispose of any shares of Common Stock, options or warrants to acquire shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock, without the prior written consent of Montgomery Securities
(the "Lock-Up Agreements"). In its sole discretion and at any time without
notice, Montgomery Securities may release all or any portion of the shares
subject to the Lock-Up Agreements. Of the Restricted Shares, 3,507,540 shares
are subject to the Lock-Up Agreements, and all of these shares will become
available for sale in the public market immediately following expiration of the
180-day lock-up period, subject (to the extent applicable) to the volume and
other limitations of Rule 144 or Rule 701.

An additional 416,095 Restricted Shares are subject to contractual
restrictions with the Company similar to those contained in the Lock-Up
Agreements, of which 78,033 shares will become available for sale in the public
market beginning 120 days after the date of this Prospectus and 338,062 shares
beginning 180 days after the date of this Prospectus, subject (to the extent
applicable) to the volume and other limitations of Rule 144 or Rule 701.

In addition, beginning 90 days after the date of this Prospectus, 38,428
Restricted Shares not subject to Lock-Up Agreements or such contractual
restrictions will become available for sale in the public market, subject to the
volume and other limitations of Rule 144 or Rule 701. The remaining 120,828
Restricted Shares not subject to Lock-Up Agreements or such contractual
restrictions will be eligible for sale in the public market pursuant to Rule
144(k) under the Securities Act as of the date of this Prospectus.

The holders of approximately 2,474,343 shares of Common Stock and
outstanding warrants to purchase 32,487 shares of Common Stock have registration
rights with respect to such shares. See "Description of Capital
Stock -- Registration Rights."

As of August 15, 1997, there were 980,295 shares of Common Stock subject to
outstanding options. The Company intends to file, shortly following the closing
of this offering, registration statements under the Securities Act to register
shares of Common Stock reserved for issuance under the Company's employee
benefit plans, thus permitting the sale of such shares by non-affiliates in the
public market without restriction under the Securities Act. Such registration
statements will become effective immediately upon filing.

In general, under Rule 144, beginning 90 days after the date of this
Prospectus, any holder, including an affiliate of the Company, of Restricted
Shares as to which at least one year has elapsed since the later of the date of
acquisition of the shares from the Company or from an affiliate of the Company,
would be entitled within any three-month period to sell a number of shares that
does not exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately 55,800 shares immediately after the closing of this offering), or
the average weekly trading volume of the Common Stock on the Nasdaq National
Market during

43
<PAGE> 47

the four calendar weeks preceding the date on which notice of the sale is filed
with the Commission. Sales under Rule 144 are subject to certain requirements
relating to manner of sale, notice and availability of current public
information about the Company. However, a person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale and who beneficially owns
Restricted Shares is entitled to sell such shares under Rule 144(k) without
regard to the limitations described above, provided that at least two years have
elapsed since the later of the date the shares were acquired from the Company or
from an affiliate of the Company. The foregoing is a summary of Rule 144 and is
not intended to be a complete description of it.

Subject to certain conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisers prior to the closing of this
offering, pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Commission has
indicated that Rule 701 will apply to stock options granted by the Company
before this offering, along with the shares acquired upon exercise of such
options. Securities issued in reliance on Rule 701 are deemed to be Restricted
Shares and, beginning 90 days after the date of this Prospectus (unless subject
to the Lock-Up Agreements or other contractual restrictions described above),
may be sold by persons other than affiliates subject only to the manner of sale
provisions of Rule 144 and by affiliates under Rule 144 without compliance with
its one-year minimum holding period requirement.

44
<PAGE> 48

UNDERWRITING

The Underwriters named below, represented by Montgomery Securities and
Alex. Brown & Sons Incorporated (the "Representatives"), have severally agreed,
subject to the terms and conditions set forth in the Underwriting Agreement, to
purchase from the Company and the Selling Stockholders the numbers of shares of
Common Stock indicated below opposite their respective names at the initial
public offering price less the underwriting discount set forth on the cover page
of this Prospectus. The Underwriting Agreement provides that the obligations of
the Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of such shares if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---------------------------------------------------------------- ----------
<S> <C>
Montgomery Securities...........................................
Alex. Brown & Sons Incorporated.................................

---------
Total................................................. 1,500,000
=========
</TABLE>

The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose initially to offer the Common Stock to the public
on the terms set forth on the cover page of this Prospectus. The Underwriters
may allow to selected dealers a concession of not more than $ per
share, and the Underwriters may allow, and such dealers may reallow, a
concession of not more than $ per share to certain other dealers. After
the initial public offering, the offering price and other selling terms may be
changed by the Representatives. The Common Stock is offered subject to receipt
and acceptance by the Underwriters and to certain other conditions, including
the right to reject orders in whole or in part.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of the Underwriting Agreement, to purchase up
to a maximum of 225,000 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial shares to be
purchased by the Underwriters. To the extent that the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the table above. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.

The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.

Pursuant to the terms of the Lock-Up Agreements, the holders of 3,507,540
shares of Common Stock have agreed that, for a period of 180 days after the
effective date of this Prospectus, they will not, without the prior written
consent of Montgomery Securities, subject to certain exceptions, directly or
indirectly, sell, offer, contract or grant any option to sell (including,
without limitation, any short sale), pledge, transfer, establish an open "put
equivalent position" or otherwise dispose of any shares of Common Stock, options
or warrants to acquire shares of Common Stock or any securities convertible into
or exchangeable for shares of Common Stock. In addition, the Company has agreed
that for a period of 180 days after the date of this Prospectus, it will not,
without the prior written consent of Montgomery Securities, directly or
indirectly, offer to sell, issue, distribute or otherwise dispose of any equity
securities or securities convertible into or exchangeable for equity securities
or any options, rights or warrants with respect to any equity securities except
for (i) shares of Common Stock offered hereby, (ii) shares of Common Stock
issued pursuant to exercise of outstanding options disclosed in the Prospectus
or (iii) options granted after the date of this Prospectus under the Company's
option plans described in the Prospectus. See "Shares Eligible for Future Sale."

45
<PAGE> 49

Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiations among the Company, the Selling Stockholders and the
Representatives. Among the factors to be considered in such negotiations will be
the history of, and the prospects for, the Company and the industry in which it
competes, an assessment of the Company's management, its past and present
operations, its past and present financial performance, its prospects for future
earnings, the general condition of the securities markets at the time of the
offering and the market prices for publicly traded common stock of comparable
companies in recent periods and other factors deemed relevant.

The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority in excess of 5% of the shares of Common Stock offered hereby.

The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with this offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with this offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

As of the date of this Prospectus, Montgomery Securities beneficially owned
3,537 shares of Common Stock of the Company.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by its counsel, Cooley Godward LLP ("Cooley Godward"), San
Francisco, California. Certain legal matters relating to the offering will be
passed upon for the Underwriters by Orrick, Herrington & Sutcliffe LLP, San
Francisco, California. As of the date of this Prospectus, GC&H Investments, an
investment partnership composed of certain partners of and persons associated
with Cooley Godward, beneficially owned 3,693 shares of Common Stock of the
Company and Cooley Godward beneficially owned 4,310 shares of Common Stock of
the Company.

EXPERTS

The financial statements as of December 29, 1996 and December 31, 1995 and
for each of the three years in the period ended December 29, 1996 included in
this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.

ADDITIONAL INFORMATION

A Registration Statement on Form S-1, including amendments thereto,
relating to the shares of Common Stock offered hereby has been filed by the
Company with the Commission under the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. In each instance of the description of or
reference to the contents of any contract or

46
<PAGE> 50

document herein, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such
description or reference being qualified in all respects by such reference. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to such Registration Statement, exhibits and
schedules. A copy of the Registration Statement may be inspected by anyone
without charge at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and copies
of all or any part thereof may be obtained from those offices upon the payment
of certain fees prescribed by the Commission. The Commission maintains a World
Wide Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the site is http://www.sec.gov.

47
<PAGE> 51

IL FORNAIO (AMERICA) CORPORATION

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Balance Sheets as of December 31, 1995, December 29, 1996, and June 29, 1997.......... F-3
Statements of Income for the years ended December 25, 1994, December 31, 1995,
December 29, 1996, and the six months ended June 30, 1996 and June 29, 1997......... F-4
Statements of Changes in Stockholders' Equity for the years ended December 25, 1994,
December 31, 1995, December 29, 1996, and the six months ended June 29, 1997........ F-5
Statements of Cash Flows for the years ended December 25, 1994, December 31, 1995,
December 29, 1996, and the six months ended June 30, 1996 and June 29, 1997......... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>

F-1
<PAGE> 52

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Il Fornaio (America) Corporation:

We have audited the accompanying balance sheets of Il Fornaio (America)
Corporation (the "Company") as of December 29, 1996 and December 31, 1995, and
the related statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 29, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Il Fornaio (America) Corporation at December
29, 1996 and December 31, 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 29, 1996 in
conformity with generally accepted accounting principles.

/s/ DELOITTE & TOUCHE LLP
- --------------------------------------

San Francisco, California
March 3, 1997

F-2
<PAGE> 53

IL FORNAIO (AMERICA) CORPORATION

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JUNE 29,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents...................................... $ 2,375 $ 1,701 $ 3,449
Restricted cash........................................... 315 338 329
Accounts receivable....................................... 1,118 1,271 1,122
Note receivable........................................... -- 308 977
Inventories............................................... 1,529 1,351 1,352
Prepaid expenses.......................................... 774 756 489
Deferred tax assets, net.................................. 1,372 579 579
------- ------- -------
Total current assets.............................. 7,483 6,304 8,297
------- ------- -------
Property and equipment, net................................. 24,881 26,179 26,148
Deferred tax assets, net.................................... 1,366 1,927 1,927
Other assets................................................ 464 445 808
------- ------- -------
Total assets...................................... $34,194 $34,855 $ 37,180
======= ======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,107 $ 2,292 $ 2,027
Accrued expenses.......................................... 3,969 3,704 5,154
Current portion of debt................................... 600 150 --
------- ------- -------
Total current liabilities......................... 6,676 6,146 7,181
------- ------- -------
Long-term debt.............................................. 150 -- --
Reserve for store closures.................................. 255 346 476
Deferred lease incentives:
Construction allowances................................... 5,479 5,090 4,702
Deferred rent............................................. 351 337 332
------- ------- -------
Total deferred lease incentives........................ 5,830 5,427 5,034
------- ------- -------
Commitments (Note 10)
Stockholders' equity:
Convertible preferred stock, no par value; 3,500,000
shares authorized; 2,316,296 and 2,308,196 shares
issued and outstanding; aggregate liquidation
preference of $17,722 and $17,671 respectively......... 16,936 16,885 16,885
Common stock, no par value; 15,000,000 shares authorized;
1,532,359 and 1,611,766 shares issued and outstanding
respectively........................................... 7,729 7,980 8,228
Accumulated deficit....................................... (3,382) (1,929) (624)
------- ------- -------
Total stockholders' equity............................. 21,283 22,936 24,489
------- ------- -------
Total liabilities and stockholders' equity........ $34,194 $34,855 $ 37,180
======= ======= =======
</TABLE>

See notes to financial statements

F-3
<PAGE> 54

IL FORNAIO (AMERICA) CORPORATION

STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
------------------------------------------ -------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29, JUNE 30, JUNE 29,
1994 1995 1996 1996 1997
------------ ------------ ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Restaurants............................ $ 39,485 $ 43,647 $ 50,599 $ 24,733 $ 32,116
Wholesale bakeries..................... 4,951 5,181 6,016 2,891 3,150
Retail bakeries........................ 5,208 5,312 4,137 2,600 311
------- ------- ------- ------- -------
Total revenues................. 49,644 54,140 60,752 30,224 35,577
------- ------- ------- ------- -------
Costs and expenses:
Cost of sales.......................... 11,300 12,772 14,792 7,273 8,350
Operating expenses..................... 29,290 31,036 35,152 17,569 20,703
Depreciation and amortization.......... 3,162 3,304 3,860 1,934 1,927
General and administrative expenses.... 3,592 4,083 4,724 2,323 2,956
Provision for store closures........... -- 932 -- -- (470)
------- ------- ------- ------- -------
Total costs and expenses....... 47,344 52,127 58,528 29,099 33,466
------- ------- ------- ------- -------
Income from operations................... 2,300 2,013 2,224 1,125 2,111
Other (income) expenses:
Interest income........................ (71) (157) (167) (73) (111)
Interest expense....................... 124 98 40 29 2
------- ------- ------- ------- -------
Total other (income) expenses,
net............................... 53 (59) (127) (44) (109)
------- ------- ------- ------- -------
Income before provision (benefit)
for income taxes....................... 2,247 2,072 2,351 1,169 2,220
Provision (benefit) for income taxes..... 332 (2,432) 898 476 915
------- ------- ------- ------- -------
Net income............................... $ 1,915 $ 4,504 $ 1,453 $ 693 $ 1,305
======= ======= ======= ======= =======
Net income per share:
Primary................................ $ 0.43 $ 1.01 $ 0.32 $ 0.16 $ 0.27
======= ======= ======= ======= =======
Fully-diluted.......................... $ 0.43 $ 1.00 $ 0.32 $ 0.16 $ 0.27
======= ======= ======= ======= =======
Weighted average number of common stock
and common stock equivalents
Primary............................. 4,467 4,460 4,839 4,809 5,037
Fully-diluted....................... 4,477 4,499 4,839 4,809 5,037
</TABLE>

See notes to financial statements

F-4
<PAGE> 55

IL FORNAIO (AMERICA) CORPORATION

STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------- ------------------ ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
--------- ------- --------- ------ ----------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 26, 1993.......... 2,296,486 $16,733 1,531,476 $7,785 $(9,801) $14,717
Issuance of common stock............ 10,756 42 42
Exercise of common stock options.... 8,859 22 22
Repurchase of common stock.......... (5,400) (18) (18)
Net income.......................... 1,915 1,915
--------- ------- --------- ------ ------- -------
BALANCE, DECEMBER 25, 1994.......... 2,296,486 16,733 1,545,691 7,831 (7,886) 16,678
Issuance of preferred stock......... 19,810 203 203
Issuance of common stock............ 3,450 16 16
Exercise of common stock options.... 18,209 39 39
Repurchase of common stock.......... (34,991) (157) (157)
Net income.......................... 4,504 4,504
--------- ------- --------- ------ ------- -------
BALANCE, DECEMBER 31, 1995.......... 2,316,296 16,936 1,532,359 7,729 (3,382) 21,283
Issuance of common stock............ 30,210 136 136
Conversion of preferred to common... (8,100) (51) 10,222 51
Exercise of common stock options.... 38,975 64 64
Net income.......................... 1,453 1,453
--------- ------- --------- ------ ------- -------
BALANCE, DECEMBER 29, 1996.......... 2,308,196 16,885 1,611,766 7,980 (1,929) 22,936
(unaudited)
Issuance of common stock............ 44,775 224 224
Exercise of common stock options.... 13,444 24 24
Net income.......................... 1,305 1,305
--------- ------- --------- ------ ------- -------
BALANCE, JUNE 29, 1997.............. 2,308,196 $16,885 1,669,985 $8,228 $ (624) $24,489
========= ======= ========= ====== ======= =======
</TABLE>

See notes to financial statements

F-5
<PAGE> 56

IL FORNAIO (AMERICA) CORPORATION

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 25, DECEMBER 31, DECEMBER 29, JUNE 30, JUNE 29,
1994 1995 1996 1996 1997
------------ ------------ ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $1,915 $4,504 $1,453 $ 693 $1,305
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 3,162 3,304 3,860 1,934 1,927
Amortization of deferred lease
incentives.......................... (351) (343) (403) (184) (393)
Provision for store closures.......... -- 932 -- -- (470)
Gain on sale of property and
equipment........................... -- -- (72) -- (60)
Retirement of fixed assets............ -- -- 253 180 266
Deferred income taxes................. -- (2,738) 232 -- --
Changes in:
Restricted cash....................... (110) (65) (23) (37) 9
Accounts receivable................... 181 (299) (153) 30 149
Note receivable....................... -- -- -- -- 34
Inventories........................... (127) (168) 178 138 (1)
Prepaid expenses...................... 135 (518) (408) 25 477
Other assets.......................... 1 (24) 19 16 (363)
Accounts payable...................... (76) 27 185 14 (265)
Accrued expenses...................... 231 227 (174) (205) 1,450
------ ------ ------ ------ ------
Net cash provided by operating
activities.......................... 4,961 4,839 4,947 2,604 4,065
------ ------ ------ ------ ------
Cash flows from investing activities:
Capital expenditures..................... (971) (4,807) (5,847) (2,379) (3,026)
Proceeds from sale of property and
equipment............................. -- -- 626 -- 611
------ ------ ------ ------ ------
Net cash used in investing
activities.......................... (971) (4,807) (5,221) (2,379) (2,415)
------ ------ ------ ------ ------
Cash flows from financing activities:
Payments on debt......................... (1,331) (600) (600) (300) (150)
Proceeds from the issuance of common
stock................................. 42 16 136 133 224
Exercise of stock options................ 22 39 64 -- 24
Repurchase of common stock............... (18) (157) -- -- --
------ ------ ------ ------ ------
Net cash provided by (used in)
financing activities................ (1,285) (702) (400) (167) 98
------ ------ ------ ------ ------
Increase (decrease) in cash and
equivalents.............................. 2,705 (670) (674) 58 1,748
Cash and equivalents, beginning of
period................................... 340 3,045 2,375 $2,375 1,701
------ ------ ------ ------ ------
Cash and equivalents, end of period........ $3,045 $2,375 $1,701 $2,433 $3,449
====== ====== ====== ====== ======
Interest paid.............................. $ 114 $ 105 $ 45 $ 22 $ 3
====== ====== ====== ====== ======
Income taxes paid.......................... $ 187 $ 308 $ 614 $ 375 $ 864
====== ====== ====== ====== ======
Noncash investing and financing activities
Issuance of preferred stock for
restaurant assets..................... $ 203 -- -- -- --
Issuance of note receivable for retail
bakery and restaurant assets.......... -- -- $ 308 -- $ 704
</TABLE>

See notes to financial statements

F-6
<PAGE> 57

IL FORNAIO (AMERICA) CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization and nature of operations -- Il Fornaio (America) Corporation
(the "Company") is engaged in restaurant operations and the production and sale
of Italian bakery products for the wholesale and retail market. At December 29,
1996, the Company owned and operated 12 Italian white tablecloth restaurants,
four free-standing retail bakeries and six wholesale bakeries in California and
Portland, Oregon. In January 1997, the Company opened a new restaurant in Las
Vegas, Nevada and in February 1997, the Company disposed of its remaining four
free-standing retail bakeries.

Fiscal year -- The Company operates on a 52/53-week fiscal year ending on
the last Sunday in December. The fiscal year ended December 29, 1996 contained
52 weeks and the fiscal years ended December 31, 1995 and December 25, 1994
contained 53 and 52 weeks of operations, respectively.

Pre-opening costs consist of location setup, employee training and
promotion associated with the opening of new locations and are amortized over 12
months beginning in the month the location commences operations.

Cash and equivalents -- The Company considers all highly liquid debt
instruments with a maturity at the time of purchase of three months or less to
be cash equivalents.

Restricted cash represents cash restricted for the Company's voluntary
disability insurance plan.

Accounts receivable consist primarily of amounts due from wholesale
customers, which are net of allowances for doubtful accounts of $52,000 and
$42,000 as of December 29, 1996 and December 31, 1995, respectively.

Inventories, consisting primarily of wine, liquor, grocery products and
operating supplies, are stated at the lower of first-in, first-out method (FIFO)
cost or market.

Property and equipment are stated at cost and include interest on funds
borrowed to finance construction. Depreciation and amortization are computed
using the straight-line method over the following estimated useful lives:
leasehold improvements -- lesser of lease term or life of improvements;
furniture, fixtures and equipment -- 5 to 10 years. Leasehold improvements
reimbursed by the landlord through construction allowances are capitalized as
leasehold improvements. Such leasehold improvements and related construction
allowances are amortized on a straight-line basis over the lease term.

Deferred rent -- Certain leases contain fixed escalations of the minimum
annual lease payment during the original term of the lease. For these leases,
the Company recognizes rental expense on a straight-line basis and records the
difference between rent expense and the amount currently payable under the lease
as deferred rent.

Net income per share is based on the weighted average number of shares of
common stock outstanding and the dilutive effect of common stock equivalents,
which consist of preferred stock and common stock options, using the modified
treasury stock method.

Long-lived assets and long-lived assets to be disposed of -- In 1996, the
Company adopted Statement of Financial Accounting Standards No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable and that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell. The implementation of this accounting standard did
not have an impact on the 1996 financial statements.

Advertising costs are expensed as incurred.

F-7
<PAGE> 58

IL FORNAIO (AMERICA) CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Accounting estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of expenses during the
reporting period. Actual amounts could differ from those estimates.

Income taxes are accounted for using the liability method, under which
deferred taxes are provided for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities.

Reserve for store closures includes management's best estimates of the net
costs to be incurred on the sale or disposal of the reserved store. The accrual
consists of future rentals on leases, to the extent they are not offset by
estimated sub-lease rentals, and other estimated costs directly associated with
the decision to close the stores. The costs the Company will ultimately incur
could differ materially from the amounts assumed in arriving at the reserve for
store closures.

Stock-based compensation -- The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Bulletin No. 25, Accounting for Stock Issued to Employees.

Unaudited Interim Information -- The financial information with respect to
the six-month periods ended June 29, 1997 and June 30, 1996 is unaudited. In the
opinion of management, such information contains all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
results of such periods. The results of operations for the six months ended June
29, 1997 are not necessarily indicative of the results to be expected for the
full year.

Reclassifications -- Certain fiscal 1994 and 1995 amounts have been
reclassified to conform with fiscal 1996 presentations.

2. NOTE RECEIVABLE

On July 28, 1996, the Company sold the net assets of four of its
free-standing retail bakeries for cash and a promissory note. The note bears
interest at 8%. Interest is due monthly from December 1996 to July 1997 when the
principal balance is due in full. The note is collateralized by the assets of
the retail bakeries. A gain of $72,000 was recognized as a result of this
transaction (see Note 11).

3. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Leasehold improvements................................. $ 21,821 $ 22,090
Machinery and equipment................................ 12,375 12,660
Furniture and fixtures................................. 3,508 3,817
Construction in progress............................... 584 3,415
-------- --------
Total........................................ 38,288 41,982
Less -- accumulated depreciation and amortization...... (13,407) (15,803)
-------- --------
Property and equipment -- net.......................... $ 24,881 $ 26,179
======== ========
</TABLE>

F-8
<PAGE> 59

IL FORNAIO (AMERICA) CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. ACCRUED EXPENSES

Accrued expenses consisted of the following (in thousands):

<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Accrued payroll and related benefits....................... $2,323 $1,856
Gift certificates.......................................... 332 393
Accrued rent............................................... 353 385
Accrued taxes.............................................. 444 483
Other...................................................... 517 587
------ ------
Total accrued expenses..................................... $3,969 $3,704
====== ======
</TABLE>

5. DEBT

Debt consisted of the following (in thousands):

<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Note payable................................................ $ 750 $ 150
Less: current portion....................................... (600) (150)
----- -----
Long-term portion........................................... $ 150 $ --
===== =====
</TABLE>

The Company's note payable to the bank is to be repaid with monthly
installments of $50,000. The note bears interest at 1% above the bank's
reference rate and is paid monthly. The Company has a $3,000,000 revolving line
of credit with a letter of credit sub-facility which expires on April 1, 1998
and bears interest at the bank's reference rate. There were no borrowings under
the credit line at December 29, 1996. The credit agreement requires compliance
with certain financial covenants and prohibits the payment of cash dividends.
The line of credit and note payable are collateralized by accounts receivable,
inventory, and property and equipment.

6. PROVISION FOR STORE CLOSURES

On October 15, 1993, the Company sold the net assets of one of its
restaurants for cash and a promissory note of $700,000. The note was
collateralized by the restaurant and shares of common stock of the debtor. The
debtor failed to make the required payments under the note agreement, including
sublease rental payments. In March 1995, the Company called the note and
regained control of the restaurant assets. The note was then reclassified to
property and equipment at the carrying value of the note receivable which is
less than the estimated fair value of the collateral. In December 1995, the
Company wrote off the non-performing asset and accrued for rent liability of
$232,000.

F-9
<PAGE> 60

IL FORNAIO (AMERICA) CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. STOCKHOLDERS' EQUITY

The Company's authorized, issued and outstanding common and preferred stock
as of December 29, 1996 were as follows (dollars in thousands):

<TABLE>
<CAPTION>
ISSUED
AGGREGATE AND
LIQUIDATION AUTHORIZED OUTSTANDING
ISSUE PREFERENCE SHARES SHARES
----------------------------------------- ----------- ---------- ---------
<S> <C> <C> <C>
Common Stock............................. $ -- 15,000,000 1,611,766
========= =========
Preferred -- Series B.................... 2,443 542,225 529,884
Series C.................... 2,250 521,739 391,340
Series D.................... 750 521,739 130,399
Series E.................... 3,869 450,000 441,099
Series F.................... 8,359 825,000 815,474
Series not designated....... -- 639,297 --
------- --------- ---------
Total.................................... $17,671 3,500,000 2,308,196
======= ========= =========
</TABLE>

Preferred Stock -- In 1996, 5,600 shares of Series B preferred stock were
converted to 7,067 shares of common stock and 2,500 shares of Series F preferred
stock were converted to 3,155 shares of common stock.

In 1995, the Company issued 19,810 shares of Series F preferred stock for
$10.25 per share to purchase the assets of a restaurant.

Each outstanding share of Series B, C, E and F preferred stock is
convertible into 1.262 shares of common stock at the holder's option or
automatically upon the occurrence of a public offering meeting specific
criteria. Each share of Series D preferred stock is convertible into one share
of Series C preferred stock. The holders of Series B, C, E and F preferred stock
have voting rights equal in number to the shares of common stock issuable upon
conversion. All preferred shares are entitled to receive non-cumulative
dividends equivalent to any dividend declared on common shares.

Warrants -- As of December 29, 1996, there were warrants outstanding to
purchase 32,487 shares of Common Stock at an exercise price of $9.90 per share.
The warrants expire December 31, 1997.

8. STOCK PLANS

1988 Stock Option Plan -- The 1988 Plan, covering 103,680 shares of common
stock, provides for the granting of stock options to key employees. The exercise
price must equal at least 85% of the fair market value of the common stock, as
determined by the Board of Directors. Options vest over three to six years and
expire after five years.

1991 Incentive Stock Option Plan -- The 1991 Plan covers 126,200 shares of
common stock. Options are granted to officers and key employees at the fair
market value of such stock, as determined by the Board of Directors, on the day
preceding the date of the grant. Options vest over five years and expire after
five years. This Plan terminates upon an initial public offering.

1992 Stock Option Plan -- The 1992 Plan covers 300,000 shares of common
stock. The Plan provides for the grant of both incentive and nonstatutory stock
options. The exercise price of incentive options must equal at least the fair
market value of the common stock on the date of grant. Options vest over five
years and expire after ten years.

1995 Stock Option Plan -- The 1995 Plan covers 500,000 shares of common
stock. The Plan provides for the grant of both incentive and nonstatutory stock
options. The exercise price of incentive options must equal

F-10
<PAGE> 61

IL FORNAIO (AMERICA) CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

at least the fair market value of the common stock on the date of grant. Options
vest over five years and expire after ten years.

Non-employee Directors' Stock Option Plan -- In 1992, the Directors' Plan
was adopted to provide for the automatic grant of options to purchase up to
100,000 shares of common stock to non-employee directors of the Company. The
exercise price of the options must equal the fair market value of the common
stock on the date of grant. Options granted under the Plan are not subject to
any vesting restrictions and are fully exercisable as of the date of grant.
Options granted under the plan are immediately exercisable and expire ten years
from the date of grant.

The following table reflects the activity under the Company's stock option
plans: At December 29, 1994 and December 31, 1995, 97,282 and 207,210 stock
options, respectively, were exercisable under the plans.

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
OPTIONS AVERAGE PRICE
--------- -------------
<S> <C> <C>
Balance, December 26, 1993........................... 191,646 $2.98
Granted.............................................. 48,905 4.12
Exercised............................................ (8,859) 2.44
Cancelled............................................ (30,554) 3.54
------- -----
Balance, December 25, 1994........................... 201,138 3.19
Granted.............................................. 529,045 4.51
Exercised............................................ (18,209) 2.11
Cancelled............................................ (3,240) 4.00
------- -----
Balance, December 31, 1995........................... 708,734 4.20
Granted.............................................. 163,265 5.05
Exercised............................................ (38,975) 1.64
Cancelled............................................ (3,200) 4.81
------- -----
Balance, December 29, 1996........................... 829,824 $4.49
======= =====
</TABLE>

Additional information regarding options outstanding as of December 29,
1996 was as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------
WEIGHTED AVG. OPTIONS EXERCISABLE
REMAINING ------------------------------
RANGE OF NUMBER CONTRACTUAL WEIGHTED AVG. NUMBER WEIGHTED AVG.
EXERCISE PRICES OUTSTANDING LIFE (YRS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ------------- --------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.58-3.00 21,588 1.9 $2.25 30,615 $ 2.36
4.00-4.50 642,171 5.7 4.44 265,107 4.27
4.95-5.50 166,065 7.0 5.03 15,153 4.99
------- -------
1.58-5.50 829,824 5.9 $4.49 310,875 4.12
======= =======
</TABLE>

At December 29, 1996, the number of shares available for future grants
under the various plans were as follows:

<TABLE>
<CAPTION>
SHARES
AVAILABLE
FOR
GRANT
-------
<S> <C>
1988 stock option plan..................... --
1991 incentive stock option plan........... 14,638
1992 stock option plan..................... 70,440
Non-employee directors' stock option
plan..................................... 28,000
1995 stock option plan..................... 24,800
</TABLE>

F-11
<PAGE> 62

IL FORNAIO (AMERICA) CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Additional Stock Plan Information -- As discussed in Note 1, the Company
continues to account for its stock-based awards using the intrinsic value method
in accordance with Accounting Principles Board No. 25, Accounting for Stock
Issued to Employees and its related interpretations. Accordingly, no
compensation expense has been recognized in the financial statements for
employee stock arrangements.

Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (SFAS 123) requires the disclosure of pro forma net
income and earnings per share had the Company adopted the fair value method as
of the beginning of fiscal 1995. Under SFAS 123, the fair value of stock-based
awards to employees is calculated through the use of option pricing models, even
though such models were developed to estimate the fair value of freely
tradeable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models also
require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values. The
Company's calculations were made using the Black-Scholes option pricing model
with the following weighted average assumptions: expected life, 120 months
following vesting, stock volatility, 1% in 1996 and 1995, respectively due to
non-public status of Company's stock; risk free interest rates, 6.3% in 1996 and
6.5% in 1995; and no dividends during the expected term. The Company's
calculations are based on a multiple option valuation approach and forfeitures
are recognized as they occur. If the computed fair values of the 1995 and 1996
awards had been amortized to expense over the vesting period of the awards, pro
forma net income would have been as follows:

<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Net income (in thousands):
As reported.............................................. $4,504 $1,453
Pro forma................................................ 4,391 1,189
Primary earnings per share:
As reported.............................................. $ 1.01 $ 0.32
Pro forma................................................ 0.98 0.26
Fully diluted earnings per share:
As reported.............................................. $ 1.00 $ 0.32
Pro forma................................................ 0.98 0.26
</TABLE>

However, the impact of outstanding non-vested stock options granted prior
to 1995 has been excluded from the pro forma calculation; accordingly, the 1995
and 1996 pro forma adjustments are not indicative of future period pro forma
adjustments, when the calculation will apply to all applicable stock options.

F-12
<PAGE> 63

IL FORNAIO (AMERICA) CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

9. INCOME TAXES

The Company provides a deferred tax expense or benefit equal to the change
in the deferred tax liability during the year. Deferred income taxes reflect the
net tax effects of (a) temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes, and (b) operating loss and tax credit carryforwards.
Significant components of the Company's net deferred tax balances as of December
29, 1996 and December 31, 1995 were as follows (in thousands):

<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Payroll related.................................... $ 346 $ 310
Reserves for store closures........................ 512 616
Deferred rent liability............................ 140 135
Net operating loss carryforwards................... 954 278
Tax credit carryforwards........................... 906 1,512
Other.............................................. 177 120
------ ------
Total deferred tax assets....................... 3,035 2,971
------ ------
Deferred tax liabilities:
Fixed assets....................................... (196) (348)
Pre-opening expenses............................... (101) (117)
------ ------
Total deferred tax liabilities.................. (297) (465)
------ ------
Valuation allowance.................................. -- --
------ ------
Net deferred tax assets.............................. $2,738 $2,506
====== ======
</TABLE>

The Company provided no valuation allowance against deferred tax assets
recorded as of December 29, 1995 and 1996, as the Company believes it is
"more-likely-than-not" that all deferred assets will be fully realized in future
periods.

As of December 29, 1996, the Company has available net operating loss
carryforwards for federal tax purposes of approximately $817,000. The net
operating loss carryforwards begin to expire in the year 2000. In addition, the
Company has unused investment and general business tax credits of approximately
$681,000 and alternative minimum tax credit carryforwards of approximately
$831,000. The investment tax credits will begin to expire in 1998. The Company's
utilization in any one year of the above net operating losses is limited under
the provisions of the Tax Reform Act of 1986 to $1,400,000 per year and may be
further limited if there are additional corporate ownership changes in the
future.

The components of income tax expense (benefit) for the years ended December
29, 1996 and December 31, 1995 were as follows (in thousands):

<TABLE>
<CAPTION>
1994 1995 1996
---- ------- ----
<S> <C> <C> <C>
Current provision:
Federal.......................................... $ 60 $ 179 $461
State............................................ 272 127 205
---- ------- ----
Total current................................. 332 306 666
Deferred tax assets, net........................... -- (2,738) 232
---- ------- ----
Income tax expense (benefit)....................... $332 $(2,432) $898
==== ======= ====
</TABLE>

F-13
<PAGE> 64

IL FORNAIO (AMERICA) CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The reconciliation between the Company's effective tax rate on earnings
before income taxes (benefits) and the statutory federal income tax rate of 34%
for the years ended December 26, 1996 and December 31, 1995 were as follows (in
thousands):

<TABLE>
<CAPTION>
1994 1995 1996
----- ------- ----
<S> <C> <C> <C>
Federal income tax at 34% statutory rate.......... $ 768 $ 705 $801
State income tax.................................. 135 124 141
Investment and other tax credits.................. (113) (102) (71)
Valuation allowance............................... (447) (3,174) --
Other............................................. (11) 15 27
----- ------- ----
Total............................................. $ 332 $(2,432) $898
===== ======= ====
</TABLE>

10. COMMITMENTS

The Company leases all restaurant, retail bakery, production bakery and
office space under operating leases which extend through year 2017. Certain
leases require increased rental payments, generally related to changes in the
Consumer Price Index and increases in property taxes and certain leases also
provide for additional rent based on a percentage of sales. Total rent expense
for all operating leases was as follows (in thousands):

<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Minimum rentals.................................. $1,754 $1,971 $2,076
Contingent rentals............................... 786 732 772
------ ------ ------
Total rental expense............................. $2,540 $2,703 $2,848
====== ====== ======
</TABLE>

At December 29, 1996, future minimum lease payments under long-term
operating leases were as follows (in thousands):

<TABLE>
<CAPTION>
YEAR
ENDING DECEMBER
-------------------------------------------
<S> <C>
1997..................................... $ 2,301
1998..................................... 2,228
1999..................................... 2,183
2000..................................... 2,119
2001..................................... 2,130
Thereafter............................... 14,485
-------
Total.................................... $25,446
=======
</TABLE>

11. SUBSEQUENT EVENTS

On February 14, 1997, the Company sold the net assets of its four remaining
free-standing retail bakeries for $815,000 which includes a promissory note of
$204,000. The note bears interest at 8.25% and is payable in twenty-four equal
monthly installments starting March 15, 1997. The note is collateralized by the
assets of the retail bakeries. The sales price approximates the carrying value
of the assets sold.

F-14
<PAGE> 65

IL FORNAIO (AMERICA) CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Unaudited

Stock Plans -- In March 1997, the Board of Directors adopted and, in April
1997, the stockholders approved, an Equity Incentive Plan (the "1997 Incentive
Plan"), a Non-Employee Directors' Stock Option Plan (the "1997 Directors Plan")
and an Employee Stock Purchase Plan (the "1997 Purchase Plan," and collectively,
the "1997 Plans"). The 1997 Incentive Plan amends and restates the 1992 Stock
Option Plan and 1995 Stock Option Plan (see Note 8). A summary of factors
associated with the 1997 Plans is as follows:

<TABLE>
<CAPTION>
OPTIONS CURRENTLY
AUTHORIZED OUTSTANDING UNDER
NUMBER OF PRIOR PLANS AT PLAN
SHARES DECEMBER 31, 1996 TERMS TERMINATION
--------- ----------------- -------- -----------
<S> <C> <C> <C> <C>
1997 Incentive Plan.................. 1,300,000 795,605 10 Years March 2007
1997 Directors Plan.................. 100,000 -- 10 Years March 2007
1997 Purchase Plan................... 300,000 -- -- --
</TABLE>

All other provisions of the 1997 Incentive Plan are similar to the
provisions of the prior plans that the 1997 Incentive Plan amends and restates.

Sale of the Costa Mesa Restaurant -- In June 1997, the Company disposed of
its Costa Mesa restaurant and recorded a pre-tax reversal of $470,000 against
the provision for store closures originally recorded in 1993.

Impact of New Accounting Standard -- In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128, Earnings per Share ("SFAS 128"). The Company is required to adopt SFAS
128 in the fourth quarter of fiscal 1997 and will restate at that time earnings
per share (EPS) data for prior periods to conform with SFAS 128. Earlier
application is not permitted. SFAS 128 requires dual presentation of basic EPS
and diluted EPS on the face of all income statements issued after December 15,
1997 for all entities with complex capital structures. Basic EPS excludes
dilution and is computed as net income divided by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through stock options,
warrants and other convertible securities. The pro forma effect, assuming
adoption of SFAS 128 at the beginning of each period, is presented below:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
------------------------------------------ -------------
DECEMBER 25, DECEMBER 31, DECEMBER 29, JUNE 29,
1994 1995 1996 1997
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Pro forma
EPS:
Basic....................... $ 0.43 $ 1.01 $ 0.32 $0.29
Diluted..................... $ 0.43 $ 1.00 $ 0.32 $0.28
</TABLE>

F-15
<PAGE> 66
[First page of menu is a graphic depiction of the Company's Bakerman Logo]

WE BAKE OUR BREADS FROM SCRATCH EACH DAY AND POUR OUR OWN EXTRA VIRGIN OLIVE OIL
IMPORTED FROM ITALY. BOTH ARE AVAILABLE AT OUR BAKERY TO TAKE HOME.

<TABLE>
<CAPTION>
<S> <C>
ANTIPASTI
BRUSCHETTA AL POMODORO................................................................................ 4.95
Filone bread grilled with garlic and olive oil, chilled fresh roma tomatoes with olive oil and
basil

MELANZANE AL FORMAGGIO DI CAPRA....................................................................... 5.75
Thinly sliced grilled eggplant, goat cheese, sun-dried tomatoes, sweet onions, capers; balsamic
vinegar

CARPACCIO............................................................................................. 6.95
Thinly sliced beef, shaved grana cheese, capers, baby arugula

MOZZARELLA ALLA CAPRESE............................................................................... 6.50
Fresh "bocconcini" mozzarella, vine-ripened tomatoes, fresh basil, oregano, extra virgin olive oil

CALAMARETTI FRITTI.................................................................................... 7.50
Baby squid, lightly floured, served with a spicy marinara

ANTIPASTO DELLA CASA....................................................................... per person 7.95
Sampling of Bruschetta, Calamaretti Fritti, Mozzarella Caprese and cured meats, zucchini
"scapece", asparagus, roasted bell peppers - for 2 or more people

MINESTRE E INSALATE
PAPPA COL POMODORO................................................................................... 3.95
Tuscan tomato soup with Il Fornaio bread, herbs, extra virgin olive oil

MINESTRONE DI VERDURE................................................................................ 4.95
Fresh seasonal vegetable soup (made with vegetable stock)

INSALATA DEL FORNAIO................................................................................. 5.75
Mixed greens, garlic croutons, shaved parmesan cheese; house vinaigrette

INSALATA AL BALSAMICO................................................................................ 4.50
Organic baby lettuces; balsamic vinaigrette

INSALATA RUCHETTA.................................................................................... 6.25
Sliced vine-ripened yellow tomatoes, arugula, red onions, aged ricotta, red wine vinaigrette

INSALATA DI SPINACI.................................................................................. 6.75
Warm spinach salad with aged ricotta, red onions, applewood smoked bacon, fresh mushrooms
and toasted walnuts; red wine vinaigrette

INSALATA DI POLLO DAL GIRARROSTO..................................................................... 8.95
Mixed greens, rotisserie chicken, applewood smoked bacon, shaved parmesan cheese, tomatoes,
garlic croutons; house vinaigrette

PIZZA DAL FORNO A LEGNA
PIZZA MARGHERITA..................................................................................... 7.95
Mozzarella, oregano, fresh basil, tomato sauce

PIZZA VEGETARIANA (CON FORMAGGIO O SENZA FORMAGGIO).................................................. 8.95
Artichokes, grilled zucchini, sliced tomatoes, red onions, sweet peppers, tomato sauce (with or
without cheese)

PIZZA QUATTRO STAGIONI............................................................................... 9.75
Prosciutto cotto, asparagus, artichokes, mushrooms, mozzarella, basil, tomato sauce

PIZZA CON LA LUGANEGA................................................................................ 9.75
Italian sausage, roasted mixed bell peppers, mozzarella, oregano, tomato sauce

CALZONE.............................................................................................. 10.50
Folded pizza filled with mozzarella, ricotta, mushrooms, ham and tomato sauce
</TABLE>

<PAGE> 67

<TABLE>
<CAPTION>
<S> <C>
PASTA
PENNE ALL'ARRABBIATA................................................................................. 8.95
Pasta tubes, marinara, red chili flakes, garlic, olive oil

MANICHE AL POLLO..................................................................................... 11.75
Elbow pasta, chicken breast, fresh broccoli, sun-dried tomatoes, roasted garlic, trebbiano wine

SPAGHETTINI ALLA BOLOGNESE........................................................................... 8.95
Imported thin spaghetti with meat ragu and parmesan

FETTUCCINE ALLA FRIULANA............................................................................. 10.95
Homemade fettuccine with Italian sausage, onions, marinara and Montepulciano wine

CAPELLINI AL POMODORO NATURALE....................................................................... 9.95
Angel hair pasta, chopped fresh roma tomatoes, basil, garlic, olive oil

RAVIOLI DI VERDURA CON POMODORO E CARCIOFI........................................................... 12.75
Homemade pasta filled with spinach, swiss chard, parmesan, pinenuts and basil;
fresh Castroville baby artichokes and marinara

TURTEI CON ARAGOSTA.................................................................................. 13.95
Homemade ravioli filled with fresh Maine lobster in a lobster cream sauce topped with shrimp

PAGLIA E FIENO CON GAMBERETTI........................................................................ 12.95
Homemade spinach and egg linguine, fresh rock shrimp, chopped tomato, garlic, red chili flakes,
parsley

LINGUINE MARE CHIARO................................................................................. 14.95
Thin flat pasta with fresh clams, mussels, prawns and scallops; seasoned with tomatoes,
crushed red pepper, garlic and trebbiano wine

CONCHIGLIE CON MELANZANE............................................................................. 9.95
Pasta shells baked with smoked and fresh mozzarella, eggplant ragu, tomato, crushed red pepper,
oregano

LASAGNA FERRARESE.................................................................................... 10.95
Spinach pasta layered with meat ragu, porcini mushrooms, parmesan and bechamel

GRIGLIA, GIRARROSTO E SPECIALITA
POLLO TOSCANO........................................................................................ 11.95
Fresh local chicken roasted from the wood-burning rotisserie; fresh vegetables and mashed potatoes

BISTECCA ALLA FIORENTINA............................................................................. 21.50
Certified Angus Porterhouse steak (22 oz.), marinated in olive oil and rosemary; Tuscan white
beans, sauteed fresh spinach and roasted potatoes

SCALOPPINE AI CARCIOFI E LIMONE...................................................................... 14.95
Veal scaloppine with fresh Castroville baby artichokes and lemon; fresh vegetables and roasted
potatoes

POLLO AL MATTONE..................................................................................... 12.50
Half chicken marinated with lemon and herbs, cooked on the wood-fired grill under a hot brick;
sauteed fresh spinach and Tuscan white beans

TAGLIATA CHIANINA.................................................................................... 14.50
Sirloin steak grilled rare and sliced, seasoned with rosemary, green peppercorns and balsamic
vinegar; fresh vegetables and roasted potatoes

LOMBATA DI VITELLO AL CARBONE........................................................................ 17.95
Large mesquite-grilled veal chop with sage and rosemary; fresh vegetables and roasted potatoes

POLLO ALL'AGLIO E ROSMARINO (senza burro o olio) .................................................... 11.95
Grilled chicken breast with puree of roasted garlic and rosemary; served on a bed of
steamed spinach (no butter or oil)
</TABLE>

GIFT CERTIFICATES ARE AVAILABLE IN ANY DENOMINATION.

<PAGE> 68

<TABLE>
<CAPTION>
<S> <C>
VINI BIANCHI

VERDICCHIO CLASSICO
Villa Beatrice, Marche, 1995.......... 19.00
VERNACCIA DI SANGIMIGNANO
Conti Serristori, Toscana, 1995....... 22.50
SOAVE
Pieropan, Veneto, 1995................ 24.00
ORVIETO
Antinori, Umbria, 1995................ 19.50
PINOT GRIGIO
Zenato, Veneto, 1995.................. 18.00
Alois Lageder, Alto Adige, 1995
1/2 bottle 12.50/ 24.00
St. Michael Eppon, Alto Adige, 1995... 22.50
Russiz Superiore, Friuli, 1995........ 29.50
Livon, Braide Grande, Torino, 1993.... 29.50
Santa Margherita, Alto Adige, 1995.... 34.00
GAVI DI GAVI
Costa di Bussia, Piemonte, 1994....... 27.00
GRECO DI TUFO
Feudi di San Gregorio, Campania, 1995. 28.00
WHITE ZINFANDEL
Shenandoah, Amador County, 1996....... 16.00
CHENIN BLANC
Chappellet, Old Vine Cuvee, Napa, 1994 22.50
RIESLING
Fess Parker, Santa Barbara, 1996...... 25.00
SAUVIGNON BLANC
Honig, Napa, 1995..................... 20.50
Mayacamas, Napa, 1995................. 28.00
Matanzas Creek, Sonoma, 1995.......... 29.00
PINOT GRIS
King Estate, Oregon, 1995............. 24.00
CHARDONNAY
Saintsbury, Carneros, 1995 1/2 bottle 16.50
Il Fornaio, Sonoma, 1995.. glass 4.95/ 18.50
Fallenleaf, Carneros, 1994............ 21.75
Sebastiani, Sonoma, 1995.............. 22.75
Zaca Mesa, Santa Barbara, 1996........ 27.50
Bernardus, Carmel Valley, 1995........ 31.00
Lungarotti, Umbria, 1995.............. 25.50
Sterling, Napa, 1995 1/2 bottle 14.50/ 28.00
Sonoma-Cutrer, Russian River, 1995.... 30.00
ZD, Napa, 1995.......1/2 bottle 18.00/ 35.00
Arrowood, Sonoma, 1995................ 36.00
Far Niente, Napa, 1995................ 54.00
Talbott, Monterey, 1994............... 52.00
Kistler, Sonoma, 1995................. 49.00

SPUMANTI

BLANC DE BLANCS,
Schramsberg, 1993 1/2 bottle.......... 38.00
BRUT, Rotari, Riserva, 1992............. 24.00
BRUT, Mumm Cuvee Napa, Napa, NV......... 27.00
BLANC DE NOIRS, Schramsberg, Napa, 1989. 38.00
BRUT, Ferrari, Giulio Riserva
del Fondatore, 1995 .................. 46.00
BRUT, Taittinger, Reims, NV............. 53.00
DOM PERIGNON, Moet & Chandon, 1988...... 125.00

VINI ROSSI

SANGIOVESE
Il Fornaio, Sonoma, 1994....glass 4.75 18.00
Umberto Cesari, Riserva, Romagna, 1993 18.00
DOLCETTO D'ALBA
Fontanafredda, Piemonte, 1995......... 25.00
VALPOLICELLA
"Mara", Cesare, Veneto, 1993.......... 23.00
RUBESCO
Lungarotti, Umbria, 1993.............. 26.00
CHIANTI CLASSICO
Il Fornaio, Toscana, 1995
glass 5.75; 1/2 bottle 11.50/ 22.00
Nozzole, Riserva, Toscana, 1993....... 28.75
Macchiavelli, Riserva, Toscana, 1991.. 29.00
Antinori, Riserva, Toscana, 1994...... 30.00
Nippozana, Riserva, Toscana, 1993..... 31.00
Cortevecchia, Riserva, Toscana, 1993.. 35.00
Ruffino "Gold Label", Toscana, 1988... 45.50
BARBERA
Chiarlo, Piemonte, 1994............... 20.50
Costa di Bussia, Piemonte, 1994....... 22.00
GATTINARA
Villa Claudia, Piemonte, 1990......... 32.00
LEVOLTE
Lodovico Antinori, Toscana, 1995...... 31.00
SER NICCOLO
Conti Serristori, Toscana, 1987....... 33.00
AMARONE RECIOTO DELLA VALPOLICELLA
Cesari, Veneto, 1990.................. 31.00
BAROLO
Costa di Bussia, Piemonte, 1991....... 37.00
Ceretto, Zonchera, Piemonte, 1992..... 37.00
Chiarlo, Piemonte, 1992............... 41.00
Cordero di Montezemolo, Piemonte, 1992 48.50
BARBARESCO
Batasiolo, Piemonte, 1991............. 32.00
BRUNELLO DI MONTALCINO
Col D' Orcia, Toscana, 1991........... 54.00
Canalicchio, Toscana, 1991............ 44.00
ZINFANDEL
Kenwood, Mazzoni, Sonoma, 1994........ 34.00
Ridge, Sonoma, 1994................... 33.00
PINOT NOIR
Domaine Drouhin, Oregon, 1994
1/2 bottle......... 29.00
Robert Mondavi, Napa, 1994............ 29.00
Saintsbury, Carneros, 1995............ 32.00
SYRAH
Karly, Amador, 1995........1/2 bottle 17.50
PETITE SYRAH
Stags' Leap Winery, Napa, 1994........ 35.00
MERLOT
Benziger, Sonoma, 1995................ 28.00
Geyser Peak, Sonoma, 1995............. 29.00
Sterling, Napa, 1994.................. 32.00
Mazzocco, Dry Creek Valley, 1994...... 34.00
Havens, Napa, 1995..1/2 bottle 18.00.. 35.00
Duckhorn, Napa, 1994.................. 41.50
Georis, Carmel Valley, 1993
1/2 bottle 22.00... 43.00
CABERNET SAUVIGNON
J. Lohr, Paso Robles, 1994
1/2 bottle 13.50... 23.50
Beringer, Knights Valley, 1993........ 31.00
Chateau Montelena, Calistoga
Cuvee, Napa, 1995................... 32.00
Franciscan, Napa, 1994................ 33.00
Joseph Phelps, Napa, 1994............. 36.00
Trefethen, Napa, 1994................. 38.00
Mondavi, Oakville, 1994............... 43.00
Jordan, Alexander Valley, 1993........ 46.00
Chateau Montelena, Napa, 1992......... 54.00
Silver Oak, Alexander Valley, 1993.... 62.00
</TABLE>

<PAGE> 69
[Appearing as a border around this page are the following words:
antipasti, pane, cappuccino, griglia, pasta, risotto, vini, pizza,
olio d'oliva, mozzarella, dolci, biscotti, panini, espresso, parmigiano
reggiano, insalata, pasticceria, aceto balsamico,]

[Photograph of angel hair pasta
with tomato and basil] [Photograph of pizza with ham,asparagus,
artichokes and mushrooms.]
Cappellini al Pomodoro
Pizza Quattro Stagioni

Each day the bakers of Il Fornaio [Photograph of basket of assorted
hand-craft regional Italian breads breads, bottle of wine and olive oil]
from scratch. At every meal, a
basket of freshly sliced bread is
placed on the table, and extra
virgin olive oil for dipping
is poured generously. From crusty
ciabatta ("slipper bread") to
panini olive (olive rolls) to
grissini (breadsticks) these
authentic breads tell the story
of generations of traditional
Italian bread making.

[Photograph of grilled chicken with [Photograph of vanilla bean ice cream
spinach and Tuscan white beans] with espresso and whipped cream]

Pollo al Mattone Affogato al Cafe
<PAGE> 70

======================================================

No dealer, sales representative or any other person has been authorized to
give any information or to make any representation not contained in this
Prospectus, and if given or made, such information or representation must not be
relied upon as having been authorized by the Company, the Selling Stockholders
or any of the Underwriters. This Prospectus does not constitute an offer to
sell, or a solicitation of any offer to buy, any securities other than the
Common Stock to which it relates, or an offer to, or a solicitation of, any
person to whom it is unlawful to make such an offer or solicitation in any
jurisdiction. Neither the delivery of this Prospectus nor any offer or sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company or that the information contained
herein is correct at any time after the date hereof.

----------------------------

TABLE OF CONTENTS
----------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Summary Financial and Operating
Data............................... 5
Risk Factors......................... 6
Use of Proceeds...................... 11
Dividend Policy...................... 11
Capitalization....................... 11
Dilution............................. 12
Selected Financial and Operating
Data............................... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 15
Business............................. 20
Management........................... 31
Certain Transactions................. 38
Principal and Selling Stockholders... 39
Description of Capital Stock......... 41
Shares Eligible for Future Sale...... 43
Underwriting......................... 45
Legal Matters........................ 46
Experts.............................. 46
Additional Information............... 46
Index to Financial Statements........ F-1
</TABLE>

----------------------------

Until , 1997 (25 days after the date of this Prospectus),
all dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

======================================================

1,500,000 SHARES

[IL FORNAIO LOGO]

COMMON STOCK

----------------------------
PROSPECTUS
----------------------------

MONTGOMERY SECURITIES

ALEX. BROWN & SONS
INCORPORATED

, 1997

======================================================
<PAGE> 71

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates except
for the registration fee and the NASD filing fee.

<TABLE>
<S> <C>
SEC registration fee...................................................... $ 5,489
NASD filing fee........................................................... 2,312
Nasdaq National Market application fee*...................................
Blue sky qualification fees and expenses*.................................
Printing and engraving expenses*..........................................
Legal fees and expenses*..................................................
Accounting fees and expenses*.............................................
Transfer agent and registrar fees*........................................
Fee for Custodian for Selling Stockholders*...............................
D&O Securities Act Liability Insurance*...................................
Miscellaneous*............................................................
-------
Total........................................................... $850,000
=======
</TABLE>

- ---------------
* To be supplied by amendment.

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

As permitted by Section 145 of the Delaware General Corporation Law, the
By-laws of the Company provide that (i) the Company is required to indemnify its
directors and executive officers to the fullest extent not prohibited by the
Delaware General Corporation Law, (ii) the Company may, in its discretion,
indemnify other officers, employees and agents as set forth in the Delaware
General Corporation Law, (iii) the Company is required to advance all expenses
incurred by its directors and executive officers in connection with certain
legal proceedings (subject to certain exceptions), (iv) the rights conferred in
the By-laws are not exclusive, (v) the Company is authorized to enter into
indemnification agreements with its directors, officers, employees and agents
and (vi) the Company may not retroactively amend the By-laws provisions relating
to indemnity.

The Company has entered into agreements with its directors and executive
officers that require the Company to indemnify such persons against expenses,
judgments, fines, settlements and other amounts that such person becomes legally
obligated to pay (including expenses of a derivative action) in connection with
any proceeding, whether actual or threatened, to which any such person may be
made a party by reason of the fact that such person is or was a director or
officer of the Company or any of its affiliated enterprises, provided such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Company. The indemnification
agreements also set forth certain procedures that will apply in the event of a
claim for indemnification thereunder.

The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), or otherwise.

The Company maintains a directors and officers insurance policy. The policy
insures directors and officers against certain losses. The policy contains
various exclusions, none of which relate to the offering hereunder.

II-1
<PAGE> 72

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since December 29, 1993 the Registrant has sold and issued the following
unregistered securities:

1. During the period, the Company granted incentive and nonstatutory
stock options to key employees, officers and directors under its 1991
Incentive Stock Option Plan, 1992 Stock Option Plan, 1992 Nonemployee
Directors' Stock Option Plan, and 1995 Stock Option Plan (collectively,
"The Plans") covering an aggregate of 866,687 shares (net of cancellations)
of the Company's Common Stock, at an average exercise price ranging from
$4.00 to $6.60. These options vest over a period of time following their
respective dates of grant. The Company sold an aggregate of 79,487 shares
of its Common Stock to employees and directors of the Company for
consideration in the aggregate amount of $172,236 pursuant to the exercise
of stock options granted under the Plans. The Company subsequently
repurchased 5,400 shares at a price of $3.33 per share.

2. During the period, the Company issued 84,191 shares of Common Stock
to key employees as stock bonuses in consideration of services previously
performed for the Company. The Company subsequently repurchased 34,991
shares at prices ranging from $4.00 to $5.00 per share.

3. On May 8, 1995, the Company issued 19,810 shares of Series F
Preferred Stock for $10.25 per share in consideration of the assets of a
restaurant.

4. On March 6, 1996, the Company issued 10,222 shares of Common Stock
upon the conversion of 5,600 shares of Series B Preferred Stock and 2,500
shares of Series F Preferred Stock held by Seymour S. Mindel.

The Company claimed exemption from registration under the Securities Act
for the sales and issuances in the transactions described in paragraphs (1) and
(2) above under Rule 701 promulgated under the Securities Act on the basis that
they were issued pursuant to a written compensatory benefit plan, as provided by
Rule 701.

With respect to the grant of stock options described in paragraph (1)
above, exemption from registration under the Securities Act was also claimed by
the Company to be unnecessary on the basis that none of such transactions
involved a "sale" of securities as such term is used in Section 2(3) of the
Securities Act.

The sales and issuances of securities in the transactions described in
paragraph (3) above were claimed by the Company to be exempt from registration
under the Securities Act by virtue of Section 4(2) and/or Regulation D
promulgated thereunder. The recipient made representions with respect to its
intention to acquire the securities for investment purposes only and not with a
view to the distribution thereof and its experience in business matters.
Appropriate legends were affixed to the stock certificates issued in such
transactions. The recipient either received adequate information about the
Registrant or had access, through business relationships, to such information.

The Company claimed exemption from registration under the Securities Act
for the issuance described in paragraph (4) above under Section 3(a)(9) of the
Securities Act on the basis that the recipient was an existing security holder
and no commission was paid in connection with such transaction.

II-2
<PAGE> 73

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------- -------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1** Form of Agreement and Plan of Merger to be used in connection with the
Registrant's Reincorporation in Delaware.
3.1** Registrant's Certificate of Incorporation.
3.2** Restated Certificate of Incorporation to be effective upon closing of
this offering.
3.3** Restated By-laws to be effective upon closing of this offering.
4.1** Reference is made to Exhibits 3.1 and 3.2.
4.2** Specimen stock certificate.
5.1* Opinion of Cooley Godward LLP.
10.1** Form of Indemnity Agreement between the Company and each executive
officer and director.
10.2** Summary of Bonus Plan.
10.3 1997 Equity Incentive Plan and forms of related agreements.
10.4** 1997 Employee Stock Purchase Plan and form of offering related thereto.
10.5 1997 Non-Employee Director Stock Option Plan and forms of related
agreements.
10.6** Form of Series F Preferred Stock Purchase Agreement with Schedule of
additional Preferred Stock Purchase Agreements attached.
10.7** Form of Warrant to purchase shares of Series F Preferred Stock of the
Registrant.
10.8** Revised License Agreement, dated December 11, 1986 and Stock Purchase
Agreement dated March 6, 1987, between the Company and Veggetti S.r.1.
10.9** Assignment of Trademark Registrations Nunc Pro Tunc executed by Veggetti
S.r.1.
10.10+** Lease Agreement, dated December 22, 1988, and Amendment, dated October 4,
1989, between the Company and Cowper Square Partners, for Palo Alto
Restaurant.
10.11+** Lease Agreement, dated November 21, 1991, between the Company and Hotel
Sainte Claire Partners, L.P., for Hotel Sainte Claire, San Jose.
10.12+** Lease Agreement dated April 15, 1996, between the Company and New York -
New York Hotel, LLC, for the Las Vegas Restaurant.
10.13** Food Service Operations Agreement dated November 21, 1991 between the
Company and Mobedshahi Hotel Group, Inc.
10.14** Loan Agreement dated October 30, 1996, between the Company, Bank of
America National Trust and Savings Association.
10.15** Employment Agreement dated April 1995, between the Company and Michael J.
Hislop.
10.16 1991 Incentive Stock Option Plan and form of related agreement.
11.1 Calculation of net income per share.
23.1 Consent of Deloitte & Touche LLP.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1** Power of Attorney.
27.1 Financial Data Schedule
</TABLE>

- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested for portions of this exhibit.

(b) SCHEDULES

All schedules are omitted because they are not required, are not
applicable, or the information is included in the consolidated financial
statements or notes thereto.

II-3
<PAGE> 74

ITEM 17. UNDERTAKINGS.

The Registrant hereby undertakes to provide 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.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant 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 Securities
Act and will be governed by the final adjudication of such issue.

The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act of 1933, the information omitted from the
form of prospectus as filed as part of the registration statement in reliance
upon Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of the registration statement as of the time it was declared
effective, and (2) for the purpose of determining any liability under the
Securities Act of 1933, each posteffective 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-4
<PAGE> 75

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, County of San Francisco, State of California, on the 21st day of
August, 1997.

IL FORNAIO (AMERICA) CORPORATION

By /s/ LAURENCE B. MINDEL
------------------------------------
Laurence B. Mindel
Chairman of the Board of Directors
and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ ----------------
<C> <S> <C>

/s/ LAURENCE B. MINDEL Chairman of the Board and August 21, 1997
- --------------------------------------------- Chief Executive Officer
Laurence B. Mindel (Principal Executive
Officer)

/s/ PAUL J. KELLEY Vice President, Finance and August 21, 1997
- --------------------------------------------- Chief Financial Officer and
Paul J. Kelley Secretary (Principal
Financial and Accounting
Officer)
/s/ MICHAEL J. HISLOP* Director August 21, 1997
- ---------------------------------------------
Michael J. Hislop

/s/ DEAN A. CORTOPASSI* Director August 21, 1997
- ---------------------------------------------
Dean A. Cortopassi

/s/ W. SCOTT HEDRICK* Director August 21, 1997
- ---------------------------------------------
W. Scott Hedrick

/s/ F. WARREN HELLMAN* Director August 21, 1997
- ---------------------------------------------
F. Warren Hellman

/s/ W. HOWARD LESTER* Director August 21, 1997
- ---------------------------------------------
W. Howard Lester

/s/ PIERRE W. MORNELL* Director August 21, 1997
- ---------------------------------------------
Pierre W. Mornell

/s/ T. GARY ROGERS* Director August 21, 1997
- ---------------------------------------------
T. Gary Rogers

*By /s/ LAURENCE B. MINDEL
- ---------------------------------------------
Laurence B. Mindel
Attorney-in-Fact
</TABLE>

II-5
<PAGE> 76

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
--------- ------------------------------------------------------------ ------------
<C> <S> <C>
1.1* Form of Underwriting Agreement.
2.1** Form of Agreement and Plan of Merger to be used in
connection with the Registrant's Reincorporation in
Delaware.
3.1** Registrant's Certificate of Incorporation.
3.2** Restated Certificate of Incorporation to be effective upon
closing of this offering.
3.3** Restated By-laws to be effective upon closing of this
offering.
4.1** Reference is made to Exhibits 3.1 and 3.2.
4.2** Specimen stock certificate.
5.1* Opinion of Cooley Godward LLP.
10.1** Form of Indemnity Agreement between the Company and each
executive officer and director.
10.2** Summary of Bonus Plan.
10.3 1997 Equity Incentive Plan and forms of related agreements.
10.4** 1997 Employee Stock Purchase Plan and form of offering
related thereto.
10.5 1997 Non-Employee Director Stock Option Plan and forms of
related agreements.
10.6** Form of Series F Preferred Stock Purchase Agreement with
Schedule of additional Preferred Stock Purchase Agreements
attached.
10.7** Form of Warrant to purchase shares of Series F Preferred
Stock of the Registrant.
10.8** Revised License Agreement, dated December 11, 1986 and Stock
Purchase Agreement dated March 6, 1987, between the Company
and Veggetti S.r.1.
10.9** Assignment of Trademark Registrations Nunc Pro Tunc executed
by Veggetti S.r.1.
10.10+** Lease Agreement, dated December 22, 1988, and Amendment,
dated October 4, 1989, between the Company and Cowper Square
Partners, for Palo Alto Restaurant.
10.11+** Lease Agreement, dated November 21, 1991, between the
Company and Hotel Sainte Claire Partners, L.P., for Hotel
Sainte Claire, San Jose.
10.12+** Lease Agreement dated April 15, 1996, between the Company
and New York - New York Hotel, LLC, for the Las Vegas
Restaurant.
10.13** Food Service Operations Agreement dated November 21, 1991
between the Company and Mobedshahi Hotel Group, Inc.
10.14** Loan Agreement dated October 30, 1996, between the Company,
Bank of America National Trust and Savings Association.
10.15** Employment Agreement dated April 1995, between the Company
and Michael J. Hislop.
10.16 1991 Incentive Stock Option Plan and form of related
agreement.
</TABLE>

<PAGE> 77

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
--------- ------------------------------------------------------------ ------------
<C> <S> <C>
11.1 Calculation of net income per share.
23.1 Consent of Deloitte & Touche LLP.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
24.1** Power of Attorney.
27.1 Financial Data Schedule
</TABLE>

- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested for portions of this exhibit.

<PAGE> 1
EXHIBIT 10.3

IL FORNAIO (AMERICA) CORPORATION

1997 EQUITY INCENTIVE PLAN

ADOPTED MARCH 17, 1997
APPROVED BY STOCKHOLDERS APRIL 23, 1997

INTRODUCTION.

This Plan is an amendment and restatement of the Company's existing
1992 Stock Option Plan (the "1992 Plan") and the 1995 Stock Option Plan (the
"1995 Plan"), and shall become effective on the date of approval of this Plan by
the Board (the "Effective Date"). No options shall be granted under the 1992
Plan or the 1995 Plan from and after the Effective Date. Notwithstanding
anything to the contrary, prior to the Listing Date all Stock Awards granted
under this Plan shall comply with all of the requirements set forth in Section
25102(o) of the California Corporate Securities Law of 1968.

1. PURPOSES.

(A) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates may
be given an opportunity to benefit from increases in value of the common stock
of the Company ("Common Stock") through the granting of (i) Incentive Stock
Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to
purchase restricted stock, all as defined below.

(B) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants, to secure and retain
the services of new Employees, Directors and Consultants, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.

(C) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option.

2. DEFINITIONS.

(A) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.

(B) "BOARD" means the Board of Directors of the Company.

1.
<PAGE> 2
(C) "CODE" means the Internal Revenue Code of 1986, as amended.

(D) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.

(E) "COMPANY" means Il Fornaio (America) Corporation, a Delaware
corporation.

(F) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.

(G) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
the employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.

(H) "DIRECTOR" means a member of the Board.

(I) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.

(J) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

(K) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:

(1) If the Common Stock is listed on any established stock
exchange, or traded on the Nasdaq National Market or The Nasdaq Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in Common Stock) on the last market trading day prior to determination,
as reported in the Wall Street Journal or such other source as the Board deems
reliable;

(2) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.

(L) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

2.
<PAGE> 3
(M) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange, or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.

(N) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
of 1933 ("Regulation S-K"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.

(O) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.

(P) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

(Q) "OPTION" means a stock option granted pursuant to the Plan.

(R) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.

(S) "OPTIONEE" means a person to whom an Option is granted pursuant to
the Plan.

(T) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.

(U) "PLAN" means this 1997 Equity Incentive Plan.

(V) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.

3.
<PAGE> 4
(W) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.

(X) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.

3. ADMINISTRATION.

(A) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).

(B) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:

(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
or a combination of the foregoing; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a person shall
be permitted to receive stock pursuant to a Stock Award; and the number of
shares with respect to which a Stock Award shall be granted to each such person.

(2) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.

(3) To amend the Plan or a Stock Award as provided in Section 12.

(4) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.

(C) The Board may delegate administration of the Plan to a committee or
committees ("Committee") of one or more members of the Board. In the discretion
of the Board, a Committee may consist solely of two (2) or more Outside
Directors, in accordance with Code Section 162(m), or solely of two (2) or more
Non-Employee Directors, in accordance with Rule 16b-3. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan.

4.
<PAGE> 5
4. SHARES SUBJECT TO THE PLAN.

(A) Subject to the provisions of Section 11 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate one million three hundred thousand (1,300,000)
shares of Common Stock. Such share reserve shall consist of (i) the options
granted under the 1992 Plan and the 1995 Plan which are outstanding as of the
Effective Date plus (ii) the shares available for grant under the 1992 Plan and
the 1995 Plan as of the Effective Date plus (iii) an additional five hundred and
four thousand three hundred ninety-five (504,395) shares of common stock. If any
Stock Award shall for any reason expire or otherwise terminate, in whole or in
part, without having been exercised in full (or vested in the case of Restricted
Stock), the stock not acquired under such Stock Award shall revert to and again
become available for issuance under the Plan.

(B) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.

5. ELIGIBILITY.

(A) Incentive Stock Options may be granted only to Employees. Stock
Awards other than Incentive Stock Options may be granted only to Employees,
Directors or Consultants.

(B) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
of its Affiliates unless the exercise price of such Option is at least one
hundred ten percent (110%) of the Fair Market Value of such stock at the date of
grant and the Option is not exercisable after the expiration of five (5) years
from the date of grant.

(C) Subject to the provisions of Section 11 relating to adjustments
upon changes in stock, no person shall be eligible to be granted Stock Awards
covering more than five hundred thousand (500,000) shares of Common Stock in any
calendar year.

6. OPTION PROVISIONS.

Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:

(A) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.

(B) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted, and the exercise price
of each Nonstatutory Stock Option shall be not

5.
<PAGE> 6
less than eighty-five percent (85%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. Notwithstanding the
foregoing, an Option may be granted with an exercise price lower than that set
forth in the preceding sentence if such Option is granted pursuant to an
assumption or substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.

(C) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other Common Stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other Common Stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(d), or (C) in any other form of legal
consideration that may be acceptable to the Board. In the case of any deferred
payment arrangement, interest shall be payable at least annually and shall be
charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any amounts other than
amounts stated to be interest under the deferred payment arrangement.

(D) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option may be
transferred to the extent provided in the Option Agreement; provided that if the
Option Agreement does not expressly permit the transfer of a Nonstatutory Stock
Option, the Nonstatutory Stock Option shall not be transferable except by will,
by the laws of descent and distribution or pursuant to a domestic relations
order satisfying the requirements of Rule 16b-3, and shall be exercisable during
the lifetime of the person to whom the Option is granted only by such person or
any transferee pursuant to a domestic relations order. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.

(E) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.

(F) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option

6.
<PAGE> 7
within such period of time designated by the Board, which shall in no event be
later than the expiration of the term of the Option as set forth in the Option
Agreement (the "Post-Termination Exercise Period") and only to the extent that
the Optionee was entitled to exercise the Option on the date Optionee's
Continuous Status as an Employee, Director or Consultant terminates. In the case
of an Incentive Stock Option, the Board shall determine the Post-Termination
Exercise Period at the time the Option is granted, and the term of such
Post-Termination Exercise Period shall in no event exceed three (3) months from
the date of termination. In addition, the Board may at any time, with the
consent of the Optionee, extend the Post-Termination Exercise Period and provide
for continued vesting; provided however, that any extension of such period by
the Board in excess of three (3) months from the date of termination shall cause
an Incentive Stock Option so extended to become a Nonstatutory Stock Option,
effective as of the date of Board action. If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified in the Option Agreement or as otherwise determined above, the
Option shall terminate, and the shares covered by such Option shall revert to
the Plan. Notwithstanding the foregoing, the Board shall have the power to
permit an Option to continue to vest during the Post-Termination Exercise
Period.

(G) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement, which is no event shall be
less than six (6) months), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, at the date of termination, the Optionee
is not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.

(H) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a three (3)-month period after the termination of, the Optionee's
Continuous Status as an Employee, Director or Consultant, the Option may be
exercised to the extent vested by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionee's death pursuant to
subsection 6(d), but only within the period ending on the earlier of (i) the
date eighteen (18) months following the date of death (or such longer or shorter
period specified in the Option Agreement, which in no event shall be less than
six (6) months), or (ii) the expiration of the term of such Option as set forth
in the Option Agreement. If, at the time of death, the Optionee was not entitled
to exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.

7.
<PAGE> 8
(I) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.

7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.

Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:

(A) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company for its benefit.

(B) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or, if the agreement so provides, pursuant to a domestic
relations order satisfying the requirements of Rule 16b-3, so long as stock
awarded under such agreement remains subject to the terms of the agreement.

(C) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or Committee in its discretion. Notwithstanding the foregoing, the Board
or Committee to which administration of the Plan has been delegated may award
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.

(D) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or Committee.

(E) TERMINATION OF CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock

8.
<PAGE> 9
held by that person which have not vested as of the date of termination under
the terms of the stock bonus or restricted stock purchase agreement between the
Company and such person.

8. COVENANTS OF THE COMPANY.

(A) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.

(B) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares under Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
of 1933, as amended (the "Securities Act") either the Plan, any Stock Award or
any stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such Stock Awards unless and until such authority is obtained.

9. USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.

10. MISCELLANEOUS.

(A) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or any
part thereof will vest, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.

(B) Neither an Employee, Director nor a Consultant nor any person to
whom a Stock Award is transferred in accordance with the Plan shall be deemed to
be the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.

(C) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or any
Affiliate, or to continue serving as a Consultant and Director, or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without notice and with or without cause, or the right to
terminate the relationship of any Consultant pursuant to the terms of such
Consultant's agreement with the Company or Affiliate or service as a Director
pursuant to the Company's By-Laws.

9.
<PAGE> 10
(D) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.

(E) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred in accordance with
the Plan, as a condition of exercising or acquiring stock under any Stock Award,
(1) to give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.

(F) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the Common Stock
of the Company.

11. ADJUSTMENTS UPON CHANGES IN STOCK.

(A) If any change is made in the stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan and the maximum number of shares subject to
award to any person during any calendar year, and the outstanding Stock Awards
will be appropriately adjusted in

10.
<PAGE> 11
the class(es) and number of shares and price per share of stock subject to such
outstanding Stock Awards. Such adjustments shall be made by the Board or
Committee, the determination of which shall be final, binding and conclusive.
(The conversion of any convertible securities of the Company shall not be
treated as a "transaction not involving the receipt of consideration by the
Company.")

(B) Except as otherwise provided in the Stock Award Agreement, in the
event of: (1) a dissolution, liquidation or sale of substantially all of the
assets of the Company; (2) a merger or consolidation in which the Company is not
the surviving corporation; or (3) a reverse merger in which the Company is the
surviving corporation but the shares of the Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, then to the extent
permitted by applicable law: (i) any surviving corporation (or an Affiliate
thereof shall assume any Stock Awards outstanding under the Plan or shall
substitute similar Stock Awards for those outstanding under the Plan, or (ii)
such Stock Awards shall continue in full force and effect. Except as otherwise
provided in the Stock Award Agreement, in the event any surviving corporation
(or an Affiliate) refuses to assume or continue such Stock Awards, or to
substitute similar Stock Awards for those outstanding under the Plan, then, with
respect to Stock Awards held by persons then performing services as Employees,
Directors or Consultants, the time during which such Stock Awards may be
exercised shall be accelerated and the Stock Awards terminated if not exercised
prior to such event.

12. AMENDMENT OF THE PLAN AND STOCK AWARDS.

(A) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 11 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.

(B) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.

(C) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.

(D) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.

11.
<PAGE> 12
(E) The Board at any time, and from time to time, may amend the terms
of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.

13. TERMINATION OR SUSPENSION OF THE PLAN.

(A) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate ten (10) years from the date the
Plan is adopted by the Board or approved by the stockholders of the Company,
whichever is earlier. No Stock Awards may be granted under the Plan while the
Plan is suspended or after it is terminated.

(B) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the Stock Award was granted.

14. STOCKHOLDER APPROVAL.

No Stock Awards granted under the Plan shall be exercisable in whole or
part unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.

12.
<PAGE> 13

IL FORNAIO (AMERICA) CORPORATION

STOCK OPTION GRANT NOTICE
(1997 EQUITY INCENTIVE PLAN)

IL FORNAIO (AMERICA) CORPORATION (the "Company"), pursuant to its 1997 Equity
Incentive Plan (the "Plan"), hereby grants to Optionee an option to purchase the
number of shares of the Company's common stock set forth below. This option is
subject to all of the terms and conditions as set forth herein and in
Attachments I, II and III, which are incorporated herein in their entirety.

Optionee: _________________________________
Date of Grant: _________________________________
Vesting Commencement Date: _________________________________
Shares Subject to Option: _________________________________
Exercise Price Per Share: _________________________________
Expiration Date: _________________________________

____ Incentive Stock Option ____ Nonstatutory Stock Option

Exercise Schedule: Exercisable as vested.

Vesting Schedule: 5 equal annual installments commencing on the
first anniversary of the Vesting Commencement
Date.

PAYMENT: Any or a combination of the following: (i) by cash or check, (ii)
pursuant to a Regulation T program, as set forth in the Stock Option Agreement
or (iii) delivering shares of previously-owned common stock, as set forth in the
Stock Option Agreement.

ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionee acknowledges receipt
of, and understands and agrees to, this Grant Notice, the Stock Option Agreement
and the Plan. Optionee further acknowledges that as of the Date of Grant, this
Grant Notice, the Stock Option Agreement and the Plan set forth the entire
understanding between Optionee and the Company regarding the acquisition of
stock in the Company and supersedes all prior oral and written agreements on
that subject with the exception of (i) options previously granted and delivered
to Optionee under the Plan, and (ii) the following agreements only:

OTHER AGREEMENTS: _______________________________________________

_______________________________________________

IL FORNAIO (AMERICA) CORPORATION OPTIONEE:

By:_____________________________ ____________________________________
Signature
Title:__________________________

Date:___________________________ Date:_______________________________

Attachment I: Stock Option Agreement
Attachment II: 1997 Equity Incentive Plan
Attachment III: Notice of Exercise
<PAGE> 14

STOCK OPTION AGREEMENT

Pursuant to the Grant Notice and this Stock Option Agreement, the
Company has granted you an option to purchase the number of shares of the
Company's common stock ("Common Stock") indicated in the Grant Notice at the
exercise price indicated in the Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.

The details of your option are as follows:

1. VESTING. Subject to the limitations contained herein, your option
will vest as provided in the Grant Notice, provided that vesting will cease upon
the termination of your Continuous Status as an Employee, Director or
Consultant.

2. METHOD OF PAYMENT.

(a) PAYMENT OPTIONS. Payment of the exercise price by cash or
check is due in full upon exercise of all or any part of your option, provided
that you may elect, to the extent permitted by applicable law and the Grant
Notice, to make payment of the exercise price under one of the following
alternatives:

(i) Payment pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board which, prior to the
issuance of Common Stock, results in either the receipt of cash (or check) by
the Company or the receipt of irrevocable instructions to pay the aggregate
exercise price to the Company from the sales proceeds;

(ii) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise; or

(iii) Payment by a combination of the above methods.

3. WHOLE SHARES. Your option may only be exercised for whole shares.

4. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, your option may not be exercised unless the shares
issuable upon exercise of your option are then registered under the Securities
Act or, if such shares are not then so registered, the Company has determined
that such exercise and issuance would be exempt from the registration
requirements of the Securities Act.

<PAGE> 15

5. TERM. The term of your option commences on the Date of Grant and
expires upon the earliest of:

(i) the Expiration Date indicated in the Grant Notice;

(ii) the tenth (10th) anniversary of the Date of Grant;

(iii) eighteen (18) months after your death, if you die
during, or within three (3) months after the termination of your Continuous
Status as Employee, Director or Consultant;

(iv) twelve (12) months after the termination of your
Continuous Status as Employee, Director or Consultant due to disability;

(v) immediately after the termination of your Continuous
Status as Employee, Director or Consultant for Cause; or

(vi) three (3) months after the termination of your
Continuous Status as an Employee, Director or Consultant for any other reason,
provided that if during any part of such three (3)-month period the option is
not exercisable solely because of the condition set forth in paragraph 4
(Securities Law Compliance), in which event the option shall not expire until
the earlier of the Expiration Date or until it shall have been exercisable for
an aggregate period of three (3) months after the termination of Continuous
Status as an Employee, Director or Consultant.

For these purposes, "Cause" shall include, but not be limited to,
the commission of any act of fraud, embezzlement or dishonesty, any unauthorized
use or disclosure of confidential information or trade secrets of the Company,
or any other intentional misconduct adversely affecting the business or affairs
of the Company in a material manner. The foregoing definition shall not be
deemed to be inclusive of all the acts or omissions which the Company may
consider as ground for your dismissal or discharge.

To obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
grant date of the option and ending on the day three (3) months before the date
of the option's exercise, you must be an employee of the Company, except in the
event of your death or permanent and total disability. The Company cannot
guarantee that your option will be treated as an "incentive stock option" if you
exercise your option more than three (3) months after the date your employment
with the Company terminates.

6. EXERCISE.

(a) You may exercise the vested portion of your option during its
term (and the unvested portion of your option if the Grant Notice so permits) by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the

<PAGE> 16

Company, or to such other person as the Company may designate, during regular
business hours, together with such additional documents as the Company may then
require.

(b) By exercising your option you agree that:

(i) as a condition to any exercise of your option, the
Company may require you to enter an arrangement providing for the payment by you
to the Company of any tax withholding obligation of the Company arising by
reason of (1) the exercise of your option; (2) the lapse of any substantial risk
of forfeiture to which the shares are subject at the time of exercise; or (3)
the disposition of shares acquired upon such exercise;

(ii) you will notify the Company in writing within
fifteen (15) days after the date of any disposition of any of the shares of the
Common Stock issued upon exercise of an incentive stock option that occurs
within two (2) years after the Date of Grant or within one (1) year after such
shares of Common Stock are transferred upon exercise of your option; and

7. TRANSFERABILITY. Your option is not transferable, except by will
or by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.

8. OPTION NOT A SERVICE CONTRACT. Your option is not an employment
contract and nothing in your option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in your option shall obligate the Company, its shareholders, board of
directors, officers or employees to continue any relationship which you might
have as a director or consultant for the Company.

9. NOTICES. Any notices provided for in your option or the Plan
shall be given in writing and shall be deemed effectively given upon receipt or,
in the case of notices delivered by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.

10. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, including without

<PAGE> 17

limitation the provisions of the Plan relating to option provisions, and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of your option and those of the
Plan, the provisions of the Plan shall control.

<PAGE> 18
NONSTATUTORY STOCK OPTION
(CASH EXERCISE CONSIDERATION)

Michael Hislop, Optionee:

Il Fornaio (America) Corporation (the "Company"), pursuant to its 1995
Stock Option Plan (the "Plan") has this day granted to you, the optionee named
above, an option to purchase shares of the common stock of the Company ("Common
Stock"). This option is not intended to qualify and will not be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").

The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's
employees (including officers, directors and consultants) and is intended to
comply with the provisions of Rule 701 promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act").

The details of your option are as follows:

1. (a) The total number of shares of Common Stock subject to this
option is __________________________________________________________ (______).
Subject to the limitations contained herein, this option shall be exercisable
with respect to each installment shown below on or after the date of vesting
(such vesting amount to be at least twenty percent (20%) per year of the total
number of shares subject to this option) applicable to such installment, as
follows:

<TABLE>
<CAPTION>
Number of Shares Date of Earliest Exercise
(Installment) (Vesting)
- ---------------- -------------------------
<S> <C>

</TABLE>

(b) Notwithstanding the foregoing and pursuant to Section 6(e)
of the Plan, in the event of a Change in Control (as defined below), the
unvested portion of this option shall automatically accelerate and Optionee
shall have the right to purchase all or any number of the shares subject to
this option, in addition to any portion of the option exercisable prior to such
event. A "Change of Control" of the Company shall be deemed to have occurred if
(i) the Company sells or otherwise disposes of all or substantially all of its
assets; (ii) there is a merger or consolidation of the Company with any other
corporation or corporations, provided that the shareholders of the Company, as
a group, do not hold, immediately after such event, at least fifty percent
(50%) of the surviving or successor corporation, or (iii) any person or entity,
including any "person" as such term is used

<PAGE> 19
in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), acquires as the "beneficial owner" (as defined in the Exchange
Act) after the date of this option, more than fifty percent (50%) of the
combined voting power of the voting securities of the Company.

2. (a) The exercise price of this option is (_____) per share, being not
less than 100% of the fair market value of the Common Stock on the date of grant
of this option.

(b) Payment of the exercise price per share is due in full in cash
(including check) upon exercise of all or any part of each installment which
has become exercisable by you. Notwithstanding the foregoing, this option may
be exercised pursuant to a program developed under Regulation T as promulgated
by the Federal Reserve Board which results in the receipt of cash (or check) by
the Company prior to the issuance of Common Stock.

3. In no event may this option be exercised for any number of shares
which would require the issuance of anything other than whole shares.

4. Notwithstanding anything to the contrary contained herein, this
option may not be exercised unless the shares issuable upon exercise of this
option are then registered under the Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Act.

5. The term of this option commences on the date hereof and, unless
sooner terminated as set forth below or in the Plan, terminates on July 9, 2005
(which date shall be no more than ten (10) years from the date this option is
granted). In no event may this option be exercised on or after the date on
which it terminates. This option shall terminate prior to the expiration of its
term three (3) months after the termination of your employment with the Company
or an affiliate of the Company (as defined in the Plan) for any reason or for
no reason unless:

(a) such termination of employment is due to your permanent and
total disability (within the meaning of Section 22(e)(3) of the Code), in which
event the option shall terminate on the earlier of the termination date set
forth above or twelve (12) months following such termination of employment;

(b) such termination of employment is due to your death, in
which event the option shall terminate on the earlier of the termination date
set forth above or twelve (12) months after your death; or

(c) during any part of such three (3) month period the option
is not exercisable solely because of the condition set forth in paragraph 4
above, in which event the option shall not terminate until the earlier of the
termination date set forth

2
<PAGE> 20
above or until it shall have been exercisable for an aggregate period of three
(3) months after the termination of employment; or

(d) exercise of the option within three (3) months after
termination of your employment with the Company or with an affiliate would
result in liability under Section 16(b) of the Securities Exchange Act of 1934,
in which case the option will terminate on the earlier of (i) the termination
date set forth above, (ii) the tenth (10th) day after the last date upon which
exercise would result in such liability or (iii) six (6) months and ten (10)
days after the termination of your employment with the Company or an affiliate.

However, this option may be exercised following termination of
employment only as to that number of shares as to which it was exercisable on
the date of termination of employment under the provisions of paragraph 1 of
this option.

6. (a) This option may be exercised, to the extent specified above,
by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require
pursuant to Section 6(f) of the Plan.

(b) By exercising this option you agree that:

(i) the Company may require you to enter an arrangement
providing for the cash payment by you to the Company of any tax withholding
obligation of the Company arising by reason of: (1) the exercise of this
option; (2) the lapse of any substantial risk of forfeiture to which the shares
are subject at the time of exercise; or (3) the disposition of shares acquired
upon such exercise; and

(ii) the Company (or a representative of the underwriters)
may, in connection with the first underwritten registration of the offering of
any securities of the Company under the Act, require that you not sell or
otherwise transfer or dispose of any shares of Common Stock or other securities
of the Company during such period (not to exceed one hundred eighty (180) days)
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters. For purposes of this restriction you
will be deemed to own securities which (i) are owned directly or indirectly by
you, including securities held for your benefit by nominees, custodians,
brokers or pledgees; (ii) may be acquired by you within sixty (60) days of the
Effective Date; (iii) are owned directly or indirectly, by or for your brothers
or sisters (whether by whole or half blood), spouse, ancestors and lineal
descendants; or (iv) are owned, directly or indirectly, by or for a
corporation, partnership, estate or trust of which you are a

3
<PAGE> 21
shareholder, partner or beneficiary, but only to the extent of your
proportionate interest therein as a shareholder, partner or beneficiary
thereof. You further agree that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such period.

7. This option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you.

8. This option is not an employment contract and nothing in this option
shall be deemed to create in any way whatsoever any obligation on your part to
continue in the employ of the Company, or of the Company to continue your
employment with the Company. In the event that this option is granted to you in
connection with the performance of services as a consultant or director,
references to employment, employee and similar terms shall be deemed to include
the performance of services as a consultant or a director, as the case may be,
provided, however, that no rights as an employee shall arise by reason of the
use of such terms.

9. Any notices provided for in this option or the Plan shall be given
in writing and shall be deemed effectively given upon receipt or, in the case
of notices delivered by the Company to you, two (2) business days after the
postmark when deposited in the United States mail, postage prepaid, addressed
to you at the address specified below or at such other address as you hereafter
designate by written notice to the Company.

10. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of Section 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated
and adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.

Dated the _____ day of ________, 199_.

Very truly yours,

IL FORNAIO (AMERICA) CORPORATION

By:
------------------------------------
Duly authorized on behalf of the
Board of Directors

4
<PAGE> 22
ATTACHMENTS:

Il Fornaio (America) Corporation
1995 Stock Option Plan
Form of Exercise

The undersigned:

(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan;

(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of the following agreements only:

NONE
-------------------------
(Initial)

OTHER
-----------------------------------
-----------------------------------
-----------------------------------

-----------------------------------------
Optionee

Address:
---------------------------------

---------------------------------

5
<PAGE> 23
INCENTIVE STOCK OPTION
(CASH EXERCISE CONSIDERATION)

Michael Hislop, Optionee:

Il Fornaio (America) Corporation (the "Company"), pursuant to its 1995
Stock Option Plan (the "Plan") has this day granted to you, the optionee named
above, an option to purchase shares of the common stock of the Company ("Common
Stock"). This option is intended to qualify as an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").

The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's
employees (including officers and directors) and is intended to comply with the
provisions of Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").

The details of your option are as follows:

1. (a) The total number of shares of Common Stock subject to this
option is ( ). Subject to the
limitations contained herein, this option shall be exercisable with respect to
each installment shown below on or after the date of vesting (such vesting
amount to be at least twenty percent (20%) per year of the total number of
shares subject to this option):

<TABLE>
<CAPTION>
Number of Shares Date of Earliest Exercise
(Installment) (Vesting)
- ---------------- -------------------------
<S> <C>

</TABLE>

(b) Notwithstanding the foregoing and pursuant to Section 6(e) of the
Plan, in the event of a Change in Control (as defined below), the unvested
portion of this option shall automatically accelerate and Optionee shall have
the right to purchase all or any number of the shares subject to this option,
in addition to any portion of the option exercisable prior to such event. A
"Change of Control" of the Company shall be deemed to have occurred if (i) the
Company sells or otherwise disposes of all or substantially all of its assets;
(ii) there is a merger or consolidation of the Company with any other
corporation or corporations, provided that the shareholders of the Company, as
a group, do not hold, immediately after such event, at least fifty percent
(50%) of the surviving or successor corporation, or (iii)

<PAGE> 24
any person or entity, including any "person" as such term is used in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), acquires as the "beneficial owner" (as defined in the Exchange Act)
after the date of this option, more than fifty percent (50%) of the combined
voting power of the voting securities of the Company.

2. (a) The exercise price of this option is ______________________
_____ ($____) per share, being not less than the fair market value of the
Common Stock on the date of grant of this option.

(b) Payment of the exercise price per share is due in full in
cash (including check) upon exercise of all or any part of each installment
which has become exercisable by you. Notwithstanding the foregoing, this option
may be exercised pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company prior to the issuance of Common Stock.

3. In no event may this option be exercised for any number of
shares which would require the issuance of anything other than whole shares.

5. The term of this option commences on the date hereof and,
unless sooner terminated as set forth below or in the Plan, terminates on July
9, 2005 (which date shall be no more than ten (10) years from the date this
option is granted). In no event may this option be exercised on or after the
date on which it terminates. This option shall terminate prior to the
expiration of its term three (3) months after the termination of your
employment with the Company or an affiliate of the Company (as defined in the
Plan) for any reason or for no reason unless:

(b) such termination of employment is due to your death, in
which event the option shall terminate on the earlier of the termination date
set forth above or twelve (12) months after your death.

<PAGE> 25
However, this option may be exercised following termination of
employment only as to that number of shares as to which it was exercisable on
the date of termination of employment under the provisions of paragraph 1 of
this option.

6. (a) This option may be exercised, to the extent specified
above, by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require
pursuant to Section 6(f) of the Plan.

(b) By exercising this option you agree that:

(i) the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (A) the exercise of this option;
(B) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (C) the disposition of shares acquired upon
such exercise;

(ii) you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of this option that occurs within two (2) years
after the date of this option grant or within one (1) year after such shares of
Common Stock are transferred upon exercise of this option; and

(iii) the Company (or a representative of the underwriters)
may, in connection with the first underwritten registration of the offering of
any securities of the Company under the Act, require that you not sell or
otherwise transfer or dispose of any shares of Common Stock or other securities
of the Company during such period (not to exceed one hundred eighty (180) days)
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters. For purposes of this restriction you
will be deemed to own securities which (1) are owned directly or indirectly by
you, including securities held for your benefit by nominees, custodians,
brokers or pledgees; (2) may be acquired by you within sixty (60) days of the
Effective Date; (3) are owned directly or indirectly, by or for your brothers
or sisters (whether by whole or half blood), spouse, ancestors and lineal
descendants; or (4) are owned, directly or indirectly, by or for a corporation,
partnership, estate or trust of which you are a shareholder, partner or
beneficiary, but only to the extent of your proportionate interest therein as a
shareholder, partner or beneficiary thereof. You further agree that the Company
may impose stop-transfer instructions with respect to securities

3
<PAGE> 26
subject to the foregoing restrictions until the end of such period.

7. This option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you.

9. Any notices provided for in this option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, two (2) business days after the
postmark when deposited in the United States mail, postage prepaid, addressed to
you at the address specified below or at such other address as you hereafter
designate by written notice to the Company.

10. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of Section 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.

Dated the ____ day of ________, 199_.

Very truly yours,

IL FORNAIO (AMERICA) CORPORATION

By:
--------------------------------------
Duly authorized on behalf of the
Board of Directors

ATTACHMENTS:

Il Fornaio (America) Corporation
1995 Stock Option Plan
Form of Exercise

<PAGE> 27
The undersigned:

NONE __________________________
(Initial)

OTHER _____________________________
_____________________________
_____________________________

____________________________________
Optionee

Address:

5
<PAGE> 28

IT IS UNLAWFUL TO CONSUMMATE A SALE OR
TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE
COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED
IN THE COMMISSIONER'S RULES.

INCENTIVE STOCK OPTION
(Cash Exercise Consideration)

_______________, Optionee:

Il Fornaio (America) Corporation (the "Company"), pursuant to its
1992 Stock Option Plan (the "Plan") has this day granted to you, the optionee
named above, an option to purchase shares of the common stock of the Company
("Common Stock"). This option is intended to qualify as an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").

The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers and directors) and is intended to comply with the provisions
of Rule 701 promulgated by the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act").

The details of your option are as follows:

1. The total number of shares of Common Stock subject to this option
is ____________________ (_____). Subject to the limitations contained herein,
this option shall be exercisable with respect to each installment shown below on
or after the date of vesting (such vesting amount to be at least twenty percent
(20%) per year of the total number of shares subject to this option):

Number of Shares Date of Earliest Exercise
(Installment) (Vestinq)
- ---------------- -------------------------

<PAGE> 29

2. (a) The exercise price of this option is ____________________
(________) per share, being not less than the fair market value of the Common
Stock on the date of grant of this option.

(b) Payment of the exercise price per share is due in full in
cash (including check) upon exercise of all or any part of each installment
which has become exercisable by you. Notwithstanding the foregoing, this option
may be exercised pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company prior to the issuance of Common Stock.

3. In no event may this option be exercised for any number of shares
which would require the issuance of anything other than whole shares.

5. The term of this option commences on the date hereof and, unless
sooner terminated as set forth below or in the Plan, terminates on April 24,
2002 (which date shall be no more than ten (10) years from the date this option
is granted). In no event may this option be exercised on or after the date on
which it terminates. This option shall terminate prior to the expiration of its
term three (3) months after the termination of your employment with the Company
or an affiliate of the Company (as defined in the Plan) for any reason or for no
reason unless:

(b) such termination of employment is due to your death, in which
event the option shall terminate on the earlier of the termination date set
forth above or twelve (12) months after your death.

However, this option may be exercised following termination
of employment only as to that number of shares as to which it was exercisable on
the date of termination of employment under the provisions of paragraph 1 of
this option.

<PAGE> 30

(b) By exercising this option you agree that:

(ii) you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of this option that occurs within two (2) years after
the date of this option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of this option; and

(iii) the Company (or a representative of the underwriters)
may, in connection with the first underwritten registration of the offering of
any securities of the Company under the Act, require that you not sell or
otherwise transfer or dispose of any shares of Common Stock or other securities
of the Company during such period (not to exceed one hundred eighty (180) days)
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters. For purposes of this restriction you
will be deemed to own securities which (1) are owned directly or indirectly by
you, including securities held for your benefit by nominees, custodians, brokers
or pledgees; (2) may be acquired by you within sixty (60) days of the Effective
Date; (3) are owned directly or indirectly, by or for your brothers or sisters
(whether by whole or half blood), spouse, ancestors and lineal descendants; or
(4) are owned, directly or indirectly, by or for a corporation, partnership,
estate or trust of which you are a shareholder, partner or beneficiary, but only
to the extent of your proportionate interest therein as a shareholder, partner
or beneficiary thereof. You further agree that the Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such period.

7. This option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you.

9. Any notices provided for in this option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, two (2) business days after the
postmark when deposited in the United States mail, postage prepaid, addressed to
you at the address specified below or at such other address as you hereafter
designate by written notice to the Company.

<PAGE> 31

10. This option is subject to all the provisions of the Plan, a copy
of which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of Section 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control. Dated the _____ day of ____________, 199__.

Very truly yours,

IL FORNAIO (AMERICA) CORPORATION

By:
-----------------------------------------
Duly authorized on behalf of the Board of
Directors

ATTACHMENTS:

Il Fornaio (America) Corporation
Stock Option Plan, Adopted 3/4/92
Regulation 260.141.11
Form of Exercise

<PAGE> 1
EXHIBIT 10.5

IL FORNAIO (AMERICA) CORPORATION

1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

ADOPTED AND EFFECTIVE MARCH 17, 1997
APPROVED BY STOCKHOLDERS APRIL 23, 1997

1. PURPOSE.

(a) The purpose of the 1997 Non-Employee Directors' Stock Option Plan
(the "Plan") is to provide a means by which each director of Il Fornaio
(America) Corporation (the "Company") who is not otherwise at the time of grant
an employee of or consultant to the Company or of any Affiliate of the Company
(each such person being hereafter referred to as a "Non-Employee Director") will
be given an opportunity to purchase stock of the Company.

(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").

(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.

2. ADMINISTRATION.

(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(b).

(b) The Board may delegate administration of the Plan to a committee
composed of two (2) or more members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.

3. SHARES SUBJECT TO THE PLAN.

(a) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate one hundred thousand (100,000)
shares of the Company's common stock. If any option granted under the Plan shall
for any reason expire or otherwise terminate without

1.
<PAGE> 2
having been exercised in full, the stock not purchased under such option shall
again become available for the Plan.

(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.

4. ELIGIBILITY.

Options shall be granted only to Non-Employee Directors of the Company.

5. NON-DISCRETIONARY GRANTS.

(a) Each person who is serving as a Non-Employee Director on the date
this Plan is approved by the stockholders of the Company (the "Approval Date")
and each person who is first elected or appointed to the Board thereafter shall
automatically be granted, on the Approval Date or such subsequent date of
initial election or appointment, an option to purchase four thousand five
hundred (4,500) shares of common stock of the Company on the terms and
conditions set forth herein (hereinafter, the "Initial Grants").

(b) Every thirty-six (36) months thereafter, measured with reference to
the date of each Initial Grant, a Non-Employee Director shall be granted an
option to purchase four thousand five hundred (4,500) shares of common stock of
the Company on the terms and conditions set forth herein, provided that such
Non-Employee Director has continuously served on the Board during such
preceding thirty-six (36)-month period (hereinafter, the "Subsequent Grants").
There shall be no limit on the number of Subsequent Grants a person may receive
under this Plan.

6. OPTION PROVISIONS.

Each option shall be subject to the following terms and conditions:

(a) The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date ("Expiration
Date") ten (10) years from the date of grant. If the optionee's service as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate terminates for any reason or for no reason, the option shall terminate
on the earlier of the Expiration Date or the date twelve (12) months following
the date of termination of all such service; provided, however, that if such
termination of service is due to the optionee's death, the option shall
terminate on the earlier of the Expiration Date or eighteen (18) months
following the date of the optionee's death.

(b) The exercise price of each option shall be equal to one hundred
percent (100%) of the Fair Market Value of the stock (as such term is defined in
subsection 9(e)) subject to such option on the date such option is granted.

2.
<PAGE> 3
(i) Payment of the exercise price per share in cash at the
time of exercise;

(ii) Provided that at the time of the exercise the Company's
common stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of shares of common stock of the Company already owned by
the optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims, encumbrances
or security interest, which common stock shall be valued at its Fair Market
Value on the date preceding the date of exercise; or

(iii) Payment pursuant to a program developed under Regulation
T as promulgated by the Federal Reserve Board which results in the receipt of
cash (or check) by the Company either prior to the issuance of shares of the
Company's common stock or pursuant to the terms of irrevocable instructions
issued by the optionee prior to the issuance of shares of the Company's common
stock.

(iv) Payment by a combination of the methods of payment
specified in subparagraph 6(c)(i) through 6(c)(iii) above.

(d) An option shall be transferable only to the extent specifically
provided in the option agreement; provided, however, that if the option
agreement does not specifically provide for the transferability of an option,
then the option shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person (or by his guardian or
legal representative) or transferee pursuant to such an order. Notwithstanding
the foregoing, the optionee may, by delivering written notice to the Company in
a form satisfactory to the Company, designate a third party who, in the event of
the death of the optionee, shall thereafter be entitled to exercise the option.

(e) Both Initial Options and Subsequent Options shall become
exercisable and vested in three (3) equal annual installments, commencing on
the one (1)-year anniversary of the date of grant of the option, provided that
the optionee has, during the entire period prior to such vesting installment
date, continuously served as a Non-Employee Director or employee of or
consultant to the Company or any Affiliate of the Company, whereupon such
option shall become fully vested and exercisable in accordance with its terms
with respect to that portion of the shares represented by that Installment.

(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (i) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters; and
(ii) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the option has been registered under a then currently-effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may require
any optionee to provide such other representations, written assurances or
information which the Company shall determine is necessary, desirable or
appropriate to comply with applicable securities laws as a condition of granting
an option to the optionee or permitting the optionee to exercise the option. The
Company may, upon advice of

3.
<PAGE> 4
counsel to the Company, place legends on stock certificates issued under the
Plan as such counsel deems necessary or appropriate in order to comply with
applicable securities laws, including, but not limited to, legends restricting
the transfer of the stock.

(g) Notwithstanding anything to the contrary contained herein, an
option may not be exercised unless the shares issuable upon exercise of such
option are then registered under the Securities Act or, if such shares are not
then so registered, the Company has determined that such exercise and issuance
would be exempt from the registration requirements of the Securities Act.

7. COVENANTS OF THE COMPANY.

(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.

(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such options.

8. USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.

9. MISCELLANEOUS.

(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.

(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate in any capacity or shall affect any right of the
Company, its Board or stockholders or any Affiliate, to remove any Non-Employee
Director pursuant to the Company's Bylaws and the provisions of Delaware General
Corporations Law.

(c) No Non-Employee Director, individually or as a member of a group,
and no beneficiary or other person claiming under or through him, shall have any
right, title or interest

4.
<PAGE> 5
in or to any option reserved for the purposes of the Plan except as to such
shares of common stock, if any, as shall have been reserved for him pursuant to
an option granted to him.

(d) In connection with each option made pursuant to the Plan, it shall
be a condition precedent to the Company's obligation to issue or transfer shares
to a Non-Employee Director, or to evidence the removal of any restrictions on
transfer, that such Non-Employee Director make arrangements satisfactory to the
Company to insure that the amount of any federal, state or local withholding tax
required to be withheld with respect to such sale or transfer, or such removal
or lapse, is made available to the Company for timely payment of such tax.

(e) As used in this Plan, "Fair Market Value" means, as of any date,
the value of the common stock of the Company determined as follows:

(i) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap, the Fair Market Value of a share of
common stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in common stock) on the last market
trading day prior to the day of determination, as reported in the Wall Street
Journal or such other source as the Board deems reliable; or

(ii) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.

10. ADJUSTMENTS UPON CHANGES IN STOCK.

(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding options will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding options. Such adjustments shall be made by the Board, the
determination of which shall be final, binding and conclusive. (The conversion
of any convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company.")

(b) In the event of: (1) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the acquisition by any person, entity or group within
the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or any comparable successor provisions (excluding
any employee benefit plan, or related trust, sponsored

5.
<PAGE> 6
or maintained by the Company or any Affiliate of the Company) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act,
or comparable successor rule) of securities of the Company representing at least
fifty percent (50%) of the combined voting power entitled to vote in the
election of directors, then to the extent not prohibited by applicable law, the
time during which options outstanding under the Plan may be exercised shall be
accelerated prior to such event and the options terminated if not exercised
after such acceleration and at or prior to such event.

11. AMENDMENT OF THE PLAN.

(a) The Board at any time, and from time to time, may amend the Plan
and/or some or all outstanding options granted under the Plan. However, except
as provided in paragraph 10 relating to adjustments upon changes in stock, no
amendment shall be effective unless approved by the stockholders of the Company
to the extent stockholder approval is necessary for the Plan to satisfy the
requirements of Rule 16b-3 under the Exchange Act or any Nasdaq or securities
exchange listing requirements.

(b) Rights and obligations under any option granted before any
amendment of the Plan shall not be impaired by such amendment unless (i) the
Company requests the consent of the person to whom the option was granted and
(ii) such person consents in writing.

12. TERMINATION OR SUSPENSION OF THE PLAN.

(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on March 16, 2007. No options may be
granted under the Plan while the Plan is suspended or after it is terminated.

(b) Rights and obligations under any option granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the option was granted.

6.
<PAGE> 7
IL FORNAIO (AMERICA) CORPORATION
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

NONSTATUTORY STOCK OPTION

___________________________________, Optionee:

On __________________, 19___, an option was automatically granted to
you (the "optionee") pursuant to the Il Fornaio (America) Corporation (the
"Company") 1997 Non-Employee Directors' Stock Option Plan (the "Plan") to
purchase shares of the Company's common stock ("Common Stock"). This option is
not intended to qualify and will not be treated as an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").

The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for Non-Employee Directors (as defined in
the Plan).

The details of your option are as follows:

1. The total number of shares of Common Stock subject to this option is
______________ ( ).

2. The exercise price of this option is _________________________
($________) per share, such amount being equal to the Fair Market Value (as
defined in the Plan) of the Common Stock on the date of grant of this option.

3. This option is immediately vested and exercisable for all of the
option shares.

4. If optionee's service as a Non-Employee Director or employee of or
consultant to the Company or any Affiliate terminates for any reason or for no
reason, this option shall terminate on the earlier of the Expiration Date or the
date twelve (12) months following the date of termination of all such service;
provided, however, that if such termination of service is due to optionee's
death, this option shall terminate on the earlier of the Expiration Date or
eighteen (18) months following the date of the optionee's death.

5. (a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to Section 6 of
the Plan. This option may only be exercised for whole shares.

(b) You may elect to pay the exercise price under one of the
following alternatives:

(i) Payment in cash or check at the time of exercise;

(ii) Provided that at the time of the exercise the Common
Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of shares of Common Stock already owned by you, held for the
period required to avoid a charge to the Company's reported earnings,

1.
<PAGE> 8
and owned free and clear of any liens, claims, encumbrances or security
interest, which Common Stock shall be valued at its Fair Market Value on the
date preceding the date of exercise;

(iii) Payment pursuant to a program developed under Regulation
T as promulgated by the Federal Reserve Board which results in the receipt of
cash (or check) by the Company either prior to the issuance of shares of the
Common Stock or pursuant to the terms of irrevocable instructions issued by you
prior to the issuance of shares of the Common Stock; or

(iv) Payment by a combination of the methods of payment
specified in subparagraphs (i) through (iii) above.

(c) By exercising this option you agree that the Company may require
you to enter an arrangement providing for the cash payment by you to the Company
of any tax withholding obligation of the Company arising by reason of the
exercise of this option.

6. The term of this option is ten (10) years measured from the grant
date, subject, however, to earlier termination upon your termination of service,
as set forth in Section 6 of the Plan.

7. Any notices provided for in this option or the Plan shall be given
in writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
below or at such other address as you hereafter designate by written notice to
the Company.

8. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of Section 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.

9. Notwithstanding anything to the foregoing, this option shall not be
exercisable in whole or in part unless and until the Plan has been approved by
the Company's stockholders.

Dated the ____ day of _______________________________, 19__.

Very truly yours,
Il Fornaio (America) Corporation

By: ________________________________
Duly authorized on behalf
of the Board of Directors

ATTACHMENT:

1997 Non-Employee Directors' Stock Option Plan

2.
<PAGE> 9
The undersigned:

(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its Affiliates regarding the acquisition of Common Stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options and any other stock awards previously granted and
delivered to the undersigned under stock award plans of the Company, and (ii)
the following agreements only:

NONE:
--------------------------------------
(Initial)

OTHER:
--------------------------------------
--------------------------------------
--------------------------------------

-------------------------------
Optionee

Address:
-------------------------------

-------------------------------

3.
<PAGE> 10
NOTICE OF EXERCISE

Il Fornaio (America) Corporation
__________________
__________________ Date of Exercise:____________________

Ladies and Gentlemen:

This constitutes notice under my stock option that I elect to purchase
the number of shares for the price set forth below.

<TABLE>
<CAPTION>
Type of option: NONSTATUTORY

<S> <C>
Stock option dated:

Number of shares as
to which option is
exercised:

Certificates to be
issued in name of:

Total exercise price: $

Cash payment delivered
herewith: $

Value of ______ shares
of common stock delivered
herewith(1): $
</TABLE>

By this exercise, I agree (i) to provide such additional documents as
you may require pursuant to the terms of the Company's 1997 Non-Employee
Directors' Stock Option Plan and (ii) to provide for the payment by me to you
(in the manner designated by you) of your withholding obligation, if any,
relating to the exercise of this option.

- --------
1 Shares must meet the public trading requirements set forth in the option.
Shares must be valued in accordance with the terms of the option being
exercised, must have been owned for the minimum period required in the option,
and must be owned free and clear of any liens, claims, encumbrances or security
interests. Certificates must be endorsed or accompanied by an executed
assignment separate from certificate.

1.
<PAGE> 11
I hereby make the following certifications and representations with
respect to the number of shares of Common Stock (the "Shares"), which are being
acquired by me for my own account upon exercise of the Option as set forth
above:

I acknowledge that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and are deemed to
constitute "restricted securities" under Rule 701 and Rule 144 promulgated under
the Securities Act. I warrant and represent to the Company that I have no
present intention of distributing or selling said Shares, except as permitted
under the Act and any applicable state securities laws.

I further acknowledge that I will not be able to resell the Shares for
at least ninety (90) days after the stock of the Company becomes publicly traded
(i.e., subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended) under Rule 701 and that more
restrictive conditions apply to affiliates of the Company under Rule 144.

I further acknowledge that all certificates representing any of the
Shares subject to the provisions of the Option shall have endorsed thereon
appropriate legends reflecting the foregoing limitations, as well as any legends
reflecting restrictions pursuant to the Company's Articles of Incorporation,
Bylaws and/or applicable securities laws.

I further agree that, if required by the Company (or a representative
of the underwriters) in connection with the first underwritten registration of
the offering of any securities of the Company under the Securities Act, I will
not sell or otherwise transfer or dispose of any shares of Common Stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days following the effective date of the registration statement of the
Company filed under the Securities Act as may be requested by the Company or the
representative of the underwriters. I further agree that the Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such period.

Very truly yours,

-----------------------------

<PAGE> 12
IL FORNAIO (AMERICA) CORPORATION
NON-EMPLOYEE DIRECTOR STOCK OPTION
(Under the 1992 Non-Employee Directors' Stock Option Plan)

____________________, Optionee:

Il Fornaio (America) Corporation (the "Company"), pursuant to its
1992 Non-Employee Directors' Stock Option Plan (the "Plan") has this day granted
to you, the optionee named above, an option to purchase shares of the common
stock of the Company ("Common Stock"). This option is not intended to qualify
and will not be treated as an "incentive stock option" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended from time to time
(the "Code").

The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's
non-employee directors and is intended to comply with the provisions of Rule 701
promulgated by the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "Act").

The details of your option are as follows:

1. The total number of shares of Common Stock subject to this option
is _____ (____) Shares. This option is fully vested and fully exercisable as of
the date hereof.

2. (a) The exercise price of this option is _____ (____) per share,
being the fair market value of the Common Stock on the date hereof.

(b) Payment of the exercise price per share is due in full,
either (1) in cash (including check), or (2) by delivery of shares of Common
Stock of the Company already owned by you which have been held for the requisite
period necessary to avoid a charge to the Company's reported earnings and valued
at the fair market value on the date of exercise, or (3) by a combination of
such methods of payment, upon exercise of all or any part of this option. 3.
Notwithstanding anything to the contrary contained herein, this option may not
be exercised unless the shares issuable upon exercise of this option are then
registered under the Securities Act of 1933, as amended (the "Act") or, if such
shares are not then so registered, the Company has determined that such exercise
and issuance would be exempt from the registration requirements of the Act.

4. The term of this option commences on the date hereof and
terminates on _______, 200___ (which date shall be ten (10) years from the date
hereof).

5. (a) This option may be exercised by delivering a notice of
exercise (in a form designated by the Company) together with the exercise price
to the Secretary of the Company, or to such other person as the Company may
designate, during regular business hours, together with

<PAGE> 13

such additional documents as the Company may then require pursuant to
subparagraph 6(f) of the Plan.

(b) By exercising this option you agree that:

(i) the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of this option;
(2) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (3) the disposition of shares acquired upon
such exercise; and

(ii) the Company (or a representative of the underwriters)
may, in connection with the first underwritten registration of the offering of
any securities of the Company under the Act, require that you not sell or
otherwise transfer or dispose of any shares of Common Stock or other securities
of the Company during such period (not to exceed one hundred eighty (180) days
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters. For purposes of this restriction you
will be deemed to own securities which (i) are owned directly or indirectly by
you, including securities held for your benefit by nominees, custodians, brokers
or pledgees; (ii) may be acquired by you within (60) days of the Effective Date;
(iii) are owned directly or indirectly, by or for your brothers or sister
(whether or by whole or half blood), spouse, ancestors and lineal descendants;
or (iv) are owned, directly or indirectly, by or for a corporation, partnership,
estate or trust of which you are a shareholder, partner or beneficiary, but only
to the extent of his proportionate interest therein as a shareholder, partner or
beneficiary thereof. You further agree that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such period.

6. This option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you.

7. This option is not a contract for your services as director of
the Company and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the service of the
Company, or of the Company to continue your service with the Company.

8. Any notices provided for in this option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the address
specified below or at such other address as you hereafter designate by written
notice to the Company.

9. This option is subject to all the provisions of the Plan, a copy
of which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the

<PAGE> 14

provisions of paragraph 6 of the Plan relating to option provisions, and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of this option and those of the
Plan, the provisions of the Plan shall control.

Dated:
------------------------

Very truly yours,

Il Fornaio (America) Corporation

By:
----------------------------------
Duly authorized on behalf of the
Board of Directors

Attachments:

1992 Non-Employee Directors' Stock Option Plan
Notice of Exercise

<PAGE> 15

The undersigned:

(b) Acknowledges that as of the date of grant of this option, it
sets forth the entire understanding between the undersigned optionee and the
Company and its affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of the following agreements only:

NONE
------------------------------
(Initial)

OTHER
------------------------------

------------------------------

-----------------------------------
------------------, Optionee

Address: -----------------------
-----------------------

<PAGE> 1
EXHIBIT 10.16

IL FORNAIO (AMERICA) CORPORATION

1991 INCENTIVE STOCK OPTION PLAN

1. PURPOSE OF THE PLAN

This Plan is intended to provide a method whereby officers and other
key employees of IL FORNAIO (AMERICA) CORPORATION (the
"Corporation") and its subsidiaries who are mainly responsible for
the management of the business and are in a position to make
substantial contributions to its sound development may be encouraged
to remain in the employ of the Corporation or its subsidiaries and
to acquire a larger proprietary interest in the Corporation.

2. ADMINISTRATION

The Plan shall be administered either by the Board of Directors of
Il Fornaio ("Board of Directors") or by a committee appointed by the
Board of Directors. (The term "Committee" shall mean any committee
so appointed or if there is none, the Board of Directors.) Directors
of Il Fornaio who are either eligible for options or to whom options
have been granted may vote on any matters affecting the
administration of the Plan or the granting of options under the
Plan; provided, however, that no option may be granted to a director
under the Plan except by:

(i) The Committee, at a meeting at which a
majority of its members are disinterested
persons; or

(ii) The Board of Directors at a meeting at which
the majority of the directors voting on a
grant are disinterested persons.

For purposes of this Section 2, a "disinterested person" is a person
who, at a given meeting of the Committee, is not being considered to
receive a grant of stock options. Subject to the provisions of the
Plan, the Committee is authorized (a) to direct the grant of stock
options, (b) to determine which of the employees of the Company or
any of its subsidiaries shall be granted options to purchase Stock,
when such grant shall be made and the number of shares of Stock to
be covered by such options, (c) to determine the fair market value
of the Stock covered by each option, (d) to determine the nature and
amount of consideration to flow to the Company, (e) to determine the
manner and in its discretion either generally or in any one or more
particular instances to accelerate the time or times when such
options shall be exercisable, (f) to determine other conditions and
limitations, if any, on each option granted under the Plan (which
options need not be identical), (g) to prescribe the form or forms
of the instruments evidencing the options and

<PAGE> 2

any restrictions imposed on the Stock purchased under the options
and of any other instruments required under the Plan and to change
such forms from time to time, (h) to adopt, amend and rescind rules
and regulations for the administration of the Plan and waive
compliance either generally or in any one or more particular
instances by an optionee with the requirements of any such rule or
regulation or any option, subject to the provisions of the Plan and
any other applicable requirements, (i) to waive any restrictions
imposed with respect to the transferability of Stock acquired on
exercise of options granted under the Plan, (j) to decide all
questions and settle all controversies and disputes which may arise
in connection with the Plan and (k) to interpret the Plan and to
make all other determinations deemed necessary or advisable for the
administration of the Plan. A majority of the members of the
Committee shall constitute a quorum, and all determinations of the
Committee shall be made by a majority of such quorum. All decisions,
determinations and interpretations of the Committee shall be binding
on all parties concerned. Any determination of the Committee under
the Plan may be made without notice or meeting of the Committee by a
writing signed by a majority of the Committee members.

3. STOCK SUBJECT TO THE PLAN

The shares to be issued upon exercise of options granted under this
Plan shall be made available, at the discretion of the Board of
Directors, either from the authorized but unissued Common Stock of
the Corporation or from shares of Common Stock reacquired by the
Corporation including shares purchased from existing shareholders.

Subject to the provisions of the succeeding paragraph of this
Section, the aggregate number of shares which may be delivered on
exercise of options under this Plan shall not exceed 100,000 shares.
The aggregate fair market value of the shares with respect to which
options designated as incentive stock options under the Plan which
are exercisable for the first time by any optionee during any
calendar year (under all plans of the Company or any parent or
subsidiary) shall not exceed $100,000. If, at any time during the
term of this Plan, an option granted under this Plan shall have
expired or terminated for any reason without having been exercised
in full, the unpurchased shares shall become available for option to
other employees.

In the event that (i) the number of outstanding shares of Common
Stock of the Corporation shall be changed by reason of split-ups,
combinations or reclassifications of shares or otherwise, (ii) any
stock dividends are distributed to the

<PAGE> 3

holders of Common Stock of the Corporation, or (iii) the Common
Stock of the Corporation is converted into or exchanged for other
shares as a result of any merger, consolidation or recapitalization
then, in any such case, the number of shares for which options may
thereafter be granted under this Plan, both in the aggregate and as
to any individual, and the number of shares then subject to options
theretofore granted under this Plan and the price per share payable
upon the exercise of such options may be appropriately adjusted by
the Committee so as to reflect such change.

Subject to any required action by the shareholders, if the
Corporation shall be the surviving corporation in any merger or
consolidation (other than a merger or consolidation in which the
Corporation survives but its outstanding shares are converted into
securities of another corporation or exchanged for other
consideration), any option granted hereunder shall pertain and apply
to the securities which a holder of the number of shares of stock
then subject to the option would have been entitled to receive. A
dissolution or liquidation of the Corporation or a merger or
consolidation in which the Corporation is not the surviving
corporation or its outstanding shares are so converted or exchanged
shall cause every option hereunder to terminate; provided, however,
that in the event the successor or surviving corporation does not
grant replacement options in any such merger or consolidation, at
least twenty (20) days prior to the effective date of any such
merger or consolidation, the Committee shall make all options
outstanding hereunder immediately exercisable; and provided further,
in the event of the sale of all or substantially all of the assets
of the Corporation, the Committee shall make all options outstanding
hereunder immediately exercisable upon the approval of eighty
percent (80%) of the outstanding shares of the voting stock of the
Corporation.

4. ELIGIBILITY OF OPTIONEES.

Options may be granted only to key employees of the Corporation and
of its subsidiaries who are mainly responsible for the management of
the business of the Corporation (or a subsidiary) and are in a
position to make substantial contributions to the sound performance
of the Corporation (or of a subsidiary). The term "key employees"
shall include officers as well as other employees devoting full time
to the Corporation and shall include Directors who are also active
officers or employees of the Corporation (or of a subsidiary). Any
member of the Board of Directors who is not an officer or employee
devoting full time to the Corporation (or a subsidiary) shall not be
eligible to receive an option under this Plan.

<PAGE> 4

5. TERMS AND CONDITIONS OF OPTIONS.

Options granted under the Plan shall be evidenced by agreements in
such form as the Committee shall from to time approve, which
agreements shall comply with and be subject to the following terms
and conditions.

A. OPTION PRICE.

The purchase price of the shares subject to each option
shall be determined by the Committee according to the
following Section 6 hereof. Such price shall not be less
than 100% of the fair market value of the shares of the
Common Stock of the Corporation on the day preceding the
day on which such option is granted to any employee
owning less than 10% of the combined voting power of all
classes of stock of the Corporation. Such price shall
not be less than 110% of the fair market value of the
shares of the Common Stock of the Corporation on the day
preceding the day on which such option is granted to any
employee owning 10% or more of the combined voting power
of all classes of stock of the Corporation.

B. OPTION PRICE

Each option shall state the number of shares to which it
pertains.

C. METHOD AND TIME OF PAYMENT

To exercise an option, the optionee must pay the full
exercise price of the shares being purchased. Payment
must be made either: (i) in cash, (ii) at the discretion
of the Committee, by delivering shares of the
Corporation's Common Stock already owned by the optionee
and having a fair market value equal to the applicable
exercise price, or (iii) a combination of cash and such
shares.

The Company shall not be obligated to deliver any shares
of stock unless and until, in the opinion of the
Company's counsel, all applicable federal and state laws
and regulations have been complied with, nor, in the
event the outstanding stock is at the time listed upon
any stock exchange, unless and until the shares to be
delivered have been listed or authorized to be added to
the list upon official notice of issuance upon such
exchange, nor unless or until all other legal matters in
connection with the issuance and delivery of shares have
been approved by the Company's counsel. Without limiting
the generality of the foregoing, the Company

<PAGE> 5

(i) may require from the optionee such investment
representation or such agreement, if any, as counsel for
the Company may consider necessary in order to comply
with the Securities Act of 1933 and (ii) may require
that the optionee agree that any sale of the shares will
be made only in such manner as is permitted by the
Committee and that he will notify the Company when he
makes any disposition of the shares whether by sale,
gift or otherwise. The Company shall use its best
efforts to effect any such compliance and listing, and
the optionee shall take any action reasonably requested
by the Company in such connection. An optionee shall
have the rights of a shareholder only as to shares
actually issued to him under the Plan.

D. EXERCISE OF OPTIONS

Each option granted under this Plan shall terminate not
later than the expiration of five years from the date on
which the grant was made; provided, however, the
Committee, in its discretion, may grant options with a
six year vesting period to an individual meeting the
suitability standards set forth by the California
Department of Corporations; and provided further, for
options granted to holders of ten percent (10%) or more
of the combined voting power of the Corporation the term
shall not exceed five years from the date of the grant.
The Committee, in its discretion, may prescribe a
shorter period for any individual grant.

Except as hereinafter provided, each option shall be
made exercisable at such time or times, whether or not
in installments, as the Committee shall prescribe at the
time the option is granted, provided, however, that any
vesting provisions prescribed by the Committee shall be
effective on a pro rata basis over a term not to exceed
five (5) years from the date the option is granted, or
six (6) years if the individual meets the suitability
standards described above. In the case of an option not
immediately exercisable in full, the Committee may at
any time accelerate the time at which all or any part of
the option may be exercised. Subject to the provisions
of this Section, each option may be exercised in whole
or, from time to time, in part with respect to the
number of shares as to which it is then exercisable in
accordance with the terms of this Plan.

E. PRIOR OUTSTANDING OPTIONS

No option granted to an individual pursuant to this Plan
shall be exercised while there is outstanding any

<PAGE> 6

incentive stock option (as defined in Section
422A of the Internal Revenue Code of 1954, as
amended) which was granted before such option to
such individual to purchase Common Stock of the
Corporation or of any corporation which (at the
time of the granting of such option) was a
parent or subsidiary corporation of the
Corporation, or is a predecessor corporation of
the Corporation or such parent or subsidiary
corporation. An incentive stock option shall be
treated as outstanding until it is exercised in
full or allowed to expire due to lapse of time
regardless of whether such option is cancelled
by the Committee for any reason not related to
termination of active employment of an optionee.

F. NON-TRANSFERABILITY OF OPTIONS

No option granted under this Plan shall be transferable
by the grantee otherwise than by his or her last will
and testament, or by the laws of descent and
distribution, and during his or her lifetime, such
option shall be exercisable only by such grantee.

G. TERMINATION OF EMPLOYMENT EXCEPT DISABILITY OR DEATH

If an optionee's employment with the Corporation (or a
subsidiary) shall cease for any reason other than his or
her disability (as defined in Internal Revenue Code
Section 105(d)(4)) or his or her death, after at least
one year of continuous employment with the Corporation
(or such subsidiary) immediately following the date on
which an option, if any, is granted, the optionee may
exercise such option, to the extent that such option
could be exercised at the time of such cessation of
employment, at any time within six months after the
optionee shall so cease to be an employee, and in the
event of his or her death within such three month
period, his or her options, if any, may be exercised to
the extent and in the manner provided in Paragraph I of
this Section 5. Any questions as to whether and when
there has been a cessation of employment shall be
determined by the Committee and its determination on
such questions shall be final.

H. TERMINATION OF EMPLOYMENT DUE TO DISABILITY

If an optionee's employment with the Corporation (or a
subsidiary) shall cease by reason of his or her
disability (as defined in Internal Revenue Code Section

<PAGE> 7

105(d)(4)), after at least one year of continued
employment with the Corporation (or such subsidiary)
immediately following the date on which an option, if
any, is granted, the optionee may exercise such option,
to the extent that such option could be exercised at the
cessation of employment, at any time within twelve
months after the optionee shall so cease to be an
employee.

I. TERMINATION DUE TO DEATH

If an optionee's employment with the Corporation (or a
subsidiary) shall cease due to the optionee's death, or
if the optionee shall die within three months after
cessation of employment for any reason other than
disability, or if he or she shall die within twelve
months after cessation of employment due to disability,
any options theretofore granted under this Plan may be
exercised by the optionee's estate or by the person
designated in his or her last will and testament to the
full extent that such option could have been exercised
by such deceased optionee immediately prior to death,
provided such options are exercised within six months
after such optionee's death.

6. DETERMINATION OF FAIR MARKET VALUE

For purposes of determining the option price and for all other
valuation purposes under the Plan, the Fair Market Value of a share
of Common Stock on any date will be determined by the Board of
Directors and may be computed by such method as the Board of
Directors shall consider will reflect the fair market value of the
stock on such date or, if the shares of Common Stock are publicly
traded, at the mean of the lowest and highest selling prices of one
share of Common Stock on the date in question on the
over-the-counter market or the closing price on the principal
exchange where the Corporation's stock prices are officially quoted.

7. INTERPRETATION OF THE PLAN

The Committee shall have full power and authority to construe and
interpret this Plan. Decisions of the Committee shall be final,
conclusive and binding on all parties, including the Corporation,
its subsidiaries and stockholders, and the optionees, their estates,
executors, administrators, heirs and assigns.

8. EMPLOYMENT RIGHTS

Neither the adoption of the Plan nor the grant of any option

<PAGE> 8

under it shall confer upon any employee of the Company any right to
continued employment with the Company, nor shall either interfere in
any way with the right of the Company to terminate the employment of
any of its employees at any time, with or without cause. Neither the
existence of the Plan nor the grant of any option hereunder shall be
taken into account in determining any damages to which an employee
may be entitled upon termination of his employment.

9. AMENDMENTS TO PLAN

The Committee, from time to time, may prescribe, amend and rescind
rules and regulations relating to this Plan, and, subject to the
approval of the Board of Directors of the Corporation, may at any
time terminate, modify or suspend the operation of this Plan,
provided that, without the approval of the shareholders of the
Corporation, no such modification shall:

(i) materially increase the benefits accruing to
participants under this Plan;

(ii) materially increase the number of shares of the
Corporation which may be issued under this Plan; or

(iii) materially modify the requirements as to eligibility
for participation in this Plan.

10. TERMINATION OR DISCONTINUANCE OF PLAN

The Plan shall terminate ten years from the date on which it is
adopted by the Board of Directors or the date on which it is
approved by the shareholders, whichever is earlier. Prior to the
expiration of such ten-year period, the Board of Directors may
suspend or terminate the Plan or discontinue granting options under
the Plan at any time; provided, however, that any such suspension,
termination or discontinuance shall not affect any options then
outstanding under the Plan. No options under the Plan may be granted
after termination of the Plan.

11. EFFECTIVE DATE

This Plan shall be submitted to the Board of Directors for approval
and shall be effective and operative at the earliest date permitted
by applicable law, consistent with the intention that options
granted under this Plan be incentive stock options as defined in
Section 422A of the Internal Revenue Code.

<PAGE> 9

STOCK OPTION AGREEMENT

THIS AGREEMENT, entered into on ___________, between Il Fornaio
(America) Corporation, a California corporation (the
"Corporation"), and ___________ ("Employee").

R E C I T A L S

Employee is a full-time officer and key employee of the Corporation
who has major responsibility for the management of the business of the
Corporation and who has made and will make substantial contributions to the
sound performance of the Corporation. In order to encourage Employee to remain
in the employ of the Corporation, and to allow him to acquire a larger
proprietary interest in the Corporation, the Corporation desires to grant
Employee an Incentive Stock Option ("Option") pursuant to the 1991 Incentive
Stock Option Plan ("Plan") adopted by the Corporation's Board of Directors and
to be approved by its stockholders, upon the conditions hereinafter specified.

NOW, THEREFORE, it is agreed:

1. Option. The Corporation hereby grants to Employee, upon all of
the terms and subject to all of the conditions set forth herein, and further
subject to the requisite approval of the Plan by the Corporation's stockholders
and the California Department of Corporations, an Option to purchase
____________________ (______) shares of the Corporation's Common Stock at an
option price of $______ per share. Such price is not less than one hundred
percent (100%) of the fair market value ("Fair Market Value") of the shares of
the Common Stock of the Corporation on the day on which this Option is granted
or, in the case of an employee who owns ten percent (10%) or more of the
outstanding voting stock of the Corporation, is not less than one hundred ten
percent (110%) of the Fair Market Value of a share on the date of grant.
Employee hereby accepts such grant.

2. Payment. The option price shall be fully payable in United States
dollars upon the exercise of this Option and may be paid (i) in cash, or (ii) by
delivering shares of the Corporation's Common Stock already owned by Employee
and having a Fair Market Value equal to the applicable exercise price, or (iii)
a combination of cash and such shares.

3. Term and Exercise of Option. This Option shall not be exercisable
after the expiration of five (5) years from the day on which this Option is
granted. This Option may be exercised in any event only after one year of
continuous employment with the Corporation immediately following the date on
which this Option is granted and, except in cases provided hereinafter, only
during the continuance of the employment of Employee with the Corporation, and
may be exercised, subject to such overall

<PAGE> 10

limitations, only to the extent of 20% of the total number of optioned shares
after the expiration of one year following the date this Option is granted, and
only to the extent of an additional 20% of the total number of optioned shares
after the expiration of two years following the date this Option is granted, and
only to the extent of an additional 20% of the total number of optioned shares
after the expiration of three years following the date this Option is granted,
and only to the extent of an additional 20% of the total number of optioned
shares after the expiration of four years following the date this Option is
granted, and only to the extent of an additional 20% of the total number of
optioned shares after the expiration of four years and 364 days following the
date this Option is granted, such limitations being calculated, in the case of
any resulting fraction, to the nearest lower whole number of shares. Subject to
the provisions of this Section, this Option may be exercised in whole or, from
time to time, in part with respect to the number of shares as to which it is
then exercisable in accordance with the terms of this Agreement.

This option may be exercised only as to whole shares and only by
written notice signed by Employee (or, in the case of exercise after Employee's
death, by Employee's personal representative) in the form attached hereto as
Exhibit A, and mailed or delivered to the Secretary of the Corporation, at its
principal office, which notice shall:

(a) Specify the number of option shares with respect
to which this Option is being exercised;

(b) Be accompanied by payment in full for the purchase
price; and

(c) To the extent exercised by a person or persons
other than Employee, be accompanied by appropriate proof that such person or
persons have the right to exercise this Option.

This Option shall be deemed so exercised at the time of receipt of
said notice and payment and the Corporation shall mail or deliver to the
appropriate person as soon as practicable a certificate or certificates
representing the shares purchased thereby.

The issuance of shares upon exercise hereof shall be expressly
subject to compliance with all applicable federal and state securities laws and
the regulations of any stock exchange on which Corporation's Common Stock may be
listed at the time of such issuance. Employee agrees to make such
representations and warranties to the Company, as may, in the opinion of the
Company's counsel, be required by law or applicable regulations.

<PAGE> 11

4. Non-Transferability. During Employee's lifetime, this
Option shall be exercisable only by him and shall not be
transferable by him otherwise than by his last will and testament
or by the laws of descent and distribution.

5. Termination of Employment Except Disability or Death. If
Employee's employment with the Corporation shall cease for any reason other than
his disability (as defined in Internal Revenue Code Section 105(d)(4) or his
death, after at least one year of continuous employment with the Corporation
immediately following the date on which this Option is granted, Employee may
exercise such Option, to the extent that such Option could be exercised at the
time of such cessation of employment, at any time within three months after he
shall so cease to be an employee, and in the event of his death within such
three month period, this Option may be exercised to the extent and in the manner
provided in Section 7 of this Agreement.

6. Termination of Employment Due to Disability. If Employee's
employment with the Corporation shall cease by reason of his disability (as
defined in Internal Revenue Code Section 105(d)(4)) after at least one year of
continuous employment with the Corporation immediately following the date on
which this Option is granted, he may exercise such Option, to the extent that
such Option could be exercised at the cessation of employment, at any time
within twelve months after he shall so cease to be an employee.

7. Termination Due to Death. If Employee's employment with the
Corporation shall cease due to his death, or if he shall die within three months
after cessation of employment for any reason other than disability, or if he
shall die within twelve months after cessation of employment due to disability,
this Option may be exercised by his estate or by the person designated in his
last will and testament to the full extent that this Option could have been
exercised by Employee immediately prior to his death, provided this Option is
exercised within six months after his death.

8. Recapitalization. Subject to any required action by the
shareholders, the number of shares of Common Stock covered by this Option, and
the price per share thereof, shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Common Stock of the Corporation
resulting from a subdivision or consolidation of shares of Common Stock or the
payment of a stock dividend on the Common Stock or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Corporation.

<PAGE> 12

Subject to any required action by the stockholders, if the
Corporation shall be the surviving corporation in any merger or consolidation,
this Option shall pertain to and apply to the securities to which a holder of
the number of shares of Common Stock subject to the option would have been
entitled. A dissolution or liquidation of the Corporation or a merger or
consolidation in which the Corporation is not the surviving corporation shall
cause the Option to terminate, provided, however, that in the event the
successor or surviving corporation does not grant replacement options in any
such merger or consolidation, at least twenty (20) days prior to such merger or
consolidation the Corporation shall make this Option immediately exercisable;
provided further, in the event of the sale of all or substantially all of the
assets of the Corporation, the Corporation shall make this option immediately
exercisable upon the approval of eighty percent (80%) of the outstanding shares
of the voting stock of the Corporation.

Except as previously provided in this Section 8, Employee shall have
no rights by reason of any subdivision or consolidation of shares of stock of
any class or the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class or by reason of any dissolution,
liquidation, merger, or consolidation or spin-off of assets or stock of another
corporation, and any issue by the Corporation of shares of stock of any class,
or securities convertible into shares of stock of any class, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to the Option.

The grant of this Option shall not affect in any way the right or
power of the Corporation to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure or to merge or to consolidate or
to dissolve, liquidate or sell, or transfer all or any part of its business or
assets.

9. Rights as a Stockholder. Employee shall have no rights as a
stockholder with respect to any shares covered by his Option until the date of
the issuance of a stock certificate to him for such shares. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued, except as provided in
Section 8 hereof.

10. Modification, Extension, and Renewal of Options. The Committee
may modify, extend, or renew the Option, or accept the surrender of the Option
(to the extent not theretofore exercised)

<PAGE> 13

and authorize the granting of a new option in substitution therefor (to the
extent not theretofore exercised). The Committee may not, however, modify the
Option so as to specify a lower price or accept the surrender of the Option and
authorize the granting of a new option in substitution therefor specifying a
lower price. Notwithstanding the foregoing however, no modification of the
Option shall, without the consent of Employee, alter or impair any rights or
obligations under the Option.

11. Investment Purpose. This Option is granted on the condition that
the purchase of stock hereunder shall be for investment purposes, and not with a
view to resale or distribution. Each exercise hereof shall be deemed a
representation by Employee that the foregoing condition exists. The shares
purchased may not be resold unless they are registered under the Securities Act
of 1933, as amended, or unless an exemption is available.

12. No Obligation to Exercise Option. The granting of this Option
shall impose no obligation upon Employee to exercise such Option.

13. No Tax Representations. The Corporation has made no warranties
or representations to Employee with respect to the income tax consequences of
the transactions contemplated by this Agreement, and Employee is in no manner
relying on the Corporation or the Corporation's representatives for an
assessment of such tax consequences.

14. Interpretation. The Committee administering the Plan shall have
full power and authority to construe and interpret the provisions of the Plan
and any questions or disputes which may arise under this Option. Decisions of
the Committee shall be final, conclusive and binding on all parties, including
the Corporation, its subsidiaries and stockholders and the optionees, their
estates, administrators, heirs and assigns.

15. Subordination to the Plan. This Agreement is made subject to the
terms and conditions of the Plan. In the event of any conflict between this
Agreement and the Plan, the terms and provisions of the Plan shall in all events
govern and prevail. Employee hereby acknowledges that he has received and read a
copy of the Plan and understands and agrees to its provisions.

<PAGE> 14

IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first above written.

IL FORNAIO (AMERICA) CORPORATION

By:
--------------------------------------
Laurence B. Mindel, President

EMPLOYEE

---------------------------------------------

<PAGE> 1

EXHIBIT 11.1

IL FORNAIO

COMPUTATION OF EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 29,
1994 1995 1996 1996 1997
----------------- ----------------- ----------------- ----------------- -----------------
FULLY FULLY FULLY FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income.................... $1,915 $1,915 $4,504 $4,504 $1,453 $1,453 $ 693 $ 693 $1,305 $1,305
Adjustments to net income:
Interest expense reduction
net of 38% tax rate....... 25 25 18 18 -- --
Interest income net of 38%
tax rate.................. 54 54 45 45 37 37
------ ------ ------ ------ ------ ------

Net income -- as adjusted:.... 1,915 1,915 4,504 4,504 1,532 1,532 756 756 1,342 1,342

Weighted average common stock
outstanding................. 4,437 4,437 4,452 4,452 4,495 4,495 4,456 4,456 4,554 4,554
Common stock equivalents...... 30 40 8 47 344 344 353 353 483 483
Weighted average common stock
and common stock
equivalents................. 4,467 4,477 4,460 4,499 4,839 4,839 4,809 4,809 5,037 5,037

Net income per common stock
and common stock
equivalent:................. $ 0.43 $ 0.43 $ 1.01 $ 1.00 $ 0.32 $ 0.32 $ 0.16 $ 0.16 $ 0.27 $ 0.27

Calculation of common stock
equivalents:
Options to purchase common
stock..................... 201 201 709 709 666 666 666 666 813 813
Common stock assumed
purchased with potential
proceeds.................. (171) (161) (701) (662) (322) (322) (313) (313) (330) (330)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Common stock equivalents.... 30 40 8 47 344 344 353 353 483 483
====== ====== ====== ====== ====== ====== ====== ====== ====== ======

Calculation of common stock
assumed purchased with
potential proceeds:
Potential proceeds from
exercise of options to
purchase common stock..... $ 641 $ 641 $2,978 $2,978 $1,530 $1,610 $1,409 $1,487 $1,815 $1,980
Common stock price used
under the treasury stock
method.................... 3.75 4.00 4.25 4.50 4.75 5.00 4.50 4.75 5.50 6.00
Common stock assumed
purchased with potential
proceeds.................. $ 171 $ 161 $ 701 $ 662 $ 322 $ 322 $ 313 $ 313 $ 330 $ 330
</TABLE>

<PAGE> 1

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 2 to Registration Statement No.
333-23605 of Il Fornaio (America) Corporation of our report dated March 3, 1997
appearing in the Prospectus, which is a part of such Registration Statement, and
to the reference to us under the headings "Selected Financial Data" and
"Experts" in such Prospectus.

/s/ DELOITTE & TOUCHE LLP
- --------------------------------------
DELOITTE & TOUCHE LLP

San Francisco, California
August 20, 1997

<ARTICLE> 5

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<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> JUN-29-1997
<CASH> 3,449,000
<SECURITIES> 0
<RECEIVABLES> 2,216,000
<ALLOWANCES> 117,000
<INVENTORY> 1,352,000
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