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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 27, 1998 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number: 0-29410
IL FORNAIO (AMERICA) CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-2766571
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
770 TAMALPAIS DRIVE, SUITE 400
CORTE MADERA, CALIFORNIA 94925
(Address of principal executive offices) (Zip Code)
(415) 945-0500
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.001 per share
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing price of the Registrant's Common Stock on
March 2, 1999, was $32,115,049.*
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of March 2, 1999 there were 5,658,821 shares outstanding of the Registrant's
Common Stock.
* Excludes 1,880,580 shares outstanding at March 2, 1999, of the Registrant's
Common Stock held by directors, executive officers and holders of more than 10%
of the Company's Common Stock. Exclusion of shares held by any person should not
be construed to indicate that such person possesses the power, direct or
indirect, to direct or cause the direction of the management or policies of the
Registrant, or that such person is controlled by or under common control with
the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Registrant's
Annual Meeting of Stockholders to be held on May 6, 1999 have been incorporated
by reference into Part III of this Annual Report on Form 10-K.
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ITEM 1. BUSINESS
CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Certain statements set forth in or incorporated by reference in this Form
10-K as well as in the Company's Annual Report to Stockholders for the year
ended December 27, 1998 constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Act of 1995. These statements
include, without limitation, the timing of and plans for anticipated store
openings, the projected investment costs and sizes of future restaurants, the
adequacy if anticipated sources of cash, planned capital expenditures, the costs
of the Company's Year 2000 compliance efforts and the dates by which the Company
believes such efforts will be completed, the effect of interest rate increases,
and trends or expectations regarding the Company's operations. In addition,
words such as "believes," "anticipates," "expects," "intends," "estimates" and
similar expressions are intended to identify forward-looking statements, but are
not the exclusive means of identifying such statements. Such statements are
based on currently available operating, financial and competitive information
and are subject to various risks and uncertainties. Readers are cautioned that
the forward-looking statements reflect management's analysis only as of the date
hereof, and the Company assumes no obligation to update these statements. Actual
future results, events and trends may differ materially from those expressed in
or implied by such statements depending on a variety of factors, including, but
not limited to those set forth under "Risk Factors" and elsewhere in this Form
10-K. See "Business -- Risk Factors."
GENERAL
Il Fornaio owns and operates 17 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 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
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 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.
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. Since its initial
public offering in September 1997, the Company has opened four restaurants,
located in Santa Monica, California; Denver, Colorado; Seattle, Washington; and
Walnut Creek, California. The Company currently intends to open four new
restaurants in 1999.
The Company was incorporated in California in June 1980 and was
reincorporated in Delaware in September 1997 prior to its initial public
offering. The Company's executive office is located at 770 Tamalpais Drive,
Suite 400, Corte Madera, California 94925. The Company's telephone number is
(415) 945-0500.
Il Fornaio and the Il Fornaio logo are registered marks of the Company, and
Festa Regionale and Passaporto are marks used and owned by the Company.
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RISK FACTORS
In addition to the other information in this Annual Report on Form 10-K,
stockholders or prospective investors should carefully consider the following
risk factors:
UNCERTAINTIES ASSOCIATED WITH FUTURE GROWTH
The Company has experienced growth in recent years, expanding from nine
restaurants at the end of 1993 to 17 restaurants at the end of 1998. In 1998,
the Company opened two new restaurants and currently expects to open four new
restaurants in 1999. 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
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 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
Thirteen of the Company's 17 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
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 four 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
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conditions, the timing of new restaurant openings and related expenses, net
sales contributed by new restaurants, increases or decreases in comparable
restaurant revenues and fluctuations in inventory and general and administrative
expenses. For example, weather conditions have generally had the most
significant adverse impact in the first quarter of each year. In addition, in
the fourth quarter of 1998, the Company adopted a new accounting standard, which
requires the Company to expense as incurred all start-up and preopening costs
that may not otherwise be capitalized as long-lived assets. The adoption of this
new standard may lead to increased variability in operating results, depending
on the number and timing of restaurant openings. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations." 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.
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. 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. During 1998, there was
significant volatility in the cost of certain bakery-related commodities,
principally butter and manufacturing cream, which adversely affected the
Company's costs of sales in 1998.
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.
The minimum wage in California was raised to $5.75 an hour effective March 1,
1998. In January 1999, the minimum wage in Oregon increased to $6.50 an hour
from $6.00 an hour and the minimum wage in Washington increased to $5.70 an hour
from $5.15 an hour. 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. Additional federal minimum wage increases have recently been
proposed. In the fourth quarter of 1996, the Company introduced its first menu
price increase in three years and implemented another price increase at the
start of the first quarter of 1998 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 "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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 Michael J. Hislop, the Company's President
and Chief Executive 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
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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
$352,000, 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
non-cancelable. 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 "Item 2.
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, land use,
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, 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. In addition, the Company is required to comply with the alcohol
licensing requirements of the states and municipalities where its restaurants
are or may be located. 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 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,
extended coverage and employee practices liability 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 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.
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RISKS RELATED TO THE YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. The Company's
computer equipment and software and devices with embedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities. The failure to correct a material Year 2000 problem could result in
an interruption in, or failure of, certain normal business operations. If Year
2000 issues are not properly identified, or if assessment, remediation and
testing are not effected timely with respect to Year 2000 problems that are
identified, the Year 2000 problem could materially adversely impact the
Company's results of operations and adversely affect the Company's relationships
with customers, vendors or others. Additionally, there can be no assurance that
the Year 2000 problems of other entities will not have a material adverse effect
on the Company's systems or results of operations. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Compliance."
CONTROL BY EXISTING STOCKHOLDERS AND MANAGEMENT
At March 2, 1999, the Company's directors, officers and their affiliates
will beneficially own approximately 26.4% 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 "Item 12. Security Ownership of Certain
Beneficial Owners and Management."
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the shares of Common Stock may 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. On March 16, 1999, the Company issued the press release filed
with this 10-K as Exhibit 99.1. 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 five
million shares of Preferred Stock and to determine the powers, preferences,
privileges, rights, including voting rights, qualifications, 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 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.
IL FORNAIO 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 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 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
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with each meal, providing an authentic and high quality complement to the menus.
Il Fornaio's restaurants have received numerous awards and commendations.
Build Brand Awareness. The Company believes that its restaurants, 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 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. 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 received the grand prize for best new restaurant design worldwide,
one of five grand prizes in hospitality design awarded in 1994 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 attract and retain highly qualified employees. In 1995, the Company
instituted a Partnership Program, which provides equity participation to chefs
and restaurant general 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 1998 of $21.87 (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 1998, the Company's 13 restaurants that were opened prior to 1997
(which excludes data from restaurants in their first year of operation) had
average revenues of approximately $5.1 million, average operating income of
approximately $826,000, or 16.2% of restaurant sales, and average operating
income before depreciation and amortization of approximately $1,044,000, or
20.4% of restaurant sales. The Company's restaurants range in size from 5,000
square feet to 13,200 square feet. Since 1991, the Company's total investment
per restaurant, net of landlord contributions, has averaged approximately $2.0
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 approximately $2.0
million and $250,000, respectively, based upon adjustments for inflation and the
geographic locations of future restaurants.
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LOCATIONS
Il Fornaio owns and operates 17 full-service, white tablecloth Italian
restaurants and five bakeries. Four of these 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 Il Fornaio
restaurants and wholesale accounts in the San Francisco Bay Area are supplied by
the Company's 12,000-square foot bakery located in Burlingame, California.
Restaurants that cannot be supplied by one of the Company's bakeries are
designed with an in-house bakery. All of the restaurants feature a retail
market, which sells baked goods, prepared foods and a variety of Il
Fornaio-brand products, allowing guests to recreate the Il Fornaio experience at
home.
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
Santa Monica, CA.................. 1997 7,500 150
Denver, CO........................ 1997 9,200 175
Seattle, WA....................... 1998 13,200 269
Walnut Creek, CA.................. 1998 8,700 210
Bakeries
Beverly Hills, CA................. 1983 1,500 --
Irvine, CA........................ 1991 3,400 --
Pasadena, CA...................... 1993 3,400 --
Sacramento, CA.................... 1993 2,500 --
Burlingame, CA.................... 1997 12,000 --
</TABLE>
PLANNED RESTAURANTS (2)
<TABLE>
<CAPTION>
SCHEDULED SIZE
LOCATION OPENING (SQ. FT.)
- ------------------------------------------------ ------------- ----------
<S> <C> <C>
Las Vegas, NV (The Venetian) ................... 1999 14,000
Atlanta, GA .................................... 1999 8,500
Coronado Island, CA ............................ 1999 9,100
Manhattan Beach, CA ............................ 1999 8,000
</TABLE>
- ----------
(1) Excludes patio seating.
(2) Leases have been signed for each of these planned restaurant locations.
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<PAGE> 9
EXPANSION STRATEGY AND SITE SELECTION
The Company intends to continue to expand its operations by addressing both
existing and new geographic markets. The Company currently plans to open four
new restaurants in 1999 as indicated in the table above.
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'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 "Business -- Risk Factors."
MENU
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 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.
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.
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.
The Company's average check per guest in 1998 at its restaurants, including
alcoholic beverages, was $21.87. Nine of the restaurants also offer breakfast
service which, during 1998, 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
7% of restaurant revenues.
Take-out prepared food and retail brand items accounted for approximately
7% of restaurant revenues in 1998. 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.
In November of 1998, the Company opened Il Fornaio Risotteria, a full
service restaurant in Pacific Place, an entertainment and shopping center in
downtown Seattle. Risotteria features authentic Italian foods simply presented
at lower price points than a typical Il
9
<PAGE> 10
Fornaio restaurant. The casual setting is designed for quicker, more informal
service, with all menu items priced below $10. While the Company has no current
plans to expand the Risotteria concept to other markets, it is possible that the
Company may build other Risotterias in the future in appropriate locations.
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 13,200 square feet with indoor seating ranging from 76 to 269 guests.
Outdoor piazzas provide additional seating during warmer weather. Il Fornaio's
Sacramento restaurant received the grand prize for best new restaurant design
worldwide, one of five grand prizes in hospitality design awarded in 1994 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
quarter 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 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.
10
<PAGE> 11
The Company currently has five 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. The Company's original heritage was based on bakeries and bakery
products remain an integral part of the Il Fornaio restaurant concept. In
addition to the Company's own restaurants, bakery products are sold to quality
grocery stores, specialty retailers, hotels and other fine restaurants. The
Company's bakeries accounted for approximately 9% of gross revenues during 1998.
In March 1997, the Company commenced operation of a free-standing
12,000-square foot bakery, located in Burlingame, California. This facility
provides freshly baked goods to all Il Fornaio 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. 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 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 bakery consists of a production manager,
an assistant production manager and a business manager. A 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 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 distribution.
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.
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, premium 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 120,000 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 receive a complimentary item such as an
appetizer or a dessert 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
11
<PAGE> 12
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 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 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. The Company has a 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.
Additionally, the Company has developed a proprietary back-office system for
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's accounting system includes 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 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 unit
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 business is 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.
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.
12
<PAGE> 13
EMPLOYEES
At February 5, 1999, the Company employed approximately 2,306 persons, 45
of whom were executive office personnel, 181 of whom were unit management
personnel and the remainder of whom were hourly restaurant or 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. Delays or failures in obtaining or
maintaining the required construction and operating licenses, permits and
approvals could delay or prevent the opening of new restaurants or could
materially and adversely affect the operation of existing restaurants.
The development and construction of additional restaurants and bakeries
will be subject to compliance with applicable zoning, land use, environmental
and licensing 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 1998, approximately 25% 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. For each new location,
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.
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.
EXECUTIVE OFFICERS OF THE REGISTRANT
Laurence B. Mindel, age 61, joined the Company as Chairman of the Board,
President and Chief Executive Officer in January 1987. Mr. Mindel currently
serves as Chairman of the Board, having resigned as President in 1995 and as
Chief Executive Officer in 1998. 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, Prego and Guaymas. In 1984, Saga
Corporation acquired Spectrum Foods, and from that time
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<PAGE> 14
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. In 1998, Mr. Mindel became one of a select
group of restaurant industry leaders to receive the International Foodservice
Manufacturers Association's Foodservice Operator of the Year and Gold Plate
Award.
Michael J. Hislop, age 44, joined the Company as President and Chief
Operating Officer in July 1995 and was promoted to Chief Executive Officer and
President in 1998. 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, age 43, 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 a variety of positions for Saga
Corporation, most recently as Vice President and Controller of Velvet Turtle and
Spoons.
Michael J. Beatrice, age 45, joined the Company as Vice President,
Operations, in April 1996 and was promoted to Chief Operating Officer in 1998.
From 1994 to 1996, Mr. Beatrice was Vice President, Operations, for an area
developer of Boston Chicken, a restaurant company. From 1991 to 1994, he owned
and operated an upscale, full-service Italian restaurant north of Boston. From
1983 to 1991, he served a variety of positions with El Torito Mexican
Restaurant, Inc., most recently as Regional Vice President.
ITEM 2. PROPERTIES
All of the Company's operations are located in leased facilities. Current
restaurant and bakery leases have expiration dates ranging from 2000 to 2017,
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 lessor's operating costs. See Note 10 to Financial Statements for
information regarding aggregate minimum and percentage rentals paid by the
Company for recent periods and information regarding the Company's obligation to
pay minimum rentals in future periods. The Company's lease for its Las Vegas
restaurant contains certain termination and relocation provisions. See "Item 1.
Business -- 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 8,110 square
feet of leased space in Corte Madera, California.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings arising in the ordinary
course of its business, but is not currently a party to any legal proceeding
which the Company believes will have a material adverse effect on the Company's
business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) The Company's Common Stock (Nasdaq symbol "ILFO") is traded on the
Nasdaq National Market. The following table presents quarterly
information on the price range of the Company's Common Stock,
indicating the high and low sale prices reported by the Nasdaq
National Market. These prices do not include retail markups, markdowns
or commissions.
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED: HIGH LOW
-------------------- ------ ------
<S> <C> <C>
September 28, 1997......................... $15.63 $13.88
(commencing September 19, 1997)
December 28, 1997.......................... $17.00 $12.75
March 29, 1998............................. $15.88 $12.13
June 28, 1998.............................. $14.94 $11.00
September 27, 1998......................... $13.75 $ 4.50
December 27, 1998.......................... $ 8.25 $ 5.13
</TABLE>
At March 2, 1999, there were 519 holders of record of the Company's Common
Stock. 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.
RECENT SALES OF UNREGISTERED SECURITIES
Since December 28, 1997, the Registrant has sold and issued the following
unregistered securities:
1. During the period, the Company granted incentive stock options to key
employees, officers and directors under its 1997 Equity Incentive Plan
(the "Plan") covering an aggregate of 211,872 shares (net of
cancellations) of the Company's Common Stock, at an average exercise
price ranging from $11.00 to $13.50. During the period, the Company
granted non-qualified stock options to officers under the Plan
covering an aggregate of 43,366 shares (net of cancellations) of the
Company's Common Stock, at an average exercise price ranging from
$13.25 to $14.58. These options vest over a period of time following
their respective dates of grant. The Company claimed exemption from
registration under the Securities Act for option grants described
above in that the Company believes such grants were not "sales" within
the meaning of the Securities Act.
USE OF PROCEEDS
(b) The Company's Registration Statement on Form S-1 covering the sale of
1,725,000 shares of Common Stock (No. 333-23605) (the "Registration
Statement") was declared effective by the Commission on September 18,
1997. The net proceeds to the Company of the offering (including the
net proceeds from the sale of shares issued upon exercise of the
underwriters' overallotment option on October 1, 1997) were $11.3
million. From the effective date of the offering to December 27, 1998,
the Company has used approximately $4.5 million to fund construction
of new restaurants. None of such expenses were paid to affiliates,
directors or officers of the Company, associates or officers or
directors or persons or entities owning 10% or more of any class of
equity securities of the Company. The remainder of the net proceeds
were invested in short-term, investment-grade, interest-bearing
securities.
15
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data have been derived from the financial
statements of the Company. The data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's financial statements and notes
thereto.
<TABLE>
<CAPTION>
FISCAL YEAR
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Restaurants $39,485 $43,647 $50,599 $65,525 $75,523
Wholesale bakeries 4,951 5,181 6,016 6,284 7,615
Retail bakeries 5,208 5,312 4,137 311 --
------- ------- ------- ------- -------
Total revenues 49,644 54,140 60,752 72,120 83,138
------- ------- ------- ------- -------
Costs and expenses:
Costs of sales 11,300 12,772 14,792 16,993 19,594
Operating expenses 29,290 31,036 35,152 41,800 47,589
Depreciation and amortization (1) 2,948 3,173 3,434 3,517 4,258
Preopening expenses (1) 214 131 426 432 534
General and administrative expenses 3,592 4,083 4,724 6,012 6,299
Provision for store closures -- 932 -- (470) --
------- ------- ------- ------- -------
Total costs and expenses 47,344 52,127 58,528 68,284 78,274
------- ------- ------- ------- -------
Income from operations 2,300 2,013 2,224 3,836 4,864
Interest (income) expense, net 53 (59) (127) (398) (811)
------- ------- ------- ------- -------
Income before income taxes and change
in accounting principle 2,247 2,072 2,351 4,234 5,675
Provision (benefit) for income taxes 332 (2,432) 898 1,651 2,224
------- ------- ------- ------- -------
Income before change in accounting
principle 1,915 4,504 1,453 2,583 3,451
Cumulative effect of change in accounting
principle (net of taxes) (1) -- -- -- -- 326
------- ------- ------- ------- -------
Net income $ 1,915 $ 4,504 $ 1,453 $ 2,583 $ 3,125
======= ======= ======= ======= =======
Basic earnings per share before change in
accounting principle $ 0.43 $ 1.01 $ 0.32 $ 0.53 $ 0.59
Cumulative effect of change in accounting
principle -- -- -- -- 0.06
------- ------- ------- ------- -------
Basic earnings per share $ 0.43 $ 1.01 $ 0.32 $ 0.53 $ 0.53
======= ======= ======= ======= =======
Basic weighted average shares outstanding 4,437 4,452 4,485 4,908 5,846
Diluted earnings per share before change
in accounting principle $ 0.43 $ 1.00 $ 0.32 $ 0.48 $ 0.55
Cumulative effect of change in accounting
principle -- -- -- -- 0.05
------- ------- ------- ------- -------
Diluted earnings per share $ 0.43 $ 1.00 $ 0.32 $ 0.48 $ 0.50
======= ======= ======= ======= =======
Diluted weighted average shares outstanding 4,477 4,499 4,570 5,433 6,298
BALANCE SHEET DATA (AT YEAR END):
Working capital (deficit) $ (496) $ 807 $ 158 $11,094 $ 6,748
Total assets 30,164 34,194 34,855 52,091 57,354
Long-term debt (excluding current portion) 750 150 -- -- --
Stockholders' equity 16,678 21,283 22,936 37,126 39,509
</TABLE>
- ----------
(1) Reflects adoption of SOP 98-5, "Reporting on the Costs of Start-up
Activities," in 1998. See Note 2 to Financial Statements.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's revenues consist of restaurant sales and wholesale bakery
sales and, prior to February 1997, free-standing retail bakery sales. Comparable
restaurant sales are calculated to include a new restaurant only after its 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 "Factors Affecting Operating Results" below.
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 to increase with sales volume. Occupancy costs include
both a fixed and percentage portion of rent.
Preopening costs consist of direct costs related to hiring and training the
initial workforce and certain other direct costs related to opening new
restaurants. Prior to 1998, the Company capitalized preopening expenses for each
of its new units and amortized the costs over the 12-month period following the
opening of the unit. On April 3, 1998, the Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants approved
Statement of Position 98-5 (SOP) entitled "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires entities to expense as incurred all start-up and
preopening costs that may not otherwise be capitalized as long-lived assets, and
is effective for fiscal years beginning after December 15, 1998. The Company
elected early adoption of SOP 98-5 in the fourth quarter of 1998. The Company's
adoption of SOP 98-5 resulted in a one-time, after-tax charge for fiscal 1998 in
the form of a cumulative effect of a change in accounting principle of $326,000
for the unamortized balance of preopening costs as of December 28, 1997.
Preopening costs in 1998 were expensed as incurred. The new expense-as-incurred
standard may lead to increased variability in the amount of preopening costs
recognized, depending on the number and timing of restaurant openings. As a
result, the Company's operating results may fluctuate to a greater extent than
under the previously applied principle.
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.
17
<PAGE> 18
RESULTS OF OPERATIONS FOR FISCAL YEARS 1996, 1997 AND 1998
The following table sets forth operating results as a percentage of total
revenues for the periods indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES PERCENTAGE INCREASE
FISCAL YEAR (DECREASE)
------------------------------ ------------- -------------
1996 1997 1998 1997 VS. 1996 1998 VS. 1997
----- ----- ---- ------------- -------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Restaurants 83.3% 90.9% 90.8% 29.5% 15.3%
Wholesale bakeries 9.9% 8.7% 9.2% 4.5% 21.2%
Retail bakeries 6.8% 0.4% 0.0% -92.5% -100.0%
----- ----- -----
Total revenues 100.0% 100.0% 100.0% 18.7% 15.3%
----- ----- -----
Costs and expenses:
Costs of sales 24.3% 23.6% 23.6% 14.9% 15.3%
Operating expenses 57.9% 58.0% 57.2% 18.9% 13.8%
Depreciation and amortization (1) 5.6% 4.9% 5.1% 2.4% 21.1%
Preopening expenses (1) 0.7% 0.6% 0.6% 1.4% 23.6%
General and administrative expenses 7.8% 8.3% 7.6% 27.3% 4.8%
Provision for store closures 0.0% -0.7% 0.0% 100.0% -100.0%
----- ----- -----
Total costs and expenses 96.3% 94.7% 94.1% 16.7% 14.6%
----- ----- -----
Income from operations 3.7% 5.3% 5.9% 72.5% 26.8%
Interest (income) expense, net -0.2% -0.6% -1.0% 213.4% 103.8%
----- ----- -----
Income before income taxes and change
in accounting principle 3.9% 5.9% 6.9% 80.1% 34.0%
Provision for income taxes 1.5% 2.3% 2.7% 83.9% 34.7%
----- ----- -----
Income before change in accounting
principle 2.4% 3.6% 4.2% 77.8% 33.6%
Cumulative effect of change in
accounting principle (net of tax) (1) 0.0% 0.0% 0.4% 0.0% 100.0%
----- ----- -----
Net income 2.4% 3.6% 3.8% 77.8% 21.0%
===== ===== =====
</TABLE>
- ----------
(1) Reflects adoption of SOP 98-5, "Reporting on the Costs of Start-up
Activities," in 1998. See Note 2 to Financial Statements.
FISCAL 1998 COMPARED TO FISCAL 1997
REVENUES
Total revenues increased by $11.0 million, or 15.3%, to $83.1 million in
1998 from $72.1 million in 1997. The increase was primarily attributable to (i)
the opening of four new restaurants, two of which opened in late 1997 and
another two in late 1998, and (ii) a 3.2% increase in comparable restaurant
sales and a 21.2% increase in comparable wholesale bakery sales. Comparable
restaurant sales are calculated to include a new restaurant only after the first
full month following the eighteenth month of its operation. The increase in
restaurant revenues also reflects the benefit of a moderate menu price increase
implemented in 1998. These factors more than offset the $311,000 decrease in
revenues in 1998 attributable to the disposition of the four remaining
free-standing retail bakeries in February 1997.
COST OF SALES
Cost of sales as a percentage of revenues was 23.6% for both 1998 and 1997,
as the increase in dairy prices in 1998 was offset by improved purchasing
capabilities along with the menu price increase in 1998.
OPERATING EXPENSES
Operating expenses include all restaurant and bakery operating and
occupancy costs, the major components of which are labor, rent, operating
supplies, repairs and maintenance, marketing and utilities. Operating expenses
as a percentage of revenues decreased to 57.2% in 1998 from 58.0% in 1997. This
decrease was the result of a decrease in total occupancy costs as a percentage
of revenues,
18
<PAGE> 19
partially offset by higher labor costs due to minimum wage
increases and the resulting upward pressure on the wage scale for other unit
staff positions. Operating expenses in 1997 also reflected expenses related to
the remodel of one restaurant in the second quarter of 1997.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses as a percentage of revenues
increased slightly to 5.1% in 1998 from 4.9% in 1997, primarily reflecting
increased depreciation related to new unit construction costs, partially offset
by a declining depreciable asset base for older units.
PREOPENING EXPENSES
Prior to 1998, preopening expenses for each of its new units were
capitalized and amortized over the 12-month period following the opening of the
unit. With the adoption of SOP 98-5, preopening costs in 1998 were expensed as
incurred. This change is discussed in more detail in the "Overview" above.
Preopening costs in both 1997 and 1998 related to the opening of two new
restaurants. Preopening expenses as a percentage of revenues were 0.6% for both
1998 and 1997, as the increase in preopening costs in 1998 was offset by
increased revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses as a percentage of revenues decreased
to 7.6% in 1998 from 8.3% in 1997, primarily due to lower management bonuses in
1998.
PROVISION FOR STORE CLOSURES
As a result of the disposition of the Costa Mesa restaurant in June 1997,
the Company recorded a $470,000 pre-tax reversal in 1997 of the provision for
store closures originally recorded in 1993.
INTEREST (INCOME) EXPENSE
Interest income increased to $844,000 in 1998 from $400,000 in 1997,
reflecting interest on higher average cash balances as a result of both cash
generated from operations and the proceeds of the Company's initial public
offering in September 1997. For 1998, interest income included interest on the
proceeds from the initial public offering for a full year, while interest income
for 1997 included interest on the proceeds from the initial public offering for
only part of the year.
INCOME TAX PROVISION
The Company's effective tax rate increased slightly for fiscal 1998 to
39.2% from 39.0% for fiscal 1997, reflecting the planned use of various
deductible tax assets and other tax credits.
FISCAL 1997 COMPARED TO FISCAL 1996
REVENUES
Total revenues increased by $11.4 million, or 18.7%, to $72.1 million in
1997 from $60.8 million in 1996. The increase primarily reflected sales of $11.5
million attributable to (i) the opening of four new restaurants, one of which
opened in April 1996, one in January 1997 and another two in late 1997, and (ii)
a 7.1% increase in comparable restaurant sales and a 4.8% increase in comparable
wholesale bakery sales. Comparable restaurant sales are calculated to include a
new restaurant only after the first full month following the eighteenth month of
its operation. These factors more than offset the $3.8 million decrease in
revenues attributable to the disposition of four retail bakeries in 1996 and the
remaining four in February 1997. The impact of menu price increases in the
restaurant sales in 1997 was approximately 3.5%.
COST OF SALES
Cost of sales as a percentage of revenues decreased to 23.6% in 1997 from
24.3% in 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.
19
<PAGE> 20
OPERATING EXPENSES
Operating expenses include all restaurant and bakery operating and
occupancy costs, the major components of which are labor, rent, operating
supplies, repairs and maintenance, marketing and utilities. Operating expenses
as a percentage of revenues increased slightly to 58.0% in 1997 from 57.9% in
1996. The slight increase is attributuble to two increases in minimum wage
affecting 1997 results offset by declines in several other areas.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses as a percentage of revenues
decreased to 4.9% in 1997 from 5.6% in 1996, primarily reflecting increased
revenues and a declining depreciable asset base for older units which offset
increases related to new unit construction costs.
PREOPENING EXPENSES
Prior to 1998, preopening expenses for each new unit were capitalized and
amortized over the 12-month period following the opening of the unit. Preopening
expenses as a percentage of revenues decreased slightly to 0.6% in 1997 from
0.7% in 1996, primarily reflecting increased revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses as a percentage of revenues increased
to 8.3% in 1997 from 7.8% in 1996. This increase was largely due to expansion of
the management infrastructure, the accrual of higher performance-based
management bonuses as a result of an improvement in pre-tax income in 1997 and,
to a lesser extent, higher market research costs.
PROVISION FOR STORE CLOSURES
As a result of the disposition of the Costa Mesa restaurant in June 1997,
the Company recorded a $470,000 pre-tax reversal in 1997 of the provision for
store closures originally recorded in 1993.
INTEREST (INCOME) EXPENSE
Interest income increased to $400,000 in 1997 from $167,000 in 1996 as a
result of the Company's investments in cash generated from operations and from
higher average funds available for investment as the result of the proceeds of
the Company's initial public offering in September 1997.
INCOME TAX PROVISION
The Company's effective tax rate increased slightly for fiscal 1997 to
39.0% from 38.2% for fiscal 1996, reflecting the planned use of various
deductible tax assets and other tax credits, including a lower amount of the
remaining federal net operating loss carryforward credits.
LIQUIDITY AND CAPITAL RESOURCES
At December 27, 1998, the Company had $12.3 million in cash and cash
equivalents, including approximately $6.8 million in net proceeds from the
Company's initial public offering.
For the periods presented, the Company has funded its capital expansion
primarily with cash flow generated from new and existing restaurant operations.
The cash flow from operations increased to $8.9 million for fiscal 1998 from
$8.2 million in fiscal 1997. At December 27, 1998, the Company's working capital
totaled $6.7 million compared to $11.1 million at December 28, 1997.
Net cash used in financing activities was $742,000 for 1998 as compared to
cash provided of $11.5 million in 1997. In October 1998, the Board of Directors
authorized the repurchase of up to 500,000 shares of the Company's common stock.
Repurchases may be made in the open market at prevailing prices or in negotiated
off-market transactions. Through December 27, 1998, the Company had repurchased
approximately 362,400 shares of common stock in the open market for an aggregate
of approximately $2.0 million. In addition, the Company received $959,000 in
cash from the issuance of common stock under the Company's employee stock
purchase plan and $333,000 from the issuance of common stock upon exercise of
stock options. The cash provided in 1997 related primarily to
20
<PAGE> 21
the receipt of $11.3 million in net proceeds from the initial public offering. A
term loan held by a commercial bank was repaid in full in March 1997.
The Company has a credit agreement, which provides for a $5.0 million
revolving line of credit and which expires on March 31, 2000. At December 27,
1998, there were no amounts outstanding under the credit line.
Capital expenditures, net of construction allowances received, were $11.3
million for 1998 as compared to $7.6 million for 1997. In 1998, the Company
opened two new restaurants, located in Seattle and Walnut Creek, enhanced an
existing restaurant and began construction on two of the restaurants to open in
1999. The Company intends to open a total of four restaurants in 1999. The
Company also anticipates incurring additional expenditures to enhance certain of
its existing restaurants. Total capital expenditures in 1999, net of
construction allowances, are expected to be approximately $12.0 million. 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 $2.0 million, with additional average
pre-opening costs per restaurant of approximately $250,000. The Company intends
to finance these capital expenditures through a combination of cash provided by
operations, cash and cash equivalents on hand, and landlord construction
contributions (when available).
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, existing cash balances and borrowings
under the credit agreement will be sufficient to fund its capital requirements,
including planned expansion and ongoing maintenance and renovation of existing
restaurants, at least through 1999. In the event that additional capital is
required, the Company may seek to raise that capital through public or private
equity or debt financings. There can be no assurance that such capital will be
available on favorable terms, if at all.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. The Company's
computer equipment and software and devices with embedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
The Company's Year 2000 preparations began in fiscal 1997. The preparations
include identification and assessment of all software, hardware, equipment and
non-information technology (IT) systems that could be affected by the Year 2000
issue and remedial action, where necessary, followed by further testing.
Analysis to identify internal Year 2000 deficiencies has been completed.
Based upon its identification and assessment efforts to date, the Company
has identified one main software system, its bakery group software system, that
will require replacement. This system had already been identified as a system
that was to be replaced in the ordinary course of business. The Company expects
to replace the current bakery group software with a system that is Year 2000
compliant. To date, the Company has identified and assessed the replacement
software and plans to have the new software tested and in operation by mid-1999.
The Company currently estimates that the costs of that software will be
approximately $75,000. Furthermore, based on its assessment to date, the Company
believes that future costs associated with its Year 2000 compliance effort will
not be material. However, because both IT and non-IT systems may contain
embedded technology, this may complicate the Company's Year 2000 identification,
assessment, remediation and testing efforts. The Company intends to fund Year
2000 compliance costs through cash provided by operations.
The Company also intends to contact critical suppliers of products and
services to determine the extent to which the Company may be vulnerable to such
suppliers' failures to resolve their own Year 2000 compliance issues. The
Company has obtained verbal assurances and is in the process of obtaining
written verification of Year 2000 compliance from the third parties that have
provided licensed software for such systems as accounting and point-of-sale and
payroll services.
21
<PAGE> 22
As part of its Year 2000 readiness efforts, the Company intends to develop
contingency plans to identify activities which will need to be performed in the
event of system failures. The contingency plans are expected to be completed by
July 31, 1999. Based on its assessment to date, the Company presently believes
that the Year 2000 issue will not pose significant operational problems for the
Company. However, the failure to correct a material Year 2000 problem could
result in an interruption in, or failure of, certain normal business operations.
If Year 2000 issues are not properly identified, or if assessment, remediation
and testing are not effected timely with respect to Year 2000 problems that are
identified, the Year 2000 problem could materially adversely impact the
Company's results of operations and adversely affect the Company's relationships
with customers, vendors or others. Additionally, there can be no assurance that
the Year 2000 problems of other entities will not have a material adverse effect
on the Company's systems or results of operations.
FACTORS AFFECTING OPERATING RESULTS AND QUARTERLY RESULTS
This Management's Discussion and Analysis contains forward-looking
statements that involve risks and uncertainties. Such forward-looking statements
may be deemed to include the timing of and plans for anticipated restaurant
openings, the projected investment and costs required for future restaurants,
the adequacy of anticipated sources of cash to fund the Company's future capital
requirements through 1999, and the costs of the Company's Year 2000 compliance
efforts and dates by which the Company believes it will complete such efforts.
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. Readers are cautioned that the
forward-looking statements reflect management's analysis only as of the date
hereof, and the Company assumes no obligation to update these statements. Actual
events or results may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to the risks and uncertainties discussed herein, as well as
other risks set forth under the caption "Risk Factors" in the Company's Annual
Report on Form 10-K for the fiscal year ended December 27, 1998.
The Company's business is subject to a number of challenges and risks
including, among other things, the risks associated with the Company's pursuit
of a more aggressive growth strategy, risks related to the Company's relatively
small operations base and the geographic concentration of the Company's
restaurants, uncertainties associated with possible changes in food and labor
costs, potentially adverse weather conditions, and the impact of potential
governmental regulation, risks related to the Company's dependence on its key
personnel, uncertainties related to the intensely competitive nature of the
restaurant business, as well as potential liabilities associated with long-term
leases. The Company's plans for new restaurant locations and timing of openings
depend upon, among other things, timely project development and restaurant
construction, obtaining appropriate regulatory approvals, management of costs
and recruitment of qualified operating personnel.
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, the Company's ability to execute its
business strategy, fluctuations in inventory and general and administrative
expenses, and increases or decreases in comparable restaurant revenues. 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. Comparable
restaurant sales may also vary from period to period as a result of similar
factors.
INFLATION
The primary inflationary factors affecting the Company's operations are
food and labor costs. During 1998, there was significant volatility in the cost
of certain bakery-related commodities, principally butter and manufacturing
cream. Many 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. In addition, increases in the minimum wage have resulted
in indirect pressure on other wage levels. To date, inflation (except for the
impact of minimum wage increases) has not had a material impact on the Company's
operations. The minimum wage increased under federal legislation to $5.15 an
hour in September 1997 and increased in California to $5.75 an hour in March
1998. In January 1999, the minimum wage increased to $6.50 an hour in Oregon and
to $5.70 an hour in Washington. Additional increases to the minimum wage have
been proposed.
22
<PAGE> 23
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants approved Statement of Position 98-5
(SOP 98-5) entitled "Reporting on the Costs of Start-Up Activities." The SOP
requires entities to expense as incurred all start-up and preopening costs that
may not otherwise be capitalized as long-lived assets. The SOP is effective for
fiscal years beginning after December 15, 1998. The Company elected early
adoption of SOP 98-5 in the fourth quarter of 1998. The Company's adoption of
SOP 98-5 resulted in a one-time, after-tax charge for fiscal 1998 in the form of
a cumulative effect of a change in accounting principle of $326,000 for the
unamortized balance of preopening costs as of December 28, 1997. Preopening
costs in 1998 were expensed as incurred. The new expense-as-incurred standard
may lead to increased variability in the amount of preopening costs recognized,
depending on the number and timing of restaurant openings. As a result, the
Company's operating results may fluctuate to a greater extent than under the
previously applied principle.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's cash and cash equivalents are subject to interest rate risk.
The Company invests primarily on a short-term basis. The financial instrument
holdings at year-end were analyzed to determine their sensitivity to interest
rate changes. The fair values of these instruments were determined by net
present values. In our sensitivity analysis, the same change in interest rate
was used for all maturities. All other factors were held constant. If interest
rates increased by 10%, the expected effect on net income related to the
Company's financial instruments would be immaterial.
23
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
IL FORNAIO (AMERICA) CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report........................................................................ 25
Balance Sheets as of December 28, 1997 and December 27, 1998........................................ 26
Statements of Income for the years ended December 29, 1996, December 28, 1997,
and December 27, 1998............................................................................... 27
Statements of Changes in Stockholders' Equity for the years ended December 29, 1996,
December 28, 1997, and December 27, 1998............................................................ 28
Statements of Cash Flows for the years ended December 29, 1996, December 28, 1997,
and December 27, 1998............................................................................... 29
Notes to Financial Statements....................................................................... 30
</TABLE>
24
<PAGE> 25
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 27, 1998 and December 28, 1997, and
the related statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 27, 1998. 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
27, 1998 and December 28, 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 27, 1998 in
conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
- -------------------------------------
DELOITTE & TOUCHE LLP
San Francisco, California
February 5, 1999
25
<PAGE> 26
IL FORNAIO (AMERICA) CORPORATION
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $15,271 $12,296
Restricted cash...................................... 518 378
Accounts receivable, net............................. 1,291 1,495
Note receivable...................................... 121 19
Inventories.......................................... 1,720 1,871
Prepaid expenses and other assets.................... 1,420 920
Deferred tax assets, net............................. 125 245
------- -------
Total current assets......................... 20,466 17,224
------- -------
Property and equipment, net............................ 29,255 38,620
Deferred tax assets, net............................... 1,879 1,023
Other assets........................................... 491 487
------- -------
Total assets................................. $52,091 $57,354
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 3,085 $ 3,910
Accrued expenses..................................... 6,287 6,566
------- -------
Total current liabilities.................... 9,372 10,476
------- -------
Reserve for store closures............................. 374 244
Deferred lease incentives.............................. 5,219 7,125
Commitments (Note 10)
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares
authorized; no shares issued...................... -- --
Common stock, $.001 par value; 20,000,000 shares
authorized; 5,818,513 shares issued and
outstanding at December 28, 1997, and 6,020,961
shares issued and 5,658,561 shares outstanding at
December 27, 1998................................. 6 6
Additional paid-in-capital........................... 36,466 37,758
Retained earnings.................................... 654 3,779
------- -------
37,126 41,543
Treasury stock, 362,400 shares, at cost.............. -- (2,034)
------- -------
Total stockholders' equity........................ 37,126 39,509
------- -------
Total liabilities and stockholders' equity... $52,091 $57,354
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
26
<PAGE> 27
IL FORNAIO (AMERICA) CORPORATION
STATEMENTS OF INCOME
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Restaurants........................... $50,599 $65,525 $75,523
Wholesale bakeries.................... 6,016 6,284 7,615
Retail bakeries....................... 4,137 311 --
------- ------- -------
Total revenues................ 60,752 72,120 83,138
------- ------- -------
Costs and expenses:
Cost of sales......................... 14,792 16,993 19,594
Operating expenses.................... 35,152 41,800 47,589
Depreciation and amortization......... 3,434 3,517 4,258
Preopening expenses................... 426 432 534
General and administrative expenses... 4,724 6,012 6,299
Provision for store closures.......... -- (470) --
------- ------- -------
Total costs and expenses...... 58,528 68,284 78,274
------- ------- -------
Income from operations.................. 2,224 3,836 4,864
Other (income) expenses:
Interest income....................... (167) (400) (844)
Interest expense...................... 40 2 33
------- ------- -------
Total other (income) expenses, net.. (127) (398) (811)
------- ------- -------
Income before income taxes and change
in accounting principle............... 2,351 4,234 5,675
Provision for income taxes.............. 898 1,651 2,224
------- ------- -------
Income before change in accounting
principle............................. 1,453 2,583 3,451
Cumulative effect of change in
accounting principle (net of taxes)... -- -- 326
------- ------- -------
Net income.............................. $ 1,453 $ 2,583 $ 3,125
======= ======= =======
BASIC EARNINGS PER SHARE
Basic earnings per share before change
in accounting principle............... $ 0.32 $ 0.53 $ 0.59
Cumulative effect of change in
accounting principle.................. -- -- 0.06
------- ------- -------
Basic earnings per share................ $ 0.32 $ 0.53 $ 0.53
======= ======= =======
Basic weighted average shares
outstanding........................... 4,485 4,908 5,846
======= ======= =======
DILUTED EARNINGS PER SHARE
Diluted earnings per share before
change in accounting principle........ $ 0.32 $ 0.48 $ 0.55
Cumulative effect of change in
accounting principle.................. -- -- 0.05
------- ------- -------
Diluted earnings per share.............. $ 0.32 $ 0.48 $ 0.50
======= ======= =======
Diluted weighted average shares
outstanding........................... 4,570 5,433 6,298
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
27
<PAGE> 28
IL FORNAIO (AMERICA) CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
PAID-IN (ACCUMULATED TREASURY
PREFERRED STOCK COMMON STOCK CAPITAL DEFICIT) STOCK TOTAL
---------------------- -------------------- ---------- ----------- -------- --------
SHARES AMOUNT SHARES AMOUNT
--------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Par value adjustment.............. 1,269,775 (7,978) 7,978 --
Issuance of common stock, net of
offering expenses............... 1 11,544 11,545
Warrants converted to common...... 10,362 -- 18 18
Conversion of preferred to
common.......................... (2,308,196) (16,885) 2,912,906 3 16,882 --
Exercise of common stock options.. 13,704 -- 44 44
Net income........................ 2,583 2,583
--------- -------- --------- ------- -------- ------- -------- -------
BALANCE, DECEMBER 28, 1997........ 0 0 5,818,513 6 36,466 654 37,126
Issuance of common stock under
the 1997 Purchase Plan.......... 119,836 -- 959 959
Exercise of common stock options.. 82,612 -- 333 333
Repurchase of treasury stock...... (362,400) (2,034) (2,034)
Net income........................ 3,125 3,125
--------- -------- --------- ------- -------- ------- -------- -------
BALANCE, DECEMBER 27, 1998........ 0 $ 0 5,658,561 $ 6 $ 37,758 $ 3,779 $ (2,034) $39,509
========= ======== ========= ======= ======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements
28
<PAGE> 29
IL FORNAIO (AMERICA) CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................... $ 1,453 $ 2,583 $ 3,125
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization..... 3,434 3,517 4,258
Amortization of preopening
expenses........................ 426 432 --
Amortization of deferred lease
incentives...................... (403) (558) (447)
Change in accounting principle.... -- -- 326
Provision for store closures...... -- 28 (130)
Gain on sale of property and
equipment....................... (72) (300) --
Retirement of fixed assets........ 253 567 --
Deferred income taxes............. 232 502 736
Changes in:
Restricted cash................... (23) (180) 140
Accounts receivable............... (153) (20) (204)
Note receivable................... -- (204) --
Inventories....................... 178 (369) (151)
Prepaid expenses and other assets. (408) (1,095) 174
Other assets...................... 19 (46) 4
Accounts payable.................. 185 793 825
Accrued expenses.................. (174) 2,583 279
------- ------- -------
Net cash provided by operating
activities................... 4,947 8,233 8,935
------- ------- -------
Cash flows from investing activities:
Construction allowances received.... -- 350 2,353
Capital expenditures................ (5,847) (7,942) (13,623)
Proceeds from sale of property and
equipment......................... 626 1,081 --
Collection of note receivable....... -- 391 102
------- ------- -------
Net cash used in investing
activities................... (5,221) (6,120) (11,168)
------- ------- -------
Cash flows from financing activities:
Payments on debt.................... (600) (150) --
Net proceeds from the issuance of
common stock...................... 136 11,545 959
Exercise of stock options........... 64 44 333
Warrants converted to common stock.. 18 --
Repurchase of common stock.......... -- -- (2,034)
------- ------- -------
Net cash provided by (used in)
financing activities......... (400) 11,457 (742)
------- ------- -------
Increase (decrease) in cash and
equivalents......................... (674) 13,570 (2,975)
Cash and equivalents, beginning of
year................................ 2,375 1,701 15,271
------- ------- -------
Cash and equivalents, end of year..... $ 1,701 $15,271 $12,296
======= ======= =======
Interest paid......................... $ 45 $ 3 $ 28
======= ======= =======
Income taxes paid..................... $ 614 $ 1,730 $ 685
======= ======= =======
Noncash investing and financing
activities:
Issuance of note receivable for
retail bakery and restaurant
assets............................ $ 308 $ 704 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements
29
<PAGE> 30
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 27,
1998, the Company owned and operated 17 Italian white tablecloth restaurants and
five wholesale bakeries in California; Portland, Oregon; Las Vegas, Nevada;
Denver, Colorado; and Seattle, Washington.
Fiscal year -- The Company operates on a 52/53-week fiscal year ending on
the last Sunday in December. The fiscal years ended December 29, 1996, December
28, 1997 and December 27, 1998 each contained 52 weeks of operations.
Cash and equivalents -- Cash equivalents consist primarily of investments
with maturities of three months or less. Cash equivalents are carried at cost
which approximates market value.
Restricted cash represents cash restricted for the Company's voluntary
disability insurance plan and contributions to the employee stock purchase plan.
Fair value of financial instruments -- The carrying amounts of cash and
cash equivalents, accounts receivable, notes receivable, accounts payable,
accrued liabilities and revolving credit borrowings are reasonable estimates of
the fair values of these financial instruments.
Accounts receivable consist primarily of amounts due from wholesale
customers, which are net of allowances for doubtful accounts of $104,000 and
$217,000 as of December 28, 1997 and December 27, 1998, 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 -- 3 to 10 years. Leasehold improvements
reimbursed by the landlord through construction allowances are capitalized as
leasehold improvements with the construction allowances recorded as deferred
lease incentives. Such leasehold improvements and related deferred lease
incentives 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. Deferred rent is included with deferred lease incentives.
Preopening expenses are expensed as incurred. See further discussion in
Note 2.
Advertising costs are expensed as incurred.
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 a reserved store. The accrual
consists of future payments on leases and other estimated costs directly
associated with the decision to close the stores.
30
<PAGE> 31
Stock-based compensation -- The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Revenue recognition -- Revenue from restaurant sales is recognized when
food and beverage products are sold. Revenue from bakery sales is recognized
when the bakery products are shipped.
Earnings per share -- Basic EPS 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.
Segments -- In June 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosure
About Segments of an Enterprise and Related Information," which changes the way
public companies report information about operating segments. This statement,
which is based on the management approach to segment reporting, establishes
requirements to report selected segment information quarterly and to report
entity-wide disclosures about products and services and major customers. The
Company manages on the basis of one business segment with multiple products.
Reclassifications -- Certain fiscal 1996 and 1997 amounts have been
reclassified to conform with fiscal 1998 presentations.
2. PREOPENING EXPENSES
Pre-opening costs consist of location setup, employee training and
promotion associated with the opening of new locations. Prior to 1998,
preopening costs were capitalized and then amortized over 12 months beginning in
the month the location commenced operations.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants approved Statement of Position (SOP)
98-5 entitled "Reporting on the Costs of Start-Up Activities." The SOP requires
entities to expense as incurred all start-up and preopening costs that may not
otherwise be capitalized as long-lived assets. The SOP is effective for fiscal
years beginning after December 15, 1998.
The Company elected early adoption of SOP 98-5 in the fourth quarter of
1998. The Company's adoption of SOP 98-5 resulted in a one-time, after-tax
charge for fiscal 1998 in the form of a cumulative effect of a change in
accounting principle of $326,000 (net of income taxes of $209,000) for the
unamortized balance of preopening costs as of December 28, 1997. Preopening
costs in 1998 were expensed as incurred. The new expense-as-incurred standard
may lead to increased variability in the amount of preopening costs recognized,
depending on the number and timing of restaurant openings.
3. NOTE RECEIVABLE
On February 14, 1997, the Company sold the net assets of its four remaining
free-standing retail bakeries for $815,000 including a promissory note in the
principal amount of $204,000. The note bears interest at 8.25% and is payable in
24 equal monthly installments starting March 15, 1997. The note is
collateralized by the assets of the retail bakeries. The sale price approximates
the carrying value of the assets sold.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Leasehold improvements..................... $ 26,009 $ 32,687
Machinery and equipment.................... 13,758 15,186
Furniture and fixtures..................... 4,700 6,722
Construction in progress................... 941 3,063
-------- --------
Total............................ 45,408 57,658
Less -- accumulated depreciation and
amortization............................... (16,153) (19,038)
-------- --------
Property and equipment -- net.............. $ 29,255 $ 38,620
======== ========
</TABLE>
31
<PAGE> 32
5. ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
Accrued expenses: 1997 1998
------- -------
<S> <C> <C>
Accrued payroll and related benefits.. $ 3,443 $ 1,807
Gift certificates..................... 528 779
Accrued rent.......................... 486 660
Accrued taxes......................... 1,127 1,997
Accrued construction costs............ -- 678
Other................................. 703 645
------- -------
Total accrued expenses................ $ 6,287 $ 6,566
======= =======
</TABLE>
6. LINE OF CREDIT
The Company has a $5,000,000 revolving line of credit with a letter of
credit sub-facility which expires on March 31, 2000 and bears interest at the
bank's reference rate. There were no amounts outstanding under the credit line
at December 27, 1998. The credit agreement requires compliance with certain
financial covenants.
7. PROVISION FOR STORE CLOSURES
As a result of the disposition of the Costa Mesa restaurant in June 1997,
the Company recorded a $470,000 pre-tax reversal of the provision for store
closures originally recorded in 1993.
8. STOCKHOLDERS' EQUITY
Preferred Stock
On September 24, 1997, each outstanding share of Series B, C, E and F
preferred stock was converted into 1.262 shares of common stock upon the
completion of the Company's initial public offering.
Common Stock
The Company issued and sold an aggregate of 1.0 million shares of common
stock pursuant to an initial public offering at $11.00 per share, which closed
on September 24, 1997. The net proceeds to the Company, after payment of
underwriting fees and offering expenses were approximately $9.0 million. On
October 1, 1997, the Company issued and sold an aggregate of 225,000 shares of
Common Stock at $11.00 per share pursuant to the exercise by the underwriters of
their over-allotment option under the Underwriting Agreement. The net proceeds
to the Company were approximately $2.3 million.
In October 1998, the Board of Directors authorized the repurchase of up to
500,000 shares of the Company's common stock. Repurchases may be made in the
open market at prevailing prices or in negotiated off-market transactions.
Through December 27, 1998, the Company had repurchased approximately 362,400
shares of common stock in the open market for an aggregate of approximately $2.0
million.
Stock Plans
The Company maintains several stock option plans under which the Company
may grant incentive stock options and nonqualified stock options to employees
and non-employee directors. Stock options have been granted at prices at or
above the fair market value on the date of the grant. Options vest and expire
according to terms established at the grant date.
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.
32
<PAGE> 33
Employee Stock Purchase Plan
During fiscal 1997, the Company implemented the 1997 Purchase Plan. The
Company's 1997 Purchase Plan provides that eligible employees may contribute up
to 15% of their base earnings toward bi-annual purchase of the Company's common
stock with a value up to $25,000. The employee's purchase price is 85% of the
lesser of the fair market value of the stock on the date of commencement of the
offering or the date of purchase. No compensation expense is recorded in
connection with the plan. The total number of shares issuable under the plan is
300,000. On April 30, 1998, the first purchase date under the plan, an aggregate
of 60,199 shares were issued under the plan at $9.35 per share, and on October
30, 1998, an aggregate of 59,267 shares were issued under the plan at $6.70 per
share.
The following table reflects the activity under the Company's stock option
plans:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
OPTIONS AVERAGE PRICE
--------- -------------
<S> <C> <C>
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
Granted..................... 169,555 6.15
Exercised................... (13,704) 3.19
Cancelled................... (5,890) 5.12
--------
Balance, December 28, 1997.. 979,785 4.79
Granted..................... 256,738 13.33
Exercised................... (82,612) 4.19
Cancelled................... (11,750) 7.80
---------
Balance, December 27, 1998.. 1,142,161 6.72
=========
</TABLE>
The weighted average fair values per share of options granted during 1997
and 1998 were $2.33 and $7.76, respectively.
Additional information regarding options outstanding as of December 27,
1998 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>
$ 2.38- 4.40 62,742 1.8 $ 3.67 56,928 $ 3.61
4.50- 4.50 505,235 0.7 4.50 395,524 4.50
4.95- 6.00 298,046 3.2 5.47 100,718 5.31
6.60-14.58 276,138 8.1 12.81 4,600 7.08
--------- -------
2.38-14.58 1,142,161 3.2 6.72 557,770 4.58
========= =======
</TABLE>
At December 29, 1996 and December 28, 1997, options to purchase 310,875 and
451,136 shares of common stock, respectively, were exercisable under the plans.
At December 27, 1998, the numbers of shares available for future grants
under the various plans were as follows:
<TABLE>
<CAPTION>
SHARES
AVAILABLE
FOR
GRANT
---------
<S> <C>
1997 Directors Plan.............. 79,000
1997 Incentive Plan.............. 207,332
1997 Purchase Plan.............. 180,534
</TABLE>
33
<PAGE> 34
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 Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related interpretations. No compensation expense has been
recognized in the financial statements for employee stock arrangements.
SFAS 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. In
accordance with 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, 7.30 years for 1997 and 4 years for
1998, stock volatility, .47% and .62% in 1997 and 1998, risk free interest
rates, 5.48% in 1997 and 4.57% in 1998; 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. Under SFAS 123, the 1997
Purchase Plan would be compensatory due to the look-back feature, and $289,000
of compensation would have been recognized in 1998. If the computed fair values
of the 1997 and 1998 awards had been amortized to expense over the vesting
period of the awards, pro forma net income would have been as follows:
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Net income (in thousands):
As reported.............. $2,583 $3,125
Pro forma................ 2,301 2,190
Basic earnings per share:
As reported.............. $ 0.53 $ 0.53
Pro forma................ 0.47 0.37
Diluted earnings per share:
As reported.............. $ 0.48 $ 0.50
Pro forma................ 0.42 0.35
</TABLE>
However, the impact of outstanding unvested stock options granted prior to
1995 has been excluded from the pro forma calculation; accordingly, the 1996 and
subsequent pro forma adjustments are not indicative of future period pro forma
adjustments, when the calculation will apply to all applicable stock options.
The following is a summary of the calculation of the number of shares used
in calculating basic and diluted EPS:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Shares used to compute basic EPS 4,485,006 4,907,875 5,846,215
Add: effect of dilutive securities 84,642 525,316 451,295
--------- --------- ---------
Shares used to compute diluted EPS 4,569,648 5,433,191 6,297,510
========= ========= =========
</TABLE>
34
<PAGE> 35
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) tax credit carryforwards. Significant components of
the Company's net deferred tax balances as of December 28, 1997 and December 27,
1998 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Compensation related......... $ 289 $ 61
Reserves for store closures.. 188 136
Deferred rent liability...... 147 142
Tax credit carryforwards..... 1,557 1,327
Other........................ 47 146
------- -------
Total deferred tax assets.. 2,228 1,812
------- -------
Deferred tax liabilities:
Fixed assets................. -- (544)
Pre-opening expenses......... (224) --
------- -------
Total deferred tax
liabilities.............. (224) (544)
------- -------
Net deferred tax assets........ $ 2,004 $ 1,268
======= =======
</TABLE>
The Company provided no valuation allowance against deferred tax assets
recorded as of December 28, 1997 and December 27, 1998, as the Company believes
it is "more-likely-than-not" that all deferred assets will be fully realized in
future periods.
As of December 27, 1998, the Company has unused investment and general
business tax credits of approximately $443,000 and alternative minimum tax
credits of approximately $884,000. The investment tax credits will begin to
expire in 2003 and the minimum tax credits have an indefinite carryforward
period.
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- ------
<S> <C> <C> <C>
Current provision:
Federal................. $ 461 $ 826 $1,147
State................... 205 323 340
----- ------ ------
Total current........ 666 1,149 1,487
Deferred taxes, net....... 232 502 737
----- ------ ------
Income tax expense ....... $ 898 $1,651 $2,224
===== ====== ======
</TABLE>
The cumulative effect of the change in accounting principle is presented
net of related tax benefits. Therefore, 1998 income tax expense excludes tax
benefits of $209,000 related to the cumulative effect of change in accounting
principle.
The reconciliation between the Company's effective tax rate on earnings
before income taxes and the statutory federal income tax rate of 34% was as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
----- ------ ------
<S> <C> <C> <C>
Federal income tax at 34% statutory rate.... $ 801 $1,440 $1,930
State income tax............................ 141 243 298
FICA tip credit and other business credits.. (71) (159) (119)
Other accrual............................... -- 85 82
Permanent items and other................... 27 42 33
----- ------ ------
Total....................................... $ 898 $1,651 $2,224
===== ====== ======
</TABLE>
35
<PAGE> 36
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>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Minimum rentals......... $2,076 $2,339 $2,914
Contingent rentals...... 772 1,347 1,178
------ ------ ------
Total rental expense.... $2,848 $3,686 $4,092
====== ====== ======
</TABLE>
At December 27 1998, future minimum lease payments under long-term
operating leases were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
ENDING DECEMBER
----------------------
<S> <C>
1999.................. $ 3,705
2000.................. 4,057
2001.................. 4,012
2002.................. 3,851
2003.................. 3,655
Thereafter............ 21,197
-------
Total................. $40,477
=======
</TABLE>
11. QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized unaudited quarterly financial data (in thousands, except per
share data) for fiscal years 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- ------- ------ -------
<S> <C> <C> <C> <C>
1997 quarter:
Total revenues................. $17,682 $17,895 $17,995 $18,548
Income from operations......... 852 1,259 937 788
Net income..................... 527 778 583 695
Basic net income per share..... $ 0.12 $ 0.17 $ 0.12 $ 0.12
Diluted net income per share... $ 0.11 $ 0.16 $ 0.11 $ 0.11
1998 quarter:
Total revenues................. $19,696 $20,499 $20,095 $22,848
Income from operations......... 1,298 1,591 1,041 934
Income before change in
accounting principle......... 949 1,093 741 668
Cumulative effect of change in
accounting principle (net of
taxes)....................... 326 -- -- --
Net income..................... 623 1,093 741 668
Basic net income per share
before change in accounting
principle.................... $ 0.16 $ 0.19 $ 0.12 $ 0.12
Cumulative effect of change in
accounting principle......... 0.06 -- -- --
Basic net income per share..... $ 0.10 $ 0.19 $ 0.12 $ 0.12
Diluted net income per share
before change in accounting
principle.................... $ 0.15 $ 0.17 $ 0.12 $ 0.11
Cumulative effect of change in
accounting principle......... 0.05 -- -- --
Diluted net income per share... $ 0.10 $ 0.17 $ 0.12 $ 0.11
</TABLE>
36
<PAGE> 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Identification of Directors
The information required by this Item concerning the Company's directors is
incorporated by reference from the sections captioned "Proposal 1: Election of
Directors" contained in the Company's definitive Proxy Statement related to the
Annual Meeting of Stockholders to be held May 6, 1999, to be filed by the
Company with the Securities and Exchange Commission (the "Proxy Statement").
Identification of Executive Officers
The information required by this Item concerning the Company's executive
officers is set forth in Part I of this Report.
Compliance with Section 16(a) of the Exchange Act
The information required by this Item is incorporated by reference from the
section captioned "Compliance with Section 16(a) of the Securities Exchange Act
of 1934" contained in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
section captioned "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
sections captioned "Certain Transactions" and "Executive Compensation" contained
in the Proxy Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1.
o Index to Financial Statements
o Independent Auditors' Report
o Balance Sheets at December 28, 1997 and December 27, 1998
o Statements of Income for the years ended December 29, 1996, December
28, 1997 and December 27, 1998
o Statements of Stockholders' Equity for the years ended December 29,
1996, December 28, 1997 and December 27, 1998
o Statements of Cash Flows for the years ended December 29, 1996,
December 28, 1997 and December 27, 1998
o Notes to Financial Statements
2. All schedules are omitted because they are not required, are not
applicable or the information is included in the financial statements
or notes thereto.
37
<PAGE> 38
3. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation. (1)
3.2 By-laws, as amended.
3.3 Reference is made to Exhibits 3.1 and 3.2.
4.2 Speciman stock certificate. (4)
10.1* Form of Indemnity Agreement between the Company and each executive
officer and director. (3)
10.2* Summary of Bonus Plan for 1998.
10.3* 1997 Equity Incentive Plan and forms of related agreements.
10.4* 1997 Employee Stock Purchase Plan and form of offering related
thereto. (4)
10.5* 1997 Non-Employee Stock Purchase Plan and form of offering related
thereto. (5)
10.6 Form of Series F Preferred Stock Purchase Agreement with Schedule of
additional Preferred Stock Purchase Agreements attached. (3)
10.7 Form of Warrant to purchase shares of Series F Preferred Stock of the
Registrant. (3)
10.8 Revised License Agreement, dated December 11, 1986 and Stock Purchase
Agreement dated March 6, 1987, between the Company and Vegetti
S.r.1.(3)
10.9 Assignment of Trademark Registrations Nunc Pro Tunc executed by
Vegetti S.r.1.(3)
10.10+ Lease Agreement, dated December 22, 1988, and Amendment, dated October
4, 1989, between the Company and Cowper Square Partners, for the Palo
Alto restaurant. (3)
10.11+ Lease Agreement, dated November 21, 1991, between the Company and
Hotel Sainte Claire Partners, L.P., for Hotel Sainte Claire, San Jose.
(3)
10.12+ Lease Agreement dated April 15, 1996, between the Company and New
York-New York Hotel, LLC, for the Las Vegas Restaurant. (3)
10.13 Food Service Operations Agreement dated November 21, 1991, between the
Company and Mobedshahi Hotel Group, Inc. (3)
10.14 Loan Agreement dated October 30, 1996, between the Company, Bank of
America National Trust and Savings Association. (3)
10.15* Employment Agreement dated April 1995, between the Company and Michael
J. Hislop. (3)
10.16* 1991 Incentive Stock Option Plan and form of related agreement. (1)
10.17* 1992 Non-Employee Directors' Stock Option Plan and form of related
agreement.(1)
10.18* 1988 Stock Option Plan and form of related agreement. (1)
10.19 Underwriting Agreement dated September 18, 1997 between the Company
and the Representatives of the Underwriters. (2)
10.20 Revolving Line of Credit Note and Loan Agreement between the Company
and Wells Fargo Bank, N.A., dated March 31, 1998. (6)
23.1 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney, Reference is made to the signature page.
27.1 Financial Data Schedule.
99.1 Press Release dated March 16, 1999.
</TABLE>
- ----------
(1) Filed as an exhibit to the Registrant's Form S-8 (File No.
333-46421), and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Quarterly Report of Form 10-Q
for the quarter ended September 28, 1997 (0-29410), and incorporated
herein by reference.
(3) Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (File No. 333-23605), on March 19, 1997, and incorporated herein
by reference.
(4) Filed as an exhibit to Amendment No. 1 to the Form S-1 Registration
Statement (File No. 333-23605), on July 1, 1997, and incorporated
herein by reference.
(5) Filed as an exhibit to Amendment No. 2 to the Form S-1 Registration
Statement (File No. 333-23605), on August 22, 1997, and incorporated
herein by reference.
(6) Filed as an exhibit to the Registrant's Quarterly Report of Form 10-Q
for the quarter ended March 29, 1998 (0-29410), and incorporated
herein by reference.
* Indicates management contracts or compensatory plans or arrangements
filed pursuant to Item 601(b)(10) of Regulation S-K.
+ Certain confidential information has been deleted from this exhibit
pursuant to a confidential treatment request order that was granted.
38
<PAGE> 39
(b) Reports on Form 8-K
There were no Reports on Form 8-K filed for the quarter ended December 27,
1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: March 25, 1999 Il Fornaio (America) Corporation
By: /s/ LAURENCE B. MINDEL
------------------------------------
Laurence B. Mindel
Chairman of the Board
By: /s/ MICHAEL J. HISLOP
------------------------------------
Michael J. Hislop
President and Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Laurence B. Mindel and Paul J. Kelley and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution, for him, and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this report, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities Exchange Commission, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done therewith, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, and any of them, or his substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ LAURENCE B. MINDEL Chairman of the Board March 25, 1999
- --------------------------------
Laurence B. Mindel
/s/ MICHAEL J. HISLOP President and Chief Executive Officer March 25, 1999
- -------------------------------- (Principal Executive Officer)
Michael J. Hislop
/s/ PAUL J. KELLEY Vice President, Finance and March 25, 1999
- -------------------------------- Chief Financial Officer
Paul J. Kelley (Principal Financial and Accounting
Officer)
</TABLE>
39
<PAGE> 40
<TABLE>
<S> <C> <C>
/s/ DEAN A. CORTOPASSI Director March 25, 1999
- --------------------------------
Dean A. Cortopassi
/s/ W. SCOTT HEDRICK Director March 25, 1999
- --------------------------------
W. Scott Hedrick
/s/ F. WARREN HELLMAN Director March 25, 1999
- --------------------------------
F. Warren Hellman
/s/ W. HOWARD LESTER Director March 25, 1999
- --------------------------------
W. Howard Lester
/s/ LAWRENCE F. LEVY Director March 25, 1999
- --------------------------------
Lawrence F. Levy
</TABLE>
40
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
IL FORNAIO (AMERICA) DELAWARE CORPORATION
(A DELAWARE CORPORATION)
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
ARTICLE I OFFICES..................................................................... 1
Section 1. Registered Office....................................................... 1
Section 2. Other Offices........................................................... 1
ARTICLE II CORPORATE SEAL.............................................................. 1
Section 3. Corporate Seal.......................................................... 1
ARTICLE III STOCKHOLDERS' MEETINGS...................................................... 1
Section 4. Place Of Meetings....................................................... 1
Section 5. Annual Meeting.......................................................... 1
Section 6. Special Meetings........................................................ 4
Section 7. Notice Of Meetings...................................................... 5
Section 8. Quorum.................................................................. 5
Section 9. Adjournment And Notice Of Adjourned Meetings............................ 5
Section 10. Voting Rights........................................................... 5
Section 11. Joint Owners Of Stock................................................... 6
Section 12. List Of Stockholders.................................................... 6
Section 13. Action Without Meeting.................................................. 6
Section 14. Organization............................................................ 7
ARTICLE IV DIRECTORS................................................................... 8
Section 15. Number And Term Of Office............................................... 8
Section 16. Powers.................................................................. 8
Section 17. Classes Of Directors.................................................... 8
Section 18. Vacancies............................................................... 8
Section 19. Resignation............................................................. 9
Section 20. Removal................................................................. 9
Section 21. Meetings................................................................ 9
(a) Annual Meetings...................................................... 9
(b) Regular Meetings..................................................... 9
(c) Special Meetings..................................................... 9
(d) Telephone Meetings................................................... 9
(e) Notice Of Meetings................................................... 10
(f) Waiver Of Notice..................................................... 10
Section 22. Quorum And Voting....................................................... 10
Section 23. Action Without Meeting.................................................. 10
Section 24. Fees And Compensation................................................... 10
Section 25. Committees.............................................................. 11
1
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
(a) Executive Committee.................................................. 11
(b) Other Committees..................................................... 11
(c) Term................................................................. 11
(d) Meetings............................................................. 11
Section 26. Organization............................................................ 12
ARTICLE V OFFICERS.................................................................... 12
Section 27. Officers Designated..................................................... 12
Section 28. Tenure And Duties Of Officers........................................... 12
(a) General.............................................................. 12
(b) Duties Of Chairman Of The Board Of Directors......................... 13
(c) Duties Of President.................................................. 13
(d) Duties Of Vice Presidents............................................ 13
(e) Duties Of Secretary.................................................. 13
(f) Duties Of Chief Financial Officer.................................... 13
Section 29. Delegation Of Authority................................................. 13
Section 30. Resignations............................................................ 14
Section 31. Removal................................................................. 14
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY
THE CORPORATION............................................................. 14
Section 32. Execution Of Corporate Instruments...................................... 14
Section 33. Voting Of Securities Owned By The Corporation........................... 15
ARTICLE VII SHARES OF STOCK............................................................. 15
Section 34. Form And Execution Of Certificates...................................... 15
Section 35. Lost Certificates....................................................... 15
Section 36. Transfers............................................................... 16
Section 37. Fixing Record Dates..................................................... 16
Section 38. Registered Stockholders................................................. 16
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION......................................... 16
Section 39. Execution Of Other Securities........................................... 16
ARTICLE IX DIVIDENDS................................................................... 17
Section 40. Declaration Of Dividends................................................ 17
Section 41. Dividend Reserve........................................................ 17
ARTICLE X FISCAL YEAR................................................................. 17
Section 42. Fiscal Year............................................................. 17
2
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE XI INDEMNIFICATION............................................................. 18
Section 43. Indemnification Of Directors, Executive Officers, Other
Officers, Employees And Other Agents................................. 18
(a) Directors and Executive Officers..................................... 18
(b) [Other] Officers, Employees and Other Agents......................... 18
(c) Expenses............................................................. 18
(d) Enforcement.......................................................... 19
(e) Non-Exclusivity Of Rights............................................ 19
(f) Survival Of Rights................................................... 19
(g) Insurance............................................................ 20
(h) Amendments........................................................... 20
(i) Saving Clause........................................................ 20
(j) Certain Definitions.................................................. 20
ARTICLE XII NOTICES..................................................................... 21
Section 44. Notices................................................................. 21
(a) Notice To Stockholders............................................... 21
(b) Notice To directors.................................................. 21
(c) Affidavit Of Mailing................................................. 21
(d) Time Notices Deemed Given............................................ 21
(e) Methods Of Notice.................................................... 21
(f) Failure To Receive Notice............................................ 21
(g) Notice To Person With Whom Communication Is Unlawful................. 22
(h) Notice To Person With Undeliverable Address.......................... 22
ARTICLE XIII AMENDMENTS.................................................................. 22
Section 45. Amendments.............................................................. 22
ARTICLE XIV LOANS TO OFFICERS............................................................ 22
Section 46. Loans To Officers....................................................... 22
3
</TABLE>
<PAGE> 5
BYLAWS
OF
IL FORNAIO (AMERICA) DELAWARE CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.
1
<PAGE> 6
Nominations of persons for election to the Board of Directors of the corporation
and the proposal of business to be considered by the stockholders may be made at
an annual meeting of stockholders: (i) pursuant to the corporation's notice of
meeting of stockholders; (ii) by or at the direction of the Board of Directors;
or (iii) by any stockholder of the corporation who was a stockholder of record
at the time of giving of notice provided for in the following paragraph, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in Section 5.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, (i) the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation, (ii) such other business must be a proper matter for
stockholder action under the General Corporation Law of Delaware, (iii) if the
stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the corporation with a Solicitation Notice (as
defined in this Section 5(b)), such stockholder or beneficial owner must, in the
case of a proposal, have delivered a proxy statement and form of proxy to
holders of at least the percentage of the corporation's voting shares required
under applicable law to carry any such proposal, or, in the case of a nomination
or nominations, have delivered a proxy statement and form of proxy to holders of
a percentage of the corporation's voting shares reasonably believed by such
stockholder or beneficial owner to be sufficient to elect the nominee or
nominees proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice, and (iv) if no
Solicitation Notice relating thereto has been timely provided pursuant to this
section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving of
a stockholder's notice as described above. Such stockholder's notice shall set
forth: (A) as to each person whom the stockholder proposed to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting
2
<PAGE> 7
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (C) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner, (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner, and (iii) whether either such stockholder or beneficial owner
intends to deliver a proxy statement and form of proxy to holders of, in the
case of the proposal, at least the percentage of the corporation's voting shares
required under applicable law to carry the proposal or, in the case of a
nomination or nominations, a sufficient number of holders of the corporation's
voting shares to elect such nominee or nominees (an affirmative statement of
such intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of Section
5(b) of these Bylaws to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the corporation
at least one hundred (100) days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Section 5 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5,
in order to include information with respect to a stockholder proposal in the
proxy statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
For purposes of this Section 5, "public announcement" shall mean disclosure in a
press release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the 1934 Act.
3
<PAGE> 8
SECTION 6. SPECIAL MEETINGS.
Special meetings of the stockholders of the corporation may be called, for any
purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the
Chief Executive Officer, or (iii) the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board of Directors for
adoption and shall be held at such place, on such date, and at such time as the
Board of Directors, shall fix.
(a) If a special meeting is properly called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(b) Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the corporation's notice of meeting (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the event
the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
4
<PAGE> 9
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided, however, that directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter and, except
where otherwise provided by the statute or by the Certificate of Incorporation
or these Bylaws, the affirmative vote of the majority (plurality, in the case of
the election of directors) of the votes cast, including abstentions, by the
holders of shares of such class or classes or series shall be the act of such
class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in
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whose names shares stand on the stock records of the corporation on the record
date, as provided in Section 12 of these Bylaws, shall be entitled to vote at
any meeting of stockholders. Every person entitled to vote shall have the right
to do so either in person or by an agent or agents authorized by a proxy granted
in accordance with Delaware law. An agent so appointed need not be a
stockholder. No proxy shall be voted after three (3) years from its date of
creation unless the proxy provides for a longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take
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action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the General Corporation Law of the State of Delaware if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed under
such section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written notice and written consent
have been given as provided in Section 228 of the General Corporation Law of
Delaware.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
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ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. CLASSES OF DIRECTORS.
Subject to the rights of the holders of any series of Preferred Stock to
elect additional directors under specified circumstances, following the closing
of the Initial Public Offering, the directors shall be divided into three
classes designated as Class I, Class II and Class III, respectively. Directors
shall be assigned to each class in accordance with a resolution or resolutions
adopted by the Board of Directors. At the first annual meeting of stockholders
following the closing of the Initial Public Offering, the term of office of the
Class I directors shall expire and Class I directors shall be elected for a full
term of three years. At the second annual meeting of stockholders following the
Closing of the Initial Public Offering, the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term
of three years. At the third annual meeting of stockholders following the
Closing of the Initial Public Offering, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full term
of three years. At each succeeding annual meeting of stockholders, directors
shall be elected for a full term of three years to succeed the directors of the
class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Bylaw in the case
of the death, removal or resignation of any director.
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SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL.
Subject to the rights of the holders of any series of Preferred Stock,
the Board of Directors or any individual director may be removed from office at
any time (i) with cause by the affirmative vote of the holders of a majority of
the voting power of all the then-outstanding shares of voting stock of the
corporation, entitled to vote at an election of directors (the "Voting Stock")
or (ii) without cause by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of all the
then-outstanding shares of the Voting Stock.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
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(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, facsimile, telegraph or telex, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a quorum
is present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be required
by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
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SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, including without limitation the power or authority
to declare a dividend, to authorize the issuance of stock and to adopt a
certificate of ownership and merger, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall such committee have the powers denied to the Executive Committee
in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee. The
membership of a committee member shall terminate on the date of his death or
voluntary resignation from the committee or from the Board of Directors. The
Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members of
the committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25
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shall be held at such times and places as are determined by the Board of
Directors, or by any such committee, and when notice thereof has been given to
each member of such committee, no further notice of such regular meetings need
be given thereafter. Special meetings of any such committee may be held at any
place which has been determined from time to time by such committee, and may be
called by any director who is a member of such committee, upon written notice to
the members of such committee of the time and place of such special meeting
given in the manner provided for the giving of written notice to members of the
Board of Directors of the time and place of special meetings of the Board of
Directors. Notice of any special meeting of any committee may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends such special
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. A majority of the authorized number of members of any such committee
shall constitute a quorum for the transaction of business, and the act of a
majority of those present at any meeting at which a quorum is present shall be
the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
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(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other
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duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
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Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of
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stock to be lost, stolen, or destroyed. The corporation may require, as a
condition precedent to the issuance of a new certificate or certificates, the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
or to give the corporation a surety bond in such form and amount as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as
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may be authorized by the Board of Directors, and the corporate seal impressed
thereon or a facsimile of such seal imprinted thereon and attested by the
signature of the Secretary or an Assistant Secretary, or the Chief Financial
Officer or Treasurer or an Assistant Treasurer; provided, however, that where
any such bond, debenture or other corporate security shall be authenticated by
the manual signature, or where permissible facsimile signature, of a trustee
under an indenture pursuant to which such bond, debenture or other corporate
security shall be issued, the signatures of the persons signing and attesting
the corporate seal on such bond, debenture or other corporate security may be
the imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
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ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that the corporation may modify the extent
of such indemnification by individual contracts with its directors and executive
officers; and, provided, further, that the corporation shall not be required to
indemnify any director or executive officer in connection with any proceeding
(or part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the corporation, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law or (iv) such
indemnification is required to be made under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the Delaware General Corporation Law.
(c) EXPENSES. The corporation shall advance to any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly
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that such person acted in bad faith or in a manner that such person did not
believe to be in or not opposed to the best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
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(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or
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involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing,
and all notices given by facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
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(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock. The
Board of Directors shall also have the power to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its
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subsidiaries, whenever, in the judgment of the Board of Directors, such loan,
guarantee or assistance may reasonably be expected to benefit the corporation.
The loan, guarantee or other assistance may be with or without interest and may
be unsecured, or secured in such manner as the Board of Directors shall approve,
including, without limitation, a pledge of shares of stock of the corporation.
Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the corporation at common law or under any statute.
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Exhibit 10.2
SUMMARY OF BONUS PLAN
IL Fornaio (America) Corporation (the Company) has a bonus plan (the Bonus
Plan) pursuant to which certain officers are eligible to receive annual cash
bonuses in amounts ranging from 25% to 50% of their respective base salaries if
certain performance targets established by management and approved by the Board
of Directors are met. Such performance targets may include, among other things,
the overall profitability of the Company and of particular components of the
Company's business, the completion of special projects or the achievements of
certain cost efficiencies. Prior to payment of any bonuses, the Board of
Directors must approve such amounts.
<PAGE> 1
EXHIBIT 10.3
IL FORNAIO (AMERICA) CORPORATION
1997 EQUITY INCENTIVE PLAN
ADOPTED MARCH 17, 1997
APPROVED BY STOCKHOLDERS APRIL 23, 1997
AMENDED BY THE BOARD OF DIRECTORS ON MARCH 11, 1999
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.
<PAGE> 2
(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.
(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.
2.
<PAGE> 3
(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.
(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.
3.
<PAGE> 4
(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.
(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
4.
<PAGE> 5
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. 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 eight hundred thousand (1,800,000)
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 one million
four thousand three hundred ninety-five (1,004,395) 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.
5.
<PAGE> 6
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 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
6.
<PAGE> 7
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 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,
7.
<PAGE> 8
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.
(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
8.
<PAGE> 9
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 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.
<PAGE> 10
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.
(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
10.
<PAGE> 11
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 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.
11.
<PAGE> 12
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.
(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.
12.
<PAGE> 13
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.
13.
<PAGE> 14
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.
<TABLE>
<S> <C>
Optionee:
--------------------------
Date of Grant:
--------------------------
Vesting Commencement Date:
--------------------------
Shares Subject to Option:
--------------------------
Exercise Price Per Share:
--------------------------
Expiration Date:
--------------------------
</TABLE>
_______ 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:
--------------------------- -------------------------------
14.
<PAGE> 15
Attachment I: Stock Option Agreement
Attachment II: 1997 Equity Incentive Plan
Attachment III: Notice of Exercise
15.
<PAGE> 16
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.
5. TERM. The term of your option commences on the Date of Grant and
expires upon the earliest of:
16.
<PAGE> 17
(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 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.
17.
<PAGE> 18
(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
(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 of the registration statement of the
Company filed under the Act as may be requested by the Company or the
representative of the underwriters. 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. 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 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
18.
<PAGE> 19
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.
19.
<PAGE> 20
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 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.
20.
<PAGE> 21
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
21.
<PAGE> 22
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
22.
<PAGE> 23
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
23.
<PAGE> 24
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:
---------------------------------
---------------------------------
24.
<PAGE> 25
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) 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.
25.
<PAGE> 26
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.
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; or
(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.
26.
<PAGE> 27
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
27.
<PAGE> 28
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.
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
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
28.
<PAGE> 29
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(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:
29.
<PAGE> 30
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):
<TABLE>
<CAPTION>
Number of Shares Date of Earliest Exercise
(Installment) (Vesting)
- ----------------- -------------------------
<S> <C>
</TABLE>
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
30.
<PAGE> 31
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 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:
(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; or
(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.
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.
31.
<PAGE> 32
(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 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.
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.
32.
<PAGE> 33
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
33.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-46421 of Il Fornaio (America) Corporation on Form S-8 of our report dated
February 5, 1999, appearing in this Annual Report on Form 10-K of Il Fornaio
(America) Corporation for the year ended December 27, 1998.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
San Francisco, CA
March 25, 1999
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<PERIOD-START> DEC-29-1997
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0
0
<COMMON> 6
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<TOTAL-LIABILITY-AND-EQUITY> 57,354
<SALES> 83,138
<TOTAL-REVENUES> 83,138
<CGS> 19,594
<TOTAL-COSTS> 78,274
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 203
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> 5,675
<INCOME-TAX> 2,224
<INCOME-CONTINUING> 3,451
<DISCONTINUED> 0
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<CHANGES> 326
<NET-INCOME> 3,125
<EPS-PRIMARY> .53
<EPS-DILUTED> .50
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<RESTATED>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> DEC-28-1997
<EXCHANGE-RATE> 1
<CASH> 15,789
<SECURITIES> 0
<RECEIVABLES> 1,516
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<INVENTORY> 1,720
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<PP&E> 45,408
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<CURRENT-LIABILITIES> 9,372
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 37,120
<TOTAL-LIABILITY-AND-EQUITY> 52,091
<SALES> 72,120
<TOTAL-REVENUES> 72,120
<CGS> 16,993
<TOTAL-COSTS> 68,284
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 97
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 4,234
<INCOME-TAX> 1,651
<INCOME-CONTINUING> 2,583
<DISCONTINUED> 0
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<CHANGES> 0
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<EPS-PRIMARY> .53
<EPS-DILUTED> .48
</TABLE>
<PAGE> 1
EXHIBIT 99.1
[LOGO]
FOR IMMEDIATE RELEASE CONTACT: PAUL KELLEY,
[email protected]
WWW.ILFORNAIO.COM
IL FORNAIO RETAINS FINANCIAL ADVISOR
TO HELP REVIEW STRATEGIC ALTERNATIVES
CORTE MADERA, Calif.--March 16, 1999 - Il Fornaio (America) Corporation (Nasdaq:
ILFO) announced today that it has retained Evercore Partners Inc. as its
financial advisor to assist the company in exploring and evaluating financial
and strategic alternatives to enhance shareholder value.
Strategic alternatives may include corporate acquisitions, a management-led
buy-out, merger opportunities, strategic alliances, recapitalization and other
financial opportunities. However, there can be no assurance that any transaction
will result from these efforts.
Laurence B. Mindel, chairman of Il Fornaio, commented, "In spite of another year
of record revenues, record earnings and twelve consecutive quarters of
same-store sales growth, Il Fornaio's stock price is lower than its initial
public offering price eighteen months ago. Since our goal is to build
shareholder value, we have decided to evaluate a number of alternative
opportunities designed to help us accomplish that objective.
Il Fornaio (America) Corporation owns and operates 17 full-service Italian
restaurants that serve creatively prepared, premium-quality Italian cuisine
based on authentic regional Italian recipes. Each restaurant houses a retail
market offering Il Fornaio's unique baked goods, prepared foods and a variety of
Il Fornaio-brand products. The company also operates five wholesale bakeries
that produce more than 30 varieties of fresh, hand-made breads, pastries and
other baked goods for sale at the company's own locations and to high-quality
grocery stores, coffee retailers, hotels and other fine restaurants.
This press release contains forward-looking statements that involve risks and
uncertainties relating to future events, including statements relating to
potential future transactions and the possible effect of efforts to enhance
shareholder value. The company assumes no obligation to update the
forward-looking information. Actual results or events may differ materially from
results or events expressed or implied by the forward-looking statements as a
result of a number of factors including, without limitation, the risks that an
attractive transaction will not be identified, that a transaction will not be
completed successfully completed, if at all, or that shareholder value will not
be enhanced as a result of the company's efforts. Investors are referred to the
full discussion of risks and uncertainties associated with forward-looking
statements contained in the company's 10-K for the fiscal year ended December
28, 1997.
- --------------------------------------------------------------------------------
Il Fornaio (America) Corp. 770 Tamalpais Drive, Suite 400 Corte Madera CA 94925
(415) 945-0500o (415) 924-0906 (fax) o www.ilfornaio.com
