<PAGE>
As filed with the Securities and Exchange Commission on July 17, 2000.
Registration No. 333-37778
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
California Pizza Kitchen, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
California 5812 95-4040623
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of incorporation or organization) Classification Code number) Identification Number)
</TABLE>
6053 West Century Boulevard, 11th Floor
Los Angeles, California 90045-6442
(310) 342-5000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Frederick R. Hipp, Chief Executive Officer and President
California Pizza Kitchen, Inc.
6053 West Century Boulevard, 11th Floor
Los Angeles, California 90045-6442
(310) 342-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
Anna M. Graves, Esq. Edward S. Rosenthal, Esq.
Paul, Hastings, Janofsky & Walker LLP Fried, Frank, Harris, Shriver & Jacobson
555 South Flower Street 350 South Grand Avenue
Los Angeles, California 90071-2371 Los Angeles, California 90071-3406
(213) 683-6000 (213) 473-2000
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and we are not soliciting an offer to buy +
+these securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Prospectus (Not Complete)
Issued July 17, 2000
5,300,000 Shares
[LOGO OF CALIFORNIA PIZZA KITCHEN, INC.]
California Pizza Kitchen, Inc.
Common Stock
-----------
California Pizza Kitchen, Inc. is offering shares of common stock in a firmly
underwritten offering. This is California Pizza Kitchen's initial public
offering, and no public market currently exists for our shares. California
Pizza Kitchen anticipates that the initial public offering price for our shares
will be between $13.00 and $15.00 per share.
-----------
Our common stock has been proposed for quotation on the Nasdaq National
Market under the symbol "CPKI."
-----------
Investing in our common stock involves a high degree of risk. Please see
"Risk Factors" beginning on page 6.
-----------
<TABLE>
<CAPTION>
Per Share Total
------------ ------------
<S> <C> <C>
Offering Price...................................... $ $
Discounts and Commissions to Underwriters........... $ $
Offering Proceeds to California Pizza Kitchen,
Inc................................................ $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Some of our shareholders have granted the underwriters the right to purchase
up to an additional 795,000 shares of common stock to cover any over-
allotments. The underwriters can exercise this right at any time within thirty
days after the offering. Banc of America Securities LLC expects to deliver the
shares of common stock to investors on , 2000.
-----------
Joint Lead and Book-Running Managers
Banc of America Securities LLC Deutsche Banc Alex. Brown
-----------
Robertson Stephens
-----------
, 2000
<PAGE>
[LOGO OF CALIFORNIA PIZZA KITCHEN GOES HERE]
"Our Locations
are carefully researched and strategically placed."
[MAP OF LOCATIONS]
"With over 100 locations worldwide and growing."
ARIZONA:
Phoenix - Biltmore Fashion Park
Scottsdale
Phoenix Airport - ASAP
CALIFORNIA:
Beverly Center
Beverly Hills
Brentwood Gardens
Burbank - Media City Center
Carmel Mountain
Cerritos - Los Cerritos Center
Encino
San Diego - Fashion Valley Mall
Glendale
Irvine
Laguna Hills Mall
La Jolla Village
LAX United Terminal - ASAP
LAX Delta Terminal - ASAP
LAX Southwest Terminal - ASAP
Manhattan Beach
Marina del Rey
Mission Viejo
Newport Beach - Fashion Island
Palm Desert - El Paseo Collection
Palm Springs - Desert Fashion Plaza
Palo Alto
Pasadena
Sacramento
Sacramento Airport - ASAP
San Diego Airport - ASAP
San Francisco
San Jose Intl. Airport - ASAP
San Mateo - Hillsdale Shopping Center
Santa Ana - Main Place Mall
Santa Anita - Fashion Park
Santa Barbara - Paseo Nuevo Mall
Seventh Market Place
Solana Beach
Redondo Beach - South Bay Galleria
Studio City
Tarzana
Thousand Oaks - ASAP
Topanga Plaza
Walnut Creek
Wells Fargo Center
Westwood Village
COLORADO:
Cherry Creek Shopping Center
FLORIDA:
Ft. Lauderdale
Miami Airport - ASAP
Naples
Palm Beach Gardens
SW Florida Intl. Airport - ASAP
West Palm Beach Airport - ASAP
GUAM:
Tumon
GEORGIA:
Lenox Square
Perimeter
North Point
HAWAII:
Ala Moana Shopping Center
Kahala Mall
Pearlridge Center
ILLINOIS:
Oakbrook Center
Chicago - Water Tower Place
Chicago - Ohio Street
Schaumburg
Old Orchard Center
INDIANA:
Indianapolis Airport - ASAP
MALAYSIA:
Kuala Lumpur
MARYLAND:
Annapolis Mall
Baltimore - Harbor Place
Bethesda - Montgomery Mall
MASSACHUSETTS:
Boston - Prudential Center
Boston - City Place
Natick Mall
MICHIGAN:
Detroit - Somerset Collection
MINNESOTA:
Minneapolis/St. Paul Intl. Airport - ASAP
MISSOURI:
Saint Louis Galleria
St. Louis Airport East Terminal - ASAP
St. Louis Airport Concourse A - ASAP
NEVADA:
Las Vegas - Mirage Hotel
Las Vegas - Golden Nugget Hotel
NEW JERSEY:
Paramus - Garden State Plaza
NEW YORK:
Manhattan
Scarsdale
Walt Whitman Mall
Westbury
42nd Street - ASAP
NORTH CAROLINA:
Charlotte Airport - ASAP
Charlotte - Concord Mills - ASAP
PENNSYLVANIA:
King of Prussia
PHILIPPINES:
Muntinlupa City
Makati City
SINGAPORE:
Singapore - Forum
Singapore - Millenia Walk
TEXAS:
Dallas - Beltline
Dallas - Preston & Northwest Hwy.
Grapevine
Houston - Post Oak Plaza
San Antonio
VIRGINIA:
Arlington - Pentagon Centre
McLean-Tysons Corner Center
Dulles Airport - ASAP
Reagan Natl. Airport Terminal B - ASAP
Reagan Natl. Airport Terminal C - ASAP
WASHINGTON D.C:
Connecticut Avenue
WASHINGTON:
Seattle
<PAGE>
"Our Restaurants express the comfortable and casual elegance of the CPK dining
experience."
[PHOTOS OF RESTAURANTS]
"Fashion Valley Mall, San Diego, California"
"Old Orchard Center, Skokie, Illinois"
"Cherry Creek Shopping Center, Denver, Colorado"
"Manhattan, New York"
"Westwood, California"
<PAGE>
"Our Brand Extensions tastefully and consistently reflect our distinctive brand
identity."
[PHOTO OF CPK ASAP]
"CPK ASAP-Los Angeles International Airport"
[PHOTO OF COOKBOOKS]
"All proceeds from our cookbooks are donated to children's charities."
[PHOTO OF CPK ASAP]
"CPK ASAP-Thousand Oaks, California"
[PHOTO OF CPK INTERNATIONAL]
"Singapore"
[PHOTO OF FROZEN PIZZA BOX]
"The CPK retail line of frozen pizzas features seven of our most popular
varieties."
<PAGE>
We have not authorized anyone to provide you with information different from
that contained in this prospectus. We are offering to sell, and seeking offers
to buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Forward-Looking Statements............................................... 12
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial and Operating Data....................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 29
Management............................................................... 41
Certain Relationships and Related Transactions........................... 49
Principal Shareholders................................................... 51
Description of Capital Stock............................................. 55
Shares Eligible for Future Sale.......................................... 57
Plan of Distribution..................................................... 59
Legal Matters............................................................ 61
Experts.................................................................. 61
Additional Information................................................... 61
Index to Consolidated Financial Statements............................... F-1
</TABLE>
Throughout this prospectus, our fiscal years ended December 31, 1995,
December 29, 1996, December 28, 1997, January 3, 1999 and January 2, 2000 are
referred to as years 1995, 1996, 1997, 1998 and 1999, respectively. Our fiscal
year consists of 52 or 53 weeks and ends on the Sunday closest to December 31
in each year. Fiscal year 1998 included 53 weeks. All other years shown are 52
weeks. The three months ended April 4, 1999 and April 2, 2000 both consist of
13 weeks.
Except as otherwise noted or where the context otherwise requires, all
information in this prospectus assumes:
. no exercise of options to purchase an aggregate of 562,001 shares of
common stock which are outstanding as of the date of this prospectus
under our 1990 and 1998 stock option plans;
. the exercise of options to purchase an aggregate of 110,696 shares of
common stock which our Chief Executive Officer and President has advised
us that he intends to exercise upon consummation of this offering;
. no exercise of the underwriters' over-allotment option to purchase up to
795,000 additional shares of our common stock from some of our
shareholders; and
. the conversion of all outstanding shares of our preferred stock, as of
July 31, 2000, into a right to receive an estimated aggregate of $23.7
million in cash and 1,690,002 shares of common stock.
Except as otherwise noted or where the context otherwise requires, all share
information in this prospectus reflects the consummation of a one-for-two
reverse stock split which we intend to consummate immediately prior to the
closing of this offering.
i
<PAGE>
PROSPECTUS SUMMARY
The items in the following summary are described in more detail later in
this prospectus. The summary provides an overview of selected information and
does not contain all the information you should consider. Therefore, you should
also read the more detailed information set out in this prospectus, including
the "Risk Factors" section and the consolidated financial statements and notes.
California Pizza Kitchen
California Pizza Kitchen is a leading casual dining restaurant chain in the
premium pizza segment with a recognized consumer brand and an established,
loyal customer base. We currently own, license or franchise 104 restaurants in
21 states, the District of Columbia, Guam and three foreign countries, of which
74 are company-owned and 30 are licensed or franchised. Our signature line of
innovative premium pizzas includes our original best sellers, the BBQ Chicken
Pizza and the Thai Chicken Pizza, and more recent creations such as the Philly
Cheesesteak Pizza, Havana Chicken Pizza, and Grilled Garlic Shrimp Pizza. We
also serve distinctive pastas, salads, soups, appetizers and desserts,
including our Chicken-Tequila Fettucine, BBQ Chicken Chopped Salad, Hearth-
Baked Tortilla Spring Rolls and Key Lime Pie. We believe our restaurants, which
offer a highly differentiated menu and superior customer service, provide an
exceptional dining value and appeal to a broad base of consumers.
California Pizza Kitchen was founded in 1985 by Rick Rosenfield and Larry
Flax who recognized the broad consumer appeal of innovative premium pizzas. In
1992, PepsiCo, Inc. acquired a majority interest in our company. In September
1997, PepsiCo divested its interest, and Bruckmann, Rosser, Sherrill & Co.,
L.P. became our controlling shareholder through a merger and leveraged
recapitalization transaction. Soon thereafter, a new management team led by
Frederick R. Hipp, our Chief Executive Officer and President and a 25-year
veteran of the restaurant industry, was put in place. Under our new ownership
and management team, and in conjunction with our co-founders, we implemented a
number of new initiatives including increased portion sizes, cost reduction
strategies, broadened distribution channels, upgraded ingredients and menu
items, and a more disciplined growth plan.
Since our inception 15 years ago, we believe we have developed strong brand
awareness, primarily through the development of our full service restaurants.
As part of our strategy to build upon our leadership position in the premium
pizza segment and expand our channels of distribution, we have developed a high
quality fast-casual concept called California Pizza Kitchen ASAP. Our ASAP
restaurants, which are significantly smaller than our full service restaurants
and offer a limited selection of our most popular pizzas, salads, sandwiches
and appetizers, provide us with additional development opportunities in
attractive high traffic venues. We also have a strategic alliance with Kraft
Pizza Company, a subsidiary of Kraft Foods, Inc., to distribute a line of
premium frozen pizzas through supermarkets and other retail outlets. We expect
these additional distribution channels to provide significant growth
opportunities; however, development of full service restaurants will remain our
primary focus in the near-term.
Our objectives include continuing to build our brand awareness and customer
loyalty, and extending our leadership position in the casual dining and premium
pizza segments. We intend to utilize the strategies discussed below to achieve
these objectives.
. Offer high quality, innovative menu items. We believe the success of our
concept is due to our ability to interpret various food trends on our
platform of pizza, pasta, salads and appetizers, and offer items that
appeal to a variety of tastes. We use high quality ingredients, such as
imported cheeses and fresh produce, imaginative pizza toppings such as
barbecue chicken, spicy peanut ginger and sesame sauce and Japanese
eggplant, and showcase recipes that capture an assortment of distinctive
tastes and flavors that customers readily identify, but do not typically
associate with pizza.
1
<PAGE>
. Provide an excellent dining value with broad consumer appeal. We offer
large portions of innovative, high quality food, superior customer
service and a sophisticated yet casual atmosphere, all for an average
guest check of approximately $10.50. We believe this price-to-value
relationship differentiates us from our competitors, many of whom have
significantly higher average guest checks, and allows us to appeal to a
broad group of consumers.
. Build awareness of the California Pizza Kitchen brand. We believe that
California Pizza Kitchen is a brand that has traditionally been
associated with high quality, innovative food items, superior customer
service and a strong price-to-value relationship. We also believe that
many of our original recipes are closely associated with the California
Pizza Kitchen brand name. We have promoted brand awareness through the
distinctive features of our yellow, black and white logo, innovative
marketing and public relations programs and strategic alliances with high
quality partners, including Kraft Pizza Company which distributes our
premium frozen pizzas, and Host Marriott Services, which franchises our
ASAP fast-casual concept.
. Pursue disciplined restaurant growth. Our new management team adheres to
a disciplined expansion strategy, including the limited development of
additional franchise restaurants. We opened five company-owned full
service restaurants in 1999 and intend to open an additional ten company-
owned restaurants in 2000, consisting of seven full service restaurants
and three ASAP restaurants. Thus far in 2000, we have opened three full
service restaurants in Chicago, Denver and San Diego. We currently have
five company-owned restaurants under construction, including two ASAP
restaurants, and have signed leases for the two remaining restaurants we
plan to open in 2000. In addition, in late 1999 we hired a Senior Vice
President and Chief Development Officer with more than ten years of
restaurant real estate experience to oversee our expansion program.
. Maintain strong unit economics. For 1999, our 66 full service restaurants
open for the entire year averaged $2.6 million in sales and generated
average restaurant-level pre-tax cash flow of $496,000 or 19.2% of
restaurant sales. Since the beginning of 1998, our total cash investment
per full service restaurant, net of landlord contributions, averaged $1.4
million, excluding pre-opening costs, which were approximately $147,000
per restaurant. We believe that our cash flow margins and return on
investment for our company-owned ASAP restaurants will be comparable to
those of our full service restaurants.
. Provide superior customer service. We have developed and fostered an
organizational culture based on mutual respect, open communication and
strong relationships with our employees. We believe that our culture, a
highly evolved training program for our restaurant staff, and a
profitability and service-based bonus program for our restaurant
managers, allow us to achieve a high level of customer service and
satisfaction and help us to ensure superior execution at the restaurant
level.
Recent Developments
Total revenues for the second quarter ended July 2, 2000 increased by $8.5
million, or 19.3%, to $52.6 million, from $44.1 million in the second quarter
of 1999. Comparable restaurant sales for the quarter increased 7.4% as compared
to a comparable restaurant sales increase of 5.4% for the second quarter of
1999. Average weekly sales per company-owned restaurant during the second
quarter ended July 2, 2000 increased 8.3% to $54,308, from $50,132 in the
second quarter of 1999. Net income for the second quarter ended July 2, 2000
was $1.2 million, including an estimated pre-tax charge of $1.8 million related
to the prior grant of performance options to Frederick R. Hipp, our Chief
Executive Officer and President. The amount of this charge is dependent upon
the initial public offering price of our shares and for this purpose we have
assumed a price of $14.00 per share. Excluding the one-time charge related to
the performance options and the associated tax benefit, net income would have
been $2.4 million. Pro forma net income for the second quarter ended July 2,
2000, excluding the one-time charge related to the prior grant of performance
options, was $3.0 million. The pro forma results include the elimination of
$481,000 in interest expense, net of taxes, related to the repayment of bank
debt, and the elimination of compensation expense of $146,000, net of taxes,
due to the amendment of our co-founders' employment agreements.
2
<PAGE>
Total revenues for the six months ended July 2, 2000 increased by $14.8
million, or 17.3%, to $100.9 million, from $86.1 million for the same period in
1999. Comparable restaurant sales for the six months ended July 2, 2000
increased 7.1% as compared to a comparable restaurant sales increase of 5.8%
for the same period in 1999. Average weekly sales per company-owned restaurant
during the six months ended July 2, 2000 increased 8.4% to $53,024, from
$48,937 in the first six months of 1999. Net income for the six months ended
July 2, 2000 was $2.0 million, including the estimated pre-tax charge of $1.8
million related to the prior grant of performance options to Frederick R. Hipp,
our Chief Executive Officer and President, and a $1.8 million pre- tax charge
for the write-down of one restaurant in accordance with Financial Accounting
Standards No. 121. Excluding the one-time charge related to the performance
options, the charge related to the write-down of one of our restaurants, and
the associated tax benefits, net income would have been $4.4 million. Pro forma
net income for the six months ended July 2, 2000, excluding the charges related
to the prior grant of performance options and the write-down of one of our
restaurants, was $5.6 million. The pro forma results include the elimination of
$976,000 in interest expense, net of taxes, related to the repayment of bank
debt, and the elimination of compensation expense of $293,000, net of taxes,
due to the amendment of our co-founders' employment agreements.
----------------
We are a California corporation formed on October 7, 1985. Our principal
executive offices are located at 6053 West Century Boulevard, 11th Floor, Los
Angeles, California 90045, and our telephone number is (310) 342-5000. Our
website is located at www.cpk.com.
The Offering
<TABLE>
<C> <S>
Common stock offered............................... 5,300,000 shares
Common stock to be outstanding after the offering.. 17,997,384 shares(1)
Use of proceeds.................................... We will receive
approximately $68.3
million in net proceeds in
this offering, assuming
the midpoint of the filing
range. We intend to use
the proceeds:
. to repay approximately
$40.0 million of
outstanding bank debt;
. to pay the estimated
$23.7 million cash
payment due upon the
automatic conversion of
our outstanding
preferred stock; and
. for other general
corporate purposes.
Risk factors....................................... See "Risk Factors" and the
other information included
in this prospectus for a
discussion of factors you
should carefully consider
before deciding to invest
in shares of our common
stock.
</TABLE>
--------
(1) The number of shares to be outstanding after the offering does not include
562,001 shares of common stock issuable upon exercise of options
outstanding as of the date of this prospectus at a weighted average
exercise price of $5.78 per share. This number does, however, include
110,696 shares issuable upon exercise of options which our Chief Executive
Officer and President has advised us that he intends to exercise
concurrently with the consummation of this offering and an estimated
aggregate of 1,690,002 shares of our common stock being issued upon the
automatic conversion of our preferred stock.
3
<PAGE>
Summary Consolidated Financial and Operating Data
(dollars in thousands, except per share, operating data and footnotes)
<TABLE>
<CAPTION>
Three Months
Fiscal Year Ended
--------------------------------- ----------------
April April
1997 1998 1999 4, 1999 2, 2000
-------- -------- -------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues........... $160,416 $167,041 $179,193 $41,934 $48,266
Operating income (loss).. (10,499) 9,370 12,584 2,763 1,985
Bank financing fees(1)... -- -- (998) -- --
Interest expense......... (930) (3,956) (3,415) (968) (761)
Income (loss) before
income tax benefit
(provision)............. (11,429) 5,414 8,171 1,795 1,224
Net income (loss)........ (11,680)(2) 10,553(3) 5,399 1,184 796
Redeemable preferred
stock dividend(4)....... (33,783) -- -- -- --
Redeemable preferred
stock accretion......... -- (4,478) (5,147) (1,259) (1,458)
Net income (loss)
attributable to common
shareholders(5)......... (45,463) 6,075 252 (75) (662)
Net income (loss) per
common share(6):
Basic.................. $ 0.02 $ (0.06)
Diluted................ $ 0.02 $ (0.06)
Shares used in computing
net income (loss) per
common share(6):
Basic.................. 10,800 10,897
Diluted................ 11,168 11,216
Pro Forma Data(7)(8):
Net income attributable
to common shareholders.. $ 8,253 $ 1,437
Net income per common
share:
Basic.................. $ 0.47 $ 0.08
Diluted................ $ 0.46 $ 0.08
Shares used in computing
net income per common
share:
Basic.................. 17,595 17,876
Diluted................ 17,926 18,207
Selected Operating Data:
System-wide restaurants
open at end of period... 80 90 96 90 97
Company-owned restaurants
open at end of period... 66 67 70 66 71
Average weekly company-
owned restaurant sales.. $ 43,514 $ 47,490 $ 49,490 $47,755 $51,692
Company-owned comparable
restaurant sales
increase(9)............. 0.6% 6.1% 4.1% 6.2% 6.8%
</TABLE>
<TABLE>
<CAPTION>
April 2, 2000
----------------------
Pro Forma As
Actual Adjusted(10)
-------- ------------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................ $ 3,732 $ 9,335
Total assets............................................. 92,291 97,894
Total debt, including current portion.................... 40,075 75
Redeemable preferred stock............................... 45,379 --
Total shareholders' equity (deficiency).................. (10,491) 80,491
</TABLE>
4
<PAGE>
--------
(1) Bank financing fees of $998,000 in 1999 represent the unamortized costs
relating to our prior credit agreement, which were written off when we
refinanced our credit facility in 1999.
(2) Net loss for 1997 was unfavorably impacted by the recordation of a $7.6
million deferred tax asset valuation allowance. We recorded the valuation
allowance in 1997 due to uncertainty at the time of our ability to realize
the benefit of the net deferred tax asset.
(3) Net income for 1998 was favorably impacted by the reversal of a $7.6
million deferred tax asset valuation allowance that was previously provided
for in 1997. We eliminated the valuation allowance in 1998 due to our
belief that current year activity made realization of this benefit more
likely than not.
(4) In 1997, we declared a redeemable preferred stock dividend payable to our
common shareholders.
(5) Net income (loss) attributable to common shareholders includes the effect
of the accretion of the liquidation preference on the redeemable preferred
stock which reduces net income attributable to common shareholders for the
relative periods.
(6) See notes 2 and 9 of notes to audited consolidated financial statements for
an explanation of the method used to calculate the net income (loss) per
common share and shares used in computing net income (loss) per common
share, basic and diluted.
(7) Pro forma net income attributable to common shareholders for 1999 is the
result of the elimination of $2.3 million in interest expense, net of
taxes, related to the repayment of bank debt, the elimination of annual
compensation expense of $595,000, net of taxes, due to the amendment of our
co-founders' employment agreements, and the elimination of $5.1 million in
preferred stock accretion upon the automatic conversion of our preferred
stock. Pro forma net income attributable to common shareholders for the
first three months of 2000 is the result of the elimination of $495,000 in
interest expense, net of taxes, related to the repayment of bank debt, the
elimination of annual compensation expense of $146,000, net of taxes, due
to the amendment of our co-founders' employment agreements, and the
elimination of $1.5 million in preferred stock accretion upon the automatic
conversion of our preferred stock.
(8) Pro forma information gives effect, as of the beginning of each period, to
the sale of 5,300,000 shares of common stock offered by us in this
offering, the conversion of all outstanding shares of our preferred stock
into 1,384,784 shares of common stock as of the beginning of 1999 and
1,568,619 shares of common stock as of the beginning of the three month
period ended April 2, 2000, and the issuance of 110,696 shares of our
common stock upon the exercise of options held by our Chief Executive
Officer and President.
(9) Company-owned restaurants are included in the computation of comparable
restaurant sales after they have been open 12 months.
(10) Reflects our receipt of estimated net proceeds of $68.3 million from the
sale of 5,300,000 shares of common stock offered by us at an assumed
initial public offering price of $14.00 per share, net of estimated
underwriting discounts and estimated offering expenses, the conversion of
all outstanding shares of our preferred stock as of April 2, 2000 into a
right to receive an estimated aggregate of $22.7 million in cash and
1,620,665 shares of common stock, the issuance of 110,696 shares of our
common stock upon the exercise of options held by our Chief Executive
Officer and President, and the repayment of $40.0 million in bank debt
that was outstanding as of April 2, 2000. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
You should read the following risk factors carefully before purchasing any
common stock. If any of the risks discussed below actually occur, our business,
financial condition, operating results or cash flows could be materially
adversely affected. This impact could cause the trading price of our common
stock to decline, and you could lose all or part of your investment.
Our growth strategy requires us to open new restaurants at an accelerated pace.
We may not be able to achieve this planned expansion.
We are pursuing an accelerated, but disciplined, growth strategy which to be
successful will depend in large part on our ability, and the ability of our
franchisees and licensees, to open new restaurants and to operate these
restaurants on a profitable basis. Under the direction of PepsiCo, Inc., we
opened only two new company-owned restaurants a year in 1996 and 1997. Since
the group led by Bruckmann, Rosser, Sherrill & Co., L.P. acquired a controlling
interest in our company and our new management team was put into place, we have
opened ten new company-owned, full service restaurants, two in 1998, five in
1999 and three to date in 2000. We presently anticipate that we will open ten
new company-owned restaurants during 2000, seven of which will be full service
restaurants and three of which will be ASAP restaurants. We also anticipate
that our franchisees will open six or seven new restaurants during 2000. We
cannot guarantee that we or our franchisees will be able to achieve our
expansion goals or that our new restaurants will be operated profitably.
Further, we cannot assure you that any new restaurant we open will obtain
similar operating results to those of our existing restaurants. The success of
our planned expansion will be dependent upon numerous factors, many of which
are beyond our control, including the following:
. the hiring, training and retention of qualified operating personnel,
especially managers;
. identification and availability of suitable restaurant sites;
. competition for restaurant sites;
. negotiation of favorable lease terms;
. timely development of new restaurants, including the availability of
construction materials and labor;
. management of construction and development costs of new restaurants;
. securing required governmental approvals and permits;
. competition in our markets; and
. general economic conditions.
Our success depends on our ability to locate a sufficient number of suitable
new restaurant sites.
One of our biggest challenges in meeting our growth objectives will be to
secure an adequate supply of suitable new restaurant sites. We have experienced
delays in opening some of our restaurants and may experience delays in the
future. We were unable to achieve our originally targeted number of new
openings in 1999 due in large part to the lack of a senior executive who
focused full-time on real estate development prior to our hiring of a Senior
Vice President and Chief Development Officer in November 1999, intense
competition for restaurant sites and our unwillingness to compromise on lease
economics. There can be no assurance that we will be able to find sufficient
suitable locations for our planned expansion in any future period. Delays or
failures in opening new restaurants could materially adversely affect our
business, financial condition, operating results or cash flows.
We could face labor shortages which could slow our growth.
Our success depends in part upon our ability to attract, motivate and retain
a sufficient number of qualified, employees, including restaurant managers,
kitchen staff and servers, necessary to keep pace with our expansion
6
<PAGE>
schedule. Qualified individuals of the requisite caliber and number needed to
fill these positions are in short supply in some areas. Although we have not
experienced any significant problems in recruiting or retaining employees, any
future inability to recruit and retain sufficient individuals may delay the
planned openings of new restaurants. Any such delays or any material increases
in employee turnover rates in existing restaurants could have a material
adverse effect on our business, financial condition, operating results or cash
flows. Additionally, competition for qualified employees could require us to
pay higher wages to attract sufficient employees, which could result in higher
labor costs.
Our expansion into new markets may present increased risks due to our
unfamiliarity with the area.
We anticipate that our new restaurants will typically take several months to
reach budgeted operating levels due to problems commonly associated with new
restaurants, including lack of market awareness, inability to hire sufficient
staff and other factors. Although we have attempted to mitigate these factors
by expanding primarily in markets in which we already have a significant
presence and by careful attention to training and staffing needs, there can be
no assurance that we will be successful in operating our new restaurants on a
profitable basis. In addition, we entered Denver, Colorado earlier this year,
which is a new market in which we have no prior operating experience. The
Denver market may have different competitive conditions, consumer tastes and
discretionary spending patterns than our existing markets, which may cause our
new Denver restaurants to be less successful than restaurants in our existing
markets. We may also enter other new markets over the next several years which
will involve these same risks and uncertainties.
Our expansion may strain our infrastructure which could slow our restaurant
development.
We also face the risk that our existing systems and procedures, restaurant
management systems, financial controls, and information systems will be
inadequate to support our planned expansion. We cannot predict whether we will
be able to respond on a timely basis to all of the changing demands that our
planned expansion will impose on management and these systems and controls. If
we fail to continue to improve our information systems and financial controls
or to manage other factors necessary for us to achieve our expansion
objectives, our business, financial condition, operating results or cash flows
could be materially adversely affected.
Our restaurant expansion strategy focuses primarily on further penetrating
existing markets. This strategy can cause sales in some of our existing
restaurants to decline.
In accordance with our expansion strategy, we intend to open new restaurants
primarily in our existing markets. Since we typically draw customers from a
relatively small radius around each of our restaurants, the sales performance
and customer counts for restaurants near the area in which a new restaurant
opens may decline due to cannibalization.
Our quarterly results may fluctuate and could fall below the expectations of
securities analysts and investors due to seasonality and other factors,
resulting in a decline in our stock price.
Our operating results will fluctuate because of several factors, including
the timing of new restaurant openings and related expenses, labor and operating
costs for newly-opened restaurants, which are often materially greater during
the first three months of operation than thereafter, profitability of our new
restaurants, and increases or decreases in comparable restaurant sales. As a
result, the volume and timing of new restaurant openings in any quarter has had
and is expected to continue to have a significant impact on quarterly pre-
opening costs, labor costs and direct operating and occupancy expenses. In
addition, in accordance with SFAS No. 121, we recognize the impairment of
certain property and equipment by reducing the carrying value of the assets to
the estimated fair value based on discounted cash flows. Such a write-down in
any period will further increase the fluctuations in, and may have a material
adverse effect on, our operating results.
Our business is also subject to seasonal fluctuations. Historically, sales
in most of our restaurants have been higher during the summer months and winter
holiday season of each fiscal year. As a result, we expect our highest earnings
to occur in those periods. In addition, our quarterly and annual operating
results and
7
<PAGE>
comparable unit sales may fluctuate significantly as a result of a variety of
additional factors, including labor costs for our hourly and management
personnel, particularly in the event of an increase in federal or state minimum
wage requirements.
Accordingly, results for any one quarter are not necessarily indicative of
the results to be expected for any other quarter or for any year and comparable
unit sales for any particular future period may decrease. In the future,
results of operations may fall below the expectations of public market analysts
and investors. In that event, the price of our common stock would likely
decrease. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Potential fluctuations in quarterly
results and seasonality" for a discussion of factors which have historically
affected our operating results.
Our planned expansion into retail distribution channels through the
introduction of our premium frozen pizzas could dilute the value of our brand.
We have entered into a strategic alliance with Kraft Pizza Company to
distribute a line of premium frozen pizzas through supermarkets and other
retail outlets. Although sales of these frozen products in supermarkets in the
seven geographic markets in which they are currently available have been
encouraging, we run the risk that the availability of a frozen product could
dilute the value of our brand to the extent that consumers preceive our frozen
products to be unappealing or of a lower quality. In addition, use of these
frozen products in alternative distribution channels in which it is not readily
apparent to consumers that they are purchasing a formerly frozen product could
also harm the value of our brand.
Our operations are susceptible to changes in food and supply costs which could
adversely affect our margins.
Our profitability depends, in part, on our ability to anticipate and react
to changes in food and supply costs. Our centralized purchasing staff
negotiates prices for all of our ingredients and supplies through either
contracts (terms of one month up to one year) or commodity pricing formulas.
Our master distributor delivers goods at a set, flat fee per case twice a week
to all of our restaurants. Our contract with our master distributor,
Meadowbrook Meat Company, Inc., expires in December 2000. Although we believe
we will be able to negotiate a similarly-priced contract with either our
current master distributor or another distributor, any increase in distribution
prices could cause our food and supply costs to increase. Furthermore, various
factors beyond our control, including adverse weather conditions and
governmental regulations, could also cause our food and supply costs to
increase. We cannot predict whether we will be able to anticipate and react to
changing food and supply costs by adjusting our purchasing practices. A failure
to do so could adversely affect our operating results and cash flows.
Changes in consumer preferences or discretionary consumer spending could
negatively impact our results.
Our restaurants feature pizzas, pastas, salads and appetizers in an upscale,
family-friendly, casual environment. Our continued success depends, in part,
upon the popularity of these foods and this style of informal dining. Shifts in
consumer preferences away from this cuisine or dining style could materially
adversely affect our future profitability. Also, our success depends to a
significant extent on numerous factors affecting discretionary consumer
spending, including economic conditions, disposable consumer income and
consumer confidence. Adverse changes in these factors could reduce customer
traffic or impose practical limits on pricing, either of which could materially
adversely affect our business, financial condition, operating results or cash
flows. Like other restaurant chains, we can also be materially adversely
affected by negative publicity concerning food quality, illness, injury,
publication of government or industry findings concerning food products served
by us, or other health concerns or operating issues stemming from one
restaurant or a limited number of restaurants.
8
<PAGE>
The restaurant industry is highly competitive.
Competition in the restaurant industry is increasingly intense. We compete
on the basis of the taste, quality, and price of food offered, customer
service, ambiance and overall dining experience. We believe that our operating
concept, attractive dining value and quality of food and customer service
enable us to differentiate ourselves from our competitors. However, while we
believe that our restaurants are distinctive in design, we are aware of other
restaurants that operate with somewhat similar concepts. Our competitors
include a large and diverse group of restaurant chains and individual
restaurants that range from independent local operators that have opened
restaurants in various markets, to well-capitalized national restaurant
companies. In addition, we compete with other restaurants and with retail
establishments for real estate. Many of our competitors are well-established in
the casual dining market segment and some of our competitors have substantially
greater financial, marketing and other resources than we do. The entrance of
new competitors into our markets or into the immediate areas surrounding our
existing restaurants could reduce our restaurants' sales and profit margins.
The restaurant industry is subject to extensive government regulation.
The restaurant business is subject to various federal, state and local
government regulations, including those relating to the sale of food and
alcoholic beverages. While at this time we have been able to obtain and
maintain the necessary governmental licenses, permits and approvals, the
failure to maintain these licenses, permits and approvals, including food and
liquor licenses, could have a material adverse effect on our operating results.
Difficulties or failure in obtaining the required licenses and approvals could
delay, or result in our decision to cancel, the opening of new restaurants.
Local authorities may suspend or deny renewal of our food and liquor licenses
if they determine that our conduct does not meet applicable standards. Although
we have satisfied restaurant and liquor licensing requirements for our existing
restaurants, we cannot predict whether we will be able to maintain these
approvals or obtain these approvals at future locations. We are also subject to
state and local health code requirements, including regulations relating to
food safety and food handling and storage.
We are also subject to federal regulation and state laws that regulate the
offer and sale of franchises and aspects of the licensor-licensee relationship.
Many state franchise laws impose restrictions on the franchise agreement,
including limitations on non-competition provisions and the termination or non-
renewal of a franchise. Some states, such as California, require that franchise
materials be registered before franchises can be offered or sold in the state.
Our failure to obtain or maintain approvals to sell franchises would cause us
to lose franchise revenues and could restrict the ability of Host Marriott
Services, our largest franchisee, to open additional franchise locations. This
could materially and adversely affect our planned expansion.
Various federal and state labor laws govern our relationship with our
employees and affect operating costs. These laws include minimum wage
requirements, overtime pay, unemployment tax rates, workers' compensation
rates, citizenship requirements and sales taxes. Additional government-imposed
increases in minimum wages, overtime pay, paid leaves of absence and mandated
health benefits, or increased tax reporting and tax payment requirements for
employees who receive gratuities could materially adversely affect us.
California, where almost half of our company-owned restaurants are located,
instituted a change to its overtime pay regulations effective January 1, 2000.
We are required to pay 1 1/2 times regular pay for any hours worked in excess
of eight per day, and double time for hours in excess of 12 per day, even if an
employee is a part-time worker. We hope to be able to schedule our employees'
shifts around these requirements and, to the extent we can do so, this change
will not have a material adverse effect on us. Furthermore, changes in the
state laws, or a reduction in the number of states that allow tips to be
credited toward minimum wage requirements, could materially adversely affect
us.
Given the location of many of our restaurants, even though we operate our
restaurants in strict compliance with the requirements of the Immigration and
Naturalization Service, our employees may not all meet federal citizenship or
residency requirements, which could lead to disruptions in our work force. In
addition, the Federal Americans with Disabilities Act prohibits discrimination
on the basis of disability in public
9
<PAGE>
accommodations and employment. Although our restaurants are designed to be
accessible to the disabled, we could be required to make modifications to our
restaurants to provide service to, or make reasonable accommodation for,
disabled persons.
The restaurant industry is affected by litigation and publicity concerning food
quality, health and other issues which can cause customers to avoid our
restaurants and result in liabilities.
We are sometimes the subject of complaints or litigation from customers or
employees alleging illness, injury or other food quality, health or operational
concerns. Adverse publicity resulting from these allegations may materially
adversely affect us and our restaurants, regardless of whether the allegations
are valid or whether California Pizza Kitchen is liable. In fact, we are
subject to the same risks of adverse publicity resulting from these sorts of
allegations even if the claim actually involves one of our franchisees or
licensees. Further, employee claims against us based on, among other things,
discrimination, harassment or wrongful termination may divert our financial and
management resources that would otherwise be used to benefit the future
performance of our operations. We have been subject to these employee claims
before, and a significant increase in the number of these claims or any
increase in the number of successful claims could materially adversely affect
our business, financial condition, operating results or cash flows. We also are
subject to some states' "dram shop" statutes. These statutes generally provide
a person injured by an intoxicated person the right to recover damages from an
establishment that wrongfully served alcoholic beverages to the intoxicated
person.
Forty percent of our restaurants are located in California. As a result, we are
highly sensitive to negative occurrences in that state.
We and our franchisees currently operate a total of 42 restaurants in
California, of which 35 are concentrated in the greater Los Angeles and San
Diego metropolitan areas. As a result, we are particularly susceptible to
adverse trends and economic conditions in California. In addition, given our
geographic concentration, negative publicity regarding any of our restaurants
in California could have a material adverse effect on our business and
operations, as could other regional occurrences such as local strikes,
earthquakes or other natural disasters.
Our existing shareholders will continue to control us after this offering, and
they may make decisions with which you disagree.
Upon consummation of this offering, and after giving effect to the automatic
conversion of our outstanding shares of preferred stock into shares of common
stock and cash, Bruckmann, Rosser, Sherrill & Co., L.P. and its affiliates will
own approximately 30.5% of the outstanding shares of common stock (or 27.1% if
the underwriters' over-allotment option is exercised in full), and our
executive officers, directors and principal shareholders (including Bruckmann,
Rosser) and their affiliates will own approximately 60.2% of the outstanding
shares of common stock (or 56.0% if the underwriters' over-allotment option is
exercised in full). As a result, Bruckmann, Rosser and/or these other
shareholders will be able to control us and direct our affairs, including the
election of directors and approval of significant corporate transactions. This
concentration of ownership also may delay, defer or prevent a change in control
of California Pizza Kitchen, and make some transactions more difficult or
impossible without the support of these shareholders. These transactions might
include proxy contests, mergers, tender offers, open market purchase programs
or other purchases of common stock that could give our shareholders the
opportunity to realize a premium over the then-prevailing market price for
shares of common stock. See "Principal Shareholders" which contains information
regarding the beneficial ownership of our common stock.
Approximately 71% of our outstanding shares of common stock may be sold into
the public market in the future, which could depress our stock price.
The 5,300,000 shares of common stock sold in this offering (and any shares
sold upon exercise of the underwriters' over-allotment option) will be freely
tradable without restriction under the Securities Act of 1933,
10
<PAGE>
as amended, except for any shares held by our officers, directors and principal
shareholders. The other 12,697,384 shares of our common stock which are
outstanding are "restricted shares" within the meaning of Rule 144 under the
Securities Act and sales of these shares are subject to restrictions under the
Securities Act. Of these restricted shares, 11,145,965 are subject to lock-up
agreements under which the holders have agreed not to sell or otherwise dispose
of any of their shares for a period of 180 days after the date of this
prospectus without the prior written consent of Banc of America Securities LLC.
In addition, approximately 750,000 of these restricted shares are subject to
90-day lock-up agreements on similar terms. In its sole discretion and at any
time without notice, Banc of America Securities may release all or any portion
of the shares subject to the lock-up agreements. All of the restricted shares
subject to lock-up agreements will become available for sale in the public
market immediately following expiration of the 90 or 180-day lock-up period,
subject (to the extent applicable) to the volume and other limitations of Rule
144 or Rule 701 under the Securities Act. Beginning 90 days after the date of
this prospectus, restricted shares not subject to lock-up agreements or
contractual restrictions will become available for sale in the public market,
subject to the volume and other limitations of Rule 144 or Rule 701. In
addition, a total of approximately 800,000 restricted shares which are not
subject to lock-up agreements or contractual restrictions will become
immediately available for sale in the public market upon completion of this
offering. After expiration of the lock-up period, some of our securityholders
have the contractual right to require us to register some of their shares of
common stock for future sale.
We intend to file a registration statement on Form S-8 covering all shares
of common stock issuable upon exercise of stock options in effect on the date
of this prospectus and stock options or other stock rights to be granted under
our stock option plans and shares to be sold to our employees under our
employee stock purchase plan. Upon this registration on Form S-8, and after the
expiration of any applicable lock-up periods, up to an additional 672,697
shares of common stock, together with any additional shares of common stock
that will be issuable pursuant to stock options or other stock rights granted
in the future under our stock option plans and any shares purchased by our
employees under our employee stock purchase plan, will be eligible for sale in
the public market.
Sales of substantial amounts of common stock in the public market, or the
perception that these sales may occur, could adversely affect the prevailing
market price of our common stock and our ability to raise capital through a
public offering of our equity securities. See "Shares Eligible for Future Sale"
which describes the circumstances under which restricted shares may be sold in
the public market.
Our articles of incorporation permit our board of directors to issue new series
of preferred stock that may have the effect of delaying or preventing a change
in control of our company. This could adversely affect the value of your
shares.
Our articles of incorporation authorize our board of directors to issue up
to 40,000,000 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 shareholders. All of the currently outstanding shares of
preferred stock will be converted into shares of common stock and cash upon
consummation of this offering and therefore the full 40,000,000 shares of
preferred stock will be available for designation and issuance by our board of
directors. The rights of the holders of our 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 issuance of preferred stock could
have the effect of delaying, deterring, or preventing a change in control and
could adversely affect the voting power of your shares.
In addition, provisions of California law could make it more difficult for a
third party to acquire a majority of our outstanding voting stock by
discouraging a hostile bid, or delaying or deterring a merger, acquisition or
tender offer in which our shareholders could receive a premium for their
shares, or a proxy contest for control of our company or other changes in our
management. See "Description of Capital Stock" for a discussion of these
provisions.
11
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to our future plans, objectives,
expectations and intentions. These statements may be identified by the use of
words such as "expects," "anticipates," "intends," "plans" and similar
expressions. Our actual results could differ materially from those discussed in
these statements. Factors that could contribute to these differences include
those discussed under "Risk Factors" and elsewhere in this prospectus. The
cautionary statements made in this prospectus should be read as being
applicable to all forward-looking statements wherever they appear in this
prospectus.
12
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 5,300,000 shares of
common stock offered by us at an assumed initial public offering price of
$14.00 per share, after deducting estimated underwriting discounts and
estimated offering expenses, will be approximately $68.3 million. We will not
receive any proceeds from the sale of shares by the selling shareholders if the
underwriters' over-allotment option is exercised. We intend to use
approximately $40.0 million of the net proceeds from the offering to repay
outstanding bank debt under our existing credit agreement with Bank of America,
N.A. This debt consists of a $25.0 million term loan due September 30, 2004 and
a $25.0 million revolving line of credit, under which we have drawn
approximately $15.0 million. Both the term loan and the revolving line of
credit bear interest at a rate of LIBOR as of the date of borrowing plus 1.50%
(currently, 8.14%). The entire amount of debt outstanding under the credit
facility with Bank of America, N.A. was drawn on October 29, 1999, the date of
initial funding, and all of this debt was used to repay other outstanding bank
debt, which bore interest at a higher rate.
The balance of the net proceeds from this offering will be used to pay
amounts due upon the automatic conversion of our preferred stock and for
general corporate purposes. Currently, we have two outstanding series of
preferred stock, Series A 12 1/2% Cumulative Compounding Preferred Stock and
Series B 13 1/2% Cumulative Compounding Preferred Stock. Both outstanding
series of preferred stock were issued as a stock dividend on outstanding shares
of common stock in December 1997. Each share of common stock received one share
of Series A Preferred Stock and one share of Series B Preferred Stock.
Accordingly, all of our preferred shareholders currently own an equal number of
shares of both series. The terms of both series of preferred stock provide that
the shares will automatically convert into a right to receive common stock and
cash upon consummation of this offering. Upon conversion, each preferred
shareholder will receive that number of shares of common stock equal to one-
half of the quotient of (a) the aggregate redemption price of the preferred
stock such shareholder owns plus the full cumulative dividends accrued and
unpaid thereon, divided by (b) the price at which shares are offered to the
public in this offering.
Assuming an initial public offering price of $14.00 per share and that this
offering is completed on or about July 31, 2000, the redemption price of each
share of Series A Preferred Stock, together with accrued and unpaid dividends
thereon, is approximately $2.61, as of July 31, 2000 and the redemption price
of each share of Series B Preferred Stock, plus accrued and unpaid dividends
thereon, is approximately $2.05 as of July 31, 2000. Accordingly, we estimate
that an aggregate of 1,690,002 shares of common stock will be issued upon the
conversion of the 20,303,542 outstanding shares of preferred stock. The number
of shares of common stock which will be outstanding after the offering as
reflected throughout this prospectus includes the issuance of these shares. An
estimated aggregate of $23.7 million of the net proceeds will be used to pay
the cash amount due to the 173 holders of our preferred stock upon conversion.
Pending application of the net proceeds, we intend to invest the net
proceeds in short-term, investment-grade, interest-bearing securities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for additional information
regarding our sources and uses of capital.
13
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DIVIDEND POLICY
We currently intend to retain all future earnings for the operation and
expansion of our business and do not anticipate paying cash dividends on our
common stock in the foreseeable future. We have not paid any cash dividends
since 1992 when dividends were paid in connection with PepsiCo, Inc.'s
acquisition of a controlling interest in us. In 1997, we declared a stock
dividend of one share of Series A 12 1/2% Cumulative Compounding Preferred
Stock and one share of Series B 13 1/2% Cumulative Compounding Preferred Stock
on each outstanding share of our common stock. In November 1998, we effected a
two-for-one forward split of our common stock.
Our credit agreement with Bank of America, N.A. currently prohibits us from
declaring or paying any dividends or other distributions on any shares of our
capital stock other than dividends payable solely in shares of capital stock or
the stock of our subsidiaries. Any payment of cash dividends in the future will
be at the discretion of our board of directors and will depend upon our results
of operations, earnings, capital requirements, contractual restrictions
contained in our credit agreement with Bank of America, N.A., or other
agreements, and other factors deemed relevant by our board.
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<PAGE>
CAPITALIZATION
The following table sets forth at April 2, 2000 our capitalization on an
actual basis and on a pro forma as adjusted basis to reflect the sale of the
shares of common stock offered by us, the exercise of options to purchase
110,696 shares of our common stock by our Chief Executive Officer and President
upon consummation of this offering, the application of the estimated net
proceeds from this offering, including the use of approximately $40.0 million
to repay our bank debt that was outstanding as of April 2, 2000, and the
conversion of our preferred stock into cash and common stock at the public
offering price. This table assumes we will sell 5,300,000 shares of common
stock in this offering at a price per share of $14.00 and is based on the
number of shares of common stock and Class A Preferred Stock outstanding on
April 2, 2000. It excludes 562,001 shares of common stock issuable upon the
exercise of options outstanding at a weighted average exercise price of $5.78
per share. The capitalization information set forth in the table below is
qualified by the more detailed consolidated financial statements and notes
included elsewhere in this prospectus and should be read in conjunction with
those consolidated financial statements and notes.
<TABLE>
<CAPTION>
April 2, 2000
---------------------------------
Pro Forma
Actual As Adjusted
-------------- -----------------
(dollars in thousands, except
share and per share data)
<S> <C> <C>
Cash and cash equivalents.................... $ 3,732 $ 9,335
============== ==============
Long-term debt, including current portion.... $ 40,075 $ 75
Class A Redeemable Preferred Stock:
40,000,000 shares authorized,
20,303,542 shares issued and outstanding,
actual; 40,000,000 shares authorized, no
shares issued and outstanding, pro forma as
adjusted(1)................................. 45,379 --
Shareholders' equity (deficiency):
Common Stock, $ 0.01 par value: 80,000,000
shares authorized, 10,896,686 shares
issued and outstanding, actual; 80,000,000
shares authorized, 17,928,047 shares
issued and outstanding, pro forma as
adjusted.................................. 109 179
Additional paid-in capital................... 102,882 193,794
Accumulated deficit.......................... (113,482) (113,482)
-------------- --------------
Total shareholders' equity (deficiency).. (10,491) 80,491
-------------- --------------
Total capitalization..................... $ 74,963 $ 80,566
============== ==============
</TABLE>
--------
(1) Class A Redeemable Preferred Stock is divided into two series: (a) Series A
12 1/2% Cumulative Compounding Preferred Stock, $0.01 par value, 10,151,775
shares authorized, 10,151,771 shares issued and outstanding; and (b) Series
B 13 1/2% Cumulative Compounding Preferred Stock, $0.01 par value,
10,151,775 shares authorized, 10,151,771 shares issued and outstanding.
Upon consummation of this offering and the application of the net proceeds,
no shares of Class A Redeemable Preferred Stock will be outstanding.
15
<PAGE>
DILUTION
Our net tangible book value as of April 2, 2000, after giving effect to the
automatic conversion of all outstanding shares of our preferred stock into a
right to receive $22.7 million in cash and 1,620,665 shares of common stock as
of such date and the issuance of 110,696 shares of common stock upon the
exercise of options by our Chief Executive Officer and President, was
approximately $12.2 million or $0.97 per share of common stock. Assuming the
sale by us of the 5,300,000 shares offered at an assumed initial public
offering price of $14.00 per share and after deducting estimated underwriting
discounts and estimated offering expenses, and the application of the estimated
net proceeds therefrom, our pro forma net tangible book value as of April 2,
2000 would have been $80.5 million or $4.49 per share of common stock. This
represents an immediate increase in net tangible book value of $3.52 per share
to existing stockholders and an immediate dilution in pro forma net tangible
book value of $9.51 per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $14.00
Net tangible book value per share as of April 2, 2000....... $0.97
Increase in net tangible book value per share attributable
to new investors........................................... 3.52
-----
Pro forma net tangible book value per share after the
offering..................................................... 4.49
------
Dilution per share to new investors....................... $ 9.51
======
</TABLE>
The following table summarizes as of April 2, 2000, on a pro forma basis,
the number of shares of common stock purchased from us, the total consideration
paid to us, and the average price per share paid by existing shareholders and
by the investors purchasing shares of common stock in this offering (before
deducting estimated underwriting discounts and estimated offering expenses):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ -------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders... 12,628,047 70.4% $ 30,673,000 29.3% $ 2.43
New investors........... 5,300,000 29.6 74,200,000 70.7 $14.00
---------- ----- ------------ -----
Total................. 17,928,047 100.0% $104,873,000 100.0%
========== ===== ============ =====
</TABLE>
The tables and calculations above assume no exercise of outstanding options
to purchase 562,001 shares of our common stock at a weighted average exercise
price of $5.78 per share. To the extent these options are exercised, there will
be further dilution to new investors. See "Management--Stock Plans" and note 8
to notes to consolidated financial statements for additional information on our
outstanding options.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated financial and operating data for each of
the five fiscal years in the period ended January 2, 2000 are derived from our
audited consolidated financial statements. The selected consolidated financial
and operating data as of and for the three months ended April 4, 1999 and April
2, 2000 have been derived from our unaudited consolidated financial statements
which, in the opinion of management, reflect all adjustments necessary to
present fairly, in accordance with accounting principles generally accepted in
the United States, the information for those periods. The audited consolidated
financial statements and notes for each of the three fiscal years in the period
ended January 2, 2000, and the report of independent auditors on those years,
are included elsewhere in this prospectus. This selected consolidated financial
and operating data should be read in conjunction with the consolidated
financial statements and notes, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
included elsewhere in this prospectus.
17
<PAGE>
Selected Consolidated Financial and Operating Data
(dollars in thousands, except per share, operating data and footnotes)
<TABLE>
<CAPTION>
Three Months
Fiscal Year Ended
----------------------------------------------------- ------------------
April 4, April 2,
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Restaurant sales....... $155,890 $160,133 $159,391 $165,028 $176,933 $41,438 $47,711
Franchise and other
revenues.............. 620 698 1,025 2,013 2,260 496 555
-------- -------- -------- -------- -------- ------- -------
Total revenues....... 156,510 160,831 160,416 167,041 179,193 41,934 48,266
Costs and expenses:
Cost of sales.......... 41,170 43,647 43,361 43,201 44,740 10,399 11,799
Labor.................. 59,811 57,796 57,321 58,547 63,701 14,960 17,086
Direct operating and
occupancy............. 37,183 36,633 36,481 34,171 35,848 8,497 9,582
-------- -------- -------- -------- -------- ------- -------
Total restaurant
operating costs..... 138,164 138,076 137,163 135,919 144,289 33,856 38,467
General and
administrative........ 12,769 15,722 15,896 13,890 13,123 3,250 3,550
Depreciation and
amortization.......... 14,762 9,944 7,807 7,543 8,234 2,065 2,289
Pre-opening............ -- 279 445 234 763 -- 136
Loss on impairment of
property and
equipment and
restaurant closures... 15,453 280 9,604 85 200 -- 1,839
-------- -------- -------- -------- -------- ------- -------
Operating income
(loss)................. (24,638) (3,470) (10,499) 9,370 12,584 2,763 1,985
Other income (expense):
Insurance gain and
bank financing fees... 973 277 -- -- (998) -- --
Interest expense....... (6,885) (3,297) (930) (3,956) (3,415) (968) (761)
-------- -------- -------- -------- -------- ------- -------
Total other income
(expense), net...... (5,912) (3,020) (930) (3,956) (4,413) (968) (761)
-------- -------- -------- -------- -------- ------- -------
Income (loss) before
income tax benefit
(provision)............ (30,550) (6,490) (11,429) 5,414 8,171 1,795 1,224
Income tax benefit
(provision)............ (51) 514 (251)(1) 5,139(2) (2,772) (611) (428)
-------- -------- -------- -------- -------- ------- -------
Net income (loss)....... (30,601) (5,976) (11,680) 10,553 5,399 1,184 796
Redeemable preferred
stock dividend(3)...... -- -- (33,783) -- -- -- --
Redeemable preferred
stock accretion........ -- (2,626) -- (4,478) (5,147) (1,259) (1,458)
-------- -------- -------- -------- -------- ------- -------
Net income (loss)
attributable to common
shareholders(4)(6)..... $(30,601) $ (8,602) $(45,463) $ 6,075 $ 252 $ (75) $ (662)
======== ======== ======== ======== ======== ======= =======
Net income (loss) per
common share(4)(5):
Basic.................. $ 0.60 $ 0.02 $ (0.01) $ (0.06)
Diluted................ $ 0.58 $ 0.02 $ (0.01) $ (0.06)
Shares used in computing
net income (loss) per
common share (in
thousands)(5):
Basic.................. 10,113 10,800 10,753 10,897
Diluted................ 10,528 11,168 11,121 11,216
Pro Forma Data(7)(8):
Net income attributable
to common
shareholders........... $ 8,253 $ 1,437
Net income per common
share:
Basic.................. $ 0.47 $ 0.08
Diluted................ $ 0.46 $ 0.08
Shares used in computing
net income per common
share (in thousands):
Basic.................. 17,595 17,876
Diluted................ 17,926 18,207
Selected Operating Data:
System-wide restaurants
open at end of period.. 80 90 96 90 97
Company-owned
restaurants open at end
of period.............. 66 67 70 66 71
Average weekly company-
owned restaurant
sales.................. $ 43,514 $ 47,490 $ 49,490 $47,755 $51,692
Comparable company-owned
restaurant sales
increase(9)............ 0.6% 6.1% 4.1% 6.2% 6.8%
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Three Months
Fiscal Year Ended
----------------------------------------------- ------------------
April 4, April 2,
1995 1996 1997 1998 1999 1999 2000(10)
-------- -------- -------- -------- ------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $ 1,774 $ 4,143 $ 5,455 $ 14,553 $ 5,686 $ 3,732 $ 9,335
Total assets............ 110,414 104,953 82,915 96,155 94,750 92,291 97,894
Total debt, including
current portion........ 115,928 192 47,157 45,385 40,085 40,075 75
Redeemable preferred
stock.................. -- 118,791 33,783 38,774 43,921 45,379 --
Shareholders' equity
(deficiency)........... (33,591) (39,567) (16,840) (10,439) (9,829) (10,491) 80,491
</TABLE>
--------
(1) Net loss for 1997 was unfavorably impacted by the recordation of a $7.6
million deferred tax asset valuation allowance. We recorded the valuation
allowance in 1997 due to uncertainty at the time of our ability to realize
the benefit of the net deferred tax asset.
(2) Net income for 1998 was favorably impacted by the reversal of a $7.6
million deferred tax asset valuation allowance that was previously provided
for in 1997. We eliminated the valuation allowance in 1998 due to our
belief that current year activity made realization of this benefit more
likely than not.
(3) In 1997, we declared a redeemable preferred stock dividend payable to our
common shareholders.
(4) Net income (loss) attributable to common shareholders includes the effect
of the accretion of the liquidation preference on the redeemable preferred
stock which reduces net income or increases net loss attributable to common
shareholders for the relative periods.
(5) See notes 2 and 9 of notes to audited consolidated financial statements for
an explanation of the method used to calculate the net income (loss) per
common share and shares used in computing net income (loss) per common
share, basic and diluted.
(6) Net income for 1998 was favorably impacted by the reversal of a $7.6
million deferred tax asset valuation allowance. Assuming an effective tax
rate of 33.9%, consistent with fiscal year 1999, net income would have been
$3.6 million before redeemable preferred stock accretion.
(7) Pro forma net income attributable to common shareholders for fiscal 1999 is
the result of the elimination of $2.3 million in interest expense, net of
taxes, related to the repayment of bank debt, the elimination of annual
compensation expense of $595,000, net of taxes, due to the amendment of our
co-founders' employment agreements, and the elimination of $5.1 million in
preferred stock accretion upon the automatic conversion of our preferred
stock. Pro forma net income attributable to common shareholders for the
first three months of 2000 is the result of the elimination of $495,000 in
interest expense, net of taxes, related to the repayment of bank debt, the
elimination of annual compensation expense of $146,000, net of taxes, due
to the amendment of our co-founders' employment agreements, and the
elimination of $1.5 million in preferred stock accretion upon the automatic
conversion of our preferred stock.
(8) Pro forma information gives effect, as of the beginning of each period, to
the sale of 5,300,000 shares of common stock offered by us in this
offering, the conversion of all outstanding shares of our preferred stock
into 1,384,784 shares of common stock as of the beginning of 1999 and
1,568,619 shares of common stock as of the beginning of the three month
period ended April 2, 2000, and the issuance of 110,696 shares of our
common stock upon the exercise of options held by our Chief Executive
Officer and President.
(9) Company-owned restaurants are included in the computation of comparable
restaurant sales after they have been open 12 months.
(10) Reflects our receipt of estimated net proceeds of $68.3 million from the
sale of 5,300,000 shares of common stock offered by us at an assumed
initial public offering price of $14.00 per share, net of estimated
underwriting discounts and estimated offering expenses, the conversion of
all outstanding shares of our preferred stock, as of April 2, 2000, into a
right to receive an estimated aggregate of $22.7 million in cash and
1,620,665 shares of common stock, the issuance of 110,696 shares of common
stock upon the exercise of options held by our Chief Executive Officer and
President, and the repayment of $40.0 million in bank debt that was
outstanding as of April 2, 2000.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
California Pizza Kitchen is a leading casual dining restaurant chain in the
premium pizza segment with a recognized consumer brand and an established,
loyal customer base. We currently own, license or franchise 104 upscale, casual
dining restaurants in 21 states, the District of Columbia, Guam and three
foreign countries, of which 74 are company-owned and 30 operate under franchise
or license arrangements. During our 15 years of operating history, we believe
we have developed strong brand awareness and demonstrated the appeal of our
concept in a wide variety of geographic areas. Our concept was, and remains, to
take our customers' favorite food cravings and put them on a pizza--to
figuratively put the world on a pizza.
We opened our first casual dining restaurant in 1985 in Beverly Hills,
California and grew steadily to 25 restaurants by early 1992. Our concept, with
its signature line of innovative, premium pizzas, open-flame ovens in
exhibition-style kitchens and excellent guest service, attracted PepsiCo, Inc.
which bought a controlling interest in our company in May 1992.
During the approximately five-year period when PepsiCo was our controlling
shareholder, we opened 60 restaurants, 16 of which have subsequently been
closed. We experimented with different locations and different restaurant
sizes, ranging from 3,600 square feet to more than 11,000 square feet. Our
rapid expansion strained our infrastructure, resulted in a variety of
management and operational changes, diverted our attention from the execution
of our concept and led to disappointing operating results and financial
performance, including a decline in comparable restaurant sales in 1996.
At the end of 1996, PepsiCo concluded that it would sell or otherwise divest
all of its restaurant businesses, including California Pizza Kitchen. In
September 1997, we consummated a series of transactions to effect a merger and
leveraged recapitalization through which an investor group led by Bruckmann,
Rosser, Sherrill & Co., L.P. acquired a 67.4% interest in our company. Under
the terms of the merger and leveraged recapitalization agreements, PepsiCo
contributed all of its shares of Class A Common Stock to us and converted all
of its redeemable preferred stock and Class B Common Stock into a right to
receive a cash payment of approximately $60.0 million. The holders of our
outstanding shares of Class A Common Stock received merger consideration
consisting of cash and shares of our new common stock in exchange for their
shares of our old Class A Common Stock, which were then canceled. Immediately
after giving effect to the recapitalization, there were 10,000,001 shares of
common stock outstanding and no shares of preferred stock (we subsequently
effected a two-for-one forward stock split of our common stock in November
1998). As a result of the recapitalization, PepsiCo retained no ownership
interest in our company, although it did retain four under-performing
restaurants which were subsequently closed, and assumed some of the obligations
and liabilities of six other restaurants that had closed prior to the
completion of the merger and leveraged recapitalization. As a result of
PepsiCo's retention of these restaurants and other liabilities, our financial
position was materially improved.
Since the recapitalization, we have hired new management, who, in
conjunction with our co-founders, refocused our efforts on improving food
quality, customer service, and the overall dining experience at our
restaurants. Our new management team, led by Frederick R. Hipp, Chief Executive
Officer and President, H. G. Carrington, Jr., Executive Vice President and
Chief Financial Officer, and Frederick F. Wolfe, Senior Vice President
Operations, reorganized our operations and developed a new business strategy.
Initiatives put in place included increasing the size of our pizzas by 17% and
the size of our pasta portions by 25%, without increasing prices, to enhance
the price-to-value relationship of our core menu offerings, and reducing the
number of tables assigned per server to improve the overall customer
experience. Since the beginning of 1998, we have introduced 17 new menu items,
improved the quality of many of our ingredients, and introduced a new, updated
decor package for our new and remodeled restaurants. We believe these
initiatives, coupled with our innovative food and average guest check of
approximately $10.50, provide an excellent dining value and have
20
<PAGE>
contributed to our company-owned comparable restaurant sales growth of 6.1% in
1998, 4.1% in 1999 and 6.8% through the first three months of 2000.
Our new management team was able to fund these initiatives while still
improving our operating margins by realizing various operating and purchasing
efficiencies. Specifically, we instituted real-time reporting requirements,
significantly reduced our food costs by negotiating improved terms under our
purchasing contracts, and substantially reduced general and administrative
expenses by rationalizing our corporate office structure. These initiatives
have resulted in improved profitability as evidenced by an improvement in our
restaurant level cash flow margins from 13.9% in 1997, to 17.6% in 1998, 18.4%
in 1999 and 19.4% in the first three months of 2000.
We have instituted an accelerated, but disciplined, growth plan, focused
largely on further penetrating our existing markets. Since the beginning of
1998, we have opened ten new company-owned, full service restaurants. In 1999,
we hired a Senior Vice President and Chief Development Officer with more than
ten years of restaurant real estate experience to spearhead our expansion
efforts. We plan to add ten additional company-owned restaurants in 2000, three
of which we have already opened. We have five company-owned restaurants under
construction and have signed leases covering the two remaining restaurants we
plan to open in 2000. Our new restaurants typically experience lower operating
margins in their first few months of operation due to operational
inefficiencies, but are expected to achieve a level of operating performance
similar to those of our mature restaurants after 90 days.
In the second quarter of 2000, assuming an initial public offering price of
$14.00 per share, we will take a one-time charge of approximately $1.8 million
related to the prior grant of performance options to Frederick R. Hipp. With
the filing of this registration statement, it becomes more likely than not that
Mr. Hipp's performance options will become exercisable, which requires the
charge for variable plan accounting purposes.
Our revenues are comprised of restaurant sales, franchise royalties and
other income. Our restaurant sales are comprised almost entirely of food and
beverage sales. In 1999 and for the first three months of 2000, alcohol sales
represented 5.3% of restaurant sales. Our franchise royalties and other
revenues consist primarily of monthly royalty income and initial franchise
fees.
Cost of sales is composed of food, beverage and paper supply expenses. The
components of costs of sales are variable and increase with sales volume. Labor
costs include direct hourly and management wages, bonuses, taxes and benefits
for restaurant employees. Direct and occupancy costs generally increase with
sales volume but decline as a percentage of restaurant sales. Direct and
occupancy costs include restaurant supplies, marketing costs, fixed rent,
percentage rent, common area maintenance charges, utilities, real estate taxes,
repairs and maintenance and other related costs.
General and administrative costs include all corporate and administrative
functions that support existing operations and provide infrastructure to
facilitate our future growth. Components of this category include management,
supervisory and staff salaries and related employee benefits, travel,
information systems, training, corporate rent and professional and consulting
fees. Depreciation and amortization principally includes depreciation on
capital expenditures for restaurants. Pre-opening costs, which are expensed as
incurred, consist of the costs of hiring and training the initial work force,
travel, the cost of food used in training, marketing costs, the cost of the
initial stocking of operating supplies and other direct costs related to the
opening of a new restaurant.
In calculating company-owned comparable restaurant sales, we include a
restaurant in the comparable base once it has been open for 12 months. As of
April 2, 2000, we had 66 company-owned restaurants which met this criteria.
21
<PAGE>
Results of operations
Our operating results for 1997, 1998 and 1999 and for the three months ended
April 4, 1999 and April 2, 2000 are expressed as a percentage of revenues
below, except for restaurant operating costs and expenses, which are expressed
as a percentage of restaurant sales:
<TABLE>
<CAPTION>
Three Months
Fiscal Year Ended
-------------------- -----------------
April 4, April 2,
1997 1998 1999 1999 2000
----- ----- ----- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Restaurant sales..................... 99.4% 98.8% 98.7% 98.8% 98.9%
Franchise and other revenues......... 0.6 1.2 1.3 1.2 1.1
----- ----- ----- ----- -----
Total revenues..................... 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Cost of sales........................ 27.2 26.2 25.3 25.1 24.7
Labor................................ 36.0 35.5 36.0 36.1 35.8
Direct operating and occupancy....... 22.9 20.7 20.3 20.5 20.1
----- ----- ----- ----- -----
Total restaurant operating costs... 86.1 82.4 81.6 81.7 80.6
General and administrative........... 9.9 8.3 7.3 7.8 7.4
Depreciation and amortization........ 4.9 4.5 4.6 4.9 4.7
Pre-opening.......................... 0.3 0.1 0.4 -- 0.3
Loss on impairment of property and
equipment and restaurant closures... 6.0 0.1 0.1 -- 3.8
----- ----- ----- ----- -----
Operating income (loss)................ (6.5) 5.6 7.0 6.6 4.1
Other income (expense):
Bank financing fees.................. -- -- (0.6) -- --
Interest expense..................... (0.6) (2.4) (1.9) (2.3) (1.6)
----- ----- ----- ----- -----
Total other income (expense), net.. (0.6) (2.4) (2.5) (2.3) (1.6)
Income (loss) before income tax benefit
(provision)........................... (7.1) 3.5 4.6 4.3 2.5
Income tax benefit (provision)......... (0.2) 3.1 (1.5) (1.5) (0.9)
----- ----- ----- ----- -----
Net income (loss)...................... (7.3)% 6.3% 3.0% 2.8% 1.6%
===== ===== ===== ===== =====
</TABLE>
Three months ended April 2, 2000 compared to three months ended April 4, 1999
Total revenues. Total revenues increased by $6.3 million, or 15.2%, to $48.3
million in the first three months of 2000 from $41.9 million in the first three
months of 1999 due to a $6.3 million increase in restaurant sales and a $59,000
increase in franchise and other revenues. The increase in restaurant sales was
due to $3.5 million in sales from a full three months of operations for the
five restaurants that opened in 1999, $642,000 in sales derived from the
consolidation of our limited partnership restaurant and $2.7 million from
comparable restaurant sales increases of 6.8%. This increase in restaurant
sales was offset by the loss of revenue from two restaurants that closed in
1999. The increase in comparable restaurant sales was driven by increases in
customer counts of approximately 4.7% and increases in the average guest check
of approximately 2.1% compared to the first three months of 1999. Approximately
one-half of the increase in the average guest check was due to price increases
taken in 1999 and the remainder was due to modest shifts in our menu mix.
Franchise and other revenue growth was due primarily to a full three months of
operations for the seven new franchise restaurants that opened in 1999.
Cost of sales. Cost of sales increased by $1.4 million, or 13.5%, to $11.8
million for the first three months of 2000 from $10.4 million for the first
three months of 1999. Cost of sales as a percentage of restaurant sales
decreased to 24.7% for the first three months of 2000 from 25.1% in the prior
period. This reduction was primarily a result of lower commodity costs in
produce and dairy compared to 1999 and increased operational efficiency.
22
<PAGE>
Labor. Labor increased by $2.1 million, or 14.2%, to $17.1 million for the
first three months of 2000 from $15.0 million for the first three months of
1999. Labor as a percentage of restaurant sales decreased to 35.8% for the
first three months of 2000 from 36.1% for the prior period. The decrease in
labor was primarily due to lower restaurant level management wages as a
percentage of sales resulting from higher weekly restaurant sales. Hourly labor
as a percentage of sales increased to 21.3% for the first three months of 2000
from 21.2% of sales for the prior period.
Direct operating and occupancy. Direct operating and occupancy increased by
$1.1 million, or 12.8%, to $9.6 million for the first three months of 2000 from
$8.5 million for the first three months of 1999. Direct operating and occupancy
as a percentage of restaurant sales decreased to 20.1% for the first three
months of 2000 from 20.5% from the prior period. The reduction was due
primarily to higher net sales spread over relatively fixed restaurant level
operating expenses.
General and administrative. General and administrative increased by
$300,000, or 9.2%, to $3.6 million for the first three months of 2000 from $3.3
million for the first three months of 1999. General and administrative as a
percentage of total revenues decreased to 7.4% for the first three months of
2000 from 7.8% for the prior period. The dollar increase in general and
administrative was primarily a result of higher travel and moving expenses
related to manager relocations for our new restaurants and higher personnel
costs related to new management positions. The decrease as a percentage of
sales was due to the relatively fixed nature of many of our general and
administrative expenses.
Depreciation and amortization. Depreciation and amortization increased
$224,000, or 10.9%, to $2.3 million for the first three months of 2000 from
$2.1 million for the first three months of 1999. The increase was primarily due
to the additional depreciation on the five new restaurants opened during 1999
and depreciation related to our new point of sales system that was implemented
in all restaurants during fiscal year 1999.
Pre-opening. Pre-opening was $136,000 for the first three months of 2000,
and related to the three new restaurants that opened in April 2000. In 1999 we
did not open our first restaurant until the end of May and therefore did not
incur pre-opening expenses until the second quarter.
Loss on impairment of property and equipment and restaurant closures. Loss
on impairment of property and equipment and restaurant closures was $1.8
million in the first three months of 2000 related to the write-down of one
restaurant in accordance with Financial Accounting Standards No. 121. In 1999
we did not write-down any of our restaurants.
Interest expense. Interest expense decreased by $207,000, or 21.4%, to
$761,000 for the first three months of 2000 from $968,000 for the first three
months of 1999. The decrease was primarily a result of a lower debt balance due
to payments made under our credit facility and a lower interest rate due to our
new credit facility that was put in place in October 1999.
Income tax benefit (provision). The income tax benefit (provision) for the
first three months of 2000 and 1999 was based on annual effective tax rates
applied to the income (loss) before income tax benefit (provision). The 35.0%
tax rate applied to the first three months of 2000 comprises the federal and
state statutory rates based on the annual estimated effective tax rate for
2000. The 33.9% tax rate applied to the first three months of 1999 comprises
the federal and state statutory rates based on the annual estimated effective
tax rate for 1999.
Net income (loss). Net income decreased by $388,000, or 32.8%, to $796,000
for the first three months of 2000 from $1.2 million for the first three months
of 1999. Net income as a percentage of revenues decreased to 1.6% for the first
three months of 2000 from 2.8% in the prior period. The decrease was due to the
$1.8 million write-down of one restaurant in accordance with Financial
Accounting Standards No. 121.
23
<PAGE>
1999 (52 weeks) compared to 1998 (53 weeks)
Total revenues. Total revenues increased by $12.2 million, or 7.3%, to
$179.2 million in 1999 from $167.0 million in 1998 due to an $11.9 million
increase in restaurant sales and a $247,000 increase in franchise and other
revenues. The increase in restaurant sales was due to $3.1 million in sales
from a full year of operations for the two restaurants that opened in 1998,
$7.3 million in sales derived from the five restaurants opened in 1999, and
$6.5 million from comparable restaurant sales increases of 4.1%. This increase
in restaurant sales was offset by two restaurant closures in 1999 and one
restaurant closure in 1998, plus the impact of one additional week of sales in
1998 which contributed $3.4 million of revenue in 1998. The increase in
comparable restaurant sales was driven by an increase in customer counts of
approximately 1.9% and an increase in the average guest check of approximately
2.2% compared to 1998. The increase in average guest check was primarily due to
price increases implemented in 1998 and 1999. Franchise and other revenue
growth was due to seven new franchise restaurants that opened in 1999 and a
full year of operations for the 12 franchise restaurants that opened in 1998.
Cost of sales. Cost of sales increased by $1.5 million, or 3.6%, to $44.7
million in 1999 from $43.2 million in 1998. Cost of sales as a percentage of
restaurant sales decreased to 25.3% in 1999 from 26.2% in 1998. This reduction
was primarily a result of lower commodity costs in 1999 compared to 1998 and
management's ongoing effort to reduce the cost of food products and improve
margins.
Labor. Labor increased by $5.2 million, or 8.8%, to $63.7 million in 1999
from $58.5 million in 1998. Labor as a percentage of restaurant sales increased
to 36.0% in 1999 from 35.5% in 1998. The increase in labor was primarily due to
higher restaurant level management wages as a result of our ongoing initiative
to reduce management turnover. Hourly labor as a percentage of sales remained
constant at 21.7% in 1999 and 1998.
Direct operating and occupancy. Direct operating and occupancy increased by
$1.7 million, or 4.9%, to $35.8 million in 1999 from $34.1 million in 1998.
Direct operating and occupancy as a percentage of restaurant sales decreased to
20.3% in 1999 from 20.7% in 1998. The reduction was due primarily to higher net
sales spread over relatively fixed restaurant level operating expenses.
General and administrative. General and administrative decreased by
$767,000, or 5.5%, to $13.1 million in 1999 from $13.9 million in 1998. General
and administrative as a percentage of total revenues decreased to 7.3% in 1999
from 8.3% in 1998. The decrease was primarily a result of improved cost
management initiatives related to certain insurance programs.
Depreciation and amortization. Depreciation and amortization increased
$691,000, or 9.2%, to $8.2 million in 1999 from $7.5 million in 1998. The
increase was primarily due to the additional depreciation on the two new
restaurants opened during the second half of 1998 and the five new restaurants
opened in 1999.
Pre-opening. Pre-opening increased by $529,000 to $763,000 in 1999 from
$234,000 in 1998. The increase was due to the five new restaurants opened in
1999 compared to only two restaurants opened in 1998.
Loss on impairment of property and equipment and restaurant closures. Loss
on impairment of property and equipment and restaurant closures increased by
$115,000 to $200,000 in 1999 from $85,000 in 1998. The increase was due to the
write off of our old point of sale system. In 1999 we implemented new point of
sale systems in all of our restaurant locations.
Bank financing fees. Bank financing fees of $1.0 million represents the
unamortized costs relating to our prior credit agreement, which were written
off when we refinanced our senior credit facility in 1999.
Interest expense. Interest expense decreased by $541,000, or 13.7%, to $3.4
million in 1999 from $3.9 million in 1998. The decrease was primarily a result
of a lower debt balance due to payments made under our credit facility and
higher interest earning cash balances.
24
<PAGE>
Income tax benefit (provision). The income tax benefit (provision) in 1999
and 1998 was based on annual effective tax rates applied to the income (loss)
before income tax benefit (provision). The effective tax rate was 33.9% in
1999. In 1998, the income tax benefit differs from the expected income tax
provision derived by applying the effective tax rate as a result of an
offsetting reduction in the previously provided deferred income tax asset
valuation allowance of $7.6 million.
Net income (loss). Net income decreased by $5.2 million, or 49.0%, to $5.4
million in 1999 from $10.6 million in 1998. Net income as a percentage of
revenues decreased to 3.0% in 1999 from 6.3% in 1998. The decrease was due to
the income tax benefit received in 1998 as a result of the reduction in the
previously provided deferred income tax asset valuation allowance of $7.6
million in 1998.
1998 (53 weeks) compared to 1997 (52 weeks)
Total revenues. Total revenues increased by $6.6 million, or 4.1%, to $167.0
million in 1998 from $160.4 million in 1997. The one additional week of
operations in 1998, contributed $3.5 million of the increased revenue in 1998,
of which $3.4 million came from increased restaurant sales. The remainder of
the increase in revenues was primarily attributable to a $2.1 million increase
in restaurant sales and a $1.0 million increase in franchise and other
revenues. The increase in restaurant sales was primarily attributable to
comparable restaurant sales' increases of $9.2 million, or 6.1%, offset by the
closure of three restaurants and the conversion of four restaurants to licensed
locations in connection with the merger and leveraged recapitalization. The
increase in comparable restaurant sales was driven by increases in customer
counts of approximately 3.0% and an increase in average guest check of
approximately 3.1% in 1998. Most of the increase in the average guest check was
due to price increases taken in 1998. Franchise revenue growth was due to 12
new franchise restaurants that opened in 1998 and a full year of operations for
the three franchise restaurants that opened in 1997.
Cost of sales. Cost of sales decreased by $160,000, or 0.4%, to $43.2
million in 1998 from $43.4 million in 1997. Cost of sales as a percentage of
restaurant sales decreased to 26.2% in 1998 from 27.2% in 1997. This reduction
was a result of management's effort to reduce the cost of food products and
improve margins through the renegotiation of many of our food vendor contracts.
Labor. Labor increased by $1.2 million, or 2.1%, to $58.5 million in 1998
from $57.3 million in 1997 primarily due to one additional week of operations
in 1998. Labor as a percentage of restaurant sales decreased to 35.5% in 1998
from 36.0% in 1997. The decrease in labor as a percentage of restaurant sales
was primarily due to improvements in the management of hourly labor, which
decreased to 21.7% of restaurant sales in 1998 from 22.1% in 1997. Management
labor as a percentage of restaurant sales decreased to 7.4% in 1998 from 7.6%
in 1997, primarily as a result of increased restaurant efficiencies and higher
net sales.
Direct operating and occupancy. Direct operating and occupancy decreased by
$2.3 million, or 6.3%, to $34.2 million in 1998 from $36.5 million in 1997.
Direct operating and occupancy as a percentage of restaurant sales decreased to
20.7% in 1998 from 22.9% in 1997. The reduction was due primarily to higher net
sales spread over relatively fixed restaurant operating expenses and the
closure of three restaurants and the conversion of four restaurants to licensed
locations in connection with the merger and leveraged recapitalization.
General and administrative. General and administrative decreased by $2.0
million, or 12.6%, to $13.9 million in 1998 from $15.9 million in 1997. General
and administrative as a percentage of total revenues decreased to 8.3% in 1998
from 9.9% in 1997. The decrease was primarily a result of improved cost
management in legal and consulting expenses of $840,000 and reduced travel and
entertainment costs of $700,000.
Depreciation and amortization. Depreciation and amortization decreased by
$264,000, or 3.4%, to $7.5 million in 1998 from $7.8 million in 1997. The
decrease was primarily due to the write-down of 12 restaurant locations in 1997
in accordance with Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 121.
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Pre-opening. Pre-opening decreased by $211,000, or 47.4%, to $234,000 in
1998 from $445,000 in 1997. The decrease was due to a more disciplined approach
to managing pre-opening expenses implemented by our new management team for the
two restaurants we opened in 1998 compared to the two restaurants we opened in
1997.
Loss on impairment of property and equipment and restaurant closures. Loss
on impairment of property and equipment and restaurant closures decreased by
$9.5 million to $85,000 in 1998 from $9.6 million in 1997. The decrease was due
to the reserve for restaurant closure expenses related to one restaurant
recognized in 1998 compared to the write-down of 12 restaurant locations in
1997 in accordance with Financial Accounting Standards No. 121.
Interest expense. Interest expense increased by $3.0 million to $4.0 million
in 1998 from $930,000 in 1997. The increase was a result of a full year of
interest related to the borrowings incurred as of September 30, 1997 in
connection with the merger and leveraged recapitalization transaction.
Income tax benefit (provision). The income tax provision in 1998 and 1997
was based on annual effective tax rates applied to the income (loss) before
income tax benefit (provision). In 1998, the income tax benefit differs from
the expected provision for income taxes derived by applying the effective tax
rate as a result of an offsetting reduction in the previously provided deferred
income tax asset valuation allowance of $7.6 million. Prior to the merger and
leveraged recapitalization in 1997, income taxes were filed on a consolidated
basis with PepsiCo under a tax sharing agreement. Subsequent to the merger and
leveraged recapitalization, the income tax provision in 1997 was adjusted
because we established a valuation allowance equal to the net deferred tax
asset. The valuation allowance was recorded due to uncertainty at the time of
our ability to realize the benefit of the net deferred tax asset. In 1998, the
valuation allowance was reduced as it became more likely than not that the
benefit of the deferred tax asset would be realized based on our results of
operations.
Net income (loss). Net income increased by $22.2 million to $10.6 million in
1998 from a loss of $11.7 million in 1997. Net income as a percentage of
revenues increased to 6.3% in 1998 from a negative 7.3% in 1997. The increase
was due to the factors described above.
Potential fluctuations in quarterly results and seasonality
Our quarterly operating results may fluctuate significantly as a result of a
variety of factors, including the timing of new restaurant openings and related
expenses, profitability of new restaurants, increases or decreases in
comparable restaurant sales, general economic conditions, consumer confidence
in the economy, changes in consumer preferences, competitive factors, changes
in food costs, changes in labor costs, and weather conditions. In the past we
have experienced significant variability in pre-opening costs from quarter to
quarter. These fluctuations are primarily a function of the timing of
restaurant openings. We typically incur the most significant portion of pre-
opening costs associated with a given restaurant within the one month
immediately preceding, and the month of, the opening of a restaurant. In
addition, our experience to date has been that labor and direct operating and
occupancy costs associated with a newly opened restaurant for the first three
months of operation are often materially greater than what will be expected
after that time, both in aggregate dollars and as a percentage of restaurant
sales. Accordingly, the volume and timing of new restaurant openings in any
quarter has had and is expected to continue to have a significant impact on
quarterly pre-opening costs and labor and direct operating and occupancy costs.
As a result of our plans to open new restaurants at an accelerated pace, we
anticipate that we will experience significantly increased pre-opening costs,
labor and direct operating and occupancy costs in 2000.
Our business is also subject to seasonal fluctuations. Historically, sales
in most of our restaurants have been higher during the summer months and winter
holiday season. As a result, we expect our highest earnings to occur in those
periods. As a result of all of these factors, results of any one quarter are
not necessarily indicative of the results to be expected for any other quarter
or for any year.
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Liquidity and capital resources
In recent years we have funded our capital requirements through cash flow
from operations. In 1997, in order to fund the merger and leveraged
recapitalization, Bruckmann, Rosser, Sherrill & Co., L.P. and its co-investors
made a $25.0 million capital contribution to us and we entered into a $57.0
million credit facility, of which $49.0 million was drawn.
For the first three months of 2000, net cash flows from operating activities
were $2.2 million. Net cash flows from operating activities decreased from
$15.0 million in 1998 to $13.6 million in 1999. The decrease from 1998 to 1999
was primarily due to the reduction of certain current liabilities partially
offset by an increase in prepaid expenses and other current assets.
For the first three months of 2000, net cash used in investing activities
was $4.3 million. Net cash used in investing activities was $5.0 million in
1998 and $17.3 million in 1999. The increase from 1998 to 1999 was primarily
due to the increase in the number of restaurant openings from two in 1998 to
five in 1999. In addition, we spent approximately $3.3 million for our new
point of sale system which was installed in all of our restaurants in 1999. We
opened our first three new restaurants of 2000 in April and anticipate opening
another seven restaurants this year. Capital expenditures consist primarily of
construction of new restaurants and remodels of existing restaurants. In 1998,
we incurred capital expenditures of approximately $7.5 million, of which $3.1
million was spent on new restaurants opened in 1998 and $2.2 million was spent
on remodels. In 1999 we spent approximately $17.3 million on capital
expenditures, of which approximately $7.7 million was spent on new restaurants
opened in 1999, $2.1 million was spent on remodels and $3.3 million was spent
on our new point of sales system. Total capital expenditures for 2000 are
expected to be approximately $20.0 million, including $12.0 million which we
expect to invest in the opening of new restaurants and $6.0 million which we
expect to spend on remodels. Our capital expenditures for 1997 through 1999
were financed through internally generated funds and we expect our capital
expenditures for 2000 to be financed through internally generated funds and the
proceeds of this offering.
For the first three months of 2000, cash used in financing activities was
$9,000. Net cash used in financing activities increased from $1.0 million in
1998 to $5.2 million in 1999. The increase from 1998 to 1999 was due to an
increase in payments on debt incurred in connection with the merger and
leveraged recapitalization transaction. On September 30, 1997, we entered into
a $57.0 million credit facility, a portion of which was used to fund the merger
and leveraged recapitalization transaction. On October 29, 1999, we repaid all
borrowings under that facility and replaced it with a new credit facility led
by Bank of America, N.A. The new credit facility consists of a $25.0 million
term loan and a $25.0 million revolving line of credit, of which we have drawn
$15.0 million. Both the term loan and the revolving line of credit currently
bear interest at a rate of LIBOR as of the date of borrowing plus 1.50%
(currently, 8.14%). Under the terms of the credit agreement, the term loan must
be repaid upon consummation of this offering. We also currently intend to repay
all amounts outstanding under the revolving line of credit using proceeds from
this offering.
We believe that the proceeds from this offering, together with anticipated
cash flows from operations and funds anticipated to be available from our
credit facility, will be sufficient to satisfy our working capital and capital
expenditures requirements for at least the next twelve months. Changes in our
operating plans, acceleration of our expansion plans, lower than anticipated
sales, increased expenses or other events may cause us to seek additional
financing sooner than anticipated. Additional financing may not be available on
acceptable terms, or at all. Failure to obtain additional financing as needed
could have a material adverse effect on our business and results of operations.
Quantitative and qualitative disclosures about market risk
Our market risk exposures are related to our cash and cash equivalents. We
invest our excess cash in investment grade, highly liquid investments,
consisting of money market instruments, bank certificates of deposit and short-
term investments in commercial paper. We anticipate investing our net proceeds
from this
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offering in similar investment grade and highly liquid investments pending
their use as described in this prospectus. We do not feel these investments are
subject to significant market risk. We have no derivative financial instruments
or derivative commodity investments in our cash and cash equivalents and
investments.
Under our revolving credit facility, we will be exposed to market risk from
changes in interest rates on borrowings which bear interest at the lending
bank's reference rate or LIBOR plus a fixed percentage. Because we do not
believe that the amount of borrowings under the revolving line of credit will
be material to our operations, we do not believe this risk will be material.
Primarily all of our transactions are conducted, and our accounts are
denominated, in United States dollars. Accordingly, we are not exposed to
foreign currency risk.
Many of the food products purchased by us are affected by commodity pricing
and are, therefore, subject to price volatility caused by weather, production
problems, delivery difficulties and other factors which are outside our
control. We believe that substantially all of our food and supplies are
available from several sources, which helps to control food commodity risk. We
believe we have the ability to increase menu prices, or vary the menu items
offered, if needed in response to a food product price increase.
Inflation
The primary inflationary factors affecting our operations are food and labor
costs. A large number of our restaurant personnel are paid at rates based on
the applicable minimum wage, and increases in the minimum wage directly affect
our labor costs. Many of our leases require us to pay taxes, maintenance,
repairs, insurance and utilities, all of which are generally subject to
inflationary increases. We believe inflation has not had a material impact on
our results of operations in recent years.
Preferred stock accretion
In December 1997, we issued an aggregate of 10,000,001 shares of Series A 12
1/2% Cumulative Compounding Preferred Stock and 10,000,001 shares of Series B
13 1/2% Cumulative Compounding Preferred Stock as a stock dividend on our
outstanding shares of common stock. In 1998, we sold an additional
151,769 shares of our Series A Preferred Stock and 151,769 shares of our Series
B Preferred Stock at $1.91 and $1.47 per share, respectively. The Series A
Preferred Stock is entitled to receive cash dividends of $0.2387 per annum and
all dividends are cumulative, whether or not declared. Unpaid dividends accrue
interest at 14.5% annually. The Series B Preferred Stock is entitled to receive
cash dividends of $0.1983 per annum and all dividends are cumulative, whether
or not declared. Unpaid dividends accrue interest at 15.5% annually. We may
redeem the Series A and Series B Preferred Stock at a price equal to their
liquidation value plus any unpaid and accrued dividends. There was no dividend
accretion on the Series A and Series B Preferred Stock in 1997. Dividend
accretion on the Series A and Series B Preferred Stock for 1998, 1999 and the
first three months of 2000 was $4.5 million, $5.1 million and $1.5 million,
respectively. At April 2, 2000, the carrying basis of the preferred stock was
$45.4 million. Immediately upon the consummation of this offering, all
outstanding shares of our preferred stock and the accrued and unpaid dividends
thereon will automatically convert into a right to receive shares of our common
stock and cash. We will use a portion of the proceeds from this offering to pay
the cash amount due upon this conversion.
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BUSINESS
Overview
California Pizza Kitchen is a leading casual dining restaurant chain in the
premium pizza segment with a recognized consumer brand and an established,
loyal customer base. We currently own, license or franchise 104 restaurants in
21 states, the District of Columbia, Guam and three foreign countries, of which
74 are company-owned and 30 operate under franchise or license arrangements.
During our 15 years of operating history, we have developed strong brand
awareness and demonstrated the appeal of our concept in a wide variety of
geographic areas.
Our restaurants feature our signature line of innovative premium pizzas,
including our original best sellers, the BBQ Chicken Pizza and the Thai Chicken
Pizza, and more recent creations such as the Philly Cheesesteak Pizza, Havana
Chicken Pizza and Grilled Garlic Shrimp Pizza. We also serve a broad selection
of distinctive pastas, salads, soups, appetizers and desserts, including our
Chicken-Tequila Fettucine, BBQ Chicken Chopped Salad, Hearth-Baked Tortilla
Spring Rolls and Key Lime Pie. Our restaurants, which feature an exhibition-
style kitchen centered around an open-flame oven, provide a distinctive, casual
dining experience which is family-friendly and has broad consumer appeal. We
believe our restaurants, with an average guest check of approximately $10.50,
provide an exceptional dining value and are recognized by consumers for
offering a highly differentiated menu, with superior customer service.
We intend to expand in other distribution channels by building upon our
longstanding position as an innovator and leader in the premium pizza segment.
For instance, our premium fast-casual California Pizza Kitchen ASAP concept
provides a selection of the high quality, innovative menu items that we serve
in our full service restaurants, and we may introduce distinctive items made
specifically for the "grab and go" market. Host Marriott Services, our largest
franchisee, operates 20 ASAP restaurants, primarily at airports throughout the
United States. We expect to develop company-owned ASAP restaurants in a wide
variety of venues, including regional shopping centers and high-traffic urban
office areas and currently have two such restaurants under construction, both
of which are scheduled to open in July 2000. We are also extending our leading
brand position in the premium pizza segment through a strategic alliance with
Kraft Pizza Company. Together, we have developed and are distributing a line of
premium frozen pizzas through supermarkets and other retail outlets in selected
markets.
History
California Pizza Kitchen was formed in 1985 by Rick Rosenfield and Larry
Flax, who combined fresh, distinctive ingredients on premium pizzas to create
innovative tastes that consumers could easily identify with, yet had never
previously associated with pizza. By May 1992, we were operating 23 California
Pizza Kitchen restaurants in seven states including California, Hawaii,
Georgia, Virginia, Illinois, Missouri, and Arizona. We had also licensed two
California Pizza Kitchen restaurants to Mirage Resorts International in
Las Vegas. Through our efforts to raise capital to expand our concept across
the United States, PepsiCo, Inc. became interested in our concept and purchased
a controlling interest in our company in May 1992. We then embarked on an
aggressive growth plan which strained our infrastructure, resulted in a number
of management and operational changes, diverted our attention from the
execution of our concept and led to disappointing operating results and
financial performance. In the five-year period during which PepsiCo was our
controlling shareholder, we opened 60 restaurants, including 43 in 1993 and
1994. At the end of 1996, PepsiCo decided that it would sell or divest all of
its restaurant businesses, including California Pizza Kitchen.
In September 1997, we consummated a series of transactions to effect a
merger and leveraged recapitalization through which a group led by Bruckmann,
Rosser, Sherrill & Co., L.P., an experienced restaurant investor, acquired a
controlling interest in our company. As a result of these transactions, PepsiCo
retained no ownership interest in our company. We hired a new management team
led by Frederick R. Hipp, Chief Executive Officer and President, H.G.
Carrington, Jr., Executive Vice President and Chief Financial Officer, and
Frederick F. Wolfe, Senior Vice President Operations, with over 50 years of
combined experience
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in the restaurant industry. The new management team, in conjunction with our
co-founders, implemented a number of initiatives to restore and improve overall
operations and financial performance. These initiatives included improving the
food quality, customer service and overall dining experience at our
restaurants, while simultaneously improving profitability. Specifically, we
upgraded a number of our existing menu items by improving the quality of our
ingredients, reduced the number of tables typically assigned to each server,
and increased portion sizes, without increasing prices, to enhance our dining
value. We also instituted programs calculated to attract, motivate, and retain
quality management personnel, pursued cost reduction initiatives and extended
our brand into new distribution channels. Finally, we embarked on a new, more
disciplined restaurant expansion program.
These improvements have enabled us to attract a loyal base of customers and
to achieve company-owned comparable restaurant sales increases of 6.1% in 1998,
4.1% in 1999 and another 6.8% in the first three months of 2000. Our
restaurant-level cash flow margins improved from 13.9% in 1997, to 17.6% in
1998, 18.4% in 1999, and 19.4% in the first three months of 2000. Our new
management team also restructured our corporate organization, resulting in a
decrease in corporate general and administrative expenses from $15.9 million or
9.9% of total revenues in 1997 to $13.1 million or 7.3% of total revenues for
1999. We believe that our quality-enhancing initiatives, coupled with improved
cost controls and operating efficiencies, have greatly strengthened our concept
and our organization.
Our concept and business strategy
Our objectives include continuing to build our brand awareness and customer
loyalty, and extending our leadership position in the casual dining and premium
pizza segments. We intend to utilize the strategies discussed below to achieve
these objectives.
Offer high quality, innovative menu items. Our restaurants feature menu
items that use imaginative toppings and showcase recipes that capture tastes
and flavors that customers readily identify, but do not typically associate
with pizza, pasta or salads. While we do offer traditional menu items, we
believe the success of our concept is due to our ability to interpret food
trends on our platform of pizza, pasta, salads and appetizers, and to offer
items that appeal to a variety of tastes. For instance, our menu includes
numerous items incorporating Asian influences (Thai Chicken Pizza, Kung Pao
Spaghetti and Oriental Chicken Salad with Crispy Angel Hair Pasta),
Southwestern influences (Santa Fe Chicken Pizza, Chicken-Tequila Fettucine and
Sedona White Corn Tortilla Soup), and California cuisine (Goat Cheese with
Roasted Peppers Pizza and White Balsamic Provencal Salad with Feta Cheese and
Sun-Dried Tomatoes). We use high quality ingredients, including imported
Italian tomatoes and pastas, imported Kalamata olives, Japanese eggplant, black
tiger shrimp, imported cheeses and exotic lettuces and other fresh produce.
Provide an excellent dining value with broad consumer appeal. We offer large
portions of innovative, high quality food, superior service and a sophisticated
yet casual atmosphere, all for an average guest check of approximately $10.50.
We believe this price-to-value relationship differentiates us from our
competitors, many of whom have significantly higher average guest checks, and
allows us to appeal to a broad group of consumers. In addition to attracting
families and groups, our restaurants feature counter seating around the open
kitchen, which is popular with single diners. Our restaurants are popular
during both the day and evening hours as evidenced by our nearly equal split
between lunch and dinner sales. We believe that our diverse menu, which
incorporates a wide array of both traditional and multi-ethnic flavors and
ingredients, further enhances our broad appeal by accommodating groups with
varied tastes or cravings. Our guests dine in a clean, high energy environment
that vividly displays the colorful ingredients used in the preparation of our
menu items, many of which are prepared in our signature open-flame ovens which
cook with intense heat to sear in our distinctive flavors. In addition, the
redesigned decor used in our new and remodeled restaurants gives them a softer,
more comfortable look and further refines our "sophisticated yet casual"
ambience.
Build awareness of the California Pizza Kitchen brand. We believe that
California Pizza Kitchen is a brand that has traditionally been associated with
high quality, innovative food items, superior customer service
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and a strong price-to-value relationship. We also believe that many of our
original recipes, including the BBQ Chicken Pizza and Thai Chicken Pizza, are
closely associated with the California Pizza Kitchen brand name. The design
features of our trademarked yellow, black and white logo are intended to
further enhance our brand awareness. We have promoted awareness of the
California Pizza Kitchen brand through innovative marketing and public
relations programs, including the California Pizza Kitchen cookbooks and
various local and national media events. We intend to continue to expand our
brand awareness through the use of multiple distribution channels, including
our ASAP fast-casual concept and our premium frozen pizzas. We also intend to
pursue additional strategic alliances with large, well-established partners,
similar to our relationships with Kraft Pizza Company and Host Marriott
Services.
Pursue disciplined restaurant growth. Our new management team adheres to a
disciplined expansion strategy, focused primarily on existing markets and the
limited development of additional franchise restaurants. In late 1999, we hired
Tom N. Jenneman, with more than ten years of restaurant real estate experience,
as our Senior Vice President and Chief Development Officer to spearhead our
development efforts. We opened five company-owned, full service restaurants in
1999 and intend to open ten company-owned restaurants in 2000, seven of which
will be full service restaurants and three of which will be ASAP restaurants.
Thus far in 2000, we have opened three full service restaurants and have begun
construction on five other company-owned restaurants, including two ASAP
restaurants. Our largest franchisee, Host Marriott Services, which currently
operates 20 ASAP restaurants, has plans to open four new ASAP restaurants in
2000, three of which have already opened.
Maintain strong unit economics. For 1999, sales for our 66 full service
restaurants open for the entire year averaged $2.6 million and generated
average restaurant-level pre-tax cash flow of $496,000 or 19.2% of restaurant
sales. Our cash investment per full service restaurant, net of landlord
contributions, is expected to average $1.4 million, excluding pre-opening
costs, which are anticipated to be approximately $150,000 per restaurant. We
believe that our cash flow margins and return on investment for our company-
owned ASAP restaurants will be comparable to those of our full service
restaurants.
Provide superior customer service. We enjoy significant repeat business as
evidenced by an in-store survey conducted during July 1999, in which 92% of the
over 23,000 respondents indicated that they intended to eat at a California
Pizza Kitchen restaurant again. We view the personal interaction of our
employees with our customers as an integral part of this success. We have
developed and fostered an organizational culture we refer to as R.O.C.K.
(Respect, Opportunity, Communication and Kindness). We believe that our
culture, together with a highly evolved training program for our servers,
kitchen staff and management, leads to a superior customer experience. We also
believe that maintaining a work force consisting of qualified and motivated
employees is critically important to our ability to do so. We encourage our
employees to share a sense of ownership and mission with management and believe
that an employee-oriented culture creates a sense of pride in our company and
our menu items and helps to ensure superior execution at the restaurant level.
Growth strategies
We believe that we are extremely well-positioned to grow our concept and
brand through several channels simultaneously, including company-owned
restaurants, franchised restaurants, and retail and other non-traditional
channels. In 2000, we intend to open ten company-owned restaurants, seven of
which will be full service restaurants and three of which will be ASAP
restaurants. Our franchisees have advised us that they intend to open an
aggregate of six or seven restaurants in 2000.
Full service restaurants. Our full service restaurant concept has been our
core business unit and our primary source of growth historically, and we
anticipate that it will be our primary source of expansion in the near term. We
have adopted a manageable growth strategy and intend to develop many of our new
restaurants in our existing markets to gain operational efficiencies, enhance
convenience for our customers, and increase brand awareness. Our site selection
criteria for new full service restaurants is flexible and allows us to adapt to
a variety of locations, including regional shopping malls, retail and
entertainment centers, in-line shopping
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centers, office buildings and free-standing buildings. Our growth strategy
incorporates a market penetration or cluster strategy which we believe enhances
convenience and ease of access for our customers and results in significant
repeat business.
Company ASAP restaurants. We currently franchise a total of 21 ASAP
restaurants, of which 20 are franchised by Host Marriott Services. Two company-
owned ASAP restaurants are currently under construction. We intend to increase
the development of company-owned ASAP restaurants as part of our strategy to
provide our customers with access to California Pizza Kitchen in a convenient,
fast-casual environment. In addition to our signature menu items, we may
introduce other items designed specifically for the "grab and go" nature of our
ASAP concept. Our company-owned ASAP menus will generally provide ten to 15
pizza varieties, as well as salads, sandwiches, appetizers, and desserts. Our
ASAP restaurants are designed to be 2,000 to 3,000 square feet in size, and
include seating for 50 to 60 customers. In addition to accommodating customers
desiring to order and eat in, the concept caters to customers wishing to order
and take out, or pre-order and pick up. We believe that our ASAP restaurants
will be successful in regional shopping centers, high density urban office and
retail centers, entertainment centers, transportation centers including
airports, and similar venues.
Franchise channels. Although our main focus will be on company-owned
domestic expansion, we believe that franchise development will complement our
growth strategy. Our principal growth in franchise operations is expected to
occur through the development of new restaurants by existing franchisees. We
also intend to pursue the limited development of additional franchise
relationships with quality-conscious partners that operate in specialized
segments of the restaurant industry or in targeted international territories
and that possess the expertise and resources to execute the development of new
restaurants on a large scale. This will allow us to introduce our concepts into
specialized food service areas (e.g., college campuses and in-house business
accounts) and select international locations which we would not otherwise
pursue, since we believe that the best use of our internal resources is
company-owned domestic expansion. Similarly, we have chosen not to pursue
relationships with franchisees which would involve only a limited number of
restaurants in a limited territory since we believe that this would consume too
much of our time and attention for the return we would expect to achieve.
Alternative retail channels. We have entered into a strategic alliance with
Kraft Pizza Company to manufacture and distribute a line of California Pizza
Kitchen premium frozen pizzas in the United States and Canada. Currently, Kraft
distributes our pizzas in supermarkets in Atlanta, Las Vegas, Phoenix, the
San Francisco Bay area, Sacramento and the greater Southern California area,
including Los Angeles and San Diego. Kraft intends to expand the markets in
which our frozen pizzas are distributed, with an initial focus on those markets
in which our restaurants are located. We are strategically positioning our
pizzas to attract not only the typical purchaser of a premium frozen pizza, but
also to tap into the potentially huge home meal replacement market by
attracting the attention of the quality-oriented supermarket shopper who is not
presently a consumer of frozen pizza. We are also investigating the potential
for selling our premium frozen pizzas in alternative settings.
Take-out and delivery services. We offer take-out and/or delivery services
in each of our restaurants. Our new restaurants are designed to accommodate
this growing segment of our business and typically have separate take-out order
windows and waiting areas and, in most cases, a separate cashier. Our goal is
to capture a greater share of this market and maximize our revenue-generating
opportunities by developing a more customer-friendly, operationally-efficient
take-out and delivery service. We generally use independent third parties to
provide our delivery services. In 1999, take-out and delivery sales comprised
approximately 16.4% of our total restaurant sales. For the first three months
of 2000, our take-out and delivery sales accounted for approximately 17.7% of
our restaurant sales.
Unit level economics
For 1999, sales for our 66 full service restaurants open for the entire year
averaged $2.6 million and generated restaurant-level pre-tax cash flow of
$496,000 or 19.2% of restaurant sales. Our prototype full service
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restaurant is approximately 4,800 to 5,000 square feet. Our average cash
investment, net of landlord contributions, was approximately $1.4 million for
the ten restaurants opened since 1998, excluding pre-opening costs which
averaged approximately $147,000 per restaurant. We expect that in the future
our cash investment, net of landlord contributions, will average approximately
$1.4 million, excluding pre-opening costs, which are anticipated to be
approximately $150,000 per restaurant.
Our ASAP restaurants will generally be in the range of 2,000 to 3,000 square
feet. We estimate that future ASAP restaurants, net of landlord contributions,
will generally cost approximately $750,000 and that pre-opening expenses will
average approximately $75,000. We believe that our cash flow margins and return
on investment for our company-owned ASAP restaurants will be comparable to
those of our full service restaurants.
Menu
We continuously experiment with food items and flavor combinations in an
attempt to create selections that are innovative and capture distinctive
tastes. We first applied our innovative approach to creating and defining a new
category of pizza--the premium pizza. For example, our signature creation, the
Original BBQ Chicken Pizza, utilizes barbecue sauce instead of tomato sauce,
and adds toppings of marinated chicken breast, smoked gouda and mozzarella
cheeses, sliced red onion and fresh cilantro. Our Original Thai Chicken Pizza
is created with a base of spicy, peanut-ginger and sesame sauce, and topped
with marinated chicken breast, mozzarella cheese, roasted peanuts, green
onions, bean sprouts, julienne carrots and fresh cilantro. Our other innovative
pizzas include the Philly Cheesesteak Pizza, Grilled Garlic Shrimp Pizza,
Rosemary Chicken-Potato Pizza and B.L.T. Pizza.
We have broadened our menu beyond pizza to include pastas, salads, soups,
appetizers and desserts, and we strive to bring the same level of creativity
and innovation involved in developing our pizzas to our entire menu. Among our
other signature menu items are Tequila-Chicken Fettucine which captures
Southwestern flavors in a rich tequila-lime and jalapeno cream sauce, our BBQ
Chicken Chopped Salad which uses both barbecue sauce and garden-herb ranch
dressing, Oriental Chicken Salad with Crispy Angel Hair Pasta, and our hearth-
baked Tortilla Spring Roll Appetizers which are sprinkled with parmesan cheese
and baked in our pizza ovens. The Spring Rolls include such flavors as the
Bangkok BBQ Chicken with grilled chicken breast, carmelized onions, smoked
gouda and mozzarella cheeses, fresh cilantro, and our Bangkok BBQ sauce served
with a side of horseradish cream sauce, and the recently introduced Baja
Chicken with grilled lime chicken breast, roasted corn and black bean relish,
Monterey jack and cheddar cheeses, fire-roasted mild chiles, red onions and
fresh cilantro served with a side of guacamole.
Our menu is also designed to satisfy customers who seek traditional,
American-style, tomato sauce-based pizza or authentic, Italian-style Neapolitan
pizza. For the traditionalist, we offer a variety of items such as the
Mushroom, Pepperoni and Sausage Pizza, the Fresh Tomato, Basil and Garlic
Pizza, and the Sweet and Spicy Italian Sausages Pizza which combines sweet
Italian sausage and grilled spicy Italian sausage, a tomato sauce base, roasted
red and yellow peppers and mild onions. Our Neapolitan pizzas are prepared on a
thin, crisp crust and include our Classic Margherita Pizza with imported
tomatoes, fresh mozzarella, fresh basil and parmesan cheese and our Rustica
Pizza made with imported tomatoes, fresh mozzarella, garlic, crushed chilies,
capers and Mediterranean olives. Our menu similarly accommodates traditional
tastes in pastas and salads, with a wide variety of tomato sauce-based pastas
and our high quality versions of popular salads, including our Caesar Salad and
Original Chopped Salad.
All of our menu items are prepared to order in our full service restaurants.
This reinforces our customers' confidence in the freshness and quality of our
preparations as well as allows us to customize any dish to accommodate specific
dietary or taste preferences.
Our menu is continuously evolving to track the increasingly discriminating
and sophisticated palate of the American public. We review the sales mix of our
menu items and replace lower selling items in each category with new menu items
once or twice a year. Because of our ability to quickly change our menu, we
believe that
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<PAGE>
we are able to meet our customers' changing tastes and expectations. Our
entrees range in price from $6.99 to $11.99 and our average guest check is
currently approximately $10.50 including alcoholic beverages. We offer a
variety of wines by the bottle or the glass, as well as bottled and tap beers,
primarily to complement our menu offerings.
Current restaurant locations
We currently own 74 restaurants in 17 states and the District of Columbia.
We franchise or license our concept to other restaurant operators including:
Host Marriott Services, which operates 20 ASAP restaurants; Mirage Resorts,
which operates two full service Las Vegas casino restaurants; a franchisee,
which operates one full service restaurant in Texas; a franchisee, which
operates one ASAP restaurant in California; and two franchisees, which
currently operate a total of six full service restaurants in Singapore,
Malaysia, the Philippines, and Guam.
<TABLE>
<CAPTION>
Franchised/Licensed Franchised
Company-Owned Full service ASAP
Region Restaurants(1) Restaurants Restaurants Total
------ -------------- ------------------- ----------- -----
<S> <C> <C> <C> <C>
Domestic
Arizona................ 2 -- 1 3
California............. 35 -- 7 42
Colorado............... 1 -- -- 1
Florida................ 3 -- 3 6
Georgia................ 3 -- -- 3
Guam................... -- 1 -- 1
Hawaii................. 3 -- -- 3
Illinois............... 5(2) -- -- 5
Indiana................ -- -- 1 1
Maryland............... 3 -- -- 3
Massachusetts.......... 3 -- -- 3
Michigan............... 1 -- -- 1
Minnesota.............. -- -- 1 1
Missouri............... 1 -- 2 3
Nevada................. -- 2 -- 2
New Jersey............. 1 -- -- 1
New York............... 4 -- 1 5
North Carolina......... -- -- 2 2
Pennsylvania........... 1 -- -- 1
Texas.................. 4 1 -- 5
Virginia............... 2 -- 3 5
Washington............. 1 -- -- 1
Washington, D.C........ 1 -- -- 1
International
Singapore.............. -- 2 -- 2
Malaysia............... -- 1 -- 1
The Philippines........ -- 2 -- 2
--- --- --- ---
Totals............... 74 9 21 104
</TABLE>
--------
(1) All of our company-owned restaurants are full service.
(2) Includes one restaurant in the Chicago area in which we are the general
partner and own approximately 70% of the total partnership interests.
Expansion strategy and site selection
Our restaurant expansion strategy focuses primarily on further penetrating
existing markets. This clustering approach enables us to increase brand
awareness and improve our operating and marketing efficiencies. For
34
<PAGE>
example, clustering also enables us to reduce costs associated with regional
supervision of restaurant operations and provides us with the opportunity to
leverage marketing costs over a greater number of restaurants. We also believe
this approach reduces the risks involved with opening new restaurants given
that we better understand the competitive conditions, consumer tastes,
demographics and discretionary spending patterns in our existing markets. In
addition, our ability to hire qualified employees is enhanced in markets in
which we are well known.
We believe that our site-selection strategy is critical to our success and
we devote substantial effort to evaluating each potential site at the highest
levels within our organization. We identify areas within our target markets
that meet our demographic requirements, focusing on daytime and evening
populations, shopping patterns, availability of personnel and household income
levels. We will presently only consider expanding to new markets that will meet
our strict demographic criteria. Our site selection criteria are flexible given
that we operate restaurants in regional shopping malls, in-line shopping
centers, retail and entertainment centers, free-standing buildings in
commercial and residential neighborhoods, office buildings and hotels. Our
prototype full service restaurant is approximately 4,800 to 5,000 square feet
and has 150 seats. However, we have the ability to operate a full service
restaurant in less than 4,000 square feet, particularly if we are able to
secure additional patio seating. While our ASAP restaurants are primarily being
operated in airports, we believe they could also be successful in a variety of
additional venues including regional shopping centers, high density urban
locations, office kiosks, food courts, stadiums, and other similar locations.
Currently we have two company-owned ASAP restaurants under construction at
shopping malls in the San Francisco Bay area. Our company-owned ASAP
restaurants will generally be 2,000 to 3,000 square feet and have dedicated in-
restaurant seating which will allow our customers to either dine in or take
out.
Our full service restaurants will continue to represent the majority of our
growth in the near-term. We expect to open ten new restaurants in 2000,
including seven full service restaurants and three ASAP restaurants. Thus far
in 2000, we have opened three full service restaurants and have begun
construction on five other company-owned restaurants, including two ASAP
restaurants. We have signed leases covering the two remaining restaurants we
plan to open in 2000.
Host Marriott Services has advised us that it anticipates opening four
additional ASAP restaurants in 2000, three of which have already opened. One of
our other domestic franchisees has requested approval to open one full service
restaurant in California in 2000. Our two other franchisees currently operate a
total of six full service restaurants, two in the Philippines, two in
Singapore, one in Guam and one in Malaysia.
With the exception of the five sites for which we own the real estate, we
operate our restaurants under leases. We do not intend to purchase real estate
for any of our sites in the future. We believe that the flexibility of our two
formats (full service and fast-casual), both of which offer high quality casual
dining menu items, provides us with a competitive advantage in securing sites.
We have several long-standing relationships with major mall developers and
owners, and are therefore afforded the opportunity to negotiate multiple
location deals. Our two formats provide us with a great deal of flexibility in
these negotiations since these concepts are suitable for a wide variety of
venues and lend themselves to a broad range of sizes and footprints.
Marketing
Our marketing strategy focuses on communicating the California Pizza Kitchen
brand through many creative and non-traditional avenues. As the innovators of a
new and exciting food product, we continue to benefit from national media
attention which we believe provides us with a significant competitive
advantage. Rick Rosenfield and Larry Flax, our co-founders, currently serve as
the focal point of our public relations and media efforts. They have been the
subject of a national print and television campaign sponsored by American
Express and appeared in a recent People magazine article. In addition, we have
been featured on the Today Show for three years in a row during national pizza
month, and have been the subject of feature stories appearing in Forbes,
Business Week, The Wall Street Journal and USA Today. We appear periodically on
The
35
<PAGE>
Food Channel, have been featured on The Oprah Winfrey Show and NBC's Later
Today show and we have received unsolicited rave reviews from Rosie O'Donnell
about our pizza on her show. For added exposure, we seek to obtain placement
for our products and restaurants in movies and television shows.
We also engage to a limited extent in paid advertising for individual
restaurant locations, including billboards, newspaper ads and radio. We utilize
a variety of printed marketing materials, including restaurant location
brochures, hotel concierge cards, take-out menus and direct mailings. During
1999, we spent an aggregate of 1.2% of restaurant sales on marketing efforts.
We expect to continue investing approximately 1.0% to 1.5% of restaurant sales
in marketing efforts in the future, primarily in connection with the opening of
new restaurants.
We use the openings of our new restaurants as opportunities to reach out to
the media. Our openings are often featured on live local television and radio
broadcasts and receive coverage in local newspapers. We employ a variety of
marketing techniques in connection with our new restaurant openings, including
concierge parties, and invitations to media personalities and community
leaders. In addition, our openings are generally associated with a charitable
event.
Our involvement in the community does not end once we have opened a
restaurant. In each of the markets in which we operate, we continuously engage
in a variety of charitable and civic causes and donate food and services on an
on-going basis. We have developed two cookbooks and have donated all of our
proceeds to worthwhile children's charities. These cookbooks are sold at our
restaurants, through national bookstore chains and through on-line retailers.
We recently formed the CPK Foundation as a California non-profit public
benefit corporation. The Foundation will support designated children's
charities in the markets in which we operate. We intend to fund the Foundation
by contributing a portion of the selling price of each BBQ Chicken Pizza we
sell on a system-wide basis.
Operations
Restaurant management. We currently have 13 regional directors who report to
our Senior Vice President Operations. Each regional director oversees three to
eight restaurants and supervises the general manager for each restaurant within
his or her area of control. The typical full service restaurant management team
consists of a general manager, who oversees the entire operation of the
restaurant, an assistant general manager, a kitchen manager and an assistant
manager. Additionally, depending upon the size and sales volume of a
restaurant, we may also employ an assistant kitchen manager or a second
assistant manager in the dining area. Most of our full service restaurants
employ approximately 50 to 75 hourly employees, many of whom work part-time.
The general manager 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 kitchen manager is responsible for
product quality, food costs and kitchen labor costs. Our full service
restaurants are generally open Sunday through Thursday from 11:00 a.m. until
10:00 p.m., and on Friday and Saturday from 11:00 a.m. until 11:00 p.m.
Training. We strive to maintain quality and consistency in each of our
restaurants through the careful training and supervision of personnel and the
establishment of, and adherence to, high standards relating to personal
performance, food and beverage preparation and maintenance facilities. We
provide all new employees with complete orientation and training for their
positions to ensure they are able to meet our high standards. Each location has
certified trainers who provide classroom and on-the-job instruction. Employees
are certified for their positions by passing a series of tests and evaluations.
New restaurant managers are trained over a nine-week period at a certified
training restaurant. Training includes service, kitchen and management
responsibilities. An extensive series of interactive modules and on-line
quizzes are used in conjunction with on-the-job training. Newly trained
managers are then assigned to their home restaurant where they spend one
additional training week with their general manager. We place a high priority
on our continuing management
36
<PAGE>
development programs in order to ensure that qualified managers are available
for our future openings. In addition we have detailed written operating
procedures, standards, and controls, food quality assurance systems, and safety
programs. Once a year we hold a general manager conference in which all of our
general managers receive additional training on financial information, food
preparation, hospitality and other relevant topics.
When we open a new restaurant, we provide varying levels of training to each
type of employee as is necessary to ensure the smooth and efficient operation
of a California Pizza Kitchen restaurant from the first day it opens to the
public. Approximately two weeks prior to opening a new restaurant, our
dedicated training/opening team travels to the location to begin intensive
seven-day per week training of all new employees for that restaurant. Our
training teams stay on site during the first two weeks of operation. We believe
this additional investment in our new restaurants is important since it helps
us provide our customers with a quality dining experience from day one. We also
make on-site training teams available when our franchisees open new
restaurants. After a restaurant has been opened and is operating smoothly, the
general manager supervises the training of new employees.
Recruiting and retention. We seek to hire experienced general managers and
staff. We support our employees by offering competitive wages, competitive
benefits including a 401(k) plan and salary deferral plan, both with a
discretionary match, medical insurance for all of our employees, including
part-time workers, generous discounts on dining, and, effective upon completion
of this offering, an employee stock purchase plan which will allow all
employees who have worked for us for at least a year and who work a minimum of
20 hours per week to participate.
We attempt to motivate and retain our employees by providing them with
opportunities for increased responsibilities and advancement, as well as
performance-based cash incentives tied to sales, profitability and qualitative
measures such as our mystery shoppers, who anonymously evaluate individual
restaurants. Our most successful general managers are eligible for promotion to
senior general manager status and are entitled to receive more lucrative
compensation packages based on various performance criteria. We believe we also
enjoy the recruiting advantage of offering our general managers restaurants
that are easier to manage because they are generally smaller than those of our
competitors, have hours that typically do not extend late into the night, and
generally do not require management of a separate bar business. We believe
these advantages offer our managers an excellent quality of life compared to
many of our competitors.
Customer satisfaction. Customer satisfaction is of extreme importance to us.
To that end, we routinely solicit and analyze our customers' opinions through
periodic surveys of 20,000 to 25,000 randomly-selected guests. The mystery
shopper program is also an important tool in our quality control efforts from
both a food quality and customer service perspective.
Restaurant franchise and licensing arrangements
Our largest franchisee, Host Marriott Services, operates 20 California Pizza
Kitchen ASAP restaurants, primarily in airports, throughout the United States
under a development and franchise arrangement. Mirage Resorts operates two full
service California Pizza Kitchen restaurants in high-profile resorts in Las
Vegas, Nevada. We also have a franchisee operating one full service restaurant
in San Antonio, Texas, a franchisee operating one ASAP restaurant in Thousand
Oaks, California, an international franchisee operating three full service
franchised restaurants in Singapore and Malaysia, and another franchisee
operating three full service franchised restaurants in the Philippines and
Guam. During 2000, we expect Host Marriott Services to open four ASAP
restaurants, three of which have already opened, and our other franchisees to
open two or three additional full service restaurants, two of which have
already opened.
Our development agreement with Host Marriott Services grants it limited
exclusive rights to open new ASAP restaurants in airports, in travel plazas
along toll-roads and in mall food court locations; however, any location
proposed by Host Marriott Services is subject to approval by us in our sole
discretion. If Host Marriott Services determines not to submit a bid or
proposal for a new airport, or travel plaza or mall location or
37
<PAGE>
determines not to include us in the proposal or bid, we are free to bid
ourselves or to license another party to operate an ASAP in that location.
Under our agreement, Host Marriott Services may only develop a franchised
restaurant in a mall when it obtains a master concessionaire agreement with the
landlord to provide all food services within the food court or other multiple-
concept area. Once we have agreed to Host Marriott Services' development of an
ASAP restaurant in an airport or travel plaza location, we may not license or
operate a full service restaurant ourselves at those locations. There is no
corresponding prohibition with respect to mall locations.
Host Marriott Services retains its limited exclusive rights for the
development of ASAP restaurants until May 2003, after which it may continue our
agreement for three additional terms which ultimately expire in 2018. We have
the right to terminate the agreement if Host Marriott Services does not open 25
restaurants by May 2003. Host Marriott Services pays an initial franchise fee
of $20,000 for each ASAP restaurant at a new location and $10,000 for each
additional ASAP restaurant at an existing location, and continuing royalties at
rates of 5% to 5.5% of gross sales. The Host Marriott Services franchise
agreements typically terminate at the same time as Host Marriott Services'
concessionaire agreement to operate at an airport or mall.
Our territorial development agreements with our other franchisees grant them
the exclusive right to an identified territory subject to meeting development
obligations. Our basic franchise agreement with these franchisees generally
requires payment of an initial fee of between $55,000 and $65,000 for a full
service restaurant, as well as continuing royalties at a rate of 5% to 6% of
gross revenue. Most of our franchise agreements contain a ten- or 20-year term.
Agreement with Kraft Pizza Company
We have entered into a strategic alliance with Kraft Pizza Company to
manufacture and distribute a line of California Pizza Kitchen premium frozen
pizzas in the United States and Canada. Kraft currently makes and distributes
frozen versions of seven of our pizzas: the Five Cheese Pizza, BBQ Chicken
Pizza, Garlic Chicken Pizza, Rosemary Chicken-Potato Pizza, Portabello Mixed
Mushroom Pizza, Southwestern Chicken Pizza, and Thai Chicken Pizza. Our frozen
pizzas are currently sold in supermarkets in Atlanta, Las Vegas, Phoenix, the
San Francisco Bay area, Sacramento and the greater Southern California area,
including Los Angeles and San Diego. We intend to expand our distribution area
to include additional selected markets, with an initial focus on those markets
in which our restaurants are located. We are also investigating the potential
for selling our premium frozen pizza in alternative settings.
Management information systems
All of our restaurants use computerized management information systems,
which are designed to improve operating efficiencies, provide corporate
management timely access to financial and marketing data, and reduce restaurant
and corporate administrative time and expense. Our restaurant systems include a
point-of-sale system which facilitates the movement of customer food and
beverage orders from the dining areas to the appropriate menu item preparation
area within the restaurant. The data captured by our restaurant level systems
include restaurant sales, cash and credit card receipts, quantities of each
menu item sold, customer counts and daily labor expense. This information is
generally transmitted to the corporate office daily. Each week, every
restaurant prepares a flash profit and loss statement that is compared to
budget and the prior year.
Our corporate information systems provide management with operating reports
that show restaurant performance comparisons with budget and prior year results
both for the current accounting period and year-to-date. These systems allow us
to closely monitor restaurant sales, cost of sales, labor expense and other
restaurant trends on a daily, weekly and monthly basis. We believe these
systems will enable both restaurant and corporate management to adequately
manage the operational and financial performance of our restaurants as
necessary to support our planned expansion.
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Purchasing
Our purchasing staff procures all of our food ingredients, products and
supplies. We seek to obtain the highest quality ingredients, products and
supplies from reliable sources at competitive prices. To that end, we
continually research and evaluate various food ingredients, products and
supplies for consistency and compare them to our detailed specifications.
Specific qualified manufacturers and growers are then inspected and approved
for use. This process is repeated at least once a year. To maximize our
purchasing efficiencies and obtain the lowest possible prices for our
ingredients, products and supplies, while maintaining the highest quality, our
centralized purchasing staff generally negotiates all prices in one of two
formats: (a) fixed price contracts generally with terms of between one month to
one year or (b) based on monthly commodity pricing formulas.
In order to provide the freshest ingredients and products, and to maximize
operating efficiencies between purchase and usage, each restaurant's kitchen
manager determines its daily usage requirements for food ingredients, products
and supplies. The kitchen manager orders accordingly from approved local
vendors and our national master distributor. The kitchen managers also inspect
all deliveries daily to ensure that the items received meet our quality
specifications and negotiated prices. We believe that competitively priced,
high quality alternative manufacturers, vendors, growers and distributors are
available should the need arise.
Employees
As of the date of this prospectus, we have approximately 5,000 employees,
including 70 employees located at our corporate headquarters. Our employees are
not covered by any collective bargaining agreement. We consider our employee
relations to be very good.
Competition
The restaurant industry is intensely competitive. We compete on the basis of
the taste, quality and price of food offered, customer service, ambience,
location and overall dining experience. We believe that our concept, attractive
price-value relationship and quality of food and service enable us to
differentiate ourselves from our competitors. Although we believe we compete
favorably with respect to each of these factors, many of our direct and
indirect competitors are well-established national, regional or local chains
and some have substantially greater financial, marketing, and other resources
than we do. We also compete with many other restaurant and retail
establishments for site locations and restaurant level employees. The packaged
food industry is also intensely competitive.
Properties
Our corporate headquarters are located in Los Angeles, California. We occupy
this facility under a lease which terminates in August 2002, with an option to
extend until August 2007. We lease the majority of our restaurant facilities,
although we own our restaurants in: Alpharetta, Georgia; Grapevine, Texas;
Scottsdale, Arizona; Schaumburg, Illinois; and one location in Atlanta,
Georgia. The majority of our leases are for ten- or fifteen-year terms and
include options to extend the terms. The majority of our leases also include
both minimum rent and percentage-of-sales rent provisions.
Trademarks
Our registered trademarks and service marks include, among others, the word
mark "California Pizza Kitchen" and our stylized logo set forth on the front
and back pages of this prospectus. We have registered all of our marks with the
United States Patents and Trademark Office. We have registered our most
significant trademarks and service marks in 22 foreign countries, in addition
to the Benelux Customs Union and the European Union. In order to better protect
our brand, we have also registered our ownership of the Internet domain names
"www.cpk.com" and "www.californiapizzakitchen.com". We believe that our
trademarks,
39
<PAGE>
service marks and other proprietary rights have significant value and are
important to our brand-building efforts and the marketing of our restaurant
concepts. We have in the past and expect to continue to vigorously protect our
proprietary rights. We cannot predict, however, whether steps taken by us to
protect our proprietary rights will be adequate to prevent misappropriation of
these rights or the use by others of restaurant features based upon, or
otherwise similar to, our concept. It may be difficult for us to prevent others
from copying elements of our concept and any litigation to enforce our rights
will likely be costly.
Government regulation
Our restaurants are subject to licensing and regulation by state and local
health, sanitation, safety, fire and other authorities, including licensing and
regulation requirements for the sale of alcoholic beverages and food. To date,
we have not experienced an inability to obtain or maintain any necessary
licenses, permits or approvals, including restaurant, alcoholic beverage and
retail licensing. The development and construction of additional restaurants
will also be subject to compliance with applicable zoning, land use and
environmental regulations. We are also subject to federal regulation and state
laws that regulate the offer and sale of franchises and substantive aspects of
a licensor-licensee relationship. Various federal and state labor laws govern
our relationship with our employees and affect operating costs. These laws
include minimum wage requirements, overtime, unemployment tax rates, workers'
compensation rates, citizenship requirements and sales taxes. In addition, the
federal Americans With Disabilities Act prohibits discrimination on the basis
of disability in public accommodations and employment.
Litigation
Occasionally, we are a defendant in litigation arising in the ordinary
course of our business, including claims resulting from "slip and fall"
accidents, employment-related claims and claims from guests or employees
alleging illness, injury or other food quality, health or operational concerns.
To date, none of these types of litigation, all of which are covered by
insurance, has had a material effect on us and, as of the date of this
prospectus, we are not a party to any material litigation except as described
below.
We are one of the defendants to a lawsuit filed on March 11, 1998 in the
152nd Judicial District Court of Harris County, Texas, brought by The Chair
King, Inc., as the named plaintiff in a class action suit under the Telephone
Consumer Protection Act of 1991. This lawsuit alleges that we sent 8,200 faxes
in violation of the federal act that requires the recipient's consent prior to
sending an unsolicited fax. The federal act provides for minimum damages of
$500 per fax received by a plaintiff with the possibility for an additional
$1,000 per fax if the plaintiff can prove that the defendant knowingly violated
the law. Although not currently so certified, if the plaintiff is able to
achieve class certification, we could potentially be liable for significant
amounts, including the amounts claimed by plaintiff of $4.1 million in regular
damages, and $8.2 million in additional damages. We currently believe we will
prevail on this claim because the plaintiffs have been unable thus far to
produce evidence that any faxes were actually sent by us or on our behalf, or
that the agent that we employed to send the faxes did so without obtaining the
necessary consents. We filed for and successfully obtained summary judgment in
this matter on March 7, 2000. The plaintiffs subsequently filed for appeal to
the Texas appeals courts.
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MANAGEMENT
Executive officers and directors
The following table sets forth information with respect to our executive
officers and directors.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Larry S. Flax............... 57 Co-Chairman of the Board of Directors and
Director
Richard L. Rosenfield....... 55 Co-Chairman of the Board of Directors and
Director
Frederick R. Hipp........... 50 Chief Executive Officer, President and
Director
H.G. Carrington, Jr. ....... 45 Executive Vice President, Chief Financial
Officer and Secretary
Frederick F. Wolfe.......... 50 Senior Vice President Operations
Tom N. Jenneman............. 39 Senior Vice President and Chief Development
Officer
Sarah A. Goldsmith.......... 35 Vice President Marketing and Public
Relations
Julie Carruthers............ 38 Vice President Human Resources and Training
Douglas A. MacDonald........ 58 Vice President Design and Construction
Karen M. Settlemyer......... 48 Vice President Product Development and
Purchasing
Gregory S. Levin............ 33 Vice President, Controller and Assistant
Secretary
Harold O. Rosser(1)......... 51 Director
Bruce C. Bruckmann(1)....... 46 Director
Fortunato N. Valenti........ 52 Director
Brian P. Friedman(1)........ 44 Director
</TABLE>
--------
(1) Compensation and Audit Committee member.
Larry S. Flax, a co-founder, has served as Co-Chairman of the Board of
Directors since our formation in October 1985. From 1985 to 1996, Mr. Flax also
served as Co-Chief Executive Officer. Prior to founding our company, he
practiced law as a principal in Flax and Rosenfield, Inc. after serving as an
Assistant United States Attorney, Department of Justice and Assistant Chief of
Criminal Division and Chief, Civil Rights Division of the United States
Attorney's Office in Los Angeles. Mr. Flax also serves on the board of
directors of Arden Realty, Inc.
Richard L. Rosenfield, a co-founder, has served as Co-Chairman of the Board
of Directors since our formation in October 1985. From 1985 to 1996, Mr.
Rosenfield also served as Co-Chief Executive Officer. Prior to founding our
company, he practiced law as a principal of Flax and Rosenfield, Inc. after
serving with the Department of Justice, Criminal Division, Appellate Section in
Washington, D.C. and as an Assistant United States Attorney, Special
Prosecutions Section of the Criminal Division, in Los Angeles. Mr. Rosenfield
also serves on the board of directors of Callaway Golf Company.
Frederick R. Hipp has served as Chief Executive Officer and President since
January 1998 and as a Director since February 1998. From 1980 to 1997, Mr. Hipp
was employed by Houlihan's Restaurant Group, in Kansas City, Missouri, where he
most recently served as President and Chief Executive Officer. From 1978 to
1980, Mr. Hipp was President of Restaurant Data Systems in Dallas, Texas where
he consulted with major hotel and restaurant chains on financial and restaurant
operations. From 1972 to 1978, Mr. Hipp worked for Steak & Ale Restaurants in
Dallas, Texas where he last served as the Director of Restaurant Systems and
Administration. Mr. Hipp serves on the board of directors of Acapulco
Restaurants, Inc.
H.G. Carrington, Jr. has served as Executive Vice President, Chief Financial
Officer, and Secretary since May 1998. From 1993 to 1998, Mr. Carrington served
as Chief Financial Officer of Dallas-based Spaghetti Warehouse, Inc., and, from
1990 to 1998, on its board of directors.
41
<PAGE>
Frederick F. Wolfe has served as Senior Vice President Operations since July
1997. From 1983 to 1997, Mr. Wolfe worked at Acapulco Restaurants where he most
recently served as Senior Vice President Operations.
Tom N. Jenneman has served as Senior Vice President and Chief Development
Officer since November 1999. From 1992 to 1999, Mr. Jenneman worked at Brinker
International where he most recently served as Vice President, Real Estate, New
Business Development.
Sarah A. Goldsmith has served as Vice President Marketing and Public
Relations since 1992. Ms. Goldsmith joined us in 1990 as Director of Public
Relations. In addition to her duties at California Pizza Kitchen, Ms. Goldsmith
currently acts as Co-Chairperson of the Board of Marketing Executives Group, a
division of the National Restaurant Association. In 1996, Advertising Age
Magazine named Ms. Goldsmith one of the "Marketing 100," a distinction given to
the top 100 marketers in the United States.
Julie Carruthers has served as Vice President Human Resources and Training
since January 1998. We hired Ms. Carruthers as our first employee in January
1985 to create service training programs and train our original staff. During
her employment, she has held various restaurant management, training and
opening-team positions within our company, including heading up the development
project for our original ASAP airport locations with Host Marriott Services.
Ms. Carruthers was Vice President of Training from 1990 to 1998.
Douglas A. MacDonald has served as Vice President Design and Construction
since 1997. From 1996 to 1997, Mr. MacDonald was Director of Design and
Construction with Papa Murphy's, a 240 unit "take and bake" chain. From 1987 to
1996, he served as Director of Design and Construction with International House
of Pancakes in Glendale, California. Mr. MacDonald has directed the design and
construction of over 580 new food facilities throughout the United States and
Canada as well as the remodeling of over 450 existing restaurants.
Karen M. Settlemyer, has served as Vice President Product Development and
Purchasing since 1996. From 1993 to 1996, Ms. Settlemyer was Director of
Product Development at Boston Market, Inc., during which time she created their
very successful Carver Sandwich Program. In 1989, she held the position of Vice
President of Research and Development for Grand American Fare. Ms. Settlemyer
is a 24 year food service veteran and registered dietician.
Gregory S. Levin has served as Controller and Assistant Secretary since
August 1998 and was appointed a Vice President in November 1999. Since joining
us in 1996, Mr. Levin has served in various accounting and finance positions.
From 1990 to 1996, Mr. Levin worked at Ernst & Young LLP, most recently as a
manager in their Entrepreneurial Services Group.
Harold O. Rosser has served as a Director since September 1997. Since 1995,
Mr. Rosser has been a managing director of the investment firm of Bruckmann,
Rosser, Sherrill & Co., Inc., the management company for Bruckmann, Rosser,
Sherrill & Co., L.P., which is a 39.5% shareholder in our company. Mr. Rosser
serves on numerous boards of directors including those of O'Sullivan
Industries, Inc., B&G Foods, Inc., American Paper Group, Inc., Acapulco
Restaurants, Inc., Au Bon Pain Corporation and Penhall International, Inc.
Bruce C. Bruckmann has served as a Director since September 1997. Since
1995, Mr. Bruckmann has been a managing director of the investment firm of
Bruckmann, Rosser, Sherrill & Co., Inc. Mr. Bruckmann serves on numerous boards
of directors including those of Mohawk Industries, Inc., AmeriSource Health
Corporation, Chromcraft Revington Corporation, Jitney-Jungle Stores of America,
Inc., Town Sports International, Inc., Anvil Knitwear, Inc., Mediq
Incorporated, Acapulco Restaurants, Inc. and Penhall International, Inc.
Fortunato N. Valenti has served as a Director since September 1997, and
briefly served as our Chief Executive Officer from mid-1997 to January 1998.
Since 1994, Mr. Valenti has been the President and Chief Executive Officer of
Restaurant Associates, Corp. Mr. Valenti also serves on the boards of directors
of Papa Gino's pizza chain, Au Bon Pain Corporation and Acapulco Restaurants,
Inc.
42
<PAGE>
Brian P. Friedman has served as a Director since October 1997. Since 1994,
Mr. Friedman has been the President of ING Furman Selz Investments, a private
equity investment firm. Furman Selz SBIC Investments LLC, of which Mr. Friedman
is the president, is the general partner in Furman Selz SBIC, L.P. which is a
11.5% shareholder in our company. Mr. Friedman also serves on the boards of
directors of Acapulco Restaurants, Inc., Au Bon Pain Corporation, BricsNet
N.V., Gilat-To-Home, Inc., Cognitive Arts, Inc. and IDB Carries B.V. Mr.
Friedman also serves on the boards of managers of Apartment MediaWorks LLC,
Beacon Industrial Group LLC and Stagebill LLC.
Board of directors; committees
Our board of directors consists of seven members. Subject to a securities
holders agreement, in accordance with our bylaws, our board of directors may
elect to increase the number of directors as long as the number of directors is
not below five or above nine.
Pursuant to a securities holders agreement which we expect will terminate
upon the consummation of this offering, our board of directors must be composed
of at least five persons, with the exact number to be determined by Bruckmann,
Rosser, Sherrill & Co., L.P. from time to time. Pursuant to this agreement,
Rick Rosenfield and Larry Flax each were elected Co-Chairman of the Board, and
all remaining members of our board have been designated by Bruckmann, Rosser.
The voting rights contained in this agreement will terminate upon the
completion of this offering.
We expect to increase our board of directors to consist of eight members
prior to the consummation of this offering. Under the securities holders
agreement, Bruckmann, Rosser has the right to designate the individual to fill
this newly-created vacancy. Bruckmann, Rosser has agreed to designate an
individual who satisfies the requirements for an independent director contained
in applicable Nasdaq Marketplace Rules. If the eighth director has not been
elected prior to the consummation of this offering, some of the shareholders
who are now parties to the securities holders agreement will execute a voting
agreement pursuant to which they will agree to vote in favor of a nominee
designated by Bruckmann, Rosser to fill the vacancy.
The compensation committee of our board of directors recommends, reviews and
oversees the salaries, benefits and option plans for our employees, consultants
and other individuals compensated by us. The compensation committee also
administers our option plan. The members of the compensation committee are
Messrs. Rosser, Bruckmann and Friedman.
The audit committee of our board of directors reviews, acts on and reports
to our board with respect to various auditing and accounting matters, including
the recommendation of our auditors, the scope of our annual audits, fees to be
paid to the auditors, evaluating the performance of our independent auditors
and our accounting practices. The current members of the audit committee are
Messrs. Rosser, Bruckmann and Friedman. Prior to the consummation of this
offering, our board intends to change the composition of the audit committee to
consist of Messrs. Friedman and Valenti and the newly-elected director.
Director compensation
Our directors do not receive cash compensation for their services. Non-
employee directors are reimbursed for reasonable expenses incurred in
connection with serving as a director.
Compensation committee interlocks and insider participation
Our compensation committee currently consists of Messrs. Rosser, Bruckmann
and Friedman. No member of the compensation committee has served as one of our
officers or employees at any time. None of our executive officers serves as a
member of the board of directors or compensation committee of any other company
that has one or more executive officers serving as a member of our board of
directors or compensation committee.
43
<PAGE>
Indemnification and limitation of director and officer liability
In accordance with provisions of the California Corporations Law, our
articles of incorporation provide that the liability for monetary damages of
our directors shall be eliminated to the fullest extent permitted by California
law. Further, our articles authorize us to provide indemnification to our
agents (including our officers and directors). Our bylaws provide for this
indemnification of our corporate agents to the maximum extent permitted by
California law. See "Certain Relationships and Related Transactions."
Executive compensation
The following table sets forth information regarding the compensation earned
during 1999 by our Chief Executive Officer and President and each of our other
four most highly compensated executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation
Compensation(1) Awards
-------------------- ------------
Securities
Underlying
Name and Principal Position Salary Bonus Options
--------------------------- -------- -------- ------------
<S> <C> <C> <C>
Frederick R. Hipp
Chief Executive Officer and President....... $500,000 $312,500 --
Larry S. Flax
Co-Founder and Co-Chairman of the Board of
Directors.................................. 450,000(2) -- --
Richard L. Rosenfield
Co-Founder and Co-Chairman of the Board of
Directors.................................. 450,000(2) -- --
H.G. Carrington, Jr.
Executive Vice President and Chief Financial
Officer..................................... 207,523 118,720 17,500
Frederick F. Wolfe
Senior Vice President Operations............ 188,754 104,720 17,500
</TABLE>
--------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation described in this table does not include medical, group life
insurance or other benefits received by the named executive officers that
are available generally to all of our salaried employees and perquisites
and other personal benefits received by the named executive officers that
do not exceed the lesser of $50,000 or 10% of the officer's salary and
bonus disclosed in this table.
(2) Messrs. Flax and Rosenfield have executed amended and restated two-year
employment agreements that become effective upon the consummation of this
offering. These agreements will reduce their duties, eliminate their
individual salaries as of October 1, 2000 and grant each of them non-
qualified stock options to purchase 90,000 shares of common stock with an
exercise price equal to the initial public offering price. See
"Management--Employment Agreements."
44
<PAGE>
Option grants during 1999
The following table sets forth information concerning stock options that we
granted to our named executive officers in 1999. We have never issued stock
appreciation rights.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------
Potential Realizable
Value at Assumed
Number of Percentage of Annual Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted to for Option Term(5)
Options Employees in Exercise Price Expiration ---------------------
Name Granted(1) 1999(2) (per share)(3) Date(4) 5% 10%
---- ---------- ------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Frederick R. Hipp....... -- --% $ -- -- $ -- $ --
Larry S. Flax........... -- -- -- -- -- --
Richard L. Rosenfield... -- -- -- -- -- --
H.G. Carrington, Jr. ... 17,500(6) 6.38 8.70 11/02/09 232,490 439,378
Frederick F. Wolfe...... 17,500(6) 6.38 8.70 11/02/09 232,490 439,378
</TABLE>
--------
(1) Represents options we granted under our 1998 Stock Option Plan.
(2) Based on an aggregate of 274,500 shares of our common stock which are
subject to options granted to employees during 1999.
(3) We granted options at an exercise price equal to the fair market value of
our common stock as determined by our board of directors at the date of
grant. In determining the fair market value of our common stock, the board
considered various factors, including the formula used to value our stock
in our merger and leveraged recapitalization transaction, our financial
condition and business prospects, operating results, the absence of a
market for our common stock and the risks normally associated with
investments in companies engaged in similar businesses.
(4) The term of each option we grant is generally ten years from the date of
grant. Our options may terminate before their expiration dates if the
option holder's status as an employee is terminated or upon the option
holder's death or disability.
(5) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the Securities and Exchange Commission and do
not represent either historical appreciation or our estimate or projection
of our future common stock prices. These values have been calculated from
an assumed offering date of July 31, 2000 based on a per-share value equal
to the assumed initial public offering price rather than the fair market
value at the time of grant.
(6) 4,375 of these options vest on each of the first four anniversaries of the
grant date of November 2, 1999.
45
<PAGE>
Aggregated option exercises in 1999 and year-end option values
The following table sets forth information concerning options that our named
executive officers exercised during 1999 and the number of shares subject to
both exercisable and unexercisable stock options as of January 2, 2000. The
table also reports values for "in-the-money" options that represent the
positive spread between the exercise prices of outstanding options and the
assumed initial public offering price. We have never issued stock appreciation
rights.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Number of Options at January 2, In-the-Money Options at
Shares 2000 January 2, 2000 (1)
Acquired on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frederick R. Hipp....... -- $ -- -- 110,696(2) $ -- $1,513,104
Larry S. Flax........... -- -- -- -- -- --
Richard L. Rosenfield... -- -- -- -- -- --
H.G. Carrington, Jr..... 70,061 236,025 -- 17,500 -- 92,750
Frederick F. Wolfe...... 61,598 161,683 -- 36,250 -- 308,375
</TABLE>
--------
(1) Calculated by determining the difference between the assumed initial public
offering price and the exercise price of each officer's options.
(2) This option grant will become fully exercisable upon the consummation of
this initial public offering, if the public offering price implies an
aggregate market value for all shares of our common stock on a pre-offering
basis of $150.0 million. If this implied pricing is not achieved, the
option may then become exercisable if Bruckmann, Rosser, Sherrill & Co.,
L.P. and its co-investors sell a majority of their shares of our capital
stock at minimum prices which imply an aggregate market value for all
outstanding shares of our common stock of $115,875,758 if the sale occurs
before January 1, 2002 or $165,875,758 if the sale occurs after January 1,
2002 but prior to January 1, 2004.
Stock plans
As of the date of this prospectus, our employees hold outstanding stock
options for the purchase of 672,697 shares of our common stock. Options for the
purchase of an additional 600,566 shares of our common stock are presently
reserved for issuance under our 1998 Stock Plan. The following section provides
more detailed information concerning this plan as well as information
concerning stock options that we granted in prior years under older plans.
Employee stock purchase plan
In November 1999, we adopted an employee stock purchase plan under Section
423 of the Internal Revenue Code of 1986, as amended, which will become
effective upon the completion of this offering. Under our employee stock
purchase plan, all employees who work at least 20 hours a week and have been
with us for a minimum of one year are eligible to purchase shares of our common
stock through after-tax payroll deductions. Eligible employees will be able to
apply up to 15% of their annual gross pay towards the purchase of our common
stock at a price equal to 85% of the then fair market value of the shares. The
fair market value will be the lesser of (a) the price on the first day of each
offering period under the plan (which, in the case of the first offering
period, will be the price at which shares are sold in this offering) or, if the
employee is not eligible to participate on the first day of the offering
period, on the date he or she actually begins to participate, and (b) the price
on the date of actual purchase. All employees with rights to purchase shares
under the plan will only be able to do so on pre-determined exercise dates that
will occur four times per offering period, and may only purchase up to that
number of shares having an aggregate fair market value of $21,250 per year.
46
<PAGE>
1998 Stock-Based Incentive Compensation Plan
In February 1998, we adopted our 1998 Stock-Based Incentive Compensation
Plan to assist us in attracting, retaining and rewarding valued employees,
directors and independent contractors by offering them a greater stake in our
success and to encourage ownership in our stock by these employees, directors
and independent contractors. A total of 2,000,000 shares of our common stock
have been reserved for issuance under this plan. To date we have granted
options to acquire 1,399,434 shares under this plan and our employees have
exercised options to purchase 737,988 shares. We last granted options under
this plan in February 2000, although we intend to grant options to purchase an
aggregate of 180,000 shares to our co-founders upon the consumation of this
offering.
Our 1998 plan functions as a discretionary option grant program, under which
eligible individuals in our employ or service, including officers, non-employee
board members and consultants, may, at the discretion of the plan
administrator, be granted options to purchase shares of common stock at an
exercise price to be determined by our compensation committee. However, the
exercise price of incentive stock options must be not less than 100% of the
fair market value of the shares on the grant date or, in the case of incentive
stock options granted to our employees who hold more than 10% of our
outstanding common stock, the exercise price must be not less than 110% of the
fair market value of the shares on the grant date.
Our compensation committee administers our 1998 plan and has complete
discretion to determine which individuals are eligible to receive option
awards, the time or times when these option awards are to be made, the number
of shares subject to each award, the status of any grant as either an incentive
stock option or a non-statutory stock option under the federal tax laws, the
vesting schedule to be in effect for the option award, the term for which any
granted option is to remain outstanding (not to exceed ten years), the extent
to which a change in control of our company will affect outstanding option
awards, the extent of transferability of non-qualified option awards by the
holder, and the extent to which an option may be exchanged for cash. Because
this stock option plan was adopted prior to this offering, under applicable
Treasury Regulations, it is not subject to the special rule which limits the
compensation we can deduct for payments to our chief executive officer and four
other most highly compensated executive officers to $1,000,000 per officer per
year.
The exercise price for the shares of common stock subject to option grants
made under our 1998 plan may be paid in cash, in shares of common stock valued
at fair market value on the exercise date or other consideration as our
compensation committee may determine. The option may also be exercised through
a same-day sale program without any cash outlay by the optionee.
The 1998 plan shall remain in effect until 2008 unless terminated earlier by
our board of directors.
1990 Employee Equity Participation Plan
We adopted our 1990 Employee Equity Participation Plan effective March 1,
1990. This plan enabled our board of directors to grant to officers, directors,
employees and consultants of our company options for the purchase of up to an
aggregate of 500,000 shares of common stock. We granted both non-qualified
options and incentive stock options under this 1990 plan. The number of
outstanding and exercisable options remaining under this plan totals 11,710 and
the exercise price of each option is $15.00. No further options can be granted
under this plan.
Employment agreements
We have entered into an amended employment agreement with our Co-Chairman of
the Board of Directors, Rick Rosenfield, which will be effective upon
consummation of this offering. This agreement provides that we will continue to
employ Mr. Rosenfield through September 30, 2002 to assist us in developing our
menu and recipes, engage in public relations activities, work on the aesthetic
design of the restaurants and identify potential locations and franchisees for
new restaurant locations. This represents a reduction in the
47
<PAGE>
duties Mr. Rosenfield is required to perform. Under the new agreement, we will
pay Mr. Rosenfield a salary of $450,000 per year through September 30, 2000.
After that date, Mr. Rosenfield will not receive any further salary or bonus
payments. However, Mr. Rosenfield will be granted options to purchase an
additional 90,000 shares of our common stock which will vest as to half of the
shares on September 30, 2001 and as to the remaining shares on September 30,
2002. Mr. Rosenfield will also receive an automobile allowance of $2,000 each
month and reimbursement of dues in a country or dining club. During the term of
the agreement, Mr. Rosenfield may not compete in any business that sells pizza
or other menu items with recipes that are identical or substantially the same
as our recipes. This non-compete provision is less restrictive than the non-
compete provision which is in effect under Mr. Rosenfield's current employment
agreement. Mr. Rosenfield has also agreed not to solicit any of our employees
until three years after his employment terminates.
We have also entered into an amended employment agreement with our Co-
Chairman of the Board of Directors, Larry S. Flax, on the same terms as Mr.
Rosenfield's amended employment agreement.
In March 1998, we entered into a severance agreement with our Chief
Executive Officer and President, Frederick R. Hipp. This agreement provides
that we will be obligated to pay Mr. Hipp the amount of his base salary (up to
a maximum of $500,000) for one year following the date his employment
terminates, unless we terminate Mr. Hipp for cause, his employment terminates
because of his death, disability or retirement, or he voluntarily terminates
his employment. This severance agreement does not obligate Mr. Hipp to continue
his employment with us or obligate us to continue to employ him.
In May 1998, we entered into a severance agreement with our Executive Vice
President and Chief Financial Officer, H.G. Carrington, Jr. This agreement
provides that if we terminate Mr. Carrington, or constructively terminate him
(by demoting him or decreasing his base salary), following a change in control
or after Mr. Hipp is no longer the person to whom Mr. Carrington reports or the
person who has ultimate control over Mr. Carrington's employment, we will be
obligated to pay Mr. Carrington the amount of his base salary for one year
following the termination. We will not make this severance payment if we
terminate Mr. Carrington for cause or if his employment is terminated because
of death, disability or retirement. This severance agreement does not obligate
Mr. Carrington to continue his employment with us or obligate us to continue to
employ him.
In November 1999, we entered into an agreement with our Senior Vice
President Operations, Frederick F. Wolfe, that provides that, after the
termination of his employment, we will continue to pay him amounts equal to his
base salary for a period of twenty-six weeks unless his employment is
terminated as a result of his death, disability or retirement or unless we
terminate his employment for cause. We will continue to pay him thereafter for
a subsequent period of twenty-six weeks amounts equal to his base salary if he
is reasonably unable to find new employment unless his employment is terminated
as a result of his death, disability or retirement or unless we terminate his
employment for cause. If he finds employment during this subsequent twenty-six
week period that pays less than the base salary we would otherwise owe him, we
will pay him an amount equal to the difference.
In November 1999, we entered into an agreement with our Senior Vice
President and Chief Development Officer, Tom N. Jenneman, on the same terms as
Mr. Wolfe's severance agreement.
48
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our articles of incorporation provide that the liability of our directors to
us for monetary damages shall be eliminated to the fullest extent permissible
under California law. Our articles of incorporation further provide that we are
authorized to provide indemnification of agents (as defined in the California
General Corporation Law) for breach of duty to us and our shareholders which is
in excess of the indemnification otherwise permitted by Section 317 of the
California General Corporation Law, subject to the limits set forth in the
Section 204 of the California General Corporation law which exclude
indemnification for (a) acts or omissions that involve intentional misconduct
or knowing and culpable violation of law, (b) acts or omissions that a director
believes to be contrary to our best interests or to the best interests of our
shareholders or that involve the absence of good faith on the part of the
director, (c) any transaction from which a director derived an improper
personal benefit, (d) for acts or omissions that show a reckless disregard for
the director's duty to us or our shareholders in circumstances in which the
director was aware, or should have been aware, in the ordinary course of
performing the director's duties, of a risk of serious loss to us or our
shareholders, (e) acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to us or our
shareholders, (f) in certain circumstances involving contracts in which the
director has a material financial interest, and (g) for circumstances involving
improper dividends, loans and guarantees.
Our bylaws provide that we will indemnify any person who is made a party or
is threatened to be made a party to any legal action based on the person's
serving as our officer or director or at our request as an officer or director
of another entity. Our bylaws also provide that we will advance expenses in
defending against any such action.
Our Chief Executive Officer and President, Frederick R. Hipp, has advised us
that he intends to exercise options to purchase an aggregate of 110,696 shares
concurrently with the consummation of this offering. Under the agreement
granting these options, we must pay Mr. Hipp an amount of cash equal to 20% of
the gain he will recognize for federal income tax purposes as a result of such
exercise. We intend to loan Mr. Hipp an amount equal to difference between this
cash payment and the total tax liability he will incur as a result of this
exercise (including the amount of the cash payment). The promissory note will
bear interest at the rate of LIBOR on the date of exercise plus 1.5%. The
principal and interest under the note will be due and payable on the earlier to
occur of:
. three days after the date of sale of any of the option shares purchased
upon exercise,
. 30 days after the date his employment is terminated for cause or after
the date he voluntarily terminates his employment,
. one year after the date his employment terminates due to death or
disability, and
. the date which is two years after the date of exercise.
Mr. Hipp will also be required to apply a portion of any amounts which would
otherwise be payable as bonus compensation against amounts due under this note.
On September 28, 1999, we loaned $96,000 to our Executive Vice President and
Chief Financial Officer, H. G. Carrington, Jr., and $71,000 to our Senior Vice
President Operations, Frederick F. Wolfe, to enable them to pay the taxes
resulting from their exercise of options to purchase shares of our common stock
on the same date. The loans are evidenced by promissory notes which bear
interest at 7.5%. The principal and interest under the notes is due and payable
on the earlier to occur of (a) three days after the date of sale of any of the
option shares purchased upon exercise and (b) March 31, 2001. Each officer must
also apply a portion of any amounts which would otherwise be payable as bonus
compensation against amounts due under the notes. We also have the right to
repurchase 28,024 of Mr. Carrington's shares and 27,674 of Mr. Wolfe's shares
for their original exercise price of $0.33 per share if that officer
voluntarily terminates his employment or is terminated for cause prior to the
consummation of this offering. As of April 2, 2000 the amounts outstanding
under Mr. Carrington's and Mr. Wolfe's promissory notes are $70,000 and
$49,000, respectively.
49
<PAGE>
We do not currently contemplate entering into any contracts or other
transactions with any of our affiliates. However, in the future, in accordance
with California law, any contract or other transaction between us and one or
more of our directors or between us and any corporation, firm or association in
which one or more of our directors has a material financial interest will
either be approved by our shareholders or by the disinterested members of our
board of directors or an appropriate committee thereof. Material contracts or
agreements between us and our other affiliates will also require approval by a
majority of our board of directors.
50
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of the date of this prospectus and after the
offering, in each case as adjusted to reflect the conversion of our outstanding
preferred stock and the sale of the common stock offered by us with respect to:
. each person or entity who is known by us to beneficially own five percent
or more of our outstanding common stock;
. each of our directors;
. each of our named executive officers; and
. all of our directors and executive officers as a group.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to the Owned After the
Offering(1) Offering(1)(2)
--------------------- ---------------------
Name of Beneficial Owner Number Percentage Number Percentage
------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Bruckmann, Rosser, Sherrill & Co.,
L.P.(3).......................... 5,124,484 40.4% 5,124,484 28.5%
Larry S. Flax(4).................. 1,531,098 12.1 1,531,098 8.5
Richard L. Rosenfield(5).......... 1,440,753 11.4 1,440,753 8.0
Bruce C. Bruckmann(3)(6).......... 5,484,908 43.2 5,484,908 30.5
Harold O. Rosser(3)(7)............ 7,053,502 55.6 5,484,908 30.5
Stephen C. Sherrill(3)(8)......... 5,484,908 43.2 5,484,908 30.5
Stephen F. Edwards(9)............. 7,053,502 55.6 5,484,908 30.5
Furman Selz SBIC LP(10)........... 1,477,878 11.6 1,477,878 8.2
Frederick R. Hipp(11)............. 560,096 4.4 560,096 3.1
F. Nicholas Valenti(12)........... 415,110 3.3 415,110 2.3
H.G. Carrington, Jr.(13).......... 147,709 1.2 147,709 *
Frederick F. Wolfe(14)............ 67,848 * 67,848 *
Brian P. Friedman(15)............. 1,477,878 11.6 1,477,878 8.2
All directors and executive
officers as a group (15
persons)(16)..................... 11,445,045 88.2 11,354,329 65.6
</TABLE>
--------
* Less than 1%
(1) Percentage of ownership is calculated as required by Commission Rule 13d-
3(d)(1). Except as indicated in the footnotes to this table, the persons
named in this table have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them, subject to
community property laws. The table above includes the number of shares
underlying options which are exercisable within 60 days after the date of
this prospectus and the number of shares expected to be received upon the
conversion of the preferred stock. The number of shares expected to be
received upon the conversion of the preferred stock for each shareholder
assumes an initial public offering price of $14.00 per share and assumes
that this offering is completed on or about July 31, 2000. The share
numbers in this section have been rounded to the nearest whole number.
(2) These numbers do not take into account any exercise of the underwriters'
over-allotment option. This option has been granted by some of our
shareholders, as follows:
. Up to 560,573 shares of our common stock from Bruckmann, Rosser,
Sherrill & Co., L.P. of the 5,124,484 shares it holds;
. Up to 11,403 shares of our common stock from Bruce C. Bruckmann of the
177,748 shares he individually holds;
. Up to 2,324 shares of our common stock from Harold O. Rosser of the
36,222 shares he individually holds;
. Up to 11,928 shares of our common stock from Stephen C. Sherrill of the
185,935 shares he individually holds;
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. Up to 161,667 shares of our common stock from Furman Selz SBIC LP of the
1,477,878 shares it holds;
. Up to 666 shares of our common stock from BCB Family Partners of the
6,088 shares it holds;
. Up to 1,549 shares of our common stock from Donald Bruckmann of the
14,160 shares he holds;
. Up to 263 shares of our common stock from Elizabeth McShane of the 2,399
shares she holds;
. Up to 263 shares of our common stock from Beverly Place of the 2,399
shares she holds;
. Up to 321 shares of our common stock from NAZ Family Partners of the
2,937 shares it holds;
. Up to 465 shares of our common stock from Nancy A. Zweng of the 4,247
shares she holds;
. Up to 7,746 shares of our common stock from H. Virgil Sherrill of the
70,807 shares he holds;
. Up to 2,100 shares of our common stock from Paul Kaminski of the 19,197
shares he holds;
. Up to 333 shares of our common stock from Rice Edmonds of the 3,046
shares he holds;
. Up to 66 shares of our common stock from Marilena Tibrea of the 608
shares she holds; and
. Up to 33,333 shares of our common stock from BancBoston of the 304,717
shares it holds.
(3) Bruckmann, Rosser, Sherrill & Co., L.P. individually owns 4,369,084.27
shares of our common stock and will be issued 755,400 shares upon the
conversion of its preferred stock. Bruckmann, Rosser, Sherrill & Co., L.P.
is a limited partnership, the sole general partner of which is BRS
Partners, Limited Partnership and the manager of which is Bruckmann,
Rosser, Sherrill & Co., Inc. The sole general partner of BRS Partners is
BRSE Associates, Inc. Bruce C. Bruckmann, Harold O. Rosser, Stephen C.
Sherrill and Stephen F. Edwards are the only stockholders of Bruckmann,
Rosser, Sherrill & Co., Inc. and BRSE Associates and may be deemed to
share beneficial ownership of the shares shown as beneficially owned by
Bruckmann, Rosser, Sherrill & Co., L.P. Each of Messrs. Bruckmann, Rosser,
Sherrill and Edwards disclaims beneficial ownership of any such shares.
The address for all of these shareholders is Greenwich Plaza, Suite 100,
Greenwich, CT 06830.
(4) Mr. Flax individually owns 1,221,905 shares of our common stock and will
be issued 210,080 shares upon the conversion of his preferred stock. Mr.
Flax also exercises voting control over 99,113 shares as the trustee of
the Rosenfield Children's Trust, including 14,154 shares which will be
issued upon the conversion of the trust's preferred stock. Mr. Flax
disclaims any beneficial ownership over these shares. Mr. Flax's address
is 6053 West Century Blvd., 11th Floor, Los Angeles, California 90045.
(5) Mr. Rosenfield individually owns 1,234,776 shares of our common stock and
will be issued 205,977 shares upon the conversion of his preferred stock.
Mr. Rosenfield's address is 6053 West Century Blvd., 11th Floor, Los
Angeles, California 90045.
(6) Mr. Bruckmann individually owns 88,874 shares of our common stock and will
be issued 15,365 shares upon the conversion of his preferred stock. The
total number also includes shares which are owned by Bruckmann, Rosser,
Sherrill & Co., L.P. and other entities and individuals affiliated with
it, including shares to be issued to such entities and individuals upon
the conversion of their preferred stock. Although Mr. Bruckmann may be
deemed to share beneficial ownership of such shares, he disclaims any
beneficial ownership thereof.
(7) Mr. Rosser individually owns 18,111 shares of our common stock and will be
issued 3,130 shares upon the conversion of his preferred stock. Mr. Rosser
shares voting power over 1,568,594 shares with Stephen F. Edwards as co-
voting trustee under a Voting Trust Agreement dated September 30, 1997.
The voting trust will terminate upon consummation of this offering. Mr.
Rosser disclaims any beneficial ownership of such shares. The total number
also includes shares which are owned by Bruckmann, Rosser, Sherrill & Co.,
L.P. and other entities and individuals affiliated with it, including
shares to be issued to such entities and individuals upon the conversion
of their preferred stock. Although Mr. Rosser may also be deemed to share
beneficial ownership of such shares, he disclaims any beneficial ownership
thereof.
(8) Mr. Sherrill individually owns 92,968 shares of our common stock and will
be issued 16,073 shares upon the conversion of his preferred stock. The
total number also includes shares which are owned by
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Bruckmann, Rosser, Sherrill & Co., L.P. and other entities and individuals
affiliated with it, including shares to be issued to such entities and
individuals upon the conversion of their preferred stock. Although Mr.
Sherrill may be deemed to share beneficial ownership of such shares, he
disclaims any beneficial ownership thereof.
(9) Mr. Edwards shares voting power over 1,568,594 shares with Harold O.
Rosser as co-voting trustee under a Voting Trust Agreement dated September
30, 1997. The voting trust will terminate upon consummation of this
offering. Mr. Edwards disclaims any beneficial ownership of such shares.
The total number also includes shares which are owned by Bruckmann,
Rosser, Sherrill & Co., L.P. and other entities and individuals affiliated
with it, including shares to be issued to such entities and individuals
upon the conversion of their preferred stock. Although Mr. Edwards also
may be deemed to share beneficial ownership of such shares, he disclaims
any beneficial ownership thereof.
(10) Furman Selz has transferred its voting power over 1,260,024 of these
shares to Messrs. Rosser and Edwards under a Voting Trust Agreement dated
September 30, 1997. The total number also includes 217,854 shares of our
common stock which will be issued upon the conversion of its preferred
stock. The voting trust will terminate upon consummation of this offering.
Furman Selz's address is 55 E. 52nd Street, New York, NY 10055.
(11) Mr. Hipp individually owns 332,088 shares of our common stock. We have the
right to repurchase 110,696 of these shares at a price of $0.30 per share
if Mr. Hipp is terminated for cause or voluntarily quits his employment
prior to January 1, 2001. As the trustee of the Frederick R. Hipp
Revocable Trust, he controls an additional 117,312 shares, including
16,302 shares which will be issued upon the conversion of the trust's
preferred stock. Additionally, upon the completion of this initial public
offering, Mr. Hipp's options to buy 110,696 shares of our common stock
will immediately vest because the public offering price implies an
aggregate market value for all shares of our common stock, on a pre-
offering basis, of $150 million. Mr. Hipp's address is 6053 West Century
Blvd., 11th Floor, Los Angeles, California 90045.
(12) Mr. Valenti's address is Restaurant Associates, 120 E. 45th Street, New
York, NY 10036.
(13) Mr. Carrington, in joint tenancy with his wife, Ricki L. Carrington, owns
140,122 shares of our common stock and will be issued 7,587 shares upon
the conversion of our preferred stock. Mr. Carrington has options to buy
an additional 17,500 shares, none of which will be exercisable within 60
days of this initial public offering. Mr. Carrington's address is 6053
West Century Blvd., 11th Floor, Los Angeles, California 90045.
(14) Mr. Wolfe, as trustee of the 1998 Frederick Wolfe Revocable Trust,
exercises voting control over 61,598 shares of our common stock. Mr. Wolfe
has options to buy an additional 36,250 shares, 6,250 of which will be
exercisable within 60 days of this initial public offering. Mr. Wolfe's
address is 6053 West Century Blvd., 11th Floor, Los Angeles, California
90045.
(15) Mr. Friedman serves as the president of Furman Selz SBIC Investments LLC,
a general partner of Furman Selz SBIC LP which owns 1,260,024 shares and
which will be issued 217,854 shares upon the conversion of its preferred
stock. Mr. Friedman's address is ING Furman Selz Investments,
55 E. 52nd Street, New York, NY 10055.
(16) These 15 persons include all directors and executive officers detailed in
the "Management" section above. See notes 4, 5, 6, 7, 11, 12, 13, 14 and
15 above. Sarah A. Goldsmith individually owns 7,901 shares, will be
issued 274 shares upon the conversion of her preferred stock, and has
options to buy an additional 44,637 shares, 10,262 of which will be
exercisable within 60 days of this initial public offering. Julie
Carruthers individually owns 10,437 shares, will be issued 424 shares upon
the conversion of her preferred stock, and has options to buy an
additional 49,247 shares, 14,872 of which will be exercisable within 60
days of this initial public offering. Douglas A. MacDonald individually
owns 6,250 shares and has options to buy 26,250 shares, 6,250 of which
will be exercisable within 60 days of this initial public offering. Karen
M. Settlemyer individually owns 6,250 shares and has options to buy 26,250
shares, 6,250 of which will be exercisable within 60 days of this initial
public offering. Tom N. Jenneman individually owns no shares and has
options to buy 37,500 shares, 9,375 of which will be exercisable
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within 60 days of this initial public offering. Gregory S. Levin
individually owns no shares and has options to buy 27,500 shares, 6,250 of
which will be exercisable within 60 days of this initial public offering.
The address for all these officers is 6053 West Century Blvd., 11th Floor,
Los Angeles, California 90045.
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DESCRIPTION OF CAPITAL STOCK
Upon the consummation of this offering, our authorized capital stock will
consist of 80,000,000 shares of common stock, par value $0.01 per share, of
which 17,997,384 shares will be issued and outstanding (assuming 5,300,000
shares are sold in this offering), and 40,000,000 shares of Class A Preferred
Stock, of which no shares will be issued and outstanding. In December 1997, we
declared a dividend of one share of Series A 12 1/2% Cumulative Compounding
Preferred Stock and one share of Series B 13 1/2% Cumulative Compounding
Preferred Stock on each outstanding share of our common stock. Subsequently,
two of our executive officers were also permitted to purchase shares of
preferred stock (each was required to purchase the same number of shares of
Series A Preferred Stock as Series B Preferred Stock). As discussed under "Use
of Proceeds", upon the consummation of this offering, all outstanding shares of
preferred stock will be converted into a right to receive shares of common
stock and cash. All of the shares of outstanding Class A Preferred Stock which
are converted will return to the status of authorized and unissued shares of
preferred stock and may be reissued as a part of a new series of preferred
stock to be created by resolution or resolutions of the board of directors.
Common stock
Before giving effect to the conversion of preferred stock into common stock
in connection with this offering, there are 10,896,686 shares of common stock
outstanding as of the date of this prospectus. These shares are held of record
by 180 shareholders.
Holders of common stock are entitled to one vote per share on all matters to
be voted upon by shareholders. In accordance with California law, the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act of
the shareholders. In accordance with California law, prior to the closing of
this offering, holders of common stock were entitled to cumulate votes in the
election of directors. However, after consummation of this offering, holders of
common stock will no longer be entitled to cumulate votes in the election of
directors. The shares of common stock have no preemptive rights, no redemption
or sinking fund provisions, and are not liable for further call or assessment.
The holders of common stock are entitled to receive dividends when and as
declared by the board of directors out of funds legally available for
dividends. In the past, we have declared and paid cash dividends only in
connection with extraordinary corporate transactions such as PepsiCo's
acquisition of a controlling interest in us in 1992. We currently intend to
retain all future earnings for the operation and expansion of our business and
do not anticipate paying cash dividends on the common stock in the foreseeable
future.
Upon a liquidation of California Pizza Kitchen, our creditors and holders of
our preferred stock with preferential liquidation rights will be paid before
any distribution to holders of our common stock. The holders of common stock
would be entitled to receive a pro rata distribution per share of any excess
amount.
The rights, preferences and privileges of holders of common stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of preferred stock which we may designate and issue in the
future.
Class A Preferred Stock
Our articles of incorporation empower the board of directors to issue up to
40,000,000 shares of Class A Preferred Stock from time to time in one or more
series. The board also may fix the designation, privileges, preferences and
rights and the qualifications, limitations and restrictions of those shares,
including dividend rights, conversion rights, voting rights, redemption rights,
terms of sinking funds, liquidation preferences and the number of shares
constituting any series or the designation of the series. Terms selected could
decrease the amount of earnings and assets available for distribution to
holders of our common stock or adversely affect the rights and power, including
voting rights, of the holders of our common stock without any further vote or
action by the shareholders. The rights of holders of common stock will be
subject to, and may be adversely affected
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by, the rights of the holders of any Class A Preferred Stock that may be issued
by us in the future. The issuance of Class A Preferred Stock could have the
effect of delaying or preventing a change in control of the company or make
removal of management more difficult. Additionally, the issuance of Class A
Preferred Stock may have the effect of decreasing the market price of our
common stock, and may adversely affect the voting and other rights of the
holders of common stock. Upon consummation of this offering, there will be no
outstanding shares of our Class A Preferred Stock. While we have no present
intention to issue any shares of Class A Preferred Stock, any issuance could
have the effect of making it more difficult for a third party to acquire a
majority of our outstanding voting stock.
Potential anti-takeover effect of provisions of California law
Section 1203 of the California General Corporations Law includes provisions
that may have the effect of deterring hostile takeovers or delaying or
preventing changes in control or management of our company. First, if an
"interested person" makes an offer to purchase the shares of some or all of our
shareholders, we must obtain an affirmative opinion in writing as to the
fairness of the offering price prior to completing the transaction. California
law considers a person to be an "interested person" if the person directly or
indirectly controls our company, if the person is directly or indirectly
controlled by one of our officers or directors, or if the person is an entity
in which one of our officers or directors holds a material financial interest.
If after receiving an offer from such an "interested person" we receive a
subsequent offer from a neutral third party, then we must notify our
shareholders of this offer and afford each of them the opportunity to withdraw
their consent to the "interested person" offer.
Section 1203 and other provisions of California law could make it more
difficult for a third party to acquire a majority of our outstanding voting
stock, by discouraging a hostile bid, or delaying, preventing or detering a
merger, acquisition or tender offer in which our shareholders could receive a
premium for their shares, or effect a proxy contest for control of our company
or other changes in our management.
Registration rights
Following this offering the holders of 10,481,894 shares of common stock
will be entitled to registration rights with respect to these shares pursuant
to a registration rights agreement by and among the Company, Bruckmann, Rosser,
Sherrill & Co., L.P. and its co-investors and Rick Rosenfield and Larry Flax
dated September 30, 1997. Subject to several exceptions, including our right to
defer a demand registration for a single period of up to 180 days under some
circumstances, Bruckmann, Rosser may require that we use our best efforts to
register for public resale under the Securities Act all shares of common stock
they request be registered. Bruckmann, Rosser may exercise an unlimited number
of demand registrations so long as the securities being registered are
reasonably expected to produce aggregate proceeds of $5 million or more. Rick
Rosenfield, Larry Flax and all of the co-investors with Bruckmann, Rosser in
the recapitalization transaction are entitled to piggyback registration rights
on a pro rata basis with respect to any demand registration request made by
Bruckmann, Rosser. All fees, costs and expenses of this registration, other
than underwriting discounts and commissions, will be borne by us.
In addition, all holders of shares with registration rights have the right
to piggyback on any registration for our account or the account of another
shareholder. Accordingly, in the event that we propose to register additional
shares of common stock under the Securities Act, either for our own account or
for the account of any other security holder, the holders of shares having
piggyback registration rights are entitled to receive notice of that
registration and to include their shares in the registration, subject to
limitations described in the agreement. All registration rights are subject to
conditions and limitations, among them the right of the underwriters of any
offering to limit the number of shares of common stock held by these security
holders to be included in the registration. We are generally required to bear
all of the expenses of all registrations, except underwriting discounts and
selling commissions. Registration of the shares of common stock held by
security holders with registration rights would result in these shares becoming
freely tradeable without restriction under the Securities Act immediately upon
effectiveness of this registration.
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Transfer agent and registrar
American Stock Transfer & Trust Company has been appointed as the transfer
agent and registrar for the common stock. Its telephone number is (718) 236-
4588.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no market for our common stock. Future
sales of substantial amounts of common stock in the public market could
adversely affect market prices prevailing from time to time. Upon completion of
this offering, we will have outstanding an aggregate of 17,997,384 shares of
common stock, assuming no exercise of our options, other than the exercise of
options to purchase 110,696 shares of our common stock by our Chief Executive
Officer and President, and the conversion of all of our preferred stock into a
right to receive shares of our common stock and cash. Of these shares, the
shares sold in this offering will be freely tradeable without restriction or
further registration under the Securities Act, except that any shares purchased
by "affiliates" of the Company, as that term is defined in Rule 144 of the
Securities Act, may generally only be sold in compliance with the limitations
of Rule 144 described below.
Sales of restricted shares
The 12,697,384 shares of common stock held by existing shareholders are
"restricted securities" under Rule 144. The number of shares of common stock
available for sale in the public market is limited by restrictions under the
Securities Act and lock-up agreements under which the holders of
11,145,965 shares have agreed not to sell or otherwise dispose of any of their
shares for a period of 180 days after the date of this prospectus without the
prior written consent of Banc of America Securities LLC. In addition, the
holders of approximately 750,000 shares have agreed not to sell or otherwise
dispose of their shares for a 90-day period after the date of this prospectus
without the prior written consent of Banc of America Securities LLC.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned restricted shares for at least one year (including
the holding period of any prior owner, except if the prior owner was an
affiliate) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (a) one percent of the number of
shares of common stock then outstanding (which will equal approximately
179,973 shares immediately after the offering); or (b) the average weekly
trading volume of the common stock on the Nasdaq National Market during the
four calendar weeks preceding the filing of a notice on Form 144 with respect
to this sale. Sales under Rule 144 are also subject to manner of sale
provisions and notice requirements and to the availability of current public
information about us. Under Rule 144(k), a person who is not deemed to have
been an affiliate of ours at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years (including the holding period of any prior owner except a prior owner who
was an affiliate), is entitled to sell its shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144; therefore, unless otherwise restricted, "144(k) shares" could be sold
immediately upon the completion of the offering. On the date of this
prospectus, an aggregate of approximately 800,000 shares will qualify as
"144(k)" shares which are not otherwise restricted.
Upon completion of the offering, the holders of 10,500,441 shares of common
stock, or their transferees, will be entitled to rights with respect to the
registration of their shares under the Securities Act. Registration of these
shares under the Securities Act would result in these shares becoming freely
tradeable without restriction under the Securities Act (except for shares
purchased by affiliates) immediately upon the effectiveness of that
registration.
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Options
We intend to file a registration statement on Form S-8 covering all shares
of common stock issuable upon exercise of stock options in effect on the date
of this prospectus, stock options or other stock rights to be granted under our
1998 stock option plan and shares of common stock previously acquired upon
exercise of options granted under our 1990 and 1998 stock option plans. Upon
this registration on Form S-8, and after the expiration of any applicable lock-
up period, up to an additional 672,690 shares of common stock, together with
any additional shares of common stock that will be issuable pursuant to stock
options or other stock rights granted in the future under our 1998 stock option
plan, and up to 375,000 additional shares of common stock under our employee
stock purchase plan, will be eligible for sale in the public market.
Subject to certain conditions, Rule 701 under the Securities Act may be
relied upon with respect to the resale of securities originally purchased from
us by our employees, directors, officers, consultants or advisors prior to the
closing of this offering, under written compensatory benefit plans or written
contracts relating to the compensation of these persons. This also applies to
stock options we granted prior to this offering, along with the shares acquired
upon exercise of those options after the closing of this offering. Beginning 90
days after the date of this prospectus (unless subject to lockup agreements or
other contractual restrictions) these shares may be sold by persons other than
affiliates subject only to the manner of sale provisions of Rule 144 and by
affiliates under Rule 144 without compliance with the one year minimum holding
period requirement.
Sales of substantial amounts of common stock in the public market, or the
perception that these sales may occur, could adversely affect the prevailing
market price of our common stock and our ability to raise capital through
offerings of equity securities.
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PLAN OF DISTRIBUTION
We are offering the shares of common stock described in this prospectus
through a number of underwriters. Banc of America Securities LLC, Deutsche Bank
Securities Inc. and FleetBoston Robertson Stephens Inc. are the representatives
of the underwriters. We have entered into an underwriting agreement with the
representatives. According to the terms and conditions of the underwriting
agreement, we have agreed to sell to the underwriters, and each of the
underwriters has agreed to purchase, the number of shares of common stock
listed next to its name in the following table:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Banc of America Securities LLC.....................................
Deutsche Bank Securities Inc. .....................................
FleetBoston Robertson Stephens Inc. ...............................
---------
Total............................................................ 5,300,000
=========
</TABLE>
The underwriting agreement provides that the underwriters must buy all of
the shares if they buy any of them. The underwriters will sell the shares to
the public when and if the underwriters buy the shares from us. The
underwriters initially will offer shares to the public at the price specified
on the cover page of this prospectus. The underwriters may allow to some
dealers a concession of not more than $ per share. The underwriters
also may allow, and any other dealers may reallow, a concession of not more
than $ per share to some other dealers. If all the shares are not sold
at the initial public offering price, the underwriters may change the offering
price and the other selling terms. The common stock is offered subject to a
number of conditions, including:
. receipt and acceptance of our common stock by the underwriters, and
. the right on the part of the underwriters to reject orders in whole or in
part.
Some of our shareholders have granted an option to the underwriters to buy
up to 795,000 additional shares of common stock. These additional shares would
cover sales of shares by the underwriters which exceed the number of shares
specified in the table above. The underwriters have 30 days to exercise this
option. If the underwriters exercise this option, they will each purchase
additional shares approximately in proportion to the amounts specified in the
table above.
We, all of our officers and directors and our principal shareholders have
entered into lock-up agreements with the underwriters. Under those agreements,
we may not issue any new shares of common stock (except upon exercise of
outstanding options), and we and those holders of stock and options may not
dispose of or hedge any common stock or securities convertible into or
exchangeable for shares of common stock. These restrictions will be in effect
for a period of 180 days after the date of this prospectus. In addition, the
holders of approximately 750,000 shares have agreed not to sell or otherwise
dispose of their shares for a 90-day period after the date of this prospectus
without the prior written consent of Banc of America Securities. At any time
and without notice, Banc of America Securities LLC may, in its sole discretion,
release all or some of the securities from these lock-up agreements.
We will indemnify the underwriters against some liabilities, including some
liabilities under the Securities Act. If we are unable to provide this
indemnification, we will contribute to payments the underwriters may be
required to make in respect to those liabilities.
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include:
. short sales,
. stabilizing transactions, and
. purchases to cover positions created by short sales.
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Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while this offering
is in progress.
The underwriters also may impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.
The underwriters may engage in activities that stabilize, maintain or
otherwise affect the price of the common stock, including:
. over-allotment,
. stabilization,
. syndicate covering transactions, and
. imposition of penalty bids.
As a result of these activities, the price of the common stock may be higher
than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National
Market, in the over-the-counter market or otherwise.
Each of the principal underwriters intends to sell shares of common stock
they purchase in this offering to accounts over which they exercise
discretionary authority, although these sales are not expected to exceed 5% of
the total number of shares of common stock offered by this prospectus.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be negotiated between us and the
underwriters. Among the factors to be considered in the negotiations are:
. our history and prospects, and the history and prospects of the industry
in which we compete,
. our past and present financial performance,
. an assessment of our management,
. the present state of our development,
. our prospects for future earnings,
. the prevailing market conditions of the U.S. securities markets at the
time of this offer,
. market valuations of publicly traded companies that we and the
underwriters believe to be comparable to us, and
. other factors deemed relevant by us and the underwriters.
The underwriters, at our request, have reserved for sale to our employees,
strategic partners and other individuals associated with us and members of
their families, up to 5% of the shares being offered by this prospectus at the
initial public offering price. The sales will be made by Banc of America
Securities LLC through a directed share program. We do not know if these
persons will choose to purchase all or any portion of these reserved shares,
but any purchases they do make will reduce the number of shares available to
the general public. If all of the reserved shares are not purchased, the
underwriters will offer the remainder to the general public on the same terms
as the other shares offered by this prospectus. Any employees, strategic
partners or other persons purchasing such reserved shares will be prohibited
from disposing of or hedging such shares for a period of at least 90 days after
the date of this prospectus.
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It is anticipated that more than ten percent of the proceeds of the offering
will be applied to repay our debt obligations owed to affiliates of Banc of
America Securities LLC and Deutsche Bank Securities Inc. under our credit
agreement. Because more than ten percent of the net proceeds of the offering
may be paid to members or affiliates of members of the National Association of
Securities Dealers, Inc. participating in the offering, the offering will be
conducted in accordance with NASD Conduct Rule 2710(c)(8). This rule requires
that the public offering price of an equity security be no higher than the
price recommended by a "qualified independent underwriter" which has
participated in the preparation of the registration statement and performed its
usual standard of due diligence with respect thereto. FleetBoston Robertson
Stephens Inc. has agreed to act as qualified independent underwriter for the
offering, and the price of the shares will be no higher than that recommended
by FleetBoston Robertson Stephens Inc. Upon the consummation of this offering,
after giving effect to the automatic conversion of our preferred stock into
shares of our common stock and cash, an affiliate of FleetBoston Robertson
Stephens Inc. will own 304,717 shares of our common stock.
LEGAL MATTERS
The validity of the shares of common stock offered in this initial public
offering will be passed upon for California Pizza Kitchen by Paul, Hastings,
Janofsky & Walker LLP, Los Angeles, California. Legal matters in connection
with the common stock offered in this initial public offering will be passed
upon for the underwriters by Fried, Frank, Harris, Shriver & Jacobson (a
partnership including professional corporations), Los Angeles, California.
EXPERTS
The consolidated financial statements of California Pizza Kitchen, Inc. at
January 3, 1999 and January 2, 2000, and for each of the three fiscal years in
the period ended January 2, 2000, appearing in this prospectus and the
registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm
as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission for the common stock we are offering by this prospectus.
This prospectus does not include all the information contained in the
registration statement and its exhibits and schedules. You should refer to the
registration statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and should refer to the
exhibits attached to the registration statement for copies of the actual
contract, agreement or other documents. When we complete this offering, we will
also be required to file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You can read our filings with the Securities and Exchange Commission,
including the registration statement, over the internet at the SEC's website at
www.sec.gov. You may read and copy any document we file with the SEC at its
public reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549,
the New York Regional Office located at 7 World Trade Center, 13th Floor, New
York, NY 10048, and the Chicago Regional Office located at Northwestern Atrium
Center, 500 West Madison Street, Chicago, IL 60661. You may also obtain copies
of the documents at prescribed rates by writing to the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the operation of the Public
Reference facilities. Our SEC filings are also available at the office of the
Nasdaq National Market. For further information on obtaining copies of our
public filings at the Nasdaq National Market you should call (212) 656-5060.
61
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Financial Statements
Consolidated Balance Sheets at January 3, 1999 and January 2, 2000........ F-3
Consolidated Statements of Operations for the Years Ended December 28,
1997, January 3, 1999 and January 2, 2000................................ F-4
Consolidated Statements of Shareholders' Deficiency for the Years Ended
December 28, 1997, January 3, 1999 and January 2, 2000................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 28,
1997, January 3, 1999 and January 2, 2000................................ F-6
Notes to Consolidated Financial Statements................................ F-8
Unaudited Consolidated Financial Statements
Unaudited Consolidated Balance Sheet at April 2, 2000..................... F-18
Unaudited Consolidated Statements of Operations for the Three Months Ended
April 4, 1999 and April 2, 2000.......................................... F-19
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended
April 4, 1999 and April 2, 2000.......................................... F-20
Notes to Unaudited Consolidated Financial Statements...................... F-21
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
California Pizza Kitchen, Inc.
We have audited the accompanying consolidated balance sheets of California
Pizza Kitchen, Inc. and Subsidiaries (the "Company") as of January 3, 1999 and
January 2, 2000, and the related consolidated statements of operations,
shareholders' deficiency and cash flows for each of the three fiscal years in
the period ended January 2, 2000. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of California
Pizza Kitchen, Inc. and Subsidiaries at January 3, 1999 and January 2, 2000,
and the consolidated results of their operations and their cash flows for each
of the three fiscal years in the period ended January 2, 2000 in conformity
with accounting principles generally accepted in the United States.
Woodland Hills, California
January 28, 2000, except for notes 9 and 12,
as to which the date is , 2000
--------------------------------------------------------------------------------
The foregoing report is in the form that it will be signed upon the approval
of a one for two reverse stock split described in note 12 to the consolidated
financial statements.
/s/ Ernst & Young LLP
Woodland Hills, California
July 17, 2000
F-2
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 3, 1999 and January 2, 2000
(in thousands, except for share and per share data)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.............................. $ 14,553 $ 5,686
Trade accounts receivable.............................. 2,097 1,509
Inventories............................................ 1,208 1,239
Prepaid expenses and other current assets.............. 891 2,395
--------- ---------
Total current assets..................................... 18,749 10,829
Property and equipment, net.............................. 69,028 78,048
Deferred taxes........................................... 6,102 4,754
Other assets............................................. 2,276 1,119
--------- ---------
Total assets............................................. $ 96,155 $ 94,750
========= =========
Liabilities and shareholders' deficiency
Current liabilities:
Accounts payable....................................... $ 4,585 $ 3,661
Accrued compensation and benefits...................... 6,947 7,658
Accrued rent........................................... 4,571 4,655
Other accrued liabilities.............................. 5,365 3,993
Current maturities of long-term debt................... 2,562 1,537
--------- ---------
Total current liabilities................................ 24,030 21,504
Long-term debt, less current maturities.................. 42,823 38,548
Other liabilities........................................ 967 606
Commitments..............................................
Redeemable preferred stock:
Series A 12 1/2% Cumulative Compounding Preferred
Stock--10,151,771 shares issued and outstanding at
January 3, 1999 and January 2, 2000, respectively;
liquidation preference of $21,831 and $24,625 at
January 3, 1999 and January 2, 2000, respectively..... 21,831 24,625
Series B 13 1/2% Cumulative Compounding Preferred
Stock--10,151,771 shares issued and outstanding at
January 3, 1999 and January 2, 2000, respectively;
liquidation preference of $16,943 and $19,296 at
January 3, 1999 and January 2, 2000, respectively..... 16,943 19,296
Shareholders' deficiency:
Common Stock--$0.01 par value, 80,000,000 shares
authorized, 10,468,788 and 10,896,685 shares issued
and outstanding at January 3, 1999 and January 2,
2000, respectively.................................... 105 109
New Class B Common Stock--$0.01 par value, 80,000,000
shares authorized, 269,600 and 0 shares issued and
outstanding at January 3, 1999 and January 2, 2000,
respectively.......................................... 3 --
Additional paid-in capital............................. 109,130 104,340
Accumulated deficit.................................... (119,677) (114,278)
--------- ---------
Total shareholders' deficiency........................... (10,439) (9,829)
--------- ---------
Total liabilities and shareholders' deficiency........... $ 96,155 $ 94,750
========= =========
</TABLE>
See accompanying notes.
F-3
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 28, 1997, January 3, 1999 and January 2, 2000
(in thousands, except for per share data)
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Restaurant sales............................... $159,391 $165,028 $176,933
Franchise and other revenues................... 1,025 2,013 2,260
-------- -------- --------
Total revenues............................... 160,416 167,041 179,193
Costs and expenses:
Cost of sales.................................. 43,361 43,201 44,740
Labor.......................................... 57,321 58,547 63,701
Direct operating and occupancy................. 36,481 34,171 35,848
-------- -------- --------
Total restaurant operating costs............. 137,163 135,919 144,289
General and administrative..................... 15,896 13,890 13,123
Depreciation and amortization.................. 7,807 7,543 8,234
Pre-opening.................................... 445 234 763
Loss on impairment of property and equipment
and restaurant closures....................... 9,604 85 200
-------- -------- --------
Operating income (loss)...................... (10,499) 9,370 12,584
Other income (expenses):
Bank financing fees............................ -- -- (998)
Interest expense............................... (930) (3,956) (3,415)
-------- -------- --------
Total other income (expenses), net........... (930) (3,956) (4,413)
-------- -------- --------
Income (loss) before income tax benefit
(provision)..................................... (11,429) 5,414 8,171
Income tax benefit (provision)................... (251) 5,139 (2,772)
-------- -------- --------
Net income (loss)................................ $(11,680) $ 10,553 $ 5,399
======== ======== ========
Redeemable preferred stock dividend ............. (33,783) -- --
Redeemable preferred stock accretion............. -- (4,478) (5,147)
-------- -------- --------
Net income (loss) attributable to common
shareholders.................................... $(45,463) $ 6,075 $ 252
======== ======== ========
Net income per common share:
Basic.......................................... $ 0.60 $ 0.02
======== ========
Diluted........................................ $ 0.58 $ 0.02
======== ========
Shares used in calculating net income per common
share:
Basic.......................................... 10,113 10,800
======== ========
Diluted........................................ 10,528 11,168
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
(in thousands, except for share data)
<TABLE>
<CAPTION>
Class A Class B New Class B
Common Stock Common Stock Common Stock Common Stock Additional
------------------- --------------------- ----------------- ---------------- Paid-in Accumulated
Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Total
---------- ------- ----------- -------- ---------- ------ -------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 29,
1996............. 2,722,843 $ 7,694 2,957,783 $ 71,289 -- $-- -- $ -- $ -- $(118,550) $(39,567)
Contribution of
Class A Common
Stock........... (1,092,843) (2,495) -- -- -- -- -- -- 2,495 -- --
Exercise of
stock options... -- 14 -- -- -- -- -- -- -- -- 14
Merger with CP
Kitchen
Acquisition
Corp. .......... -- -- -- -- 6,470,400 65 269,600 3 1,932 -- 2,000
Conversion of
Class B Common
Stock to right
to receive cash
and certain net
assets.......... -- -- (2,957,783) (71,289) -- -- -- -- 126,796 -- 55,507
Conversion of
Class A Common
Stock to right
to receive cash
and Common
Stock........... (1,630,000) (5,213) -- -- 3,260,000 32 -- -- (4,819) -- (10,000)
Capital
contribution.... -- -- -- -- -- -- -- -- 23,000 -- 23,000
Restructuring
related
expenses........ -- -- -- -- -- -- -- -- (2,331) -- (2,331)
Preferred stock
dividend........ -- -- -- -- -- -- -- -- (33,783) -- (33,783)
Net loss........ -- -- -- -- -- -- -- -- -- (11,680) (11,680)
---------- ------- ----------- -------- ---------- ---- -------- ---- -------- --------- --------
Balances at
December 28,
1997............. -- -- -- -- 9,730,400 97 269,600 3 113,290 (130,230) (16,840)
Issuance of
Common Stock.... -- -- -- -- 157,059 2 -- -- 59 -- 61
Exercise of
employee stock
options......... -- -- -- -- 346,100 3 -- -- 112 -- 115
Exercise of
nonemployee
stock options... -- -- -- -- 235,229 3 -- -- 122 -- 125
Preferred stock
accretion....... -- -- -- -- -- -- -- -- (4,478) -- (4,478)
Other........... -- -- -- -- -- -- -- -- 25 -- 25
Net income...... -- -- -- -- -- -- -- -- -- 10,553 10,553
---------- ------- ----------- -------- ---------- ---- -------- ---- -------- --------- --------
Balances at
January 3, 1999.. -- -- -- -- 10,468,788 105 269,600 3 109,130 (119,677) (10,439)
Exercise of
employee stock
options......... -- -- -- -- 158,297 1 -- -- 135 -- 136
Tax benefit from
employee stock
option
exercises....... -- -- -- -- -- -- -- -- 222 -- 222
Conversion of
New Class B to
Common Stock.... -- -- -- -- 269,600 3 (269,600) (3) -- -- --
Preferred stock
accretion....... -- -- -- -- -- -- -- -- (5,147) -- (5,147)
Net income...... -- -- -- -- -- -- -- -- -- 5,399 5,399
---------- ------- ----------- -------- ---------- ---- -------- ---- -------- --------- --------
Balances at
January 2, 2000.. -- $ -- -- $ -- 10,896,685 $109 -- $ -- $104,340 $(114,278) $ (9,829)
========== ======= =========== ======== ========== ==== ======== ==== ======== ========= ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 28, 1997, January 3, 1999 and January 2, 2000
(in thousands)
<TABLE>
<CAPTION>
1997 1998 1999
-------- ------- -------
<S> <C> <C> <C>
Operating activities:
Net income (loss)................................. $(11,680) $10,553 $ 5,399
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization of property and
equipment...................................... 7,799 7,300 8,086
Amortization of bank fees....................... 8 243 148
Net loss on sale of assets...................... 295 118 200
Bank financing fees write-off................... -- -- 998
Equity in net losses of limited partnerships.... 82 46 --
Loss on impairment of property and equipment.... 9,604 -- --
Reserve for restaurant closure.................. -- 85 --
Bad debt write-off.............................. 484 -- --
Change in deferred tax asset.................... 250 (6,102) 1,348
Changes in operating assets and liabilities:
Trade accounts receivable..................... 2,659 28 588
Inventories................................... 119 142 (31)
Prepaid expenses and other assets............. (294) (525) (1,493)
Accounts payable.............................. 744 (102) (924)
Accrued liabilities........................... (439) 2,876 (355)
Other liabilities............................. (440) 346 (361)
-------- ------- -------
Net cash provided by operating activities......... 9,191 15,008 13,603
Investing activities:
Capital expenditures.............................. (6,607) (7,517) (17,318)
Proceeds from sale of property and equipment...... 1,106 2,490 12
Purchase of liquor licenses....................... (142) -- --
Distribution from limited partnership............. 46 50 --
-------- ------- -------
Net cash used in investing activities............. (5,597) (4,977) (17,306)
Financing activities:
Proceeds from long-term debt...................... 47 -- 25,000
Payments on long-term debt........................ (34) (1,772) (45,300)
Capitalized bank fees............................. (1,395) -- --
Proceeds from revolving line of credit............ 2,000 -- 15,000
Payments on revolving line of credit.............. (2,000) -- --
Proceeds from stock purchases, net................ 14 864 136
Capital contribution.............................. 23,000 -- --
Cash paid to previous shareholders................ (70,536) -- --
Restructuring related expenses.................... (2,331) (25) --
-------- ------- -------
Net cash used in financing activities............. (4,282) (933) (5,164)
-------- ------- -------
Net increase (decrease) in cash and cash
equivalents...................................... (688) 9,098 (8,867)
Cash and cash equivalents at beginning of year.... 4,143 5,455 14,553
Cash from merger.................................. 2,000 -- --
-------- ------- -------
Cash and cash equivalents at end of year.......... $ 5,455 $14,553 $ 5,686
======== ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest...................................... $ 418 $ 4,552 $ 3,640
Income taxes.................................. $ -- $ 575 $ 1,303
</TABLE>
F-6
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
Years ended December 28, 1997, January 3, 1999 and January 2, 2000
(in thousands)
--------
Supplemental disclosure of noncash financing activities:
In September 1997, the Company completed a merger and leveraged
recapitalization. In connection with the recapitalization, assets with a net
book value of $2,748 were distributed to PepsiCo, Inc., the prior majority
shareholder, as part of the settlement payment for its Preferred Stock and
Class B Common Stock.
During December 1997, the Company declared a preferred stock dividend
payable to the Common and New Class B Common Shareholders. The dividend
consisted of Series A Class A Redeemable Preferred Stock and Series B Class A
Redeemable Preferred Stock.
During the fiscal year ended January 3, 1999, certain employees and
nonemployees exercised stock options. Compensation expense incurred by the
Company related to the option exercises was approximately $123.
See accompanying notes.
F-7
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 28, 1997, January 3, 1999 and January 2, 2000
(in thousands, except for share and per share data)
1. Description of Business
Nature of Business
As of January 2, 2000, the Company operates 72 restaurants in 16 states and
the District of Columbia; 70 restaurants are wholly owned by the Company, one
restaurant is owned by a limited partnership in which the Company is a general
partner and one restaurant is owned by a third party and operated under a
management agreement. In addition to the 72 restaurants operated by the
Company, there are an additional 25 franchised restaurants, of which 21 are
located in the United States and four are located in the Pacific Rim.
The Company manages its operations by restaurant. The Company has aggregated
its operations to one reportable segment.
Recapitalization
In September 1997, the Company consummated a series of transactions to
effect a merger and leveraged recapitalization of the Company. The merger and
leveraged recapitalization was completed after PepsiCo, Inc., the majority
shareholder of the Company, contributed all of its shares of Class A Common
Stock to the Company. Then, under the terms of a Merger and Recapitalization
Agreement (the "Agreement"), the Company merged with C.P. Kitchen Acquisition
Corp. ("C.P.K. Acquisition"). CPK was a newly formed wholly owned subsidiary of
Bruckmann, Rosser, Sherrill & Co. ("BRS"), which was capitalized with
$2.0 million. The merger was completed by the exchange of all outstanding
shares of C.P.K. Acquisition for 6,470,000 shares of the Company's New Class A
Common Stock ("Common Stock") and 269,600 shares of New Class B Common Stock.
Then, under the terms of the Agreement, the Company converted all the Preferred
Stock and Class B Common Stock owned by PepsiCo, Inc. into a right to receive
cash of $31.0 million and $29.0 million, respectively. The Company then
converted all remaining outstanding shares of Class A Common Stock into a right
to receive cash and .884986 shares of Common Stock for each of the then
outstanding shares of Class A Common Stock. BRS then made an additional capital
contribution to the Company in the amount of $23.0 million. In order to fund
the rights to receive cash, the Company entered into a long-term borrowing
arrangement with a bank, borrowing $49.0 million. The bank borrowings plus
capital contributions received under the terms of the Agreement, and certain
other assets of the Company, were used to fund the rights to receive cash
discussed above.
2. Summary of Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
California Pizza Kitchen, Inc. and its wholly owned subsidiaries (the
"Company"). In addition, the Company is a general partner in two limited
partnerships which were formed to operate two restaurants in Chicago of which
one was closed in December 1999. The Company accounts for its investments in
these limited partnerships (which are not material) under the equity method and
are included in other assets in the accompanying consolidated balance sheets.
All significant intercompany balances and transactions have been eliminated.
Fiscal Year End
The Company's fiscal year ends on the Sunday closest to December 31. The
Company's fiscal years ended December 28, 1997, January 3, 1999 and January 2,
2000, covered 52, 53 and 52 weeks, respectively. For
F-8
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
purposes of the accompanying consolidated financial statements, the years ended
December 28, 1997, January 3, 1999 and January 2, 2000 may be referred to as
the fiscal years 1997, 1998 and 1999, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents. The Company places its
cash deposits with highly qualified financial institutions.
Inventories
Inventories consist of food and beverage, uniforms and supplies. Inventories
are stated at the lower of cost (first-in, first-out method) or market.
Property and Equipment
The Company depreciates property and equipment over the assets' estimated
useful lives using the straight-line method. Leasehold improvements are
amortized using the straight-line method over the estimated useful life of the
asset or the term of the related lease, whichever is shorter. The lives for
furniture, fixtures, and equipment are ten years. The lives for buildings and
leasehold improvements are the shorter of ten to 20 years or the term of the
related operating lease.
Liquor Licenses
Transferable liquor licenses, included in other long-term assets, which have
a market value are carried at cost and are not amortized.
Gift Certificates
The Company sells gift certificates and recognizes deferred revenue,
included in accrued liabilities, for gift certificates outstanding until the
gift certificates are redeemed.
Restaurant and Franchise Revenues
Revenues from the operation of Company-owned restaurants are recognized when
sales occur. All fees from franchised operations are included in revenue as
earned. Royalty fees are based on franchised restaurants' revenues and are
recorded by the Company in the period the related franchised restaurants'
revenues are earned.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expenses
totaled $2,270 in fiscal 1997, $2,495 in fiscal 1998 and $2,100 in fiscal 1999.
F-9
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pre-opening Costs
The Company follows Statement of Position (SOP) 98-5, "Reporting on the
Costs of Start-up Activities," which was issued by the Accounting Standards
Executive Committee and provides guidance on the financial reporting of the
start-up costs and organization costs. The SOP requires costs of start-up
activities and organization costs to be expensed as incurred.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No 128, "Earnings Per Share"
(EPS), effective for all financial statements issued after December 15, 1997.
SFAS No. 128 requires dual presentation of "Basic" and "Diluted" EPS by
entities with complex capital structures, replacing "Primary" and "Fully
Diluted" EPS under Accounting Principles Board (APB) Opinion No. 15. Basic EPS
excludes dilution and is computed by dividing net income or loss attributable
to common shareholders by the weighted average of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock (convertible preferred
stock, warrants to purchase common stock and common stock options using the
treasury stock method) were exercised or converted into common stock. Potential
common shares in the diluted EPS computation are excluded where their effect
would be antidilutive. The Company's EPS for all periods presented have been
computed in accordance with SFAS No. 128 (see note 9).
Earnings per share data for periods prior to fiscal 1998 have not been
reported in the accompanying financial statements as the Company had a
substantially different capital structure prior to the September 30, 1997
merger and leveraged recapitalization transaction.
Fair Value of Financial Instruments
The fair values of the Company's cash and cash equivalents, trade accounts
receivable, accounts payable and all other current liabilities approximate the
carrying values because of the short maturities of these instruments.
The fair value of the Company's long-term debt approximates the carrying
value based on current rates available to the Company for debt with comparable
terms.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk, consist primarily of cash and cash equivalents. The Company
places its cash and cash equivalents with high quality financial institutions.
At times, balances in the Company's cash accounts may exceed the Federal
Deposit Insurance Corporation (FDIC) limit.
Reclassifications
Certain reclassifications have been made to the December 28, 1997 and
January 3, 1999, consolidated financial statements to conform with the January
2, 2000 presentation.
F-10
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Property and Equipment
Property and equipment consists of the following at January 3, 1999 and
January 2, 2000:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Land...................................................... $ 5,786 $ 5,786
Buildings................................................. 7,965 7,965
Furniture, fixtures, and equipment........................ 40,209 47,030
Leasehold improvements.................................... 62,649 68,845
Construction in progress.................................. 1,695 1,120
-------- --------
118,304 130,746
Less accumulated depreciation and amortization............ 49,276 52,698
-------- --------
$ 69,028 $ 78,048
======== ========
</TABLE>
The Company on an annual basis reviews the carrying value of long-lived
assets in accordance with SFAS No. 121, "Accounting for Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of," on a restaurant by
restaurant basis. In accordance with SFAS No. 121, the Company recognizes the
impairment of certain property and equipment by reducing the carrying value of
the assets to the estimated fair value based on discounted cash flows of each
under-performing restaurant. The Company increased accumulated depreciation and
amortization and recorded a loss on impairment of property and equipment in the
amount of $9,604 at December 28, 1997.
4. Long-term Debt
Long-term debt consists of the following at January 3, 1999 and January 2,
2000:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Term Loan................................................... $ -- $25,000
Revolving Note.............................................. -- 15,000
A Term Loan................................................. 20,575 --
B Term Loan................................................. 24,688 --
10% note payable due November 2001.......................... 122 85
------- -------
45,385 40,085
Less current maturities..................................... 2,562 1,537
------- -------
$42,823 $38,548
======= =======
</TABLE>
On September 30, 1997, the Company entered into a credit agreement with a
banking syndication providing for a $10,000 revolving line of credit, a $22,000
A Term Loan and a $25,000 B Term Loan. On October 29, 1999, the Company repaid
all borrowings under the September 30, 1997 credit agreement and replaced it
with a new credit facility. The new credit facility provides for a $25,000 term
loan (Term Loan) and a $25,000 revolving note (Revolving Note), of which
$15,000 is outstanding as of January 2, 2000. The Term Loan and Revolving Note
are secured by first priority security interests. The Term Loan expires on
September 30, 2004 and the Revolving Note expires on October 31, 2004. Both the
Term Loan and Revolving Note bear interest at the prime rate (8.50% at January
2, 2000) plus 0.25% or LIBOR (6.04% at January 2, 2000) plus 1.5%. Interest is
payable quarterly for both the Term Loan and the Revolving Note. Principal
payments for the Term Loan begin September 30, 2000. The terms of the credit
facility include financial covenants which the Company was in compliance with
as of January 2, 2000. Interest expense for all loans totaled $4,012 and $3,722
for the years ended January 3, 1999 and January 2, 2000, respectively. In
connection
F-11
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
with entering into the new credit facility, the Company wrote-off $998 of
deferred bank financing costs related to the prior credit agreement.
The new credit facility provides for the issuance of letters of credit,
which reduce the availability under the Revolving Note. Letters of credit
outstanding in connection with various insurance programs totaled $755 and $652
at January 3, 1999 and January 2, 2000, respectively.
The aggregate maturities of long-term debt for each of the five years
subsequent to fiscal 1999 are as follows:
<TABLE>
<S> <C>
Fiscal year ending:
2000............................................................... $ 1,537
2001............................................................... 3,037
2002............................................................... 5,011
2003............................................................... 6,000
2004............................................................... 24,500
-------
$40,085
=======
</TABLE>
5. Income Taxes
For the period from the date of the merger and leveraged recapitalization,
September 30, 1997 to December 28, 1997, the Company began filing separate
income tax returns. For the period from June 15, 1996 to September 30, 1997,
the Company filed a consolidated federal income tax return with PepsiCo, Inc.,
the majority shareholder. The income tax provision since September 30, 1997,
has been calculated on a separate-entity basis. For the period during which the
Company filed consolidated tax returns with PepsiCo Inc., the Company had
allocated income tax benefit (provision) based on 35% of income (loss) before
income taxes, pursuant to a tax-sharing agreement.
The details of the benefit (provision) for income taxes for the fiscal years
1997, 1998 and 1999 are set forth below:
<TABLE>
<CAPTION>
1997 1998 1999
----- ------ -------
<S> <C> <C> <C>
Current:
Federal............................................ $ -- $ (576) $(1,052)
State.............................................. (1) (387) (372)
----- ------ -------
(1) (963) (1,424)
Deferred:
Federal............................................ (250) 5,335 (1,151)
State.............................................. -- 767 (197)
----- ------ -------
(250) 6,102 (1,348)
----- ------ -------
$(251) $5,139 $(2,772)
===== ====== =======
</TABLE>
F-12
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The income tax benefit (provision) differs from the federal statutory rate
because of the effect of the following items for the fiscal years 1997, 1998
and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Statutory rate.......... 34.0 % (34.0)% (34.0)%
State income taxes, net
of federal benefit..... 4.5 (4.5) (4.5)
Tax tip credit.......... 1.3 5.2 4.9
Other................... -- -- (0.3)
Valuation allowance..... (42.0) 128.2 --
----- ----- -----
(2.2)% 94.9 % (33.9)%
===== ===== =====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying value of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The valuation allowance
during the year ended January 3, 1999 was reduced by $7,567, as in management's
opinion--it is more likely than not that the benefit of the deferred tax amount
will be realized. As a result, there was no valuation allowance at January 3,
1999 and January 2, 2000. Significant components of the Company's net deferred
tax asset at January 3, 1999 and January 2, 2000 consist of the following:
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Deferred tax assets:
Restaurant asset reserves.................................. $3,882 $2,665
Insurance reserves......................................... 476 396
Vacation reserves.......................................... 408 439
Other accruals............................................. 388 685
Inventory UNICAP........................................... 134 125
Tax credits................................................ 470 275
Accrued rent............................................... 502 544
Deferred tax liabilities:
Tax depreciation over book depreciation.................... (158) (375)
------ ------
Net deferred tax asset................................... $6,102 $4,754
====== ======
</TABLE>
6. Preferred Stock
In December 1997, the Company authorized 10,101,010 shares of Series A 12
1/2% Cumulative Compounding Preferred Stock and 10,101,010 shares of Series B
13 1/2% Cumulative Compounding Preferred Stock. Concurrently, the Company
issued 10,000,001 shares of Series A Preferred Stock and 10,000,001 shares of
Series B Preferred Stock as a stock dividend to all shareholders of record.
Each shareholder received one share of Series A Preferred Stock and one share
of Series B Preferred Stock for each share of common stock or New Class B
Common Stock held.
The Series A Preferred Stock has a $0.01 par value and is nonvoting. There
were 10,151,771 shares issued and outstanding at January 3, 1999 and January 2,
2000. The Series A Preferred Stock has a liquidation value of $1.9095 per share
and a liquidation preference over the Series B Preferred Stock and over the
common stock. The Series A Preferred Stock is entitled to receive cash
dividends of $0.2387 per share per annum and all dividends are cumulative,
whether or not declared, and are payable annually in arrears. Unpaid dividends
accrue interest at 14.5% annually. The Company, at its option, may redeem the
Series A Preferred Stock at a redemption price equal to the liquidation value
plus unpaid and accrued dividends ($24,625 as of January 2, 2000) at any time.
Additionally, the Series A Preferred Stock is mandatorily redeemable at a value
F-13
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
equal to its liquidation value plus unpaid and accrued dividends on January 15,
2008. The accretion of the liquidation preference on the Series A Preferred
Stock is reflected in the consolidated statement of shareholders' deficiency as
a reduction of additional paid-in capital and an increase in the preferred
stock book value. Accumulated, but undeclared, dividends for the Series A
Preferred Stock are $2,446 at January 3, 1999 and $5,240 at January 2, 2000.
The Series B Preferred Stock has a $0.01 par value and is nonvoting. There
were 10,151,771 shares issued and outstanding at January 3, 1999 and January 2,
2000. The Series B Preferred Stock, has a liquidation value of $1.4688 and a
liquidation preference over the common stock, but is junior to the Series A
Preferred Stock. The Series B Preferred Stock is entitled to receive cash
dividends of $0.1983 per share per annum and all dividends are cumulative,
whether or not declared, and are payable annually in arrears. Unpaid dividends
accrue interest at 15.5% annually. The Company, at its option, may redeem the
Series B Preferred Stock at a redemption price equal to the liquidation value
plus unpaid and accrued dividends ($19,296 as of January 2, 2000) at any time.
Additionally, the Series B Preferred Stock is mandatorily redeemable at a value
equal to the liquidation value plus any unpaid and accrued dividends on January
15, 2008. The accretion of the liquidation preference on the Series B Preferred
Stock is reflected in the consolidated statement of shareholders' deficiency as
a reduction of additional paid-in capital and an increase in the preferred
stock book value. Accumulated, but undeclared, dividends for the Series B
Preferred Stock are $2,032 at January 3, 1999 and $4,385 at January 2, 2000.
During the year ended January 3, 1999, the Company sold 151,769 shares each
of Series A Preferred Stock and Series B Preferred Stock to certain members of
management. The shares were sold for cash at their estimated fair value at date
of issue.
7. Shareholders' Deficiency
The Company sold 157,059 shares of common stock during the year ended
January 3, 1999 at their estimated fair value.
On November 30, 1999, the shareholder of New Class B Common Stock converted
all of its shares into 269,600 shares of Common Stock.
8. Common Stock Option Plans
In 1998, the Company adopted the 1998 Stock Based Incentive Compensation
Plan ("1998 Plan"). The 1998 Plan allows for the Company to reward, retain and
attract valued employees, directors and independent contractors. The Company
has reserved 2,000,000 shares of common stock under the 1998 Plan for future
awards. Options under the 1998 Plan may be either nonqualified options or
incentive stock options. Nonqualified options may be granted at prices
determined by the Company's Board of Directors. Incentive stock options may be
granted at not less than 100% of fair value on the date of grant for employees
owning 10% or less of the Company's stock and at not less than 110% for
employees owning more than 10% of the Company's stock. The terms governing the
exercise of options and direct stock bonuses are determined by the Company's
Board of Directors.
F-14
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Shares subject to option under the Plans were as follows:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Outstanding at December 29, 1996................... 408,570 $12.16
Anti-dilution adjustment at September 29, 1997..... (5,860) --
Granted............................................ -- --
Exercised.......................................... (9,399) 9.42
Canceled........................................... (354,329) 12.08
--------- ------
Outstanding at December 28, 1997................... 38,982 13.24
Granted............................................ 1,124,934 0.92
Exercised.......................................... (581,329) 0.33
Canceled........................................... (25,634) 13.18
--------- ------
Outstanding at January 3, 1999..................... 556,953 1.86
Granted............................................ 274,500 8.44
Exercised.......................................... (158,296) 0.86
Canceled........................................... -- --
--------- ------
Outstanding at January 2, 2000..................... 673,157 $ 4.78
========= ======
</TABLE>
The following table summarizes information regarding options outstanding and
options exercisable at January 2, 2000:
<TABLE>
<CAPTION>
Weighted Number
Average Exercisable
Number Remaining Weighted as of Weighted
of Contractual Average January 2, Average
Range of Exercise Prices Shares Life Exercise Price 2000 Exercise Price
------------------------ ------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.33................... 110,696 5.00 $0.33 -- $ --
2.50................... 276,250 8.64 2.50 45,625 2.50
6.54--15.00............ 286,210 9.40 8.72 21,085 12.20
------- ---- ----- ------ ------
673,156 8.36 $4.78 66,710 $ 5.56
======= ==== ===== ====== ======
</TABLE>
Options available for future grant totaled 680,859 and 600,566 shares at
January 3, 1999 and January 2, 2000, respectively.
During the year ended January 3, 1999, certain employees exercised stock
options, which required the recording of compensation expense. Additionally,
two non-employees exercised options during 1998, which have been accounted for
in accordance with SFAS No. 123. These options were valued at the date of grant
and their value was recorded as consulting expense in the statement of
operations. The Company recognized compensation expense of approximately $123
related to the exercise of employee and non-employee stock options and received
total proceeds of $240.
The Company has elected to follow APB No. 25, "Accounting for Stock Issued
to Employees," and related Interpretations in accounting for its employee stock
options because, as discussed below, the alternative fair value accounting
provided for under SFAS No. 123, "Accounting for Stock Based Compensation,"
requires use of option valuation models that were not developed for use in
valuing employee stock Options. Under APB No. 25, because the exercise price of
the Company's employee stock options equals or exceeds the fair value of the
underlying stock on the date of grant, no compensation expense is recognized.
F-15
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro forma information regarding net income is required by SFAS No. 123,
which also requires that the information be determined as if the Company has
accounted for its employee stock options granted subsequent to December 31,
1994, under the fair value method of that Statement. The fair value of these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following assumptions for the year ended January 2, 2000:
<TABLE>
<S> <C>
Risk free interest rate................................................ 5.43%
Expected lives (in years).............................................. 5
Dividend yield......................................................... 0%
Expected volatility.................................................... 0%
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of the traded options which have no vesting restrictions and are
usually transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price and expected
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the estimate of fair
value, in management's opinion, the existing models do not necessarily provide
a reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Under SFAS
No. 123, the Company would have incurred an additional compensation expense of
$60 and $92 for the fiscal year 1998 and 1999, respectively.
9. Net Income Per Share
Reconciliation of basic and diluted net income per share in accordance with
SFAS No. 128 (see note 2) for the fiscal year ended January 3, 1999 and January
2, 2000 is as follows:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1999
Actual Actual
----------- -----------
<S> <C> <C>
Numerator for basic and diluted net income per share
attributable to common shareholders.................. $6,075 $ 252
====== ======
Denominator:
Denominator for basic net income per share--weighted
average shares..................................... 10,113 10,800
Employee stock options.............................. 415 368
------ ------
Denominator for diluted net income per share--
weighted average shares............................ 10,528 11,168
====== ======
</TABLE>
10. Commitments
The Company leases certain restaurant facilities and its corporate
headquarters under noncancelable operating leases with terms ranging from five
to 20 years. The restaurant leases generally require payment of contingent
rental based on a percentage of sales and require payment of various expenses
incidental to the use of property. Rent expense on all operating leases
approximated $10,013 for fiscal 1997, $9,234 for fiscal 1998 and $10,719 for
fiscal 1999, including contingent rental expense of $595, $654 and $615 for the
fiscal years 1997, 1998 and 1999, respectively. Most leases contain renewal
options and may be subject to periodic adjustments for inflation and scheduled
escalations.
F-16
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The aggregate future minimum annual lease payments under noncancelable
operating leases for the fiscal year end January 2, 2000 are as follows:
<TABLE>
<S> <C>
Fiscal year ending:
2000............................................................. $ 9,803
2001............................................................. 9,926
2002............................................................. 9,382
2003............................................................. 9,019
2004............................................................. 8,955
Thereafter....................................................... 57,887
--------
Total future minimum annual lease payments..................... $104,972
========
</TABLE>
11. Employee Benefit Plan
In January 1994, the Company established a defined contribution plan for
certain qualified employees as defined. Participants may contribute from 1% to
15% of pretax compensation, subject to certain limitation. The plan provides
for certain discretionary contributions by the Company. The Company has
recorded contribution expense of $200 for 1999, and no Company contributions
were made for 1999.
12. Subsequent Events
On May 5, 2000, the Company amended its Articles of Incorporation to change
the name of the Company's New Class A Common Stock to "Common Stock." The
consolidated financial statements and accompanying notes have been restated for
all periods presented to reflect this change.
On , 2000, the board of directors approved a one for two reverse
stock split of the Company's common stock. The consolidated financial
statements and accompanying notes have been restated for all periods presented
to reflect this change.
On July 6, 2000, the co-founders and co-chairmen of the Board executed
amendments to their employment agreements that become effective upon the
consumation of this offering which will grant each of them non-qualified stock
options to purchase 90,000 shares of Common Stock with an exercise price equal
to the initial public offering price.
The Company determined that one of its restaurant locations, with a net book
value of $1,839,000, was impaired. As a result, the Company recorded a write-
down of the book value of the restaurant, which consisted of its property and
equipment, in the amount of $1,839,000 during the three months ended April 2,
2000.
F-17
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
(in thousands, except for share data)
April 2, 2000
<TABLE>
<S> <C>
Assets
Current assets:
Cash and cash equivalents......................................... $ 3,732
Trade accounts receivable, net.................................... 1,995
Inventories....................................................... 1,184
Prepaid expenses and other current assets......................... 1,275
---------
Total current assets................................................ 8,186
Property and equipment, net......................................... 78,094
Deferred taxes...................................................... 4,754
Other assets........................................................ 1,257
---------
Total assets........................................................ $ 92,291
=========
Liabilities and shareholders' deficiency
Current liabilities:
Accounts payable.................................................. $ 1,616
Accrued compensation and benefits................................. 5,217
Accrued rent...................................................... 4,636
Other accrued liabilities......................................... 5,194
Current maturities of long-term debt.............................. 2,287
---------
Total current liabilities........................................... 18,950
Long-term debt, less current maturities............................. 37,788
Other liabilities................................................... 665
Commitments.........................................................
Redeemable stock:
Series A 12 1/2% Cumulative Compounding Preferred Stock--
10,151,771 shares issued and outstanding at April 2, 2000;
liquidation preference of $25,421 at April 2, 2000............... 25,421
Series B 13 1/2% Cumulative Compounding Preferred Stock--
10,151,771 shares issued and outstanding at April 2, 2000;
liquidation preference of $19,958 at April 2, 2000............... 19,958
Shareholders' deficiency:
Common Stock--$0.01 par value, 80,000,000 shares authorized,
10,896,686 shares issued and outstanding at April 2, 2000........ 109
Additional paid-in capital........................................ 102,882
Accumulated deficit............................................... (113,482)
---------
Total shareholders' deficiency...................................... (10,491)
---------
Total liabilities and shareholders' deficiency...................... $ 92,291
=========
</TABLE>
See accompanying notes.
F-18
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
<TABLE>
<CAPTION>
For the
Three Months
Ended
------------------
April 4, April 2,
1999 2000
-------- --------
<S> <C> <C>
Revenues:
Restaurant sales........................................... $41,438 $47,711
Franchise and other revenues............................... 496 555
------- -------
Total revenues........................................... 41,934 48,266
Costs and expenses:
Cost of sales.............................................. 10,399 11,799
Labor...................................................... 14,960 17,086
Direct operating and occupancy............................. 8,497 9,582
------- -------
Total restaurant operating costs......................... 33,856 38,467
General and administrative................................. 3,250 3,550
Depreciation and amortization.............................. 2,065 2,289
Pre-opening................................................ -- 136
Loss on impairment of property and equipment and restaurant
closures.................................................. -- 1,839
------- -------
Operating income............................................. 2,763 1,985
Other income (expenses):
Interest expense........................................... (968) (761)
------- -------
Total other income (expense), net........................ (968) (761)
Income before income tax provision........................... 1,795 1,224
Income tax provision......................................... (611) (428)
------- -------
Net income................................................... $ 1,184 $ 796
======= =======
Redeemable preferred stock accretion......................... (1,259) (1,458)
------- -------
Net income (loss) attributable to common shareholders........ $ (75) $ (662)
======= =======
Net income (loss) per common share:
Basic...................................................... $ (0.01) $ (0.06)
======= =======
Diluted.................................................... $ (0.01) $ (0.06)
======= =======
Shares used in calculating net income (loss) per common
share:
Basic...................................................... 10,753 10,897
======= =======
Diluted.................................................... 11,121 11,216
======= =======
</TABLE>
See accompanying notes.
F-19
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the
Three Months
Ended
----------------
April April
4, 1999 2, 2000
------- -------
<S> <C> <C>
Operating activities:
Net income.................................................. $ 1,184 $ 796
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization of property and equipment... 2,016 2,289
Amortization of bank fees................................. 49 --
Loss on impairment of property and equipment.............. -- 1,839
Changes in operating assets and liabilities:
Trade accounts receivable............................... 128 (637)
Inventories............................................. 11 73
Prepaid expenses and other assets....................... 34 1,156
Accounts payable........................................ (3,491) (2,064)
Accrued liabilities..................................... (1,574) (1,180)
Other liabilities....................................... 408 (52)
------- -------
Net cash provided by (used in) operating activities......... (1,235) 2,220
Investing activities:
Capital expenditures........................................ (2,276) (4,337)
------- -------
Net cash used in investing activities....................... (2,276) (4,337)
Financing activities:
Payments on long-term debt.................................. (3,490) (9)
------- -------
Net cash used in financing activities....................... (3,490) (9)
------- -------
Net decrease in cash and cash equivalents................... (7,001) (2,126)
Cash and cash equivalents at beginning of period............ 14,553 5,686
Cash from consolidation of investment in limited
partnership................................................ -- 172
------- -------
Cash and cash equivalents at end of period.................. $ 7,552 $ 3,732
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.................................................. $ 309 $ 38
Income taxes.............................................. $ 89 $ 355
</TABLE>
See accompanying notes.
F-20
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for share and per share data)
1. Basis of Presentation
The accompanying consolidated financial information has been prepared by
California Pizza Kitchen, Inc. and its wholly-owned subsidiaries (collectively,
the "Company") without audit, in accordance with the instructions to Form 10-Q
and therefore does not include all information and footnotes necessary for a
fair presentation of financial position, results of operations and cash flows
in accordance with accounting principles generally accepted in the United
States.
In January 2000, the Company acquired a majority interest in its remaining
Limited Partnership restaurant. As such, beginning January 3, 2000, the Company
began to consolidate the financial statements of the limited partnership with
its own financial statements. Prior to fiscal 2000, the Company accounted for
its ownership in the limited partnership under the equity method of accounting.
All significant intercompany balances and transactions have been eliminated.
Unaudited Interim Financial Data
In the opinion of management, the unaudited consolidated financial
statements for the interim periods presented reflect all adjustments,
consisting of only normal recurring accruals, necessary for a fair presentation
of the consolidated financial position and results of operations as of and for
such periods indicated. These consolidated financial statements and notes
thereto should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this prospectus for the year
ended January 2, 2000. Results for the interim periods presented herein are not
necessarily indicative of results which may be reported for any other interim
period or for the entire fiscal year.
2. Property and Equipment
Property and equipment consists of the following at April 2, 2000:
<TABLE>
<S> <C>
Land............................................................... $ 5,786
Buildings.......................................................... 7,965
Furniture, fixtures, and equipment................................. 46,250
Leasehold improvements............................................. 71,174
Construction in progress........................................... 1,150
--------
132,325
Less accumulated depreciation and amortization..................... 54,231
--------
$ 78,094
========
</TABLE>
The Company reviews the carrying value of long-lived assets in accordance
with SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," on a restaurant by restaurant basis. In
accordance with SFAS No. 121, the Company recognizes the impairment of certain
property and equipment by reducing the carrying value of the assets to the
estimated fair value based on discounted cash flows of each under-performing
restaurant. The Company increased accumulated depreciation and amortization and
recorded a loss on impairment of property and equipment in the amount of $1,839
during the three months ended April 2, 2000.
F-21
<PAGE>
CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Net Loss Per Share
Reconciliation of basic and diluted net loss per share in accordance with
SFAS No. 128 for the three months ended April 4, 1999 and April 2, 2000 is as
follows:
<TABLE>
<CAPTION>
For the
Three Months
Ended
--------------
April April
4, 2,
1999 2000
------ ------
<S> <C> <C>
Numerator for basic and diluted net loss per share
attributable to common shareholders.......................... $ (75) $ (662)
====== ======
Denominator:
Denominator for basic net loss per share--weighted average
shares..................................................... 10,753 10,897
Employee stock options...................................... 368 319
------ ------
Denominator for diluted net loss per share--weighted average
shares..................................................... 11,121 11,216
====== ======
Net loss per common share:
Basic....................................................... $(0.01) $(0.06)
====== ======
Diluted..................................................... $(0.01) $(0.06)
====== ======
</TABLE>
4. Subsequent events
On May 5, 2000, the Company amended its Articles of Incorporation to change
the name of the Company's New Class A Common Stock to "Common Stock." The
unaudited consolidated financial statements and accompanying notes have been
restated for all periods presented to reflect this change.
On , 2000 the board of directors approved a one for two reverse
stock split of the Company's Common Stock. The consolidated financial
statements and accompanying notes have been restated for all periods presented
to reflect this change.
On July 6, 2000, the co-founders and co-chairmen of the Board executed
amendments to their employment agreements that become effective upon the
consummation of this offering which will grant each of them non-qualified stock
options to purchase 90,000 shares of Common Stock with an exercise price equal
to the initial public offering price.
F-22
<PAGE>
APPETIZERS
-----------------------------
Sesame Ginger Chicken Dumplings
Sesame ginger chicken inside delicate wonton dumplings
with a mild soy-ginger chili sauce, toasted sesame seeds
and scallions 4.99
Focaccia with Checca
Italian-style herb-onion pizza bread hearth-baked and
served with a fresh combination of Roma tomatoes, basil,
garlic and extra-virgin olive oil. 3.49
Tuscan Hummus
Our original recipe of Tuscan white beans pureed with
sesame, garlic, lemon and spices. Garnished with fresh
Roma tomatoes, basil and garlic. Served with warm
pizza-pita bread. 4.29
Spinach Artichoke Dip
Served hot with blue & white corn tortilla chips. 5.99
Singapore Shrimp Rolls New
Flame-grilled shrimp, baby broccoli, soy-glazed Shiitake
mushrooms, fresh spinach, carrots, noodles, bean sprouts,
green onion and cilantro wrapped in rice paper.
Served chilled with a sesame ginger dipping sauce
--------------
and Szechuan slaw. 5.99
Tortilla Spring Rolls
Flour tortilla rolls sprinkled with Parmesan cheese and baked
in our pizza oven. Choose two from the following. 4.99
Baja Chicken New
Grilled chicken breast. Jack and Cheddar cheeses, roasted corn,
black beans, fire-roasted mild chilies, red onions and cilantro.
Served with guacamole.
Thai Chicken
Grilled chicken breast, spicy peanut sauce, sprouts, scallions,
carrots, cilantro and Mozzarella. Served with satay peanut sauce.
Bangkok BBQ Chicken
Grilled chicken breast, caramelized onions, smoked Gouda and
Mozzarella cheeses, cilantro, horseradish and our Bangkok BBQ
sauce. Served with horseradish cream sauce.
SOUPS
-----------------------------
Potato Leek Soup
Puree of potato and leek with a touch of cream.
4.49 . Cup 2.99
Sedona White Corn Tortilla Soup
Vine-ripened tomato and tortilla soup with sweet corn
and Southwestern spices. Garnished with crispy corn
tortilla strips. 4.49 . Cup 2.99
Dakota Smashed Pea & Barley Soup
Hearty split pea with barley, carrots, onions and savory
herbs. All-vegetarian. Garnished with chopped scallions.
4.49 . Cup 2.99
Two in a Bowl
Combine any two of our soups. Served side by side in the
same bowl. 4.49
SALADS
-------------------------------------------------------------
Fat-free herb balsamic salad dressing available upon request.
BBQ Chicken Chopped (pictured)
Chopped lettuce, black beans, sweet corn, jicama, cilantro,
basil, crispy corn tortilla strips and Monterey Jack cheese
tossed together in our garden-herb rand dressing. Topped
with chopped BBQ chicken breast, diced tomatoes and scallions. 8.99 . Half 4.99
[PHOTO APPEARS HERE]
Original Chopped
Chopped lettuce, basil, salami and cheese in an herb-mustard Parmesan
vinaigrette topped with chilled roast turkey breast, diced tomatoes and
scallions. Chopped garbanzos added upon request. 8.99 . Half 4.99
Romaine & Watercress
Gorgonzola cheese and walnuts in a balsamic basil vinaigrette. 7.99 . Half 4.59
White Balsamic Provencal
Crispy greens and arugula in a white balsamic vinaigrette. Topped with feta
cheese, sun-dried tomatoes, Mediterranean olives and Roma tomatoes.
7.99 . Half 4.59
Oriental Chicken
Shredded lettuce and crispy angel hair tossed with julienne carrots, scallions,
basil and fresh cilantro in a spicy sweet-and-sour sesame dressing topped with
grilled chicken breast. 8.99 . Half 4.99
Tricolore Salad
Caramelized Parmesan pizza crust topped with chilled arugula, baby red leaf
lettuce, radicchio, diced tomatoes and shaved Parmesan cheese with a Dijon
balsamic vinaigrette dressing. 8.49
Classic Caesar
Crisp Romaine leaves, shaved Parmesan cheese, garlic-herb croutons and our
Caesar dressing.
7.49 . Half 4.49
Chicken Caesar
Crisp Romaine leaves, shaved Parmesan cheese, herb grilled chicken breast,
garlic-herb croutons and our Caesar dressing. 9.99 . Half 7.29
PIZZAS
------
Our special honey-wheat dough is available upon request for any pizza.
The Original BBQ Chicken (pictured below)
Our most popular pizza, introduced in our first restaurant in Beverly Hills in
1985. Barbecue sauce, smoked Gouda and Mozzarella cheeses, BBQ chicken, sliced
red onions and cilantro. 8.99
Portobello Mushroom
Portobello mushrooms, Mozzarella cheese, fresh thyme, roasted garlic and
Italian parsley. 8.99
With grilled garlic chicken 9.99
Peking Duck
Roasted duck breast, Mozzarella cheese, soy-glazed Shiitake mushrooms, crispy
wontons, slivered green onions and ginger Hoisin sauce. 9.99
Traditional Cheese
With Mozzarella cheese and our tomato sauce. 6.99
Pepperoni
Pepperoni, Mozzarella cheese and our tomato sauce. 8.59
Mushroom Pepperoni Sausage
Fresh Mushrooms, pepperoni, sausage, Mozzarella cheese and our tomato sauce.
9.49
Vegetarian with Japanese Eggplant
Mozzarella cheese, baby broccoli, grilled Japanese eggplant, roasted corn,
sliced red onions, mushrooms, sun-dried tomatoes and our tomato sauce. 8.99
Add mild Goat cheese. 1.00
Five-Cheese & Fresh Tomato
Fresh sliced Roma tomatoes, basil, fresh Mozzarella, Monterey Jack, smoked Gouda
and shaved Pecorino Romano cheese. 8.99
Fresh Tomato, Basil & Garlic
Fresh sliced Roma tomatoes, Mozzarella cheese, garlic and fresh basil, topped
with Parmesan cheese. 7.99
Chicken Alfredo
Alfredo sauce with garlic chicken, Mozzarella cheese, fresh spinich and
mushrooms topped with Feta cheese. 8.99
Roasted Garlic Chicken
Roasted garlic, grilled chicken, Mozzarella cheese, mild onions, chopped
Italian parsley, white wine and garlic-shallot butter. 8.99
Rosemary Chicken-Potato
Garlic chicken, herb-roasted Yukon Gold potatoes, Mozzarella cheese, rosemary,
oregano and Italian parsley with a white wine and lemon-garlic butter sauce.
9.29
Santa Fe Chicken
Grilled chicken breast marinated in lime and herbs, caramelized onions,
Mozzarella cheese and cilantro. Topped with fresh tomato salsa, sour cream and
guacamole. 8.99
Thai Chicken (pictured on cover)
This is the original! Pieces of chicken breast marinated in a spicy
peanut-ginger and sesame sauce, Mozzarella cheese, green onions, bean sprouts,
julienne carrots, cilantro and roasted peanuts. 8.99
Havana Chicken New
Marinated chicken breast, Mozzarella cheese, fresh garlic, sliced red onions,
Parmesan, fresh tomato salsa, cilantro and dulce y picante (sweet and spicy)
sauce. 8.99
Southwestern Chicken Burrito
Grilled chicken breast marinated in lime and herbs, Mozzarella and sharp Cheddar
cheeses, Southwestern black beans, fresh fire-roasted mild chilies and onions.
Served with green tomatillo salsa and sour cream. 8.99
Sweet & Spicy
Italian Sausages
A combination of sweet Italian sausage and grilled spicy Italian sausage with
our tomato sauce, roasted red & yellow peppers, mild onions and Mozzarella
cheese. 8.99
Hawaiian
Fresh pineapple, Canadian bacon, Mozzarella cheese and our tomato sauce. 8.59
Philly Cheesesteak
Thinly sliced beef steak with sauteed onions, mushrooms, peppers and Provolone
and American cheeses. Topped with diced mild peppers. 8.99
Tandoori Chicken
Pieces of Tandoori chicken breast marinated in Indian spices, with zucchini,
yellow squash, Mozzarella cheese, cilantro and a spicy tomato-yogurt curry.
Mango chutney served on the side. 9.29
Grilled Garlic Shrimp
Flame-grilled shrimp, mild onions, Mozzarella cheese, oregano, Italian parsley
with white wine and garlic-shallot butter. 9.99
B.L.T.
If you like a B.L.T. sandwich, you'll love this! Bacon, Mozzarella cheese and
tomatoes, hearth-baked, then topped with chilled chopped lettuce tossed with
mayonnaise. 8.59
Goat Cheese with Roasted Peppers
Mild Goat cheese with roasted red & yellow peppers, grilled Japanese eggplant,
Mozzarella cheese, caramelized onions, Italian parsley and our tomato sauce.
Bacon added upon request. 8.99
Tostada
Southwestern black beans, sharp Cheddar and Monterey Jack cheeses topped with
chilled shredded lettuce, fresh tomato salsa, green onions and crispy tortilla
strips with our garden-herb ranch dressing. 8.29
With grilled lime chicken 9.29
<PAGE>
NEOPOLITAN PIZZAS
---------------------------
These traditional Italian-style pizzas are thin and crisp.
Margherita
The classic Italian pizza. Made with imported Italian tomatoes, fresh
Mozzarella, fresh basil and Parmesan. 8.29
Tricolore Salad Pizza (pictured)
Caramelized Parmesan pizza crust topped with chilled aragula, baby red leaf
lettuce radicchio, diced tomatoes and shaved Parmesan cheese with a Dijon
balsamic vinaigrette dressing 8.49
Rustica
Full flavored and spicy. Made with imported Italian tomatoes, fresh Mozzarella,
garlic, crushed chilies, capers, Mediterranean olives and Parmesan. 8.99
Add pepperoni 1.50
- PASTA -
---------
Fettucine with Garlic Cream Sauce
Fettucine with Italian parsley in a garlic-Parmesan cream sauce 8.49 - With
Chicken 9.99 - With Shrimp 11.99
Add sauteed mushrooms 1.00
Spaghetti Marinara
Spaghetti with our own Marinara sauce, sauteed mushrooms and fresh basil. 8.49
With Chicken 9.99 With Shrimp 11.99
Broccoli/Sun-dried Tomato Fusilli
Fusilli with fresh baby broccoli, garlic, sun-dried and fresh tomatoes, fresh
thyme and Parmesan cheese. 8.49
Tomato Basil Spaghettini
Thin spaghetti with imported Italian tomatoes, garlic and fresh basil. 7.99 -
Add mild Goat cheese 1.00
Bolognese Rigatoni
Rigatoni with Bolognese meat sauce. Italian sausage, grated Parmesan cheese and
parsley. 9.49
Add sauteed mushrooms 1.00
Portobello Mushroom Ravioli
Rosemary ravioli filled with Portobello mushrooms, herbs and cheese. Topped with
imported Italian tomatoes, fresh basil and garlic or garlic-Parmesan cream
sauce. 9.29 - Add sauteed mushrooms 1.00
Grilled Sausage & Pepper Rigatoni
Regatoni with slices of grilled spicy Italian sausage, mild onions, red and
yellow peppers and Parmesan cheese in a Marinara sause. 9.29
Substitute Bolognese meat sauce for Marinara 1.00
Pasta Paella
Orzo pasta with shrimp, grilled spicy Italian sausage, chicken, mild onions, red
and yellow peppers, peas, fresh basil and Italian parsley in a saffron tomato
sauce. 11.99
Chicken Tequila Fettucine (pictured)
The original Spinach fettucine with chicken, red and yellow peppers, red onions
and fresh cilantro in a tequila-lime and jalapeno cream sauce. 9.29
Kung Pao Spaghetti
Tender pieces of chicken or shrimp with garlic, scallions, peanuts and HOT red
chilies in a classic Kung Pao sauce.
With Chicken 9.99 - With Shrimp 11.99
Thai Linguini
Linguini with chicken or shrimp, julienne carrots, greem onions, cilantro and
roasted peanuts in a spicy Thai peanut-ginger sauce. Topped with fresh bean
sprouts.
With Chicken 9.99 - With Shrimp 11.99
- FOCACCIA SANDWICHES -
-----------------------
Served with soup or Szcechuan slaw.
Vegetarian
Grilled Japanese eggplant, roasted red and yellow peppers, fresh basil,
Mozzarella and herb-mustard
Parmesan vinaigrette.6.99
Grilled Rosemary Chicken
Chicken breast marinated in rosemary and white wine. Roma tomatoes, Romaine
lettuce leaves and Grey Poupon Dijon honey mustard. 7.29
Grilled Chicken Caesar
Slices of grilled chicken marinated in rosemary and white wine, with Romaine
lettuce leaves, sliced Roma tomatoes, our Caesar dressing and shaved Parmesan
cheese. 7.29
<PAGE>
"Our Food is distinctive and imaginative."
[PHOTOS OF FOOD]
"Thai Chicken Pizza"
"BBQ Chicken Chopped Salad"
"Chicken Tequila Fettucine"
"Tricolore Salad Pizza"
"BBQ Chicken Pizza"
"Chocolate Souffle Cake"
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
5,300,000 Shares
[CALIFORNIA PIZZA KITCHEN LOGO APPEARS HERE]
----------------
Prospectus
, 2000
----------------
Banc of America Securities LLC
Deutsche Banc Alex. Brown
----------------
Robertson Stephens
Until , 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealers' obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other expenses of issuance and distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, to be paid in connection with the sale
of the common stock being registered, all of which will be paid by the
Registrant. All amounts are estimates except the registration fee and the NASD
filing fee.
<TABLE>
<S> <C>
Registration fee.................................................. $22,527
NASD filing fee................................................... 9,000
Nasdaq National Market application fees........................... 95,000
Blue Sky fees and expenses........................................ 5,000
Accounting fees and expenses...................................... *
Legal fees and expenses........................................... *
Transfer agent and registrar fees................................. *
Printing and engraving expenses................................... *
Miscellaneous expenses............................................ *
-------
Total........................................................... $ *
=======
</TABLE>
--------
*To be completed by amendment.
Item 14. Indemnification of directors and officers
Section 317 of the California General Corporations Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers who are parties or are threatened to be made parties to any
proceeding (with certain exceptions) by reason of the fact that the person is
or was an agent of the corporation, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with the proceeding if that person acted in good faith and in a manner the
person reasonably believed to be in the best interests of the corporation.
Section 204 of the law provides that this limitation on liability has no effect
on a director's liability (a) for acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (b) for acts or
omissions that a director believes to be contrary to the best interests of the
corporation or its shareholders or that involve the absence of good faith on
the part of the director, (c) for any transaction from which a director derived
an improper personal benefit, (d) for acts or omissions that show a reckless
disregard for the director's duty to the corporation or its shareholders in
circumstances in which the director was aware, or should have been aware, in
the ordinary course of performing a director's duties, of a risk of a serious
injury to the corporation or its shareholders, (e) for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the corporation or its shareholders, (f) under Section
310 of the law (concerning contracts or transactions between the corporation
and a director), or (g) under Section 316 of the law (directors' liability for
improper dividends, loans and guarantees). Section 317 does not extend to acts
or omissions of a director in his capacity as an officer. Further, Section 317
has no effect on claims arising under federal or state securities laws and does
not affect the availability of injunctions and other equitable remedies
available to our shareholders for any violation of a director's fiduciary duty
to us or our shareholders. Although the validity and scope of the legislation
underlying Section 317 have not yet been interpreted to any significant extent
by the California courts, Section 317 may relieve directors of monetary
liability to us for grossly negligent conduct, including conduct in situations
involving attempted takeovers of our company.
In accordance with Section 317, our articles of incorporation eliminate the
liability of each of our directors for monetary damages to the fullest extent
permissible under California law. Our articles further authorize us to provide
indemnification to our agents (including our officers and directors), subject
to the limitations set forth above. The articles and bylaws further provide for
indemnification of our corporate agents
II-1
<PAGE>
to the maximum extent permitted by California law. Additionally, we maintain
insurance policies which insure our officers and directors against certain
liabilities. Finally, reference is made to the indemnification and contribution
provisions of the Underwriting Agreement filed as an exhibit to this
Registration Statement.
The foregoing summaries are necessarily subject to the complete text of the
statute, our articles, our bylaws and the agreements referred to above and are
qualified in their entirety by reference thereto.
Item 15. Recent sales of unregistered securities
Since May 1, 1997, we have sold and issued the following securities:
1. During the period, the Registrant granted options to purchase an
aggregate of 1,399,434 shares of common stock, at exercise prices ranging from
$0.33 per share to $9.26 per share, to key employees, officers and directors
under its 1998 Stock-Based Incentive Compensation Plan. These options vest over
a period of time ranging from one to four years following their respective
dates of grant.
2. On June 13, 1997, the Registrant sold 5,428 shares of its Common Stock to
Gary Beauregard for aggregate consideration of $60,095.00 pursuant to the
exercise of stock options.
3. On June 13, 1997, the Registrant sold 780 shares of its Common Stock to
Julie Carruthers for aggregate consideration of $7,488.50 pursuant to the
exercise of stock options.
4. On June 13, 1997, the Registrant sold 354 shares of its Common Stock to
Priscilla Nanong for aggregate consideration of $3,400.00 pursuant to the
exercise of stock options.
5. On June 13, 1997, the Registrant sold 1,757 shares of its Common Stock to
Douglas Middleton for aggregate consideration of $19,147.50 pursuant to the
exercise of stock options.
6. On September 30, 1997, the Registrant effected a recapitalization of its
capital stock in connection with the Company's merger with C.P. Kitchen
Acquisition Corp. Pursuant to the merger, the Registrant issued .884986 shares
of new Class A Common Stock in exchange for each share of old Class A Common
Stock outstanding immediately before the recapitalization. Additionally, the
Registrant issued 3,235,200 shares of its Class A Common Stock and 134,800
shares of its Class B Common Stock to Bruckmann, Rosser, Sherrill & Co., L.P.
and its co-investors in exchange for an aggregate capital contribution of
$25,000,000. All Class B Common Stock has subsequently been converted into
Class A Common Stock and the class renamed "Common Stock."
7. On December 22, 1997, the Registrant declared a dividend of two shares of
Series A 12 1/2% Cumulative Compounding Preferred Stock and two shares of
Series B 13 1/2% Cumulative Compounding Preferred Stock on each outstanding
share of common stock.
8. On March 31, 1998, the Registrant sold 101,010 shares of its common
stock, 101,010 shares of its Series A 12 1/2% Cumulative Compounding Preferred
Stock and 101,010 shares of its Series B 13 1/2% Cumulative Compounding
Preferred Stock to Frederick R. Hipp for aggregate consideration of $374,666.30
pursuant to a Securities Purchase Agreement and Joinder, dated March 31, 1998,
between the Registrant and Mr. Hipp.
9. On November 9, 1998, the Registrant effected a two-for-one forward stock
split of its common stock by issuing a stock dividend.
10. On November 10, 1998, the Registrant sold 56,049 shares of its common
stock, 50,759 shares of its Series A 12 1/2% Cumulative Compounding Preferred
Stock and 50,759 shares of its Series B 13 1/2% Cumulative Compounding
Preferred Stock to H.G. Carrington, Jr. for aggregate consideration of
$198,381.67 pursuant to a Securities Purchase Agreement and Joinder, dated
November 10, 1998, between the Registrant and Mr. Carrington.
II-2
<PAGE>
11. On November 10, 1998, the Registrant sold 14,012 shares of its common
stock to H.G. Carrington, Jr. and Ricki L. Carrington, as joint tenants with
rights of survivorship, for aggregate consideration of $4,637.97 pursuant to
the exercise of stock options.
12. On November 10, 1998, the Registrant sold 55,348 shares of its common
stock to Frederick R. Hipp, as trustee of the Frederick R. Hipp Revocable
Trust, for aggregate consideration of $18,314.65 pursuant to the exercise of
stock options.
13. On December 24, 1998, the Registrant sold 276,740 shares of its common
stock to Frederick R. Hipp for aggregate consideration of $91,573.27 pursuant
to the exercise of stock options.
14. On December 24, 1998, the Registrant sold 207,555 shares of its common
stock to Fortunato N. Valenti for aggregate consideration of $68,679.95
pursuant to the exercise of stock options.
15. On December 24, 1998, the Registrant sold 27,674 shares of its common
stock to Richard C. Stockinger for aggregate consideration of $9,157.33
pursuant to the exercise of stock options.
16. On January 5, 1999, the Registrant sold 13,837 shares of its common
stock to Frederick F. Wolfe, as trustee of the 1998 Frederick Wolfe Revocable
Trust, for aggregate consideration of $4,578.66 pursuant to the exercise of
stock options.
17. On May 4, 1999, the Registrant sold 14,012 shares of its common stock to
H.G. Carrington, Jr. and Ricki L. Carrington, as joint tenants with rights of
survivorship, for aggregate consideration of $4,637.97 pursuant to the exercise
of stock options.
18. On July 15, 1999, the Registrant sold 751 shares of common stock to
Julie Carruthers for aggregate consideration of $6,383.50 pursuant to the
exercise of stock options.
19. On August 19, 1999, the Registrant sold 6,250 shares of its common stock
to Julie Carruthers for aggregate consideration of $15,625.00 pursuant to the
exercise of stock options.
20. On August 19, 1999, the Registrant sold 6,250 shares of its common stock
to Sarah Goldsmith for aggregate consideration of $15,625.00 pursuant to the
exercise of stock options.
21. On August 19, 1999, the Registrant sold 6,250 shares of its common stock
to Karen Settlemyer for aggregate consideration of $15,625.00 pursuant to the
exercise of stock options.
22. On August 19, 1999, the Registrant sold 6,250 shares of its common stock
to Douglas MacDonald for aggregate consideration of $15,625.00 pursuant to the
exercise of stock options.
23. On August 19, 1999, the Registrant sold 6,250 shares of its common stock
to Frederick F. Wolfe, as trustee of the 1998 Frederick Wolfe Revocable Trust,
for aggregate consideration of $15,625.00 pursuant to the exercise of stock
options.
24. On September 28, 1999, the Registrant sold 41,511 shares of its common
stock to Frederick F. Wolfe, as trustee of the 1998 Frederick Wolfe Revocable
Trust, for aggregate consideration of $13,735.99 pursuant to the exercise of
stock options.
25. On September 28, 1999 the Registrant sold 56,049 shares of its common
stock to H.G. Carrington, Jr. and Ricki L. Carrington, as joint tenants with
rights of survivorship, for aggregate consideration of $18,546.61 pursuant to
the exercise of stock options.
26. On November 19, 1999, the Registrant sold 887 shares of its common stock
to Julie Carruthers for aggregate consideration of $8,865.00.
II-3
<PAGE>
27. On June 30, 2000, the Registrant amended its articles of incorporation
to provide for the automatic conversion of its preferred stock upon the
consummation of this offering into a right to receive shares of common stock
and cash.
The transactions referred to in numbers 1, 11, 12, 13, 14, 15, 16, 17, 18,
19, 20, 21, 22, 23, 24, 25 and 26 were made in reliance upon the exemption from
registration provided pursuant to Rule 701 under the Securities Act for
securities sold pursuant to certain compensatory benefit plans and contracts
relating to compensation. The transactions referred to in numbers 8 and 10 were
made in reliance upon the exemption from registration provided pursuant to Rule
504 of Regulation D of the Securities Act. The transactions referred to in
number 6 were made in reliance upon the exemptions from registration provided
pursuant to Section 3(a)(9) and Section 4(2) of the Securities Act. The
transactions referred to in numbers 2 and 3 did not require registration under
the Securities Act because they do not fall within the definition of "sale"
under Section 5 of the Securities Act. The transaction referred to in number 27
was made in reliance upon the exemption from registration provided pursuant to
Section 3(a)(9) of the Securities Act. No underwriters were involved in
connection with the above-referenced sales of securities.
Item 16. Exhibits and financial statement schedules
a. Exhibits
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description Page
------ ----------- ----
<C> <S> <C>
1.1*** Form of Underwriting Agreement
3.1** Amended and Restated Articles of Incorporation, and amendments
thereto
3.2 Amended and Restated Bylaws
4.1*** Specimen Common Stock Certificate
4.2* Registration Rights Agreement dated September 30, 1997
4.3*** Forms of Lock-Up Agreement
5.1*** Paul, Hastings, Janofsky & Walker LLP Opinion of Legality
9.1* Voting Trust Agreement dated September 30, 1997
10.1* Memorandum of Understanding Regarding Form of Agreement between
Host Marriott Services and California Pizza Kitchen, Inc.
dated May 12, 1998
10.2* Credit Agreement by and among California Pizza Kitchen, Inc.
and Bank Of America, N.A., as Administrative Agent and Issuing
Lender, Bankers Trust Company, as Documentation Agent, and
each lender from time to time party thereto, dated October 29,
1999
10.3* Security Agreement by and among California Pizza Kitchen, Inc.,
CPK Management Company, California Pizza Kitchen of Illinois,
Inc. and Bank of America, N.A. dated October 29, 1999
10.4* Supplemental Security Agreement (Trademarks) by and between CPK
Management Company and Bank of America, N.A. dated October 29,
1999
10.5* Pledge Agreement by and among California Pizza Kitchen, Inc.,
California Pizza Kitchen of Illinois, Inc., H.G. Carrington,
Jr., Gregory S. Levin and Bank of America, N.A. dated October
29, 1999
10.6* Master Subsidiary Guaranty issued to Bank of America, N.A. by
CPK Management Company and California Pizza Kitchen of
Illinois, Inc. dated October 29, 1999
10.7** Third Amended and Restated Employment Agreement of Richard L.
Rosenfield dated July 6, 2000
10.8** Third Amended and Restated Employment Agreement of Larry S.
Flax dated July 6, 2000
10.9* Severance Agreement between Frederick R. Hipp and California
Pizza Kitchen, Inc. dated March 31, 1998
10.10* Severance Agreement between H.G. Carrington, Jr. and California
Pizza Kitchen, Inc. dated May 4, 1998
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Number Description Page
------ ----------- ----
<C> <S> <C>
10.11* Severance Agreement between Frederick F. Wolfe and California
Pizza Kitchen, Inc. dated November [sic], 1999
10.12* Severance Agreement between Tom N. Jenneman and California
Pizza Kitchen, Inc. dated November [sic], 1999
10.13** California Pizza Kitchen, Inc. Employee Stock Purchase Plan
adopted on November 2, 1999, as amended on June 23, 2000
10.14* California Pizza Kitchen, Inc. 1998 Stock-Based Incentive
Compensation Plan adopted February 5, 1998, as amended on
July 21, 1998 and November 2, 1999 and forms of stock option
agreement thereunder
10.15* California Pizza Kitchen, Inc. Non-Qualified Stock Option
Agreements between California Pizza Kitchen, Inc. and
Frederick R. Hipp dated March 31, 1998
10.16* Promissory Note between California Pizza Kitchen, Inc. and
H.G. Carrington, Jr. dated September 28, 1999
10.17* Promissory Note between California Pizza Kitchen, Inc. and
Frederick F. Wolfe dated September 28, 1999
10.18** Securities Holders Agreement dated as of September 30, 1998
among California Pizza Kitchen, Inc., Bruckmann, Rosser,
Sherrill & Co., L.P., Richard L. Rosenfield, Larry S. Flax
and the additional investors named therein, as amended on
June 30, 2000.
10.19*** Promissory Note between California Pizza Kitchen, Inc. and
Frederick R. Hipp dated , 2000
21.1* Subsidiaries of California Pizza Kitchen, Inc.
23.1 Consent of Ernst & Young LLP
23.2*** Consent of Paul, Hastings, Janofsky & Walker LLP (included in
Exhibit 5.1)
24.1* Power of Attorney
27.1** Financial Data Schedule
</TABLE>
--------
* Filed with the Registrant's Registration Statement on Form S-1 on May 25,
2000 (File No. 333-37778).
**Filed with the Registrant's Amendment No. 1 to Registration Statement on July
10, 2000.
***To be filed by amendment.
(b) Financial Statement Schedules
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
<PAGE>
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed as part of this Registration Statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this Registration Statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, hereunto duly authorized, in the City of Los Angeles, State of
California, on July 17, 2000.
California Pizza Kitchen, Inc.
/s/ H.G. Carrington, Jr.
By: _________________________________
Name: H.G. Carrington, Jr.
Title: Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities
indicated on July 17, 2000:
<TABLE>
<CAPTION>
Name Title
---- -----
<C> <S>
/s/ Larry S. Flax* Co-Chairman of the Board and Director
___________________________________________
Larry S. Flax
/s/ Richard L. Rosenfield* Co-Chairman of the Board and Director
___________________________________________
Richard L. Rosenfield
/s/ Frederick R. Hipp* Chief Executive Officer, President and
___________________________________________ Director (Principal Executive Officer)
Frederick R. Hipp
/s/ Harold O. Rosser* Director
___________________________________________
Harold O. Rosser
/s/ Bruce C. Bruckmann* Director
___________________________________________
Bruce C. Bruckmann
/s/ Fortunato N. Valenti* Director
___________________________________________
Fortunato N. Valenti
/s/ H.G. Carrington, Jr. Executive Vice President and Chief
___________________________________________ Financial Officer
H.G. Carrington, Jr.
/s/ Gregory S. Levin* Vice President, Controller and Chief
___________________________________________ Accounting Officer
Gregory S. Levin
</TABLE>
/s/ H.G. Carrington, Jr.
By: _________________________________
H.G. Carrington, Jr.
Attorney-in-Fact
--------
* H.G. Carrington, Jr., by signing his name hereto, does hereby sign this
document on behalf of each of the above-named officers and/or directors of
the Registrant pursuant to powers of attorney duly executed by such persons.
II-7
<PAGE>
EXHIBIT INDEX
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<CAPTION>
Number Description Page
------ ----------- ----
<C> <S> <C>
1.1*** Form of Underwriting Agreement
3.1** Amended and Restated Articles of Incorporation, and amendments
thereto
3.2 Amended and Restated Bylaws
4.1*** Specimen Common Stock Certificate
4.2* Registration Rights Agreement dated September 30, 1997
4.3*** Forms of Lock-Up Agreement
5.1*** Paul, Hastings, Janofsky & Walker LLP Opinion of Legality
9.1* Voting Trust Agreement dated September 30, 1997
10.1* Memorandum of Understanding Regarding Form of Agreement between
Host Marriott Services and California Pizza Kitchen, Inc.
dated May 12, 1998
10.2* Credit Agreement by and among California Pizza Kitchen, Inc.
and Bank Of America, N.A., as Administrative Agent and Issuing
Lender, Bankers Trust Company, as Documentation Agent, and
each lender from time to time party thereto, dated October 29,
1999
10.3* Security Agreement by and among California Pizza Kitchen, Inc.,
CPK Management Company, California Pizza Kitchen of Illinois,
Inc. and Bank of America, N.A. dated October 29, 1999
10.4* Supplemental Security Agreement (Trademarks) by and between CPK
Management Company and Bank of America, N.A. dated October 29,
1999
10.5* Pledge Agreement by and among California Pizza Kitchen, Inc.,
California Pizza Kitchen of Illinois, Inc., H.G. Carrington,
Jr., Gregory S. Levin and Bank of America, N.A. dated October
29, 1999
10.6* Master Subsidiary Guaranty issued to Bank of America, N.A. by
CPK Management Company and California Pizza Kitchen of
Illinois, Inc. dated October 29, 1999
10.7** Third Amended and Restated Employment Agreement of Richard L.
Rosenfield dated July 6, 2000
10.8** Third Amended and Restated Employment Agreement of Larry S.
Flax dated July 6, 2000
10.9* Severance Agreement between Frederick R. Hipp and California
Pizza Kitchen, Inc. dated March 31, 1998
10.10* Severance Agreement between H.G. Carrington, Jr. and California
Pizza Kitchen, Inc. dated May 4, 1998
10.11* Severance Agreement between Frederick F. Wolfe and California
Pizza Kitchen, Inc. dated November [sic], 1999
10.12* Severance Agreement between Tom N. Jenneman and California
Pizza Kitchen, Inc. dated November [sic], 1999
10.13** California Pizza Kitchen, Inc. Employee Stock Purchase Plan
adopted on November 2, 1999, as amended on June 23, 2000
10.14* California Pizza Kitchen, Inc. 1998 Stock-Based Incentive
Compensation Plan adopted February 5, 1998, as amended on July
21, 1998 and November 2, 1999 and forms of stock option
agreement thereunder
10.15* California Pizza Kitchen, Inc. Non-Qualified Stock Option
Agreements between California Pizza Kitchen, Inc. and
Frederick R. Hipp dated March 31, 1998
10.16* Promissory Note between California Pizza Kitchen, Inc. and H.G.
Carrington, Jr. dated September 28, 1999
10.17* Promissory Note between California Pizza Kitchen, Inc. and
Frederick F. Wolfe dated September 28, 1999
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description Page
------ ----------- ----
<C> <S> <C>
10.18** Securities Holders Agreement dated as of September 30, 1998
among California Pizza Kitchen, Inc., Bruckmann, Rosser,
Sherrill & Co., L.P., Richard L. Rosenfield, Larry S. Flax
and the additional investors named therein, as amended on
June 30, 2000.
10.19*** Promissory Note between California Pizza Kitchen, Inc. and
Frederick R. Hipp dated , 2000
21.1* Subsidiaries of California Pizza Kitchen, Inc.
23.1 Consent of Ernst & Young LLP
23.2*** Consent of Paul, Hastings, Janofsky & Walker LLP (included in
Exhibit 5.1)
24.1* Power of Attorney
27.1** Financial Data Schedule
</TABLE>
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*Filed with the Registrant's Registration Statement on Form S-1 on May 25, 2000
(File No. 333-37778).
** Filed with the Registrant's Amendment No. 1 to Registration Statement on
Form S-1 on July 10, 2000.
***To be filed by Amendment.
