<PAGE>
2,000,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE
OF COMMON STOCK AND ONE REDEEMABLE
COMMON STOCK PURCHASE WARRANT
PRICE PER UNIT - $1.25
-----------------------------------
PREMIUM RESTAURANT COMPANY
-----------------------------------
The units offered hereby are being sold by Premium Restaurant Company (the
"Company"), formerly known as Ciatti's, Inc. Each unit ("Unit") consists of one
share of the Company's common stock, $.01 par value per share ("Common Stock"),
and one Redeemable Common Stock Purchase Warrant ("Warrant"). The Common Stock
and Warrants are immediately detachable and separately transferable. One
Warrant entitles the holder to purchase, at any time up to March 31, 2000, one
share of Common Stock at a price of $1.875. Beginning January 1, 1999, the
Warrants are redeemable, in whole, by the Company at a redemption price of $.05
per Warrant on not less than 30 days written notice, provided that the market
price of the Common Stock exceeds $3.50 per share (subject to adjustment) for
any 20 consecutive trading days within 15 days prior to such notice. Holders of
Warrants may exercise their rights until the close of business on the date fixed
for redemption, unless extended by the Company. See "Description of Securities
and Terms of Offering."
Prior to this Offering, there has been no public market for the Units and no
assurance can be given that any such market will exist or develop upon
completion of this Offering or, if developed, will be maintained.
These Units are being sold by the Company's officers and directors. In
addition, subject to NASD approval, the Company intends to offer these Units
through one or more broker-dealers in such states as the Company may register.
See "Description of Securities and Terms of Offering - Plan of Distribution."
The Company may grant to broker-dealers it retains warrants to purchase 10% of
the securities sold by such broker-dealers and may agree to indemnify the
broker-dealers under the Securities Act of 1933, as amended. Through April 9,
1998, the Company had achieved the minimum 480,000 Units ($600,000), and all
proceeds therefrom were released from the Company's Escrow Account at Norwest
Bank Minnesota, N.A, on April 14, 1998. Through May 3, 1998, the Company had
sold 743,100 Units ($928,875).
THE UNITS OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 5.
-----------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Underwriting
Price to Commissions and Proceeds to
Public Discount (1) Company
-----------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit $1.25 $.125 $1.125
-----------------------------------------------------------------------
Minimum 480,000 Units $60,000 $540,000 (2)
-----------------------------------------------------------------------
Maximum 2,000,000 Units $250,000 $2,250,000 (2)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
(1) The Company may agree to indemnify any broker-dealers it may retain against
certain liabilities, including liabilities under the Securities Act of
1933. In addition, subject to NASD approval, the Company may agree to
issue broker-dealers five-year warrants to purchase the number of shares of
the Company's Common Stock equal to 10% of all Unit sales generated by such
broker-dealers and may pay broker-dealers a nonaccountable expense
allowance for sales-related expenses up to 3% of all proceeds generated by
such broker-dealers.
(2) Before deducting estimated offering expenses of $100,000 and excluding any
nonaccountable expense allowance for broker-dealers.
The date of this Prospectus is May 26, 1998.
<PAGE>
[Pictures of Bruegger's Bagel Bakery]
Premium Restaurant Company, through its wholly-owned subsidiary DFW Bagels,
Inc., owns and operates seven Bruegger's Bagel Bakery restaurants in the
Dallas-Fort Worth area.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND BY THE INFORMATION AND
FINANCIAL STATEMENTS APPEARING IN THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE UNITS OFFERED HEREBY. TERMS NOT
DEFINED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
The Company owns and operates five full-service restaurants in Minnesota
and Wisconsin and seven "Bruegger's Bagel Bakery" restaurants in the Dallas-Fort
Worth, Texas area. Included in these full-service restaurants are four Italian
restaurants operating in Minnesota under the name "Ciatti's Italian
Restaurant-Registered Trademark-" and one steakhouse restaurant operating in
Wisconsin under the name "Spurs Steakhouse & Saloon-Registered Trademark-." All
bagel bakeries are operated under the name "Bruegger's Bagel Bakery" pursuant to
the terms of a development agreement and related franchise documents under which
the Company's subsidiary DFW Bagels, Inc. ("DFW") acts as franchisee.
The Company is conducting this Offering to raise working capital while the
Company is expanding the number of Bruegger's Bagel Bakery restaurants owned and
operated by DFW in the Dallas-Fort Worth area. Under the Development Agreement,
as amended, DFW must have eight Bruegger's Bagel Bakery restaurants open by
August 1, 1998, nine Bruegger's Bagel Bakery restaurants open by September 1,
1998 and thirty Bruegger's Bagel Bakery restaurants open by July 1, 2002.
Premium Restaurant Company and its wholly-owned subsidiary, DFW Bagels,
Inc., are Minnesota corporations. The Company's principal office and mailing
address is Premium Restaurant Company, 5555 West 78th Street, Edina, Minnesota
55439-2702 and its telephone number is (612) 941-0108. Unless the context
otherwise requires, references to the Company include the Company and its
wholly-owned subsidiary, DFW Bagels, Inc. References to the Company's
development and operation of its Bruegger's Bagel Bakery restaurants will
generally mean DFW Bagels, Inc. Prior to November 1997, the Company was known
as Ciatti's, Inc. In November 1997, the Company changed its name to Premium
Restaurant Company to reflect the broader business operations of the Company.
During the period September through November 1997 the Company sold five of its
full-service restaurants to raise additional working capital to enable it to
focus on the development of its Bruegger's Bagel Bakery restaurants. See
"Business - Restaurant Demographics."
THE OFFERING
Securities Offered . . . . 2,000,000 Units. Each Unit offered hereby
consists of one share of Common Stock and one
Redeemable Common Stock Purchase Warrant. Each
Warrant entitles the holder to purchase, at any
time during the period ending March 31, 2000, one
share of Common Stock at a price of $1.875,
subject to adjustment in certain circumstances.
Beginning January 1, 1999, the Warrants are
redeemable, in whole, by the Company at a
redemption price of $.05 per Warrant on not less
than 30 days written notice, provided that the
market price of the Common Stock exceeds $3.50 per
share (subject to adjustment) for any 20
consecutive trading days within 15 days prior to
such notice. Holders of Warrants may exercise
their rights until the close of business on the
date fixed for redemption, unless extended by the
Company. See "Description of Securities and Terms
of Offering." Through May 3, 1998, the Company had
sold 743,100 Units ($928,875).
Common Stock Outstanding
Before the Offering. . . 742,819 shares of Common Stock at February 2,
1998.
Use of Proceeds. . . . . . Repayment of subordinated debt, accounts payable,
bakery pre-opening expenses, commissary
pre-opening expenses, inventory and supplies, and
working capital. See "Use of Proceeds."
----------------------------------
"BRUEGGER'S" and "BRUEGGER'S BAGEL BAKERY" are trademarks of Bruegger's
Corporation. "CIATTI'S ITALIAN RESTAURANT" and "SPURS STEAKHOUSE & SALOON" are
registered trademarks of the Company.
3
<PAGE>
The Common Stock and Warrants included in the Units offered hereby are
securities of Premium Restaurant Company. They are not direct or indirect
interests in DFW Bagels, Inc. Neither Bruegger's Corporation, nor any of its
affiliates have endorsed, approved or reviewed, or are in any way a party to,
this Prospectus or any of the disclosures contained in this Prospectus.
----------------------------------
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.
4
<PAGE>
RISK FACTORS
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING MATTERS IN CONNECTION
WITH AN INVESTMENT IN THE UNITS IN ADDITION TO THE OTHER INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE IN THE PROSPECTUS. INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH
AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE
NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE
FOLLOWING MATTERS CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS
WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND
UNCERTAINTIES, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
IN SUCH FORWARD-LOOKING STATEMENTS.
RECENT AND ANTICIPATED LOSSES; DILUTION
During the fiscal years ended June 30, 1996 and June 29, 1997 and the
thirty-nine weeks ended March 29, 1998, the Company incurred losses of
approximately $1,363,000 and $2,569,000 and $1,160,000, respectively. The loss
for the thirty-nine weeks ended March 29, 1998 is net of a gain of approximately
$926,000 recognized on the sale of five full-service restaurants. At March 29,
1998, the Company had an accumulated deficit of $4,896,556 and shareholders'
deficit of $553,914, or $.75 per share. Through May 3, 1998, the Company had
sold 743,100 Units with gross proceeds of $928,875 and had shareholders' equity
of $44,992, or $.03 per share. Investors purchasing Units in this Offering will
recognize dilution in an amount equal to the difference between $1.25 per Unit
and the Company's book value per share. Although the Company believes it can
regain profitability through its expansion of Bruegger's Bagel Bakery
restaurants in the Dallas-Fort Worth area, the Company expects that it will
continue to incur losses until profitability is achieved. There can be no
assurance that the Company will be able to achieve profitability of its
Bruegger's Bagel Bakery restaurants.
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. The Company currently operates
seven bagel bakeries. 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 bagel bakeries. The Company's
ability to successfully expand its 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 bagel bakeries 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 bagel bakeries. See "Business -
Restaurant and Bakery Operations" and "Business - Restaurant Development."
SALE OF CERTAIN OF ITS CIATTI'S ITALIAN RESTAURANTS
The Company sold three of its full-service restaurants in September 1997,
one of its full-service restaurants in October 1997 and one of its full-service
restaurants in November 1997. The three restaurants sold in September 1997 are
located in Burnsville, Falcon Heights and Woodbury, Minnesota. The restaurant
sold in October 1997 is located in St. Cloud, Minnesota, and the restaurant sold
in November 1997 is located in LaCrosse, Wisconsin. The sale of these
restaurants generated proceeds of approximately $1,827,000. The gain recognized
on the sale of the three restaurants sold in the first quarter of fiscal 1998
was approximately $486,000 and the gain recognized on the sale of the two
restaurants sold in the second quarter of fiscal 1998 was approximately
$440,000. The restaurants sold are initially being operated as Ciatti's Italian
Restaurants, however, the new operators have the right to change the name. The
Company decided to sell these restaurants to focus on achieving and maintaining
profitability at its remaining full-service restaurants and to generate cash to
continue to expand its bagel bakery concept in the Dallas-Fort Worth market.
During fiscal 1997, the restaurants sold generated approximately $8,270,000 of
sales, net earnings of $445,000 and cash flows from operations of $799,000. The
Company will not have the benefit of this cash flow in the future. Although the
Company has no agreements to sell any of its remaining full-service restaurants,
it is exploring alternatives to maximize
5
<PAGE>
its cash flow, including the possible sale of any of its remaining full-service
restaurants as well as sale and lease-back opportunities.
DEPENDENCE UPON BRUEGGER'S
The Development of the Dallas-Fort Worth area for bagel bakeries by DFW is
subject to the terms and conditions of a Development Agreement and related
franchise agreements with Bruegger's Franchise Corporation ("Bruegger's). Under
the terms of the Development Agreement as amended in November 1997 and May 1998,
DFW is required to comply with a number of requirements with respect to
construction and maintenance of bagel bakeries. DFW is required to have eight
Bruegger's Bagel Bakery restaurants open by August 1, 1998, nine bagel bakeries
open by September 1, 1998 and thirty stores open by July 1, 2002. Through April
30, 1998, DFW has opened seven bagel bakeries and has entered into lease
agreements for four additional bagel bakery sites. The Development Agreement
provides that DFW and Bruegger's will enter into a pre-agreed-upon franchise
agreement for each bagel bakery opened by DFW. The franchise agreement grants
DFW the right to establish and operate a bagel bakery and to use the Bruegger's
system and various trademarks. The bagel bakeries must conform to Bruegger's
methods, such as its core products, decor, fixtures, furnishings and
maintenance. Under the franchise agreement, DFW is obligated to pay fees to
Bruegger's, including, but not limited to, a $20,000 franchise fee upon the
opening of each bagel bakery. Bruegger's has agreed to waive the initial
franchise fee for any Bruegger's Bagel Bakery restaurants opened in calendar
1998. In the event the Company fails to comply with certain terms of the
Development Agreement or of the franchise agreement with respect to a specific
bakers, Bruegger's has the right to terminate the applicable agreement.
During the period from June 1996 through October 1997, Bruegger's was owned
by Quality Dining, Inc. During that period, the Company and Quality Dining,
Inc. became engaged in litigation over the Company's right to sell securities
which resulted in a settlement agreement dated as of April 23, 1997 (the
"Settlement Agreement"). Under the terms of the Settlement Agreement, the
Company and DFW agreed to enter into certain indemnification and license
arrangements with Bruegger's. The parties also agreed that Bruegger's would
have no right of first refusal to purchase securities of Premium Restaurant
Company so long as Premium Restaurant Company remained a publicly-held
corporation and that Bruegger's would have no right of consent for certain
issuances of securities by Premium Restaurant Company (i) if the issuance does
not result in the acquisition of over 40% of the voting power of any class of
securities of Premium Restaurant Company after the completion of the issuance by
any shareholder (other than Phillip R. Danford or L.E. "Dan" Danford, Jr.) who
previously held less than 40% of the voting power of such securities and (ii)
such issuance does not result in Phillip R. Danford and L.E. "Dan" Danford, Jr.
collectively owning less than 10% of the voting power of all classes of
securities of Premium Restaurant Company. The Development Agreement, as amended
by the Settlement Agreement, and subsequently amended in November 1997 and May
1998, is herein referred to as the "Development Agreement."
GUARANTEE OF SUBSIDIARY'S LEASES BY PREMIUM RESTAURANT COMPANY
Although the Company's wholly-owned subsidiary, DFW Bagels, Inc., is the
developer and operator of the Company's bagel bakeries, Premium Restaurant
Company has guaranteed certain of the leases entered into by DFW and may
guarantee additional leases in the future. If DFW were to default on these
leases, and the assets of DFW were otherwise insufficient to satisfy these
obligations, the landlords would have a claim against Premium Restaurant Company
and its assets.
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 and/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, as well as a number of local,
owner-operated bagel shops that in many cases have developed a loyal local
clientele. See "Business."
6
<PAGE>
NEED FOR ADDITIONAL CAPITAL
Under the Company's Development Agreement with Bruegger's, it is required
to open a total of thirty bagel bakeries prior to July 1, 2002. The Company
estimates that it will cost approximately $370,000 for the capital expenditures
and initial franchise fee for each location. In addition, the Company estimates
it will cost approximately $500,000 for the construction of a commissary, which
the Company plans to build in calendar 1998. Accordingly, the Company will need
funds in addition to those raised by this Offering to support its expansion
plans and comply with the terms of its Development Agreement with Bruegger's.
There can be no assurance that the Company will be able to obtain such
additional financing.
BORROWING FROM AFFILIATES
In order to finance certain working capital requirements, the Company has
borrowed $400,000 from L.E. "Dan" Danford, Jr., the Chairman of the Board of
Directors of the Company, pursuant to an unsecured 10.5% Promissory Note due
December 31, 1998. The Company anticipates that it may be necessary for it to
borrow additional funds from Mr. Danford in the future. There are, however, no
guarantees that funds will be available from Mr. Danford when needed by the
Company.
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 and price adjustments, there can be no assurance that it
will be able to do so in the future.
NEED TO ESTABLISH MARKET PENETRATION IN DALLAS-FORT WORTH, TEXAS AREA
Experience obtained from industry sources demonstrates that the
profitability of any individual bagel bakery often depends to a high degree on
the penetration of a particular market by the bagel bakery operator. The
Company assumes that individual bagel bakeries will typically become profitable
only after the Company has opened a number of bagel 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 of bagel bakeries needed for such
penetration is between twelve and twenty.
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATES
The Company's directors, executive officers and members of their families
currently beneficially own 65.0% of the Company's outstanding Common Stock. 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. On April 9, 1998, Mr. L.E. "Dan" Danford,
Jr., Chairman of the Board of the Company, purchased 400,000 Units. Mr. Danford
or other directors and officers of the Company may buy additional Units in the
Offering which would have the effect of increasing their control.
LOCAL FOOD TASTES
The bagel 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
7
<PAGE>
Similar to its Italian and steakhouse restaurants, the Company needs to
hire essentially unskilled workers for each bagel bakery, 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 bagel bakery,
the minimum wage nevertheless has a direct proportionate impact on the actual
wages the Company is required to offer to compete for available employees. In
addition, on September 1, 1997, a federally mandated wage increase became
effective. In response to this minimum wage increase, the Company implemented
menu price increases at its full-service restaurants which took effect October
1, 1997. These increases have partially offset the cost of the wage increases.
This minimum wage increase is not expected to have a material effect on the
Company's bagel bakeries as all employee pay rates are already at or above the
new minimum wage. See "Business - Government Regulation."
COSTS OF CONSTRUCTION MATERIALS
The construction of any bagel bakery 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.
RELIANCE ON COMMISSARY OF THIRD PARTY
Currently, the Company obtains its shaped bagel dough, as well as other
food supplies from a commissary owned by Bruegger's. While the current
arrangement represents the most cost effective way of obtaining bagel dough and
other supplies, the closing of the commissary or the inability of the Company to
receive its supplies from the commissary, would have a severe and immediate
impact on the continuation of the Company's business in the Dallas-Fort Worth
area. The Company expects to build its own commissary in calendar 1998.
GOVERNMENT REGULATION
The Company's business is subject to extensive state and local government
regulation in the various jurisdictions in which its full-service restaurants
and bagel 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.
QUOTATION ON THE NASDAQ OTC BULLETIN BOARD
On October 8, 1997, the Company's Common Stock was delisted from the Nasdaq
SmallCap Market because of the Company's inability to comply with the Nasdaq
SmallCap Market shareholders' equity requirement. The Company's Common Stock is
now quoted on the Nasdaq OTC Bulletin Board. There can be no assurance that a
deep and liquid market will ever develop in the Company's Common Stock or in its
Warrants.
8
<PAGE>
USE OF PROCEEDS
The Company currently estimates expenses of this Offering will be
approximately $100,000 which includes but is not limited to, legal, accounting,
filing fees and miscellaneous expenses. Through May 3, 1998, the Company had
sold 743,100 Units and had received gross proceeds of $928,875. In the event
the Company does not sell any additional Units, the net proceeds to the Company
from the Offering will be $828,875. To the extent the Company sells the
remainder of the Offering through broker-dealers, because of commissions and
nonaccountable expense allowances paid thereto, the net proceeds to the Company
are expected to be $2,195,754 if the maximum number of Units offered hereby are
sold. To the extent the Company sells entirely directly through its officers
and directors so that no commissions are due, the net proceeds to the Company
from this Offering are expected to be $2,400,000 if the maximum number of Units
offered hereby are sold.
The following table sets forth the anticipated use of the net proceeds from
this Offering over the next twelve months, assuming the minimum and maximum
number of Units are sold:
<TABLE>
<CAPTION>
With Broker-Dealers Without Broker-Dealers
Funds as of May 3 Maximum Funds as of May 3 Maximum
----------------- ------- ----------------- -------
<S> <C> <C> <C> <C>
Repayment of Subordinated Debt . . . $200,000 $200,000 $200,000 $200,000
Accounts Payable . . . . . . . . . . 300,000 350,000 300,000 350,000
Bakery Pre-opening Expenses. . . . . 150,000 275,000 150,000 275,000
Construction of Commissary . . . . . - 425,000 - 425,000
Advertising . . . . . . . . . . . . 90,000 180,000 90,000 180,000
Commissary Pre-opening Expenses. . . - 50,000 - 50,000
Inventory and Supplies . . . . . . . 60,000 100,000 60,000 100,000
Repayment of Related Party Debt. . . - 400,000 - 400,000
General Working Capital Purposes . . 28,875 215,754 28,875 420,000
-------- ---------- -------- ----------
Total. . . . . . . . . . . . . . . . $828,875 $2,195,754 $828,875 $2,400,000
</TABLE>
The Company is issuing these Units to raise working capital, including
marketing and promotion of its Bruegger's Bagel Bakery restaurants. Under the
Development Agreement, DFW must have eight bagel bakeries open by August 1,
1998, nine bagel bakeries open by September 1, 1998 and thirty bagel bakeries
open by July 1, 2002. The Company may also use part of any capital raised for
other general business purposes.
The Company currently intends to finance its construction of bagel bakeries
from lease financing. The Company believes each site will require approximately
$370,000 of capital expenditures, including the $20,000 initial franchise fee.
The initial franchise fee has been waived however, for any bagel bakeries opened
in calendar 1998. The Company anticipates financing its commissary during
calendar 1998 through lease financing, use of the proceeds of this offering or a
combination of these sources. In order to finance certain working capital
requirements, during the period of June 1997 through August 1997, the Company
has borrowed $400,000 from L.E. "Dan" Danford, Jr., the Chairman of the Board of
Directors of the Company, pursuant to an unsecured 10.5% Promissory Note that is
payable on December 31, 1998.
Because the Company has decided to pursue a strategy of building bagel
bakeries at a rate faster than that required by the Development Agreement, it
may need funds in addition to those generated from this Offering. In such
event, the Company will attempt to raise additional funds through debt or equity
offerings. If the Company is unable to successfully raise funds from this
Offering or otherwise in a timely manner, it may be necessary for it to raise
additional capital through other means of financing. Although the Company
believes that it will be able to secure the necessary capital, there can be no
assurances that the Company will be successful in such efforts. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
The above amounts and categories for use of the proceeds of this Offering
represent management's best estimate based upon current conditions and
assumptions as to anticipated levels of investment among the foregoing
categories. Although no material changes are contemplated in the proposed use
of proceeds, the Company reserves the right to adjust such amounts by reason of
business conditions existing at the time of expenditure. Pending application of
the proceeds of the Offering, the proceeds will be invested in short-term liquid
securities.
9
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Until October 8, 1997 when it was delisted from the Nasdaq system, the
Company's Common Stock was traded on the Nasdaq SmallCap Market under the symbol
"CIAT." The Company Stock is now quoted on the Nasdaq OTC Bulletin Board under
the symbol "PRXC." The following table sets forth the range of high and low
prices for the Company's Common Stock on the Nasdaq SmallCap Market for fiscal
1996 and 1997 and on the Nasdaq OTC Bulletin Board for periods subsequent to
October 8, 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>
FISCAL YEAR LOW HIGH
--- ----
<S> <C> <C>
1996 First Quarter $3.75 $5.00
Second Quarter 4.00 6.125
Third Quarter 4.25 6.25
Fourth Quarter 2.75 5.25
1997 First Quarter $3.50 $5.00
Second Quarter 2.50 4.00
Third Quarter 1.25 1.625
Fourth Quarter 1.25 1.625
1998 First Quarter $0.62 $2.75
Second Quarter 1.25 2.00
Third Quarter 1.25 1.625
Fourth Quarter (through May 23, 1998) 1.125 1.625
</TABLE>
The closing bid and ask prices for the Company's Common Stock as reported
on the Nasdaq OTC Bulletin Board on May 23, 1998 were $1.12 and $1.25,
respectively. As of May 23, 1998, the Company had 272 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 1,733,619.
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.
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the fiscal years
ended June 27, 1993, July 3, 1994, July 2, 1995, June 30, 1996 and June 29, 1997
have been derived from audited financial statements of the Company for the
fiscal years then ended. This data should be read in conjunction with the
consolidated financial statements, related notes and other financial
information, included or incorporated by reference, elsewhere in this
Prospectus. For current information, see the Form 10-QSB delivered with this
Prospectus.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
THIRTY-NINE
FISCAL YEAR (1) WEEKS ENDED
-------------------------------------------------------- --------------------
1993 1994 1995 1996 1997 MARCH MARCH
---- ---- ---- ---- ---- 30, 1997 29, 1998
-------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales
Full-service restaurants $22,359 $22,969 $18,935 $16,962 $15,811 $11,789 $ 7,882
Bagel bakeries -- -- -- 627 1,927 1,351 2,084
-------------------------------------------------------- --------------------
Total sales 22,359 22,969 18,935 17,589 17,738 13,140 9,966
Cost of food and beverage 6,760 6,848 5,781 5,191 5,371 3,998 3,133
-------------------------------------------------------- --------------------
Gross profit 15,599 16,121 13,154 12,398 12,367 9,142 6,833
Restaurant operating expenses
Labor and benefits 7,590 7,383 6,266 6,145 6,304 4,691 3,620
Direct and occupancy 7,001 7,039 5,722 6,375 6,625 4,746 4,031
General and administrative 1,173 1,347 1,054 1,305 1,305 932 956
Gain on sale of full-service restaurants -- -- -- -- -- -- (926)
Loss from closure of bagel bakery -- -- -- -- -- -- 63
Impairment of assets write-down -- -- -- 78 640 640 91
-------------------------------------------------------- --------------------
Total restaurant and operating expenses 15,764 15,769 13,042 13,903 14,874 11,009 7,835
-------------------------------------------------------- --------------------
Earnings (loss) from operations (165) 352 112 (1,505) (2,507) (1,867) (1,002)
Other income (expense), net (70) 92 88 (18) (69) (47) (153)
Income tax (expense) benefit (107) (134) (6) 160 7 9 (5)
-------------------------------------------------------- --------------------
Net earnings (loss) ($342) $310 $194 ($1,363) ($2,569) ($1,905) ($1,160)
-------------------------------------------------------- --------------------
-------------------------------------------------------- --------------------
Net earnings (loss) per share
Basic ($0.42) $0.41 $0.27 ($1.85) ($3.46) ($2.56) ($1.56)
Diluted ($0.42) $0.40 $0.26 ($1.85) ($3.46) ($2.56) ($1.56)
Weighted average number of
shares outstanding
Basic 805,118 751,785 727,639 736,917 742,819 742,819 742,819
Diluted 805,118 768,343 762,089 736,917 742,819 742,819 742,819
CONSOLIDATED BALANCE SHEET DATA
(at end of period) (in thousands)
FISCAL YEAR (1)
-------------------------------------------------------- MARCH
1993 1994 1995 1996 1997 29, 1998
---- ---- ---- ---- ---- --------
Current assets $2,308 $2,763 $2,713 $2,184 $1,420 $1,046
Current liabilities 2,219 2,201 1,969 2,569 3,292 3,463
Total assets 7,899 7,206 7,684 6,652 4,663 3,978
Long-term obligations, less
current maturities 1,491 655 1,179 908 765 1,068
</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 1993, 1995, 1996 and 1997 were
fifty-two week years.
11
<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 UNITS OFFERED HEREBY SHOULD CAREFULLY
REVIEW THE FACTORS SET FORTH IN THIS PROSPECTUS UNDER "RISK FACTORS."
RESULTS OF OPERATIONS
The following sets forth certain financial data expressed as a percentage
of sales for the fiscal years ended June 27, 1993, July 3, 1994, July 2, 1995,
June 30, 1996 and June 29, 1997 and the thirty-nine weeks ended March 30, 1997
and March 29, 1998. Fiscal 1994 was a fifty-three week year while fiscal 1993,
1995, 1996 and 1997 were fifty-two week years.
<TABLE>
<CAPTION>
THIRTY-NINE
FISCAL YEAR WEEKS ENDED
------------------------------------------------------- -----------------
1993 1994 1995 1996 1997 MARCH MARCH
---- ---- ---- ---- ---- 30, 1997 29, 1998
-------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales
Full-service restaurants 100.0% 100.0% 100.0% 96.4% 89.1% 89.7% 79.1%
Bagel bakeries -- -- -- 3.6% 10.9% 10.3% 20.9%
------------------------------------------------------- ------------------
Total sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of food and beverage 30.2% 29.8% 30.5% 29.5% 30.3% 30.4% 31.4%
------------------------------------------------------- ------------------
Gross profit 69.8% 70.2% 69.5% 70.5% 69.7% 69.6% 68.6%
Restaurant operating expenses
Labor and benefits 33.9% 32.1% 33.1% 34.9% 35.5% 35.7% 36.3%
Direct and occupancy 31.3% 30.7% 30.2% 36.2% 37.3% 36.1% 40.4%
General and administrative 5.3% 5.9% 5.6% 7.5% 7.4% 7.1% 9.6%
Gain on sale of full-service restaurants -- -- -- -- -- -- (9.2%)
Loss from closure of bagel bakery -- -- -- -- -- -- 0.6%
Impairment of assets write-down -- -- -- 0.4% 3.6% 4.9% 0.9%
------------------------------------------------------- ------------------
Total restaurant and operating expenses 70.5% 68.7% 68.9% 79.0% 83.8% 83.8% 78.6%
------------------------------------------------------- ------------------
Earnings (loss) from operations (0.7%) 1.5% 0.6% (8.5%) (14.1%) (14.2%) (10.0%)
Other income (expense), net (0.3%) 0.4% 0.4% (0.1%) (0.4%) (0.4%) (1.5%)
Income tax (expense) benefit (0.5%) (0.6%) -- 0.9% -- 0.1% (0.1%)
------------------------------------------------------- -------------------
Net earnings (loss) (1.5%) 1.3% 1.0% (7.7%) (14.5%) (14.5%) (11.6%)
------------------------------------------------------- -------------------
------------------------------------------------------- -------------------
</TABLE>
COMPARISON OF THIRTY-NINE WEEKS ENDED MARCH 29, 1998 TO THIRTY-NINE WEEKS ENDED
MARCH 30, 1997
SALES
Consolidated sales of $9,966,257 for the first thirty-nine weeks of fiscal
1998 decreased $3,173,660, or 24.2%, from consolidated sales of $13,139,917
reported during the first thirty-nine weeks of fiscal 1997. The decrease in
consolidated sales during fiscal 1998 was due to a decline in sales at the
Company's full-service restaurants offset by an increase in sales at the
Company's bagel bakeries, as described below.
Full-service restaurant sales of $7,882,183 for the first thirty-nine weeks
of fiscal 1998 decreased 33.1% from sales of $11,789,394 for the same period of
fiscal 1997. This decrease in full-service restaurant sales was due, in part,
12
<PAGE>
to the Company selling three of its full-service restaurants in the first
quarter of fiscal 1998, and two of its full-service restaurants in the second
quarter of fiscal 1998. In addition, this decrease in sales was 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.
To offset this the Company developed a new menu that was introduced to the
Italian restaurants in September 1997. The focus of the new menu is to increase
portion sizes and increase the offerings of chicken and seafood in order to
create a higher quality and value to the customer. In addition, the purpose of
the new menu is to increase the check average per person without decreasing the
value. As of March 29, 1998 the Company has seen an increase in the check
average per person.
Sales of $2,084,074 for the first thirty-nine weeks of fiscal 1998
increased $733,551, or 54.3%, over bagel bakery sales of $1,350,523 for the same
period of fiscal 1997. This increase in sales was primarily a function of the
Company having seven bagel bakeries open as of March 29, 1998, while only having
five bagel bakeries open as of March 30, 1997. The Company closed one of its
bagel bakeries in November 1997. The Company is required by its development
agreement, as amended through May 11, 1998, to have eight stores open by August
1, 1998, nine stores open by September 1, 1998 and thirty stores open by July 1,
2002.
COST OF FOOD AND BEVERAGE
Cost of food and beverage as a percentage of sales increased to 31.4% for
the first thirty-nine weeks of fiscal 1998 from 30.4% for the same period of
fiscal 1997. These costs were up due to the mix of the Company's business
including a larger percentage of bagel bakery sales, which have a slightly
higher cost of food and beverage associated with them.
The Company does not expect the cost of food and beverage to increase
significantly in the future. The Company expects to construct a commissary in
calendar 1998 to lower the food and beverage costs associated with its bagel
bakeries and expects no change to the food and beverage costs at its
full-service restaurants.
LABOR AND BENEFITS
Labor and benefit costs as a percentage of sales increased to 36.3% for the
first thirty-nine weeks of fiscal 1998 compared to 35.7% during the same period
of last year. This slight increase was primarily due to the minimum wage
increase that took effect on September 1, 1997. In response to this minimum
wage increase, the Company implemented menu price increases at its full-service
restaurants which took effect October 1, 1997. These increases have partially
offset the cost of the wage increases. This minimum wage increase is not
expected to have a material effect on the Company's bagel bakeries as all
employee pay rates are already at or above the new minimum wage.
DIRECT AND OCCUPANCY
Direct and occupancy costs increased to 40.4% of sales for the first
thirty-nine weeks of fiscal 1998 compared to 36.1% of sales during the same
period of last year. This increase was primarily due to the fact that the
Company is currently paying rent on four bagel bakery leases that are not yet
under construction. Bagel bakeries will not be constructed at these locations
until financing can be acquired. Secondly, the Company increased its
advertising and promotional costs at its full-service restaurants from 2.6% of
sales for the first thirty-nine weeks of fiscal 1997 to 5.3% of sales for the
same period of fiscal 1998. The Company expects advertising and promotional
expenses to decrease to 4.0% of sales for the remainder of fiscal 1998. The
Company is obligated by its development agreement with Bruegger's to spend a
minimum of 2% of sales on advertising and, following its current practice,
expects to spend between 4% and 5% of bakery sales in the near future. Lastly,
direct and occupancy costs at the Company's bagel bakeries were affected by
fixed costs such as rent and depreciation being spread across a lower sales base
than at its full-service restaurants. As sales at the Company's bagel bakeries
increase in the future, these fixed costs will decrease as a percent of sales.
13
<PAGE>
GENERAL AND ADMINISTRATIVE
General and administrative costs as a percentage of sales increased to 9.6%
for the first thirty-nine weeks of fiscal 1998 compared to 7.1% of sales for the
same period of last year. This increase in general and administrative costs was
primarily due to the Company incurring approximately $385,000 of general and
administrative costs in the first thirty-nine weeks of fiscal 1998 relating to
the development of a corporate infrastructure at its bagel bakery operation, as
compared to only $216,000 of costs for the same period last year. The Company
also had increased professional fees pertaining to its attempts to acquire
financing for its bagel bakery concept. General and administrative costs were
lower during the third quarter of fiscal 1997 as a result of the Company
recording an $85,000 recovery of a bad debt expense.
GAIN ON SALE OF FULL-SERVICE RESTAURANTS
The Company sold five of its full-service restaurants during the first
thirty-nine weeks of fiscal 1998. The restaurants are located in Burnsville,
Falcon Heights, Woodbury and St. Cloud, Minnesota and LaCrosse, Wisconsin. The
sale of these restaurants generated proceeds of approximately $1,827,000. The
gain recognized on the sale of these restaurants sold was $926,341.
LOSS FROM CLOSURE OF BAGEL BAKERY
The Company closed one of its bagel bakeries during the first thirty-nine
weeks of fiscal 1998. The bakery is located in Irving, Texas. This bakery was
an experimental site, as it was connected to a gas station and was only
one-third the size of a standard bakery. The Company determined it was unlikely
that this bakery would generate the sales necessary to achieve profitability.
The equipment at this bakery was removed and can be used at other bakeries. The
Company recognized a loss of $63,039 on the net book value of the leasehold
improvements at the bakery.
WRITE-DOWN OF IMPAIRED ASSETS
During the first thirty-nine weeks of fiscal 1998, the Company recognized
an impairment loss of $90,732 for the long-lived assets at its Maplewood,
Minnesota restaurant. The Company has determined that the geographic area this
restaurant is located in can no longer support two Italian restaurants (Ciatti's
Italian Restaurant and a competitor restaurant) in such close proximity to each
other. In addition, the Company attempted several advertising and promotional
campaigns during fiscal 1998 that did not produce the results management
expected. Based on these items, management revised its forecasts for this
restaurant and projected operating losses and cash flow deficits for the
remainder of the restaurant's lease, which expires in 2000. Accordingly, the
Company has fully written off the long-lived assets at this restaurant.
OTHER INCOME (EXPENSE), NET
Other income (expense) increased to a net expense of $152,827 for the first
thirty-nine weeks of fiscal 1998 up from a net expense of $47,007 during the
same period of last year. This increase in expense was primarily due to the
Company carrying higher debt as a result of the construction of the Company's
bagel bakeries.
INCOME TAX EXPENSE (BENEFIT)
For the thirty-nine weeks ended March 29, 1998, the Company recorded income
tax expense of $5,000 for state and franchise taxes paid during fiscal 1998. For
the thirty-nine weeks ended March 30, 1997, the Company recorded income tax
expense of $1,225 and an income tax benefit of $8,883 which was due to the
receipt of state and federal income taxes in excess of the amount recorded as an
income tax receivable as of June 30, 1996, offset by state and franchise taxes
paid during fiscal 1997. There was no tax benefit recorded for the losses
generated during fiscal 1997 because no taxes would have been recoverable from a
carryback of the net losses. As of March 29, 1998, the Company has
approximately $166,000 of alternative minimum tax credit carryforwards and
$3,802,000 in net operating loss carryforwards. These tax carryforwards may
only be utilized against future earnings and there is 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
14
<PAGE>
The Company's highest sales from its Italian and Steakhouse restaurants
have historically occurred during the months of July through December. The
Company's bagel bakeries' highest sales have occurred during the period from
September through May.
EFFECTS OF INFLATION
Inflationary factors such as increases in food and labor costs directly
affect the Company's operations. Because most of the Company's employees are
paid hourly rates related to federal and state minimum wage and tip credit laws,
changes in these laws may result in an increase in the Company's labor costs.
The 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 FIFTY-TWO WEEKS ENDED JUNE 29, 1997 TO FIFTY-TWO WEEKS ENDED JUNE
30, 1996
SALES
Sales for fiscal 1997 increased $148,617, or .8%, to $17,737,804 from
fiscal 1996 sales of $17,589,187. The increase in consolidated sales during
fiscal 1997 was due to an increase in sales at the Company's bagel bakeries
which was offset by a decline in sales at the Company's full-service restaurants
as described below.
Full-service restaurant sales of $15,811,370 for fiscal 1997 decreased 6.8%
from sales of $16,962,135 for the same period of fiscal 1996. This decrease in
full-service restaurant sales was due, in part, to the Company closing its
Glendale, Wisconsin restaurant on September 8, 1996. After adjusting for the
sale of this restaurant, year-to-date full-service restaurant sales were down
$399,460, or 2.5%, when compared to the same period last year.
Bagel bakery sales of $1,926,434 for fiscal 1997 increased $1,299,382, or
207.2%, over bagel bakery sales of $627,052 for fiscal 1996. This increase in
sales was primarily a function of the Company having seven bagel bakeries open
as of June 29, 1997, while only having four bagel bakeries open as of June 30,
1996.
COST OF FOOD AND BEVERAGE
The cost of food and beverage was 30.3% of sales in fiscal 1997, an
increase from the 29.5% of sales reported in fiscal 1996. The increase in the
cost of food and beverage for fiscal 1997 was primarily due to the Company's
bagel bakery concept operating at higher cost levels than its full-service
restaurants. In addition, increases during the first two quarters of this
fiscal year in the costs of selected products at the Company's full-service
restaurants occurred without corresponding menu price increases.
LABOR AND BENEFITS
Labor and benefit costs were 35.5% of sales in fiscal 1997, an increase
from the 34.9% of sales reported in fiscal 1996. The increase in labor and
benefits costs as a percent of sales for fiscal 1997 was mainly due to the
Company's bagel bakery concept operating at higher cost levels than its
full-service restaurants. In addition, increases occurred in labor and benefit
costs as a percentage of sales at the Company's full-service restaurants during
the first and second quarters of the fiscal year.
The federally mandated minimum wage increases which became effective
October 1, 1996 did not have a significant impact on the Company's financial
results. On September 1, 1997, another minimum wage increase became effective.
In response to this wage increase, the Company implemented menu price increases
at its full-service restaurants effective October 1, 1997.
DIRECT AND OCCUPANCY
Direct and occupancy costs primarily include individual restaurant
advertising, promotion, supplies, utilities, occupancy and depreciation
expenses. These costs were 37.3% of sales in fiscal 1997, an increase from the
36.2% reported last year. This increase was due to the following three reasons.
First, the Company increased its advertising and promotion costs from 3.6% of
sales during fiscal 1996 to 4.5% of sales in fiscal 1997. Second, lower sales
levels at the full-service restaurants caused fixed costs such as occupancy and
depreciation to be spread over a smaller sales
15
<PAGE>
base, thus increasing those respective percentages as compared to sales. Third,
the Company incurred significant costs related to the start-up of the bagel
bakeries.
GENERAL AND ADMINISTRATIVE
General and administrative costs were 7.4% of sales for fiscal 1997 and
fiscal 1996. The Company incurred approximately $208,000 of additional general
and administrative costs related to operating additional bagel bakeries in
fiscal 1997. The Company also had increased professional fees which were
partially offset by the recovery of a note receivable that had been fully
reserved for.
WRITE-DOWN OF IMPAIRED ASSETS
Due to events occurring during fiscal 1997, the Company recognized an
impairment loss of $640,286 for the long-lived assets at its Madison, Wisconsin
restaurant. During fiscal 1997, a major national competitor opened a steakhouse
restaurant in close proximity to the Company's restaurant. The competitor's
restaurant has the Company's restaurant out-positioned in the market area, and
sales at the Company's restaurant have suffered due to the opening of this
restaurant. In addition, the Company attempted several advertising and
promotional campaigns during the first half of fiscal 1997 that did not produce
the results management expected. Based on these factors, management revised its
forecasts for this restaurant and projected operating losses and cash flow
deficits for the remainder of the restaurant's lease, which expires in 2005.
Accordingly, the Company has fully written off the long-lived assets at this
restaurant.
During fiscal 1996, the Board of Directors resolved to close its
full-service restaurant located in Glendale, Wisconsin, effective September 8,
1996. Accordingly, the Company recorded a $77,691 charge during fiscal 1996 to
write-off the assets at this location.
OTHER INCOME (EXPENSE), NET
Other income (expense) increased to a net expense of $69,140 in fiscal 1997
from a net expense of $17,601 in fiscal 1996. The Company's interest expense
increased to $105,460 in fiscal 1997 from $92,634 in fiscal 1996 as a result of
higher debt in 1997 due primarily to the construction of the Company's bagel
bakeries. The Company's investment income decreased to $18,097 in fiscal 1997
from $59,526 in fiscal 1996 primarily as a result of fewer funds available for
investment.
INCOME TAX BENEFIT
The income tax benefit for fiscal 1997 was $7,633 as compared to $160,000
in fiscal 1996. The fiscal 1996 tax benefit recorded reflects the amount of
taxes recoverable from the carryback of losses; there was no tax benefit
recorded for the losses generated during fiscal 1997. The Company's fiscal 1997
tax benefit was due to the receipt of state and federal income taxes in excess
of the amount recorded as an income tax receivable as of June 30, 1996. The
fiscal 1997 tax benefit was offset by $7,025 of state and franchise taxes paid
during the year.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 29, 1998 the Company had cash and cash equivalents on hand of
$342,415, which represents a decrease of $111,742 from the $454,157 in cash and
cash equivalents reported as of June 29, 1997. Net cash used in operating
activities was $2,018,041 for the first thirty-nine weeks of fiscal 1998. For
the first thirty-nine weeks of fiscal 1998 the Company incurred a net loss of
$1,160,023 which was net of a gain of $926,341 pertaining to the sale of five of
the Company's full-service restaurants and a loss of $90,732 pertaining to the
impairment of assets write-down at one of the Company's full-service
restaurants. In addition, the Company reduced its accounts payable balance by
$378,267 during the first thirty-nine weeks of fiscal 1998 as a result of the
sale of the five full-service restaurants. These uses of cash were partially
offset by non-cash depreciation and amortization expense of $620,643.
Net cash provided by investing activities was $1,425,208 during the first
thirty-nine weeks of fiscal 1998 which is the net of $1,483,423 generated from
the sale of five of the Company's full-service restaurants, $21,788 from
collections on notes receivable, and $80,003 for the purchase of leasehold
improvements and equipment for bagel bakeries.
Net cash provided by financing activities was $481,091 for the first
thirty-nine weeks of fiscal 1998. The net cash provided by financing activities
consists of borrowings from the Chairman of the Board of Directors of the
Company of $300,000, borrowings of $151,390 from a note offering commenced in
June 1997 and borrowings of $377,960 from sale-leasebacks on the equipment at
the Company's existing bagel bakeries. These borrowings were partially offset
by payments of $237,620 to the Company's equipment vendor and $110,639 due under
other debt financing.
DFW Bagels, Inc. (DFW Bagels), a wholly-owned subsidiary of Premium
Restaurant Company, has entered into an exclusive development agreement with
Bruegger's Franchise Corporation (Bruegger's). This agreement, as last amended
in May 1998, requires DFW Bagels to build thirty bagel bakeries by July 1, 2002.
Through April 30, 1998, DFW Bagels has opened seven bagel bakeries. The Company
is required by its development agreement, as amended through May 11, 1998, to
have eight stores open by August 1, 1998, nine stores open by September 1, 1998
and thirty stores open by July 1, 2002. Currently, DFW Bagels has entered into
lease agreements for four additional bagel bakery sites. The Company intends to
open bagel bakeries at a faster rate than that obligated under the development
agreement, subject to available financing. The Company believes each new site
will require approximately $370,000 for capital expenditures, including
pre-opening expenses and the initial franchise fee.
During the period from May 1996 through October 1997, Bruegger's was owned
by Quality Dining, Inc. In October 1997, Bruegger's was sold back to its
original owners. The Company is working with the current owners of Bruegger's
to provide the Company with additional working capital and to increase sales at
the Company's bagel bakeries. The current owners of Bruegger's have agreed to
waive the initial franchise fee for all Bruegger's Bagel Bakery restaurants
opened in calendar 1998 and reduce franchise royalties through calendar 1998.
The Company believes that the profitability of any individual bagel bakery
often depends to a high degree on the penetration of a particular market by the
bagel bakery operator. The Company believes that individual bagel bakeries will
generally become profitable only after the Company has opened a number of bagel
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 of bagel
bakeries needed for such penetration is between twelve and twenty. If the
Company is unable to achieve this level of penetration, its ability to achieve
profitability may be affected. In addition, if the Company is unable to obtain
adequate financing to open the bagel bakeries, it could have a material adverse
effect on the Company's consolidated financial position or results of
operations.
In June 1997, the Company commenced a note offering of $2,000,000 in one
and three year notes. The Company is not currently offering any notes pursuant
to this offering, and has raised approximately $224,000 from the offering.
During the third quarter of fiscal 1998 the Company re-financed through
sale-leaseback transactions selected equipment at four of its existing bagel
bakeries. The four bakeries were originally financed through the Company's cash
reserves. The funded amount was in excess of the book value of the equipment
thereby creating a deferred gain which is to be recognized over the remaining
useful life of the equipment. The lease terms are for sixty months expiring in
March, 2003, and have a monthly obligation of approximately $9,500. There are
bargain purchase options at the end
17
<PAGE>
of the lease terms allowing for the purchase of the equipment at ten percent of
the fair market value. The Company used the proceeds from this transaction to
satisfy a debt with its equipment vendor and for working capital. The Company
has and is continuing to explore several alternatives for lease financing and
equipment financing for its bagel bakeries including additional sale and
lease-back financing arrangements with respect to its existing bagel bakeries
and full-service restaurants.
As of the quarter ended March 29, 1998, the Company has borrowed $400,000
from the Chairman of the Board of Directors of the Company pursuant to an
unsecured promissory note due December 31, 1998. Although the Company may
borrow additional amounts from Mr. Danford, there are no agreements between Mr.
Danford and the Company with respect to future financing or any guarantee that
such funds will be available.
The Company sold five of its full-service restaurants during the first
thirty-nine weeks of fiscal 1998. The restaurants are located in Burnsville,
Falcon Heights, Woodbury and St. Cloud, Minnesota and LaCrosse, Wisconsin. The
sale of these restaurants generated proceeds of approximately $1,827,000. The
gain recognized on the sale of these restaurants sold was $926,341. The
restaurants sold are initially being operated as Ciatti's Italian
Restaurants-Registered Trademark-, however, the new operators have the right to
change the name. The Company decided to sell these restaurants to focus on
achieving and maintaining profitability at its remaining full-service
restaurants and to generate cash to continue to expand its bagel bakery concept
in the Dallas-Fort Worth market. During fiscal 1997, the restaurants sold
generated approximately $8,270,000 of sales, net earnings of $445,000 and cash
flows from operations of $799,000. Although the Company has no agreements to
sell any of its remaining full-service restaurants, it is exploring alternatives
to maximize its cash flow, including the possible sale of any of its remaining
full-service restaurants.
The Company plans to finance its working capital and capital resource
needs with its current cash and proceeds from its current and future debt and
equity financing. The Company has and is continuing to explore several
alternatives for lease financing and equipment financing for its bagel bakeries.
The Company believes that these sources will be sufficient to enable it to
satisfy its working capital needs for the next twelve months. Because the
Company has decided to pursue a strategy of building bagel bakeries at a rate
faster than that required by the development agreement, it may need funds in
addition to those generated from this Offering. In such event, the Company will
attempt to raise additional funds through debt or equity offerings. If the
Company is unable to successfully raise funds from this Offering in a timely
manner, it may be necessary for it to raise additional capital through other
means of financing. Although the Company believes that it will be able to
secure the necessary capital, there can be no assurance that the Company will be
successful.
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<PAGE>
BUSINESS
GENERAL
The Company owns and operates five full-service restaurants in Minnesota
and Wisconsin and seven "Bruegger's Bagel Bakery" restaurants in the Dallas-Fort
Worth, Texas area. Included in these full-service restaurants are four Italian
restaurants operating in Minnesota under the name "Ciatti's Italian Restaurant"
and one steakhouse restaurant operating in Wisconsin under the name "Spurs
Steakhouse & Saloon." All bagel bakeries are operated under the name
"Bruegger's Bagel Bakery" pursuant to the terms of a development agreement and
related franchise documents under which the Company's subsidiary DFW Bagels, Inc
acts as franchisee.
RESTAURANT DEMOGRAPHICS
BAGEL BAKERIES
As of May 3, 1998, DFW operated seven bagel bakeries in the Dallas-Forth
Worth area and has signed leases for an additional four bakeries. These bagel
bakeries range in size from 2,100 to 3,000 square feet and seat between 45 and
50 customers. Most bagel bakeries also offer a limited area for outdoor patio
dining. Although, the Company opened a 520 square foot bagel bakery as part of
a service station/convenience store in Irving, Texas during the last quarter of
fiscal 1997, it subsequently closed that restaurant. In the future, the Company
plans to open bagel bakeries ranging in size from 1,800 to 2,200 square feet.
The following table sets forth the opening date and square footage of the
Company's bagel bakeries:
<TABLE>
<CAPTION>
APPROXIMATE
DATE OPENED LOCATION SQUARE FOOTAGE
-----------------------------------------------------------------------
<S> <C> <C>
October, 1995 Plano (Lancer's Square) 3,000
December, 1995 Plano (Shepard Place) 2,250
February, 1996 Dallas (Preston Center) 2,500
June, 1996 Fort Worth (Bowie) 2,130
November, 1996 Dallas (Preston Campbell) 2,200
June, 1997 Fort Worth (Fossil Creek) 2,100
August, 1997 University Park 2,300
August, 1998 (estimated) Southlake 2,000
September, 1998 (estimated) Dallas (Old Denton) 2,000
</TABLE>
In addition, the Company is paying rent in the aggregate amount of $12,000
per month with respect to locations where the Company signed leases, but has not
yet constructed restaurants.
FULL-SERVICE RESTAURANTS
The Company currently operates four Italian restaurants in Minnesota and a
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. Some of the Company's restaurants also offer outdoor patio dining
on a seasonal basis.
The following table sets forth the opening date and square footage of the
Company's full-service restaurants:
<TABLE>
<CAPTION>
APPROXIMATE
DATE OPENED LOCATION SQUARE FOOTAGE
--------------------------------------------------------------------------
<S> <C> <C>
September, 1984 Saint Paul, Minnesota 8,600
February, 1985 Madison, Wisconsin 9,800
November, 1988 Eden Prairie, Minnesota 7,800
February, 1990 Maplewood, Minnesota 7,800
October, 1991 Edina, Minnesota 6,500
</TABLE>
19
<PAGE>
The Saint Paul restaurant is located in an urban area. The Madison, Eden
Prairie, Maplewood and Edina restaurants are located in suburban areas. The
actual cost of opening an Italian or steakhouse restaurant, including leasehold
improvements, furniture, fixtures, and equipment and other pre-opening costs has
varied from $480,000 to $930,000 per restaurant.
The Company has not opened any Italian or steakhouse restaurants in recent
years and has no plans to open any additional full-service restaurants in the
future. During the period September through November 1997, the Company sold
five of its full-service restaurants. The restaurants that were sold were
located in Burnsville, Falcon Heights, Woodbury and St. Cloud, Minnesota and
LaCrosse, Wisconsin. The sale of these restaurants generated proceeds of
approximately $1,827,000 and a gain of $926,341. The restaurants sold are
initially being operated as Ciatti's Italian Restaurants, however, the new
operators have the right to change the name. The Company decided to sell these
restaurants to focus on achieving and maintaining profitability at its remaining
full-service restaurants and to generate cash to continue to expand its bagel
bakery concept in the Dallas-Fort Worth market. During fiscal 1997, the
restaurants sold generated approximately $8,270,000 of sales, net earnings of
$445,000 and cash flows from operations of $799,000. The Company will not have
the benefit of this cash flow in the future. Although the Company has no
agreements to sell any of its remaining full service restaurants, it is
exploring alternatives to maximize its cash flow, including the possible sale of
any of its remaining full-service restaurants as well as sale and lease-back
opportunities.
RESTAURANT FORMATS
BAGEL BAKERIES
The Company's bagel bakeries specialize in 12 varieties of freshly baked
bagels and branded cream cheeses, as well as freshly ground, premium branded
coffee which is brewed fresh every 19 minutes. Bruegger's bagels are unique
because certified bagel masters make the bagels by kettle-boiling them in malt
and water and then baking them in a stone hearth oven. In addition, each bagel
bakery offers deli-style bagel sandwiches, freshly-made soups, and other food
and beverage items. The bagel bakeries 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 layout of the Company's bagel bakeries are based on
plans and guidelines issued by Bruegger's. Bruegger's updated its plans and
designs for all bagel bakeries in 1995 and all of the Company's existing bagel
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 is required
to equip each bakery with such FF&E. In a number of cases, Bruegger's offers
franchisees an option to purchase major equipment from two different
manufacturers.
ITALIAN RESTAURANTS
The Company's restaurants have traditionally had an Italian format. The
Company's Italian restaurants serve appetizers, pizza, soups, 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 dining area
of each restaurant features booths and individual tables with either chairs or
banquettes. Each restaurant differs in interior design and decor, depending
upon the location and nature of the space. The Company redesigned one of its
restaurants to be a more informal, open-kitchen style restaurant. Most
restaurants accept reservations for a limited portion of their dining area. The
Company has lounge areas, which have full-service liquor licenses, available in
most restaurants for customers waiting to be seated for dining. In most of the
Company's restaurants, appetizers and other menu items are available in the
lounge as well as in the restaurant.
20
<PAGE>
Each Italian restaurant employs a standardized menu with entree prices
ranging from $3.99 to $9.99 at lunch, and $5.99 to $15.95 at dinner. During
fiscal year 1997, food sales comprised approximately 77% and beverage sales
comprised approximately 23% of total full-service 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 restaurants from 10:00 a.m.
to 2:00 p.m. Each restaurant's lounge is typically open from 11:00 a.m. until
midnight (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 RESTAURANT
The Company's Madison, Wisconsin Spurs Steakhouse & Saloon restaurant has a
more casual atmosphere than the Company's Italian restaurants, with a menu that
features a Texas theme, featuring a variety of steaks, ribs, chicken, seafood,
sandwiches, salads, soups and appetizers. Prices at the steakhouse restaurant
range from $4.99 to $17.95 and the hours of operation are similar to those of
the Company's Italian restaurants.
RESTAURANT AND BAKERY OPERATIONS
The Company has established uniform operational standards for all of 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.
The Company's President supervises the operations of all restaurants with
the assistance of a Director of Operations for the bagel bakeries.
Additionally, a Vice President for Administration, a Corporate Controller 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
goals.
Supervisory personnel visit each restaurant an average of one day a week.
During these 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 that the Company's high levels of customer service
are being maintained.
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 and bakery 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, payroll reports and other various information.
21
<PAGE>
RESTAURANT DEVELOPMENT
The Company has entered into an exclusive Development Agreement with
Bruegger's. Bruegger's has indicated that as of February 2, 1998, directly or
through franchises, it operates in 52 metropolitan markets in 32 states.
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. Bruegger's has indicated that, as of
January 1, 1998, there were 423 Bruegger's Bagel Bakery restaurants open for
business, owned and operated by either Bruegger's or by franchisees. Although
Bruegger's is generally considered one of the largest bagel concepts 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 bagel bakeries. 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.
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. As of May 3, 1998, five bagel bakeries were
open in the north-central portion of the Dallas area, and two were opened in the
Fort Worth area.
The ability of the Company to open additional bagel 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 opening a new bagel bakery is approximately $370,000, including
the initial franchise fee. The cost of leasehold improvements for the existing
bakeries has averaged $175,000 per bakery, depending on the size of the space,
contributions by the lessor and the condition of the buildings. The cost of
equipment for the existing bakeries has averaged $150,000 for each bakery.
Other pre-opening expenses, including design services, smallwares, training, and
initial inventory is $45,000 for each bakery, including the initial franchise
fee. Bruegger's has agreed to waive the $20,000 initial franchise fee for all
Bruegger's Bagel Bakery restaurants opened in calendar 1998 and reduced
franchise royalties during 1998.
RELATIONSHIP WITH BRUEGGER'S
The development by DFW of bagel bakeries is based upon franchise documents
entered into between DFW and Bruegger's. The principal documents are a
Development Agreement dated as of January 1, 1995 and amended in April 1997,
November 1997 and May 1998 and franchise agreements pertaining to each existing
bagel bakery.
The Development Agreement, as amended, gives DFW the right to construct,
own and operate bagel bakeries in the counties of Tarrant and Dallas, Texas and
certain areas immediately north of the City of Dallas, including the City of
Plano, Texas (the "Development Area"). The Development Agreement grants DFW the
exclusive right and obligation to develop thirty bagel bakeries within the
Development Area by July 1, 2002 on the following schedule:
<TABLE>
<CAPTION>
Minimum number
of bagel bakeries
DFW must have in
Deadline operation by deadline
------------------------------------------------------------
<S> <C>
July 1, 1996 4
August 1, 1998 8
September 1, 1998 9
July 1, 1999 14
July 1, 2000 19
July 1, 2001 24
July 1, 2002 30
</TABLE>
22
<PAGE>
DFW is to choose the sites for the bagel bakeries at its sole expense but
must seek site approval from Bruegger's in writing prior to beginning
construction. The Development Agreement also defines the relationship of DFW to
Bruegger's as that of independent contractor and states that none of the rights
granted therein may be assigned or otherwise transferred. In addition, Premium
Restaurant Company, agreed that any sales of its interest in DFW shall be
subject to a right of first refusal and prior written consent by Bruegger's.
Bruegger's has additional rights to acquire equity securities of Premium
Restaurant Company if Premium Restaurant Company's stock ceases to be publicly
traded.
The Development Agreement may be renewed in one year increments after the
initial term if DFW continues opening bagel bakeries at the rate of three per
year. After five years of renewals, however, DFW is obligated to open only one
bagel bakery per year.
The Development Agreement gives DFW the exclusive right to operate bagel
bakeries in the Development Area. The Development Agreement provides, however,
that certain Bruegger's specialty products (specifically cheese spreads and
related products) may be distributed by a third party through supermarkets,
delicatessens, specialty food stores, convenience stores, and other wholesale
and retail food stores within the Development Area, but in such event DFW has a
right to act as distributor.
The Development Agreement provides that if DFW breaches any term of the
agreement, Bruegger's has the right to terminate the agreement.
The Development Agreement provides that DFW and Bruegger's will enter into
a predetermined franchise agreement for each bagel bakery opened by DFW. Each
franchise agreement grants DFW the right to establish and operate the particular
bagel bakery and to use the Bruegger's system and various trademarks. The
franchise agreement designates the locations approved pursuant to the
Development Agreement as the exclusive sites for the operation of the bagel
bakeries. Under the terms of the franchise agreement, Bruegger's agrees to
provide DFW with operation assistance, layout as well as manuals, training and
annual audits. The franchise agreement also states that Bruegger's may at its
discretion establish an Advertising Cooperative (the "Coop") for certain
geographic areas and that if DFW operates a bagel bakery within such area it
must immediately become a member of the Coop. DFW's duties under the franchise
agreement include constructing bagel bakeries at its own expense from
pre-approved plans and sending new managers to Bruegger's training program. DFW
also agrees that its bagel bakeries will strictly conform to Bruegger's methods,
such as its core products, management of the business, fixtures, furnishings,
and maintenance, and that it will keep confidential the Operations and Bagel
Production Manuals provided it. In consideration of the rights granted it, DFW
is obligated to pay certain franchise and other fees to Bruegger's. Each
franchise agreement has a term of twenty years and may be renewed in ten year
increments. If DFW chooses to renew, the terms of the franchise agreement will
change to whatever terms are being offered new franchisees at the time of
renewal.
RELIANCE ON COMMISSARY OF BRUEGGER'S
Currently, the Company obtains its shaped bagel dough, as well as other
food supplies from a commissary owned by Bruegger's. While the current
arrangement represents the most cost effective way of obtaining bagel dough and
other supplies, the closing of the commissary or the inability of the Company to
receive its supplies from the commissary, would have a severe and immediate
impact on the continuation of the Company's business in the Dallas-Fort Worth
area. The Company expects to build its own commissary in calendar 1998.
FISCAL YEAR
The Company's fiscal year ends on the Sunday closest to June 30 of each
year. Therefore, the Company's fiscal years are either 52 or 53 week periods.
SEASONALITY
The Company's full-service restaurant sales historically have been the
highest during the period from July through December. The Company's bagel
bakeries' highest sales have occurred during the period from September through
May.
23
<PAGE>
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 Minnesota and Wisconsin 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 bagel bakeries, 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 is represented in
the Company's Development Area as well as are 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 bagel
operations. This integration will allow the Company to provide its bagel
customers with a consistently high-quality product and to minimize
transportation and production costs.
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 expects to incur 4% of its projected fiscal 1998
full-service restaurant sales for advertising. Under the terms of the franchise
agreements with Bruegger's, the Company is required to spend approximately 2% 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 bagel bakeries currently existing in the franchise area, the majority
of the Company's efforts in this respect are directed to local store marketing
and direct mail. As part of its efforts to increase sales of its bagel
bakeries, the Company intends to spend between 4% and 5% of bagel bakery sales
for advertising in the near future. Television, radio or other wide coverage
advertising could 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
or bakeries. In some instances the Company may have to obtain zoning variances
and land use permits for its new restaurants or bakeries. 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
above, but related to, the minimum wage. Although the Company implemented a
menu-price increase at its full-service restaurants effective October 1, 1997 to
offset the September 1, 1997 minimum wage increase, additional increases in
24
<PAGE>
state or federal minimum wage requirements or changes in applicable state law
with respect to minimum wages for "tipped" employees may have an adverse impact
on the Company.
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.
"Bruegger's" and "Bruegger's Bagel Bakery" are trademarks of Bruegger's
Franchise Corporation. Under the terms of the Development Agreement, DFW has
the right to use all trademarks associated with the Bruegger's bagels franchise
in connection with the operation of bagel bakeries in the Dallas-Fort Worth
area.
EMPLOYEES
As of May 1, 1998 the Company employed approximately 625 persons,
including 5 corporate employees, 37 restaurant and bakery managers and assistant
managers, and 583 hourly restaurant and bakery employees. Hourly employees
comprise approximately 93% 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.
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 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 may lease
equipment in the future.
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 bagel bakeries generally run for either five
or ten years, and have an option to renew for one or two additional five year
terms. The existing leases provide for a fixed rent for the primary term in an
amount that varies with the location.
LEGAL PROCEEDINGS
The Company is not subject to any pending legal proceedings.
25
<PAGE>
CERTAIN TRANSACTIONS
On April 9, 1998, L.E. "Dan" Danford, Jr., the Chairman of the Board of
Directors of the Company, purchased 400,000 Units in this Offering. In
addition, in order to finance certain working capital requirements, during the
period of June 1997 through August 1997, the Company borrowed $400,000 from L.E.
"Dan" Danford, Jr., pursuant to an unsecured 10.5% Promissory Note that is
payable on December 31, 1998. The Company anticipates that it may be necessary
for it to borrow additional funds from Mr. Danford in the future. There are,
however, no guarantees that funds will be available from Mr. Danford when needed
by the Company. The Company believes that the terms of the transactions with
Mr. Danford were no less favorable to the Company than would have been obtained
from an unaffiliated third party for similar transactions. All future material
affiliated transactions and loans will be made or entered into on terms that are
no less favorable to the Company than those that can be obtained from
unaffiliated parties. In addition, all future material affiliated transactions
and loans will be approved by a majority of the Company's independent directors
who do not have an interest in the transactions.
DESCRIPTION OF SECURITIES AND TERMS OF OFFERING
PLAN OF DISTRIBUTION
These Units are being sold by the Company's officers and directors. In
addition, subject to NASD approval, the Company intends to offer these Units
through one or more broker-dealers, including Protective Securities Group
Corporation in the state of Texas, and in such other states as the Company may
register. The Company may grant to broker-dealers it retains warrants to
purchase 10% of the securities sold by such broker-dealers and may agree to
indemnify the broker-dealers under the Securities Act of 1933, as amended.
Through April 9, 1998, the Company had achieved the minimum 480,000 Units
($600,000), and all proceeds therefrom were released from the Company's Escrow
Account at Norwest Bank Minnesota, N.A, on April 14, 1998. Through May 3, 1998,
the Company had sold 743,100 Units ($928,875).
UNITS
Each Unit offered hereby consists of one share of Common Stock, $.01 par
value, and one Warrant to purchase one share of Common Stock. The Common Stock
and Warrants are detachable and separately transferable immediately.
COMMON STOCK
The Company's authorized capital stock consists of 10,000,000 shares of
Common Stock, $.01 par value, of which 742,819 shares were outstanding at
February 2, 1998 prior to the commencement of this Offering. As of May 3, 1998,
the Company had 1,485,919 shares of its Common Stock outstanding.
Holders of Common Stock are entitled to receive such dividends as are
declared by the Board of Directors of the Company out of funds legally available
for the payment of dividends. The Company expects to retain any earnings to
finance the development of its business. Accordingly, the Company does not
anticipate payment of any dividends on the Common Stock for the foreseeable
future. In the event of any liquidation, dissolution or winding-up of the
Company, the holders of Common Stock will be entitled to receive a pro rata
share of the net assets of the Company remaining after payment or provision for
payment of the debts and other liabilities of the Company.
Holders of Common Stock are entitled to one vote per share in all matters
to be voted upon by shareholders. There is no cumulative voting for the
election of directors, which means that the holders of shares entitled to
exercise more than 50% of the voting rights in the election of directors are
able to elect all of the directors. Holders of Common Stock have no preemptive
rights to subscribe for to purchase any additional shares of Common Stock or
other obligations convertible into shares of Common Stock which may hereafter be
issued by the Company.
All of the outstanding shares of Common Stock are, and the shares included
in the Units to be sold pursuant to this Offering will be, fully paid and
non-assessable. Holders of Common Stock of the Company are not liable for
further calls or assessments.
26
<PAGE>
WARRANTS
WARRANT AGREEMENT
The Warrants included as part of the Units offered hereby will be issued
under and governed by the provisions of the Warrant Agreement between the
Company and Norwest Bank Minnesota, National Association, as Warrant Agent. A
copy of the Warrant Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The following statements are
summaries of certain provisions contained therein, are not complete, and are
qualified in their entirety by reference to the Warrant Agreement.
The shares of Common Stock and the Warrants offered as part of the Units
are detachable and separately transferrable immediately for issuance. One
Warrant entitles the holder ("Warrantholder") thereof to purchase one share of
Common Stock through March 31, 2000. Each Warrant will be exercisable at a
price equal to $1.875 per share, subject to adjustment in certain circumstances.
Beginning January 1, 1999, the Warrants are redeemable, in whole, by the Company
at a redemption price of $.05 per Warrant on not less than 30 days written
notice, provided that the market price of the Common Stock exceeds $3.50 per
share (subject to adjustment) for any 20 consecutive trading days within 15 days
prior to such notice. "Market price" shall mean (i) if the Common Stock is
listed or admitted to unlisted trading privileges, the last reported sale price
of the Common Stock on such exchange on the last business day prior to the date
of exercise, or if no such sale is made on such day, the average of the closing
bid and asked prices for such day on such exchange, or (ii) if the Common Stock
is not so listed or admitted, the mean of the last reported bid and asked prices
reported by the Nasdaq OTC Bulletin Board on the last business day prior to the
date of exercise, or (iii) if the Common Stock is not so listed, admitted or
reported, an amount determined in such reasonable manner as may be prescribed by
the Board of Directors of the Company. Holders of Warrants may exercise their
rights until the close of business on the date fixed for redemption, unless
extended by the Company.
Warrantholders as such are not entitled to vote, receive dividends, or
exercise any of the rights of holders of shares of Common Stock for any purpose
until such Warrants have been duly exercised and payment of the purchase price
has been made. The Warrants are in registered form and may be presented for
transfer, exchange, or exercise at the corporate office of the Warrant Agent.
There is currently no established market for the Warrants, and there is no
assurance that any such market will develop.
The Warrant Agreement provides for adjustment of the exercise price and the
number of shares of Common Stock purchasable upon exercise of the Warrants to
protect Warrantholders against dilution in certain events, including stock
dividends, stock splits, reclassification and any combination of Common Stock,
or the merger, consolidation or disposition of substantially all the assets of
the Company.
REGISTRATION
The Company has sufficient shares of Common Stock authorized and reserved
for issuance upon exercise of the Warrants, and such shares when issued will be
fully paid and non-assessable. The Company must have a current registration
statement on file with the Securities and Exchange Commission and, unless exempt
therefrom, with the securities commission of the state in which the
Warrantholder resides in order for the Warrantholder to exercise his or her
Warrants and obtain shares of Common Stock free of any transfer restrictions.
The shares so reserved for issuance upon exercise of the Warrants are registered
pursuant to the Registration Statement for which this Prospectus is a part.
Furthermore, the Company has agreed to use its best efforts to maintain an
effective registration statement (by filing any necessary post-effective
amendments or supplements to the Registration Statement) throughout the term of
the Warrants with respect to the shares of Common Stock issuable upon exercise
thereof. The Company will incur significant legal and other related expenses in
order to keep such registration statement current. There can be no assurance,
however, that the Company will be able to keep any such registration statement
current or that such registration statement will be effective at the time the
Warrantholder desires to exercise his or her Warrants. Additionally, the
Company has agreed to use its best efforts to maintain qualifications in those
jurisdictions where the Units were originally qualified for sale to permit
exercise of the Warrants and issuance of shares of Common Stock upon such
exercise. However, there can be no assurance that any such qualification will
be effective at the time the Warrantholder desires to exercise his or her
Warrants. If for any reason the Company's Registration Statement is not kept
current, or if the Company is unable to qualify its Common Stock underlying the
Warrants for sale in particular states, Warrantholders in those states will,
absent an applicable exemption, have no choice but to either sell such Warrants
or let them expire.
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EXERCISE
The Warrants may be exercised upon surrender of the certificate therefore
on or prior to the expiration date (or earlier redemption date) at the offices
of the Company's Warrant Agent, with the "Purchase Form" on the reverse side of
the certificate filled out and executed as indicated, accompanied by payment of
the full exercise price (by certified or cashier's check payable to the order of
the Company) for the number of Warrants being exercised.
For the term of the Warrants, the Warrantholders are given the opportunity
to profit from a rise in the market price of the Company's Common Stock with a
resulting dilution in the interest of the Company's shareholders. During such
term, the Company may be deprived of opportunities to sell additional equity
securities at a favorable price. The Warrantholders may be expected to exercise
their Warrants at a time when the Company would, in all likelihood, be able to
obtain equity capital by a sale or a new offering on terms more favorable to the
Company than the terms of the Warrants.
TAX CONSIDERATIONS
The cost of each Unit will be allocable between each of its two elements
(one share of Common Stock and one Warrant) in accordance with their relative
fair market value to determine the adjusted basis of each element for federal
income tax purposes. No gain or loss will be recognized by a holder of a
Warrant upon purchase of Common Stock for cash pursuant to the exercise of the
Warrant. The adjusted basis of a share of Common Stock so acquired will equal
the adjusted basis of the Warrant plus the exercise price. There may be other
federal tax considerations, and state, local or foreign tax considerations.
Investors should consult their own tax advisors before determining whether to
purchase the Units or exercise the Warrants.
INDEMNIFICATION AND WAIVER OF DIRECTOR LIABILITY
The Minnesota Business Corporation Act provides that officers and directors
of the Company have the right to indemnification from the Company for liability
arising out of certain actions. Such indemnification may be available for
liabilities arising in connection with this offering. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers or persons controlling the Company pursuant to
such indemnification provisions, the Company 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.
The Company has adopted in its Articles of Incorporation a provision which
limits personal liability for breach of the fiduciary duty of its directors, to
the extent provided 302A.251 of the Minnesota Business Corporation Act. Such
provision eliminates the personal liability of directors for damages occasioned
by breach of fiduciary duty, except for liability based on a breach of the
director's duty of loyalty to the Company, liability for acts or omissions not
made in good faith, liability for acts or omissions involving intentional
misconduct, liability based on payments of improper dividends, liability based
on violations of state securities laws and liability for acts occurring prior to
the date such provision was added.
Section 302A.521 of the Minnesota Business Corporation Act provides that a
Minnesota business corporation shall indemnify any director, officer, employee
or agent of the corporation made or threatened to be made a party to a
proceeding, by reason of the former or present official capacity (as defined
therein) of the person, against judgments, penalties, fines, settlements and
reasonable expenses incurred by the person in connection with the proceeding if
certain statutory standards are met. "Proceeding" means a threatened, pending
or completed civil, criminal, administrative, arbitration or investigative
proceeding, including one by or in the right of the Company. Article IX of the
Company's By-Laws provides that the Company shall indemnify persons to the
fullest extent permissible by the Minnesota Corporation Act. Section 302A.521
contains detailed terms regarding such right of indemnification and reference is
made thereto for a complete statement of such indemnification rights.
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LIMITATION ON PURCHASES
In connection with the execution of a Settlement Agreement dated as of
April 23, 1997, the Company and Bruegger's agreed that Bruegger's would have no
right of consent for certain issuances of securities by Ciatti's, including any
issuance of securities by Premium Restaurant Company (i) if the issuance does
not result in the acquisition of over 40% of the voting power of any class of
securities of Premium Restaurant Company after the completion of the issuance by
any shareholder (other than Phillip R. Danford or L.E. "Dan" Danford, Jr.) who
previously held less than 40% of the voting power of such securities and (ii)
such issuance does not result in Phillip R. Danford and L.E. "Dan" Danford, Jr.
collectively owning less than 10% of the voting power of all classes of
securities of Premium Restaurant Company. In order to ensure that no
shareholder (other than Phillip R. Danford or L.E. "Dan" Danford, Jr.) acquires
more than 40% of the Company's Common Stock as a result of this Offering, the
Company will have the right to reject any subscription if, in the Company's
judgment, such purchase will violate the provisions of the Development
Agreement, as amended.
AGREEMENTS WITH BROKER-DEALERS
Although the Company intends to continue to sell directly through its
officers and directors, the Company may enter into agreements with one or more
broker-dealers under which the broker-dealers will sell the Units in various
states. The Company has made a filing with the National Association of
Securities Dealers ("NASD") Corporate Financing Department for NASD review of
the Company's proposed payment of compensation to broker-dealers. No
compensation will be paid until the NASD advises the Company that the proposed
compensation is not unfair and unreasonable. On April 2, 1998, the Company had
entered into a Placement of Securities Agreement (the "Placement Agreement")
with Protective Group Securities Corporation ("Protective") for the state of
Texas. Under the terms of the Placement Agreement, the Company agreed to pay a
maximum cash commission of 10% of all proceeds generated by Protective.
Protective will purchase at a nominal price a five-year warrant from the Company
to purchase the number of shares of the Company's Common Stock equal to ten
percent (10%) of all Unit sales generated by Protective. In addition,
Protective will receive a non-accountable expense allowance for sales-related
expenses equal to three percent (3%) of all proceeds generated by Protective.
Except as set forth in the proposed Placement Agreement and the Registration
Statement, there is no provision for reimbursement of any of Protective's
expenses, including fees and expenses from Protective's counsel, financial
consulting or advisory fees or finder's fees or any other compensation that may
accrue to Protective or related person of any Protective in connection with the
Offering. The Placement Agreement provides that the Company will pay the costs
and expenses (including attorneys' fees) incurred in connection with state
securities/Blue Sky matters.
LEGAL MATTERS
The validity of the shares of Common Stock contained in the Units being
offered hereby will be passed upon by Lindquist & Vennum P.L.L.P., 4200 IDS
Center, Minneapolis, Minnesota 55402.
EXPERTS
The Company's consolidated financial statements as of June 29, 1997 and for
the fifty-two weeks ended June 29, 1997 and June 30, 1996, incorporated by
reference into this Prospectus, have been so incorporated in reliance upon the
report of Grant Thornton LLP, independent certified public accountants, given on
the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
Neither Bruegger's Franchise Corporation ("Bruegger's") nor any of its
parents, subsidiaries, affiliates, officers, directors, agents, employees,
accountants or attorneys are in any way participating in, approving or endorsing
this Offering of securities by the Company, any of the offering or accounting
procedures used in the Prospectus, or any representations made in connection
with the Offering. The grant by Bruegger's of any franchise or other rights to
Premium Restaurant Company or DFW is not intended as, and should not be
interpreted as, an express or implied approval, endorsement or adoption of any
statement regarding financial or other performance which may be contained in
this Prospectus. Any review by Bruegger's of this Prospectus or the information
included in this Prospectus has been conducted solely for the benefit of
Bruegger's to determine conformance with Bruegger's internal policies, and not
to benefit or protect any other person. No investor should interpret any such
review by Bruegger's or the use and display
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of any of Bruegger's logos, trademarks or service marks herein as approval,
endorsement, acceptance or adoption of any representation, warranty or covenant
contained in the materials reviewed. The enforcement or waiver of any
obligation of Premium Restaurant Company or DFW under any agreement between
Premium Restaurant Company or DFW and Bruegger's or any of Bruegger's affiliates
is a matter of Bruegger's or its affiliates' sole discretion. No investor
should rely on any representation, assumption or belief that Bruegger's or its
affiliates will enforce or waive particular obligations of Premium Restaurant
Company or DFW under such agreements.
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 Seven 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 has filed with the Commission a Registration Statement on Form
S-2 under the Securities Act of 1933, as amended, with respect to the Units
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. 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 documents which have been filed by the Company with the
Commission (File No. 0-16348), are incorporated by reference in this Prospectus
(i) the Company's Annual Report on Form 10-KSB for the fifty-two weeks ended
June 29, 1997 and (ii) the Company's Quarterly Reports on Form 10-QSB for the
quarters ended September 28, 1997, December 28, 1997 and March 29, 1998. The
Company's Annual Report for the fifty-two weeks ended June 29, 1997 and the Form
10-QSB for the quarter ended March 29, 1998 are being delivered to investors
concurrently with this Prospectus.
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).
Requests for such copies should be directed to Scott P. McGuire, Premium
Restaurant Company, 5555 West 78th Street, Edina, Minnesota 55439-2702.
Telephone requests may be directed to (612) 941-0108, extension 205.
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NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR A PROSPECTUS SUPPLEMENT, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THE DELIVERY OF THIS PROSPECTUS OF A PROSPECTUS
SUPPLEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE UNITS OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE UNITS OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR A PROSPECTUS
SUPPLEMENT NOR ANY SALE MADE THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
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Page
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Prospectus Summary . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . 5
Use of Proceeds. . . . . . . . . . . . . . . . . . 9
Price Range of Common Stock and
Dividend Policy. . . . . . . . . . . . . . . . 10
Selected Consolidated Financial Data . . . . . . . 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . 12
Business . . . . . . . . . . . . . . . . . . . . . 19
Certain Transactions . . . . . . . . . . . . . . . 26
Description of Securities and Terms
of Offering. . . . . . . . . . . . . . . . . . 26
Legal Matters. . . . . . . . . . . . . . . . . . . 29
Experts. . . . . . . . . . . . . . . . . . . . . . 29
Additional Information . . . . . . . . . . . . . . 29
Available Information. . . . . . . . . . . . . . . 30
Incorporation of Certain Documents by
Reference. . . . . . . . . . . . . . . . . . . 30
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PREMIUM RESTAURANT COMPANY
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PROSPECTUS
May 26, 1998
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