<PAGE>
AS FILED WITH THE
SECURITIES AND EXCHANGE
COMMISSION ON OCTOBER 1, 1996
File No. 333-
-------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-3
Registration Statement
Under
The Securities Act of 1933
--------------------
CIATTI'S, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1564262
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5555 West 78th Street
Edina, Minnesota 55439
(612) 941-0108
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
------------------
Phillip R. Danford
President and Director
Ciatti's, Inc.
5555 West 78th Street
Edina, Minnesota 55439
(612) 941-0108
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------
COPIES TO:
Thomas G. Lovett, IV
Lindquist & Vennum P.L.L.P.
4200 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
Telephone: (612) 371-3211
Approximate date of commencement of proposed sale to public: As soon as
possible after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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 earliest effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================================
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Share Offering Price Fee
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rights to purchase Common Stock 1,485,638 rights N/A N/A N/A
Common Stock, $.01 par value, underlying Rights 1,485,638 shares $3.75(1) $5,571,143(1) $1,689
===============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee based
on the last reported sale prices of the Company's Common Stock on The
Nasdaq SmallCap Market on September 26, 1996, pursuant to Rule 457(c).
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment that specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CIATTI'S, INC.
Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Form S-3 Caption Prospectus Page or Caption
- ----------------------------------------------------------------------------------------
<S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus................................... Facing Page; Cross Reference Sheet;
Outside Front Cover Page
2. Inside Front and Outside Back Cover........... Pages of Prospectus Inside Front Page; Outside
Back Cover Page
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Charges....... Summary of Prospectus; Risk Factors
4. Use of Proceeds............................... Use of Proceeds
5. Determination of Offering Price............... Not Applicable
6. Dilution...................................... Not Applicable
7. Selling Security Holders...................... Not Applicable
8. Plan of Distribution.......................... Description of Securities and Terms of Offering
9. Description of Securities to be
Registered................................... Description of Securities and Terms of Offering
10. Interests of Named Experts and Counsel........ Not Applicable
11. Material Changes.............................. Summary of Prospectus; Risk Factors; Price Range
of Common Stock and Dividend Policy; Selected
Financial Data; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Business; Certain Federal Income Tax
Consequences
12. Incorporation of Certain Documents
by Reference................................. Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position
on Indemnification for Securities
Act Liability................................ Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Preliminary Prospectus
Subject to Completion
October 1, 1996
CIATTI'S, INC.
1,485,638 Rights
to Purchase 1,485,638 Shares
of Common Stock
Ciatti's, Inc. (the "Company" or "Ciatti's") hereby offers to each holder of
record of its Common Stock, the right ("Right") to purchase, at a price of $x.xx
per share (the "Rights Exercise Price"), two shares of Common Stock for every
share of Common Stock currently owned. The Rights are being issued to each of
its shareholders ("Shareholders") as of the close of business on ______________
(the "Record Date") exercisable for a period commencing on the date of this
Prospectus (the "Commencement Date") and terminating on ________________ (the
"Termination Date") (the "Offering Period"). The Rights are evidenced by non-
transferable certificates.
Shareholders exercising Rights will also have the right to subscribe for
additional shares in an amount up to an additional one hundred percent (100%) of
the Rights exercised by such Shareholders to the extent Rights are not exercised
by other Shareholders ("Oversubscription Privilege"). In addition, because a
number of the Company's Shareholders own fewer than 100 shares, as an
alternative to exercising the Rights and exercising the Oversubscription
Privilege, each Shareholder will be given the right to purchase an aggregate of
100 shares of the Company's Common Stock ("Round Lot Right").
Shareholders will not have the right to revoke subscriptions for shares
pursuant to the exercise of Rights, the Oversubscription Privilege, or the Round
Lot Right, once properly completed subscription forms accompanied by payment
have been received by the Company. Although there is no minimum purchase
requirement in connection with the Rights Offering, an existing Shareholder has
advised the Company that he intends to exercise his Rights in connection with
this offering. See "Description of Securities and Terms of Offering -
Commitment of Existing Shareholder."
The Company's Common Stock is quoted on the Nasdaq Small Cap Market. On
September 26, 1996, the closing bid and ask price of the Company's Common Stock
on the NASDAQ Small Cap Market system were $3.75 and $5.00, respectively.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING AT PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------
The date of this Prospectus is , 1996
----------------
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy and
information statements and other information filed by the Company can be
inspected and copied at the public facilities maintained by the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and the Commission's
regional offices located at 7 World Trade Center, 13th Floor, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained at prescribed rates
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a Web site
(http://www.sec.gov) at which reports, proxy and information statements and
other information regarding the Company may be accessed. Such reports, proxy
statements and other information can also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street N.W.,
Washington, D.C. 20006. The Company's Common Stock is quoted on The Nasdaq
SmallCap Market ("Nasdaq").
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended, with respect to the
shares of Common Stock offered hereby. This Prospectus does not contain all
information set forth in such Registration Statement and the exhibits and
schedules thereto, as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and in each
instance, reference is made to the copy of such contract or document (if any)
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and the shares offered hereby, reference is made to such
registration statement, including the exhibits and financial schedules filed as
part thereof. Such information may be inspected in the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies
thereof may be obtained from the Commission at prescribed prices.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following document, which has been filed by the Company with the
Commission (File No. 0-16348), is incorporated by reference in this Prospectus:
the Company's Annual Report on Form 10-KSB for the fifty-two weeks ended June
30, 1996.
The foregoing documents contain financial and other information
concerning the Company. Such documents constitute a part of this Prospectus,
and the information contained therein should be reviewed together with all other
information contained herein. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
hereby to the extent that a statement contained herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any or all of the documents which are incorporated by
reference into this Prospectus, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents.) In
addition, the Company has sent a copy of the Annual Report for the fifty-two
weeks ended June 30, 1996 to all shareholders. Requests for such copies should
be directed to Joseph W. Fesenmaier, Ciatti's, Inc., 5555 West 78th Street,
Edina, Minnesota 55435, telephone number (612) 941-0108, extension 205.
-----------------
This Prospectus, including the information incorporated by reference
herein, contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Actual results could differ significantly from those projected or
contemplated in the forward-looking statements as a result, in part, of the risk
factors set forth elsewhere in this Prospectus. In connection with the forward-
looking statements which appear in these disclosures, prospective purchasers of
the Company's Common Stock offered hereby should carefully review all of such
risk factors.
2
<PAGE>
SUMMARY OF PROSPECTUS
Rights Offering
Ciatti's, Inc. (the "Company") is hereby offering to its holders of
its Common Stock $.01 par value, the right to purchase, at a price of $x.xx per
share ("Rights Exercise Price"), two shares of the Company's Common Stock for
every share of Common Stock currently owned by such Shareholder. The Offering
Period began on the date of this Prospectus and will continue until the
Termination Date, unless extended by the Company. Shareholders exercising
Rights will also have the right to subscribe for additional shares in an amount
up to one hundred percent (100%) of the Rights exercised by such Shareholder to
the extent Rights are not exercised by other Shareholders ("Oversubscription
Privilege"). As an alternative to exercising the Rights and the
Oversubscription Privilege, each Shareholder will be given a Round Lot Right to
purchase 100 shares of Common Stock. The Company expects that the only persons
exercising such Round Lot Rights will be shareholders that hold fewer than 100
shares. See "Description of Securities and Terms of Offering."
The Rights are being offered pursuant to a Registration Statement on
Form S-3 to holders of record of the Company's Securities on the Record Date.
Each Shareholder will receive a Subscription Agreement evidencing such
Shareholder's Rights.
Securities Offered 1,485,638 shares of Common Stock offered
to the current holders of the Company's
Common Stock.
Shares of Common Stock Outstanding 742,819 shares prior to offering.
Rights Exercise Price $x.xx per share
Non-transferability of Rights The Rights may not be assigned or
transferred. To the extent not
subscribed for, all Rights will expire
on the Termination Date.
Use of Proceeds To expand the number of Bruegger's Bagel
Bakery restaurants owned and operated by
the Company.
NASDAQ Symbol CIAT
Record Date [To be determined]
Expiration Date [To be determined]
Oversubscription Privilege The Oversubscription Privilege entitles
any Shareholder who exercises all of the
Rights issued to such Shareholder the
right to subscribe to additional shares
up to one hundred percent (100%) of the
number of Rights exercised. Shares will
be issued pursuant to the
Oversubscription Privilege only if less
than all the Rights have been exercised.
If there is an insufficient number of
shares to fill all oversubscriptions,
the available shares will be allocated
on a pro rata basis.
Round Lot Right As an alternative to exercising their
Rights and the Oversubscription
Privilege, each Shareholder will have
the right to purchase 100 shares of the
Company's Common Stock.
3
<PAGE>
Federal Income Tax Consequences Generally, Shareholders will not
recognize any gain or loss upon receipt
of the Rights and the related
Oversubscription Privilege and Round Lot
Right, and no gain or loss will be
recognized by Shareholders upon exercise
of the Rights or the Oversubscription
Privilege or Round Lot Privilege. (See
"Certain Federal Income Tax
Considerations.")
Method of Subscription
The Company is mailing to each shareholder of record on the Record Date a
Rights Certificate evidencing such Shareholder's Rights to purchase up to the
number of shares equal to the Rights offered to such Shareholder. The Rights
will expire on the Termination Date, unless the offering made hereby is
extended, at the sole discretion of the Company. See "Description of Securities
and Terms of Offering - Procedure for Exercise of Rights; Extension of
Offering."
The Company
Ciatti's, Inc. (the "Company"), a Minnesota corporation, owns and
operates full-service restaurants in Minnesota and Wisconsin. Since January 1,
1995, the Company, through its wholly-owned subsidiary, Big D Bagels, Inc. ("Big
D"), a Minnesota corporation, has been the exclusive franchisee for Bruegger's
Bagel Bakery restaurants in the Dallas-Fort Worth, Texas market. As of September
15, 1996, the Company operated nine restaurants in Wisconsin and Minnesota under
the name "Ciatti's Italian Restaurant", one restaurant under the name "Spurs
Steakhouse & Saloon" and four Bruegger's Bagel Bakery restaurants in the Dallas-
Fort Worth area.
Except as otherwise provided, the term "the Company" refers to
Ciatti's, Inc. and its wholly-owned subsidiary, Big D Bagels, Inc. The Company's
executive office is located at 5555 West 78th Street, Edina, Minnesota 55439,
and its telephone number is (612) 941-0108.
Purpose of Offering
The Company is conducting the Rights Offering to finance the expansion
of the number of Bruegger's Bagel Bakery restaurants in the Dallas-Fort Worth,
Texas area. The Company believes that a Rights Offering to its existing
Shareholders will enable it to raise capital without incurring some of the
expenses that would be incurred in connection with other types of offerings,
while giving the Company's existing Shareholders the opportunity to participate.
----------------------------------
"Bruegger's," "Bruegger's Bagel Bakery" and "Javahh!" are trademarks of
Bruegger's Corporation. "Ciatti's Italian Restaurant" and "Spurs Steakhouse &
Saloon" are trademarks of the Company.
4
<PAGE>
RISK FACTORS
The shares offered hereby are speculative and involve a high degree of
risk. Prospective purchasers should be aware of the following factors and should
review carefully the information contained elsewhere in this Prospectus.
Dependence Upon Bruegger's Bagel Bakery Restaurants For Future Growth
Substantially all of the Company sales in the past have been generated
from the operation of its full service restaurants. During the fiscal year ended
June 30, 1996, the Company's full service restaurants generated sales of $17.0
million, while its Bruegger's Bagel Bakery generated sales of only $627,000. The
Company currently operates four Bruegger's Bagel Bakery restaurants. The retail
bagel segment is an emerging concept, the long-term appeal and potential of
which have not yet been fully determined. Future growth in sales and profits
will depend to a substantial extent on the Company's ability to increase the
number of its Bruegger's Bagel Bakery restaurants. The Company's ability to
successfully expand its Bruegger's Bagel Bakery operations will depend upon a
number of factors, including the availability and cost of suitable locations,
the hiring, training and retention of skilled restaurant management and
personnel, the ability of the Company to generate funds from operations, obtain
adequate restaurant financing on favorable terms or to obtain cash concessions
from landlords, the competitive environment, and the ability to obtain the
necessary governmental permits and approvals. There can be no assurance that the
Company will be able to open new Bruegger's Bagel Bakery restaurants; and, if
opened, that those restaurants can be operated profitably, or that the opening
of any new locations will not result in reduced sales at existing Bruegger's
restaurants. See "Business" - "Restaurant Operations" and "Restaurant
Development."
The Competitive Restaurant and Food Service Industry
The restaurant and food service industry is highly competitive and
fragmented. There are numerous restaurants and other food service operations
that compete directly and indirectly with the Company. Many of these entities
have significantly greater financial resources and higher total sales volume
than does the Company. The restaurant business is often affected by changes in
consumer taste and discretionary spending priorities, national, regional or
local economic conditions, demographic trends, consumer confidence in the
economy, traffic patterns, weather conditions, employee availability, and the
type, number and location of competing restaurants. Any change in these factors
could adversely affect the Company. In addition, factors such as inflation and
increased food, labor and other employee compensation costs could adversely
affect the Company. In the Dallas-Fort Worth area, the Company expects to
encounter competition from Einstein Bagels and Bagel Boulevard, as well as a
number of local, owner-operated bagel shops that in many cases have developed a
loyal local clientele. See "Business."
Need for Additional Capital
If all the Rights offered hereby are exercised, the Company will receive
net proceeds of approximately $4.4 million. Apart from the commitment of an
existing shareholder of the Company, there can be no assurance that any Rights
will be exercised. Under the Company's Development Agreement with Bruegger's, it
is required to open a total of 30 Bruegger's Bagel Bakery restaurants prior to
July 1, 2001. The Company estimates that it will cost approximately $350,000 for
capital expenditures per location. Accordingly, the Company will need funds in
addition to those raised in this offering to support its expansion plans and
comply with the terms of its Development Agreement with Bruegger's.
Increases in Food Costs
The Company's profitability is dependent on its ability to anticipate
and react to changes in food costs. Various factors beyond the Company's
control, including climatic changes, may affect food costs. While in the past,
management has been able to anticipate and react to increasing food costs
through purchasing practices, menu changes and price adjustments, there can be
no assurance that it will be able to do so in the future.
5
<PAGE>
Market Penetration
Experience obtained from other Bruegger's franchisees demonstrates that
the profitability of any individual Bruegger's Bagel Bakery restaurant depends
to a high degree on the penetration of a particular market by the local
franchisee. The Company assumes that individual Bruegger's Bagel Bakery
restaurants will typically become profitable only after the Company has opened a
number of bakeries sufficient to make the franchise name well-known in that
market. The Company estimates that in the Dallas-Fort Worth area the minimal
number for such penetration is twelve to twenty.
Control by Directors, Executive Officers and Affiliates
The Company's directors, executive officers and members of their
families beneficially own 59.6% of the Company's outstanding Common Stock
immediately prior to this offering. One of these shareholders, L.E. "Dan"
Danford, the Chairman of the Board of the Company, has indicated that he intends
to buy additional shares in this offering. As a result, these shareholders
currently exercise and are expected to continue to exercise influence and, if
acting together, control all matters requiring approval by the shareholders of
the Company, including the election of directors, approval of amendments to the
Company's Articles of Incorporation and approval of mergers or other business
combination transactions. Such control by existing shareholders could have the
effect of delaying, deferring or preventing a change in control of the Company.
Dilution of Current Shareholders
Shareholders who exercise their Rights will preserve, and through the
Oversubscription Privilege may increase, their proportionate interest in their
equity ownership of the Company. Shareholders of the Company who do not
exercise all of their Rights may experience a reduction in their equity
ownership of the Company.
Local Food Tastes
The Bruegger's Bagel Bakery concept has become successful in many parts
of the United States, but is new in the southern portion of the country.
Although the Company believes that bagels can be successfully introduced to the
Company's development area as it has been done in other metropolitan areas of
the country, there can be no assurances that this effort will be successful in
Texas.
Labor Costs, Availability of Employees
Similar to its Italian and Steakhouse restaurants, the Company needs to
hire essentially unskilled workers for each Bruegger's Bagel Bakery restaurant,
although fewer workers are required for a bakery compared to a full service
restaurant. While the Company pays wages higher than the statutory minimum wage
in every Bruegger's Bagel Bakery restaurant, the minimum wage nevertheless has a
direct proportionate impact on the actual wages the Company is required to offer
to compete for available employees. Any increases mandated by state or federal
laws, as those becoming effective October 1, 1996, will have a negative impact
on the Company's profitability because, in most instances, competition with
other restaurants does not allow such increases to be passed on to the customer.
Costs of Construction Materials
The construction of any Bruegger's Bagel Bakery restaurant involves
several building materials, such as construction-grade and furniture-grade
lumber, stainless steel, and plastic laminates, which are highly sensitive to
nationwide price fluctuations. Any significant price increases of such materials
will increase the construction costs of any bakery and will consequently have an
adverse effect on its profitability.
6
<PAGE>
Reliance on Commissary of Other Franchisee
Currently, the Company obtains its shaped bagel dough, as well as other
food supplies through the commissary of another Bruegger's franchisee in Austin,
Texas. Based on the experience of all Bruegger's franchisees, the Company does
not consider it economically advantageous to invest in the construction of its
own commissary until it has opened approximately ten to fifteen of its own
bakeries. While the current arrangement represents the most cost effective way
of obtaining bagel dough and other supplies, an unscheduled interuption of the
Austin commissary, which is not under the control of the Company, would have a
severe and immediate impact on the continuation of the Company's business in
Dallas-Fort Worth, Texas.
Government Regulation
The Company's business is subject to extensive state and local
government regulation in the various jurisdictions in which its restaurants and
its bakeries are located, including regulations relating to alcoholic beverage
control, public health and safety and fire codes. The failure to obtain or
retain required licenses could adversely affect the operation of the Company's
restaurants. While the Company has not experienced, and does not anticipate any
problems in obtaining required licenses, permits or approvals, any difficulties,
delays or failures in obtaining such licenses, permits or approvals could delay
or prevent the opening of a restaurant in a particular area. See "Business -
Government Regulation."
No Minimum
The Company's Chairman, L.E. "Dan" Danford, has advised the Company that
he intends to exercise his Rights in connection with this offering. Apart from
this commitment, there is no minimum number of shares that will be sold in this
offering. See "Description of Securities and Terms of Offering - Commitment of
Existing Shareholder."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,485,638 shares
offered by the Company, assuming a price per share of $3.00, hereby are
estimated to be approximately $4.4 million if all the shares of Common Stock
being offered hereby are sold. There can be no assurance, however, that any
shares will be sold, other than the shares that will be sold to the Company's
Chairman.
The Company intends to use substantially all of the net proceeds from
this offering for expansion of its Bruegger's Bagel Bakery restaurant concept in
the Dallas-Fort Worth area including the development of additional restaurants
and development of a commissary to serve its restaurants by producing fresh
dough on a daily basis. The Company does not intend to use any portion of such
proceeds for the operation or expansion of its Italian or Steakhouse concepts.
Pending the use specified above, the Company will invest the proceeds in short-
term interest bearing investments.
7
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is currently traded on the Nasdaq Small Cap
market under the symbol "CIAT". The following table sets forth the range of high
and low closing bid prices for the Company's Common Stock on the Nasdaq Small
Cap market for fiscal 1995, 1996, and the first quarter of fiscal 1997. The
prices listed below indicate inter-dealer prices without retail mark up, mark
down or commissions. They may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Bid Prices
Fiscal Year Low High
--- ----
<S> <C> <C> <C>
1995 First Quarter $3.00 $3.00
Second Quarter 3.00 3.50
Third Quarter 3.50 4.00
Fourth Quarter 3.00 4.00
1996 First Quarter $3.25 $4.50
Second Quarter 4.50 5.50
Third Quarter 4.25 5.50
Fourth Quarter 3.00 4.25
1997 First Quarter (through September 26, 1996) $3.00 $3.75
</TABLE>
On September 26, 1996, the highest reported closing bid and ask prices
for the Company's Common Stock as reported on the Nasdaq Small Cap market were
$3.75 and $5.00, respectively. As of September 1, 1996, the Company has 79
shareholders of record, plus an additional 386,950 shares held by depository
institutions for an undetermined number of additional shareholders. The total
number of outstanding shares was 742,819.
The Company has not paid cash dividends on its Common Stock in the past
and does not intend to pay cash dividends in the foreseeable future.
8
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data below have been derived from audited
financial statements of the Company for the fiscal years ended June 28, 1992,
June 27, 1993, July 3, 1994, July 2, 1995 and June 30, 1996. This data should be
read in conjunction with the financial statements, related notes and other
financial information, included or incorporated by reference, elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Statement of Operating Data Fiscal year(1)
-----------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Sales
- -----
Full-service restaurants............................ $ 20,935 $ 22,359 $ 22,969 $ 18,935 $ 16,962
Bruegger's Bagel Bakery restaurants................. -- -- -- -- 627
------------------------------------------------------
Total sales.......................................... 20,935 22,359 22,969 18,935 17,589
Cost of food and beverage............................. 6,275 6,760 6,848 5,781 5,191
------------------------------------------------------
Gross profit......................................... 14,660 15,599 16,121 13,154 12,398
Restaurant operating expenses
Labor and benefits................................. 7,034 7,590 7,383 6,266 6,145
Direct and occupancy............................... 6,348 7,001 7,039 5,722 6,375
------------------------------------------------------
Total restaurant operating expenses............... 13,382 14,591 14,422 11,988 12,520
General and administrative............................ 1,071 1,173 1,347 1,054 1,383
------------------------------------------------------
Earnings (loss) from operations....................... 207 (165) 352 112 (1,505)
Income tax (expense) benefit.......................... (92) (107) (134) (6) 160
Other income (expense), net........................... (84) (70) 92 88 (18)
------------------------------------------------------
Net earnings (loss)................................... $ 31 $ (342) $ 310 $ 194 $ (1,363)
======================================================
Net earnings (loss) per common and.................... $0.04 $(0.42) $0.40 $0.25 $(1.85)
common equivalent share ======================================================
Weighted average number of common and
common equivalent shares outstanding............... 813,315 805,118 769,586 763,226 736,917
<CAPTION>
Balance Sheet Data (at end of period)
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Current assets $ 1,610 $ 2,308 $ 2,763 $ 2,713 $ 2,184
Current liabilities 2,081 2,219 2,201 1,969 2,569
Total assets 8,318 7,899 7,206 7,684 6,652
Long-term obligations, less current maturities 1,706 1,491 665 1,179 907
Shareholders' equity 4,531 4,189 4,339 4,536 3,175
</TABLE>
- -------------------
(1) The Company's fiscal year ends on the Sunday closest to June 30. Fiscal
1994 was a fifty-three week year while fiscal 1992, 1993, 1995 and 1996 were
fifty-two week years.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus, including the information set forth in this section and
the information incorporated by reference herein, contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Actual results could differ
significantly from those projected in the forward-looking statements as a
result, in part, of the risk factors set forth in this Prospectus. In connection
with the forward-looking statements which appear in these disclosures,
prospective purchasers of the Common Stock offered hereby should carefully
review the factors set forth in this Prospectus under "Risk Factors."
Results of Operations
The following table sets forth certain financial data expressed as a
percentage of sales for the years ended June 28, 1992, June 27, 1993, July 3,
1994, July 2, 1995 and June 30, 1996:
<TABLE>
<CAPTION>
Statement of Operations Data Fiscal Year
--------------------------------------------
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Sales
Full-service restaurants.................. 100.0% 100.0% 100.0% 100.0% 96.4%
Bruegger's Bagel Bakery restaurants....... -- -- -- -- 3.6%
--------------------------------------------
Total restaurant sales................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of food and beverage.................. 30.0% 30.2% 29.8% 30.5% 29.5%
--------------------------------------------
Gross profit.............................. 70.0% 69.8% 70.2% 69.5% 70.5%
Restaurant operating expenses
Labor and benefits........................ 33.6% 33.9% 32.1% 33.1% 34.9%
Direct and occupancy...................... 30.3% 31.3% 30.7% 30.2% 36.2%
--------------------------------------------
Total restaurant operating expenses...... 63.9% 65.2% 62.8% 63.3% 71.1%
General and administrative................. 5.1% 5.3% 5.9% 5.6% 7.9%
--------------------------------------------
Earnings (loss) from operations............ 1.0% (0.7%) 1.5% 0.6% (8.5%)
Income tax (expense) benefit............... (0.5%) (0.5%) (0.6%) (0.0%) 0.9%
Other income (expense), net................ (0.4%) (0.3%) 0.4% 0.4% (0.1%)
--------------------------------------------
Net earnings (loss)........................ 0.1% (1.5%) 1.3% 1.0% (7.7%)
============================================
</TABLE>
Comparison of Year Ended June 30, 1996 to Year Ended July 2, 1995
Sales. Sales for fiscal 1996 decreased $1,345,904 or 7.1% to $17,589,187
from fiscal 1995 sales of $18,935,091. The decrease in sales was primarily due
to the increased competition of national chain restaurants in each of the
markets in which the Company's Italian and Steakhouse restaurants operate. The
Company expects competition to intensify and, therefore, most of the Company's
restaurants will continue to face significant pressure to maintain sales levels.
In addition, the Minneapolis, Minnesota restaurant, which was closed on December
24, 1994, contributed approximately six months of additional sales to fiscal
1995.
Offsetting the decrease in sales by the Company's Italian and Steakhouse
restaurants was the opening of four Bruegger's Bagel Bakery restaurants during
fiscal 1996. These stores were opened in the Dallas-Forth Worth, Texas area
during the last nine months of fiscal 1996 and have performed up to management's
expectations. The Company is committed by its development agreement to open
twenty-six more Bruegger's Bagel Bakery restaurants in this market over the next
five fiscal years. The Company currently expects to exceed the requirements of
the development agreement as the Dallas-Fort Worth market has responded
positively to the early store openings. The Company does not plan to open any
more Italian or Steakhouse restaurants in the future. Management intends to
focus the Company's expansion resources entirely on the Bruegger's Bagel Bakery
restaurant concept.
Cost of Food and Beverage. The cost of food and beverage was 29.5% of
sales in fiscal 1996. These costs were down significantly from the 30.5% of
sales reported in fiscal 1995 due to the Company changing its food vendor
10
<PAGE>
in order to take advantage of lower pricing. The Company does not expect the
cost of food and beverage to significantly increase in the future.
Labor and Benefits. Labor and benefit costs were 34.9% of sales in
fiscal 1996, an increase from the 33.1% of sales reported in fiscal 1995. This
increase in labor and benefit costs as a percent of sales was primarily due to
decreased sales at the Company's Italian restaurants. In addition, the Company
incurred higher labor and benefit costs as a percentage of sales during the
early phase of operating the new Bruegger's Bagel Bakery restaurants. The
Company expects labor and benefit costs to increase in the future based on the
minimum wage increases that will be effective October 1, 1996.
Direct and Occupancy. Direct and occupancy costs primarily include
individual restaurant advertising, promotion, supplies, utilities, occupancy and
depreciation expenses. These costs were 36.2% of sales in fiscal 1996, an
increase from the 30.2% reported in fiscal 1995. This increase was due to the
following three reasons. First, the Company increased its advertising and
promotion costs from 2.3% of sales during fiscal 1995 to 3.6% of sales in fiscal
1996. Second, lower sales levels caused fixed costs such as occupancy and
depreciation to be spread over a smaller sales base, thus significantly
increasing those respective percentages as compared to sales. Third, the Company
incurred significant costs related to the start-up of the Bruegger's Bagel
Bakery restaurants. The Company expects preopening costs relating to the start-
up of bagel bakeries to remain at the current range of $28,000 to $35,000 for
each bakery, adjusted for inflation. The Company is obligated by its Development
Agreement with Bruegger's to spend a minimum of 4% of sales on advertising and,
following its current practice, expects to spend between 4% and 5% of bakery
sales. In addition, the Company expects advertising and promotion expenses to
approximate 3.75% of full service restaurant sales during fiscal 1997.
General and Administrative. General and administrative costs increased
to 7.9% of sales for fiscal 1996, up from the 5.6% of sales reported in fiscal
1995. This increase was primarily due to the following two reasons. First, the
Company recorded a reserve of $147,368 for the entire balance of an outstanding
note receivable related to the closing of its Milwaukee, Wisconsin, restaurant
in fiscal 1995. Second, during the fourth quarter of 1996, the Company resolved
to close its Italian restaurant located in Glendale, Wisconsin, effective
September 8, 1996. Accordingly, the Company recorded a $77,691 charge during the
fourth quarter of 1996 to reduce the cost of the assets at this location by the
excess of the cost over the accumulated depreciation and amortization.
Management does not foresee any additional material costs to be incurred
relating to either of these items.
Other Income (Expense) Net. Other income (expense) decreased to a net
expense of $17,601 in fiscal 1996 from income of $87,854 in fiscal 1995. The
Company's interest expense increased to $92,634 in fiscal 1996 from $68,295 in
fiscal 1995 as a result of higher debt in 1996 due to the construction of the
Company's Bruegger's Bagel Bakery restaurants in the Dallas-Fort Worth area. The
Company's investment income decreased to $59,526 in fiscal 1996 from $77,469 in
fiscal 1995 primarily as a result of fewer funds available for investment. In
addition, other income decreased to $15,507 in fiscal 1996 from $78,680 in 1995
as 1995 included a gain of $55,000 from the closure of the Company's
Minneapolis, Minnesota restaurant.
Income Tax Expense (Benefit). The income tax benefit for fiscal 1996 was
$160,000 as compared to income tax expense of $6,000 in fiscal 1995. The income
tax benefit recorded was limited to the amount of taxes recoverable from a
carryback of the current year loss; there was no tax benefit recorded for the
effect of the carryforward of losses generated in fiscal 1996. As of June 30,
1996 the Company has $144,000 of alternative minimum tax credit carryforwards
and $559,000 of net operating loss carryforwards. These tax carryforwards may
only be utilized against future earnings and there can be no assurance that the
Company will realize these benefits. The utilization of these carryforwards may
be limited if there are significant changes in the ownership of the Company.
Seasonality. The Company's highest sales from its Italian and Steakhouse
restaurants have historically occurred during the months of July through
December. The Company is currently unable to determine whether the operation of
its bagel restaurants will result in any change in its seasonality.
Effects of Inflation. Inflationary factors such as increases in food and
labor costs directly affect the Company's operations. Because most of the
Company employees are paid hourly rates related to federal and state minimum
wage and tip credit laws, changes in these laws will result in increases in the
Company's labor costs. The
11
<PAGE>
Company cannot always effect immediate price increases to offset higher costs,
and no assurance can be given that the Company will be able to do so in the
future.
Comparison of Year Ended July 2, 1995 to Year Ended July 3, 1994
Sales. Sales for fiscal 1995 decreased $4,033,495 or 17.6% to
$18,935,091 from fiscal 1994 sales of $22,968,586. The sales decrease was mainly
due to four factors. First, the Milwaukee, Wisconsin restaurant, which was
opened during fiscal 1994, was sold in early fiscal 1995. Second, the
Minneapolis, Minnesota restaurant was closed on December 24, 1994. Third, fiscal
1994 had 53 weeks while fiscal 1995 had only 52 weeks. Fourth, in each of the
Company's markets, there continued to be an influx of national chains that
greatly increased the dining options for the Company's customers, adversely
affecting customer traffic.
Cost of Food and Beverage. Cost of food and beverage as a percentage of
sales was 30.5% in fiscal 1995, which represented an increase from the 29.8% in
fiscal 1994. The increase was mainly due to price increases by the Company's
suppliers without a corresponding menu price increase. Also, the Company
experienced an increase in produce prices due to flooding in California.
Labor and Benefits. Labor and benefits as a percentage of sales were
33.1% for fiscal 1995, which was an increase from 32.1% in fiscal 1994. The
increase was due primarily to the effect of decreased sales at the Company's
restaurants.
Direct and Occupancy. Direct and occupancy costs as a percentage of
sales decreased to 30.2% in fiscal 1995 from 30.6% in fiscal 1994. The decrease
was mainly due to two factors. First, during the third quarter of fiscal 1994,
there was a charge of $111,265 for preopening costs associated with the
conversion of the Company's Madison, Wisconsin restaurant into a Spurs
Steakhouse & Saloon. Second, the Company decreased its spending for advertising
to 2.3% of sales for fiscal 1995 from 3.9% during fiscal 1994.
General and Administrative. General and administrative expenses
decreased to 5.6% of sales in fiscal 1995 from 5.9% in fiscal 1994. There were
non-recurring charges in fiscal 1994 of $315,579 relating to the write-down of
certain assets, partially offset by the addition of a Corporate Chef to the
management team and start-up costs associated with the Bruegger's franchise.
Other Income (Expense). Investment income increased during fiscal 1995
from fiscal 1994 due to an increase in funds available to invest and to slightly
higher interest rates. Interest expense decreased due to the removal of the
capital lease obligation associated with the Indianapolis, Indiana sublease and
the reduction of the Company's bank debt through principal payments. Other
income in fiscal 1994 included a gain of $98,918 from the release of the
Indianapolis, Indiana lease obligation.
Income Tax Expense. Income tax expense in fiscal 1995 was $6,000 as
compared to income tax expense of $134,000 in fiscal 1994. Income tax expense in
1995 reflected the benefit of alternative minimum tax credit carryforwards being
utilized.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $1,602,936 on hand as of
June 30, 1996, which represents a decrease of $493,585 from the $2,096,521 in
cash and cash equivalents as of July 2, 1995. The major factor contributing to
this decrease was a decrease in cash provided by operations of $405,443.
Net cash used in investing activities was consistent in both fiscal 1996
and 1995. In fiscal 1996, $1,459,233 of cash was used to purchase leasehold
improvements and equipment. This amount was considerably higher than the
$454,141 of cash spent in fiscal 1995 due to the construction of the new
Bruegger's Bagel Bakery sites. Offsetting these expenditures in the current
fiscal year was $600,000 received from Bruegger's Franchise Corporation. The
$600,000 was for the repurchase of 6,000 shares of Bruegger's Corporation
convertible preferred stock that was purchased by the Company during fiscal 1995
and 1996.
12
<PAGE>
Net cash provided by financing activities during fiscal 1996 increased
by $172,966 over fiscal 1995. This increase was due to the Company increasing
its debt from financial institutions during fiscal 1996. The Company entered
into two new loan agreements during the current fiscal year. These loans were
used to purchase equipment and fixtures for the Company's new Bruegger's Bagel
Bakery locations. As of June 30, 1996, the Company had an outstanding balance on
all its outstanding term loans of $696,038.
Bruegger's Bagel Bakery Franchise Agreement
Big D Bagels, Inc. ("Big D"), a wholly-owned subsidiary of Ciatti's,
Inc., entered into a Development Agreement with Bruegger's Franchise Corporation
effective January 1, 1995. This agreement requires Big D to build 30 Bruegger's
Bagel Bakery restaurants over six years. During fiscal 1996, four Bruegger's
Bagel Bakery restaurants were built, thus meeting the initial terms of this
agreement. The Company is required to open five additional Bruegger's Bagel
Bakery restaurants during fiscal 1997. Each new site will require approximately
$350,000 for capital expenditures. In addition, the Company intends to construct
a commissary in late fiscal 1997 or early fiscal 1998, at an estimated cost of
$500,000. Currently, the Company is supplying its bakeries from the commissary
of another Bruegger's franchisee in Austin, Texas. The Company plans to finance
these capital expenditures with its current cash, future cash generated from
operations, and debt or equity financing, including the proceeds from this
offering.
13
<PAGE>
BUSINESS
General
Ciatti's, Inc. (the "Company"), a Minnesota corporation, owns and
operates full-service restaurants in Minnesota and Wisconsin. As of September
15, 1996, the Company operates nine restaurants under the name "Ciatti's Italian
Restaurant" and one restaurant under the name "Spurs Steakhouse & Saloon." In
December 1994, the Company, through its wholly-owned subsidiary Big D Bagels,
Inc. ("Big D"), a Minnesota corporation, entered into a Development Agreement
with Bruegger's Franchise Corporation ("Bruegger's") for the development of
Bruegger's Bagel Bakery restaurants in the Dallas-Fort Worth, Texas market. The
Company currently owns and operates four bakeries in the Dallas-Fort Worth
metropolitan area and a fifth bakery is under construction.
The Company does not plan to open any additional Italian or Steakhouse
restaurants. Instead, the Company intends to use its operating skills from its
other restaurant concepts and its available resources to further penetrate its
franchise area and develop additional Bruegger's Bagel Bakery restaurants.
Additionally, the Company intends to lease space for, and construct a commissary
in the Dallas-Fort Worth area to supply its bakeries. Currently, the Company
obtains its dough and other products daily from the commissary of another
franchisee operating Bruegger's Bagel Bakery restaurants in Austin, Texas.
Restaurant Operations
The Company currently operates eight Italian restaurants in Minnesota
and one Italian and one Steakhouse restaurant in Wisconsin. The Company's
Italian and Steakhouse restaurants range in size from 6,500 to 9,800 square
feet. Each seats between 70 and 100 customers in the lounge and between 110 and
220 customers in the dining area. The Company's restaurants generally do not
include meeting rooms or banquet facilities although the Company's Madison and
Woodbury restaurants have banquet rooms. Some of the Company's restaurants also
offer outdoor patio dining on a seasonal basis.
During fiscal 1996, the Company opened four Bruegger's Bagel Bakery
restaurants in the Dallas-Forth Worth area. The Company's existing bakeries are
leased for either five or ten years (all with renewal options) and range in size
from 2,130 to 3,000 square feet, each seating between 45 and 50 customers.
The following table sets forth the opening date and square footage of
the Company's restaurants.
<TABLE>
<CAPTION>
Full Service Restaurants:
Approximate
Date Opened Location Square Footage
----------- -------- --------------
<S> <C> <C>
September 1984 Saint Paul, Minnesota 8,600
February 1985 Madison, Wisconsin 9,800
November 1987 Falcon Heights, Minnesota 7,000
November 1988 Eden Prairie, Minnesota 7,800
June 1989 Burnsville, Minnesota 7,800
February 1990 Maplewood, Minnesota 7,800
November 1990 St. Cloud, Minnesota 6,700
October 1991 Edina, Minnesota 6,500
November 1991 LaCrosse, Wisconsin 7,100
April 1992 Woodbury, Minnesota 7,000
</TABLE>
14
<PAGE>
Bruegger's Bagel Bakery Restaurant:
<TABLE>
<CAPTION>
Approximate
Date Opened Location Square Footage
----------- -------- --------------
<S> <C> <C>
October 1995 Plano, Texas 3,000
December 1995 Plano, Texas 2,250
February 1996 Dallas, Texas 2,500
June 1996 Fort Worth, Texas 2,130
Under construction Dallas, Texas 2,200
</TABLE>
The Company has established uniform operational standards for its
restaurants, which are maintained by each restaurant's management team in
accordance with the Company's manuals that emphasize quality of ingredients,
food preparation and presentation, maintenance of the restaurant premises and
employee training and conduct. These manuals include an Operations Manual, a
Recipe Manual, a Pre-Opening Manual, a Construction Specifications Manual and a
Furniture, Fixtures and Equipment Specifications Manual. The Company has also
developed a training manual for each position in its Italian restaurants.
The Company's President supervises the operations of all restaurants
with the assistance of a Director of Operations for all Italian and Steakhouse
restaurants, and a Director of Operations for all Bruegger's Bagel Bakery
restaurants. Additionally, a Vice President for Administration, a corporate
Controller, a Director for Purchasing, a Director for Training and a corporate
chef administer their respective areas of responsibility at the corporate
office.
Each restaurant normally employs a general manager and assistant
managers. General managers have primary responsibility for restaurant
operations, including customer relations, food service, cost control,
maintenance, personnel, implementation of Company policies and procedures, and
restaurant profitability. Assistant managers share day-to-day responsibility for
restaurant operations. The Company has a bonus program to compensate its
managers and assistant managers for achieving sales, service and profitability
targets.
Supervisory personnel visit each restaurant an average of one day a
week. During such visits each aspect of the restaurant's operations is
scrutinized to ensure that the restaurant is being operated in conformance with
Company policies and procedures and to monitor customer service.
For its Italian restaurants, the Company periodically prepares and
revises menu items, recipes and lists of approved ingredients. Menu items,
recipes and the ingredients used in preparing them are chosen based upon
quality, cost and customer acceptance. Each restaurant's food and beverage
inventories and supplies are purchased by the general managers directly from
suppliers approved by the Company.
All supplier invoices are paid at the Company's home office after
approval by the appropriate general manager. The Company believes it has a good
working relationship with its suppliers. The Company limits the number of its
suppliers to take advantage of volume discounts, to achieve better quality
control and to simplify the purchasing process for the general managers.
Although the Company purchases a majority of its food ingredients and restaurant
supplies from a single distributor, which is not uncommon in the restaurant
industry, the Company believes that its food and beverage supplies can be
obtained from more than one supplier if any one supplier is unable to meet the
Company's demand or quality specifications.
The Company maintains centralized financial and accounting controls for
its restaurants. Restaurant personnel are required to report sales and deposit
information to the Company on a daily basis. On a weekly basis, general managers
complete and forward to the Company a food and liquor inventory, supplier
invoices and information with respect to labor hours.
15
<PAGE>
Restaurant Development
Italian and Steakhouse Restaurants.
----------------------------------
The Company concentrated development of full-service restaurants in the
upper Midwest states of Minnesota and Wisconsin. The Company did not open any
additional restaurants in fiscal years 1993-1996, and has no plans to open any
additional Italian or Steakhouse restaurants. The Company intends to expend its
efforts with respect to its existing restaurants on improving the sales and
profitability of these existing restaurants. The Saint Paul restaurant is
located in an urban area. The Falcon Heights, Eden Prairie, Burnsville,
Maplewood, Woodbury and Edina, Minnesota restaurants and the Madison, Wisconsin
restaurant are located in suburban areas. The St. Cloud, Minnesota restaurant is
located in a community of approximately 50,000 residents, 50 miles northwest of
the Minneapolis-Saint Paul metropolitan area. The LaCrosse, Wisconsin restaurant
is in a community of approximately 50,000 residents. The actual cost of opening
Italian and Steakhouse restaurants, including leasehold improvements, furniture,
fixtures, and equipment and other pre-opening costs have varied from $480,000 to
$930,000 for each restaurant.
Bruegger's Bagel Bakery Restaurants.
-----------------------------------
In December 1994, the Company entered into a Development Agreement with
Bruegger's Franchise Corporation. Bruegger's Corporation, which was acquired in
May 1996 by Quality Dining, Inc., has aggressively expanded its franchise system
to most major markets of the country. Bruegger's has indicated that its
objectives are to establish the Bruegger's brand as the leading, most recognized
brand in the bagel industry, to enhance Bruegger's existing position as the
largest chain of fresh bagel bakeries in the United States and to be the leader
in the markets it enters. As of June 30, 1996, Bruegger's, directly or through
franchises, operated in 52 metropolitan markets in 32 states. Since it was
founded in 1983, Bruegger's has experienced 11 consecutive years of systemwide
comparable store sales growth. Bruegger's generated systemwide net sales of
over $150 million, and for the 12 months ended May 1996 (the latest date
available) mature Bruegger's bakeries (open two or more years) were reported to
generate on average approximately $801,000 in net sales.
All franchisees are required to open a contractually specified number of
bakeries in their territory within a specified period of time or they will lose
their territorial franchise rights. As of June 30, 1996, there were 339
Bruegger's Bagel Bakery restaurants open for business, owned and operated by
either Bruegger's or by franchisees. The reported goal of Bruegger's
Corporation is to have 2,000 Bruegger's bakeries systemwide by the end of
October 2000. Although Bruegger's is generally considered the largest bagel
concept in the country, there are several franchise or company-owned systems
with aggressive development plans in direct competition in all areas of the
country.
The Company intends to devote significant resources to the development
of its Bruegger's Bagel Bakery restaurants. This decision to concentrate on
Bruegger's reflects the Company's judgment concerning the potential market for
bagel-based restaurant concepts, the continuing appeal of the Bruegger's format
to customers and the Company's ability to successfully manage its growth. Under
the terms of the Development Agreement between the Company and Bruegger's, the
Company is required to build 30 Bruegger's Bagel Bakery restaurants in the
Dallas-Fort Worth area by June 30, 2001.
The Company is concentrating its development efforts in the
socioeconomic well-to-do areas of the greater Dallas-Fort Worth area. Experience
gained from other Bruegger's franchises has shown that the typical customer
tends to be well educated and financially well-off. Three bakeries have been
opened, and one is under construction, in the north-central portion of the
Dallas area, and one was opened in the western portion of Fort Worth.
The ability of the Company to open additional bakeries will depend to a
large degree on the availability of suitably sized spaces in desired areas at
economically justifiable terms. Other bagel chains, as well as coffee houses,
are vying for the same locations, thus providing strong competition for space.
The cost of leasehold improvements for the existing bakeries varied from
$150,000 to $300,000 per bakery, depending on the size of the space,
contributions by the lessor, and the condition of the buildings. The Company
has
16
<PAGE>
followed its historical practice of purchasing all required furniture, fixtures
and equipment. This cost for the existing bakeries has ranged from $150,000 to
$200,000 for each bakery. Other preopening expenses, including design services,
smallwares, training, and initial inventory has varied from $28,000 to $35,000
for each bakery.
Restaurant Concepts and Formats
Italian Format.
--------------
Since commencing operations, the Company's restaurants have
traditionally had an Italian format. The Company's Italian restaurants serve
appetizers, pizza, soups and salads, sandwiches, pasta, chicken, seafood, bread,
and desserts, together with alcoholic and non-alcoholic beverages. Menu items
are prepared at each restaurant pursuant to the Company's uniform recipes and
ingredient specifications.
The Company has traditionally designed the dining areas and lounges of
its Italian restaurants to convey an atmosphere of casual elegance. The Company
has recently modified or redesigned some of its restaurants to include a more
informal, open kitchen style restaurant. The dining area of each restaurant
features booths and individual tables with either chairs or banquettes. The
Company's restaurants differ in interior design and decor, depending upon the
location and nature of the space. Most restaurants accept reservations for a
limited portion of their dining area. The Company encourages customers waiting
for dining to be seated in the restaurants' lounges, which have full-service
liquor licenses. In most of the Company's restaurants, appetizers and other menu
items are available in the lounge as well as in the restaurant.
The Company believes the future success of its full-service restaurants
depends upon its ability to consistently maintain the standards and procedures
it has established for the operation of its restaurants. Accordingly, the
Company has developed comprehensive uniform management and operations policies
and procedures that are applied on a Company-wide basis and that are implemented
primarily by the general managers of each restaurant. The Company requires that
each restaurant adhere to rigorous standards concerning the quality of
ingredients, preparation of food, maintenance of premises, customer service,
training of personnel and financial controls.
Each Italian restaurant employs a standardized menu with entree prices
ranging from $5.99 to $8.99 at lunch, and $7.99 to $14.99 at dinner. During
fiscal year 1996, food sales comprised approximately 77% and beverage sales
comprised approximately 23% of total sales.
The Company's Italian restaurants are typically open for lunch and
dinner daily during the year, except for Thanksgiving, Christmas Eve and
Christmas Day. Hours of operation may vary depending on local custom and
customer traffic. Menu service is normally available from 11:00 a.m. to 10:00
p.m. (9:00 p.m. on Sunday). A Sunday brunch is served in some of the Minnesota
restaurants from 10:00 a.m. to 2:00 p.m. Each restaurant's lounge is typically
open from 11:00 a.m. until 12:00 a.m. (10:00 p.m. on Sundays). In addition to
in-restaurant dining, all of the menu items are available for carry-out. Carry-
out sales constitute a small portion of the Company's total sales.
Steakhouse Format.
-----------------
In 1993, the Company converted its Madison, Wisconsin restaurant into a
Spurs Steakhouse & Saloon. The Company's Steakhouse restaurant has a more casual
atmosphere than the Company's Italian restaurants, with a menu that features a
Texas theme.
Bagel Restaurant Format.
-----------------------
Under the Company's Development Agreement with Bruegger's, the Company
is required to construct 30 bakeries in the Dallas-Fort Worth area by June 30,
2001. Bruegger's Bagel Bakery restaurants specialize in 12 varieties of freshly
baked bagels and branded cream cheeses, as well as their fresh ground, branded
premium "Javahh!" coffee which is brewed every 19 minutes. Bruegger's bagels are
unique because certified bagel masters bake the bagels by kettle-boiling them in
malt and water and then bake them in a stone hearth oven. In addition,
Bruegger's offers deli-style bagel sandwiches, freshly-made soups, and other
food and beverage items. The restaurants
17
<PAGE>
are open from approximately 6:30 a.m. to 7:00 p.m. each day, depending upon
location, and offer both carry-out and in-store dining.
The design and general lay-out of each Bruegger's Bagel Bakery
restaurant is based on plans and guidelines issued by Bruegger's. Bruegger's
updated its plans and designs for all Bruegger's Bagel Bakery restaurants in
1995 and all of the Company's existing bakeries have been constructed following
this new design. It is anticipated that the new design will be the national
standard for a number of years. The Company's ability to make material changes
to such design is limited and any such change requires the written approval of
Bruegger's. The new design and ambiance is bright and clean looking, using
materials to withstand heavy customer use.
Bruegger's also issues standard plans for furniture, fixtures and
equipment ("FF&E"), including standard menu boards and art work. The Company,
similarly to other franchisees of Bruegger's, is required to equip each bakery
with such FF&E. In a number of cases, Bruegger's offers two different
manufacturers for major equipment pieces.
Fiscal Year
The Company's fiscal year ends on Sunday closest to June 30 of each
year. Accordingly, most of the Company's fiscal years are 52 weeks and some are
53 weeks.
Seasonality
The Company's highest sales historically have occurred during the period
from July through December. The Company is currently unable to determine whether
the operation of its bagel restaurants will result in any change in its
seasonality.
Competition
The restaurant industry is intensely competitive and is affected by
changes in taste and eating habits of the public, local and national economic
conditions affecting spending habits, population and traffic patterns. Menu,
price, service, convenience, location, decor, and atmosphere are all important
competitive factors, with the relative importance of such factors varying among
different segments of the consuming public. By serving high-quality food and
beverages at reasonable prices in pleasant, casual surroundings, the Company
seeks to appeal to a wide range of customers.
Although the full-service Italian restaurant market segment is highly
fragmented, a few regional and national chains compete directly against the
Company in this market segment. Dardens' concept, The Olive Garden, is
represented in the Company's Minneapolis-Saint Paul and LaCrosse markets. The
Company's Italian and Steakhouse restaurants compete not only with other chain
or locally owned restaurants with similar menus, but also with other full-
service restaurants.
For its Bruegger's Bagel Bakery restaurants, the Company's primary
competitors are several chain bagel operators offering menu items essentially
similar to Bruegger's, all vying for speedy market penetration. For example,
Einstein Bagels and Bagel Boulevard are represented in the Company's territory
as well as a number of local, owner-operated bagel shops which in several cases
have developed a loyal local clientele. In addition, any quick-service or home-
replacement meal restaurants are competing with the Company for breakfast or
lunch customers.
Through the Bruegger's concept, the Company does, however, differentiate
itself from these competitors by providing its customers with bagels baked in
small batches on site throughout the day using fresh, not frozen, dough.
Additionally, by constructing and operating its own commissary to produce and
distribute fresh dough daily, the Company will vertically integrate its
Bruegger's operations. This integration will allow the Company to provide its
Bruegger's customers with a consistently high-quality product and to minimize
transportation and production costs.
18
<PAGE>
Advertising and Promotion
The Company develops and executes annual advertising and promotional
programs customized to each of the markets in which the Company currently
operates. The Company has budgeted 3.75 percent of its projected fiscal 1997
full service restaurant sales for advertising. Under the terms of the Company's
franchise agreement with Bruegger's, the Company is required to spend
approximately four percent of its sales from the bakeries for advertising and
promotion, including advertising and promotions due in connection with
Bruegger's efforts. Due to the small number of Bruegger's Bagel Bakery
restaurants currently existing in the franchise area, the majority of the
Company's efforts in this respect are directed to local store marketing.
Television or other wide coverage advertising will not be economically
justifiable until a larger number of bakeries exists in the Company's territory.
Government Regulation
Various federal, state and local laws affect the Company's restaurant
business, including laws and regulations relating to health, sanitation,
alcoholic beverage control and safety standards and access for disabled persons.
To date, federal and state environmental regulations have not had a material
effect on the Company's operations. Varied and sometimes stringent requirements
of local government bodies with respect to zoning, building codes, land use and
environmental factors have, in the past, increased, and in the future can be
expected to increase, the cost and time required for developing new restaurants.
In some instances the Company may have to obtain zoning variances and land use
permits for its new restaurants. A significant portion of the Company's Italian
and Steakhouse restaurant business is also derived from the sale of alcoholic
beverages. Any action by an alcoholic beverage control agency to suspend or
revoke a restaurant's liquor license would have an adverse effect on that
restaurant's business. The Company believes that it is operating in compliance
with all material laws and regulations covering its operations.
The Company is also subject to the Fair Labor Standards Act, which
covers such matters as minimum wages, overtime and other working conditions. A
significant portion of the Company's food service personnel are paid at rates
related to the minimum wage, and accordingly increases in the minimum wage
increase the Company's labor cost.
Trademarks and Licenses
The Company has obtained a trademark of the stylized words and design
for "Ciatti's Italian Restaurant," which was renewed in March 1994. The Company
also obtained a trademark for the words and design of "Spurs Steakhouse &
Saloon" in June 1994. Generally, federal registration of a trademark gives the
registrant the exclusive use of the trademark in the United States in connection
with the goods or services associated with the trademark, subject to the common
law rights of any other person who began using the trademark prior to the date
of federal registration. The Company believes that its marks are important to
its business.
Under the terms of the development agreement between the Company and
Bruegger's, the Company, as a franchisee of Bruegger's, has the right to use all
trademarks associated with the Bruegger's bagels franchise in connection with
the operation of its bakeries in the Dallas-Fort Worth area.
Employees
As of September 1, 1996, the Company employed approximately 1,000
persons, including 10 corporate employees, 50 restaurant managers and assistant
managers, and 940 hourly restaurant employees. Hourly employees comprise
approximately 94% of the Company's total work force and most work on a part-time
basis. Other than corporate and restaurant management personnel, employees are
paid on an hourly basis. No employees are covered by collective bargaining
agreements and no work stoppages have occurred. The Company considers its
employee relations to be good.
19
<PAGE>
Description of Property
The Company's existing restaurants are located in leased facilities, all
of which the Company believes to be adequate. The Company owns substantially all
of the furniture, fixtures, and equipment in each of its restaurants. Leasehold
improvements paid for by the Company generally will become the property of the
landlord upon expiration or termination of a lease.
The Company's corporate offices are located in Edina, Minnesota, a
Minneapolis suburb. These premises include a test kitchen and a small warehouse
area. The lease currently runs through August 31, 1998, with the Company having
the option to renew the lease for an additional three year term at the then
current market rates. The Company believes this facility will be adequate to
accommodate its administrative needs for the foreseeable future and that it will
be able to renew its existing lease upon satisfactory terms or obtain comparable
space on satisfactory terms.
The Company leases real estate and improvements for its restaurants. The
leases for its Italian restaurants generally provide for an initial term of ten
or twelve years although one restaurant had an initial term of twenty years.
These leases generally have a minimum of two five-year renewal options. Base
rent under the Company's leases varies depending, in part, upon leasehold
allowance funds provided by the lessor. Base rent at some locations also
escalates during the term of the lease. At a few restaurants, the Company also
is required to pay a percentage rate between 4% and 5.5% of sales in excess of
specified amounts. The Company pays all real estate taxes, insurance, utilities
and maintenance expenses for its leased properties.
The Company's leases for its Bruegger's Bagel Bakery restaurants
generally run for either five years or ten years, and have an option to renew
for one or two additional five year terms. The existing leases provide for a set
rent for the primary term in an amount that varies with the location.
20
<PAGE>
DESCRIPTION OF SECURITIES AND TERMS OF OFFERING
The shares of Common Stock issuable upon subscription of the Rights are
being offered to holders of the Company's Common Stock. Each current shareholder
will have the right to purchase the Company's Common Stock in the manner
described below.
Common Stock
The Company is currently authorized to issue 10,000,000 shares of Common
Stock, $.01 par value. Holders of the Common Stock do not have preemptive rights
to purchase additional shares of Common Stock or other subscription rights. The
Common Stock carries no conversion rights and is not subject to redemption or to
any sinking fund provision. All shares of Common Stock are entitled to share
equally in dividends from sources legally available therefore, when, as and if
declared by the Board of Directors and, upon liquidation or dissolution of the
Company, whether voluntary or involuntary, to share equally in the assets of the
Company available for distribution to shareholders. All outstanding shares are,
and all the shares to be sold and issued as contemplated hereby will be, fully
paid and non-assessable. The Board of Directors is authorized to issue
additional shares of Common Stock, not to exceed the amount authorized by the
Company's Articles of Incorporation and to issue options and warrants for the
purchase of such shares, on such terms and conditions and for such consideration
as the Board may deem appropriate without further shareholder action.
Each share of Common Stock is entitled to one vote per share on all
matters on which such shareholder is entitled to vote. The shares of Common
Stock do not have cumulative voting rights. The Bylaws of the Company require
that only a majority of the issued and outstanding shares of the Company be
represented to constitute a quorum and transact business at a shareholder's
meeting.
Norwest Bank Minnesota, N.A. is the transfer agent for the Common Stock
of the Company.
As of the Commencement Date, the Company had outstanding 742,819 shares
of Common Stock.
Rights Offering; Procedure for Exercise of Rights
Under the terms of the Rights Offering, each holder of Common Stock has
the right to purchase two additional shares of Common Stock for every current
share of Common Stock owned at the Rights Exercise Price.
Each holder of Common Stock is being sent a Rights Certificate with a
Subscription Agreement representing the number of Rights to which such
Shareholder is entitled. Shareholders should complete the Subscription
Agreement and return it to the Company at Ciatti's, Inc., 5555 West 78th Street,
Edina, Minnesota 55435, Attention: Joseph Fesenmaier, together with a check,
bank check or money order in the amount of the aggregate Rights Exercise Price.
Shareholders holding stock in street name that wish to exercise their
Rights must exercise them through their bank or broker-dealer or other nominee.
All shares of Common Stock to be issued upon exercise of Rights with
respect to Common Stock will be issued upon completion of the Rights offering
upon receipt of executed subscription agreements.
Withdrawal Rights; Extension of Offering
Shareholders will not have the right to revoke subscriptions for shares
pursuant to the exercise of Rights, the Oversubscription Privilege, or the Round
Lot Right once properly completed subscription forms accompanied by payment have
been received by the Company.
If at any time during the Offering Period, the Rights Exercise Price is
lowered, all persons exercising Rights will be notified of and receive the
benefit of such lower price.
21
<PAGE>
In the event the Offering Period is extended for any reason, the Company
will give prompt notice of such extension by a press release or other public
announcement.
Oversubscription Privilege
Shareholders who exercise their entire Rights will have the right to
subscribe for additional shares of Common Stock up to an additional 100% of the
shares being acquired to the extent that other Shareholders do not exercise
their Rights under the Offering. Shareholders that wish to subscribe for such
additional shares shall complete the appropriate "Oversubscription Privilege"
provision of the Subscription Agreement. To the extent that the offering is
subscribed so that less than 100% is available, the Company will fill all
subscriptions on a pro rata basis.
Round Lot Right
Partially as a result of the Company's one-for-four reverse stock split
effective February 18, 1993, the Company has a number of shareholders that hold
fewer than 100 shares. It is the Company's understanding that the minimum unit
for the Company's stock traded by broker-dealers in the Nasdaq Small Cap market
is a round lot of 100 shares. Because of this, and the fact that a number of
brokerage firms have minimum commission amounts, persons holding fewer than 100
shares of the Company's Common Stock might pay a disproportionately high level
of commissions upon sale of the Company's shares. In addition, the Company
estimates that the annual minimum cost to it of maintaining a shareholder
account is $10, including the printing and mailing of an annual report, proxy
statement and other shareholder communications.
Accordingly, as an alternative to exercising its Rights and
Oversubscription Privilege, each Shareholder is given the right to purchase a
Round Lot of 100 shares at the Rights Exercise Price. The Company believes that
a shareholder holding fewer than 100 shares may choose to exercise the Round Lot
Right to increase his or her holdings above 100 shares whereas otherwise such a
shareholder might choose not to participate in this offering.
Although the Round Lot Right is being offered to all shareholders, the
Company believes that most, if not all, of the shareholders electing the Round
Lot Right will be holders of fewer than 100 shares. To exercise the Round Lot
Right, the shareholder should complete that section of the Rights Certificate
entitled "Round Lot Right."
Securities to be Outstanding upon Completion of this Offering
If all the Shares offered hereby are sold, the Company will have
2,228,457 shares outstanding.
Determination of Rights Exercise Price
The offering price of the shares of Common Stock to be issued pursuant
to the Rights Offering was determined by the Company and its Board of Directors
after reviewing the Company's financial position and its short and long-term
business plans.
Transferability
Rights are non-transferable.
22
<PAGE>
Commitment of Existing Shareholder
L.E. "Dan" Danford, the Chairman of the Company's Board of Directors,
has advised the Company that he intends to exercise all his Rights in connection
with the offering, plus additional Rights to the extent available up to a total
of $1,500,000 in connection with this offering.
<TABLE>
<CAPTION>
Shares of
Common Stock
Current Shares Shares of Common Stock Aggregate
Name Owned to be Purchased(1) Consideration(1)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
L.E. "Dan" Danford, Jr. 170,796 341,592 $1,024,776
</TABLE>
- --------------------
(1) Assumes a Right Exercise Price of $3.00. The aggregate consideration will
increase up to $1,500,000 subject to shares available under the
Oversubscription Privilege.
23
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes all material federal income tax
consequences to Shareholders relating to the distribution of the Rights and the
acquisition of shares pursuant to the exercise of the Rights and the
Oversubscription Privilege. The discussion is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), the applicable Treasury Regulations (the
"Regulations"), and judicial and administrative interpretations of the Code and
Regulations, all as in effect on the date of this Prospectus. Each Shareholder
should be aware that the Code, the Regulations and any interpretation thereof
are subject to change and that any change could be applied retroactively. This
summary does not discuss all aspects of federal income taxation that may be
relevant to a particular Shareholder in light of his or her personal investment
circumstances or to certain types of Shareholders subject to special treatment
under the federal income tax laws (for example, banks, insurance companies, tax-
exempt entities and foreign taxpayers) and does not discuss any aspects of
state, local or foreign tax laws. Each Shareholder is urged to consult his or
her own tax advisor to determine the particular tax consequences to such
Shareholder (including the applicability and effect of the constructive
ownership rules and state, local, foreign and other tax laws) of the
distribution of the Rights and the acquisition of shares.
Receipt of the Rights
No gain or loss will be recognized by the Shareholder upon receipt of
the Rights, the related Oversubscription Privilege or the Round Lot Rights.
Exercise of the Rights and the Oversubscription Privilege
No gain or loss will be recognized by Shareholders upon exercise of the
Rights, the Oversubscription Privilege or the Round Lot Right. The holding
period of the shares will commence at the time the Rights, Oversubscription
Privilege or Round Lot Right, with respect to such shares, are exercised.
Basis of the Rights and the Shares
Except as described below, upon exercise of the Rights, the tax basis of
the Rights will be determined by allocating the tax basis of the Securities with
respect to which the distribution was made (the "Old Securities") between the
Old Securities and the Rights in proportion to their relative fair market values
on the date of distribution. If the fair market value of the Rights on the date
of distribution is less than 15% of the fair market value of the Old Securities
on such date, however, the tax basis of the Right will be zero unless the
Stockholder makes an irrevocable election to allocate part of the basis of the
Old Securities to the Rights as described in the preceding sentence. The
election is to be made by attaching a statement to the Shareholder's federal
income tax return filed for the taxable year in which the Rights are received.
The tax basis of Shares will be equal to the sum of the basis of the Rights, if
any, and the exercise price paid for the Shares.
Expiration of Unexercised Rights
If the Rights received by the Shareholder are not exercised and are
allowed to expire, no adjustment will be made to the basis of the Old Security
held by such Shareholder, and no income or loss will be recognized by such
Shareholder on the expiration of such Rights.
Sale of Shares
A Shareholder selling or disposing of shares will recognize gain or loss
equal to the difference between the amount received upon the sale of the basis
of such shares. Such gain or loss will be capital gain or loss if the shares
are a capital asset in the hands of the Shareholder and will be long-term
capital gain or loss if the Shareholder holds the shares for more than one year
prior to the sale.
24
<PAGE>
LEGAL MATTERS
The validity of the shares issuable upon exercise of the Rights will be
passed upon by Lindquist & Vennum P.L.L.P., 4200 IDS Center, Minneapolis,
Minnesota 55402.
EXPERTS
The Company's consolidated financial statements for the year ended June 30,
1996, incorporated by reference into this Prospectus, have been so incorporated
in reliance upon the report of Grant Thornton LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
25
<PAGE>
No person has been authorized in connection with the offering made hereby to
give any information or to make any representation not contained in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company of any Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of any offer
to buy any of the securities offered hereby to any person of by anyone in any
jurisdiction in which it is unlawful to make such offer of solicitation.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any cirumstances, create any implication that the information contained herein
is correct as of any date subsequent to the date hereof.
TABLE OF CONTENTS
Page
----
Available information 2
Uncorporation of Certain Documents by
Reference 2
Summary of Prospectus 3
Risk Factors 5
Use of Proceeds 7
Price Range of Common Stock and
Dividend Policy 8
Selected Financial Data 9
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
Business 14
Description of Securities and Terms of
Offering 21
Certain Federal Income Tax
Consequences 24
Legal Matters 25
Experts 25
CIATTI'S, INC.
---------------
PROSPECTUS
---------------
1,485,638 Rights to purchase
Shares of Common Stock
, 1996
------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14: Other Expenses of Issuance and Distribution
SEC registration fee.................................. $ 1,689.00
Nasdaq Listing Fee.................................... *
Legal Fees............................................ *
Accounting Fees....................................... *
Printing Expenses..................................... *
Transfer Agent Fees................................... *
Miscellaneous Fees and Expenses....................... *
---
TOTAL $ *
---
*To be filed by amendment.
ITEM 15: Indemnification of Directors and Officers
The Company's Bylaws require indemnification of its directors and officers
to the fullest extent permitted by Minnesota law. The Bylaws provide that the
Company shall indemnify any person made or threatened to be made a party to any
threatened, pending or completed civil, criminal administrative, arbitration or
investigative proceeding, including a proceeding by or in the right of the
corporation, by reason of the former or present official capacity of the person,
provided the person seeking indemnification meets five criteria set forth in
Section 302A.521 of the Minnesota Business Corporation Act.
The Company's Bylaws also authorize the Board of Directors, to the extent
permitted by applicable law, to indemnify any person or entity not described in
the Bylaws pursuant to, and to the extent described in, an agreement between the
Company and such person, or as otherwise determined by the Board of Directors in
its discretion.
Section 302A.521 of the Minnesota Business Corporation Act provides that a
corporation shall indemnify any person who was or is made or is threatened to be
made a party to any proceeding by reason of the former or present official
capacity of such person against judgments, penalties, fines, including, without
limitation, excise taxes assessed against such person with respect to an
employee benefit plan, settlements, and reasonable expenses, including
attorneys' fees and disbursements, incurred by such person in connection with
the proceeding if, with respect to the acts or omissions of such person
complained of in the proceeding, such person (i) has not been indemnified by
another organization or employee benefit plan for the same expenses with respect
to the same acts or omissions; (ii) acted in good faith; (iii) received no
improper personal benefit and Section 302A.255 (regarding conflicts of
interest), if applicable, has been satisfied; (iv) in the case of a criminal
proceeding, had no reasonable cause to believe the conduct was unlawful; and (v)
in the case of acts or omissions by person in their official capacity for the
corporation, reasonably believed that the conduct was in the best interests of
the corporation, or in the case of acts or omissions by persons in their
capacity for other organizations, reasonably believed that the conduct was not
opposed to the best interests of the corporation.
II-1
<PAGE>
Item 16. Exhibits
Exhibit No. Description
- --------------------------
4.1 Rights Certificate
4.2 Letter to Shareholders
5 Opinion and Consent of Lindquist & Vennum P.L.L.P., counsel to
the Company(1)
23.1 Consent of Grant Thornton LLP
23.2 Consent of Lindquist & Vennum P.L.L.P. (see Exhibit 5.1 above)
24 Powers of Attorney (included on signature page hereof)
27 Financial Data Schedule
(1) To be filed by amendment
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933:
(ii) to reflect in the Prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of Prospectus filed
with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
- -------- -------
Registration Statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the securities Act of 1933, each filing of the
Registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement 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.
(c) The undersigned Registrant hereby undertakes to supplement the Prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the shareholders during the subscription
period, and the amount of unsubscribed securities to be purchased by the
shareholders.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the 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 Act and will be governed by the final
adjudication of such issue.
(e) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the 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 of 1933, 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Edina, State of Minnesota, on the 30th day of
September, 1996.
CIATTI'S, INC.
(Registrant)
By /s/ Phillip R. Danford
--------------------------------
Phillip R. Danford
President and Director
POWER OF ATTORNEY
The undersigned hereby constitute and appoint Phillip R. Danford, our
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for us and in our stead, in any and all capacities, to sign any
or all amendments to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as such person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on September __,
1996 in the capacities indicated.
Signature Title
--------- -----
/s/ L.E. "Dan" Danford, Jr. Director and Chairman of the Board
- -------------------------------
L.E. "Dan" Danford, Jr.
/s/ Phillip R. Danford President and Director
- ------------------------------- (Principal Executive Officer, Principal
Phillip Danford Financial Officer)
/s/ Thomas A. Kelm Director
- -------------------------------
Thomas A. Kelm
/s/ Joseph Fesenmaier Controller
- -------------------------------
Joseph Fesenmaier
II-4
<PAGE>
Exhibit 4.1
CIATTI'S, INC.
RIGHTS CERTIFICATE FOR COMMON STOCK
Issued to Holders of Common Stock
(See Instructions on Reverse Side)
RIGHTS ARE NOT TRANSFERABLE AND WILL BECOME VOID UNLESS THIS SUBSCRIPTION FORM
IS PROPERLY COMPLETED AND RECEIVED BY CIATTI'S, INC. NO LATER THAN 5:00 P.M.,
MINNEAPOLIS TIME, ON __________, 1996.
EXPIRATION DATE: October 31, 1996
SUBSCRIPTION PRICE: $____ PER SHARE OF COMMON STOCK
CHECK AND COMPLETE EITHER PART 1 OR PART 2
- ------------------------------------------
- --------------------------------------------------------------------------------
PART 1A - TO EXERCISE RIGHTS: The undersigned hereby irrevocably subscribes
----------------------------
for the number of shares of Common Stock indicated below upon the terms and
conditions specified in the Prospectus, receipt of which is hereby
acknowledged.
Number of shares subscribed for ____, at $._____ per share = $______
PART 1B - TO EXERCISE OVERSUBSCRIPTION PRIVILEGE: The undersigned hereby
------------------------------------------------
irrevocably oversubscribes for ____ shares of Common Stock, upon the terms
and conditions provided in the Prospectus (not to exceed one times the
number of shares purchasable by exercise of the Securityholder's Rights in
Part 1A).
Number of shares oversubscribed for at $._____ per share $______
Total Amount Enclosed (#1A and 1B): $______
- --------------------------------------------------------------------------------
PART 2 - TO EXERCISE ROUND LOT RIGHT: The undersigned hereby irrevocably
------------------------------------
subscribes for 100 shares of Common Stock.
Amount Enclosed must be: $_____
- --------------------------------------------------------------------------------
Personal check, bank draft or money order payable to "Ciatti's, Inc." for
the number of shares of Common Stock to be purchased must be enclosed.
- --------------------------------------------------------------------------------
READ INSTRUCTIONS BEFORE SIGNING
- ----------------------------- --------------------------------------
Subscriber's Signature Additional Signature (if jointly held)
<PAGE>
INSTRUCTIONS FOR EXERCISE OF RIGHTS CERTIFICATE
Exercise of Rights and Oversubscription Privilege
- -------------------------------------------------
1. Determine the number of Rights you are entitled to purchase by
multiplying the share total on the mailing label by two. For example, if your
share total is 325 shares, you have Rights to purchase 650 shares.
2. Fill out Part 1A listing the number of Rights you wish to exercise.
3. If you exercise all your Rights, you have an Oversubscription
Privilege to purchase additional shares up to one times the number of Rights you
exercise, depending upon the availability of shares. If you wish to exercise
this Oversubscription Privilege, complete Part 1B.
4. To determine the total payment to enclose, add the totals in Parts 1A
and 1B.
Exercise of Round Lot Right
- ---------------------------
1. As an alternative to exercising the Rights described above, the
Company is giving each shareholder who currently owns less than 100 shares the
right to purchase up to 100 shares at a price of $x.xx per share. To exercise
your Round Lot Right, complete Part 2 and send payment in the amount of $_____
(100 shares times $x.xx). If you exercise your Round Lot Right, you cannot also
-----------
exercise your Rights or Oversubscription Privilege.
General
- -------
1. All shares will be issued only in the name of the person to whom the
Rights are issued. If you wish the shares to be issued in another name, you
must first exercise your Rights by completing this Rights Certificate. After
you receive your shares, you may request reissuance of the shares from the
Company's Transfer Agent.
2. Completed Rights Certificates should be sent to:
Ciatti's, Inc.
5555 West 78th Street
Edina, MN 55439
Attention: Joseph W. Fesenmaier
<PAGE>
Exhibit 4.2
-----------
[October ___], 1996
Ciatti's, Inc.
5555 West 78th Street
Edina, Minnesota 55439
[shareholder name]
[shareholder address1]
[shareholder address2]
Dear Shareholder:
Ciatti's, Inc. (the "Company") has commenced a Rights Offering to its
shareholders. Under the terms of the Rights Offering, each shareholder of
record is being given the right to purchase two shares of the Company's Common
Stock for each share owned as of the Record Date. In addition, each shareholder
is being given the additional right called the Oversubscription Privilege to buy
additional shares of Common Stock up to 100% of the shares purchased through the
exercise of Rights, subject to availability.
The proceeds of the offering are being used by the Company to expand its
development of Bruegger's Bagel Bakery restaurants in the Dallas-Fort Worth
area.
Enclosed please find a Prospectus dated ______________, 1996, together with
a Rights Certificate.
To subscribe to the Offering, please read the Prospectus and the enclosed
instructions and then complete and return the Rights Certificate with payment to
Joseph Fesenmaier at Ciatti's, Inc., 5555 West 78th Street, Edina, MN 55439-
2702.
Very truly yours,
Phillip R. Danford
President
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated August 14, 1996, accompanying the consolidated
financial statements of Ciatti's, Inc. included in the Annual Report on Form 10-
KSB for the fifty-two weeks ended June 30, 1996 which is incorporated by
reference in the Registration Statement and Prospectus. We consent to the
incorporation by reference of the aforementioned report in the Registration
Statement and Prospectus, and to the use of our name as it appears under the
caption "Experts."
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Minneapolis, Minnesota
September 23, 1996
